Brokers cite the short supply of quality product as the main reason for the high value of properties such as the Waterford Commons apartment complex in Manchester, which recently sold for more than $35 million.

A 300-unit apartment complex has sold for more than $35 million in Manchester, and brokers chalk up the high value to the short supply of quality product.

Steve Witten and Victor Nolletti of Marcus & Millichap Investment Real Estate Services in New Haven were the sole brokers in the recent sale of Waterford Commons Apartments at 701 Tolland Turnpike in Manchester, which closed for just under $35.6 million.

“Certainly this sale is significant because of the fact that there are nominal trades of larger, Class A quality apartment complexes in Connecticut. Any time a complex of this size trades, it’s important in the industry as a whole,” said Witten. “Right now, we have a supply-constrained market with nominal new construction.”

Waterford Commons is located approximately three minutes from Exit 62 off Interstate 84 and close to Hartford’s central business district. According to Witten, the property is considered to be one of the finest luxury residential apartment communities in the state.

The complex itself is a 303-unit luxury apartment community comprised of 13 buildings situated on roughly 34 acres. Originally constructed in 1998-1999 as part of a Planned Residential Development, the property was positioned as one of the premier “A” quality apartment communities in the region.

The property consists of 47 one-bedroom units that are 795 square feet and contain one bathroom. There are 196 two-bedroom units that are 1,068 square feet with two full bathrooms and 60 three-bedroom units that are 1,183 square feet with two bathrooms.

The net rentable area of the complex is 317,701 square feet, and the gross building area is 391,156 square feet.

Unit amenities include fully equipped, large, contemporary kitchens; private balconies/decks; individually controlled, energy-efficient central air conditioning and gas heating systems; spacious master bedroom suites; gas-fired fireplaces with marbleized surrounds; in-unit washer and dryers; custom window treatments; and vaulted ceilings with skylights.

The transaction also included a 12-room, historic, 2,200-square-foot single-family home that was built in 1776. The seller was Olmstead Commons Master LLC, which utilized the legal services of Jonathan Levin of Boston-based Garrity, Levin and Muir. The buyer was Waterford Commons I LLC and Waterford Commons II LLC.

‘Safe Investment’

Despite the high price tag, Marcus & Millichap was able to garner a large amount of interest in the project from some of the largest institutional buyers in the country, which Witten believes reveals that Connecticut is a highly viable market for residential real estate investments.

“[Marcus & Millichap has] 35 offices across the country, and we’re active in almost every market. It’s obvious to me that the market strength isn’t nearly are positive elsewhere as it is in Connecticut. We’ve drawn institutional buyers that historically may have portfolios heavy in stocks and bonds. With the rather poor performance of the stock market, we’ve been able to draw significant players into real estate – and the favored investment type is real estate complexes,” said Witten.

He added that apartment complexes generally show the best performance of any type of investment-based real estate.

“You and I would look at performance based upon return on investment, stability, and the risk-and-return ratio. You know that if you go invest money in a local savings bank, although you may only earn 1.2 percent, it’s still a fairly save investment. A luxury apartment complex in an area where there is such demand for quality housing is similar in that it’s viewed as a very safe investment,” said Witten. “The apartment complex will generate a return that is far superior than we can realize in alternative forms of real estate. It’s certainly become a very attractive and safe investment.

“There is a relationship between supply and demand, and with the less supply, people tend to be more aggressive in what they’re willing to pay. In Connecticut, and certainly the suburbs of Hartford and in Manchester, we have areas that are supply-constrained with high barriers to entry.”

Witten added that some towns have shown their opposition to supporting multifamily housing through tough zoning laws. That has kept the supply of apartment complexes to a minimum, he said.

“There are very few projects that are on the drawing board in Connecticut, and the approval process is a timely and onerous one. Would more people build apartments if the process were more perfunctory? Of course. You would see thousands more,” he said.

However, Witten argued that the quality of those complexes that do get build is high, and that combined with the shortage of product makes them extremely valuable.

“I show up with a property in a market where there are young professionals, couples and lifestyle renters looking for quality housing and who will pay for quality housing but there just isn’t any,” said Witten. “There is a built-in pool of quality renters that automatically eliminates some of the risk involved in the investment.”

He added, “Towns don’t want apartments. There are some serious misconceptions about apartments that if you have a high density of people in a small area, it’s going to severely impact the town’s water, sewer and school systems.”

However, in a Class A apartment complex such as Waterford Commons, which typically rents to young professionals, there are very few children, according to Witten.

“What you end up with is a lot of people bringing a significant amount of business into the community. Now we’ll have 300 units that are more than supporting local business,” he said.

Marcus & Millichap’s last three significant deals in Connecticut have been done with pension funds and institutional investors looking for maximum yield and minimum risk. Witten said Connecticut looks attractive to those investors because other areas may have quality properties but there may not be the stability of the rental market like there is in the Manchester area.

Throughout the company, total sales volume was roughly $7.2 billion last year, and $4.5 billion of that was in apartment sales. Marcus & Millichap only handles real estate investments, and does not deal in management or leasing. Multifamily complexes are the firm’s greatest strength, Witten said.

The company’s New Haven office recently closed 165 units in East Haven for $16.5 million, 340 units in Groton for $13.4 million and 98 units in Hamden for $8.73 million.

Witten noted that there are roughly a dozen other properties in Connecticut that are in various phases of due diligence and contract negotiations, which continues to demonstrate the strength of the market.