In what’s likely the largest local office deal of the year, a prominent Sacramento real estate development company has acquired the three-building Farmers Market complex in midtown Sacramento.
Pappas Investments paid $74 million for the Caltrans-occupied property at Alhambra Boulevard and R Street, Pappas officials said Tuesday after closing the long-rumored deal earlier in the day.
The seller was a Houston-based partnership called AREF that purchased the 400,000-square-foot complex nearly a decade ago.
“We like the state” as a tenant, said Louie Pappas, founder of Pappas Investments, which also owns a 300,000-square-foot building in Elk Grove that is leased to the Department of Corrections.
The Farmers Market project was built in the late 1980s by developers Dain Domich and George Separovich and, given its location adjacent to light rail, was considered a pioneering transit-oriented project.
That location continues to be one of the property’s strengths, said Pappas, adding that his firm hopes to keep the California Department of Transportation as the buildings’ sole tenant after 2019, when the state can opt out of its lease.
“We’re gambling on that,” Pappas said of the prospects of signing a new deal with Caltrans.
John Pappas, Louie’s son and an owner of the company, added that he thinks the property has “the right buildings at the right location” for Caltrans, given access to transit and the rare opportunity to house a large department in one central site.
“Our company has been in real estate for more than 40 years and for us it’s a proud moment to look at these buildings and say, we are confirming our belief in Sacramento,” he said.
Tom Heacox, a commercial broker who represented Pappas in the deal, said the transaction was the largest for an office complex in this region for the year.
He called the buildings a “great core asset” from an investment standpoint, given the “explosive growth in the midtown and downtown areas” and the cost of new construction.
Replacing those buildings today would probably cost $300 a square foot, nearly twice what Pappas paid, said Heacox, an executive managing director with Newmark Cornish & Carey.
Financing for the purchase came from Bank of the West, on a referral from Magilla, a local startup that matches borrowers with banks.