Capping another strong year for apartment transactions, two Orange County apartment complexes have changed hands, including one in Irvine that sold for $90 million, one of the highest prices ever for a local rental property.
Equity Residential Properties Trust, which owns apartment buildings across the U.S., said Friday it bought the 563-unit Toscana Apartments from Prudential Real Estate Group for $90 million, or $159,860 per unit.
The price per unit is higher than any other large complex sold in recent years, according to Marcus & Millichap Real Estate Investment Brokerage Co. in Palo Alto.
In another major transaction this week, BRE Properties Inc. snapped up the 308-unit Cortesia complex in Rancho Santa Margarita from Denver developer Amstar Group Ltd. for $38.5 million, or $125,000 per unit--also well above the average sale for the year.
With rents spiraling to record highs in Orange County and opportunities for developing new complexes limited, investors have been willing to pay premium prices for apartment complexes.
"People are buying what they can and, in most cases, are paying quite a bit for it," said Brian Abernethy, research director at Marcus & Millichap's Irvine office.
Through November, 191 apartment buildings were sold in Orange County, averaging a record $81,404 per unit, according to the investment brokerage.
Roger Fiola, BRE's director of acquisitions in Southern California, said the county's strong economy, low vacancy rates and lack of new apartments should push rents higher for the next few years.
Orange County rents last year surged 10% to $1,086, the largest percentage gain in at least 15 years, and the countywide vacancy rate has shrunk to about 2%, according to Research Network Ltd. in Rancho Santa Margarita.
At Toscana, one of the few Irvine complexes not owned by the Irvine Co., rents are among the highest in Orange County, ranging from about $1,125 to $1,850 a month. Virtually all of the units are occupied, but Residential Equity executives couldn't provide a specific vacancy figure.
Rents at Cortesia, which was built last year, range from $950 to $1,700, and the complex has a vacancy rate of less than 4%.
BRE, a San Francisco real estate investment trust, plans to add microwaves, washers and dryers, and other upgrades to some units.
In the last four months, Amstar has sold four apartment complexes, including the Rancho Santa Margarita property and a site in Santa Ana, for a combined $135 million. Amstar plans to develop other residential communities in Southern California, as well as other tight rental markets in the U.S., said Brad Broyhill, Amstar's executive director.
Despite the large number of apartment sales this year, the total value is expected to fall short of the record $870 million in 1998, when more premium properties changed hands, Abernethy said.
The total will probably be closer to last year's volume of $676 million, when developers turned to buying smaller buildings, boosting rents after making upgrades.
Analysts said the market in coming months will continue to favor owners rather than renters.
"The demand far exceeds supply, and the equation is getting worse," said Raymond W. Eldridge III, a CB Richard Ellis senior vice president who represented the buyer and seller in the Toscana and Cortesia transactions, along with his partner, Joe Leon.
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Raising the Roof
The five highest-priced apartment complex sales in Orange County:
Rank, Development Location Units Price/Unit Escrow 1) Toscana Irvine 563 $159,858 Dec. '00 2) The Lakes at So. Coast South Coast Metro 770 $149,091 Nov. '98 3) Cascades Anaheim Hills 292 $143,836 Sept. '00 4) Harbour Gateway Huntington Beach 102 $134,510 Aug. '00 5) Simpson Portfolio* Laguna Niguel/ Foothill Ranch 794 $131,612 Dec. '00
* Niguel Summit, Seaview Summit and Hidden Hills in Laguna Niguel, Paloma Summit in Foothill Ranch
Source: CB Richard Ellis