(Read more on the multifamily market.)
PORTLAND, OR-Essex Property Trust Inc., a Palo Ato, CA-based apartment REIT, exited the Portland market this week, selling 875 units in four suburban properties for $97.5 million, or approximately $111,500 per unit. The new owner is Balaclava Holdings, a division of Vancouver, BC-based Belkorp that now owns more than 1,600 units in the Greater Portland area.
Essex says it decided to exit the Portland market due to a greater risk of increased supply of rental and for-sale housing compared to its other markets, which are Northern California, Southern California and Seattle. Its proceeds from the portfolio sale were used to complete a reserve IRS 1031 exchange into Mill Creek at Windermere, a newer 400-unit community in San Ramon, CA that the company acquired in September for $100 million.
Essex's Portland portfolio, which it owned for about 10 years, consisted of two properties in Hillsboro--the 285-unit Jackson School Village and the 200-unit Landmark Apartments--and two properties just across the Columbia River in Vancouver, WA--the 198-unit Meadows at Cascade Park and the 192-unit Village at Cascade Park. The properties were built between 1988 and 1996. Gail Neuberg and Stephanie Fuhrman of the brokerage firm Tilbury, Ferguson & Neuberg had the disposition assignment.
"There was an amazing amount of interest in this portfolio from all across the country," Neuberg tells GlobeSt.com. "A lot of investors have been looking to enter the market but didn't want to be here with just one property. This provided enough critical mass to make it interesting."
Balaclava's acquisition of the portfolio doubles its portfolio in the region, which prior to this acquisition included three properties in Beaverton, which borders Hillsboro, two properties in Vancouver and one in Lake Oswego. The company also owns several properties in the Seattle region.
Balaclava's SVP of real estate Vickie McDonnell tells GlobeSt.com they consider the Essex properties value-add opportunities. The plan is to push what is now a plus-5% cap rate into the 6% range in the next 12 to 18 months by upgrading the properties such that they will command higher rents.
"[Essex] had spent a lot of money fixing up the exteriors but the units themselves were pretty much in original condition," she says. "We're planning to invest additional capital to bring the unit interiors up to more current standards."
Part of the reason Balaclava came out on top in the bidding process for the property is that it was an all-cash buyer. "We sold a position in a public hotel REIT in Canada, which gave us additional cash," McDonnell says.
Despite Essex's concern about increased supply, local apartment brokers in town aren't seeing any reason for concern. One broker who had just returned from a forecast breakfast tells GlobeSt.com that market vacancy is in the low single digits and there is very little supply coming on in the suburban market. There is supply coming on in the urban market, the broker says, but not until 2009.
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