Carmel Partners Buys Park Lake for Conversion

WALNUT CREEK, CA-With plans to convert the property to condominiums, Carmel Partners has acquired the 184-unit Park Lane Apartments here for $51 million or $277, 173 per unit. The San Francisco-based investment firm acquired the property with its second discretionary institutional real estate investment fund, Carmel Partners Investment Fund II LP.

The off-market transaction was sourced by David Silver and Nathan Blair of Arroyo & Coates, who officially represented the seller, a private East Bay family that owned the property under Park Lake Apartments LP. Carmel Partners managing partner and chief investment officer Chris Beda tells GlobeSt.com the company plans to bring the product to market before the end of the third quarter; the company has yet to establish pricing, he says.

Park Lake is located at the intersection of Ygnacio Valley Road--a main thoroughfare through the city--and Walnut Avenue. The community sits on 10.5 acres and includes 23 two-story buildings containing one- and two-bedroom units that average about 800 sf. The property was approximately 95% occupied at the time of sale.

Silver says property was mapped for condos at the time it was originally constructed in 1980. The sale price represents an implied cap rate of around 3%, he says. Carmel Partners could not be reached Wednesday for comment on, among other things, what the expected gross sell-out will be for the property.

"This product is going to be great (for the buyer) because it has great bones and will be priced below new product, which is an underserved market in Walnut Creek," says Silver, whose team has listed and sold some approximately $1 billion of mostly multifamily product. "It's not easy to find deals like this; the property has a great water feature running through it and mature landscaping."

Silver says the appetite from the bulk buyer community has slowed down this year compared to 2005. "The (bulk) buyers that have contacted me in the past are now focused on digesting units they have in the pipeline," he says.

Beda agrees that the market for apartment-to-condo conversions is waning, but both he and Silver say the market remains strong for entry-level housing in well-established residential markets like Walnut Creek. "There's been a lot of new condo construction in Walnut Creek, but it has been high-end luxury product," Beda says. "This will serve the true entry-level condo buyer."

Carmel Partners Investment Fund II is nearly double the size of its first fund. More than 95% of the original Fund I investors, comprised largely of university endowments and foundations, committed to Fund II alongside 11 new investors. The stated strategy of both funds is to selectively buy underperforming multifamily assets and actively manage and renovate those properties, making value-based improvements.