Dive Brief:

• Essex Property Trust assumed the common equity interest in a 75-unit property in Sunnyvale, California, in the first quarter of 2024, according to the REIT’s Q1 earnings release.
• The Palo Alto, California-based firm said it had provided a $14.7 million preferred equity investment for the property. While it didn’t identify the property or the owner, in a recent Linkedin post the REIT announced it had added the 75-unit Maxwell Sunnyvale to its portfolio. The property had been owned by Daville, California-based owner Tilden Properties.
• Upon assuming ownership of the asset, Essex paid off $32 million of debt on the property and consolidated the community on its balance sheet at a $46.6 million valuation, according to the earnings release. Previously, it had placed the preferred equity in the property on non-accrual in Q4 2023 and recorded a $3.7 million non-cash impairment related to the investment in Q1 2024.

Dive Insight:

Essex has a strong presence in the Sunnyvale market, with 37 properties in the area, according to its website. The addition of Maxwell Sunnyvale, which has rents starting at $5,327 according to the property website, gives it another high-end offering. “It is a high-quality, condo-style property,” Barb Pak said on the REIT’s Q1 earnings call.

Additionally, Essex thinks it will squeeze more efficiencies out of the property. 

“The property is located adjacent to an existing Essex community, which will allow us to operate it efficiently within our collections model,” Pak said. “Overall, we view the outcome favorably given the quality of the asset, our initial yield and our long-term view on the growth in the Sunnyvale submarket.”

While the company did not respond to Multifamily Dive’s request for comments on the deal, the Sunnyvale property was one of five preferred equity investments that were either in non-accrual status or on Essex’s watchlist in Q4 2023, according to Pak. 

“Of those four [remaining] assets, three of them have loans maturing in the next two to three quarters,” Pak said on the Q1 call. “So we'll have an outcome there sooner rather than later, I believe. There's one other asset that we're having productive conversations with the sponsor to contribute additional equity, which will put us in a safer position in the capital stack.”

Pak added that none of the sponsors on the four assets were in default with Essex or their senior lenders. “The sponsorship really does matter here, and we have really good sponsors,” she said.

No new assets were added to Essex’s watchlist in Q1, according to Pak. “We go through a comprehensive review of the portfolio every quarter,” she said.

Essex isn’t the only REIT to take control of an asset in Northern California recently. In January, UDR assumed the ownership interest of a 173-unit lease-up property in Oakland, California, built by developer Mill Creek Residential.