Bob Shallit

Sacramento investor looks south for killer deals

The area’s most aggressive real estate bargain hunter is continuing to look to the Central Valley for hot deals.

In June, Ethan Conrad scooped up a former Lowe’s building in the Merced County town of Los Banos, breaking from a long pattern of concentrating acquisitions in the Sacramento area.

Now, he’s bought an 86,000-square-foot Kmart-occupied building in the town of Dinuba, 30 miles southeast of Fresno, and is in negotiations on three other Central Valley deals, two in Fresno and one in Atwater.

The reason: Prices are still cheap in the Valley while killer deals are proving tougher to get closer to home.

Take the Kmart deal: He paid $1.9 million for a property with a tenant whose current rent would cover his acquisition costs in four years. That translates into an otherworldly 25 percent cap rate – the ratio of net income to cost.

The deal is not quite that good. Kmart only has 14 months left on its lease and is unlikely to renew, Conrad said. But he said the double-digit cap rate is still “mind-boggling” when deals closer to home typically go at rates of 5 to 8 percent.

The discounted price is because the property owner, a New Jersey investor, knows Kmart is probably leaving and doesn’t want to be stuck with an empty building in a third-tier market.

“That risk is real,” said Conrad, who now owns almost 5 million square feet of commercial property, mostly in Sacramento. “There are plenty of boxes that have gone vacant and stayed that way a long time.”

But the owner of Ethan Conrad Properties said he already has plans to divide the space and has a likely tenant – Fitness Evolution – lined up to take half the building.

Fitness Evolution’s CEO, Sanjiv Chopra, also is a likely investor in one of the Fresno investments, Conrad said.

And the winner is ...

The founder of a Rancho Cordova company is headed to Europe next week to possibly get an award at what is considered the Oscars of the demolition industry.

Two Rivers Demolition Inc., founded two decades ago by Rodd Palon, was nominated in the prestigious industrial category of the World Demolition Summit for work it did earlier this year dismantling an outdated, five-story furnace at the Gallo Glass plant in Modesto.

It was a challenging job, done amid 135-degree temperatures and with potential exposure to dangerous chemicals, all within a tight, 40-day deadline. Two Rivers ended up removing hundreds of tons of molten glass and radioactive waste from the job site.

You get 300 people together who make their living breaking things and it can get interesting.

Rodd Palon

Palon said the awards ceremony, held in Amsterdam, is a glitzy event with plenty of drama: Sealed envelopes are opened. Winners announced. Gushing speeches follow.

The local executive has never been to one of these awards galas before and attends this one with lots of curiosity.

“You get 300 people together who make their living breaking things,” he said, “and it can get interesting.”

New Kidder on the block

This week’s conversion of Sacramento’s Voit Real Estate Services offices into a new outpost for Seattle-based Kidder Mathews is seen as a huge opportunity for the 10 commercial brokers making the move.

For one thing, Kidder has Bay Area offices, allowing local brokers to get referrals from colleagues there. Voit, in contrast, had no Bay Area presence and wasn’t likely to expand there or anywhere else.

As top Voit investment specialist Steve Tyrrell put it, “If you’re not growing, you’re dying.”

The other big advantage of a Kidder affiliation is that company’s commission system, considered one of the most generous in the industry. Under the low-overhead Kidder structure, brokers split their first $125,000 in commissions equally with the company, then take 90 percent of any amount over that.

“It’s a phenomenal arrangement,” Tyrrell said. The impact on the local market? Tyrrell expects that sort of “split” to entice some of the region’s top brokers to migrate to the Kidder operation.