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An Apartment Comp in Millbrae

October 13, 2009

Last week we posted an article about the large number of investors circling apartment complexes. We spoke in anecdotal terms, and one reader asked for metrics or proof on the market. Fair enough.

Globe St. has now pointed out a transaction to go down in Millbrae for the the 136-unit Waterstone Millbrae project. The project was built in 1971, and traded for $248,000 per unit, or $295 psf. According to the article, the project is 95% leased, and was bought based on a 3-month NOI!

The buyer assumed $23.77 million in combined first- and second-mortgage financing. The 10-year fixed-rate financing has a 30-year amortization, a blended interest rate of 5.7% and a loan-to-value of 70%. The capitalization rate for the new owner is 5.65% based on trailing three-month NOI, according to Marcus & Millichap, whose M&M Capital Corp. affiliate assisted the buyer with the financing.

We don’t have exact details on this project, but if we were to speculate – which we will, we’d say this deal perfectly demonstrates what level buyers are willing to go to for apartments. Buying at a 5.8% cap based upon 95% occupancy level based on a 3-month TRAILING NOI in a declining market seems hardly conservative.

[via Globe St.]

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Categories: Commercial Real Estate Investing | Notable Deals
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Sam October 13, 2009

Thanks. This is mind-boggling. The true cap is likely a low 5, with minimal upside but huge downside with deteriorating fundamentals. Unless the buyer is seeing something no one else is, sounds like someone is making transaction/mgmt fees at the expense of investors. (like you said, easy with OPM).

In my opinion, this is a very bad sign as it delays the inevitable foreclosures/restructurings. I’m sure quite a few struggling borrowers, not to mention struggling banks, will be pointing at this comp.

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