Roseville Population Drives $95M Multifamily Buy

ROSEVILLE, CA—The Bay Area’s increased living and business costs are driving households and businesses to Sacramento. Roseville’s population growth of 22.2% since 2010 bears this out. Moreover, this trend has accelerated through COVID-19 with the growth of remote workers.

Following this population trendline, Davlyn Investments recently closed escrow on the $95 million purchase of The Terraces at Highland Reserve, a 273-unit luxury class-A multifamily community. The property, which will be re-branded as Ascent at the Galleria, was constructed in 2002. It is Davlyn’s fourth acquisition in Northern California, and its first in the Greater Sacramento market.

“Ascent presented an exciting opportunity to acquire a high-quality multifamily asset in a very desirable submarket, with extremely low transaction volume and equally high barriers to entry,” says Paul Kerr, president of Davlyn. “As you’d expect with its age, the property has excellent bones. In addition, the property is uniquely equipped to navigate the emerging work-from-home environment, with each unit offering at least one built-in desk. Further, every unit is a corner unit, which maximizes natural light and minimizes interplay with neighboring units. Upon completion of our repositioning strategy, Ascent will offer residents a very reasonable price for finished product that will be on par with brand new class-A luxury offerings.”

In Roseville/Rocklin, apartment rents have increased 7.1% since April, pushing the cost of renting to $1,809 per month, 20% above the area norm. As in Elk Grove, available units are in short supply. The vacancy rate in Roseville/Rocklin is 3.4%.

“The purchase price reflects the high-quality construction and design of the property, and the phenomenal tailwinds at both market and submarket levels,” Eduardo Miranda, Davlyn Investments acquisitions associate, tells GlobeSt.com. “The Placer County submarkets, and Roseville in particular, have performed extremely well this year.”

While Sacramento’s unemployment rate outpaces the US average, multifamily demand has soared to its highest level since 2005, and this has put leverage on the side of area landlords. Since the beginning of April, market-rate apartment rents have increased 4.8%. In stark contrast, the average asking rent nationally has declined by 0.7% during that same timeframe, according to CoStar Insight.

“Ascent lies in an affluent pocket of the submarket, where average household incomes exceed $128,000 within a one-mile radius,” says Jon Williams, CEO of Davlyn Investments. “The neighborhood features a multitude of high-end retailers such as Whole Foods, Apple, Best Buy, Marshalls, REI, Bed, Bath & Beyond and an extensive list of top-notch restaurants. With Folsom Lake and the American River nearby, outdoor recreation is best-in-class. Finally, the property’s location near the Interstate 80 and Highway 65 interchange offers residents convenient access to all of Sacramento’s employment hubs. Accordingly, this acquisition is consistent with our long-term investment strategy to expand our presence in Northern California.”

Typically, more affordable areas have a quicker pace of rent growth than pricier ones. The lower cost basis allows tenants to more easily absorb the increase. Plus, the low-end, workforce and mid-tier inventory that dominates those areas can be subject to renovation programs, resulting in rent increases once updates are completed and units turnover. This often plays out in the Sacramento multifamily market, given its abundance of older inventory. But since the start of the pandemic, three of Sacramento’s priciest submarkets have realized the largest rent increases, says CoStar.

In the Elk Grove submarket, the average rent has increased 7.4% since April. At $1,809 per month, the typical unit commands a 20% premium to the Sacramento average. Vacancies in Elk Grove sit at just 2.3%.

Folsom/Orangevale/Fair Oaks’ rents have grown 7.3% since the beginning of the second quarter. The vacancy rate is more than double the market’s average, at 8.1%, partly due to supply-driven pressure. The submarket has gained three communities totaling 663 units since 2019. The average unit here leases for $1,753 per month, 16% higher than the market average.

The final priciest submarket is Roseville/Rocklin.

One submarket conspicuous by its absence is Davis. With an average rent of $1,937 per month, Davis is easily Sacramento’s priciest apartment market. But with instruction at University of California Davis being held almost exclusively online because of the pandemic, apartment demand has plunged. From 2016 to 2019, the average vacancy rate in the Davis submarket was 1.9%, and vacancies early in the second quarter of 2020 virtually mirrored that mark, at 1.8%. But at the start of the fall quarter, the vacancy rate had expanded to 4.6%, where it currently sits. Consequently, the average rent in Davis has decreased 0.5% since the second quarter, making it the only local submarket with rent losses this year, CoStar points out.