August 28, 2013

Sacramento arena plans spur talk of sales nearby

Plans for a new Kings arena in Downtown Plaza have helped re-energize the downtown real estate market – prompting several deals, including one that would erase a downtown eyesore.

Plans for a new Kings arena in Downtown Plaza have helped re-energize the downtown real estate market – prompting several deals, including one that would erase a downtown eyesore.

Two notable J Street sites, the historic Fruit Building at Fourth Street and a group of four boarded-up buildings near 10th Street, are either in escrow or in final negotiations for sale, parties involved in the deals say.

The sale of an office building at Seventh and L streets to a national investment company was completed two weeks ago.

Officials say the potential downtown arena was either the spark for the sale in each case, or a key driver in raising the price.

In a dramatic turn for the long-blighted 1000 block of J Street, an undisclosed Southern California investment company has agreed to buy the row of boarded-up storefronts for $7 million, said a real estate broker involved in the deal.

The company is talking about building a high-rise housing project of up to 25 stories on the block between 10th and 11th streets, said broker Kyle Mickiewicz of Cassidy Turley Real Estate. That may include apartments, or condominiums and a hotel.

City officials say they are delighted at the chance to fill a hole in the downtown area just blocks from City Hall and the state Capitol.

"J Street is one of the most visible streets downtown" and often the first glimpse of downtown Sacramento for out-of-towners, said city downtown development head Leslie Fritzsche.

She said the city and the building owners have spent considerable effort "getting them ready for this moment. The moment has come. It's exciting."

Escrow could close in two months, Mickiewicz said. The sellers are St. Anton Partners and Cordano Co.

During the mid-2000s real estate boom, when a slew of high-rise housing projects were in various stages of planning downtown, St. Anton and Cordano had proposed a 25-story high rise of their own on the 1000 block of J. But the market fell apart and so did their project, along with many others.

Mickiewicz said the owners recently received offers in the $5 million range, but buyer interest jumped when the downtown arena deal was announced, leading to the pending $7 million sale.

Mickiewicz said the buyer, whom he declined to identify, plans to grab a key property at the bottom of the market, just before an expected upswing.

"Proximity to the arena is crucial," Mickiewicz said. "They hinged their market research on other cities that have seen impact from arenas being built, Los Angeles and San Diego. That is what they are banking on."

City officials announced earlier this year that they hade entered into a tentative deal with the owners of the Sacramento Kings to jointly build a $448 million arena in Downtown Plaza. The Kings' new owners and other investors say they intend to remake Downtown Plaza in the process, with new stores, businesses, offices, housing and potentially a hotel.

An undisclosed local entity is in final negotiations to buy the historic California Fruit Building, one of Sacramento's first skyscrapers, at Fourth and J streets, adjacent to Downtown Plaza, people involved in the deal said.

Janie Desmond Ison, a member of the family that owns the building, said her family is in serious negotiations with a buyer and has received several back-up offers for the 10-story structure, built in 1914.

"We are hopeful this sale will work out," Desmond Ison said, "but we have buyers lined up if it doesn't."

The promise of an arena is playing a key role, she said. "Every step of the way, as we've been hearing about progress on the arena, we've been getting more calls."

City downtown development head Fritzsche said the two pending sales – as well as one recently announced on L Street – presage more deals and rising real estate values downtown.

"There is just more buzz on the streets," she said. "Sacramento is getting national attention."

She cited the $29 million sale earlier this month of an office building at 770 L St., a block from the arena site and several blocks from the state Capitol building.

Representatives of the buyer in that deal, Pennsylvania-based CenterSquare Investment Management, the real estate manager for BNY Mellon, said they are on the hunt for purchases to make in markets that are affordable but on the rise.

"This investment reflects our focus on top-tier secondary markets that are poised for growth and beginning to attract significant capital flows," Jeff Reder, senior vice president for CenterSquare, said when the deal closed.

Broker David Brandenburger of Cornish & Carey Commercial Newmark Knight Frank, who represents several clients looking at properties downtown, said Sacramento's core is not about to become white-hot with soaring sales prices.

Instead, Brandenburger said he expects real estate activity to grow as plans for the arena and other redevelopment projects progress.

"I'd say people are cautiously optimistic," he said. "Owners cannot suddenly get an unreasonable value. It has to make financial sense."

Call The Bee's Tony Bizjak, (916) 321-1059.

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