Multi-family SOLD in Q3 in SD

Multi-family SOLD in Q3 in SD

Since the coronavirus outbreak started in San Diego, deal flow in the multifamily sector has cooled to the lowest level in nearly a decade. In each of the past two quarters, about 70 sales were recorded, about half as many traded as in a typical quarter in 2019. Sales volume, too, tallied about half the level compared to a quarter from 2019, with $300 million in each of the second and third quarter. Today, we’re in the longest stretch of quarters, three, with less than 100 transactions recorded since 2011.

Landlords are not only contending with added expenses from social-distancing protocols, shuttered amenities and declining rent payments brought about by worryingly high unemployment, but also an eviction moratorium and a new rent cap that went into effect in 2020. And the longer this pandemic persists, the more likely we are to see property owners default on their loans.

Three new properties in downtown San Diego have sold in 2020, starting with the former Spreckels building at 625 Broadway in February. The former office building, and newly converted apartment complex by Hammer Ventures, sold for $143 million. A partnership that includes investment firm Cain International and developer Balthus acquired the building with the issuance of the certificate of occupancy. Included in the sale was a 378-space parking garage and some ground-floor retail space. Hammer Ventures purchased the property in 2014 for $52.5 million.

That was followed by the sale of AV8 in Little Italy. The 2018-vintage property sold in September to R&V Management for about $70 million at a 4% capitalization rate. That was R&V Management’s second investment in downtown San Diego in 2020. Its first was for a former Jerome’s Furniture store in the East Village that was fully entitled for 368 apartments. They paid roughly $28 million per acre for the site. R&V broke ground on that project in the second quarter. The project is estimated to cost $90 million.

And to start the fourth quarter, the equity fund TA Realty from Boston purchased Valentina by Alta for $78 million, or more than $700,000 per door at a 4% capitalization rate. Rents averaged north of $4 per square foot. The 110-unit property delivered in 2019, and Wood Partners sold the complex after it stabilized. It is located on the edge of Little Italy on Pacific Highway.

That was just one of several large sales to jump-start the fourth quarter. Although deal flow is not expected to pick up in the near term, given the widespread current economic uncertainty, sales volume in the fourth quarter has already nearly matched the level recorded during the second and third quarters.

Other substantial sales in October include the Villas at Carlsbad, a 102-unit complex that sold for $41 million, or about $400,000 per unit, and the rebranded Modern in Kearny Mesa, which sold for $107 million, or about $290,000 per unit.