East Bay Industrial Draws Private Equity Interest

Intero, San Francisco, Bay Area, Berkshire Hathaway, HomeServices of America,

By Jon Peterson

New York City-based KTR Capital Partners is on the cusp of investing more than $56 million in two East Bay industrial properties in Hayward and San Leandro.

The private-equity real estate firm has put the Hayward property under contract, agreeing to pay $24.7 million including $8.6 million in equity, according to a document from the Orange County Employees Retirement System.

At the same time, KTR is in advanced discussions to buy San Leandro’s Simmons Manufacturing Co. building at Fairway Drive and Miller Street, according to the Orange County records and sources familiar with the sale. The investor has agreed to pay $31.5 million with just more than $11 million in equity, the public records show.

KTR Capital has raised $1.2 billion for its KTR Industrial Fund III, for which it closed capital-raising on Aug. 8. On the West Coast the national investment fund is targeting properties in the San Francisco Bay Area, Los Angeles and Seattle. Orange County employees committed $50 million to the fund, which is buying the Hayward and San Leandro properties.

The Hayward property at 31775 Hayman St. has 215,000 square feet and is fully leased to Strategic Materials Inc., according to sources familiar with the transaction. SMI is an industrial products maker and glass and plastics recycling company. Its lease expires at the end of May 2015. The seller of the property is San Francisco-based D.R. Stephens & Co. President Lane Stephens said the transaction with KTR is planned to close at the end of September.

KTR anticipates a stabilized yield on the Hayward buy of 7.2 percent, with a projected gross leveraged internal rate of return of 19.2 percent. The 13.5-acre property was originally developed in 1965 and has 5,000 square feet of offices, 2.3 percent of the complex.

According to sources familiar with the property, the long-term plans could include redevelopment for a higher and better use. KTR did not return phone calls seeking comment for this story.

The projected yield in San Leandro is 6.3 percent and a 16.9 percent gross leveraged internal rate of return. The seller is Emeryville’s Orton Development Inc. Ted Anderson, an associate director with Cushman & Wakefield of California Inc. in its Oakland office, is managing the listing. Neither Orton nor Cushman returned calls seeking comment.

The property totals around 400,000 square feet on a 17-acre site and is located very close to Interstate 880.

KTR, which has a Los Angeles regional office, sold 33200 Lewis Ave. in Union City in May. The 98,000-square-foot property drew $90 a foot from Emerald Packaging Inc., which has its headquarters next door at 33050 Western Ave., said Kevin Hatcher, a vice president with Colliers International in its Oakland office. Hatcher represented the seller in the transaction. KTR bought the property in 2010 for $62 a square foot, Hatcher said in an email response to a reporter’s query.

The East Bay industrial markets have been stable. Hayward vacancy rates have remained flat over the first half of 2013, according to the second-quarter 2013 report from Colliers International. They are now 9 percent after being 9.2 percent at the beginning of the year. In San Leandro, vacancy has dropped to 5.2 percent in comparison to 5.7 percent at the start of the year.

West Coast Commercial Real Estate News