REGIONAL MARKETS: WEST

APARTMENT FINANCE TODAY • APRIL 2008

On Her Own

The Avenue West condominium development in Berkeley, Calif., is the first project by Curtis & Partners Development, LLC.

By Donna Kimura

Charmaine Curtis has been developing multifamily housing for nearly 20 years. Now, she does it for her own company.

Her San Francisco-based firm, Curtis & Partners Development, completed its first project this year, the 34-unit Avenue West condominium development in Berkeley, Calif.

The project is the only sizable new condo property in Berkeley. Built in an eclectic neighborhood that is improving, Avenue West was developed on a vacant parcel that used to house a gas station.

“My business plan has been about going to areas on the edge of transition,” Curtis said.

Focusing on transitioning neighborhoods also allows her to compete for sites. New companies rarely have the resources to compete with bigger developers for properties in more established neighborhoods.

The strategy also fits with her interest in developing affordable entry-level housing, which the area has a limited supply of, she said. Units at Avenue West start at less than $400,000 for a one-bedroom condo and go up to the $500,000s for a twobedroom unit.

Curtis is an industry veteran. She was president of A.F. Evans Development, Inc., between 1997 and 2003, overseeing the development of about 5,600 units in multifamily and mixed-use projects throughout California and Washington. She was also director of housing development in California for Mercy Housing, a large nonprofit affordable housing developer, between 1993 and 1995. One of Curtis’ early jobs was an associate planner for the city of Berkeley.

“I love creating buildings,” Curtis said. “That’s the most fun thing, to go where there wasn’t anything and make something happen.”

Curtis, who has a bachelor’s degree from Dartmouth College and a master’s degree in city and regional planning from the University of California, Berkeley, is one of the few African- American women developers in the country who are doing their own deals.

She cites several possible reasons why there aren’t more. First, real estate is a capital-intensive business, so barriers to entry are high. Second, it’s an industry that not a lot of people have exposure to.

For people thinking about starting their own development firm, Curtis suggests they find a partner or partners whose skills complement their own, preferably one with deep pockets or connections to sources of equity capital. She recommends starting small and building up. It’s also good to have a downside plan just in case problems surface.

One move that Curtis made was to create a five-year business plan that has helped keep her focused on an overall strategy.

First project

Curtis started her own company in 2004. That year, she gained site control of the Berkeley property. It then took about a year to get design changes for the development approved by the city, a municipality that’s known for its tough development stance.

Meanwhile, construction costs were going up as work began on Avenue West in 2006.

“We couldn’t make a lot of changes to the building after it took a year to get approved,” Curtis said. To cope with rising costs, she made sure her contractor obtained multiple bids for the construction work.

The $14 million development utilized a construction loan and participating mezzanine loan from two different lenders. A participating loan gives the lender a share of the profits in addition to interest on the loan.

The units have high-quality finishes, including granite counters, limestone bathroom floors, and stainless steel appliances.

Avenue West hit the market at a time when home sales across the state have fallen off and the mortgage market remains in turmoil.

Curtis said she plans to push the condos with innovative marketing and emphasize the project’s unique qualities. It starts with the project being the only condo development on the market in the city, she said. In addition, few homes are available for under $600,000 in Berkeley, and most of those are single-family homes, she said.

“Single-family homes are out of reach for the average Berkeleyite,” said City Councilman Darryl Moore. “People born and raised here can’t afford to buy a home after graduating from high school or college. This project is making Berkeley a lot more affordable to the average person.”

In addition, Avenue West will help invigorate that area of the city. “Charmaine’s project will put eyes and ears in that neighborhood,” Moore said.

Curtis is also finishing a 16-unit condominium development, which will open in nearby Oakland in April. The project is about a block away from a Bay Area Rapid Transit metro station and near the new Kaiser Permanente medical center.

And the downturn in the real estate market, she said, may offer an opportunity for her to pick up the next development site, she said.

Northern Cal outlook

Condo sales in California fell 38.6 percent in January from the same period a year earlier, according to the California Association of Realtors. The median sales prices of condos was $370,260 in January, a 12 percent drop in price from the prior year.

In the San Francisco Bay Area, the median home price was $691,390 in January, a drop of nearly 4 percent from January 2007.

In the cities of Berkeley and Oakland combined, the average asking rent was $1,490 in the fourth quarter of 2007, a 10 percent increase from a year earlier, according to RealFacts, a Novato, Calif.-based research firm specializing in multifamily housing. The average occupancy rate in the cities was 95.9 percent in the fourth quarter, which was unchanged from a year earlier.

Looking at the larger nine-county San Francisco Bay Area, the average asking rent was $1,562 in the fourth quarter, a 9.5 percent increase from the year before. The average occupancy rate was 95.5 percent in the fourth quarter of 2007, reported RealFacts.

That shows that the Oakland and Alameda County area is a little more affordable compared with the rest of the Bay Area, said Gerald Cox, director of sales and marketing at RealFacts.

The Oakland area also saw good rent growth in the fourth quarter, up about 5 percent from the previous quarter. In comparison, rents in the greater Bay Area stayed pretty flat.

In San Francisco, the apartment market is expected to improve in 2008. Limited new supply and increased renter demand should push the metrowide vacancy rate down 30 basis point to about 4 percent this year, reported Marcus & Millichap Real Estate Investment Services.

The firm said that about 800 apartments are projected to come online this year, up from about 750 in 2007. San Francisco moved up seven spots to take the No. 1 slot in the firm’s 2008 National Apartment I

SIDEBAR: ASKING RENTS

The average asking rents in the San Francisco Bay Area:
4Q 2007: $1,562
4Q 2006: $1,427
4Q 2005: $1,321

Source: RealFacts