By Barbra Murray, Contributing Editor
Investors with cash to spare are snapping up properties burdened by debt, but BRE Properties Inc. didn’t have to come up with too much cash for its purchase of Fountains at River Oaks in San Jose, Calif. The San Francisco-based apartment REIT acquired the 226-unit multifamily property for $50.2 million, a price tag that includes the assumption of an existing $32.5 million secured mortgage loan.
Fountains’ accompanying debt comes in the form of a loan bearing an interest rate of 5.74 percent and a maturity date in 2019.
Located in the Silicon Valley technology mecca, Fountains is a garden-style rental community encompassing 24 two- and three-story structures occupying eight acres of land. The property, developed in 1990, will be submitted to a renovation program at the hands of BRE over a two-year period.
BRE is banking on demand that is intrinsic to Fountains’ location within Silicon Valley’s bustling Innovation Triangle. The area is home to a bevy of leading technology industry employers including the likes of Intel, Oracle and Cisco Systems, which maintains its headquarters there. All of the companies sit within a three-mile radius of Fountains.
San Jose certainly took its hits during the economic downturn, but the city’s apartment market is in far better shape than most. Average vacancy rate in the second quarter was only 4 percent, about half the U.S. average, according to a report by Marcus & Millichap Real Estate Investment Services Inc. And the outlook is better yet. As employment growth returns in a market where new construction has been relatively limited, the vacancy rate is on track to drop to 3.8 percent this year.