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Greystar Earns Low to Mid Four Cap Rates on Two Apartment Deals in Fremont

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By Jon Peterson

Charleston, S.C.-based Greystar Real Estate Partners has bought two apartment properties in the Fremont sub-market of Seattle at cap rates between 4.3 percent to 4.5 percent, according to sources familiar with the transaction.

“These returns are based on the current rents being offered in the two properties now,” says Cliff Chandler, manager director of investments for Greystar. He works out of the company’s regional office in Irvine, Calif.

The properties that Greystar acquired are the 171-unit Velo complex located at 3635 Woodland Park Avenue North and the 137-unit Ray complex situated at 3636 Stone Way North. “The acquisition price on these two properties on a blended basis is north of $380,000 per unit,” said Chandler.  

He does believe that there still is some strong rental rate growth to come in the Fremont market. “I would think that the rents in Fremont are anywhere from 10 percent to 20 percent less than what you see currently in the downtown or South Lake Union areas, and we believe this is a positive situation for the two properties that we bought going forward,” said Chandler.

Velo is a property that was completed last year. This complex is now stabilized and is fully occupied. This asset was bought for $65.1 million. Ray will be completed this year and is now stabilized, as well. Greystar paid $54.5 million for this complex. The seller of the properties was a joint venture of Los Angeles-based Mack Urban and The Carlyle Group of Washington, D.C.

The seller of the property was represented in the sale by the Seattle office of JLL. The two lead brokers in the deal were David Young, a managing director, and Corey Marx, an executive vice president. Both of them work in the capital markets group for JLL. Others involved in the transaction were Seth Heikkila, senior vice president, and Matt Kemper, vice president. Young and Marx didn’t respond to phone calls seeking comment for this story.

Greystar figures that the location of the two properties that it bought are in an area where there is job growth happening. “The announcement earlier this year by Tableau Software is a big deal for the market in Fremont,” said Chandler. This software company has signed a 210,000 square foot lease at the NorthEdge mixed-use building located between North 34th Street and North Northlake Avenue in Freemont. This lease will provide growth for more than 1,300 employees. Tableau has more than 1,200 employees currently within the Seattle Metro area between six buildings in Fremont and one in Kirkland.

Greystar is buying both properties for its latest commingled fund, Greystar Equity Partners VIII. This is a commingled fund for which the manager raised $800 million of equity capital. Two of the investments included $50 million from the Ohio Police and Fire Pension Fund and $40 million from the Kansas Public Employees Retirement System. Greystar put in $20 million of its own capital into the fund as a co-investment.

The investment strategy for the fund is to buy apartments on a nationwide basis. The targeted returns for the fund are an unleveraged gross IRR of 9 percent and a leveraged net IRR of 13 percent. The leverage placed on Partners VIII is projected to be 60 percent.