MG Properties Adds Pair of East Bay Apartment Buildings

SAN FRANCISCO-MG Properties of San Diego has picked up a pair of East Bay multifamily properties for $28.25 million. The company paid $19.5 million for Briarwood at Central Park, a 160-unit garden-style complex in Fremont and $8.75 million for Garden View Apartments, a 93-unit garden-style property in San Leandro. As with most of the other 3,000 units the company has acquired in the past two years, MG vice president of acquisitions Justin Smith tells GlobeSt.com the plan is to stabilize the two properties and hold them long term.Briarwood is a 7.2-acre, 10-building development completed in 1978 and refurbished in 2000. It consists of 24 studio units, 52 one-bedroom/one-bath units, 36 two-bedroom/one-bath units and 48 two-bedroom/two-bath units. Amenities include a heated swimming pool, clubhouse and on-site laundry facilities. MG intends to invest significant capital with irrigation and landscape upgrades, exterior refurbishments and select unit interior refurbishments. Vacancy in the property was about 10% at the time of the sale. Stan Jones and Sal Saglimbeni of Marcus & Millichap represented the seller, Fairfield Residential. The acquisition was financed with a loan provided by Freddie Mac (Sierra Capital). The equity in the deal included 1031 exchange money from the sale of Woodlands Townhomes in San Diego. Fairfield acquired the property at the peak of the market (1999), after which many apartment owners saw cash flow fall for three straight years. Smith tells GlobeSt.com that MG tied it up after the property had been on the market for nine months and in and out of escrow with a couple of different buyers. The purchase price equates to a 50% discount to new construction and mid-4% cap rate.”But we think quickly–in nine months time–we can get it up to a 5.25% cap rate, and we’re seeing market upside in Fremont in two or three years,” he says. “We also locked in a 4.78% loan that will give us positive cash-on-cash when stabilized.”Garden View is a four building, 2.16-acre property completed in two phases in the mid-1960s. It consists of two studio units, 60 one-bedroom/one-bath units and 31 two-bedroom/1-bath units. Amenities include carports, a swimming pool, and either decks or fenced yards. MG intends to re-landscape the property, add a “tot lot” and refurbish the unit interiors and leasing center.The acquisition was financed with a loan provided by California Bank & Trust. The equity included 1031 exchange proceeds from MG’s recent sale of the 55th Street Apartments in San Diego. William Huberty of CB Richard Ellis represented MG in the transaction; Colin MacKenzie represented the seller, Garden View Apartments LLC. Smith tells GlobeSt.com the going-in cap rate on this is also south of 5% but expects to see that rise to between 6.5% and 7% within 12 to 15 months. “It’s a good infill location in a b-/c+ neighborhood that is beginning to attract new investment,” he says. “Once stabilized, we’ll lock in a fixed rate, cash flow it and hold it for 10 years.”As for its investor partners in the acquisitions, Smith says the goal is to have their IRR be in the 15% to 16% range based on a five- or six-year hold. If the investor wants out at that time, the plan is that MG will have enough equity in the project to cash them out and continue to hold the property for another four or five years. The two acquisitions are MG’s second and third Bay Area acquisitions. Its first acquisition in the region came last summer, when it paid $51 million for the 410-unit Arches apartment community in Sunnyvale. Over the past two years, MG principal Mark Gleiberman says the company and its related entities have acquired 3,000 apartments for a total cost of $244 million in Southern California, Northern California, Seattle and Phoenix. The company’s portfolio now tops 5,800 units. Gleiberman plans for his partnerships to acquire $150 million to $200 million in additional apartment properties during the next 12 to 18 months.