Interstate Equities Corp. (IEC), a vertically integrated real estate investment and management firm on the West Coast, has entered the student housing sector through a strategic conversion model.
The firm has acquired Pepperwood and Temescal, a 141-unit, 357-bed garden-style multifamily portfolio for $42.8 million in Davis, California. According to IEC, it will gradually transition leasing toward a by-bedroom model, which has become more prevalent within the University of California, Davis student housing market.
Marshall Boyd, co-president and chief investment officer at IEC, noted that student housing has emerged as an attractive subsector of commercial real estate as investors become increasingly focused on income-producing assets with resilient demand drivers.
“Davis is one of the most supply-constrained university housing markets in California, supported by the continued growth of UC Davis and constricted housing availability,” said Boyd. “This acquisition came at an opportune time, allowing us to acquire a well-located portfolio with meaningful operational and physical upside while entering the student-oriented housing sector at an attractive point in the cycle.”
UC Davis has seen a record number of undergraduate student applications for three consecutive years. IEC noted that growth has contributed to sustained demand for off-campus housing among upper-division, transfer, and graduate students.
“Davis continues to demonstrate strong housing demand driven by the sustained growth of UC Davis and the city’s limited pace of new development. Pepperwood and Temescal provided a rare opportunity to acquire scale in this market at an attractive basis while positioning the assets for thoughtful upgrades and operational enhancements,” said Brendan Gibney, director of investments.
Pepperwood and Temescal, which have been rebranded as Aria and Luma, respectively, is less than 3 miles from campus and adjacent to a local retail plaza. Constructed in the early 1980s, the portfolio comprises a mix of one-, two-, three-, and four-bedrooms apartments averaging 1,090 square feet. It offers high-speed Wi-Fi, study rooms, a fitness center, and a resident lounge and a game room.
The portfolio offers value-add potential, with IEC planning to maintain affordability while implementing targeted interior and exterior upgrades to Aria.
“Aligning leasing with student demand trends allows us to create greater rent flexibility while reducing vacancy exposure tied to academic leasing cycles,” added Boyd. “Combined with the operational efficiencies created by the portfolio’s scale, we believe the firm’s strategy will position the assets to generate durable long-term net operating income growth.”
The first quarter was active for IEC, which specializes in multifamily properties throughout California and the Seattle area. In addition to the Davis portfolio, it acquired a four-property, 574-unit multifamily portfolio spanning the Silicon Valley and Seattle markets for $272 million in January. The deal was completed in a joint venture with PGIM and marks a strategic move to combine institutional capital, local market expertise, and active asset management capabilities in two of the nation’s most supply-constrained housing markets.