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SAN JOSE, CA-Archstone has sold Monterey Grove, a 224-unit property here that was built in 1999 and is upwards of 95% leased. The sale price was $56 million, $250 per unit and $271 per sf, which translates to a cap rate of just under 5% based on actual performance thus far in 2008.

The new owner is Apartment Investment Management Co., which completed an IRS 1031 Exchange in acquiring the asset. The brokers were Curtis Gardner, a partner in brokerage firm Arroyo and Coates, and fellow A&C broker John McCulloch.

The sale price is comparable another recent sale in the submarket, Avalon at Fox Chase, a two-story, 396-unit development that was built in 1988 and is 95% leased. Klingbeil Capital Management acquired the property from Avalon Bay Communities for $270 per sf.

The location of Monterey Grove at the south end of San Jose, near the junction of Highways 101 and 85, puts it in proximity to employers like Hitachi, IBM and Kaiser as well as mass transit such as CalTrain. The property includes a 15% affordable component. Fourteen units are priced at 50% of median income and 20 units are prices at 110% of median income.

The property has been listed twice in the recent past by other brokerage firms but Archstone decided not to sell. McCulloch says the property is perennially well leased and utilizes yield maintenance software, which works to maximizes rents and minimize concessions.

Archstone has been selling properties to pay down debt from its privatization by Tishman Speyer and Lehman. The debt service was reportedly higher than the company’s overall NOI. Archstone has since sold off its entire Orange County portfolio (to Irvine Cos.) and has been selling select other assets to help pay down the debt.

With Archstone and Blackrock – the two largest acquirers in the Bay Area in the past couple of years – having shifted to being net sellers, the pool of buyers for newer core product has decreased somewhat, creating a bid-ask gap, with buyers generally seeking cap rates on the plus side of 5% and sellers listing at sub-5% cap rates.

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