(Mark Your Calendars: RealShare REAL ESTATE 2012, March 22nd in Los Angeles).
SAN FRANCISCO-Essex Property Trust Inc. and the State of Wisconsin Investment Board together have provided $175 million as an equity investment into the $1.2 billion redevelopment of the Parkmerced apartment complex here, which is majority owned by New York City-based Fortress Investment Group LLC. The 3,221-unit property will grow to about 7,200 units by 2040 in a plan designed by Skidmore, Owings and Merrill.
Lee & Associates-LA North/Venture Team arranged the seven-year equity plan for Wesco II, a joint venture of Palo Alto, CA-based Essex and the state. Both partners are providing 50% into the venture. Essex, a REIT, has ownership interests in 155 apartment communities in the West Coast. Fannie Mae is also providing a $450 million senior mortgage loan, simultaneous with the closing of the equity investment.
Michael Schall, president and CEO of Essex, said in a statement that this is a unique opportunity to participate in the recapitalization of a property in one of the strongest rental markets in the country. The company’s portion of the investment was funded with the issuance of common stock, and is expected to impact 2012 earnings per share and funds from operations by 12 cents per share.
The Parkmerced project was built by Metropolitan Life Insurance Co. starting in the 1940s. The property has gone through a number of different owners, and was bought in 2005 for $687 million by Stellar Management and Rockpoint Group. In a workout situation, Fortress reportedly bought a 75% interest in the property in late 2010 for $750 million, leaving Rockpoint as a minority partner. Jim Fisher with Lee tells GlobeSt.com that the property is more than 90% occupied.
Fortress earned approval by the city’s Board of Supervisors for the massive redevelopment project on May 24, 2011. The plan includes demolishing all of the garden apartments, about 1,500 units, on the 152-acre property, leaving up another 1,683 units in 11 towers. The development would also include a school and about 400,000 square feet of retail.
As a condition of city approval, Fortress has agreed to do everything possible to keep current residents at the site, including about 3,200 rent-controlled apartments. Various resident and community groups have protested the new project.
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