Sam Zell’s Equity Residential Starts Construction Of $224 Million Development Project In San Francsisco

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Potrero Hill Development Project – rendering courtesy Equity Residential.

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Last week, New York Stock Exchange listed real estate investment trust Equity Residential EQR (NYSE) announced its 2014 first quarter earnings. The company, which is led by its Chairman of the Board of Trustees, Sam Zell, the billionaire investor from Chicago, achieved a 26% jump in revenues in the first quarter compared to the first quarter in 2013.

Continuing net income came in at 20 cents per common share, compared to a loss the previous year of 47 cents per common share. With 362 million shares outstanding the REIT has a market capitalization currently of over US$21. 7 billion.

Residential real estate is now doing very well again as the economy has recovered, and Equity Residential is no exception with its shares now trading at around US$60. This is more than three times their February 2009 low, of below US$18, and already close to ten percent above their previous pre-recession high, of just over US$56, achieved in January, 2007.

In commenting on the results David J. Neithercut, who serves as Chief Executive Officer, President, Trustee and Member of Executive Committee said, “As expected, fundamentals across our core markets, with the exception of Washington D.C., remain favourable with continued strong demand and manageable new supply, ” he also added that, “As we approach our primary leasing season with occupancy of 95.9% … we are well positioned for yet another year of strong revenue growth.”

As part of its ongoing development programme, Equity Residential has recently begun construction of a major new US$224 million multi-family apartment project in San Francisco’s Potrero Hill neighbourhood. The development comprises 453 apartments, and 26, 000 square feet of retail space as well. The just over 3 acre site is located at 1000 16th St. in San Francisco.

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Proposed Daggett Park designs from CMG [Photo: SF Planning (pdf)]

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Designed by David Baker of David Baker Architects, a firm of architects that has designed literally dozens of housing projects, the low-rise project comes with lots of amenities to attract the up-scale customer demographic that Equity residential is increasingly targeting.

There will be a one-acre urban park as part of the development, accessible to the whole neighbourhood not just to the project’s tenants. A gym, rooftop deck, clubhouse, spa and pool are all planned for the project as well.

Jim Kelly, who oversees Northern California development for Equity Residential commented on the park element in particular, “Given that outdoor park space is a coveted commodity in any urban environment, the park will not only be a great amenity for the residents within our development, but will also be a great addition for the entire Potrero neighborhood to enjoy.”

These kinds of projects take a long time to bring to fruition, especially when business down-turns intervene in the development cycle. In this case Residential acquired the site when it bought part of another developer’s assets in early 2013.

The development group, Archstone Inc, had paid US$36 million for the land a year earlier, buying it from Cherokee Mission Bay llc who acquired it as far back as 2004. Developers and local residents then batted concepts for the site back and forth during the ten years since, according to the local paper the San Francisco Business Times which followed the debate.

The new apartment community is now scheduled to be completed by 2016 and, according to the architect David Baker, it will implant a new community into Potrero Hill, moreover one with pedestrians kept firmly in mind.

Chicago-based Equity Residential is a national multi-family housing company today with a strong presence in the San Francisco Bay area, currently comprised of over 50 properties with more than 13, 000 apartment units.

Many of these were purchased as a package from Archstone Inc. in March 2013 when Equity Residential and AvalonBay got together to acquire Archstone from failed investment bank Lehman Brothers, for US$6.5 billion (excluding debt). The deal had been announced the previous November.

Equity Residential ended up with 23, 000 of Archstone’s apartments in the deal, or about 60% of the total. To help pay for it Equity Residential also sold off a group of 26, 000 less desirable apartments in non-core locations which it did not want to keep.

In booking the sale in the first quarter of 2013, on the way through Equity Residential also recorded a substantial, non recurring, capital gain of nearly US$1.2 billion, on what it termed were discontinued operations.

Altogether Equity residential nationwide still has nearly 110, 000 apartment units therefore, as of March 2014, over 94, 000 of which it classifies as being in what it defines as its core markets.

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Proposed Daggett Park designs from CMG [Photo: SF Planning (pdf)]