Interstate Equities Buys The Dylan in Hercules, CA, for $83.5M

A five-year-old waterfront apartment community on San Pablo Bay trades for about $360K a unit, backed by Freddie Mac debt.

Interstate Equities Corporation has bought The Dylan, a 232-unit apartment community at 2200 John Muir Parkway in Hercules, California, for $83.5 million. The seller was Hercules Development Partners. JLL Capital Markets announced the sale on Oct. 9.

That works out to about $360,000 per unit.

The property

The Dylan sits on the San Pablo Bay waterfront and was completed in 2022. The five-story building has 217 market-rate units and 15 below-market-rate units. The mix is studios, one-bedroom and two-bedroom apartments, which average 804 square feet.

Residents get a lounge with a community kitchen, a sports lounge with darts, billiards and foosball, a fitness center, a courtyard with BBQ and fire pit areas, and bike storage with a repair station.

The location is a big part of the pitch. The property has quick access to Interstate 80. JLL puts Oakland and Walnut Creek about 25 minutes away and San Francisco about 35 minutes away.

The financing

The buyer financed the purchase with a $54.275 million, five-year acquisition loan through Freddie Mac. That covers about 65% of the purchase price. JLL describes the debt as long-term and fixed-rate.

JLL's Debt Advisory team, led by Executive Managing Director Charles Halladay, arranged the loan for the buyer. On the sale side, JLL represented the seller with Senior Managing Directors Ryan Wagner, Brandon Geraldo and Matt Kroger and Director Fatai Alashe.

Why it matters

New Bay Area apartments still draw buyers at real prices, and agency lenders are still writing loans for them.

Wagner pointed to three things pulling investors to the East Bay: it costs less than the core Bay Area markets, income growth is expected to be strong, and there is little new supply. JLL said no new projects are under construction in Hercules right now, which makes a newer building with no direct competition more valuable.

The Freddie Mac loan matters too. Agency debt gives buyers fixed-rate financing on newer, stabilized properties. Halladay said the strength of the asset and the market helped lock in competitive terms.

For Interstate Equities, which has invested in and managed apartments in California and the Seattle area since 1981, the deal adds a newer waterfront property in a submarket with little new competition.

What wasn't disclosed

Occupancy, rents, net operating income and the cap rate were not made public.

The question

Would you pay about $360K a door for new East Bay apartments? Tell us on Instagram at @commercial_real_estate.

Sources: JLL, Connect CRE, Yield PRO, IREI, Commercial Property Executive. Photo via Connect CRE.

Not investment advice.