Irvine Co. has sold an ultra-luxe apartment complex in Santa Monica, in what is among the largest reported sales for the Newport Beach real estate firm in its history, and a record sale for a larger rental property in California on a per-unit basis.
A venture headed by Douglas Emmett Inc. (NYSE: DEI), a large apartment investor in the Los Angeles area, paid $330 million for 1221 Ocean Avenue, a 120-unit Santa Monica apartment complex overlooking the beach that has counted celebrities and other high-end Hollywood types as residents over the years.
Rents average a sky-high $15,000 per month at the 16-story tower, records indicate.
The new owner has suggested it can significantly increase those rents going forward, and plans upgrades for the property.
The deal works out to about $2.75 million per unit. That marks the priciest apartment sale for a larger-sized California apartment deal, according to Peter Yorck, a managing director in the Los Angeles office of JLL who specializes in multifamily transactions.
The average Los Angeles multifamily sale price hovered around $370,000 per unit last year, according to Yardi Matrix.
The new owners, whose Santa Monica headquarters are steps away from the complex, think the price they paid—which also works out to about $1,800 per square foot—was well worth it.
The 1221 Ocean property “is one of the most prestigious and best-located multifamily assets on the West Coast with panoramic ocean views from every unit,” Douglas Emmett CEO Jordan Kaplan said during a May 4 earnings call.
Irvine Co. paid a reported $44.1 million for the property in 1998. It was the only real estate holding for the company in Santa Monica, and is about 7 miles from the real estate firm’s office holdings in West Los Angeles, the Westwood Gateway complex and the 34-story 2121 Avenue of the Stars tower, previously known as Fox Plaza.
The 251,000-square-foot rental tower overlooks the Pacific Coast Highway and fronts the Santa Monica state beach; the city’s famed pier is a few blocks south.
Just as the property’s tenant roster counts high profile individuals—a 2017 NY Post article namechecked Britney Spears, Larry David and Michelle Pfeiffer as one-time renters—so too does the building’s development team: it was constructed in 1969 by a venture led by band leader and television host Lawrence Welk.
The property is 98% leased and counts both short-term and longtime residents, with one-, two- and three-bedroom floorplans available. The average unit size is 1,500 square feet, while top-floor penthouse units run between 1,679 to 2,288 square feet.
A two-bedroom unit spanning 1,480 square feet runs about $17,500 per month, according to residential data website Zillow.com.
With that price, renters get units with finishes that range from high-end appliances to walk-in closets and private balconies with ocean views. Amenities are intended to give the apartment a “private resort” feel, according to marketing materials, with a rooftop pool and private lounge; al fresco dining; state-of-the-art fitness center; and business lounge.
Resident services include dry cleaning, private valet, car cleaning and detailing and round-the-clock concierge services.
The sale is a rare one for Irvine Co., though it has made other notable deals of late.
In February it sold the shuttered Fashion Island Hotel in Newport Beach for $143.6 million. The deal works out to a price of about $487,000 per room for the 295-room property, which next year will reopen as the Pendry Newport Beach under its new ownership (see page 28).
Another sale is expected for Irvine Co.’s 536-unit Hotel Irvine later this year. That property’s also been shuttered since the onset of the pandemic.
The real estate firm’s apartment dispositions over the past decade or so have largely been focused on older—and far less glamorous—low-rise properties.
Its last reported local apartment sale was in 2018, with the $23.3 million sale of the Mariner Square apartment complex, a now-demolished 114-unit rental community near the intersection of Irvine Boulevard and Westcliff Drive, along the Newport Beach and Costa Mesa city line.
That site has been redeveloped into a 92-townhome project called Mariner Shores.
Following the sale of 1221 Ocean, Irvine Co. now counts just one apartment project in Los Angeles, the 1,500-unit Playa Vista complex, which includes three apartment properties dubbed Montecito, Malibu and Sausalito. The West LA project opened in 2015 and 2016.
Irvine Co.’s companywide apartment portfolio includes around 65,000 units across 125 properties in California, the majority of which are in OC. It counts other projects in San Diego and Northern California. It’s the largest apartment owner in both Orange County and the state.
The company declined to comment on the Santa Monica sale.
Douglas Emmett has about 4,500 multifamily units companywide, and sported a $5.6 billion market value as of last week. It also owns offices.
It closed on the acquisition on April 26 through a joint venture with an undisclosed partner; Douglas Emmett owns 55% of that venture, regulatory filings indicate.
The venture partially financed the deal with a $175 million loan, filings indicate.
It plans to continue a “major renovation project” at 1221 Ocean that will include significant room and common area upgrades, the company said in this month’s earnings call.
Douglas Emmett’s multifamily portfolio is nearly 100% occupied. The company said it will continue to target higher-end rental transactions in 2022 as rents continue to surge across the nation.
“All the way across our portfolio, both in office and residential, we’re targeting the high end, and this was a fantastic fit for us,” Kaplan said of the Santa Monica acquisition. “All the moves we’ve made have been to have the highest and the most premium residential and office portfolio.”
Speaking of the new Santa Monica buy, Kaplan said that “rents have just moved up very quickly.”
“Deals that were done during the pandemic or earlier are pretty far off the market of where current rents are,” he told analysts.
“That’s why there’s such a meaningful spread between the going-in cap [rate] and what I would call the stabilized cap.”