SONOMA and MARIN COUNTIES -- A “recalibration” or “reset” of commercial property values in Marin and Sonoma counties to what they were more than a decade ago has created opportunities for businesses to expand or consolidate while lowering operating expenses, according to market experts. And Petaluma has been the hub of such activity along the Highway 101 corridor recently.
In the past 12 months, more than 1 million square feet of Petaluma office, flex and industrial space has changed ownership, or is set to do so shortly. Many of the dozen and a half buildings that have sold in the city have been in the last six months, and many have involved “distressed” properties.
“The market has totally changed in the last year,” said Jim Keegan, vice president of Keegan & Coppin/ONCOR International, which has brokered sales of 11 Petaluma buildings totaling 490,000 square feet.
Sales prices have been in the $40-to-$60-a-square-foot range for the troubled properties, or about one-third what such buildings were selling for at a peak in the market in 2005. With a much lower cost basis, the new owners have been aggressively attracting tenants to their properties.
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“It’s affording these owners aggressive relocation or moving packages for companies, making it worthwhile for companies inside or outside the area to take on more square footage for future growth,” said Tony Sarno, a Keegan & Coppin agent in the Petaluma office. He’s been co-marketing 11 of about a dozen and a half former buildings in the city Equity Office gave back to lenders, starting in early 2010 and culminating with a 210,000-square-foot campus Alcatel-Lucent vacated in April.
Basin Street Properties, which sold those buildings to Equity Office in 2005, repurchased five of them in for about $42 a square foot and is spending million on upgrades, attracting tenants in the process.
Cornerstone Properties purchased five former Cisco Systems buildings in the city at the end of 2009 and then bought two Equity Office buildings last month and has attracted the likes of Lowepro USA from Sebastopol, CrossCheck from Rohnert Park and First California Mortgage from elsewhere in Petaluma.
Some recent sales weren’t in the Equity Office portfolio and were purchased by company owners. Cypress Bay LLC, led by the owners of Natural Comfort Products in Novato, last month purchased an 86,000-square-foot vacant building in south Petaluma for the price of a 40,000- to 50,000-square-foot structure they were looking for to expand the business under one roof, according to Mr. Sarno, who represented the seller, a separate loan servicer. Another recent buyer, the Goff family that owns Dharma Trading Co. in San Rafael, purchased a warehouse building that wasn’t on the market but had tenants with leases expiring.
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"They needed about 35,000 square feet and a high-cube real industrial building with [truck] docks, and those are few and far between in Marin," said Keegan & Coppin's Nathan Ballard, who represented the buyers. "There were several options in Petaluma."
A sale of the Alcatel buildings is expected soon, as well as a bulk sale of other Petaluma buildings. Recent owner-user sales and large leases, including of a significant portion of Petaluma office space, could bring the city's office vacancy rate down to around 20 percent from the high 30 percent to low 40 percent range from the past few years, according to Mr. Sarno.