In July 2005, it acquired Fox Plaza, an expandable 500,000-sf mixed-use development at Market and Polk streets in Downtown San Francisco for which it paid $147.5 million. In September 2005, it ventured a short ways down the Peninsula to San Bruno and acquired the 300-unit Meridian Luxury Apartments for $101.2 million. In April 2006, one month after picking up the 311-unit Avalon Cupertino in Cupertino, Archstone-Smith acquired another San Bruno property, the 185-unit Paragon Apartments, for $72.1 million.

Last month it acquired two more Bay Area properties. It paid $170 million for another San Francisco property, St. Francis Place, a 410-unit community with 25,000 sf of ground-floor retail including two upscale restaurants, a full-service salon and day spa. It also acquired the 575-unit Jefferson at Bay Meadows in San Mateo for about $220 million.

Banc of America Securities also likes the long-term opportunities in the Bay Area market. In a report released last month, the firm predicted high single-digit NOI growth for Bay Area apartment properties through 2007 due to the unaffordable single-family home and a lack of new apartment development. The report followed a tour of several Bay Area apartment properties owned by REITs such as Archstone-Smith, Equity Residential, United Dominion, Essex Property Trust and AvalonBay.

Average occupancy in the Bay Area has been rising steadily and now stands at 97.4% from its 2001 low of 94.4% following the telecom/dot.com bust, according to the report. Part of the reason for the improvement is supply. While there have been lots of apartment units converted to condominiums, the report found that no rental market rate apartments have been delivered for the past four quarters and that expected deliveries in 2006 will total just 480 units, only slightly better than the 406 units delivered in 2005. If construction completion expectations hold true, the Bay Area will have posted the two lowest annual totals since 1996, according to the report.

Two key fundamentals, population and employment growth, are expected to stay relatively tepid at 0.5% and 1% per year, respectively, through 2010, below the national average of 0.9% and 1.3%, respectively. But the relative lack of job growth and low net migration has been more than offset by continued strong demand from investors and tenants along with the lack of new supply.

The report promotes companies like Archstone-Smith, Avalon Bay, BRE Properties and Essex Property Trust, which have assets "in high barrier-to-entry coastal markets where the wide spread between the monthly costs of owning versus renting gives landlords pricing power." The report is more cautious regarding company like Apartment & Investment Management, Equity Residential, Post Properties and United Dominion, "which generate condo income and have exposure to markets where housing affordability is not as stretched."

Mark Feldman, Kenny Dudunakis and David Young of Hendricks & Partners brokered the Bay Landing transaction.