New year brings sales, leases for commercial real estate
|The sale of the Bacara Resort and Spa for as much as $180 million was a huge boost to commercial real estate sales in the first quarter of 2013. (RAFAEL MALDONADO/NEWS-PRESS).|
An impending tax bite from Uncle Sam made 2012 one for the record books for sales of commercial real estate in South Santa Barbara County.
And the first quarter of 2013 wasn’t too shabby on the sales end, either, thanks to a whopper of a deal that closed: the acquisition of the Bacara Resort and Spa by Irvine-based Pacific Hospitality Group.
That’s according to reports published by Radius Group Commercial Real Estate and Hayes Commercial Group. Both firms compile market data activity in office, industrial and retail categories for Santa Barbara, Goleta and Carpinteria.
The firms recorded 85 separate sales in the year that just ended. “That was a huge one” and clearly not typical of the market in average year, said Bob Tuler, principal/broker for Radius.
“The average number of sales is usually about 64 (properties).”
The flurry of sales that closed the end of last year was due largely to motivated sellers acting to avoid the 2013 capital gains tax increase and 3.8 percent real estate tax on some investment income.
During the fourth quarter of 2012, seven deals exceeded $10 million, Mr. Tuler said.
The quarter was big last year for several reasons (35 sales) and 16 sales just in December, hastened by the new tax laws.
Current tenants bought more than half of the properties, taking advantage of eager sellers and the ability to get a Small Business Administration loan for 4 percent with 10 percent down.
“For many new owners, the mortgage is what they were paying for rent or less,” Mr. Tuler observed.
The first quarter ended March 31 with 14 sales — below the 15-year average of 16 transactions per quarter.
But thanks to one very large commercial transaction — the sale of Bacara estimated at $150 million to $180 million — sales dollar volume is close to the average quarterly amount of $200 million, according to the Radius report.
Excluding the large hotel sale, which tended to skew the numbers, year-over-year first quarter dollar volume would have been down 30 percent, according to Hayes.
Total sales volume excluding the Bacara Hotel — a deal which did not involve any local brokerages in the transaction — is approximately $32.6 million.
The biggest first-quarter deal after Bacara was the approximately $16.5 million sale of the 51,000-square-foot office building at 6267 Carpinteria Ave., the headquarters for Venoco. The sale was one of the largest of office property in Carpinteria’s history.
The next largest sale — for approximately $3.1 million — was a building at 427 E. Carrillo St.
Everything else that sold in the first quarter cost less than $3 million.
Santa Barbara County will realize the benefit of the Bacara sale, which was far and above the last recorded sale price.
Nearly two years ago, Ohana Real Estate Investors bought the region’s largest resort for less than half of its construction cost, in the vicinity of approximately $100 million.
“That’s about $50 million more in property tax sales (on the rolls),” Mr. Tuler said.
Additionally, the property is planning to spend millions more in upgrades and renovations this year, a further boost to the economy.
“I just talked to a guy who did fireplace upgrades at the Bacara and he was happy to get the business,” said Mr. Tuler.
At the end of the first quarter, the industrial leasing market has reached the lowest vacancy rate “that we’ve seen since we started tracking market data,” according to Hayes.
The 120,000 square feet of industrial space leased in the first quarter was 40 percent above the average quarterly total for the past five years, according to Hayes.
Notable deals were inked by Santa Barbara Mailworks, Ergomotion, Griplock and U.S. Air Conditioning.
As available space tightens, industrial lease rates have been rising, with the asking rate for industrial space reaching its highest level since 2008, according to Hayes.
“Industrial was as hot as we’ve seen in years,” Mr. Tuler said.
Some other market highlights:
- Goleta’s office sector has jumped to double-digit vacancy at 12.4 percent, underscoring the bloated office market across the South Central Coast.
- Not much changed in the market’s coveted retail sector, with Santa Barbara vacancy at a low 2.1 percent, dramatically lower than the national average of 10.4 percent, and asking rates in turn continuing upward.
- Multi-family properties continue to be possibly the hottest buy around, with 11 currently for sale and six of those in escrow. It’s not uncommon to receive multiple offers over asking price for apartment buildings.
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