Waterford Pays $206M for 2 Orange Rental Complexes

ADDS TO ESSENTIAL HOUSING PUSH

Newport Beach-based investment firm Waterford Property Co. is continuing its rapid expansion into the middle-income multifamily sector, with two recent buys of recently-built apartment complexes in the city of Orange totaling north of $200 million.

The company, in partnership with the California Statewide Communities Development Authority (CSCDA), closed last month on two multifamily communities in the city totaling 336 units.

Waterford has now been involved in eight large apartment complex acquisitions totaling 2,022 units and more than $1.2 billion in Southern California since the end of 2020.

Four of those deals are in Orange County. The company’s now spent in excess of $500 million on OC rental properties this year, and has backed the three largest reported apartment deals in OC this year.

Essential Housing Focus

Waterford refers to the middle-income sector as “essential housing,” which aims to increase the supply of housing projects for the nation’s middle-income population, such as teachers, nurses and other civil servants, says John Drachman, who heads the company along with Sean Rawson.

The company is buying the properties through a program created last year by the new state agency CSCDA that uses tax-exempt bond financing to buy higher-end assets in the state, and lower rents for qualified existing and new residents making between 60% and 120% of the area median income.

That works out to a range of about $56,000 to $134,000 in annual household income.

The structure of the CSCDA deals gives participating cities the ability to sell the complexes at a later date, while in the near-term the building owners save money as they are not required to pay property taxes over the life of the bonds.

“California has a housing crisis. This negatively impacts the state’s economy and leads to increased congestion, crime, pollution, poor student performance and social unrest,” said Rawson.

$149M Cameo

The transactions are the first major rental deals locally for Waterford outside of Anaheim, where the company first kicked off its partnership with the CSCDA at the end of 2020.

In the larger of the two recent deals, the partnership paid $149 million for Cameo, a 262-unit multifamily project at 1055 W. Town and Country Road. The site is just south of the Garden Grove (22) Freeway, and a block east of Santa Ana’s Main Place mall.

Residential builder Toll Brothers sold Cameo for nearly $569,000 per unit. That’s the most paid for an OC apartment complex larger than 100 units this year, according to CoStar Group Inc. records.

By total price, it is second in OC this year.

The Horsham, Pa.-based firm (NYSE: TOL) wrapped construction on the five-story luxury building in 2020.

The project includes a mix of studio, one-, two-, and three-bedroom units averaging 857 square feet.

Eastdil Secured’s Joseph Smolen, Geoff Boler and Lee Redmond represented Waterford in the sale.

Garrison

In the latter deal, a venture including Newport Beach-based Branch West Real Estate Partners and Irvine-based Bascom Group sold the 94-unit Garrison for $57.1 million, or nearly $607,000 per unit.

The project, located about three miles north of Cameo at 1725 West Katella Ave., wrapped construction in 2021, two years after the prior owners acquired the fully entitled development site.

The five-story project is situated just east of the Honda Center in Anaheim, and is a short walk to Angel Stadium.

Tom Moran of Berkadia represented Waterford in the Garrison deal.

Lowered Rents

Waterford and CSCDA plan to immediately lower rents for qualified tenants at the two projects.

“With this program we are able to acquire market rate assets and convert them to workforce units immediately,” Drachman said.

“To put this into context, in less than a year we have converted nearly 2,500 units to workforce housing.”

Anaheim was one of the first to sign on to the CSCDA program, which led to four transactions in the city that closed in a series of deals totaling $545 million.

Waterford was involved in two of those deals locally; it first paired with the CSCDA at the end of last year when it acquired two recently-built Anaheim apartment projects—The Parallel and the Jefferson Platinum Triangle—for nearly $320 million combined. The $160 million paid for the Jefferson is the most for a local complex this year; the $156 million for the Parallel is second-most.

Outside of OC, Waterford and CSCDA count similar rental properties in Los Angeles and Long Beach.