Dive Brief:
- An affiliate of Union Labor Life Insurance Co. sold the 206-unit Zo apartment tower in Oakland, California, to Three Steps Properties for $78 million last month, according to SiliconValley.com.
- Union Labor Life Insurance Co. took control of the 24-story tower in August 2024 when the unpaid debt on the property was $89.3 million, according to SiliconValley.com, citing Alameda County property documents.
- Gerding Edlen developed the tower, but lost ownership through a deed-in-lieu of foreclosure proceeding, according to SiliconValley.com. When the Portland, Oregon-based developer completed the property in 2019, it had been the first tower to break ground in downtown Oakland since 2008.
Dive Insight:
Oakland-based Three Steps Properties recently acquired another property near Zo. It paid $99 million for a 254-unit, 34-story apartment tower two blocks from Zo, according to SiliconValley.com.
Zo isn’t the first building to face issues in the Oakland market. In January 2024, UDR assumed the ownership interest of a 173-unit lease-up property in the city built by developer Mill Creek Residential after the Atlanta-based developer told the REIT it would not fund its share of a capital call, according to the Highlands Ranch, Colorado-based REIT’s fourth-quarter 2023 earnings release.
“We did take the keys back on that asset as the developer didn’t want to continue to support the cash flow shortfalls,” UDR President and Chief Financial Officer Joe Fisher said on the REIT’s Q4 earnings call in February 2024.
The situation in Oakland and the rest of the Bay Area has been challenging for apartment owners over the past five years. Renters moved away during the COVID-19 pandemic, and some haven’t returned. For the 12 months ending January 2023, Oakland experienced a 270-basis-point year-over-year occupancy decline — the third-worst in the state.
In addition, supply has been increasing in the market. In 2024, Oakland added 2,751 new apartment units, which grew inventory by 0.9%, according to data from RealPage Market Analytics. Overall, the city’s total apartment inventory has grown by 12.6% in the last decade.
However, the outlook may finally be improving, according to one REIT. Despite Oakland being a drag on Essex Property Trust’s portfolio with 1.2% in new rate growth in the first quarter, the city has begun to “demonstrate incremental improvement as supply abates and concessions moderate,” CEO Angela Kleiman said on the Palo Alto, California-based firm's first-quarter 2025 earnings call last week.
“[In] Oakland, what we're showing is that 75% of the supply is delivering in the first half,” Kleiman said. “So by midyear, we expect Oakland to start to revert back to a more normalized market dynamic. I don't think it's going to happen overnight, but it's finally going to turn. And we waited for a long time for this, so we're pretty darn happy about it.”
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