Bay Area Multifamily Rent Growth Outperforms National Trend by 7X

Multifamily in the Bay Area is massively outperforming the rest of the country, with asking rents up 9 percent over the past year. That's up nearly sevenfold compared with the 1.3 percent national average, according to CoStar.

A big part of that is the favorable supply-demand dynamics, according to Andrew Slaton, Northmarq's senior director.

The Bay Area delivered fewer than 2,000 units over the past year while absorbing more than 7,000 units and new supply is growing at roughly one-sixth the national pace.

Mountain View/Los Altos submarket is a good example, with vacancy around 3%, 8.7% annual rent growth and only about 225 units under construction. This is leading to increased deal attraction.

"Those fundamentals are attracting significant lender interest, particularly from life insurance companies," Slaton told GlobeSt.com.

"But pricing is only part of the equation. How lenders underwrite future income can make a meaningful difference in loan proceeds, as we saw with the planned ADUs at Madrone."

A major deal in the Bay Area includes New York Life providing a five-year, full-term, interest-only financing for 272-unit Silicon Valley community, Madrone Apartments, recognizing future income potential from planned apartment additions. Northmarq arranged a $105 million refinancing for the asset located at 111 N. Rengstorff Avenue in Mountain View, California.

The financing was arranged on behalf of Prometheus Real Estate Group by Northmarq's San Francisco Debt + Equity team, led by Managing Director Nathan Prouty and Slaton.

The loan refinances approximately $90 million in existing debt originally arranged by Northmarq in 2016.

The financing recognizes both the property's strong in-place operating performance and the anticipated income from eight accessory dwelling units (ADUs) that Prometheus plans to develop following closing, providing Prometheus with additional proceeds while supporting its long-term business plan.

Treasury yields rose more than 50 basis points between initial underwriting and rate lock, which put real pressure on proceeds, according to Slaton.

The refinancing comes amid improving multifamily fundamentals in Mountain View, where strong renter demand, declining concessions and healthy rent growth have supported property performance. Madrone has benefited from these trends, maintaining approximately 96% occupancy while achieving over 20% net operating income growth since year-end 2023.

Originally developed in 1962, Madrone has undergone a multi-phase transformation under Prometheus' ownership. Following its acquisition in 2008, Prometheus completed interior renovations and, in 2014, delivered 134 newly constructed residences alongside significant improvements to the existing community.

Prometheus plans to add eight two-bedroom ADUs, expanding the community to 280 residences, as part of the company's broader initiative to create additional housing within its existing portfolio.

Madrone is approximately two miles from Google's headquarters in Silicon Valley.