Formerly a condominium development, Forty55 Lofts was acquired vacant by the JV from Standard Pacific Homes and is now an apartment property being marketed for lease. The development sits on 2.6 acres site at 4055 Redwood Ave. and consists of two-four-story buildings around a resort-style pool area with barbecues, a fire pit, and a decorative water feature. Residents also have immediate access to a 22-mile bike path running from Malibu to Redondo Beach. The units average 1,306 square feet and have 10- to 20-foot ceilings, oversized windows, large patios and high-end kitchens.
In its quarterly report, the REIT says it put up 55% of the cash ($25.8 million) and PGGM, a real estate investment vehicle for real large Dutch pension funds, put up the remainder. The REIT says it also paid Alliance Realty Partners LLC a finder's fee of approximately $921,000.
The investment flyer, created by the California office of Moran & Co., which had the disposition assignment said the asking price was the result of capping the stabilized first-year pro forma at 5.0%, and then subtracting $2.5 million in lost revenue and other expenses associated with leasing up. It represented an 8.2% unleveraged IRR or a 10.4% leveraged IRR over a 10-year hold, assuming a 10-year rate of 6.0% and a debt service coverage of 1.25, according to the flyer, which listed rents in the $2,500- to $3,000-per-month range for adjacent developments.
At the time the property changed hands, Standard Pacific's Urban Division president Ram Fullen said that as the market conditions eroded during construction, "it became clear that selling the property to a rental investor was a viable alternative and economically a better strategy," adding that the vast majority of the apartments in the affluent beach community are at least 30 years old. Brett Betzler, the listing broker for the sale added that the demand for high-quality rental product is very strong because Marina del Rey is close to the beach and LAX, and professional employment centers, such as Westwood and Century City. Behringer Harvard has changed the name of the project to Redwood Lofts.
In its quarterly report, Behringer Harvard Multifamiyl REIT describes the asset as a a high quality project acquired at below-replacement value [that] requires a 12-month to 18-month lease-up period to achieve stabilization. "When stabilized, this asset will be well positioned for long-term returns," it wrote.
The Behringer Harvard Multifamily REIT I JV with PGGM has committed to investing at least $450 million of equity together. Forty55 Lofts was one of thee California properties it recently acquired.
In mid-September, it paid $96 million [plus closing costs] for the 438-unit, 88%-leased Gallery at NoHo Commons, also in Los Angeles. The 5.3-acre development also includes a resort-style pool as well as a fitness center and a recording studio. Earlier that month, it paid $79.7 million [including $65.24 million in assumed debt] for Waterford Place, a 390-unit multifamily community located on an approximately 8.28-acre site in Dublin, CA that holds a resort-style swimming pool, a fitness center and a movie theater.
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