Pasadena, California

 

Background

In 1997, two acres of surface parking and an eight-story, 98,000 square foot office building situated on Colorado Boulevard in the heart of Pasadena’s historic Playhouse District were owned by Sanwa Bank. Recognizing that many financial institutions at that time were disposing of real estate, Capital & Counties USA approached Sanwa Bank directly and privately negotiated to purchase the property. Capital & Counties USA subsequently negotiated the acquisition of three surrounding properties from a very challenging and disparate group of owners. Collectively, the 3.4 acre site comprised a full city block and presented a rare development opportunity in Pasadena.

Investment Strategy

The exodus of financial institutions from the property ownership market in the mid-1990’s enabled Capital & Counties USA to acquire the key piece of a large development assemblage in an exceptional in-fill location. Retail and entertainment amenities in the area and favorable demographics made the site ideal for multifamily use.

 

Development of the site required a significant commitment to work through zoning and regulatory processes and presented several complex parking challenges. Not only did the parking need to be replaced for the office building, but also for an adjacent medical building which had rights over the surface parking lot. In addition, a structure that was of historical significance as the oldest multi-level concrete parking facility in Southern California needed to be preserved and incorporated into the project. The powerful Historic Preservation Society had to approve the development plan and to grant their permission to demolish structures on the site. Capital & Counties USA’s strategy also involved selecting a residential developer to provide residential construction expertise and to assume part of the development risk.

 

Results / Current Strategy

In 2001 Capital & Counties USA’s perseverance resulted in the appropriate entitlements and approvals being granted to proceed with the development. Capital & Counties USA was successful in negotiating favorable development rights, including a density of 90 units per acre, and in gaining permission to clear the site to allow an integrated development that spans an entire city block.

In 2002, Capital & Counties USA issued an RFP to qualify and select a residential development partner. Shea Properties was ultimately selected based on their strong relationship with the City of Pasadena and their extensive multifamily construction experience. Capital and Counties USA contributed the land and Shea Properties contributed equity to structure a 50/50 joint venture including the provision of a preferred return on the market value of the land contributed.

Construction on the 304-unit project began in 2004. The development has been enormously successful in its initial lease-up phase with stabilized occupancy expected by the fourth quarter of 2006. Leasing efforts are well ahead of projections and rental rates are substantially above pro-forma. If Capital and Counties USA were to sell its interest in the Trio Apartments today, the transaction would yield an IRR of approximately 45%.