Many markets around the country are dealing with massive amounts of new apartment supply. San Diego, California’s El Cajon submarket, which offers access to downtown, universities and the airport, isn’t one of those places.
“In 2024, only 88 units were added to the area, which equates to just .1% of the existing inventory,” Sunstone Two Tree CEO Scott Maddux told Multifamily Dive, citing CoStar statistics. “Much of what is there was built before 1980.”
To enter a market with older supply and obstacles to building new apartments, investors have to look at existing, often decades-old, inventory. Westlake Village, California-based Sunstone Two Tree did that when it pursued the 200-unit Terraza Hills community.
“This was a property that had been on the market — and we’d been keeping an eye on — for a couple of years,” Maddux said. “After a previous buyer fell through, we were in the right place at the right time to make a deal.”
Sunstone Two Tree took advantage of its second chance, buying the property for $45 million or $225,000 per unit from owner Don Swanson. “We had been eyeing the San Diego market for several years,” Maddux said.
While there was certainly lots of interest in the property, Swanson wanted certainty of closing after the previous sale fell through, according to Maddux. “There was also a loan assumption involved in the acquisition, which complicates the closing process,” he said. “We have transacted multiple times with the original lender, which helped us stand out during the sale process.”
Massive renovations
Sunstone Two Tree plans to spend significant capital to upgrade the interior units and exterior of Terraza Hills, which was built in 1976 and still remains in its original condition. It will begin renovations, which should take 24 months to complete, this month.
Sunstone Two Tree will upgrade each unit interior with vinyl plank flooring, hard surface countertops, updated lighting, stainless steel appliances and new cabinetry. Outside, it will provide new paint, replace the exterior finish, install new lighting, repair the parking lot, refresh the landscaping and install signage.
The company also plans to refence backyards, renovate parking garages and add carports. It will rehabilitate the pool area and add new gates and fencing around the property's perimeter.
“By making upgrades to the community — such as removing burnt-down parking garages and updating the interiors to modern finishings — we’re able to provide a modern, comfortable, clean and safe community at an attainable price,” Maddux said.
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