Stanford University bought an off-campus multifamily complex to expand its supply of below-market-rate apartments in the face of a worsening housing shortage and severe affordability gaps in one of the nation's most expensive areas.

An affiliate of the Silicon Valley college, surrounded by some of the priciest U.S. residential property, acquired the Oak Creek Apartments, a 759-unit property on the eastern edge of its Palo Alto, California, campus. The two-step deal included Stanford's assumption of a $125 million loan the previous owners had secured in 2015 as well as the takeover of a ground lease at 1600 Sand Hill Road that the college had previously issued for the complex.

Additional financial details of the deal with the seller — a joint venture of San Francisco-based Merena Properties and Woodside-based Pivnicka Properties — were not disclosed.

Like many properties scattered around the university campus, including the 10 million-square-foot Stanford Research Park, real estate investors and tech companies own the buildings but lease the land underneath from the college.

“For several decades, Stanford has been leasing a number of apartments at Oak Creek for members of the university community,” Joel Berman, a Stanford University spokesperson said, adding that the deal provided the university an "unexpected opportunity to have an affiliate acquire the leasehold in order to increase the supply of academic housing on an accelerated time frame."

Public institutions throughout California have had to adopt a more active role in housing in recent years as the cost of living has skyrocketed for both their student and workforce populations.

While the pandemic temporarily curbed demand for on-campus housing, students attending in-person classes have returned. Across the bay from Stanford at the University of California, Berkeley, more than 5,500 housing applicants were turned away last year due to a systemwide shortage of beds. And even after it added more than 2,300 beds, the University of California, Riverside, housing services department said it had to deny 3,500 students this fall because of an unexpected doubling of demand.

The University of California, Los Angeles, late last month spent $80 million to acquire the campus of the defunct Marymount California University in Palos Verdes, just south of the city. That property includes a campus with 10 buildings, a chapel, a library, tennis courts and a swimming pool as well as a student housing complex with 86 townhouse-style units with more than 350 beds.

Campus housing shortages have pushed larger portions of renters into finding options in the surrounding market-rate neighborhoods, many of which have become increasingly unaffordable as rents across the state continue to soar. The average apartment in Palo Alto, for example, commands about $3,375 per month, according to CoStar data, almost 38% higher than a decade ago.

Stanford's Berman said that as leased units at Oak Creek begin to turn over, the university will make them available to "eligible members of the university community for rental rates that will be less than the standard market rate."

Rents for incoming Stanford-affiliated tenants have yet to be determined, and while they won't be designed as below-market-rate housing, Berman said they should be able to reduce the demand for similarly priced rental housing in the region.

Prior to the Oak Creek acquisition, the university's multifamily portfolio included more than 1,100 on- and off-campus units, according to its housing website.