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APRIL 28, 2008

UDR Buys Luxury Multifamily for $115M

By Brian K. Miller

SAN FRANCISCO-Fresh off a $1.7-billion portfolio sale, UDR Inc. has acquired the 193-unit Edgewater Luxury Apartments here for $115 million or $596,000 per unit, according to Marcus & Millichap Real Estate Investment Services, the listing brokerage firm. The apartment REIT acquired the year-old asset from developer Urban Housing Group. The capitalization rate on the transaction is in the mid-4% range, according to documents filed with the SEC.

Located at 355 Berry St., between Fifth and Sixth streets in the Mission Bay area, the 157,203-sf, six-story apartment building is situated on a 3.6-acre lot. The property is within walking distance of AT&T Park, the San Francisco Caltrain station and light rail stations.

Community amenities include a clubroom with a fireplace, television and kitchen for entertaining, a 24-hour fitness center, a fully equipped business center with conference room and Internet access, and outdoor courtyards with fireside lounges.

The building includes a mix of one- and two-bedroom units along with a limited number of loft units. Unit amenities include water and mountain views, full-sized washer and dryer, kitchen with black appliances and granite countertop. The average monthly income per unit is $3,076, according to documents filed with the SEC.

The Mission Bay neighborhood of San Francisco was recently named the country's leading apartment market in Marcus & Millichap's 2008 National Apartment Report. Stanford Jones, Sal Saglimbeni and Phil Saglimbeni, executives with M&M's National Multi Housing Group in Palo Alto had the disposition assignment. They also procured the buyer.

"The market for Class A assets in exceptional Bay Area locations is showing little or no price erosion [as a result of] the global influences of the credit crisis and slowing economy," Jones says.

The Edgewater acquisition is the first since its March sale of 25,684 apartment units in 84 for $1.7 billion, which translates to a cap rate of 6.56%. UDR says the "right-sizing" of the organization - from 232 communities to 146 communities, raised its operating margin to 68% from 66%, raised its average monthly rent to $1,164 from $894 and decreased the average age of its portfolio to 15 years from 18 years, all while keeping portfolio occupancy at 94.4%.

In SEC documents the company says it completed the portfolio sale because it was positive to net asset value and because its wants to focus more on development and redevelopment, which have greater impacts on NAV. The company also plans to use proceeds from the portfolio sale to buy back stock. The company has authority to acquire approximately 22 million shares.


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