Macfarlane Acquires $55M Apt. Development

SAN FRANCISCO-MacFarlane Partners acquires a development site at 1844 Market St. here on which it intends to construct an eight-story multifamily residential building. MacFarlane Partners acquired a non-performing note secured by the half-acre site and has taken title to the property, which is fully entitled for residential development.

The site is located just west of Octavia Street, at the nexus of three submarkets of San Francisco—Hayes Valley, Lower Haight and the Castro, according to a prepared statement. The planned residential building will consist of 113 rental apartments—99 market-rate and 14 affordable units--5,500 square feet of street-level retail, and an underground garage with 81 parking spaces.

Completion of the project is planned for the summer of 2013. Total construction costs are estimated at $55 million. According to an unidentified source, the seller was Centrix Builders Inc.

The investment is the first by MacFarlane Partners on behalf of MacFarlane Urban Real Estate Fund III, a closed-end, commingled fund managed by the firm that is capitalized with $211 million in equity from institutional investors. MacFarlane Partners will serve as the property’s developer. “This investment reflects our confidence in the strong market for apartment properties in the San Francisco Bay Area, which has experienced a significant increase in rents in recent months,” says Greg Vilkin, managing principal and president of MacFarlane Partners.

“The property’s location in the heart of the City is further enhanced by the recent enactment of a payroll tax abatement plan on Market Street within several blocks of the site, which also attracted Twitter to relocate its headquarters to 10th and Market,” Vilkin adds. The one, two- and three-bedroom apartments and ground-floor retail will face onto both Market and Waller Streets and an interior courtyard. A fifth-floor terrace will offer recreation space with views of downtown.

Adjacent to the LGBT Center, the property’s central location in the vibrant Upper Market area where several neighborhoods meet is highly desirable, with access to an abundance of restaurants, shopping, entertainment and transit options, including Muni, BART and dedicated bike lanes. In addition, freeway access to the San Francisco Peninsula and San Jose is immediately across the street from the property, making it an ideal location for residents who commute to Silicon Valley.

According to a prepared statement, Urban Fund III is pursuing an investment strategy that MacFarlane Partners pioneered in the 1990s on behalf of institutional investors: acquiring, developing, redeveloping and repositioning properties in urban and high-density suburban submarkets of select metropolitan areas nationwide that promote smart growth, urban revitalization and sustainability.

GlobeSt.com source Jeffrey Mishkin, first vice president on the firm, and regional manager of the San Francisco office of Marcus & Millichap Real Estate Investment Services, says that on the multifamily side, San Francisco’s tech renaissance will continue to generate robust renter demand citywide through 2011, bolstering the performance of local apartment properties. “Growing clusters of relocating and expanding social-networking and mobiletechnology firms, in particular, have drawn young professionals into core tech hubs like those in the South of Market area,” Mishkin says. “Startups will continue to target office space in the area this year, supporting strong demand for local housing, but more Web-centric firms will likely look to surrounding areas, resulting in spillover apartment leasing activity.”

Mishkin adds that in 2011, amenity-laden buildings will attract the largest share of young professionals entering the rental market, which, with the help of falling construction, will drive class A vacancy improvements to surpass those in the lower tiers.”