Most apartment owners worry about finding tenants. Not at 321 Tremont Street in Avalon.
The 62-unit Catalina Island apartment property, marketed by Tony Azzi, is 100% occupied and has a reported tenant waitlist stretching more than 30 years.
The property closed for $8,644,030, or $139,420 per unit.
According to the buyer, the property had previously gone into escrow four times around $12 million before those deals fell apart.
That raises the obvious question: how does a full apartment building with a 30+ year waitlist on Catalina trade for only $139,420 a door?
YOU CAN’T JUST BUILD ANOTHER ONE
Catalina is different. Housing is scarce. Land is limited. Construction is difficult and expensive. You can’t simply go down the street and build another 200 competing apartments.
The property has 62 units across five buildings on 1.42 acres. And the rents are supported through a federal housing program.
So the buyer gets:
62 units.
100% occupancy.
30+ year waitlist.
Government-supported rents.
Almost no new competing supply.
SO WHY WAS IT SO HARD TO CLOSE?
Because this wasn’t a normal apartment transaction. The buyer had to get through a ground lease assignment, HUD approval, a HAP contract assignment, and the assumption of existing Freddie Mac financing.
That is a lot of moving parts. And that complexity may have been exactly where the opportunity was.
Tony Azzi and Arteen Zahiri represented the seller and ultimately procured the buyer who could get all of those pieces across the finish line.
THE CATCH: IN 28 YEARS, HE GIVES IT BACK
The apartments sit on leased land. The ground lease had about 28 years remaining when the property was marketed. And according to the buyer, when those 28 years are over, he expects to hand the keys back to the landowner.
No big terminal sale. No assumption that the land underneath it will someday belong to him. The deal has to make its money during those 28 years.
HE’S BUYING THE CASH FLOW, NOT THE EXIT
According to the buyer, he expects to receive more than 8X his original equity investment in cash flow over the 28-year hold. And that is before considering the tax shelter from depreciation.
That matters because the buyer isn’t purchasing the land. More of his basis may therefore be tied to depreciable assets rather than non-depreciable land.
There are operating savings too. The prior ownership carried some expenses the buyer believes can be reduced substantially, including insurance. Every dollar removed from unnecessary expenses goes straight to cash flow.
THE OPERATOR TAKE
Most real estate investors are obsessed with what they’ll sell for. This buyer isn’t.
He bought at $139,420 per door after four prior escrows failed. He took on a complicated leasehold and affordable-housing structure. He assumed existing Freddie Mac financing. He has 100% occupancy and a 30+ year waitlist.
And according to the buyer, the property should return more than 8X his original equity in cash flow over the remaining lease term, before depreciation benefits.
Then he hands back the keys.
That is what makes this deal interesting. The buyer isn’t trying to make money on the exit. He’s trying to make so much money during the hold that he doesn’t need one.