Bay Apartment Communities Acquires Three Apartment Home Communities; Adds 650 Apartment Homes to Its Portfolio.

SAN JOSE, Calif.--(BUSINESS WIRE)--Aug. 7, 1996--Bay Apartment Communities (NYSE/PSE Symbol:BYA) has acquired three apartment communities, including two in Orange County, the company's first entry into Southern California.

The three communities include the Mill Creek Apartments, a 258-apartment home community in Costa Mesa; Villa Marguerite Apartments, a 166-apartment home community in Mission Viejo; and The Fountains Apartments, a 226-apartment home community in San Jose. These apartment acquisitions are in addition to the aquisition of Countrybrook Apartments, a 360-apartment home community in San Jose, which Bay completed and announced last month.

The three additional acquisitions announced today coincide with Bay completing the sale of 5,750,000 shares of its common stock, which included the exercise of the full underwriters' overallotment option. The sale of common stock generated net proceeds to the company, after all anticipated issuance costs, of approximately $134.1 million.

"These three communities complement Bay's proven strategy of building its portfolio with high quality, infill apartment communities to which we can add value through our reconstruction, leasing and management skills," said Gilbert M. Meyer, chairman and chief executive officer.

Bay paid approximately $17.5 million for Mill Creek located in Costa Mesa and will invest approximately $1.6 million for a major repositioning program at the community. The reconstruction program will include exterior painting, replacing all of the community's wood shake and flat roofs, replacing patio fences and enclosing the majority of existing carports and equipping them with automatic garage door openers. In addition, Bay will upgrade the leasing facility and fitness center and enhance the community's landscaping and site lighting.

The 20-year-old community consists of 86 apartment homes with two bedrooms and two bathrooms, 124 with one bedroom and one bathroom and 48 studio apartments. Resident amenities include a large clubhouse, fitness center, reading room, pool, spa, tennis courts, sand volleyball courts, controlled access gates, laundry facilities, covered parking and some enclosed garages. The community has a trailing return on cost of approximately 9.3 percent.

"Mill Creek has an excellent Orange County location, adjacent to Highway 55 and less than one mile from Highway 405. In addition, it is in close proximity to John Wayne Airport, the South Coast Plaza, Newport Harbor and major employment centers," Meyer said.

"Even after factoring in our major repositioning program, we will have paid far below replacement cost for this community," he added.

Bay paid $10.1 million for the 12-year old Villa Marguerite Apartments. As part of the transaction, Bay assumed tax-exempt bond financing on the community of approximately $7.6 million. The company has sold these bonds with new, one year credit enhancements from Union Bank of Switzerland.

Bay said it plans to invest an approximately $2 million in the community for a repositioning program. This program will include painting the exterior, repairing the roof, gutters and drainage systems, reconstructing second-floor patio decks, upgrading the garage area and landscaping, rebuilding the fitness center and substantially renovating the existing leasing center. The community has a trailing return on cost of approximately 8.9 percent.

Villa Marguerite consists of 45 apartment homes with two bedrooms and two bathrooms; 28 with two bedrooms and one bathroom; and 93 with one bedroom and one bathroom. Resident amenities include a swimming pool, spa and clubhouse.

"We are buying this community at well below replacement cost, even after our reconstruction program. We expect that this repositioning program, combined with our on-site management and leasing skills, will result in growing returns from the community," Meyer said. "The community," he added, "is centrally located in Orange County on a major thoroughfare near Interstate 5 and in close proximity to major employers and several neighborhood shopping centers.

"While these acquisitions represent Bay's first presence in Southern California, senior management has extensive experience in and knowledge of the region through Bay's predecessor company. In addition, Max Gardner, Bay's executive vice president and chief operating officer, oversaw the management of some 6,000 apartment homes in Southern California while he was president of Trammel Crow Residential Services-West," Meyer noted.

"We believe the Southern California market is showing signs of an economic resurgence and multifamily occupancy and rental rates are stabilizing and growing," noted Gardner. "Given these market dynamics, we believe this is an opportune time to carefully explore opportunities in Southern California," he added.

Bay paid $27.8 million for The Fountains Apartments, a six year old community. The company said it will invest approximately $930,000 for repairs to the property, including exterior painting, patio, deck and sidewalk repair and landscape improvements.

The community includes 126 apartment homes with two bedrooms and two bathrooms and 100 with one bedroom and one bathroom. Resident amenities include a swimming pool, sauna, laundry center and fitness center. The community currently has a trailing return on cost of approximately 7.5 percent.

"The Fountain Apartments is one of San Jose's premier apartment communities and complements Bay's strategy of building a portfolio comprised of high quality, well-located infill apartment home communities," said Geoffrey L. Baker, vice president and chief development and acquisition officer.

"The community," he continued, "is located literally in the center of Silicon Valley close to two major freeways and within one mile of a number of the Valley's largest employers.

"The rental market in San Jose remains strong, with increasing occupancy and rental rates," Baker noted. "The Fountains is currently operating with rents below market level," he continued. "We believe with our repositioning program and strong on-site management skills, we can generate significantly higher rents at the community."

Bay Apartment Communities is a fully integrated, multifamily real estate investment trust focused on the acquisition, development, reconstruction and management of high quality apartment communities. With the transactions, the company owns 31 apartment communities containing 8,103 apartment homes. The company's portfolio consists of 29 apartment communities in the San Francisco Bay Area and Northern California, with the balance located in Orange County.

CONTACT: Bay Apartment Communities

Gilbert M. Meyer or Max L. Gardner, 408/983-1500