Market Reality - Midtown Sacramento

Does Pricing Matter?

Of course it does - When there are buyers and Tenant's actively looking. However, the number of buyers looking to buy an office building or a large multifamily development site has diminished considerably. Over the last 6 months we have seen interest rates spike and war chests empty. I have two properties for sale that illustrate what's happening. Both are in Midtown and both are in A+ locations.

Property 1: 2021 - 2023 N Street - two buildings consisting of 9,000 SF on a 12,800 SF Parcel. (click on property address to see property offering.)

I listed this property for sale in April. We have had approximately 10 tours but no offers. Last year this property would have sold at least once. Besides interest rates spiking over the last 4 months, a majority of office tenants are still not even back to the office. And with this uncertainty, not many office tenants are going to make an investment in an office building. Up to now, I have not felt that a price reduction would increase demand from office tenants. However we are starting to see more office tours. So, a meaningful price reduction will make a difference. The price has been reduced by nearly 10%. Given the rents in downtown Sacramento, you would think that there would be a multitude of firms considering this prime real estate. Perhaps the price reduction will get folks off the fence.

The Ownership is also willing to lease the 6,000 SF building significantly below market. We figure that an office tenant might want to lease space for a couple years while they wait to determine what their needs will evolve to be.

Property 2: Prime 2.8 acre development site on the former Sacramento Bee Campus. (click on property title to see property information)

Last year when marketing the former Sacramento Bee HQ - a 154,000 SF office building - we received eight bids to purchase the property in less than three months. Developers were actively looking for development sites, and the HQ attracted Owner Users, Developers looking to repurpose the building and Developers looking to demolish the property and build from the ground up.

Fast Forward 12 months. The market has slowed down, but this is not a permanent condition. The long term fundamentals for the site and Midtown are strong. I have spoken with at least 50 developers, and either the developer has put a pause on evaluating sites OR the developer is underwriting the deal much more conservatively.

Offers are due in about a month, and I anticipate receiving bids from about 5 developers. Frankly, if a developer looks beyond 2022, they will see an outstanding opportunity (now) to secure a development site in the center of Midtown; since less developers will be bidding on the site, the odds of winning the bid improves. The site is directly across the street from the 277 unit Press Apartment development, which is about 96% leased.

Conclusion: Midtown remains vibrant with an abundance of residential, retail and office users. There is a flight to quality, and with less lookers, it is a great time to be looking to either buy or lease.