San Mateo Apartments Trade for $252M, Turn Affordable

In one of California’s largest market rates for affordable housing conversions, Ethos Real Estate has acquired for $252.4M Hillsdale Garden Apartments, a 697-unit garden complex community in San Mateo.

Ethos is partnering with Chicago-based private equity firm The Vistria Group on a renovation of the Hillsdale campus, which opened in 1948 and is spread across 52 two- and three-story buildings, converting the units from market rate to affordable housing.

Upon completion of the renovation, which will include interior and exterior upgrades, the Hillsdale community will be reserved for households earning at or below 80% of the area median income (AMI).

Essex Property Trust sold the property, with KeyBank providing a Freddie Mac acquisition loan for the transaction, Multi-Housing News reported. Hillsdale is located at 3500 Edison Street, within walking distance of transit stops and a 1.1M SF shopping center.

The deal comes amid an increase in multifamily investment sales volume in the Greater San Francisco area, which totaled $1.2M at the end of the third quarter-equal to the total for all of 2023. Year-to-date, 28 properties bearing 50 or more units have been traded in single-asset transactions, according to Yardi Matrix data.

The renovation of the Hillsdale community will begin this month. The conversion to affordable housing will involve a public-private partnership, The Vistria Group said in a statement.

In a release, The Vistria Group called the market rate to affordable conversion of the Hillsdale community “a landmark move that promises to advance affordable housing efforts in high-cost markets.”

San Mateo County, one of the wealthiest counties in the U.S., is also one of the least affordable in terms of its cost of living.

The cost of living in San Mateo County is so high that the federal government classifies a family of four earning $156,650 in the county as “low income.” The AMI for a household of four in San Mateo County is $186,600.

In August, the California Department of Housing and Community Development approved an updated version of San Mateo’s eight-year Housing Element plan. The plan requires San Mateo to construct 7,015 new units between 2023 and 2031, with 40% of these reserved for households earning 80% or less of the AMI.

The city is part of a lawsuit filed by Housing Action Coalition, alleging its housing element plan identifies sites that grossly overestimate their potential housing capacities.

According to a report in the San Mateo Daily Journal, the complaint alleges that an eight-acre portion of the Bridgepointe Shopping Center parking lot, listed as a likely housing site by 2031, is frequently used by patrons of adjacent retail and restaurant stores that “have long-term leases that run for most or all of the planning period.”

Other sites the lawsuit alleges are unsuitable for housing in San Mateo’s plan include Parkside Plaza Shopping Center, 1900 S. Norfolk St. and the Borel Shopping Center.

The report noted that San Mateo’s housing element plan hinges on whether the city’s voters pass a ballot measure next month, which would amend Measure Y and raise the current five-story building cap in certain areas, such as near Caltrain stations and along El Camino Real.

If the ballot measure doesn’t pass, the city will have to make substantial revisions to its housing element plan, the report said.