CalSTRS Buys Apartment and Retail Complex

The California State Teachers’ Retirement System has purchased the Plaza at the Arboretum apartment and retail complex in eastern Santa Monica’s commercial hub in one of the largest local residential deals in recent years.

The pension fund for the state’s public school educators made an initial payment of nearly $76 million for the 351-unit complex at 2200 Colorado Ave., according to a CalSTRS Investment Committee report.

The sale also includes a so-called earn-out arrangement that could boost the price substantially depending on the property’s financial performance in its early years.

CalSTRS bought the Plaza from its developer, a group led by Foster City, Calif.-based Legacy Partners Residential.

Westside apartment sales specialist Karoline Sauls said that although tenant demand has softened, property values haven’t been noticeably hurt. That’s primarily because investors continue to pursue Southern California apartment properties, which they consider more recession-proof than other types of commercial real estate, said Sauls, a broker at Hendricks & Partners.

Apartment values on the Westside should move up 5% or so this year, according to investment brokerage Marcus & Millichap. Values had jumped well over 10% to an average of about $125,000 a unit last year even as the economy cooled, the brokerage reported.

CalSTRS paid close to $216,000 a unit for the Plaza at the Arboretum, which opened last summer in what the city calls the Professional & Entertainment District. As the Plaza fills--it now is two-thirds occupied--the purchase price might be adjusted upward depending on its financial performance.

W. Dean Henry, president of Legacy Partners Residential, declined to describe the pricing formula, and CalSTRS’ real estate director did not respond to phone calls.

The complex, with apartments that rent for $1,655 to $2,890 a month, was designed by Kaufman Meeks & Partners. It includes five seven-story buildings linked by ramps to a central parking structure and ground-floor retail stores.

The complex was projected to cost about $54 million. Henry said Legacy Partners Residential had substantial cost over-runs and construction delays but said it is satisfied with the venture’s outcome and will continue to manage and lease the property.

Mary Ann King of Moran & Co. brokered the sale. Heitman Capital Management is overseeing the investment on CalSTRS’ behalf.