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Irvine’s Rental Market Pulls in PacLife, Others

Trio of October Deals Total $400M+ in sales Volume

The rising interest rate environment hasn’t kept investors from betting big on Orange County’s multifamily market, especially in Irvine, where a trio of apartments traded hands last month for a total sales volume topping $400 million.

The fervor appears to have extended to one of Orange County’s largest private firms, Pacific Life Insurance Co., which added to its local commercial real estate footprint through a $155 million deal last month.

Property records indicate a venture backed by the Newport Beach insurance company spent nearly $554,000 per unit for the Fusion apartment complex, a 280-unit property in the Irvine Business Complex near the intersection of Jamboree Road and McGaw Avenue, and about a block from the Diamond Jamboree shopping center.

It was the second largest of the three Irvine rental complex deals last month, trailing a $190 million sale for a 363-unit apartment complex, also in the IBC.

Elsewhere in the city, a 165-unit, older apartment complex dubbed Woodbridge Manor sold for $70 million.

The three transactions work out to a sales volume of $415 million (see listing, page 20).

Changing Environment

“We’ve seen a 150-basis point increase in interest rates since August, so in general, there’s a bit of a pause as investors await the Federal Reserve’s next move,” Chris Benton, senior managing director for Newmark’s multifamily capital markets group, told the Business Journal in late October.

“However, Orange County is still drawing a lot of attention from institutional capital, and that’s not going away.”

He noted that multifamily sales volume in Orange County is on track to surpass last year’s record volume of $3.3 billion, which was nearly double the prior record of $1.7 billion seen in 2017.

Fusion

Pacific Life invests in a variety of commercial real estate property types through its equity business line, though the firm has a focus on multifamily properties. It hasn’t been reported to have acquired any sizeable OC properties in over a decade.

It acquired the Fusion apartments from a group headed by Texas apartment investment and property management firm Olympus Property, which counts an acquisitions office in Newport Beach at Newport Center.

A venture backed by Olympus paid $118.5 million for the apartment complex at 17321 Murphy Ave. in 2018, shortly after the property delivered. The developer, Atlanta-based 360 Residential, kicked off construction in 2015.

That sale marked a record for multifamily transactions in 2018; last month’s sale price marks a 31% premium.

The five-story building counts studio, one- and two-bedroom units for an average of 795 square feet. Studio units at the complex start around $2,700 a month, while two-bedroom units can run nearly $5,000 on a monthly basis, according to Olympus Properties’ website.

Olympus Property has retained a stake in the Irvine complex via a joint venture with Pacific Life listed in public records as Fusion Mf Venture LLC.

Rize Irvine

About a mile from Fusion, the Rize Irvine Apartments complex sold last month for $190 million, or about $523,000 per unit, in a 1031 exchange transaction.

It’s the third priciest apartment complex sale for Orange County year-to-date, and the fourth priciest since the onset of the pandemic in March 2020, according to records from CoStar Group Inc.

Records indicate an entity affiliated with Park City-based Investment Property Group (IPG) bought the property from the San Diego office of CalSTRS, or The California State Teachers’ Retirement System.

IPG owns and operates more than 150 manufactured home, multifamily and RV communities throughout the United States, including sites in Costa Mesa, Huntington Beach, Garden Grove and Westminster.

Like Fusion, the Rize apartments delivered in 2018 by Brookfield Asset Management; CalSTRS acquired the property in 2019 as part of a 72-property portfolio acquisition.

The five-story building is near the intersection of Alton Parkway and Von Karman Avenue; it counts studio to three-bedroom apartments from 597 to 1,382 square feet with rents from $2,655 to around $4,000.

The top apartment transaction of this year, and since the onset of the pandemic, occurred over the summer with the $283.5 million sale of the Madison Park apartments, a 768-unit apartment complex in Anaheim. That complex traded for around $369,000 a unit.

Woodbridge Manor

In the third large Irvine apartment transaction of late, Santa Ana-based Innovative Housing Opportunities (IHO) sold its first project, Woodbridge Manor, for $70 million.

A venture headed by Chicago-based Ashland Capital Partners bought the 165-unit project at 29 Lake Road for a little more than $424,000 per unit. The acquisition is Ashland’s first in the state.

Fairstead, iimpact Capital, and Nuveen Real Estate were also involved in the acquisition.

“Woodbridge Manor is significant to IHO because it was our organization’s first project and also the first low-income housing complex ever created in Irvine,” IHO CEO and President Rochelle Mills said in a statement. “We are thrilled that these apartments will continue to serve in-need seniors, extending a legacy that IHO began in 1981.”

Woodbridge Manor, near Barranca Parkway and West Yale Loop, includes one-bedroom apartments designated affordable for seniors making up to 60% of the area median income, or up to $59,040 per year.

The complex includes three, three-story buildings that were built from 1981 to 2003; all were renovated in 2006.

Marcus & Millichap’s Affordable Housing Advisors represented IHO; Gerd Alexander of Paul Hastings and Laurie Grasso of Hunton Andrews Kurth advised the buyers.

Rising Rates

As the country faces additional boost of interest rate increases—some local banking executives expect two more before the end of the year—a pause in multifamily dealmaking may lead to a softening in pricing.

Thus, brokers are preparing for value-add opportunities.

“There will be a lot of acquisition opportunities next year,” Newmark’s Benton said.

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