Essex Sells Second Tranche of Fund Assets for $322M

PALO ALTO, CA-Locally headquartered Essex Property Trust Inc. has sold the second tranche of properties from its inaugural Essex Apartment Value Fund to United Dominion Realty Trust, which is under contract to acquire the entire 4,646-unit portfolio for $756 million. The second tranche, which included seven California properties with a combined 1,904 units, sold for $322 million.Essex is a 1% general partner and 20.4% limited partner in the fund. Essex hired Credit Suisse First Boston “to evaluate strategic alternatives” for its inaugural fund this summer and began the liquidation last month, the same month it held the final closing for Essex Apartment Value Fund II, which will have an investment capacity of about $750 million. United Dominion paid $264 million for the first tranche of Fund I’s 16 properties. The tranche included seven properties aggregating 1,777 units. Five of the properties were in Southern California and two of the properties were in Portland, OR region. All seven of the properties in the second tranche are located in Southern California. Among the properties sold was Coronado at Newport North in Newport Beach, of which Essex held a 49.9% direct ownership, unlike the other properties.With the closing of the second tranche, United Dominion has closed on 14 of the of the 16 properties in Fund I–or 3,681 of the 4,646 units–for an aggregate price of $586 million. The two remaining properties to be sold to UDR are expected to close in 2005. The properties are Coronado at Newport South, a 732-unit apartment complex that is currently undergoing redevelopment, and River Terrace, a newly developed 250-unit apartment community located in Santa Clara, CA, that is currently in lease up. Seven of the nine Fund I investors, including Essex, are participating in Fund II. The objective of Fund II is to add value by identifying and acquiring assets in West Coast markets with high rental growth potential and then using Essex’s development, redevelopment and asset management capabilities to add value. Fund II will potentially invest in multifamily properties up and down the West Coast, but there will be an emphasis on investment opportunities in Seattle and the San Francisco Bay Area, markets many believe have hit bottom and are primed for recovery. Subject to specific exceptions, Fund II will be Essex’s exclusive investment vehicle for new investments until Oct. 31, 2006, or until the committed capital has been invested or committed for investments, whichever occurs first. Consistent with Fund I, Essex will be compensated for its asset management, property management, development and redevelopment services and may receive incentive payments if Fund II exceeds certain financial return benchmarks.