Catalina Section 8 clears at $139,419 a unit on a loan assumption

Marcus & Millichap has closed the sale of Tremont Street Apartments, a 62-unit multifamily property in Avalon on Santa Catalina Island, for $8.64 million, or $139,419 a unit. The Azzi Group in the brokerage's Los Angeles office marketed the property for seller Black Rose Catalina L.P. and procured the buyer, Tailwind Investment Group, Connect CRE reported.

The asset is five two-story buildings on 1.42 acres at 321 Tremont St., built in 1983 and operating under a Section 8 Housing Assistance Payments contract. The land sits under a ground lease with the Santa Catalina Island Company that runs through 2053, so a buyer is underwriting a defined remaining term on the dirt as well as the apartments above it.

"Particularly complex" is how Arteen Zahiri, an associate director of investments with the firm, described the sale, pointing to the ground lease, HUD approval, the HAP contract assignment and a Freddie Mac loan assumption. Those four items are all approvals a prospective owner has to win, and stacked together they likely explain why Section 8 stock trades in a buyer pool far smaller than the one bidding on market-rate apartments; Zahiri worked the deal alongside Tony Azzi.

The assumption is the piece worth dwelling on. Maturing commercial debt is being rolled rather than repriced, with extensions and structured fixes doing work that sales used to do. An assumption performs the same job at the level of a single asset, moving the existing Freddie Mac loan to the new owner instead of retiring it and taking a fresh quote — which suggests an exit for the seller that never has to establish a new mark on the debt.

Then the price. PWD covered an $83 million Oregon apartment trade in August at a blended $189,500 a unit, market-rate product with no ground lease and no HUD counterparty, and the spread between that print and this one likely reflects the restriction stack and the island's short buyer list at least as much as it reflects the submarket. Two numbers would settle whether $139,419 a unit is cheap or full — the balance on the assumed loan and the HAP contract's remaining term — and the coverage supplies neither.

Zahiri's own account is that the transaction preserved 62 units of affordable housing in Avalon. It also kept a Section 8 asset from having to find a new price for its debt, leaving restricted stock to change hands on assumed agency loans—no new origination, no new rent mark—for as long as a refinancing is the more expensive route.