Why Multifamily Investors Are Vying for Anaheim Deals

Anaheim is a hot market for multifamily investment—but opportunities are limited. Advanced Real Estate Services has acquired a 251-unit mixed-use property in Platinum Triangle in Anaheim for $112 million. The firm is an active investor in Anaheim with more than 1,500 units in the market, and it has witnessed first hand the growing demand and competition. We sat down with Paul Julian, president of ARES, to talk about the investment activity in Anaheim and to get an inside look at the deal.

GlobeSt.com: Give me a snapshot of the multifamily activity in this submarket.

Paul Julian: We have heard of only one other property that is potentially going to trade in this submarket this year. Many of the other owners are REITs, which are typically long-term holders. There are also a couple of large, private, local owners in the market with even longer-hold horizons, similar to us. The only sellers are merchant builders who will be selling once their properties are completed. These properties will most likely be snatched up quickly.  The available land for new supply is limited and once the remaining units are built-out this submarket will be like every other in Orange County, highly supply constrained. We see great upside in the market as LT Global and Lennar each add a significant retail base with their developments on either side of our property.  We feel this will provide our residents an exciting neighborhood in which to live.

GlobeSt.com: Why was this a good acquisition for the firm, and how does it fit your multifamily investment strategy in this market?

Julian: This acquisition was a great fit for us as it is in a prime location in Anaheim. We own approximately 1,500 units in the area and believe in its future, especially in the Platinum Triangle and Disneyland areas. Both of these areas should continue to see strong employment growth for the foreseeable future.  Our strategy is to continue to build our portfolio as close to “home” as possible. Our portfolio of over 8,000 units is all within a 50 mile radius of our headquarters in Irvine. We especially liked this particular asset because of the unit sizes, which are the largest in the submarket at over 1,200 square feet. We also feel it is the most ideally located in the Platinum Triangle positioned directly adjacent to the Grove Theater and to Angel Stadium.

GlobeSt.com: What was competition like on this asset, and how does it compare to the competition that you are seeing in general for similar multifamily opportunities in OC?

Julian: All sizable apartment buildings in Orange County will receive great interest from both private and institutional capital locally, nationally and internationally. They rarely trade and the market is one of the safest, most diverse and sought after in the world. That said, I believe we had an advantage in the process as the seller was well aware of our robust local presence in Anaheim. They also were aware of our capital reserves on hand which made us a strong buyer.  We have seen over the past few years that heavy, value-add opportunities are garnering the greatest interest, which has shown intense cap-rate compression in that product type. We saw this opportunity as one that might have been passed-on by some of the value-add funds because the renovations required are somewhat light. The property was built in 2009 as condominiums so the bones are terrific, it simply needs a cosmetic refresh.  The acquisition cap rate was therefore much higher than if we were acquiring a value-add property.

GlobeSt.com: Tell me about the acquisition and your business plan for the property. 

Julian: Our business plan for the property is to make light unit interior improvements including new flooring, paint, a technology package and fixture updates. The common areas will receive a complete overhaul adding a shared work space with offices, board rooms, and an open lounge. This will allow tenants to work from home but still have the convenience of a wework style office in their building without the cost.  The fitness center, leasing office, dogpark, courtyards clubhouse and pool deck will all be upgraded. The most dramatic renovation will occur on the 6th floor entertainment deck that overlooks Angel Stadium. Our plan is to outfit it with a new indoor-outdoor covered bar with beer taps, ovens, and refrigerators to host parties. We will be working with “The Catch” Restaurant which is our Landmark retail tenant to host events, especially during the fireworks shows after baseball games.  The space will also have fire pits, extra large televisions and a variety of lounge seating so the residents and their guests can enjoy an urban rooftop bar experience.

We procured a new $67 million loan from Fannie Mae through Mike Elmore of Northmarq Financial. The equity raised was from our “friends and family” partners.  Much of the funding came from the recent refinance of a couple of our other properties in the area. Those partners decided to re-invest their funds with us into this transaction.  In total, we raised approximately $53 million in the weeks leading up to closing.