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VALLEJO, CA-Blue Rock Village, a 560-unit, 448,192-square-foot apartment property here has changed hands for $54.4 million, according to brokers with Marcus & Millichap that had the disposition assignment. The price equates to $97,143 per unit and $131 per square foot. The seller was BRE Properties, an apartment REIT that had the property on its books at cost of $40 million. The buyer was Prime Property Capital Inc., a private investment firm. Both companies are based in San Francisco.

The property was approximately 93% leased at the time of sale. The M&M executives that had the assignment, Stan Jones and brothers Phil and Sal Saglimbeni, declined to name the buyer or seller or discuss the capitalization rate on the deal due to BRE being a public REIT that must conform to SEC regulations about disclosure. BRE had not yet filed any transaction details with the SEC.

According to BRE’s own third quarter 2008 supplemental report, the cap rate range for apartment deals in San Francisco had risen to between 5% and 5.5% by the end of September 2008 from 4% to 4.75% in 2007. Saglimbeni says cap rates continued to climb in the fourth quarter for major apartment properties in the San Francisco area.

Located at 1900-2000 Ascot Pkwy., the Blue Rock Village is near the Blue Rock Springs Golf Course and National Park, Six Flags Marine World, historic Mare Island and Old Town Benicia, and the Napa Valley, 11 miles away. The gated property itself has a mix of one- and two-bedroom units. Community amenities include swimming pools and spa, a fitness center and picnic areas.

Phil Saglimbeni says the property was constructed in the late 1980s in two distinct phases and that BRE owned it for approximately 11 years. “It was maintained well but never fully repositioned,” he says. “So it’s a value-add opportunity, which a couple of years ago would have gotten people excited enough to pay a premium. Now, however, buyers are less willing to pay up for a future benefit.”

Add to that the property’s location in Vallejo, which filed for bankruptcy in May; the high foreclosure rate in Solano County, which creates concerns about rental competition; and the relatively shallow pool of buyers due to the current state of the debt and equity markets, and you get higher yield expectations from those few buyers who show a strong ability to close.

“We did have credible interest from companies but at the end of the day it became an exercise in determining the highest probability of close,” Phil Saglimbeni says. “It was challenging from start to finish but once we found a strong buyer the process went smoothly because they were prepared to do the deal without any financing contingencies.”

As of the end of September, BRE owned 2,475 units in San Francisco. Revenue from those properties was up 7.6% in the third quarter to $12.8 million when compared to the same year-earlier period. Market rent per unit was up 4.6% t $1,859 per month. Occupancy fell 10 basis points to 95.5%. The turnover ratio was down 200 basis points to 57%.

BRE currently has 224 units under development in San Francisco, another 453 units waiting for rehabilitation and 560 units held for sale. Of the for-sale product, the average market rent is $1,513 and average occupancy is 94%. The company also had land under contract in Walnut Creek, CA, that would hold 361 units at a cost of $126 million and additional land in contract in Sunnyvale and San Jose for similar projects. It already owns a development parcel in Pleasanton, CA, upon which it is planning a 240-unit complex at a cost of $72.1 million. The project it currently has under construction is Crossings Santa Clara, a 270-unit, $89.7-million project that is slated for completion in 2010. It also has an excess land parcel adjacent to its crossings site for sale that is on the company’s books for approximately $17 million.

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