LOS ANGELES-Watermarke Properties Inc. of Corona, CA has acquired a newly built, 214-unit apartment tower at 705 W. Ninth St. from Meruelo Maddux Properties for $109.5 million in an all-cash, direct deal between buyer and seller that is Watermarke's second major apartment acquisition in Los Angeles within a week. Peter DiLello, director of acquisitions for Watermarke, tells GlobeSt.com that the company has renamed the 35-story project WaterMarke Tower, has started a lease-up program and plans significant enhancements to the amenity package at the property, which was vacant at the close of escrow.

The WaterMarke's 214 units consist mainly of one- and two-bedroom apartments, along with four penthouses, all atop a six-story parking structure, with a 6,800-square-foot commercial space that is slated for a high-end restaurant. Meruelo Maddux, which is in Chapter 11 bankruptcy, initially planned the project as a condominium tower and later switched it to an apartment development when the condo market stalled.

DiLello cites the uniqueness of the WaterMarke Tower and the strength of the Downtown L.A. apartment market among the reasons that Watermarke Properties bought the project. "There is really nothing else like it" in the market, he says, pointing out that the property is in the heart of Downtown, close to venues like Staples Center and L.A. Live, and across the street from a Ralphs supermarket, the only one in Downtown L.A. In addition to its condo-quality construction and a long list of amenities, DiLello says the apartment tower offers "views that you have to see to appreciate." He estimates 12 to 18 months for the lease-up, which is being managed by Riverstone Residential.

DiLello describes the WaterMarke as "a core asset in a core location" for Watermarke, which is a privately held and internally financed company that is seeking institutional grade multifamily properties in Southern California. The company, which closed on the WaterMarke within 48 hours of its $48 million acquisition of a 159-unit complex in the Wilshire Center/Koreatown district, is a long-term investor, typically planning to hold its properties for 10 years or more. "We believe in buying properties in core areas, so that when the recovery does commence, those are going to be the first areas to recover," DiLello says.

The Downtown L.A. rental market has remained strong despite the economic downturn, according to apartment broker Tom Moran Jr., a director at the Costa Mesa, CA office of Chicago-based Moran & Co., which has studied the Downtown market closely. Moran, who was not involved in the WaterMarke Tower deal but is familiar with both the property and the Downtown market, tells GlobeSt.com that Downtown L.A. has been absorbing an average of 165 to 170 apartments per month since 2008, a pace that he calls "phenomenal" considering the economy.

Moran says one reason for the strong absorption is the ratio of jobs to residents in Downtown Los Angeles: 450,000 to 40,000, or 11-to-one. That compares with ratios of about 3.2 jobs per resident in other large West Coast cities. "We have a huge demand for rental units downtown, but not a lot of housing stock, even with all of the adaptive reuse and new construction during the boom," Moran says. "This makes Los Angeles very appealing both for residents and for investors."

Moran's research indicates that―even with the 2,400 units of market-rate apartments delivered in 2008, 800 delivered in 2009 and up to 1,000 this year―"By the fall of this year, all of those units will have been absorbed and the occupancy will be stabilized, with nothing on the horizon for development," he says. The figures include adaptive reuse and newly built market-rate units, as well as condo projects converted to apartments, like the WaterMarke.

Moran describes the WaterMarke as "very rare" for its size, quality and location in Downtown L.A., and also that it is new construction rather than a conversion of an existing building. The new tower is part of a Watermarke Properties portfolio of multifamily, office, industrial and single-family properties that reflects the company's diverse investment strategy, DiLello says, although the company's primary focus right now is on multifamily acquisitions in Southern California. The company has closed on more than $650 million in transactions, all-cash, in the last 36 months.