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San Diego Firms Look Northward for Apartment Deals

Separate Portland Transactions Total $93.5M
January 17, 2018
San Diego-based Stratford Partners LLC recently acquired the 173-unit Yacht Harbor Club apartments in Portland for $68 million.
Credit: Cresa

Two San Diego-based investment firms recently looked northward for additions to their West Coast-centric multifamily portfolios -- the fast-growing Portland, OR market to be exact -- and came away with separate acquisitions totaling $93.5 million.

Other similar deals could follow Stratford Partners LLC’s purchase of the 173-unit waterfront Yacht Harbor Club apartments for $68 million ($391,000 per unit) and SENTRE’s acquisition of the 123-unit The Thornton multifamily community for $25.5 million ($207,000 per unit).

For its part, SENTRE, led by Doug Arthur, president CEO, has established a new Portland office after making its first acquisition in that market, to scout out more investment candidates while it continues to seek out opportunities in its flagship San Diego and Orange County markets.

“There’s good inbound migration and some other factors that we like very much,” Chris Carter, SENTRE’s director of acquisitions, told CoStar News, listing elements that attracted the privately held firm to Portland. Others that Carter noted include a strong employment picture, with companies such as Adidas and Intel recently adding new jobs in the region, and rents and other living costs that remain more affordable than other West Coast markets that have enjoyed a higher investment profile in recent years, such as San Francisco and Seattle.

SENTRE officials said the all-studio property at 1953 NW Overton St. was built in 2016 and was leased to stabilization within 10 months after its opening. Carter said SENTRE plans to invest about $1 million in improvements, including enhancements to the property’s common areas.

The latest available CoStar Group data indicates that Portland’s apartment vacancy rate stood at 6.1 percent in late 2017, below the U.S. rate of 6.3 percent, and asking rents grew 1 percent during the past year, to an average $1,259 per month. The market had nearly 10,000 new units under construction as 2017 drew to a close, representing 5.4 percent of the overall apartment inventory.

Carter said much of that market’s construction activity may have been driven by developers looking to complete projects before Portland’s new inclusionary housing rules take effect in 2018. Among other changes, future new multifamily projects of 20 or more units will be required to set aside 20 percent of those units as affordable housing -- accessible to those making less than 80 percent of the region’s median household income.

That inclusionary percentage is among the highest among the region's major metro markets. City data indicates that San Diego’s, for instance, sits at 10 percent, on par with those of Chicago and Denver, and San Francisco last year reduced the requirement from 25 to 18 percent. Los Angeles has a 15 percent requirement, and New York City’s varies by neighborhood, generally ranging between 20 and 30 percent.

Carter said that even if the recently-built Portland supply creates a temporary softening in overall apartment occupancy over the next 12 months, the inclusionary rule could make it more difficult for future new projects to pencil out, tightening supply and possibly raising rents in the long run if demand continues to rise.

SENTRE purchased The Thornton from an affiliate of Portland-based Kehoe Northwest Properties LLC. Graham Taylor of CBRE Group, Inc. represented the seller, while the buyer handled the sale in-house.

Led by managing partners Andy Crews and Jesse Wilson, the privately-held Stratford Partners also purchased a Portland property built in 2016, at 11505 NE Yacht Harbor Drive, and also plans about $1 million in common area improvements. The seller was Gateway National Corp. of Vancouver, Wash., and the property was less than 70 percent leased at the time of closing.

According to its website, Stratford is focused on multifamily acquisitions in six Western states, investing its own equity along with that of institutional and private equity partners.

“We have been tracking this asset for an extended period and this opportunity seemed tailored to Stratford Partners’ acquisition criteria,” said Russ Sande of Cresa, part of a brokerage team that represented the buyer in the Yacht Harbor Club apartment deal. “The asset is irreplaceable real estate and they were able to acquire it for a very reasonable price.”

Stratford was represented by Cresa’s Sande, Simon Terry-Lloyd and Sean Heaton, along with independent broker Zach Hemmingson. The seller was represented by a CBRE team that included Joe Nydahl, Phil Oester, Josh McDonald, Eli Hanacek, John Hallgrimson and Frank Bosl.

Also, CBRE’s Scott Peterson, Bill Chiles and Brian Cruz secured a 13-year, fixed-rate loan totaling $44.1 million on behalf of Stratford Partners and LLJ Ventures on its acquisition.

Please see CoStar COMPS #4087263 for more information on the Yacht Harbor Club deal, and CoStar COMPS #4099192 for more on the Thornton transaction.

Lou Hirsh, San Diego Market Reporter  CoStar Group   

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