TMG To Build 660 San Francisco Apartments

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May 25, 2011
The Registry
TMG To Build 660 San Francisco Apartments

The red-hot San Francisco apartment market, driven by robust job creation and still expensive for-sale housing, is drawing more projects to break ground.

San Francisco developer TMG Partners plans to begin construction later this year and early next on two complexes totaling 380 units. One is in the city's Mission District. The other is South of Market. A third, 280-unit development at 5th and Folsom streets, also in SoMa, is in early planning.

The projects are being financed in part with equity from the California Public Employees' Retirement System.

"The Mission is attractive for young employees who are working for technology companies that are expanding," said Cathy Greenwold, a TMG executive vice president. "We are definitely going to take them into consideration for the amenities that we will be designing for the project. These kind of renters like urban design that is close to entertainment and restaurants."

Greenwold expects to start development of 200 apartments at 1880 Mission St. in the third quarter and anticipates an 18- to 20-month construction time frame. The developer is in the process of obtaining construction financing. An existing building on the site will be demolished.

At the same time, the company expects to begin development on 180 apartments at 265 5th St. by the end of 2011 or early 2012. It expects a similar construction time period as the Mission project. The site houses the former Bill Graham Presents headquarters building today. CalPERS and TMG paid $10 million to acquire the property shortly after their relationship formed in September 2006.

CalPERS has committed $100 million to AGI-TMG Housing Partners Fund I, which is a partnership with TMG and San Francisco's AGI Capital. The investment strategy centers on housing projects in the greater San Francisco Bay Area. TMG survived a culling of investment managers by CalPERS after the devastating real estate bust of 2008 and 2009.

TMG is counting on the limited construction of new apartments in the areas of the city where it plans to build, Greenwold said.

The San Francisco metro area, which includes San Mateo and Marin counties, is expected to see a full percentage point drop in its apartment vacancy rate in 2011 to 3.4 percent, according to projections from Marcus & Millichap Real Estate Investment Services. That is 100 basis points below the long-term average. Jeffrey Mishkin, a first vice president and manager for the company of its San Francisco office, said, "There is definitely growing demand in the marketplace for apartment units."

Effective rents, what landlords charge after concessions, will rise 5.2 percent to $1,801 a month, the company predicts. That is on top of growth in effective rents of 2.5 percent last year. Class A properties saw the greatest decline in vacancy, 1.8 percent, to 4.6 percent.

The company expects the San Francisco metro area to add 20,400 jobs this year. That's on top of 6,100 additions to the job force in 2010.

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