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BRE Properties selling assets ahead of its acquisition by Essex

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San Francisco-based BRE Properties has continued to divest itself of apartments in San Diego and around the country, as it prepares to become part of Palo Alto-based Essex Property Trust in a $5 billion transaction expected to close by the end of March.

Two of these, happening last month, were the 300-unit Lakeview Village Apartments at 3101-3177 Sweetwater Springs Road in Spring Valley for $51.95 million to four limited partnerships controlled by Jackson Square Properties, which is also based in San Francisco.

Jackson Square also paid about $43.47 million for 208 units on Golfcrest Drive in the Mission Trails area. BRE (NYSE: BRE) has sold properties to Jackson Square for more than a year.

In December 2012, a 233-unit property at 440 E. H St. in Chula Vista sold to another Jackson Square properties-controlled partnership for $41 million.

BRE also sold 183 units at 601 Telegraph Canyon Road in Chula Vista for $36 million to a Jackson Square Properties entity in December 2012.

While the number of apartments held by BRE in San Diego County has been reduced from 3,700 to about 3,200 units as a result of last month's sales, Essex (NYSE: ESS) will have a greater presence in this county than before.

According to the CoStar Group (NYSE: CSGP), Essex entities already own more than 2,700 units in San Diego County, bringing the total to roughly 5,900 apartment units upon completion of the two acquisitions.

One of the more sizeable properties that will move over from BRE to Essex include the 616-unit Esplanade complex on Camino Ruiz in Mira Mesa, which has zero vacancies, according to of the CoStar survey.

CoStar also reported that it couldn't find any vacancies at The 472-unit Montañosa apartment complex in the Tierrasanta submarket, despite the property's large size.

The 356-unit Carmel Landing apartment complex in the Carmel Mountain Ranch area is another property that will change ownership to Essex at the end of March.

Some of the larger apartment properties already owned by Essex entities here include the 301-unit Alpine Village, 354-unit Mira Monte Apartment Homes in Mira Mesa, 379-unit Domain San Diego in the San Diego Spectrum in Kearny Mesa and 300-unit Summit Park Village on Lake Murray Boulevard in East San Diego.

The combined company is projected to have a pro forma equity market capitalization of approximately $10.4 billion, and a total market capitalization of approximately $15.4 billion.

That would make the combined firm the third-largest multifamily investment trust by market capitalization in the country, only behind Equity Residential (NYSE: EQR) and AvalonBay (NYSE: AVB).

"The combined company will be the largest and only publicly traded pure play apartment [real estate investment trust] on the West Coast which we believe will provide a greater competitive advantage in our markets," said Michael Schall, Essex's president and chief executive officer. "In addition, by combining the strengths of the two platforms, which have a significant geographic overlap, we expect to realize operating efficiencies and further enhance our growth profile."

Constance B. Moore, chief executive officer of BRE, said, "For over a year, BRE's board and management team have been evaluating alternatives to maximize shareholder value. We are pleased to have reached this agreement with Essex, which we believe will deliver significant value to all of our stakeholders."

Essex owns a total of 34,416 units in 163 properties around the country, and BRE owns 21,648 units in 76 complexes.

This will bring Essex's total to 56,064 apartments in 239 apartment complexes that will have an average occupancy of 95.1 percent.

While the acquisition of BRE Properties isn't considered a fire sale, there has been some urgency to complete the transaction quickly to preserve private equity.

More than a year has passed since Jonathan Litt, CEO with the Land & Buildings analysis and investment firm, said it was past time to sell BRE to the highest bidder.

BRE Properties said five apartment properties under construction in other parts of the country are not affected by the moves, and it expects to finish the construction and leasing of these projects in the near future.

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