Sacramento office buildings have dropped in price. Which investors are still buying them?
Amid a challenging downtown real estate market, local investors are scooping up chunks of commercial property in the district.
The Wells Fargo building, a key downtown tower at 400 Capitol Mall, is one of several large properties targeted by Sacramento-based real estate investors in recent months.
“You could make a pretty good argument that the operators and owners that know Sacramento the best are the ones reinvesting heavily in the market, and see the value in these assets that larger institutional players are, generally speaking, avoiding,” said Will Austin, director of market analytics for CoStar in Sacramento.
The Wells Fargo building is 90% leased, said Dan Corfee, president of Preferred Capital Advisors. It is occupied by “the core of Sacramento’s private sector,” including law firms, insurers, financial services firms and lobbyists.
“It’s a great opportunity,” Corfee said. “And I think we understand that better because we’re here.”
The former owner, Singapore-based Manulife US REIT, announced in late September that it would sell the 29-story building in a $117 million deal. That’s down from $198.8 million, when the firm acquired the building in 2019.
The buyer was Pac West Equities, affiliated with the Sacramento-based real estate firm Buzz Oates. Corfee’s firm, Preferred Capital Advisors, is an advisor and investment partner with Buzz Oates.
“Our feeling is, it’s not a super high-risk investment,” Corfee said. “I think it’s the best building in the market.”
To be sure, parts of Sacramento’s downtown have fared better than others amid the popularization of remote work and the state’s moves to transition workers into government-owned buildings. The Renaissance Tower, for instance, sold recently at auction for $21 million, down from $80 million in 2016, and is just 27% occupied.
But both buildings were acquired by local buyers — which some observers take as a sign that the players most familiar with Sacramento’s market are optimistic about the region. Ethan Conrad Properties, a prolific local firm, was the top bidder for the Renaissance Tower.
Corfee acknowledged the challenges and shifting demands facing the city’s downtown real estate. For some of the Wells Fargo building’s tenants, he said, the in-person work week runs from Tuesday through Thursday. With remote work available, some people are more inclined to work on the weekends now — but not so much on Friday afternoons.
For the new ownership group, including Buzz Oates and Preferred Capital Advisors, the job ahead is to make improvements that encourage their tenants’ employees to work downtown. The ownership group plans to make upgrades to the tower’s meeting areas and infrastructure. They want to make the pool — which is connected to a gym — into an area suitable for events.
“Ultimately, people take office space because they want to be in a certain location, next to complimentary companies or clients,” he said. “It always comes down to convenience. Is it easy to park and walk to your office? Is it easy to go to lunch? Do you have to get in your car to go to lunch? Do you have a gym that’s on-site, so maybe your building can save your employee $100 a month in gym costs?”
They will likely invest $20 million to $30 million in improvements in the first five years, Corfee said.
“It’s local investment. It’s reinvestment. It’s hopefully building on some of the growth of DoCo and the Kings,” he said. “We have a great opportunity in front of us. And aside from the economics, we feel this investment helps our community because of our long-term view. We’re not going anywhere.”
This story was originally published November 11, 2024 at 5:00 AM.
