Radius Insight: Q2 2014 South Coast Commercial Real Estate Report: Records are made to be broken

52 commercial sales in first half of year sets new mark

It seems the market cannot get any hotter, at least with regard to commercial sales.

The second quarter of 2014 came to a close with 27 sales, edging the very strong performance of 25 transactions during the first quarter, and bringing the first half of the year to 52 deals total.

This is the most prolific first half of a year on record, and we are quite possibly on pace to end the year with total sales transactions in the high 90’s, which would also be the greatest number of annual sales we have seen since Radius began keeping records about 17 years ago.

Repositioned properties that were bought in the downturn for large profits are now being resold. This is creating an even more frothy market as the number of 1031 exchange buyers increases.

Two prime examples of properties that were bought within the last couple years and recently resold are the “Starbucks center” at 1046 Coast Village Rd. in Montecito and the “Citibank building” located at 3757 State St.

The Starbucks center had last been sold in December of 2012 for $10.2 Million, and this April it was resold in an off-market transaction after anchor tenant Starbucks renewed at market rate. The $14.5 Million resale marks the largest sale ever of commercial property on Coast Village Road according to our records.

The Citibank building on upper State Street in the Whole Foods shopping center was also purchased in 2012 by a local investor, and at the time it had 30% occupancy. The buyer then completely renovated
both the interior and exterior of the building prior to inking any leases.

By the time the building renovation was completed, the vacant spaces had been leased to four different tenants and the building was then 100% occupied. Shortly thereafter the property was sold in an off-market transaction for $9.8 million.

Another noteworthy sale involved the Class A office building located at 6550 Hollister Ave. The property was 100% occupied by Cottage Hospital and was one of several purchased by a 1031 exchange buyer coming out of a very large exchange in San Diego.

The big question is will interest rates hold?

If the 10 year treasury stays between 2.5%–3.0%, we are confident we will see the greatest number of commercial transactions recorded in Santa Barbara in the last 17 years.

Alternatively, if rates break 3% we will see a slow-down in the market similar to what we experienced in May of 2013. Time will tell, but we remain optimistic about the continued success of the South Coast as a prime investment opportunity market.

View Full Report: Radius Insight: Q2 2014 South Coast Commercial Real Estate Report