The sale of Bacara Resort & Spa, a transaction industry insiders are pegging at a $150 million to $180 million deal, buoyed the South Coast commercial real estate market in the first quarter of the year.
That was the view from Radius Commercial Real Estate & Investments in its latest quarterly market report.
Radius noted that although the total number of sales was 14 — down significantly from the fourth quarter’s 35 deals — that number was actually not that far off from the 15-year average of 16 transactions per quarter. And the sale of the 360-room Bacara resort in Goleta brought total dollar volume in the first three months of the year up in line with previous quarters.
The February sale of Bacara, this time to Irvine-based Pacific Hospitality Group, represented a successful turnaround for previous owner Ohana Group, which purchased the property for an estimated $104 million in July 2011 — about half of what developer Adco Group paid to build the resort. If the most recent deal was priced at the mid-point of the $150 million and $180 million estimated range, Ohana made a nifty 59 percent return on the coastal property.
Another large transaction in the market was the sale of the Venoco building on the bluffs in Carpinteria. South Coast real estate investor Victor Schaff, who also owns S&S Seeds, purchased the 51,000-square-foot property, listed for $16.5 million, in March. Oil and gas firm Venoco maintains a long-term lease on the building.
Speaking of leasing, that market actually did quite well in the quarter, with 66 direct lease deals in the first three months of the year, according to Radius. The firm did note that vacancy rates creeped up across the board — with the Goleta and Carpinteria industrial sectors the exception.
“Leasing was robust with transactions and total square footage both increasing on an annualized basis. Surprisingly, the healthy transaction volume did not have a significant impact on combined vacancy rates or rental rates,” said Hayes Commercial Group, which also released its first-quarter market report recently. “For commercial sales, demand remained strong and there were headline-worthy transactions; however, overall volume decreased from last year’s historic pace.
But Carpinteria has made an amazing comeback. “Carpinteria’s successful drop in industrial vacancy is unlike any change we’ve seen during the past 15 years, falling from 14.4 percent to 3.3 percent in just two-and-a-half years,” Radius said.
With limited supply, the South Coast’s retail sector continues to hold up, too. Hayes noted that 18 retail leases were signed in Santa Barbara in the quarter, and vacancy remains near 2 percent. Meanwhile, achieved rental rates for Santa Barbara retail space have been gradually climbing since the recession but appear to have leveled off at 27 percent below their 2008 highs.
The office market, however, is less robust, both Radius and Hayes noted. “Goleta’s office sector has jumped to double-digit vacancy at 12.4 percent, underscoring the bloated office market across the south Central Coast,” Radius said in its report.
A large proportion of the activity in the office leasing sector has been technology firms looking for space in downtown Santa Barbara, Hayes said, adding that tech firms usually need less space per employee than traditional office-based businesses and are often willing to pay more per square foot to be downtown. “As vacancy continues to tighten downtown, Goleta’s office market is moving in the opposite direction,” Hayes said. Many Goleta landlords are starting to subdivide office spaces in response to lack of demand from larger tenants, it said. For the first time on record, the average office space leased in Goleta was less than 5,000 square feet.
Meanwhile, tech firms including RingRevenue, Tapjoy and LogicMonitor signed 11 of the 20 downtown Santa Barbara leases in the first quarter, according to Hayes.
DEAL OF THE WEEK
• Rental car firm Hertz Corp. recently signed a lease on the freestanding 1,013-square-foot building at 16 S. La Cumbre Road, adjacent to the Five Points Shopping Center in Santa Barbara. Michael Martz of Hayes Commercial Group represented Hertz in the transaction. Hertz, which currently has a location at the Santa Barbara Airport and an onsite location at Fess Parker’s DoubleTree Resort on Cabrillo Boulevard, set its sights on a new Santa Barbara location, the brokers behind the deal said. “Hertz wanted a presence in the upper State Street area, primarily to serve local residents who need a rental car for a trip out of town or because their car is in the shop,” Martz said in a news release.
With Santa Barbara’s very low vacancy rate — 2.1 percent, compared to 10.4 percent nationally — quality retail locations are a rare commodity, Martz noted. “Retailers are often surprised at the difficulty of finding good locations in our market,” he said.
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