La Montana at 811 6th St. in Santa Monica is the second largest property in the portfolio at 23 units.

SANTA MONICA, CA-A private investor has acquired a three-property, rent-controlled apartment portfolio in Santa Monica for $28.5 million. The portfolio consisted of three separate buildings with 66 total units. According to industry sources, Equity Real Estate Group LLC sold the three properties to Thomas Yu.

“To break into that market as far as acquiring properties is very hard to do,” Michael Hanassab, an associate at Marcus & Millichap, tells GlobeSt.com. Hanassab represented the buyer along with Marcus & Millichap associate Elliot Hassan. “On the scale of what we sold, which is three separate buildings by one owner all north of Wilshire, which is considered one of the best markets in multifamily in Southern California, it was a rare opportunity.” The portfolio sale received 5 to 6 offers from potential buyers, and eventually sold for $1.5 million above the original asking price.

Located at 1033 3rd St. in Santa Monica, Marvin Gardens is the largest property in the portfolio with 32 units. It was purchased for an estimated $13.8 million, or $431,818 per unit. The portfolio also included the 23-unit La Montana complex, located at 811 6th St., and a small 11-unit complex located at 1137 11th St.

Rent control properties garner significantly lower rents than market-rate apartments, sometimes as much as half the rental rates. However, Hanassab explains that most landlords have been able to work around that restriction. “Year end and year out, we have observed rent growth in that market. Obviously, there is a strong restriction in how much you can increase rents annually on the rent control properties; however the biggest factor is that there is a huge demand to live in that area. It is prime real estate, and even with the rent restrictions, the demand is there,” he says. The three properties have about 98% occupancy.

Santa Monica is committed to creating affordable housing options. The city is currently building a $300 million mixed-use complex once block from the Third Street Promenade, called the Plaza. The property will feature retail space on the ground floor, affordable housing, a 225-room hotel and a 2.5 acre green space on multiple levels. The project is scheduled to be completed in 2018.