Talk is Cheap. Downtown and Midtown Sacramento Have the Walk to Back it up!

While the Sacramento commercial real estate market seems white-hot, with property flying off the shelf, most buyers of commercial properties (not to be confused with multifamily) are deliberate and sensible.

Recent sales in Midtown and Downtown certainly show that values are up, and the sales demonstrate that the Arena effect is more than hype, it is real.  This being said, I think there is more to the story than meets the eye.

Long before the Arena, several larger projects were underway or far along in the planning stage.  So while the Arena has stoked the fire, market dynamics were already at work to make Midtown and Downtown dynamic and thriving.  The Arena just put gasoline on the fire.  Properties that were not moving, have moved, and values have escalated significantly.   Midtown was doing well in its own right, with the majority of new development happening there.  But for Downtown, the Arena catapulted it exponentially.

Recent sales to go down in the Midtown and Downtown Markets include:

  • 1234 H Street. A 2 story, 11,000 S.F. Office Building bought for $1,990,000 ($179 per S.F.) by a law firm (professionally represented by Tom Bacon) that will be occupying the top floor.  The building has 22 parking spaces on site.  The ground floor is available for lease at $1.75 a foot.  The prior asking rent was $1.95 a foot.
  • 2831 G Street. A 2 Story, 10,025 S.F. office building was bought by a user group for $1,925,000 ($191 per S.F.)
  • 1001 G Street, 15,500 S.F. on three floors was bought by Tim Taylor  for $2,880,000 ($180/S.F.)  This building has more parking than most buildings downtown and has about 4,000 S.F. available.
  • 1030 G Street is a 6400 S.F. building with covered parking that sold for $1,525,000 or $238 per S.F.

One thing that all the properties have in common:  Great Parking; it just makes life easier.

A comprehensive Comp Study is available.  Please contact Tom Bacon for your free copy,

Owner User? Buy the Fundamentals

Don’t Buy the Hype, Buy the Fundamentals

I am the first to promote how all the trends and developments in Sacramento’s central core aka THE GRID are supporting significant increases in rents and property values. If rents weren’t going up, we wouldn’t have market rate housing like Powerhouse 16 developed. But if you are an office user that would like to buy an office building or office condo, don’t forget the fundamentals.

When advising an owner user client in the purchase of a property I recommend that my client, in addition to typical purchase decision items,  consider the following:

  • What is the exit strategy? If for some reason you need to move out of the building, will you hold the asset and lease it out, or will you sell it? Is the property single purpose, or will it appeal to a broad base of potential occupants?
  • What is the replacement cost? What would it cost to build the building from the ground up versus the total cost to buy and occupy? You might buy a building for what seems like a “deal”, but after you finish renovating, your total cost could exceed replacement cost. That’s OK if the property works for you; hopefully market forces will support the investment over the long term.
  • What is the Property worth as a leased investment? Just because you are an owner user doesn’t mean that you should pay an over market price for real estate. Certainly, as an owner user you can justify paying more than what an investor would pay, but be sure to consider what an investor would pay if the building was valued as a leased investment (at market rents.)

Owning definitely has it’s positives, but when the price gets too high, you might be better off as a tenant.  If you end up leasing, the owner gets to take care of maintenance, taxes, capital improvements and assorted management headaches. You can focus your energies on building your business!