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Santa Barbara News-Press: Upswing expected to continue for commercial real estate

February 02, 2014

Santa Barbara News-Press: Upswing expected to continue for commercial real estate

The building housing The Lark and seven other businesses in the 100 block of Anacapa Street sold for $11.7 million in 2013. (Steve Malone / News-Press)
Santa Barbara, California – Published 2/2/2014
Santa Barbara News-Press
Santa Barbara News-Press: Upswing expected to continue for commercial real estate
By Steve Sinovic, News-Press Staff Writer

To understand why commercial real estate players are so bullish on the South Coast, just look at nearly any community.

Odds are you’ll see a healthy batch of projects already concluded in 2013 in South Santa Barbara County or moving forward in 2014, according to several year-end reports that detail notable leases and sales transactions of retail, office and multi-family properties.

Compiled by market leaders Radius Commercial Real Estate & Investments and Hayes Commercial Group — whose brokers often collaborate on local deals — the similar numbers — and statistics-laden reports cover a segment of the economy that drives business and commerce.

The most notable takeaway is the steady growth in Santa Barbara, Goleta and Carpinteria from the depths of the Great Recession six years ago, especially on the sales end.

Click here for the complete report: “Radius Insight: 2013 Year-End Report”

The Fresh Market opened last year in the former Scolari’s building, leading a number of new retail developments on Milpas Street. (Mike Eliason / News-Press)

“The Funk Zone has emerged as the city’s most exciting new retail area with the very successful openings of The Lark, Lucky Penny, the Santa Barbara Guitar Bar and Figueroa Mountain Brewery,” said Hayes’ Michael Martz, who offered a retail perspective.

The building at 137 Anacapa St. — home to The Lark, Figueroa and seven other tenants — sold for $11.7 million.

Additionally, a refreshed Milpas Street appears to be experiencing a much-needed face lift with the opening of The Fresh Market in the former Scolari’s building, a rumored Starbucks to replace the shuttered Blockbuster, and new retail offerings around the former Milpas Post office.

The action continues in other parts of South County, with projects powering forward on Hollister Avenue in Goleta.

Most obvious is the $28 million global headquarters that Deckers Outdoor Corp. is reportedly close to opening.

Eager retail watchers are keeping their eyes trained on any significant movement with a proposed Target store in Goleta.

Speaking of office space, activity in Carpinteria’s office sector remained slow through the fourth quarter, with just one notable lease as high-tech firm Procore chose to relocate from Montecito to the Carpinteria bluffs, attracted by the area’s lower lease rates and securing a quality, nearly 13,000-square-foot ocean-view building previously occupied by Clipper Windpower.

Brokers for both Radius and Hayes say much remains in the air as CKE Restaurants’ lease of 88,000 square feet on the bluffs expires in 2015.

Should the Carl’s Jr. parent company choose to exit, Carpinteria’s office vacancy would likely climb above 30 percent, according to the reports.

The sales of several apartment complexes resulted in big paydays for sellers in 2013 and more are expected in the new year.

Multi-family transactions reached a six-year high in 2013, closing the year with 22 sales of a properties five units and above.

High visibility sales in 2013 included the 63-unit New Tahitian Apartments in Isla Vista, which changed hands in June for $14.3 million.

That was followed by The Loop, a recently completed 48-unit luxury complex in IV, selling to an investment group from Chicago at the end of the third quarter for just under $29.3 million.

Look for 2014 sales activity to remain strong despite rises in interest rates, according to Radius and Hayes.

Click here for the complete report: “Radius Insight: 2013 Year-End Report”

Apartments are particularly popular with buyers, says Christos Celmayster of Hayes.

“They are always a safer investment as vacancy rates are low, there is always a demand and for many they are too expensive to buy,” which means only a few players have the bucks to be in the game.

“Also, if a buyer has a vacancy, all they need to do is change the carpet and the paint; maybe upgrade appliances. Commercial (units have) longer vacancies and it’s more money to renovate,” says Mr. Celmayster.

Large properties of 25-plus units in South Santa Barbara County will trade at $210,000 to $225,000 per apartment, he says.

Sellers also are doing quite a few exchanges — taking their proceeds to invest in properties of equal value to avoid any tax bites, Mr. Celmayster says, citing a client who sold an apartment building in Goleta and moved to Las Vegas, where he invested in retail property that is producing a good revenue stream.

Looking ahead for the South Coast, Mr. Celmayster says a similar number of sales, if not more, will be made in 2014 as pricing has become attractive to owners who want to take advantage of high premiums for their real estate and ready buyers waiting in the wings with the cash.

He forecasts rents in Santa Barbara will increase modestly by 1 to 3 percent, while units in prime locations around the beaches, downtown, Mesa, Upper East and Riviera locations will see the most significant increases.

The trend of improved “higher end” units being introduced to the rental stock will continue as landlords reposition older properties and ask for more moolah.

The vacancy rate will remain stable at approximately 4 percent and many decrease further if the economy continues to improve.

Also expected to move forward in 2014 is an affordable housing project at 510?N. Salsipuedes St., which was finally approved late in 2013 after opponents registered their concerns related to its size and scale.

The 40-unit, three-story project is being developed by Peoples’ Self-Help Housing Corp. and received some funding to buy the property from the city’s former Redevelopment Agency.

Click here for the complete report: “Radius Insight: 2013 Year-End Report”

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