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Petaluma building sells for $18 million

SF’S STEPHENS & STEPHENS IN FIRST NORTH BAY BUY AS PART OF $300 MILLION JOINT VENTURE

PETALUMA – A joint venture between a San Francisco-based industrial property investor and a Chicago-area real estate investment trust has purchased a 183,400-square-foot two-building complex in Petaluma for nearly $18 million in one of the largest North Bay commercial property sales to date.

Inland American/Stephens (Southpoint) LLC purchased 755 and 775 Southpoint Blvd. from Petaluma Southpoint LLC for $17.97 million, or $98 a square foot. The buildings currently are 95 percent occupied, with the largest tenants being Verihealth, Pomegranate Publishing and the U.S. Postal Service.

Petaluma Southpoint LLC was managed by Pine Creek Properties of Santa Rosa. The buyers are Inland American Real Estate Trust of Oak Brook, Ill., which controls a portfolio of 18 million square feet, and Stephens & Stephens LLC, which manages 5.6 million square feet of research-and-development and industrial properties in the East Bay and South Bay.

Last year, the two entered a $300 million joint venture to acquire, redevelop or reposition such properties in the Bay Area. Inland America contributed $90 million to the venture, and Stephens put in $10 million.

Unlike the office market in Petaluma, which has as much as a third of the total space available for rent, the submarket has roughly 15 percent of about 5 million square feet of industrial space vacant, according to commercial real estate brokerage estimates.

Stephens & Stephens has been eyeing North Bay acquisition opportunities since 2000 and considering the Southpoint complex in particular for the past two years, according to partner Lane Stephens.

“For industrial, the market is really strong,” he said about Petaluma. “Lease rates for warehouse space in particular are higher than anywhere in the Bay Area.”

The firm also has been looking for opportunities in the Santa Rosa area and in Napa Valley for the same reason. Specifically, the firm wants stabilized properties with high occupancy rates and opportunity to increase rents in better economic times.

Stephens & Stephens purchased a building in Novato in 2002 and then sold it to BioMarin Pharmaceutical in 2004. The firm has avoided acquisitions in Marin County and the Peninsula because of high sales prices and little ability for rent growth, according to Mr. Stephens.

The firm waited to make an acquisition because the size of North Bay industrial properties that typically sell in the few-million-dollar range aren’t efficient for the firm’s 22-employee staff to manage without other local properties, according to Mr. Stephens. Now that the firm has a North Bay presence, it can consider some smaller properties, he added.

Mr. Stephens’ father, Donald Stephens, started Stephens & Stephens in 1973 as an investment adjunct to his real estate law firm. Initially involved in residential land and multifamily property deals, the firm shifted to industrial properties in 1998. In the last five years, the firm has acquired 5.2 million square feet.

The firm has a number of investment funds active, namely $70 million remaining for the Inland American venture. However, the pace of deals has slowed from 15 last year to likely six this year because of troubles in financing markets, according to Lane Stephens.

Another large commercial property sale was the Mervyn’s-anchored Parkway Plaza in Napa that sold in July for an undisclosed price and was listed for $20 million last year.

Trevor Buck of NAI BT Commercial represented Stephens & Stephens in the acquisition.