By Jon Peterson
Strong buyer interest and a belief that the pricing for core retail assets in the Bay Area has reached a cyclical high drove Walnut Creek-based Loja Real Estate LLC to sell the 345,690-square-foot Downtown Pleasant Hill Shopping Center, its chief executive said.
“We had some mixed feelings as the property is in our own backyard,” said Tom Engberg of Loja Real Estate. But, he said, “We think that the timing of the sale is right. There is a lot of capital going after core assets, which this property is clearly one. The sale allowed us to sell at a high point.”
Loja had owned the Pleasant Hill property since November 2010, when it paid approximately $75 million, purchasing on behalf of an institutional investor. When it sold, the property was 96 percent to 97 percent occupied. Burnham Pacific originally developed the center in 2001. Loja determined to sell in the fall.
The Pleasant Hill property, which is grocery anchored by Lucky Supermarket, functions as Pleasant Hill’s downtown, with Crescent Drive serving as its main street. The center draws from a three- to five-mile trade area with a population in the larger area of 257,000. The average annual household income within three miles is $95,544.
A non-disclosure agreement with the buyer, Hartford, Conn., -based UBS Global Asset Management, prevented him from releasing UBS’ initial yield, or capitalization rate, on the $100 million purchase, Engberg said. Prudential Real Estate Investors, another institutional investor, accepted less than a 4 percent cap rate on San Francisco’s 100 Spear St. office building, which it recently acquired for $100 million.
“We look at the property as a strong infill center with a good tenant roster and the possibility of being able to re-tenant part of the space once some of the existing tenants’ leases expire,” said Tom Barreira of UBS Realty Investors LLC who works out of the company’s regional office in San Francisco on 455 Market St. It will be awhile before that happens, he said.
Barreira said he likes the overall retail market in the San Francisco Bay Area. The tough regulatory hurdles to new development make existing properties more valuable, he said.
UBS acquired the property for an account the company manages; Barreira would not say which. One of the bigger accounts for the company is the UBS Trumbull Property Fund, a core open-ended commingled fund with $13.4 billion in assets at the end of September, according to a public document from the Orange County Employees Retirement System. At that time, Trumbull had a $2.7 billion entry queue of investor capital waiting to be called by the manager as UBS buys properties.
Loja plans to re-invest the sales proceeds into new acquisitions. The company favors retail properties with dominant grocery stores on the West Coast. The investment firm is now hoping to find properties in secondary markets where it can achieve higher cap rates. “I would think that there is a 100- to 200-basis point difference in cap rates for properties in secondary versus primary markets,” Engberg said. “This is not going to be easy because I think there are many other buyers who are trying to do the same thing.”
Colliers International represented both the buyer and seller in the transaction.
Photo courtesy of Chain Store Age