East Bay Apartments Sell for $15M, or Less Than 4% Cap Rate

Interstate Equities Corporation has purchased Summerhill Place Apartments in Union City for $15 million, or $250,000 per unit.

The price amounts to a cap rate below 4 percent, according to Shivu Srinivasan of Transwestern, who handled both sides of the deal. The low cap rate in a market where interest rates are in the mid-6 range and up is a testament to buyer enthusiasm for the property, which received multiple offers at full asking price and has “significant upside potential,” Srinivasan said.

Interstate Equities was not the highest bidder for the 60-unit Summerhill Place, but it was “the most liquid buyer out of the best and final group of offers,” Srinivasan said via email.

The Los Altos-based company has purchased other apartment complexes in Union City, renovated them and then sold them, according to its website, which states that potential acquisitions for its current $300 million institutional fund “need to have a clear value-add story.” IEC’s multifamily investments are centered in the Bay Area, as well as Santa Barbara, Los Angeles, San Diego and Seattle. They typically have under 100 units and are built between 1950 and 1990. Its operations, from investment to construction to leasing and property management, are all in-house, according to the company.

“The seller felt extremely comfortable dealing with IEC based on their track record and access to large amounts of capital,” Srinivasan said.

Located at 3900 Horner Street, Summerhill Place was built in 1986, acquired by the seller in 1993 and has stayed within the family until now. Srinivasan did not disclose the seller, but according to public records a trust in the name of Barbara Wallerstein purchased the complex, which has an even mix of one- and two-bedroom units, for $3.8 million. Her son Donald Loesch inherited it when she died in 2008, and it passed it to his children after he died in 2021, according to county records.

Srinivasan could not speak specifically to IEC’s plans, but said in general similar value-add buyers upgrade kitchens, bathrooms and common areas to capture additional rent. The property has a pool, parking and onsite laundry and is located south of the Hayward-San Mateo Bridge and just off the commercial corridor of Union City Boulevard.

“Given how unstable the capital markets are right now, it is difficult to predict what an exit cap rate will be once the property is stabilized,” he said, but “garden-style properties within commuting distance from city center locations, such as Summerhill Place, continue to experience higher demand than urban infill locations within the Bay Area.”

The average price per unit in Union City at the end of the third quarter was about $335,000, according to Transwestern’s Senior Research Manager George Entis. The multifamily vacancy rate was 3.9 percent at the end of the third quarter, less than the East Bay average of 5.4 percent. The market’s average effective rent per unit is more than $2,220, making it an affordable option in the East Bay, where the average overall rent is about $400 more.

The apartment market in the Bay Area has run into difficulty of late, as bond rates come close to 5 percent, deterring investment as cap rates continue to hover around 6 percent. Still, apartment experts say that the market is a good investment in the long-term as rising home costs continue to price out even highly paid tech workers.