Willow Creek is a 208-unit multifamily community that Decron Properties recently acquired.

SAN JOSE—Some 10 days ago, Decron Properties got word that San Jose and Google have outlined a memorandum of understanding, describing the intention to move forward with Google's campus in downtown. This means that South Bay multifamily properties just got more in demand.

One property representing a value-add opportunity near the campus is Willow Creek, a 208-unit multifamily community that Decron Properties acquired for $84.6 million. The property is located in the neighborhood of Willow Glen, a short walk from the Fruitdale VTA light rail station. This puts residents less than a 10-minute train ride away from the proposed 8-million square-foot campus.

“As a long-term investor, the proposed Google campus was another compelling reason for us and our investors to acquire this well-located property with long-term upside,” said David Nagel, president and CEO of Decron Properties.

Decron was also attracted to the property because of its below-market rent component. The property operates under a regulatory agreement that requires 20% (42 units) of the community to be rented at below-market rents to tenants with household incomes at or below 60% of the area median income.

“These units always will be in high demand, which will allow overall occupancy at the property to exceed market rate averages and help to generate strong and stable cash flows,” adds Nagel.

This below-market component is especially significant, given that new data from the Association of Bay Area Governments reveals Bay Area cities and counties permitted 27,103 new housing units in 2017, more than either 2016 (20,868) or 2015 (20,495), but only 18% of these units were for very-low-, low- or moderate-income residents. This is far below the 58% required by the state's Housing and Community Development Department.

Decron plans to undertake a significant capital improvement program, which will include upgrading unit interiors. Common area improvements will include renovating pool areas and the fitness center, as well as new landscaping and exterior paint to enhance the curb appeal of the property.

“We believe that city officials are very focused on bringing more jobs to downtown San Jose which will bode well for the job growth opportunities of our current and future residents,” David Nagel, Decron CEO, tells GlobeSt.com.

Salvatore Saglimbeni, along with Stanford Jones and Philip Saglimbeni from Institutional Property Advisors' Palo Alto office, represented the seller in the transaction.

“The median price for a home in San Jose is more than $860,000, pricing many residents out of the for-sale housing market and resulting in tremendous demand for quality rental housing like Willow Creek,” said Salvatore Saglimbeni.

Built in 1985, Willow Creek consists of a mix of one- and two-bedroom floor plans. All units include full-sized washers and dryers, central heating and air conditioning, walk-in closets, patio or balcony, and enclosed garages or covered parking. The common areas include two resort-style pools and spas with poolside Wi-Fi access, a health and fitness center, lighted tennis court, a children's play area and landscaped courtyards.

“The Northern California multifamily investment market is extremely competitive and the opportunities to acquire an asset like Willow Creek, that fit our investment strategy, are difficult to find,” said Daniel Nagel, Decron chief financial officer. “We will continue to be active, but patient in the market, as we continue to look for the right kind of assets.”

Decron's other 2018 acquisitions include Bridgecourt, a 220-unit mixed-use community with apartments and ground-floor retail in Emeryville, CA, which closed in January, and its $173 million acquisition of Avana 522 in Seattle last month, the largest single investment in Decron's history.

Decron has created a substantial footprint in Northern California since entering the multifamily market three years ago. With Willow Creek, the Los Angeles-based diversified real estate firm's local portfolio now totals five properties and 858 units.