A BlackRock joint venture has acquired a Walnut Creek necessity-anchored shopping center for nearly $35 million in a deal that reflects strong investor demand for Bay Area retail property and limited for-sale inventory.
BlackRock, a global investment manager, Orange County-based Citivest Commercial Investments LLC and Marin County’s Tallen & Keshen Holdings LLC bought the approximately 108,000-square-foot Rossmoor Shopping Center on Tice Valley Boulevard for $325 a square foot, according to CBRE Group Inc.
The center is anchored by a Safeway grocery store and a CVS/pharmacy.
The price reflects a Bay Area “premium” as one of the top three markets in the country, said Don LeBuhn, a vice president in CBRE’s San Francisco office: “There are still pockets of distress in the East Bay or south in Gilroy, but for Union Square, Palo Alto and the like, the demand from investors far outstrips supply. There is more money that wants to get in here than projects for sale.”
The price also factors in the attractive demographics of the swanky Walnut Creek population and the upside potential at the 40-year-old center itself, which has not been deeply maintained or managed, he said.
LeBuhn, along with CBRE’s David Noravian and Heath Kastner, represented the seller, a small Bay Area-based pension fund that had owned the property since the 1970s. Seattle-based investment adviser Washington Capital Management managed the sale on the pension fund’s behalf.
“In the Bay Area, we may only have four or five institutional-quality, grocery-anchored shopping centers come to market each year, and it is extremely rare to have a value-add opportunity with Safeway and CVS as the anchors,” LeBuhn said.
The center is more than 90 percent leased and is populated with a number of banks including JPMorgan Chase & Co., U.S. Bancorp and Wells Fargo & Co. The tenants have catered to residents in the nearby Rossmore retirement community, which has 6,700 homes. The buyers accepted a capitalization rate, or first-year yield, of just more than 5 percent.
The new owners expect to re-evaluate and broaden the tenant base to appeal to a broader crosssection of the community. Leases have been extended month to month in anticipation of a sale and will be renegotiated over the next three months, the buyers said. There is also the prospect of increasing the center’s square footage by more than a quarter to 138,500 square feet, though the buyers say there are no immediate plans to do so.
Bank of America provided debt for the purchase. Holiday Fenoglio Fowler represented the buyer in the bank financing.
Investors are working hard to find opportunity in today’s market, said Anne Keshen, partner with Tallen & Keshen. “Buyers have to be a lot tougher, a lot more strategic and willing to prospect,” she said.
Seller pricing hasn’t fallen in tandem with retrenchment in the fundamentals, said Dwight Belden, a partner with Citivest. Local tenants have failed during the bust and even some national retailers such as Borders book stores and electronics seller Circuit City are gone, Keshen said; yet sellers demand fast closings and limited due diligence. The capital markets are still shifting, including the continuing fallout from Wells’ purchase of Wachovia N.A. in the throes of the financial crisis. At times, it’s hard to identify what entity has the right to approve a sale.
At the same time, while the press and the public highlight the shopping efficiencies for consumer goods wrought by the Internet, the same efficiencies have penetrated the real estate investment sales market and the ranks of commercial tenants, Belden said: “The market is very efficient.”