Thompson/Dorfman Partners LLC, of Sausalito, and Phoenix-based Opus West Group, with Northern California division headquarters in Pleasanton, have sold the 7-month-old, 330-unit Courtyards apartment complex to the State Teachers Retirement System of Ohio. The property, on 65th Street near Hollis Street and the Berkeley border, went for $278,000 per unit, which East Bay real estate professionals say is a high water mark.

The price seems especially fetching because the project was not entitled as a condominium project, as is the case with many contemporary apartment developments. Also, the pension fund has no plans to convert it, according to Thompson/Dorfman.

The pension fund did not respond to a request for comment.

Bruce Dorfman, a Thompson/Dorfman principal, said the property has found success in what had been a flagging rental market. He said the property is close to 50 percent leased, with rents at $2.25 per square foot, or about $1,600 for a one-bedroom unit. That's above the rental projections the developers sketched out in 2002, Dorfman said.

Dorfman said he thinks the project has done well in part because the developers did not have a condo conversion plan to fall back on, forcing them to focus their energies on making the apartments work. He also credited a number of apartment conversions, such as the 270-unit Essex tower on Lake Merritt.

"The East Bay has seen a dearth of rental product," Dorfman said. "I can count on one hand the number of new products that have been built since 2000 in the East Bay. And, although there has been job loss, it hasn't been to the degree it has been elsewhere in the Bay Area."

Others think Thompson/Dorfman and Opus were wise to sell - and wonder whether the market is inflated beyond reason. Because of low interest rates, income-oriented investors such as pension funds are paying high premiums for rental housing. They capture an income stream that, in theory, should grow as the economy strengthens and as interest rates rise, squeezing entry-level home buyers out of the market.

Trouble is, critics say, that hasn't happened yet, and it is condo and single-family-home developers who have been making all the money in housing.

"I can't see values remaining so high," said John Protopappas, CEO of Oakland apartment firm Madison Park REIT. "People are paying for future income, not today's income."

Protopappas has been a seller in the current market, unloading within the last six months a 64-unit Concord property and two properties in Oakland totaling 76 units. He says his occupancy, 93 percent, is the worst it has ever been.

But Protopappas anticipates an improvement in the market due to the conversion of condos.

Benjamin Marcus, who specializes in multifamily housing for CB Richard Ellis in Oakland, agreed that the market seems overheated, and that he has been surprised at the prices some developments are fetching.

"It's unsustainable," Marcus said. "There's too much money chasing deals.

"Rents and prices are going in opposite directions."

Apartment sellers, he explained, want to sell before interest rates rise further, deterring buyers. Buyers, meanwhile, want to purchase before interest rates escalate, because they want cheap capital to finance the deal and want to own the properties if and when interest rates squeeze residents out of the condo market.

Oakland rents held up better than San Francisco rents in the wake of the dot-com boom, thanks to a more diversified jobs base. But both markets have remained weak in recent years because of the rush of buyers into the housing market. In the third quarter of 2004, the Bay Area saw the second-worst decline in rents among large housing markets across the country, according to Novato rent-tracking firm RealFacts.

Average rent in the San Francisco-Oakland-Fremont market fell 0.8 percent from the year-earlier quarter to $1,310, according to RealFacts. The only market that suffered more was Silicon Valley, where rents were off 1 percent, falling to $1,283.

Tate is a reporter for the San Francisco Business Times, an affiliated publication.