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A number of purchases and leases of Petaluma office properties helped boost net absorption there by 200,400 square feet for the 12 months ending in the first quarter, according to newly released figures by Keegan & Coppin/ONCOR International.

Net absorption is a metric for the health of commercial property markets by looking at whether more space is being occupied than being made available.

Net office absorption in Petaluma over the previous 12 months was the highest among the Sonoma County markets, besting just 58,200 square feet in Santa Rosa and nearly 32,000 square feet in the business areas north of Santa Rosa. Rohnert Park was basically flat for the year with nearly 6,000 square feet of net absorption.

"For Petaluma as a whole, it has all been positive," said Tony Sarno, a Keegan & Coppin agent who has been marketing five of 14 buildings Equity Office Properties gave back to lenders starting in early 2010. "That couldn't be said a year ago."

In the past year or so, dozens of office and office-warehouse buildings, many with significant vacancies, have been sold to investors and users, often in the range of $40 to $50 a square foot. That compares with previous purchases of the same buildings within the past several years for at least three times that.

One of the major challenges in Petaluma commercial real estate now is determining property value when buildings built by the same builder at the same time might have dramatically different income potential because one is lender-owned, according to Mr. Sarno.

"In Petaluma, there is a bifurcated market," said Al Coppin, president of Keegan & Coppin.

The buy high-sell low consequence of the rapid economic slowdown from 2006 through 2009 was a resetting of the cost basis for Petaluma commercial real estate, which at the peak was approaching cost parity with Novato and north San Rafael.

"What's happening now as this high-quality real estate is becoming more accessible for purchasers and lessees based on recent purchase prices, it's becoming more attractive to come to Petaluma," he said.

For example, two investment entities led by Dan Brown, president of Berkeley Nucleonics in San Rafael, acquired two former Equity Office buildings late last year and early this month, and signed a lease with the company, according to public records.

Of the 14 buildings in the city Equity Office Properties gave back to lenders starting early last year, nine have been sold. Five of those recently went to Basin Street Properties, which sold 44 North Bay buildings to Equity Office in 2005 for up to three times as much.

A few others of the 14 are in escrow, according to market sources.

Another example is Cornerstone Properties acquired five former Cisco Systems buildings in late 2009 for roughly 20 cents on the dollar and attracted LowePro USA to relocate from Sebastopol to a floor of the largest building.

This low-price situation will have a limited run, because there's not much such space left, according to Mr. Sarno.

Recently coming back to the market are 210,000 square feet Equity Office had leased to Alcatel in north Petaluma until this month. Alcatel recently signed a lease at the sound end of the city for about 13,000 square feet with long-time Lakeville Business Park developer RNM Properties. Trevor Buck, Steven Leonard and Brian Foster with Cassidy Turley BT Commercial brokered that deal.

Real estate market sources anticipate the nonrecourse loans on these Equity Office properties will revert to the lenders also and be marketed at low prices.

The office vacancy rate in Petaluma was 33.8 percent in the first quarter, the same as at the end of 2010 but much improved over 39.6 percent 12 months before. The rate in Santa Rosa increased to 15.1 percent from 14.5 percent at year-end but down from 16.0 percent a year prior.

Santa Rosa and north industrial real estate was more active for the 12 months ending in the first quarter, according to Keegan & Coppin. Those submarkets had a combined 468,600 square feet of net absorption, followed by nearly 54,000 square feet in Petaluma.

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