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North Bay Business Journal

Monday, November 29, 2010, 7:18 am

Commercial Real Estate: Apartment investment market improves

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    Number, volume of transactions increases for larger complexes

    The multifamily housing investment market has significantly improved from 2009 in terms of transactions closed and purchase prices.

    For complexes with 10 or more units in Marin and Sonoma counties, there were 11 sales in the first nine months of this year totaling $86.4 million, compared with six sales amounting to $21.9 million in that period of 2009, according to Scott Gerber of NorCal Commercial, citing CoStar Group data.

    The situation is a bit different for properties with four to 10 units in the two counties, according to Mr. Gerber. There were 23 sales from January through September 2009 totaling $16.8 million and 15 deals totaling $13.1 million in that timeframe this year.

    Average prices per square foot increased to $173 in the first three quarters of this year from $146 in that period last year.

    “Last year, there were more transactions that were distressed assets, which explains why the price per square foot was lower,” he said.

    The environment for financing apartment investments also has improved, according to Katherine Higgins, a multifamily investment specialist with Bradley Real Estate.

    “Financing is easy to come by this year, compared to last, with the five or more unit properties,” Ms. Higgins said.

    Union Bank and U.S. Bank have funded a number of North Bay multifamily deals in the past six months, joining longtime lenders on the property type, such as JPMorgan Chase, according to Ms. Higgins.

    Speaking of Chase, some investment residential real estate owners have been getting unsolicited inquiries from the bank to rework upside-down loans.

    Barry Palma, a commercial real estate agent with Cornish & Carey Newmark Knight Frank in Santa Rosa, said Chase approached him to refinance a Palm Springs investment home with negative equity from a 30-year interest-only note to a 15-year fixed loan, reducing the principal by 35 percent. Home values had dropped 50 percent in the area from 2005 levels.

    “It reduced the debt dramatically, but the bad news is I have to pay tax on the debt relief, so I’m not really gaining anything,” he said.

    Ms. Higgins said two of her multifamily investor clients in Marin had Chase approach them to rewrite loans.

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    Fresh & Easy Neighborhood Market purchased 1.22 acres in Springstowne Center at Springs Road and Oakwood Avenue in Vallejo for $1.5 million, or $28 a square foot. The El Segundo-based chain of small-format grocery stores is hiring for stores in Napa and Vacaville among a dozen Bay Area openings planned through early 2011. The stores each employ 20 to 25.

    The Vallejo location and a committed site in Fairfield aren’t among them. Spokesman Brendan Wonnacott said the Vallejo project is too early in the process to note a store opening timeframe.

    Jon Stansbury and James Gaglione of Terranomics Retail Services represented Vallejo land sellers Ilia and Stella Lerner.

    ***

    The Price-Simms auto dealership group in October opened a Ford dealership in Fairfield’s 31-acre auto mall along Interstate 80. The company also started construction on a 40,000-square-foot Mercedes-Benz dealership there and is vying for certification of the project under the U.S. Green Building Council’s Leadership in Energy and Environmental Design standard.

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    Lowe’s Home Improvement purchased about 11 acres at North Texas Street and Manuel Campos Parkway in Fairfield in October and is aiming to start construction in spring 2011 on a 139,000-square-foot store.

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    Wal-Mart opened a 200,000-square-foot Supercenter at North Texas Street and Atlantic Avenue in Fairfield in early November.

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    Minneapolis-based Buffalo Wild Wings Grill & Bar, one of the few restaurant chains to weather the recession well, opened a location this month in Westfield Solano Mall in Fairfield.

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    Santa Barbara-based Santa Rosa Distribution Partners LLC, led by project developer Rottman Group, sold the 65,000-square-foot FedEx Ground hub, built in 2008 near Charles M. Schulz–Sonoma County Airport north of Santa Rosa to Piedmont-based Windsor Express LP. Chris Sheldon, Andrew Bogardus and Douglas Longyear of Cassidy Turley BT Commercial brokered the Nov. 10 sale. The purchase price was $12.5 million, or $193 per square foot.

    ***

    Sonoma Bank, part of Sterling Financial, took back a 19,500-square-foot office building at 175 W. College Ave. and a body shop building at 11 W. College on Oct. 21 when there were no bids at a trustee’s sale for outstanding loan balances of $2.16 million and $1.16 million, respectively.

    Lukhbir Gill of Healdsburg-based B&G Group, which developed the office building and owned the shop, said the property went into default when the bank declined to refinance the 175 W. College loan. Dibble’s Auto Body left the shop, and Wells Fargo Mortgage‘s lease on the facility ended in October.

    Mr. Gill said he asked the bank to refinance the loan with the original principal of $3.5 million but 4.25 percent interest instead of the original 6.25 percent rate to allow the now-empty building to be leased again at $1.40 to $1.50 a square foot.

    He said the building was originally financed when it appraised at $4 million and market rates for the newest office space was $2.40 a square foot.

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    Submit items for this column to Jeff Quackenbush at jquackenbush@busjrnl.com, 707-521-4256 or fax 707-521-5292.

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