If we looked at the most recent sales in Midtown Sacramento properties seem to be averaging around $100 a square foot.  This average includes sales that occurred in 2019.  During Covid, Sales were off considerably.    Virtually all the sales are for residential developments.  Six recent sales illustrate where Midtown land values are at.  

  • SPCA’s thrift store at 1509 E Street sold for $1.2 Million dollars.  This amounts to a land value of $94 per SF.  The owner is proceeding with development shortly.  
  • Sutter Senior Care’s building at 1234 U Street was acquired by Miry and Bardis for approximately $80 a SF.  Construction of 14 for-sale townhomes has commenced.  There is already a significant level of interest from home buyers and the development hasn’t even gone vertical.  
  • 2700 V Street, a half-acre residential development site sold for approximately $83 per SF.  The site was fully entitled when it sold.  
  • 14th and H Street was acquired in December 2019 for $1.3MM or about $100 a foot.  The site is located a block from the Music Circus and just 3 blocks from the Convention Center.  The Owners are ready to develop the site since it is entitled for a 60 Key hotel and some retail.  The owners are considering their options which includes selling the entitled site for a profit rather than develop the property.  Developing is the first choice, but financing is tough to come by for quasi-hospitality properties.  
  • 1208 Q Street was acquired by an Infill developer out of Oregon for $3.4MM or $78 PSF in August 2020. Property was already entitled for a 51-unit project by previous owner. Plans to start construction mid 2021. Might keep auto shop garage as a parking garage.  
  • 1301 V Street, a 25,600 SF site occupied by the Air Resources Board is supposedly in contract for $1.8MM to $2MM (about $75 a foot.) The building on the site is only 8,000 SF.  
  • The NEC of 16th and J (next door to Lucca) is a C2 zoned, 18,000 SF lot on the Market for $206 a foot.  Supposedly the property is in Contract (non-refundable) for close to asking price – Which would definitely be the highest land comp in the Midtown market. To make this price work, the developer will need to get entitlements for high density.  Since the lot is C2, there really isn’t a Height limitation.  

All the sales listed above are residential development sites.  For one developer it seems that the strategy is to buy, develop and sell as close to project completion as possible.  And as long as buyers keep paying 4% cap rates on stabilized investments, the formula works.  

There are a number of properties on the market, but pricing for some properties suggest that the target buyer is a Unicorn.  For example, 1608 T Street is on the market for a land value equivalent of $175 PSF.  You can’t fault the sellers for looking for the highest price, and if you aim high, you just might get close to it.  

The demand for apartment investments is driving the values up, but as construction prices continue to spike, the returns are getting compressed.  Sacramento is now prominently on the national stage and developers are flocking the market with outside perspective – which makes Sacramento look like a bargain.  I tend to agree, and I think that there is support for continued development of residential projects in the Core.  However, time will tell if Sacramento’s Core gets back to where it was in 2019.  Property segments such as office and retail play a big part in the overall commercial ecosystem, and if less office workers are downtown, then there is less reason to live downtown – and the retail businesses can’t stay in business.  Consider the State of CA.  If the State starts reducing their footprint, then as larger office vacancies come up, there will be less prospective businesses to back-fill the space.  Less office employees = less demand for retail.  

As you can see, Bacon CRE is bullish about values of residentially zoned properties because of the lack of supply, low interest rates and demand from the Bay Area.   Have questions?  Need guidance and insight?  Therapy?  Contact Bacon CRE at (916) 761-1202.