Low-Cap Apartment Sale Provides Window On Market

The property is the nine-story, 37-unit Buena Vista Apartments at 75 Buena Vista Ave. East, an Art Deco complex that was built in 1931 and had not been on the market in 70 years. The locally based Mannion Trust, one of nine prospective buyers who made offers on the property, bought it for $6.8 million from the Stirling Family, which had acquired it from the original developer in 1931.

Devincenti explains that the cap rate was unusually low for today's market primarily because expenses at the building run higher as a result of its master-metered utilities, meaning that the building owner pays for the utilities. The buyer was willing to accept the lower cap rate in part because Devincenti explained to him that he will be able to increase rents and lower expenses within the next 12 to 24 months by understanding the rent control laws and measures that can be pursued to increase the NOI generated by the building.

For example, the rent control laws permit the new owner to convert the electrical system to individual unit metering, which will lower his expenses. Although the new owner will not be able to pass through electricity costs to existing tenants via the individual metering, he will be able to do so when new tenants move in. "We showed him that 43% of the building had turned over during the past 24 months, so if that pattern of turnover continues, he will be able to shift the utility costs to the tenants," Devincenti says.

Another unusual aspect of the deal was that the sales contract required that any units that became vacant during escrow, as three did, would be left vacant because the the owner wants to renovate the units with a goal of raising rents.

The 75 Buena Vista's 37 units include 22 studios, 14 one-bedroom units and a penthouse on the top floor. Rents at the close of escrow ranged from $597 to $1,737 for the studios and $766 to $2,050 for the one-bedroom units. The penthouse unit was one of the three that were delivered vacant. "We projected it to rent at $3,000," Devincenti says, and the new owner rented it at that figure soon after closing.

The 75 Buena Vista building is unusual in that it is one of only two high-rise, concrete-and-steel apartment buildings on the Buena Vista loop, which faces Buena Vista Park―San Francisco's oldest park―at one of the highest point in the city. The location provides "phenomenal views" of the park, the Golden Gate Bridge, the Bay Bridge and the Downtown San Francisco skyline, Devincenti notes.

Devincenti tells GlobeSt.com that the details of the deal will be of significant interest to those who track the San Francisco apartment market. "People are interested in seeing what such deals are trading at versus REO and distressed deals," he says. Unlike those properties, this building had been owned debt-free for years, he points out.