By Jon Peterson
Toronto-based Sun Life Assurance Co. of Canada is calling for offers on the 197,500 square-foot Centre Pointe Business Park in Walnut Creek. The six-building, two-story property is located at 165-225 Lennon Lane and was built in the early 1980s. It went on the market earlier this year.
“The seller like many investors is going through and trading properties to redeploy some of its assets. The sale became a reality once the two main tenants signed leases for another five years a couple of months ago,” said George Eckard, an executive director at Cushman & Wakefield of California Inc. Eckard and Senior Director Grant Lammersen are the lead brokers for the sale.
The Travelers Indemnity Co., better known as Travelers Insurance, and the Internal Revenue Service occupy 60 percent of the property and are responsible for nearly three-quarters of its base rent. Travelers occupies not quite 93,000 square feet and has been in the property for 22 years. The IRS leases nearly 30,000 square feet and has had space in the complex for 18 years. Overall, the property is 85 percent occupied.
The leases were signed at $1.75 a square foot for full service. Rents for this kind of back office space have seen modest increases of 3 percent to 5 percent over the past 12 months, Eckard said.
In general the East Bay office market has lagged that of San Francisco, the Peninsula and the northern half of Silicon Valley, where technology companies’ expansions have fueled rising rents and falling vacancy rates. Technology has a minimal East Bay presence, however, while health care, government, business and financial services tenants have dominated. With the exception of health care, none of the other sectors has been in growth mode.
Still, vacancy should fall modestly this year and next amidst occupancy gains, according to 2012 projections from Cassidy Turley Commercial Real Estate Services. Pleasanton’s mammoth Hacienda business park near the intersection of interstates 680 and 580 reported occupancy gains of more than 90,000 square feet in the first quarter, for instance. The Hacienda has more than 10 million square feet of office, retail and research and development space and roughly 475 company tenants.
The Walnut Creek property is expected to sell in the low $100 per square foot range, well less than the estimated $250 a foot replacement cost. At the estimated per square price, the development would draw about $21 million. “I would think that the cap rate would be around 9 percent—a big difference from cap rates for properties in downtown San Francisco, which has traded as low as 5 percent,” Eckard said.
There is no debt on the property, and Sun Life wants an all-cash offer. The development, along with others in the Shadelands submarket where it is located, was recently rezoned to allow medical uses, expanding its potential tenant base. “I would expect that the interested [buyers] would be local or regional real estate companies that are looking for value-added or opportunistic investments. These firms would be backed by institutional investment funds,” Eckard said.
The performance of Centre Pointe has been somewhat better than the market generally, according to data through the end of 2011 from Cushman & Wakefield. Within the Shadelands submarket the vacancy rate is 19 percent. This compares with a 14 percent vacancy rate in downtown Walnut Creek, which is four miles from Centre Pointe, and 15 percent for the overall vacancy of office buildings in the Interstate 680 corridor from Pleasanton in the south to Concord in the north.
Sun Life has owned Centre Pointe since October 2004 and has spent approximately $3.6 million on capital improvements. The company continues to own 625 Market St. in downtown San Francisco with more than 71,00 square feet and 801 and 851 Traeger Ave. in San Bruno with not quite 126,000 square feet.