South San Jose Shopping Center Sells Below 6 Percent Yield

By Sharon Simonson

A San Diego-based real estate investment trust that has been acquiring Bay Area retail properties has paid a partnership involving Barry Swenson Builder $31.6 million for a 125,000-square-foot San Jose shopping center.

At the purchase price, Retail Opportunity Investments Corp. accepted a going-in yield, or capitalization rate, of less than 6 percent, said Scott Connelly, a Barry Swenson project manager. “They see the long-term value in it, so the nature of the cap was aggressive,” he said. “It has a ton of potential.”

The partnership, in which Barry Swenson Builder was the majority owner, has owned the shopping center since 1998. The offer came this summer and was unsolicited.

Typically, Swenson likes to keep his real estate indefinitely out of a belief that the real value lies in the land—in this case not quite 14 acres. “Barry just felt like it was a strong offer and felt like that it made sense,” Connelly said. “If the buyer hadn’t come around, we would gladly have kept operating it.”

The Santa Teresa Village Shopping Center is anchored by a Nob Hill Foods and has as its junior anchors Ace Hardware and Goodwill. It also has four pad sites, including a Carl’s Jr. restaurant, a Taco Bell and a Flames Coffee Shop. At sale, it was 91 percent leased.

With more than 30 tenants, the diversity made the center a steady producer, even in the difficult environment over the last four years, Connelly said. Other tenants include a dry cleaning store, a nail salon and a barbershop.

“It is not an A-quality center, and the rents have always reflected that. Some of these larger centers in the ramp up to 2008 had tenants paying $4 a foot, and those tenants could not pay those rents,” Connelly said. “During the recession we had to work with tenants, but we didn’t see rents adjusting by 50 percent, as others did.”

The location is just inside of the city of San Jose’s urban growth boundary at Santa Teresa Boulevard and Bernal Road.

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