How about those Sacramento Kings? They won last night without their Big Man, Cousins. The team looked completely different. Six players scored in double digits. Willie Cauley-Stein had a career high 29 points.
The Arena Continues to Drive Growth
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. Demand should remain strong as more people continue moving into the Core. Replacement costs also support higher values. Commercial construction costs have increased more than 30% over the past five 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%. Examples include 555 Capitol Mall, 501 J Street, the Travelers Hotel Office Building, and the former Greyhound Bus Station. For Sacramento, the Arena changed everything. I discussed this previously when comparing Golden 1 Center to San Diego’s Petco Park. For Sacramento, The Arena is the Cake
Midtown’s Growth Story Remains Strong
Midtown hasn’t needed the Arena to take off. Midtown rents remained suppressed for years. New development is helping rents catch up with Midtown’s value and appeal. New housing, the Sutter Hospital, and the Ice Blocks continue to strengthen the market.
Recent Sales Show Strong Demand
Below are a three comparable sales that demonstrate the viability of Commercial Property in the Core.
Sale #1: 831 L Street. The property includes 27,200 square feet of land and a 44,000-square-foot building. It also has more than 50 parking stalls.The property sold for $5 million. That equates to roughly $113 per square foot for the building and $184 per square foot for the land. 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. The site contains 20,909 square feet of land and 31,600 square feet of buildingsThe property sold for $5.3 million. For comparison, 770 L Street sold for $173 per square foot before the Arena announcement. The building contains 169,000 square feet and was 90% occupied.
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.
These sales reflect the direction of the Core and the strength of current demand. 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.