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Old Posted Jun 18, 2007, 5:07 AM
BTinSF BTinSF is offline
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AvalonBay puts another big bet on apartments

AvalonBay puts another big bet on apartments
San Francisco Business Times - June 15, 2007
by J.K. Dineen

Apartment developer AvalonBay has bought the last remaining parcel in Mission Bay's north of Mission Creek area from condo builder Signature Properties, an indication that rental housing is gaining steam as some segments of the condo market cool off.

The price of the fully entitled project was about $26 million, but that includes project design work by Miami-based Arquitectonica, as well as piles that Signature had already purchased for the development, according to Meg Spriggs, development director for AvalonBay.

The parcel at 353 King St., between IntraCorp's Arterra and AvalonBay Phase I, had been entitled for 260 condominiums. AvalonBay has slightly reduced the size of the building to accommodate the apartments, which are generally smaller than condos, but the number of units and the overall design will remain the same.

The project comes after several years in which rental housing developers have struggled to gain a foothold amid an overheated condo market. But with rents having increased 21 percent over the past three years, apartment developers like AvalonBay, Archstone-Smith and Urban Housing Group have become increasingly aggressive in tying up land and beginning construction.

Signature Properties President Michael Ghielmetti said AvalonBay approached them and "offered what we felt was a fair price." Signature has two other condo projects on Berry Street, 235 Berry and 255 Berry, which are selling, but not as fast as the developer had hoped.

"It's a good market for rentals and a little slow on the condo side," said Ghielmetti. "There are a lot of other condo projects and I wasn't anxious to compete against the number that are out there."

The project represents the third phase of AvalonBay's hefty bet on Mission Bay, an investment that will include 823 apartment units valued at between $350 million and $400 million when complete. The first two phases are 97 percent leased, said Spriggs. Monthly rents average about $3 a square foot, with one bedrooms leasing for about $2,500 and two-bedrooms for $3,500.

In addition to Mission Bay, Avalon Bay has acquired a site near City College at 1150 Ocean Ave. and is seeking others.

"We believe the fundamentals are strong in the San Francisco market and we want to commit more resources here. We are not going to stop at 800 units in Mission Bay," said Spriggs.

Spriggs pointed to 2 percent job growth and a housing market where average prices, despite the national slowdown, are still nearly $800,000. In addition, average mortgage payments are double average rental payments.

"All those fundamentals translate into what we think is a strong rental market," said Spriggs.

There are few large apartment projects being built in San Francisco. Urban Housing Group has projects under construction on both sides of Mission Creek, the 193-unit Edgewater on Berry Street, which will open in August, and the 192-apartment 555 Mission Rock, which just broke ground. Trinity Properties has entitled but not started its long-awaited development which will bring 1,900 units to 1177 Market St. And Archstone-Smith is working with the Planning Department and neighborhood to entitle three acres at Eighth and Harrison streets for upwards of 700 units.

Urban Housing Group President Jim Brooks sees rental developers in a good position to rescue broken condo projects.

"A tightening restriction on credit is making borrowing costs higher and pushing some people into the rental pool," said Brooks. "By and large you have had an eroding (of the) for-sale market with a tightening credit market. You're seeing a little bit of a correction in land values."
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