EVERETT, WA-Demand for Northwest apartment buildings continues to be strong. Security Properties recently sold for $38 million an eight-year-old, 220-unit complex here that it acquired in 2004 for $23.1 million.

The asset is called Hearthstone at Merrill Creek. Completed in 2000, the gated community sits on 14.1 acres project near The Boeing Co. facility that will assemble the new 787 Dreamliner, as well as other major employers in the Everett/Mukilteo/Seaway Center area.

In explaining to 65% growth in value over four years, John Hallgrimson of CB Richard Ellis, who with partner Frank Bosl sold the property both to and for Security Properties, tells GlobeSt.com that the market has been a perfect storm of rent growth, decreasing rental concessions and capitalization rate compression over the past several years.

While they’ve owned the property its economic has fallen from 16% to 6%, there were a couple of years of 10% annual rent growth during and cap rates fell to new lows, Hallgrimson says. The cap rate on the 2004 sale was 6%; the cap rate on this month’s transaction was 4.8%, he says, adding that the peak of the market was probably last summer.

“We’ve seen the cap rates drift up in the last nine months,” he says. “We would have been 50 basis points lower (if the property had traded last summer).”

The new owner of the property is United Dominion Realty, a multifamily REIT that sold 86 apartment properties (25,684 units) for $1.7 billion in the first quarter and then quickly used about one-third of the proceeds for new acquisitions in the same quarter.

Hearthstone at Merrill Creek was acquired in the second quarter. Hallgrimson says the UDR likely will upgrade some of the finishes at the property to better compete with other nearby properties.

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