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[IMGCAP(1)]OCEANSIDE, CA-The San Francisco-based Prime Group has acquired two apartment complexes in this city from Northwestern Mutual Life Insurance Co. for $84 million in separate transactions that illustrate how private investors are stepping in to buy from institutions, according to Cushman & Wakefield investment specialists who negotiated the deals. “These two sales mark the beginning of a trend where private investment firms will move to acquire quality, institutionally owned properties in fundamentally sound markets at today’s lower price points,” says Ed Rosen, executive director and apartment specialist with Cushman & Wakefield.

The two properties that traded are the 424-unit Villages of Monterey at 3901 Mesa Dr. and the 234-unit Montecito Village at 4302 Cassanna Way. The Villages of Monterey sold for $52 million and the Montecito for $32 million, with Rosen, executive director John Chu and Alejandro Lombrozo of the Cushman & Wakefield San Diego office representing both the Prime Group and Northwestern Mutual.

[IMGCAP(2)]The Cushman & Wakefield team says that the sales signal a shift in the market in that many of the institutional investors who drove apartment sales activity to record highs between 2005 and 2007 are now selling and private investors. Rosen point out that, with favorable financing for multifamily properties readily available for qualified borrowers through Fannie Mae and Freddie Mac, “We will see an increase in apartment sales activity in 2009, although pricing will remain well below the previous peak years.”

Chu notes that the sales closed at an approximate 7.5% cap rate compared to the lower cap rates in the 5% to 6% range that prevailed in the market two years ago. “This reflects the improved returns these properties will generate at the lower prices and with today’s better interest rates for this product type,” he says.

John Adair, principal with Prime Group, notes that Northwestern and Cushman & Wakefield worked to finish due diligence in only two weeks and close the deals a little more than two weeks later. “Even though the current economy is challenging, we believe in the long-term strength of the multifamily business in California and hope to make more investments like this in 2009,” Adair says.

The Villages of Monterey was built in 1988 on a 42-acre site with 10 units per acre. In addition to 28 residential buildings, there is a management office and a clubhouse with fitness center and dry sauna. The apartments range from one to three bedrooms and from 728 square feet to 964 square feet.

Montecito Village was built in 1989 on an 11.6-acre site. The gated community’s 18 residential buildings offer upgraded one- and two-bedroom apartments that range from 642 square feet to 1,055 square feet.

The acquisitions are the most recent in a wave of investment activity by The Prime Group. In December 2008, the company acquired the 560-unit Blue Rock Village complex in Vallejo, CA from BRE Properties for $54.4 million. The Prime Group now owns a multifamily portfolio totaling 20,000 units in 42 properties throughout California, Nevada, Arizona, New Mexico, Oregon and Colorado.

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