SAN DIEGO – A high-rise apartment building near Petco Park at the edge of East Village, ALX, has been sold for $137 million in a multifamily market that is showing signs of recovery.
Built in 2018 by Trammell Crow Residential and UBS at 300 14th Street at the western edge of East Village near Petco Park, the 19-story ALX ushered in a wave of apartment towers that were built downtown before high interest rates and rising construction costs made construction of new apartment towers impractical.
The property was bought in July by Virtu, an investment firm based in Carlsbad. Michael Green, principal and founder of Virtu, said that ALX cost $160 million to build. He said that Virtu was able to get the property at a discount because the apartment market is so soft right now, although he expects it to start improving heading into 2025.
Founder & Principal
Virtu Investments
“It’s really just where the market was trading, based on how the market has changed over the last two years as interest rates rose,” Green said. “I think it’s started to come back now.”
Typically, institutional investors, such as banks, savings and loan associations, insurance companies and employee benefit plans regularly buy and sell property like ALX, but Green said they’ve been sitting on the sidelines “for the better part of a year now.”
“For the past year, we’ve seen what we call institutional absence,” Green said, but those that own property sometimes opt to sell it at a loss for tax purposes.
“We try to take advantage of this brief trend,” Green said, adding that Virtu also bought a Seattle high rise and is buying one in Chicago under circumstances similar to its purchase of ALX.
Timeless Architecture
Virtu acquired ALX primarily through the Virtu Evergreen Fund, an investment fund started in 2015.
“We’ve long liked San Diego. We really love the demographics and the growth,” Green said.
“Downtown has been growing and it wasn’t hit as hard by COVID and some of the work-from-home things that were happening in other major cities. “It’s becoming more of a 24-hour city, more vibrant.”
Green said that San Diego “is a great example of what we look for when considering new properties – a popular city with low apartment supply, increasing renter demand, and valuations well below their peak,” Green said.
Virtu was attracted to ALX in particular because “it was very thoughtfully built” and is a good fit for the community with its proximity to Petco Park and the Gaslamp Quarter.
“We think the building is well managed. We think it’s in a great location,” Green said. “The downtown market has matured to where I think there will be continued demand, especially from young folks.”
East Village “is certainly an area in transition, but we think it’s turning in the right direction,” Green said, adding that ALX’s proximity to Petco Park makes it particularly appealing.
Designed by Joseph Wong Design Associates with Swinerton Builders as the general contractor, ALX “feels more like a boutique hotel” than an apartment building, Green said.
“The architecture is sort of timeless, lots of glass,” he added.
The 313 apartments in ALX have hardwood-style flooring, European-style cabinetry, pendant light, and gourmet kitchens with stainless steel appliances.
The building also has a club room with a gourmet kitchen, a speakeasy, a rooftop pool and spa, outdoor dining areas with flat screen televisions, a game room, a pet spa and a dog park.
Green said that Virtu plans to hold onto ALX for the long term and has no plans to raise rents.
“It’s a great time to be a renter downtown,” Green said. “You’ve got a lot of really highly amenitized, high-quality apartments that are in that market.”
In addition to ALX, Virtu owns Barham Villas in San Marcos.
Betting on San Diego
Scott Peterson, vice chairman of CBRE’s Capital Markets and Debt & Structure Finance Division, said that San Diego is “the belle of the ball” when it comes to investing in apartment projects.
Vice Chairman
CBRE
“We have a really diversified market today and we haven’t had as many issues coming out of COVID as Los Angeles and San Francisco,” Peterson said. “Virtu is making a bet that San Diego continues to outshine a lot of other California markets.”
Peterson said that ALX “is probably one of the nicest assets you’ll see.”
Building a similar apartment tower today would be cost-prohibitive, Peterson said.
The commercial real estate brokerage JLL, in its third quarter review of the multi-family property market in San Diego County, reported that new construction starts were down 55% compared to the same period last year “due to the turbulent capital markets environment.”
From an investor’s standpoint, Zillow, an apartment listing service, reported in August that more San Diego County building owners are offering rental concessions – 34.4% in the third quarter of 2024, up from 21.9% a year ago.
Green said that’s not likely to continue over the long term.
“We’re just really patient,” Green said. “We think we’ll get sound rent growth out of this (ALX).”
Similarly, JLL projected that the demand for apartments will outpace supply over the next five years, and that month rates would grow 15.2% between 2024 and 2029.
Virtu Investments
FOUNDED: 1997
HEADQUARTERS: Carlsbad
FOUNDER & PRINCIPAL: Michael Green
BUSINESS: real estate investment
EMPLOYEES: 25
WEBSITE: www.virtuinvestments.com
CONTACT: 760-929-4700
NOTABLE: Since its founding, Virtu Investments has acquired and operated more than 130 properties totaling more than $3.7 billion
