Acquisition Sets Record Per SF Pricing for Micro-Units

SEATTLE—In 2012, UK-backed private equity firm East To West Capital was aggressively contemplating an expanded global investment strategy for its real estate portfolio, according to Andrea Cassandro, managing partner. He says at that time, the United States offered the best value and opportunity.

That year, investing in New York City was approximately 50% less expensive than London. Based on his own previous experiences, Cassandro established a business plan to collaborate with experienced local developers to build micro-unit developments in densely populated live-work-play urban markets, including Seattle and Portland.

“Micro-unit dwellings and co-living space represent a big part of the future for the multifamily industry, especially in large urban markets where there is a significant live-work-play appeal,” Cassandro tells GlobeSt.com. “In many of those markets, people are being priced out because they simply cannot afford the traditional pricing structure for a one-bedroom unit. Two possible solutions at opposite ends of the spectrum that lessen the financial impact to renters are micro-units/co-living space and rent control. Micro-units and co-living spaces represent a much greater opportunity for renters and investors.”

Five years after entering the US market and forming joint venture partnerships with local multifamily developers, East To West Capital has completed the disposition of two recently developed micro-unit multifamily projects in Seattle and Portland. Both developments were sold to El Segundo, CA-based Wilshire Capital Partners. The aggregate value of the dispositions exceeded $24.3 million and represented record per-square-foot pricing for micro-unit developments in those markets.

“We came to the US bullish on the real estate investment climate here, believing that the development and management of micro-unit apartments could be a tremendous niche investment opportunity,” says Cassandro. “That thesis has been borne out with great locations in highly specialized markets and great development partners.”

CBRE’s Seattle office worked with East to West Capital in the transactions. One of the properties is the Redwood, a newly constructed 75-unit apartment community in the Pike-Pine Corridor of Seattle’s Capitol Hill neighborhood. Its sale price was $17.5 million or $918 per square foot, a record sale price for a micro-unit property in Seattle.

Located at 111 21st Ave E, the Redwood was developed in 2017 in partnership with Johnson & Carr, an experienced local developer. The project was designed based on the local environment, incorporating Pacific Northwest-inspired features such as wood accents, custom metal fabrication and native landscaping.

The property’s 75 studio apartments average approximately 280 square feet. The Redwood’s units feature an amenity mix that includes luxury finishes and stainless steel appliances. Some units also feature a loft space.

Amenities of the complex include bike storage, a rooftop deck with a barbecue, onsite laundry, and views of the Cascades and Seattle skyline. The Redwood is surrounded by a variety of restaurants, grocery stores, restaurants, health services and parks, making it ideal for the area population. The Redwood has achieved a Walk Score of 90, a bike score of 92 and a transit score of 70.

The Redwood was fully leased within six months. Cassandro attributes the success of the development to its location within an expanding area of Seattle that is particularly attractive to young professionals.

The second property, Koz on Yamhill, is a newly constructed 30-unit apartment community in the Goose Hollow neighborhood of Portland. The sale price was $6.8 million or $804 per net rentable square foot, a record price for a micro-unit property in Portland.

Located at 2165 SW Yamhill St., Koz on Yamhill was developed in 2017 in partnership with Koz, an experienced local developer. The development is located within walking distance to downtown Portland and the major employers as well as restaurants and nightlife.

The 30-studio apartments within the property feature six different floor plans and average approximately 283 square feet. The units feature an amenity mix that includes floor-to-ceiling windows and plank flooring. Utilities and high-speed Wi-Fi are included in the rent. A number of the units also feature a loft space and/or 16-foot ceilings. Amenities of the complex include storage for bikes and other personal belongings, city views in certain units and on-site laundry.

Along with its strong economy, Seattle is seeing impressive population growth, which is fueling the multifamily market throughout Seattle. In addition to the influx of newcomers attracted by a prospering job market, skyrocketing prices for single-family dwellings are also adding to the demand for multifamily housing in Seattle and the surrounding areas. As a result, vacancy rates have remained low and the Seattle housing market remains undersupplied, according to a report by CWS Capital Partners.

The boom in Seattle construction and development also points to a strong Seattle real estate market for investors. The city of Seattle issued almost 12,000 building permits in the first 10 months of its fiscal year 2017, generating a record $2.5 billion in projects. In 2018, the city was projected to have at least 14,293 apartments built.