Waterford Property Active on Essential Housing Front
REAL ESTATE: $750M INVESTED THROUGH NEW CSCDA PARTNERSHIP
Newport Beach-based investment firm Waterford Property Co. is rapidly expanding a new segment of its apartment portfolio that’s been capturing more investor interest as of late.
The company has been involved in acquisitions totaling nearly $750 million for middle-income multifamily projects in Southern California since the end of 2020.
Company officials say the firm has plans to at least double that amount by the end of the year.
Waterford refers to this 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.
Waterford’s entry into this workforce housing sector is fueled by its new partnership with the California Statewide Communities Development Authority (CSCDA), which kicked off in December through two large acquisitions in Anaheim. They have been involved in two other deals since.
“This program is part of our overall affordable housing strategy, and complements our existing traditional housing portfolio,” Rawson said.
“This business model allows us to grow our assets under management while also fulfilling a need we’ve seen in the market,” Drachman added.
Anaheim Projects
Waterford first paired with the CSCDA at the end of last year when it acquired two Anaheim apartment projects—The Parallel and the Jefferson Platinum Triangle—for nearly $320 million combined.
The CSCDA is designed to assist in the creation of affordable and workforce housing projects by partnering with local governments to finance projects through tax-exempt bonds.
After the 30-year term of the bonds, cities such as Anaheim are able to buy the projects to maintain the lower rents.
Waterford, meanwhile, joins as project sponsors of deals like the two in Anaheim, and in turn gets paid fees for services such as overseeing the due diligence process and managing the properties once they close.
“It’s not that different of a structure than when we partner with institutional entities and oversee the repositioning of assets,” said Drachman, who launched commercial real estate investor Stillwater Investment Group in 2015.
Stillwater merged with Rawson’s residential-focused Waterford Group in 2019, creating Waterford Property Co.
Long Beach
Waterford made its third deal with CSCDA last month when it closed on Oceanaire, a 216-unit luxury apartment community in Long Beach that’s expected to be converted to middle-income housing.
The duo used tax-exempt bond financing to buy the property for $120 million, and will lower rents for qualified existing and new residents making between 80% and 120% of the area median income.
The deal trails Waterford’s recent buy of the 14-acre mixed-use City Place in Long Beach’s downtown area.
Waterford paired with Turnbridge Equities and Monument Square Investment Group for City Place, once home to Long Beach Plaza Mall, an enclosed shopping center built in 1982.
The new owners plan to revamp City Place “as a vibrant, mixed-use district,” in response to consumer demand for “experiential brick-and-mortar retail.” The project is not part of Waterford’s essential housing platform.
Waterford is now one of the larger reported property owners in Long Beach, having been involved in over $350 million of acquisitions throughout the city since 2015.
Fourth Deal
The company last week closed on yet another apartment project with the CSCDA that’s going to be converted to essential housing.
It paid $300 million for Altona, a 507-unit apartment project in the city of Glendale.
“It’s the largest deal we’ve made so far through this new program, and is also the largest multifamily asset to sell in LA County in several years,” Rawson said.
Waterford has additional deals in the works throughout the state, including several in Orange County.
The company has exclusively partnered with CSCDA for all of its deals in the essential housing platform, which the CSCDA first introduced last year.
“We have done $736 million worth of transactions so far this year under this program, and our goal is to be just as active in the second half of the year,” Drachman said.
Commercial Investments
This pivot serves as a diversification of sorts for Waterford.
About one-third of Waterford’s current portfolio is commercial; the company plans to be more active on the residential front “due to current market dynamics,” Drachman notes.
The company, which has north of 800 local apartment units in various stages of development, says it is looking to target the underutilized retail segment for multifamily conversion projects.
It kicked off those efforts last September when it closed on the Marketplace at the Lakes, a 95,628-square-foot retail project in West Covina.
Waterford paid $18.6 million for the shopping center, which was built in 1994 and is 80% occupied by a Michaels craft store and Jerome’s Furniture.
“It’s a great value-add buy that provides an upside as well as downside protection,” Drachman told the Business Journal in September, noting that there are no immediate plans for tenancy changes, though longer-term changes are in place to convert the site into a multifamily development.
Unlike Waterford’s other ventures, the program with CSCDA is not currently set up to support ground-up essential housing projects, though a “2.0 version of this program could be introduced that applies to new construction,” Drachman said.
“We are incredibly excited about this program, which finally introduces a financing structure to allow cities to increase their share of housing for the growing ‘missing middle’ demographic,” Drachman said.
$115M for Anaheim Apartments
Property to Join Other Middle-Income Housing Projects in OC
A second federal entity focused on increasing the inventory of middle-income housing has entered the Orange County market in a big way.
Records indicate the California Municipal Finance Authority paid $115 million for the Mix at CTR City, with plans to convert the 276-unit apartment complex in Downtown Anaheim into housing dedicated to the region’s middle-income workforce, or those making between 80% and 120% of the area median income.
The deal, the fourth of its kind locally, is part of a workforce housing finance program like that of the California Statewide Communities Development Authority (CSCDA), which has been behind the three other OC deals in Anaheim but was not involved in the recent sale.
Newport Beach-based Greystar Real Estate Partners sold the CTR property for nearly $417,000 per unit.
Carlsbad-based CMFA uses tax-exempt bonds to finance various projects throughout the state in sectors like real estate, infrastructure, pollution control and education.
The program provides low-cost financing for apartment transactions; those complexes are in turn capped on what they can charge for rent.
Like the CSCDA, which has partnered with various property managers like Newport Beach-based Waterford Property Co. in its multifamily acquisitions, CMFA has partnered with an workforce housing-focused affiliate of law firm Manatt, Phelps & Phillips for the deal, records indicate.
Manatt Housing Solutions is expected to manage the Anaheim property as the units are made available to current or future tenants that qualify as middle-income households.
Manatt counts a Costa Mesa location, where the law and professional services firm employs about 50.
Mix at CTR City was built in 2006 and is currently 96% leased, according to CoStar Group. The property includes about 25,000 square feet of retail.
It’s located along Downtown Anaheim’s popular Center Street Promenade retail area, a short walk from city hall.
The complex is down the street from the 220-unit Alexan CTR City in Downtown Anaheim, whose sale at the end of December marked the start of the partnership between the CSCDA and Anaheim.
It sold for $110 million, property records indicate.
The CSCDA has since closed two additional Anaheim transactions—including the Jefferson Platinum Triangle and The Parallel Apartments—and plans to acquire more locally by the end of the year.
— Katie Murar