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Tuesday, Jul 23, 2024

Four Local Complexes Trade for $413M; Falling Per-Unit Prices, Debt Assumptions

After a slow start to 2023, Orange County’s multifamily market is seeing more interest from investors, who paid a combined $413 million across four separate deals in Laguna Niguel, Santa Ana, Huntington Beach and Placentia the past month.

That said, pricing for the deals suggests buyers’ valuations for higher-end properties in the area have fallen of late, with per-unit prices in one case running nearly $100,000 less than what was seen during the peak of the pandemic.

A pair of the sales also involved the assumptions of loans tied to properties that were made under far more favorable interest rate terms, according to property records.

In the largest of the four deals, Broadstone Cavora, a 384-unit complex in Laguna Niguel, traded hands for $153 million. That sale marks the largest reported apartment sale this year for OC.

Other recent deals include a $103 million acquisition in Santa Ana by Los Angeles-based TruAmerica Multifamily; a $96 million purchase in Huntington Beach for Irvine-based Advanced Real Estate Services; and a $63.2 million acquisition in Placentia from LA-based Gelt Venture Partners.

“Everyone is working to get deals done. Both buyers and sellers are getting creative on the debt side with buyers assuming existing loans or sellers carrying back financing,” CBRE Executive Vice President Dan Blackwell told the Business Journal.

First OC Complex

Broadstone Cavora, at 26033 Cape Drive, sold to Los Angeles-based apartment operator IMT Residential for $153 million, or around $440,000 per unit.

The acquisition is IMT’s first in OC; the company currently manages over 50 complexes, totaling more than 17,000 residential units across nine U.S. states.

“The state of California has consistently proven to be a favorable region for IMT Residential,” VP Joseph Elhabr said in a statement.

Broadstone Cavora, now-renamed IMT Laguna Niguel, is just west of the Santa Ana (5) Freeway, near Crown Valley Parkway, a few blocks from The Shops at Mission Viejo.

The complex was built in 2017, alongside several other multifamily developments that helped transform a once-largely commercial 315-acre spot in the city into one of the most active residential development areas in South OC in recent years.

The city approved nearly 3,000 residential units for the area over a decade ago.

The $440,000 per-unit price for IMT Laguna Niguel falls well short of the adjacent 299-unit Vilara Apartments, which Virtú Investments bought in 2021 for $163 million, or for about $545,000 per unit.

Santa Ana ‘Revitalization’

Like IMT’s recently acquired Laguna Niguel property, TruAmerica’s purchase in Santa Ana marks a return to buying in OC; it’s the first OC investment TruAmerica has made in five years.

The 264-unit complex, dubbed Nineteen01, sold for $103 million, or for about $390,000 per unit. The company acquired the 7-year-old property, at 1901 E. First St., in partnership with real estate investment management firm PCCP LLC.

The seller was Cadigan Communities, founded by the late local real estate investor Frank Cadigan. Cadigan, who died in 2020, bought the complex in 2019 for $98 million, not far off its latest reported sales price.

TruAmerica’s $103 million purchase price included the assumption of a loan from Cadigan Communities totaling about $60 million, according to property records.

“The city of Santa Ana is undergoing significant revitalization, including the development of the nearby Santa Ana Regional Transportation Center, a planned streetcar system and a proposed state-of-the-art soccer stadium,” TruAmerica CEO Robert Hart said in a statement.

“We believe this property fits nicely with the city’s plans for the future.”

1901 E. First St. is also near Santa Ana College, the state’s largest community college, the buyer noted.

The deal brings TruAmerica’s OC footprint to nearly 900 units. The company already owns about 700 units in the county.

Local Investor

Advanced Real Estate Services, also known as ARES, added a 264-unit complex in OC to its local portfolio.

The Irvine-based company this month acquired a Huntington Beach property, formerly known as Citron House, for a reported $96 million, or around $364,000 per unit. The complex at 7701 Warner Ave. will be renamed Surf House, with ARES planning a $7 million renovation.

The seller was TruAmerica, which paid $90.5 million for the complex in 2018, in its last big local purchase prior to the just-completed Nineteen01 deal.

As in the case of the Santa Ana transaction, the purchase price for the Surf City deal included the assumption of about $54 million in debt, according to property records.

The capital markets climate “is characterized by a 40-year high in inflation, interest rate levels not seen in two decades, and overall economic uncertainty,” a Colliers brokerage report indicates.

“Consequently, investors are expected to approach the market cautiously until the economy stabilizes.”

ARES plans to renovate the community with its in-house company, R3 Construction. Its in-house operator, Advanced Management Co., will run the complex.

“We only buy properties that are within reasonable driving distance of our Irvine headquarters so that we can ‘smother’ these assets with hands-on management,” the buyer said on its site.

Property Facelift

In another good-sized deal OC has seen over the past month, Gelt Venture bought a three-story, 125-unit multifamily complex in Placentia for $63 million, or about $504,000 per unit.

Gelt plans to invest about $3.25 million to upgrade the property, at 1500 Cherry St., which was built in 2012 and last sold for a reported $44 million in 2016.

The new owner will add kitchen islands, new cabinetry and other finishes to the individual units, while updating the complex’s pool and fitness center.

“With a historically high occupancy rate and a current vacancy of less than 4%, large unit sizes, and a dense infill location within a coveted school district, this asset is already a successful and distinguished community,” Gelt Partner Josh Satin said in a statement.

Gelt over the next year and a half aims to acquire up to $400 million in real estate in OC, LA, San Diego and other cities outside the state.

Slow Market

The sales come after a period of low transaction activity in OC’s rental market.

Multifamily property sales totaled $1.4 billion during the prior 12 months, down more than 60% from the prior year, according to data from real estate market tracker CoStar Group Inc.

Regional apartment sales volume is at its lowest point in nine years, according to CoStar’s data. That’s down largely to higher borrowing costs for investors.

“There has been a drop in transaction volume given cap rates are lower than interest rates, which has made it challenging to get many deals to pencil,” CBRE’s Blackwell said.

“Deal flow in Orange County reduced by roughly 50% year-over-year in the 12-month period ending in June,” notes a Marcus & Millichap report.

“Amid a conservative lending environment and higher interest rates, declines were comparable across price tranches.”

Despite this, Orange County “is still a healthy market with a lot of liquidity” from buyers and lenders alike, Blackwell notes.

OC’s high occupancy rates for apartments—now averaging about 96%—and a boost in new construction over the past five or so years should see the area outperform the market at large in terms of future sales, local real estate watchers believe.

“Orange County is a safe haven for investors, they feel good parking their money in multifamily real estate here,” Blackwell said.

The market is also getting a boost from a host of recently completed complexes that attract high-income renters.

“Orange County is home to the lowest luxury vacancy among major U.S. apartment markets, despite entering the second half of this year with an average Class A rent of roughly $3,000 per month,” according to Marcus & Millichap.

More new apartments are on the horizon, with 16 properties, or 5,570 units, currently under construction across OC, according to data from Matthews Real Estate Investment Services.

OC has the fourth-lowest vacancy rate out of the top 50 U.S. markets, according to Matthews. It’s the fifth most expensive major market in the U.S., with an average rent of $2,610 a month.

Its 12-month sales volume totals $1.6 billion, above the national average of $1.2 billion.

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Sonia Chung
Sonia Chung
Sonia Chung joined the Orange County Business Journal in 2021 as their Marketing Creative Director. In her role she creates all visual content as it relates to the marketing needs for the sales and events teams. Her responsibilities include the creation of marketing materials for six annual corporate events, weekly print advertisements, sales flyers in correspondence to the editorial calendar, social media graphics, PowerPoint presentation decks, e-blasts, and maintains the online presence for Orange County Business Journal’s corporate events.

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