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SAN BRUNO, CA-One year after forming their partnership to develop phase three of the Crossing at San Bruno, Phoenix-based SNK Realty and San Francisco-based MacFarlane Partners have secured $116.41 million in construction financing for the project. The 350-unit development will include 187 condominium units and 163 apartment units in two five-story buildings that will sit atop a two-story parking structure. Mass grading for the development is expected to begin in the next few weeks. Completion is slated for mid-2010.

Hal Watson, chief executive of SNK, tells GlobeSt.com that because of the dislocated credit markets, the loan-to-cost for the $163-million project, at 71%, was substantially lower than it would have been in 2006. “This is the most equity that we’ve ever put into one of our development project,” Watson says. “About 29% of project costs.”

The fact that Corus Bankshares even funded the four-year loan and that SNK and MacFarlane are willing to put up the equity to make it happen are testaments to the confidence they all have in the success of the project. The apartments are expected to lease up as they generally all do in the Bay Area, and the developers and the lender are optimistic that the for-sale multifamily market will be ready for them when they are ready for it.

“[SNK] found a good site; they designed the right product, at the right price point for the area [and] they have strong investors behind them [in MacFarlane],” says Corus Bank SVP Dwight Frankfather. “Despite the large loan size, the Bank closed the transaction without participants, and we do not intend to syndicate it.”

In explaining the expected demand for the projects condo units, Watson tells GlobeSt.com that its phase of the Crossing is the only one that has a condo component and the only one that will be 100% market-rate housing because the required BMR units were already provided in the first two phases. Moreover, Watson says there are no other condo units under construction in the immediate vicinity.

“The condo market on the San Francisco Peninsula hasn’t experienced the gross overbuilding that has occurred in the East Bay and parts of Oakland, where they are suffering from a glut right now,” Watson says. “But I expect they will all be absorbed in not too long [a period] and our project will take 24 to 27 months to build, so we won’t even be delivering units to consumers until summer 2010; we are confident that by then the condo market for really the entire Bay Area will be very healthy.”

San Bruno is located 12 miles south of Downtown San Francisco, halfway to the Silicon Valley. Crossing at San Bruno is a 20-acre development located within walking distance of both BART and Caltrain, and one mile from San Francisco International Airport.

TMG Partners and Regis Homes of Northern California acquired the surplus Navy property from the US General Services Administration at an auction in 2000 as part of a redevelopment deal with the city. In partnership with MacFarlane Partners, which was investing on behalf of the California Public Employees’ Retirement System, they broke ground for the first two phases in January 2003.

The trio has since sold the first two phases–the 300-unit Meridian Luxury Apartments and the adjacent, 185-unit Paragon Luxury Apartments–to the Colorado-based apartment REIT Archstone-Smith Trust. Archstone paid $101.2 million for the larger project in December 2005 and three months later paid $65.1 million for the smaller project, which was under construction. Archstone invested an additional $7 million to finish the project.

SNK acquired the land for phase three from TMG and Regis in late 2005 and partnered with MacFarlane in May 2007. The equity MacFarlane is providing SNK for the final phase is coming from MacFarlane Urban Real Estate Fund II LP, a closed-end, commingled real estate fund focused on development, redevelopment and repositioning projects. SNK Development, the construction and development arm of SNK Realty, will manage the development of the property on a day-to-day basis.

The phase-three design is the work of HDO Architects-Planners. The condominium building will feature one- and two-bedroom flats, and two- and three-bedroom townhomes averaging 1,200 sf. The apartment building will have one- and two-bedroom rental units averaging 900 sf that have been mapped for an eventual condo conversion. Amenities include a pool, interior courtyard and fitness center for each building. Watson wouldn’t disclose the per-sf pricing they hope to achieve on the condos but says the market rate for new apartments is north of $2.75 per sf.

SNK will handle the condo sales and the apartment lease-up and management in-house through SNK Pacific Coast and SNK Property Management, respectively. A sales center for the condos is expected to be up and running on or next to the development site by February 2010.

When the third phase is complete, the Crossing will feature more than 1,000 residential. On additional phase is planned to include a hotel and 20,000 sf of retail and restaurant space.

SNK Realty has completed three other Bay Area developments since 2001. Those projects include Allegro at Jack London Square, a 310-unit apartment project along Oakland’s bayside that was completed and sold in 2001; The Franklin 88, an 88-unit condominium property in Downtown Oakland completed in 2004 and sold out in 2005; and Andante, a 125-unit condominium project in Emeryville that was completed and sold out in 2006.

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