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Sacramento Office Market – The Tale of two Sub-markets

by with No Comment Commercial Real EstateDowntown SalesMidtown SacramentoOwner UserSacramento Commercial Real Estate

What keeps you up at night?  Your kid’s latest Instagram post or their curfew violation?  How about Croatia’s upcoming match versus England?

For me it is Sacramento office leasing and sales.  Last week I got up around 3:00 AM with the question: How have office values behaved in Midtown and Downtown over the last 3 years?  While the criteria for each sub-market is different – Midtown’s office market is much smaller with much smaller deals – I think you can glean some insights and uncover some opportunities. Before I get into the data, I have a recent experience that is relevant.

In March, 2017 I listed a 6400 s.f. office building located at 1419 21st in Midtown Sacramento; the initial pricing was $1.8 Million. The asking price was high – this is known as Unicorn pricing.   Let me make this perfectly clear: Unicorns – like the Loch Ness Monster and Big Foot- are a myth. If a broker begins to tell you that they can sell your property for 30% more than anyone else (without any basis) be wary.

With this being said, the owner still wanted to find the Unicorn, but we agreed that we would not wait too long.  So, within 45 days we reduced the price to $1.5 million. Then after 12 months and three escrows, the building sold for $1.2 million ($185 a foot.)  Given the building’s location, parking and lack of available alternatives, you would have thought the building would sell for more. However the property sold for less because the cost to rehab the building exceeded $65 per square foot.

While Midtown and Downtown are adjacent, they differ in many ways. However, one difference that I thought was odd – but explainable – was the appreciation of values since 2015.

Office Building Sales:

Midtown (buildings over 1,500 SF)             Downtown (buildings over 25,000 SF)

Year                 $/S.F                                        Year                 $/SF

2015                $195                                        2015               $180

2016                $248**                                     2016               $181

2017                $194                                        2017               $224

2018                $185                                        2018               $378

** For Midtown, 2016 was a frenzied year where interest rates were very low and certain brokers really pushed values up with no real logic behind the escalation. There were a few properties acquired by Bay Area Unicorns at relatively high prices.  Midtown’s 2016 price levels raised seller’s expectations, and there are properties still on the market that remain unrealistically priced.

In Midtown, sales comps under 5,000 Square feet averaged $40 a square foot higher.

For Downtown, 2018 started of with a record sales price of $421 a square foot for 621 Capitol Mall. This leads us to the odd but explainable: Why is the appreciation of values in downtown that much greater than midtown? The answer is simple: Sacramento is now on the radar of institutional investors, and Downtown is where they are looking. Midtown lacks institutional product – both from a quality level and from a project size.

Over the years, I have seen that if you have a quality project in a market where lots of inferior properties exist, there is always a flight to quality. We have seen this in the residential arena with market rate housing setting records for rents and sales prices. On the office side, Mike Heller and Mark Friedman have substantiated this theory with projects like Ice Blocks, 2600 Capitol and the mixed-use development where Mikuni’s is located.

So If you own, or you are looking to own, property in Midtown Sacramento, what is the play?

  • As an owner user, I think that if you can pick up well located assets where you are all in (after rehab costs) for less that $250 a foot you will benefit from a steady appreciation and protection from probable rent escalations. Since it can cost anywhere from $25 to $100 a square foot to stabilize a property, the price point is anywhere from $150 to $225 a foot.
  • As an Investor, Midtown is a good place to invest if you buy buildings that are not functionally obsolete, are well located, and have parking.  Depending on hold time and buying motivation (say 1031), I think higher prices can be rationalized.
  • As an owner, you can systematically invest in your property and enhance the value, knowing that the market dynamics support the investment.
  • If you are a seller, then with the right marketing program and with a proactive broker representing you, you can sell your property for a good price by emphasizing the market dynamics, to in essence, “sell the dream.”  However the dream has to be substantiated.

While we are bound to see a downturn in the overall economy, I think that the Downtown and Midtown markets will, in the worst case, flatten out.  The reason for this is Sacramento’s new Value Proposition.

If you are looking to buy, sell or lease commercial property or you are just looking for some objective input,  feel free to call me at (916) 761-1202 or email me at tom@baconcre.com.  Happy to share the underlying comparable information as well.

Sacramento Rent Control?

by with No Comment Midtown SacramentoSacramento Commercial Real EstateSacramento DevelopmentSacramento Multifamily

Sacramento Midtown Multifamily

The Costa Hawkins Repeal & Rent Control

There has been a lot of talk lately about repealing the Costa Hawkins Rent Control law that was passed in the 1990’s. Costa Hawkins essentially curtailed a jurisdiction’s capacity to impose rent control.

Now Unions and Tenant organizations are seeking to repeal Costa Hawkins (CA). What is puzzling about all this, is that while the cities are looking to reduce the cost of housing, they are doing very little to make it easy or less costly to develop new housing. By imposing rent control laws without corresponding relief in development costs, jurisdictions like Sacramento are probably going to worsen the rental market for both the Tenants and the Landlords. Property values will go down, the incentive to build new units will diminish and property management regulations will increase.  Ultimately as property values go down, so does property tax revenue – that funds education and local services (police).

  • Cities such as Sacramento and Santa Cruz are looking at rent control policies to impose in the event the repeal of CA is successful this November. Richmond and Mountain View have recently passed rent control laws.
  • When Richmond instituted rent control it was retroactively applied. For example, the rent control policies went into effect November 2015, but the rents were retroactively controlled to July 21 levels. In other words, even if the Landlord raised the tenant’s rent after July 21, When the Rent Control went into effect, the rent was rolled back to what the tenant was paying prior to July 21st, 2015. If a tenant moves into a building after rent control is imposed, the rent the landlord charges will be based on a formula established by the city or jurisdiction.
  • If this 2018 Ballot initiative passes in California, this will open the door for rent control in many neighboring communities and ultimately statewide.

Here are some key takeaways if Costa Hawkins is repealed:

  1. Rent Increases could be tied to an index such as a CPI, so landlords cannot increase rents based on market demand or what a tenant is willing to pay. Landlords will be subject to the whims of the governing body.
  2. It will be very difficult for landlords to evict a tenant without cause, even if a tenant is month to month.
  3. Tenants will not want to move and – like in San Francisco – a tenant can sublease their apartment unit out to a friend at the below market rent just to keep the unit.
  4. To evict a tenant the Landlord will have to provide a reason for the eviction other than the desire to raise rents. So, even if a tenant is on month-to-month, and the landlord has a tenant willing to pay a lot more rent, the Landlord cannot evict the tenant.
  5. It is possible that the new rent control laws will include a provision that if the owner of an apartment building decides to sell, the seller may have to pay each tenant a fee in anticipation that the tenant might be displaced when the new owner takes over. For example, if the building is sold to an investor who wants to renovate certain units, the tenants affected will have received the displacement fee from the previous landlord.
  6. The Costa Hawkins Repeal is heating up for this November’s ballot. If repealed, all multifamily (including the possibility of single family homes) will be subject to rent control laws.
  7. The California Apartment Association has received $4 million from donors to fight the repeal initiative.
  8. Unions (Tenant Unions and Labor Unions) are orchestrating -and or- backing the effort to repeal Costa Hawkins.

Historically, Landlords have been able to work around rent control, but the new rent control measures will dramatically limit the landlord’s ability to work around the laws. What landlords have done in the past include:

  • Evicting tenants to get new ones and charge higher rents
  • Converting apartments into condos
  • Converting residential units into retail or office where rent control doesn’t come into play.

If Richmond is any indicator, a repeal of Costa Hawkins will not be good for landlords. In fact, some landlords I spoke with said that the City of Sacramento could create even more draconian policies. Plus with any new governmental intervention like this, new layers of government will be created to enforce the new rules. These layers are not free, and I suspect the entire financial burden will be placed on the property owner.

For additional information related to the Repeal of Costa Hawkins check out the links below.

Sacramento City Beat

Santa Ana

Tenant’s Together

Stanford Study – San Francisco

San Diego Tribune

Richmond

East Bay Times

Opposition of the Repeal

 

Sacramento Value

Amazon HQ2 Takeaways

by with 2 Comments Commercial Real EstateOffice LeasingSacramento Commercial Real EstateSacramento EconomySacramento Office Space

Amazon Moving to Sacramento?  No, but other Unicorns will!

Last year, 238 Bidders for Amazon’s 2nd headquarters submitted proposals to induce Amazon to locate 50,000 employees in their regions.  Everyone I am certain had reasons but according to CCIM’s chief economist, K.C. Conway,  only 50 bidders met the base criteria.  If it were not for California’s onerous regulatory environment, employment law and taxation, Sacramento would have had a shot.

I think it is idealistic, to say the least, to think that California is going to remove the weights from Sacramento’s saddle, but this doesn’t mean that we cannot compete on a Statewide level – against and in conjunction with – the Bay Area.  Sacramento has to focus on its strengths and choose its battles wisely.  For Sacramento, the Amazon Bid was an essential part of the growing process, a battle worth fighting.

Back to the Amazon RFP.  The HQ2 RFP illustrated trend in relocation decisions:  It is not all about costs.  It is about: Workforce, Quality of Life and Corporate Culture Fit.  The Study reviewed also lists the top municipalities that bid for Amazon, and a large percentage of the top bidders are located east of the Rockies. Take a look at the report here:   ttps://bit.ly/2ra9koy

So what is Sacramento going to do about it?

Greater Sacramento Economic Council (GSEC) headed up by Barry Broome quickly determined that you can’t fight it, but you have to acknowledge the handicapping the State of California puts on Sacramento.  I bet the Serenity Prayer would come in handy here.  What GSEC has done is shift the focus to our strengths while acknowledging our weaknesses, our realities.  And let’s face it, the job is getting a little easier for Sacramento.  When compared to a decade ago, Sacramento’s value proposition is night and day.  Take a look at GSEC’s latest PR:  https://bit.ly/2HGTddu

Sacramento’s office market and you?

Sacramento consists of about 110 million square feet.  The market is made up of about 20 sub-markets.  Each of these sub-markets have a different value proposition.  If you happen to be a building owner or developer in a sub-market still looking for a value proposition, you can most likely learn something from Amazon’s H2Q RFP – How can I create a better experience for a tenant’s employees?

If you are a Tenant, looking at locations you need to ask which location will create the most productive environment for my peeps?  Enhanced productivity compensates for higher rents.  Even if you are not looking at alternative locations you should always be asking yourself how to make your workplace a better place.

Want a copy of the H2Q report?  Just send me an email at tom@baconcre.com.  I will send you the PDF.

Sacramento’s Emerging Boulevard – Broadway

by Commercial Real EstateSacramento Commercial Real EstateSacramento Development

When I moved from Manhattan Beach to Sacramento in 1991, my new bride and I arrived behind the wheel of a Uhaul at 9:00 PM.  We had a 800 S.F. rental lined up on Harkness in Land Park.  We had no keys to the place, so we had to call the owner.  He staggered out of his car about an hour later speaking incoherently.

We got into the place and decided to grab a bite to eat.  At 10:00 PM there was literally nothing open other than a Burger King.  When we got back to the place with our Whopper, Fries and matching crowns, my wife Joanne stared at me in disbelief, started to cry, and then said, “I can’t do this.  I cannot live here.”  Well that was then, and besides the divorce (which was percolating from that first bite of the Whopper) there are probably 50 new restaurants in the Core (Downtown and Midtown) that did not exist.

And  in case you didn’t notice, the Broadway Corridor is not-so-sneakily emerging as the next popular destination in Sacramento.  Broadway has always been a destination for many going to Tower Theater, Tower Cafe and several ethnically diverse restaurants including, Mexican, Chinese, Thai, and Ethiopian cuisine.  One restaurant trail blazer on Broadway is Bill Taylor who opened Willie’s Burger in 1991- and later – Flat Iron on Broadway.

The Broadway Renaissance has been awakened with several notable developments from the east to west:

Selland’s Cafe and Bike Dog Brewery at 9th and Broadway.  Selland’s opened up in early 2017, and since then, there has always been a line to order up lunch or dinner.  Selland’s features a special dinner for two with a bottle of wine for $25.  If you get tired of the wine you can go checkout Bike Dog next door for your favorite brew!

Selland’s and Bike Dog Brewing rounding out the west end of Broadway

Broadway’s Redux  by Indie Capital, a niche developer that develops smaller infill residential projects, is building a few homes along the north of Broadway between 9th and Riverside.  They also just closed on some additional land in the vicinity.

Indie Capital’s Broadway Redux at 1015 Broadway

Noah’s Bagel with Pete’s Coffee, Sour Dough Bread Co. and Chipotle is currently being developed next to Willies Burgers on 16th and Broadway.  For several decades the northeast corner of 16th and Broadway was a parking lot that served as parking for Tower Records (Now Dimple Records).

Hoppy Brewing and the Real Pie Company at 24th and Broadway.  The Hoppy is moving from 65th and Folsom and they should be open any day now!  The Real Pie Company is already open, but the sign on the door said Open Wednesday!

Real Pie Company and Hoppy Brewing moving to 24th and Broadway

The Mills A residential development project at 5th and Broadway.  The Mill’s Development is situated on the former Setzer Lumber Mill.  Homes range from around 750 Square feet to about 2,000 S.F.

401 Broadway Then there is the resurrected Developer, Sotiris Kolokotronis in partnership with Grupe, who is planning to build a four story 59 unit apartment project  https://bit.ly/2JOua5n .  Grupe acquired this site several years ago, and now the market is ready for it; rents have risen to support new apartments and houses.

So, if you are looking for some good food or a contemporary place to live close to Downtown, Land Park with easy parking and great access, then you need take a look at Broadway!  If you are looking to buy or sell or lease real estate – or you just need a little market insight – call or email me at (916)761-1202 or tom@baconcre.com.

Golden 1 Center Arena

When an Office Building Sells, Tenants Pay

by Commercial Real EstateDowntown SalesOffice LeasingSacramento Office SpaceTenant Representation

Sacramento CA: About a week ago, 621 Capitol Mall sold for $161,000,000. This amounts to $439 per square foot; nearly $100 a square foot more than what Wells Fargo Center sold for 14 months ago. 621 Capitol Mall (aka US Bank Tower) was built in 2008 and is home to Downey Brand, US Bank and Nossaman LLP. KP Public Affairs is moving into 16,000 square feet in March.

This sale is a significant validation for the Sacramento commercial real estate market because the price is significantly higher than the average, and this is Shorenstein’s first purchase in the Sacramento Market. Shorenstein, based in San Francisco,  is one of the country’s most prolific, opportunistic institutional investors.

When an office building sells for a price significantly higher than its assessed value, the Property’s tax basis goes up. In this case, the previous assessed value was $122 million – soon to increase to $161 million.

The tenants are responsible for increases in expenses over and above its Base Year, and this includes property taxes. The Base Year is typically the year a tenant’s lease commences. With this recent sale, the assessed value increases by approximately $40 million. Property taxes are approximately 1.15% so the property tax bill will go up by $460,000 or $1.25 a foot per year. Therefore every tenant in 621 CM will pay 10 cents a foot more in rent to cover this increase in property taxes.

Unless you are a special tenant (special meaning: large, Fortune 100, or the public sector) you are probably going to pay more rent when your building sells. So when looking for a new property, consider the ownership’s goals for the building. For example, if they have owned the building for 3 to five years and the market has appreciated considerably, there is a chance that the owner will sell the building during your lease term. And if it sells for a big number, you are probably going to be picking up a bigger portion of the tax tab.

If you have specific questions about your current lease, the assessed value of the building you are in and what your possible exposure is, I can help.  Please feel free to call me at (916) 761-1202 or email me at tom@baconcre.com.

Aerial Downtown Sacramento

News Break:  Sacramento Office Market Banned for Taking Performance Supplements

by Commercial Real EstateOffice LeasingSacramento Commercial Real EstateSacramento EconomySacramento Office SpaceSales

For decades, Sacramento has been considered a secondary or tertiary market.  For those who bought-in 3 to 5 years ago, they are now reaping the benefits.  Now that the office market has reached equilibrium, it is only a matter of a couple years until we will see meaningful uptick in construction of speculative office product. 

Before the end of the year the most significant private sector deal was announced. Centene bought Health Net and immediately expanded in the Prospect Park submarket (Highway 50).  But the biggest deal – that was put together through the efforts of multiple public and private sector players including the City of Sacramento, The County and GSEC – is Centene’s projected 1.25 Million expansion into the North Natomas Market. 

Rolling into the End of 2017, the overall Sacramento Office Market had just recorded three positive quarters of net absorption.  While the 1st quarter was negative 138,000 square feet, the 2nd quarter was positive at 158,000 square feet, the 3rd quarter at 644,000 square feet and the 4th quarter at 106,000 square feet. Net Absorption is defined as: The net change in occupied space over a given period of time.   The biggest submarket winner is Highway 50 at positive 208,000 square feet.  2nd place was the Natomas submarket at 141,000 square feet and rounding out the top 3 is the Roseville Rocklin market at 74,000. 

New construction:  For 2017, we had 670,000 of office space under construction.  It was not long ago that less than 20,000 square feet was under construction.  The majority of this new construction is pre-leased; for example in Roseville Adventist Health is building 242,000 square feet, Kaiser is building 194,000 square feet and in Sacramento Dignity Health is building 68,000 square feet.  The biggest and most notable speculative project is The Ice Blocks development at 16th and R Street in Midtown Sacramento. The Ice Blocks Development is definitely raising the bar for Sacramento by delivering an awesome urban infill project that includes several cutting edge retailers and market rate housing.   First tenants will be moving in around May.  Heller Pacific is the developer who has added to the Midtown vibe with developments like MAARS located at 20th and J Street.

The overall vacancy factor for office space inched closer to single digits (10.3%) and the central business district is currently hovering around 9.1% (it was 8.6% going into the 4th quarter, but we saw negative absorption of 95,000 S.F.)  Markets with the lowest vacancy factor are:  Midtown and East Sacramento (about 5% combined), Folsom at 7%, Roseville and Rocklin at about 8% (which by the way was sitting at over 15% just three years ago. 

Overall Market Rents at the end of the 2017 averaged about $1.80 per square foot.  The CBD asking rent was at approximately $2.90 for class A space and the overall average asking rent is $2.45.  So, when you are looking at buildings in and around downtown with rents below $2.00 and in some cases lower that $1.65 these properties could be a great value for tenants and value add investors.  Midtown Sacramento is another market with huge upside as properties are renovated and rents increase. 

Sales in the Sacramento region really accelerated in 2017, particularly for class A properties.  In the CBD, three Class A properties in excess of 50,000 s.f. with an average price per square foot of $224 per S.F. Comparatively, in 2016, 400 Capitol Mall and 520 Capitol Mall sold for $343 and $340 PSF respectively.  For additional insight into “who owns what” take a look at: https://sacramentobacon.com/who-owns-sacramento/

And in the first week of January, 621 Capitol Mall sold for about $420 a foot.  Institutional Investor Shorenstein was the buyer, and this purchase is its first buy in Sacramento.  This is national news that adds to Sacramento’s momentum on the national and international stage. 

In South Natomas, the submarket immediately north of downtown,  the Evergreen Company paid $55MM ($174 a foot) for Natomas Corporate Center (2485 and 2495 Natomas Park Drive).  This is a bargain for the iconic project. 

2018 should be another very positive year with continued growth in Healthcare, Insurance, Education, Energy and Technology.  Who knows where our next new companies will come from, but I bet we will begin to see a steady increase of migration from the Bay Area combined with organic growth. 

 

Sawyer

Sacramento’s Big Man is just getting started.

by with No Comment Commercial Real EstateDowntown SalesMidtown SacramentoOffice LeasingSacramento Commercial Real EstateSacramento DevelopmentSacramento EconomySacramento Office SpaceSalesTenant Representation

How About Those Sacramento Kings?  The Kings won last night without their Big Man, Cousins.  Frankly, they looked like a whole new team, with contributions from everyone, with six players in double digits.  Willie Cauley-Stein had a career high 29 points.

Would the Downtown market be on such a winning streak without its Big Man? I don’t think so. Property is selling in the Midtown and Downtown Markets (THE CORE) for prices that are justified by increased demand for housing in Core, the Arena (The Big Man) and a multitude of other developments. Believe it or not, the demand for properties is going to increase and sustain itself, so long as the trend for migration into the Core continues. Another factor bolstering values is the replacement cost for commercial properties has increased by over 30% in the last 5 years. This is due to increased labor and material costs.

When the Arena was announced, overnight, property values in the vicinity of the site went up at least 25%. Buildings like 555 Capitol Mall, 501 J Street, The Travelers Hotel Office building and the former Greyhound Bus Station are just a few examples. For Sacramento, the Arena changes everything; consider this blog post comparing The Golden 1 Arena to San Diego’s Petco Park: For Sacramento, The Arena is the Cake

Midtown hasn’t needed the Arena to take off. For many years rents have been suppressed in this market, and as new developments come on line, the rents will be commensurate with Midtown’s value proposition and Vibe. All the new residential development, coupled with the new Sutter Hospital and the Ice Blocks are a few of the projects making it happen.

Below are a three comparable sales that demonstrate the viability of Commercial Property in the Core.

Sale #1: 831 L Street. This site consists of a 27,200 s.f. parcel with a 44,000 s.f. building with over 50 parking stalls on the site. The price was 5,000,000 which amounts to about $113 foot for the building and a land value of about $184 a foot. I see this property having two lives, one for the next 5 to 10 years as a leased building.  In its next life, the property will make way for a new development that maximizes the site.

Sale #2: 910-930 K Street. These vacant buildings sat on the market for at least 5 years, and sold about 2 years ago.  Total site consists of 20,909 s.f of land with 31,600 S.F. of buildings. PRICE: $5,300,000, that pegs the underlying land value at $250 a square foot and $167 a foot for the vacant buildings. To put this in perspective, just one block away 770 L Street, a 169,000 square foot (90% occupied) class A office building sold for $173 a foot before the Arena was announced.

Sale #3: 2020 I Street. This 9,500 S.F. building sold for $2,802,500 ($295 / SF). This building is home to Trumpette, a specialty childrens clothing store. The property sits on a relatively large lot with great parking. Wouldn’t be surprised to see some “alley activation” here.

The sales listed above are notable examples of properties that have sold at exceptional values, values that reflect where the Core is heading. This doesn’t mean that a property worth a $100 a foot is going to immediately sell for $150 a foot, but it certainly builds a solid case for optimism and positive momentum.

Golden 1 Center Arena

Sacramento’s Golden One Arena Makes Almost Everything Better

by with No Comment Commercial Real EstateDowntown SalesOffice LeasingSacramento Commercial Real EstateSacramento DevelopmentSacramento EconomySacramento Office SpaceTenant Representation

The Sacramento Kings staying in Sacramento was great, but the Golden One Arena and its profound ripple effect  is the biggest game changer since the Gold Rush. Other cities (San Diego, Denver, San Francisco, etc.) have developed new arenas and the impact on their economies have been great. However, in relative terms, Sacramento’s Arena will probably turn out to  be far more significant.  We have already seen an appreciable uptick in investment activities. Hotel development is happening with more to come, office buildings are selling and Landlords are feeling pretty good.  For  both retail and office tenants (and this is where the “almost” comes in) the future is complicated; On one hand you have an evolving Core with added amenities, then on the other, you have spiking rents and diminished choices.

When compared to other cities, the reason why The Sacramento Arena project is more significant in relative terms is because Cities like San Diego and San Francisco already had a lot going for them: international destinations, corporate support, and natural beauty.

For this discussion, let’s take a look at San Diego and the impact of Petco Park. The total project cost about $450,000,000. Petco Park was competed in 2004. Since then, there has been over a $2 billion in development around Petco Park. The development consisted of 3,500 residential units, 957 Hotel Rooms, and 610,000 square feet of office space. Since 2004, the assessed value of real estate tripled. Petco Park created 19,200 jobs.

But the Boom in San Diego is like adding an extra layer of frosting on an already amazing chocolate cake. For Sacramento, the Golden One Arena is the cake. The Arena combined with the potential expansion of the convention center is going to change our whole community. There will be more hotel rooms, restaurants and housing. The tax revenues are going to increase commensurately, and the City of Sacramento will realize a solid return on its investment. According to the San Diego Business Journal, the City realized an annual return of 7.6%.

By 2021 I predict that we will see the addition or renovation of 1,000 hotel rooms (The Sawyer adds 250 rooms and there are rumors of about 300 rooms near the Tower Bridge in West Sacramento.)

The CBD office market will tighten considerably, and there probably won’t be more than 500,000 square feet added to the inventory in the next 5 years.  There are several sites, but the cost of construction requires rents the market is not quite ready for.  Plus we need more tenant demand in the private sector.  Certainly Kaiser Hospital Helps.

The Arena (like Bacon) makes everything better.  If you are looking to make a move in the office sector (whether you are looking to develop buy or you need to renegotiate your lease or find a new location) Please contact me at (916) 761-1202.  tbacon@kiddermathews.com.

Sacramento’s CORE: Par, Birdie, Eagle. Albatross next?

by with No Comment Commercial Real EstateDowntown SalesGeneral MusingsMidtown SacramentoSacramento DevelopmentSacramento EconomySacramento Office SpaceUncategorized

Sacramento’s Core (Midtown and Downtown) is not very sneaky. In fact the whole world has taken notice.  One thing I didn’t now about Core is this:  Core recently took up golf, and in 2015 made the PGA Tour.    In a matter of months, Core has risen to the top of the money list!  At the  2016 Player’s Championship, Core was interviewed after a remarkable 3rd Round, and he shed some light on his success.

Reporter:  So Core, how do you feel about your round today?

Core:  Well, I gotta tell you, I don’t think I can hit the ball much better.  The first day, I played alright, but I was still working out the kinks, you know, past few years have been tough.

Reporter:  I noticed that.  Your first round you scraped it around and managed to keep yourself in the hunt.  But then you really turned it on.  What do you attribute to your resiliency and significant bounce back?

Core:  Well before I picked up my new coach….

Reporter:  Your new coach?

Core:  You know, they call him (pause) The Golden One.  (smiling) I call him GO.

Reporter:  How could I forget?  He has been a big part of your rise to the top of the money list, huh?

Core:  No doubt.  I was making progress with my trainer, HDR, and my previous coach, Trend..  But when GO showed up, things really started to click.

Reporter: So what do you see for the final round tomorrow?

Core:  I can’t imagine going as low as I did today, heck, I only had 16 putts.  But I feel pretty good. I am looking forward to solid final round.

Reporter:  Thanks, Core.  Good Luck Tomorrow!

With the exception of some notable deals, like the sale of the Wells Fargo Center, it doesn’t take a brain surgeon to note that values are up in Midtown and Downtown.  In looking at the statistics (Costar) for 2014 through 2016 here are the basics:

Commercial (non residential) properties sold for an average of $99 a square foot in 2014, $151 in 2015, and in 2016 the average price per square foot increased to $205 a foot.

Multifamily properties sold for an average of $95,000 per unit in 2014 with a GRM of 10.92. In 2015 the price per units edged up to $116,000 per unit with the GRM jumping to 13.15. In 2016 the Price per unit increased to $150,000 per unit with a GRM of 13.32.

Land sold for an average of $94 per square foot in 2014. In 2016 the average increased to $131 per square foot.

nwc-11th-and-k

The Ransahoff (11th & K)

This survey is only for properties selling between $1,000,000 to $10,000,000.  The price increases are not surprising given the development of the arena and the trend of people wanting to live in the Midtown and Downtown area.  However, I think you can say that a 50% increase in the price of Multifamily (price per unit) from 2015 to 2016 is more of a spike than a bump.  Notable: the Gross Rent Multiplier (GRM)increased nominally between 2015 and 2016.  This means rents escalated significantly in 2016, nearly in step with the values.

Many of the commercial properties sold (non-residential) in the midtown area were to users.  For quality properties with parking, the prices exceeded the median significantly.

Land sales have picked up considerably as well, and values are up at least 5o% from 2014.

ice-blockexterior-cropped

R Street’s Ice Blocks

For detailed Sales and leasing information including sales comps for 2016,  contact Tom Bacon at 916-761-1202 or tbacon@kiddermathews.com.