Another indication that the rental market is poised to make a strong comeback.  Note the 2% vacanacy rates across his portfolio and the 7% increase in price per unit in SF. – Derek

San Francisco real estate investor Russ Flynn continues to pick up the pieces of the crumbling Lembi family apartment portfolio, paying $55 million for the defaulted notes on two top-notch Nob Hill buildings in a deed in lieu of foreclosure transaction.Flynn acquired the 167-unit Gaylord Hotel, an upscale residential hotel building at 620 Jones that houses the restaurant Jones. He also picked up the Park Lane at 1100 Sacramento St., a New York-style doorman building which sits on the top of Nob Hill across from the Fairmont Hotel and the Pacific Union Club. The 1925 78,000-square-foot Park Lane, where a 2,300-square-foot unit is currently renting for $10,500 a month, has 33 units ranging in size from 2,300 square feet to 3,600 square feet. Lender UBS Real Estate Securities, which took back 51 buildings from the Lembis after the market crashed in 2008, was the seller of the notes.“The Park Lane is simply one of the best buildings in one of the best locations in one of the best cities in the world,” said Dan McGue of Paragon Real Estate Group, who represented Flynn in the note purchase.The buildings represent the 27th and 28th former Lembi apartment buildings that Flynn has bought since 2008, a flurry of activity that has added 931 units to the portfolio. Flynn owns about 3,500 units in San Francisco.Flynn has now invested more than $155 million in former Lembi properties. The vacancy rate in Flynn’s portfolio is 2 percent.The Lembi family shelled out more than $1.2 billion in San Francisco rental buildings between 2003 and 2007, using Wall Street money to borrow 95 percent of many buildings’ purchase prices. As loans started to become due in 2008 and 2009 the credit markets had frozen up and the family was unable to refinance the debt.Flynn said he tried to buy the pair of buildings in 2005, but was outbid by the Lembi family, which at the time was buying up nearly every apartment building that came on the market. Lembi paid $60 million for the two buildings, and then invested another $11.8 million in improvements.“I have always loved the Park Lane. I wanted to own it for a long time,” said Flynn. “It’s the best residential apartment building on the West Coast.”The median price per apartment unit in San Francisco is rising rapidly, jumping 7 percent in the past year to $182,800 per unit, according to Marcus & Millichap. The in city’s trendiest tech-centric neighborhoods South of Market, vacancy has dropped nearly 2 points to 4.9 percent.“We are in a unique situation out here,” Flynn said. “We are benefitting from the slow economy everywhere else and the need to keep interest rates low. Ordinarily when we have low interest rates we have declining rents. We have the opposite now here, we have low interest rates and rising rents.”Flynn estimates that high-end rents dropped between 30 and 40 percent during the recession, but that rents are back to where they were in 2008.“I’m starting to get a bit nervous about where the younger generation is going live if they don’t make a very high salary,” said Flynn. “People in the culinary industry are going to have a hard time because people in the tech industry are going to price them out.”

via Flynn snaps up Lembi’s Nob Hill buildings | San Francisco Business Times.