Investors buy 14 Petaluma, Rohnert Park buildings

JQUACKENBUSH

February 27, 2012

[caption id="attachment_49605" align="alignleft" width="300"] One of the largest and newest buildings in the RNM Properties portfolio was South McDowell Landing, finished in 2007.[/caption]

PETALUMA and ROHNERT PARK -- A local group of real estate investors that purchased three Redwood Business Park buildings in Petaluma last summer is back in a big way, buying 14 Petaluma and Rohnert Park office, industrial and retail structures, which at 842,000 square feet is the largest North Bay sale of commercial space in more than six years.

Investcorp comments

March 19, 2012

The New York-based U.S. real estate arm of hedge fund Investcorp, which has $11.6 billion in assets under management, commented on its recent joint acquisition of 14 Petaluma office, industrial and retail buildings for about $65 million. [read more]

Napa-based PB&J Acquisitions, LLC, and Investcorp International Inc. of New York on Feb. 17 purchased RNM Properties' entire North Bay portfolio of existing buildings, according to PB&J partner Bill Sumski. The followup purchase by PB&J continues a trend in the past two years with more than 2 million square feet in Petaluma commercial properties that have changed ownership and subsequently enjoyed a surge in leasing.

San Francisco-based RNM Properties, started in 1993 to invest trust funds for family of Oracle Corp. co-founder Robert N. Miner, has been developing and building in south Petaluma business parks for more than two decades and is set to continue to do so. Not included in the sale are 34 acres of south Petaluma business park land, approved for 580,000 square feet of office space in seven buildings.Deal by the numbers

Buyers: PB&J Acquisitions, LLC, and Investcorp International Inc.

Sellers: RNM Lakeville, LLC, and NJL Fountaingrove, LLC

Size: 842,000 square feet

Buildings: 14PetalumaSouth McDowell Landing, 1800 and 2000 S. McDowell Blvd., two office buildings, 144,416 square feet, built 2007Adobe Creek Center, 3100 and 3120 Lakeville Hwy., three retail buildings, 17,238 square feet, built 2005Lakeville Business Park, five office buildings on Corporate Circle, 211,780 square feetCypress Center, 2200 S. McDowell Blvd. Extension, industrial building, 185,841 square feet, built 19971125--1137 N. McDowell Blvd., industrial building, 58,588 square feet, built 19901031, 1035 and 1039 N. McDowell Blvd., three office and research-and-development buildings, 155,090 square feet, built 1999--2000Rohnert Park

5900 State Farm Dr., office building, 69,936 square feet, completed 1983Key tenantsPetalumaAthleta, a division of GapAmy's KitchenAutodeskCalixCamelBakClover Stornetta FarmsDr. Pepper Snapple GroupThermo Fisher ScientificWells Fargo Insurance ServicesRohnert ParkKaiser PermanenteState Compensation Insurance Fund

"We had seen back in June when we made the previous purchase there was some uptick in leasing," Mr. Sumski said. "Cornerstone [Properties] had purchased buildings and there was some activity in those buildings. We were looking at where market rents were and where other markets that could feed Petaluma were going -- particularly, Marin County. The opportunity to acquire buildings at a low cost basis and be able to offer competitive rents and product both in Marin and Sonoma counties was very attractive."

Real estate sources estimate the deal value is more than $65 million, or $77 per square foot. The assessed value of the properties last year was $87.2 million, according to public records. The estimated sale price per square foot is higher than the $40 to $60 range of recent large purchases in Petaluma in the past three years by Cornerstone Properties, Basin Street Properties and even PB&J in its last Petaluma deal.

The price for the RNM buildings is reflected in how full the buildings are and what type of tenants are in them, according to real estate experts. The recent move of Clover Stornetta Farms' headquarters to 1650 Corporate Cir. filled up the 60,000-square-foot building, which had been half-vacant until Amy's Kitchen relocated its headquarters there in 2009.

And Gap division Athleta's expansion to 40,000 square feet at South McDowell Landing last year helped bring to half-occupancy the five-year-old two-building, 144,000-square-foot complex. The building was selected in 2007 for the Business Journal Top Project awards.

Occupancy for RNM's whole North Bay portfolio was 74 percent at the time of sale, with higher vacancy in properties such as the 70,000-square-foot Rohnert Park building at 5900 State Farm Dr., fully leased to Kaiser Permanente and State Compensation Insurance Fund. Other major tenants in the portfolio include Autodesk, Calix, CamelBak, Dr. Pepper Snapple Group, Thermo Fisher Scientific and Wells Fargo Insurance Services.

Though PB&J Acquisitions was formed last March, its partners have been buying and selling Petaluma commercial properties for more than a decade, according to Mr. Sumski. In mid-June, PB&J Acquisitions teamed up with San Rafael-based MKD Investments, owner of The Great Petaluma Mill building, to buy 88,000 square feet of office space in three Redwood Business Park from Savoy Corp. for $5.1 million, or about $58 a square foot. Those buildings were 65 percent occupied at the time of sale.

PB&J's other deals include a build-to-suit project and the August purchase of a 35 percent-occupied repossessed 77,000-square-foot office building in Concord for an estimated $6.85 million, or $89 a square foot, according to the San Francisco Business Times.

The latest portfolio sale is the largest amount of North Bay commercial space to sell since 2005. That's when Equity Office affiliates purchased 1.43 million square feet of office and office-flex buildings in Santa Rosa, Petaluma and Novato from Basin Street Properties for $270 million. Yet, the latest big sale was smaller in value than the nearly $314 million purchase price for Fireman's Fund Insurance Co.'s 710,000-square-foot headquarters campus in Novato by American Assets in 2007.

To complete the Petaluma-Rohnert Park portfolio purchase, PB&J brought in as an equity partner the U.S. real estate arm of Investcorp. With offices in Bahrain, London and New York, the company at the end of last year had $8.7 billion of client assets under management at and had completed more than $300 million in real estate deals, according to company reports.

"Vacancies continue to fall as this economic recovery continues, and landlords have lowered their expectations of achieving the high rents from years past and now just want to fill their buildings and work on tenant retention," said Steven Leonard, one of the Cassidy Turley BT Commercial agents representing RNM Properties in the sale. "They can drive rents when the office vacancy rate falls below 15 percent."

The office vacancy rate in Petaluma in the fourth quarter was 27.9 percent, down from about 36 percent a year before, thanks to 245,000 square feet more space being leased or sold than put back on the market, according to Cassidy Turley BT. Chief among those deals was a 96,000-square-foot two-building lease by Enphase Energy at three buildings Basin Street Properties re-acquired in June.

Also representing RNM Properties in the sale were Will Connors and Eric Doyle of Cornish & Carey Commercial Newmark Knight Frank, San Rafael-based Cassidy Turley BT agents Trevor Buck and Brian Foster as well as Helen Sedwick of Bennett Valley Law in Santa Rosa. The buyers represented themselves.

Cassidy Turley BT will continue to market the RNM buildings for lease. Cornish & Carey Commercial agents in San Rafael are marketing PB&J's initial Petaluma buildings.

Attempts to reach an RNM spokesman for comment were not successful.