By Jon Peterson
San Diego-based Westcore Properties expects to invest $2.5 million in a Union City distribution center for which it paid $13 million, or $76 a square foot.
The three-building, multitenant property had been “undermanaged” by its previous ownership, which had not invested in the property “for some time,” said Neil Johnson, a Westcore managing director who works from the company’s Irvine and San Francisco offices.
The 170,000 square-foot Central Plaza was 58 percent occupied at the time of sale. Given the middling occupancy, the property’s capitalization rate, a measure of yield based on income and purchase price, was not a critical consideration, Johnson said.
Improvements “will include new roof, new HVAC systems, painting and landscaping,” Johnson said. “It should take anywhere from three to four months to complete this work.”
The Class A distribution facility is located at 33300-33450 Alvarado-Niles Road and 33500-33580 Central Ave. Westcore likes the Union City marketplace and believes it caters well to “food users that are looking to move their dry goods on a regional basis,” Johnson said.
“The property is in an infill location in a market where there has been little if any new construction,” Johnson said.
Westcore paid all cash but anticipates securing debt in the future at an approximately 65 percent loan-to-cost basis, Johnson said.
Union City industrial properties recorded a 5.1 percent vacancy rate in the first quarter on a 7.9 million square-foot base. That was up 2.1 percentage points from the end of last year, according to Colliers International research.
That said, overall the industrial market in the Interstate 80 and Interstate 880 corridors is improving, Colliers said: “With this pickup in activity we are starting to see the highest quality assets, Class A product, absorbed at levels not yet seen in this market cycle. In addition, inquiries for land acquisition and speculative development have begun to increase.”
Colliers Senior Vice President Mark Maguire and Vice President Kevin Hatcher represented Westcore in the sale. They also have been retained to help lease the property. The seller, Central Plaza-Union City L.P, is a private owner that held the property for 10 years. Mark Melbye with GVA Kidder Mathews in its Redwood City office represented the seller.
Rental rates for Class A industrial property in Union City have risen 8 percent to 10 percent over the past year, Maguire said. He attributed the price rise to limited construction and said he did not anticipate those dynamics changing any time soon. “Land and construction costs now are too high to make building new properties economically feasible,” he said.
Westcore is buying properties with $200 million in growth capital that it received last year from Almanac Realty Investors. The capital came from Almanac Realty Securities Fund V L.P., a commingled fund. Almanac is based in New York City and was formerly known as Rothschild Realty Investors.
Westcore anticipates a continued focus on industrial buildings though it will consider offices and research and development properties. Its attention is centered on Sacramento, the Central Valley, Hayward, San Jose and San Francisco, Johnson said.