[caption id="attachment_95221" align="aligncenter" width="450"] Former State Compensation Insurance Fund building at 1450 Neotomas Ave. in Santa Rosa (image courtesy of CoStar)[/caption]

SANTA ROSA -- A Petaluma-based commercial real estate investor added 188,000 square feet of industrial and office space to its sizable local portfolio with the purchase of two buildings in the Santa Rosa area.

Cornerstone Properties purchased a 124,337-square-foot warehouse at 975 Corporate Center Pkwy. in southwest Santa Rosa from Zynobia, LLC, on June 18 and the nearly 54,000-square-foot vacant State Compensation Insurance Fund office building at 1450 Neotomas Ave. in east Santa Rosa the following day.

"We believe in this area; we believe in the community, and we continue to do strategic growth," said a Cornerstone Properties principal who declined to be identified.

[caption id="attachment_95222" align="alignleft" width="360"] Front entrance of the warehouse building at 975 Corporate Center Pkwy. in Santa Rosa (credit: Keegan & Coppin)[/caption]

The warehouse was 70 percent occupied at the time of sale, and two deals were in the final stages of negotiations that would take that rate significantly higher, the principal said.

The three-story former state fund building was built in the mid-1980s for the agency, which accommodated more than 300 employees there at its peak operations. The steel-frame class A construction and location near Bennett Valley where a number of executives live made the building attractive to purchase, according to Cornerstone.

[caption id="attachment_95223" align="alignright" width="360"] Back of the warehouse building at 975 Corporate Center Pkwy. in Santa Rosa (credit: Keegan & Coppin)[/caption]

A renovation plan is being crafted that would orient the building to accommodate multiple, smaller tenants and have a modern, San Francisco Financial District look, with glass interior walls and open workspace areas. Target tenant space sizes are 2,000 to 10,000 square feet.

This is the latest in several major Santa Rosa commercial property sales this year.

In January, Cornerstone in a loan special servicer auction acquired three of four office and industrial buildings formerly owned by Newport Beach-based Core Realty Holdings in Westwind Business near Charles M. Schulz--Sonoma County Airport. The final purchase price for the 130,000 square feet of space wasn’t disclosed.

On April 15, Cornerstone Properties purchased the 58,000-square-foot downtown Santa Rosa office building at 427 Mendocino Ave. that houses the publishing offices of Santa Rosa Press Democrat and the Business Journal. The plan is to refurbish the mostly vacant ground floor for retail or office tenants. The sale included four nearby parking lots.

Petaluma-based STG Group, whose portfolio totals 4.5 million square feet of commercial properties in Western states, bought Santa Rosa office buildings totaling about 168,000 square feet on May 29 from longtime owner Sausalito-based Berg Holdings Corp. for roughly $13 million, or $79–$80 a square foot. The buildings were about half-empty on average at the time of sale. STG plans upgrades to attract tenants.

The average vacancy rate for Sonoma County industrial space fell to 8.8 percent of 24.2 million square feet in the second quarter of this year from around a still-low rate of 10 percent in the first quarter, according to Keegan & Coppin Co., Inc./ONCOR International. The rate had been around 10 percent since mid-2013 and over 13 percent two years ago.

For Santa Rosa proper, the industrial vacancy rate was 9.3 percent of 10.2 million square feet and a scant 3.2 percent of 5.7 million square feet in the business parks near the airport and in Windsor and Healdsburg.

Cornerstone first invested in North Bay property in 2006. The first purchase was a 18,700-square-foot retail center at 2720 Santa Rosa Ave. in Santa Rosa. Later that year, the company acquired a 156,000-square-foot former Weigh-Tronix complex at 2320 Airport Blvd., located at the entrance to the airport.

The North Bay portfolio took a large jump four years later, when Cornerstone purchased the five-building, 170,000-square-foot former Cisco Systems campus in north Petaluma a fraction of what Cisco had paid for them.

Buy at a low price, refurbish and bring to market at attractive rental rates to fill buildings was a strategy Cornerstone had employed with a 1 million-square-foot portfolio in Silicon Valley, a principal has told the Business Journal.

"We always try to be a little below market and try to make things work for (tenants)," the principal said. "Even if the market is tighter, we don't want to squeeze tenants."

Since then, Cornerstone acquired and sold a few more Sonoma County buildings. That included 93,000 square feet in two former Equity Office office buildings acquired in north Petaluma in 2011 and the sale of 1380 Redwood Way in Petaluma’s Redwood Business Park last year.

Cornerstone also has purchased land in Petaluma and north of Santa Rosa.

Shawn Johnson of Keegan & Coppin represented Cornerstone in the purchase of 975 Corporate Center. Dave Peterson and Danny Jones of Keegan & Coppin represented Cornerstone in the acquisition of 1450 Neotomas, and Kevin Mechelke of Jones Lang LaSalle represented the fund.