SAN FRANCISCO/SACRAMENTO—Despite a market where rents have declined 10% since the shelter in place orders went into effect and tech employees began working from home full time, the demand for apartment buildings in prime San Francisco neighborhoods has been strong. The Colliers San Francisco-based multifamily investment team led by James Devincenti and Brad Lagomarsino note that well-priced buildings received multiple offers while others traded at a 5 to 10% discount from the 2019 highs.
Amid the various complexities of the coronavirus crisis, these Colliers multifamily brokers, along with senior vice president Dustin Dolby, closed eight deals totaling more than $48 million in the second quarter. The properties are situated in Russian Hill, Alamo Square, Nob Hill, Lone Mountain, Cow Hollow and Noe Valley.
“Well-located high-quality multifamily assets continue to trade at aggressive pricing despite the crisis,” said Lagomarsino. “The turmoil has had a dampening effect on the market, as even contingent-free deals were subject to modest renegotiations of 1.8 to 5% during the shelter in place. Vacancy rates have increased from 3 to 6% in the second quarter of the year resulting in a noticeable softening of rental rates that will put further pressure on pricing. As the debt markets become more attractive, investors will return in hopes of capitalizing on these changes in the market.”
The eight properties are:
- 1900-1906 Hyde St. in Russian Hill is comprised of seven units including six one-bedrooms, one commercial unit and two parking spaces.
- 1509 Golden Gate Ave. in Alamo Square is comprised of 15 units including 12 two-bedrooms, three one-bedrooms and 15 parking spaces.
- 1244-50 California St. in Nob Hill is comprised of 12 large three- to four-bedroom units.
- 828 Anza St. in Lone Mountain is comprised of 12 one-bedroom apartments and 12 parking spaces.
- 1690 Greenwich St. in Cow Hollow is comprised of 15 units including 12 one-bedroom units, three studio units and 13 parking spaces.
- 510 Stockton St. in Lower Nob Hill is comprised of 17 units including eight one-bedrooms, eight two-bedrooms, one commercial unit and six parking spaces.
- 99 Jersey St. in Noe Valley is comprised of 15 studio units and seven parking spaces.
- 48-50 Pond St. has three flat-like apartments and two parking spaces.
Meanwhile in Sacramento, although many companies have begun downsizing office footprints, the metro didn’t have much new sublease space come on the market during the first half of 2020, according to Colliers Sacramento’s second quarter office market report. Other findings:
- Continued negative net absorption of -104,724 square feet is pushing vacancy up 20 basis points
- Leasing activity is the lowest volume since fourth quarter 2006
- The state halted all new leases, affecting 160,000 square feet of total deal volume
- The second quarter had the lowest sales total in five years
Despite COVID-19 bringing a halt to many sales transactions, there are still value-add investors looking for opportunities throughout the Sacramento region. One example is the $23.05 million sale to Cook Endeavors (Robert Cook) from seller, WHAL Properties.
Brad Idleman, Andrew Gibson, Bob Gilley, Kevin Moul and Andy Zighelboim of Colliers International’s institutional capital markets represented the seller. Thomas Walcott of Colliers Sacramento represented Cook, who was in the process of a 1031 exchange and pre-empted the marketing process by acquiring the property before it went out to the market.
Jason Rutherford and Kris Reilly represented WHAL Properties in the leasing of the eight-property portfolio. The properties were approximately 80% leased at the time of sale and in-place rents are generally below market, providing a value-add opportunity for the new owner.
“The new owner has tremendous potential with these assets and will be able to push rents and increase occupancy and income in the coming years,” said Gilley.
Four of the eight buildings are fully leased with 34,000 square feet of available space across the portfolio. The office buildings are class B/C quality and were delivered from 1977 to 1996.
The total square footage is approximately 170,000 square feet and the sale price equates to $139 per-square-foot. The cap rate comes to about 6%. The properties are located in the Highway 50 Corridor, East (Gold River), Campus Commons and Howe/Fulton/Watt Avenue submarkets and total approximately 170,000 square feet:
- 11335-11341 Gold Express Dr., Gold River, CA
- 11211-11249 Gold Country Blvd., Gold River, CA
- 800 Howe Ave., Sacramento, CA
- 3604-3626-3620 Fair Oaks Blvd., Sacramento, CA