Sacramento Core Heating up Just in Time for Summer

Every couple months I run a sales comp report to see what has sold recently.  This time I looked up: land, multifamily, office and retail sales that closed in the last 6 months. I own a couple properties myself.  I wish I had bought my properties when I moved to Sacramento in 1991. 

Land sales are strong.  Multi-family sites in Midtown are running about $50 to $100 per square foot.  In some cases the prices are higher, but this is due to unusual circumstances, say a property is essential to a larger development or it is strategically located. 

Sacramento Midtown Multifamily

Existing apartments are trading at all-time highs.  In the Midtown and Downtown markets, the median is about $215,000 for apartments with more than 10 units.  Smaller properties, say fourplexes, sell for much higher prices per unit. 

The office market is also very strong with $200 per square foot as the new baseline.  The Senator Hotel sold for $47,000,000.  Just three years ago it sold for $32,000,000. 

The retail market segment in Midtown is solid with a few properties trading hands.  The Porch Restaurant sold for a reported $2,000,000, or $555 a foot.  On Broadway, the mixed use building at 21st and Broadway sold for $227 a foot, and the property needs work. 

If you have been thinking about selling, refinancing or just thinking – but not sure what to do – I would be happy to assist in any way. Additionally, if you have any questions on the properties or transactions referenced in this article, don’t hesitate to reach out to our office for more information. Have a great summer. In the meantime, please take a look at www.sacramentobacon.com

Who Needs a Broker?

With all the information on line, many tenants are searching for office space without a broker. Can you imagine? I Can.

I get calls from tenants that are frustrated. The office market data is often out of date and many leasing options are not visible without a subscription. Beyond the lack of good data, tenants complain about the amount of time required to sort through all the information. Once I talk with a tenant about the benefits of working with a knowledgeable broker, the tenant breathes a sigh of relief; particularly when they realize that they don’t have to pay the broker to assist with office needs.

Nothing is free, but hiring a broker is as close as it comes. A tenant representative gets paid by the landlord only when a deal is done, similar to how a residential agent gets paid when representing a buyer.

Another reason you hire a broker is because finding new space and negotiating a new lease or a renewal is complicated. Finding space is just the tip of the iceberg, and a when you work with an agent you save time because the agent knows what is actually available, and the agent knows which landlords are “reasonable” and those who are not.

Many office users (occupiers, tenants, owner users,) whether they lease or own, need guidance even when they don’t need to move. Over 50% of the clients I represent need to deal with their office needs years before the lease expires. Occupiers outgrow their space, so they need to sublease and move, or they need to expand and extend their lease. Some tenants need to consolidate. What happens when business slows down, and you need to cut your real estate costs? What is the best way to go? Well, a good commercial agent will help you evaluate all the options. Once you have weighed the options you can move forward – with a clear objective in mind. We are just finishing up a lease where the Tenant has nearly 5 years left on their existing- they anticipated that they would need about 50% more space a year from now, so we negotiated an extension and expansion that included a significant tenant improvement allowance. Had the tenant waited, they would have been reacting and they would have had much less leverage in negotiations.

Business leaders, Executive Directors, Partners, all the C level execs, are smart – and they have not gotten to where they are by accident. Success is a deliberate process; so is dealing with commercial real estate. It is no accident that most these smart business leaders hire a commercial agent. It just makes sense.

Tom Bacon, CCIM, has been assisting commercial real estate clients in Sacramento since 1991, with an emphasis in office properties and Occupier representation. Click on the link to subscribe and download the free Commercial Real Estate Leasing Guide.

Institutional and Out-of-Town Investors Create Value with Perspective

Sacramento office investment sales are up. And the majority of investors are institutional and from out of town. Sacramento has always been considered a second tier market, but it seems that second tier markets are where all the Easter eggs are! Is it really almost Easter?

Institutional and out-of-town investors create value with perspective. Example: Seagate Properties from San Rafael recently bought the Senator Hotel Office building in downtown Sacramento. The lease rates have been increased significantly, but from Seagate’s perspective, the rates are still below many markets in the country. Seagate can also rationalize additional improvements such as a gym and a restaurant.

Research indicates that a record amount of investment capital held by private equity real estate funds is close to $300 billion. The current state of the market is also responsible for an institutional increase in real estate investments as new and existing investors are looking to lock in historically low interest rates.

Randle Communications

As the market cycle matures, office vacancies are expected to bump up to 13.6% nationally in 2020; presently the number sits at 13.2%. Rent growth is also slowing. So investors seeking higher yields, are looking to buy in secondary Markets and non-Gateway markets. Gateway Markets include San Francisco and New York and have historically attracted foreign capital funding.  A recent study seeking to quantify the top 10 office investment markets in the country included only two primary markets – Chicago and Manhattan. Please take a look at this article from CCIM Magazine, https://bit.ly/2U3ojgD

The Urban CORE is not the only place investors are looking. Institutional investments in Sacramento’s suburban markets like Roseville, Rancho Cordova, Folsom and North Natomas have seen a significant uptick. According to Real Capital Analytics, nationally Suburban cap rates are averaging at 6.8 percent, compared to 5.5 percent for central business districts. Investors are also looking to invest in second tier markets like Sacramento due to sustained demand, improved transportation infrastructure and local amenities. Sacramento is no longer a secret, and prices are showing it.

Take a look at this recent article in The CCIM Magazine for more information: https://bit.ly/2U3ojgD

Looking in Sacramento? Give us a call at (916) 930-0001! We have recently sold a few properties, so if you are thinking about selling, we would welcome the opportunity to help you with the decision making process.

Aerial Downtown Sacramento

Sacramento Commercial Real Estate Performance -“Enhanced” by OZ!

As a CCIM, I receive a monthly magazine focused on Commercial Real Estate. The March-April article, “Getting to know Opportunity Zones” reignited my interest. Anyone who is looking into Sacramento commercial real estate investment should know where the Opportunity Zones (OZ) are. Recently 830 K Street sold to a Los Gatos investor; 830 K is just three blocks from the Capitol Dome and DOCO – and it is in an OZ. For more information about OZs click here.

Also, if you are thinking about selling and your Sacramento investment property, and it is located in a OZ, you might be able to fetch a higher price if the eventual buyer wants to defer tax obligations

Along with Section 1031 exchanges, Opportunity Zones defer and minimize Capital Gain taxes. Sacramento is filled with Opportunity Zones and many of the areas will surprise you.

If you are looking to invest in the Sacramento Region, please give us a call at (916)930-0001. You can also email me directly at tom@baconcre.com.

Take a look at the CCIM Article here: https://bit.ly/2Kfy63i

Should You Rent or Own in Sacramento’s Core?

As Sacramento’s skyline continues to welcome new additions and development is spurring increases to property values in the Downtown region, one may be curious as to what the changes mean to their ability to acquire property. Renting and owning property both come with benefits and disadvantages, so which is the better option? Review of Sacramento’s Business Journal’s year-end commentary on renting and buying property in Sacramento reveals several takeaways including:

1.) More often than not, it’s cheaper to rent.

2.) This trend is expected to continue over the next 3-5 years

3.) Meaning more opportunities for apartment developers and investors

Currently, monthly mortgage rates take 32.9% of the median family’s income after a 3.5% down payment; while renting a 3-bedroom apartment takes 26.4% of the median family’s income. This gap is expected to get bigger, in favor of renters. Home prices are expected to increase, along with rental rates – but at a much slower rate. Currently it is less expensive to rent than to buy in the following zip codes: 95818, 95819, 95811, 95816.

Politics 

Politics are a driving factor in pricing of rental properties, rent prices, landlord’s incomes and their affectivity. The Sacramento Community Stabilization and Fair Rent Charter Amendment recently qualified for the 2020 city ballot and will strive to accomplish the following:

  • Cap rental increases at 5%
  • Annual rent increases would be tied to the Consumer Price Index, with a minimum increase of 2% and a maximum of 5%;
  • Restrict landlords’ ability to evict by requiring certain criteria to be met;
  • Require landlords to pay rental assistance of at least $5,500 to relocate a tenant if the owner wants to do substantial repairs, move in, take the unit off the housing market or demolish it;
  • Establish independent rental housing Board to govern over rent adjustments;

Groups favoring this bill include labor unions and various housing advocates.  

Many businesses, developers and apartment owners oppose the bill; these groups feel that this bill would only deter landlords from maintaining rental properties. Mayor Darrell Steinberg has also expressed concern that the bill could result in less affordable housing construction. Mayor Steinberg does support temporary rent control that would only apply to at least 20-year old buildings.

19th and J Street

The new additions to the Sacramento skyline will surely impact the market and will pose drastic changes to the way of life in the Sacramento Core; one should consider the pros and cons of renting and purchasing in the current climate. Got questions? Call us at (916) 930-0001, or check out our website, https://sacramentobacon.com/

Accidental Investor? What Now?

In 2017 Buildium and All Property Management administered the annual Property Owners Perspectives Survey to nearly 700 property owners in order to gauge interests and desires related to ownership of property; the results were consistent with the first survey – showcasing the types of property owners and their perspectives on managing real estate.

Types of Property Owners

In the Survey, property owners were split into two categories: Intentional and Accidental Investors (the Accidental Landlords category was added in the 2018 iteration of the survey – please contact us for a copy of those results). Intentional Investors are individuals who typically acquire between 2 and 40 properties as a vehicle to better their retirement. On the other hand, Accidental Investors own a couple properties due to circumstance (say inheritance or divorce) and typically do not plan to expand their portfolios – unlike unintentional investors who plan to continue investing.

Key Findings

As identified by the first iteration of the survey, maintenance and tenant management continued to be the two biggest stressors. 61% cited maintenance, repairs and replacement as the primary stressor, 52% cited dealing with problem tenants, and 49% cited filling vacancies.

Stress Free Tenants

The next two most popular responses were both tenant related; good tenants equal less stress.  The top three qualities of a tenant that a landlord looks for are: 1. Tenant is Responsible (54%) 2. Good Credit (39%) and finally, 3. Cleanliness (34%).

Property Management

According to the survey, 50% of property owners self-manage their properties, 41% hire a property manager, and 9% are thinking about hiring a property manager.  The primary motivators to hire a Property manager are: maintenance and emergencies (60%), day-to-day management issues (52%), and finally finding tenants – along with not wanting to think about the property – are tied for the third at (34%).

Property ownership can be very lucrative, and a good property manager can minimize the challenges associated with ownership. If you are looking to invest in real estate, or you fall under the Accidental Investor category and need some help, give us a call at (916) 930-0001, or visit our website for more valuable information.

This post was co-authored by Pawel Ryzinski.

Technology and Innovations in Development Enhance Sacramento’s Value Proposition

Sacramento has followed a consistent trend of economic, social, and political growth for the last few years. As new opportunities arise, non-government jobs are being created while the population increases every year. To keep up with the increased demand, High Density Residential (HDR) urban housing projects are cropping up throughout Sacramento’s CORE. Nikky Mohanah’s Micro Unit HDR project at 19 & J Street in Midtown Sacramento is slated for completion this year and will  serve work force and millennial individuals who would rather rent than buy.  HDR projects like 19J are working to fill a housing void that has needed attention for a long time as the supply of affordable urban housing has diminished.  19J offers micro units consisting of less than 400 square feet for around $1,000 a month.  19J also is introducing stackable parking, designed by HRG Architects,and administered by City Lift.

Just as the real estate market adjusts with projects like 19J, transportation options including alternative fuel vehicles, ride sharing services (JUMP Bikes, Uber and Lyft)  have become the norm.    Innovations in housing and transportation are essential to Sacramento’s future.  All these innovations improve quality of life, reduce waste and cut transportation costs.

Envoy Technologies, a provider of shared on-demand, community-based electric vehicles, has become associated with Sacramento’s housing market through new partnerships encouraging the use of electric vehicles. Envoy also offers a “envoy car sharing” program that pairs well with the proposed housing projects in Sacramento. In this program they offer both charging stations and on demand electric vehicles as amenities for properties. By Increasing the value of rental units and clearing the air, envoy seems to be on the right track. 

This seemingly coordinated response (involving multiple industries) to changes in Sacramento’s economy and demographics is illustrated throughout the City’s CORE and we will see more HDR developments like 19J in the  future – particularly when the various modes of transportation expand. For more information on Sacramento’s growth, please click here.

For more information on developments such as 19J feel free to give us a call at (916) 930-0001.

This post was co-authored by Emma Bacon.