The Michaels Breaks Ground on Sacramento Apartment
The market-rate property is located in an opportunity zone, and will cost approximately $60 million.
Real estate developer The Michaels Organization has broken ground on an apartment project in Downtown Sacramento. The development site is located in an Opportunity Zone, and will cost approximately $60 million.
The project is located at 1990 Third Street on a 2.2-acre site. Once complete, the property will stand five stories have 187 studio apartments and city lofts with a clubhouse, sky lounge, indoor and outdoor co-working spaces and a resort-style pool and spa. It is set to deliver in early 2024.
The Michaels secured the site through a long-term ground lease with a private owner. Bank of the West and Verde Capital provided financing for the project. BDE Architecture, Cunningham Engineering and Brown Construction are also stakeholders in the development.
Sacramento has fervent demand for new apartment supply, and investors are responding. In fact, last year, Canyon Partners Real Estate formed a joint venture with Anthem Properties to build a 153-unit, mid-rise multifamily community in an opportunity zone in Sacramento, very similar to The Michaels project. While the adjacent Bay Area has experienced double-digit rent decreases, Sacramento has actually had positive rent growth over the last year. Along with the benefits of an opportunity zone, Canyon is bullish on the fundamentals of the project, despite the market dislocation. Canyon invested $18.8 million in the deal and the joint venture secured a $39.6 million construction loan from HSBC Bank.
Other investors are looking to leverage dated office properties to bring new apartment stock to market. A report from Marcus & Millichap suggests that challenges in the office market and a dearth of apartments could create an opportunity for apartment redevelopment. The report expects office vacancy in the market will increase another 100 basis points this year, pushing it up to 14.5%, the highest level since 2016. In the apartment market, on the other hand, Sacramento is leading the nation in rent gains, with rents up 6.4% last year.
The Michaels owns multifamily properties in 37 states. The firm’s portfolio includes affordable, market-rate and purpose-built student housing.