By Jon Peterson
Atlanta-based Ridgeline Property Group could attract a record price on a per square foot and cap rate basis for brand new industrial product in the Central Valley for its planned sale of the Class A, 381,600 square foot Tracy Pescadero Distribution Center in Tracy, according to sources that track the sale of industrial assets in the region.
Ridgeline and its capital source, Chicago-based LaSalle Investment Management, had developed the property together, which was completed in 2017. The 19.46-acre site is less than one mile from Interstate 205, an east-west route connecting to Oakland and San Francisco, and it provides easy access to the regional transportation corridors serving the major markets of the Western U.S., according the company’s statement.
“Tracy, California, is the best distribution location in the Central Valley, and the Tracy Pescadero Distribution Center will provide much-needed Class A space for modern distribution operations,” said Greg Thurman, CEO of Ridgeline Property Group in July of 2015, when the company announced that it was commencing construction of the speculative development. “There is virtually no availability of Class A space greater than 200,000 square feet in the Central Valley. In addition to providing bulk space, this 381,600-square-foot facility will offer the option of either a rear-load or front-load configuration, depending on the needs of the tenant. The flexible design also enables the building to be divided into three separate spaces with front offices.”
The sellers are bringing the asset to market for sale on Monday, and they have hired CBRE as the listing agents on the sale. Two people involved are Darla Longo, vice chairman/managing director and Rebecca Perlmutter, senior vice president. CBRE declined to comment when contacted for this story.
Its rare for new industrial product in Tracy to come up for sale so soon after the property was developed. Most property owners in Tracy are major institutional owners. Two such examples would be Prologis and DCT Industrial Trust. These companies and others are more interested in holding on to their assets for a long period of time.
The Pescadero Center is a single building property. The asset is now 100 percent leased to Excel, which is a DHL Supply Chain entity, and Pactra USA. Both of these companies are considered to be high-credit tenants. The average lease term on these two tenants is 5.6 years.
This investment opportunity offers strong cash flow with significant upside to rents given the steady demand and lack of available inventory driving future rent growth. In-place rents are approximately 5 percent below market, offering the new owner future NOI increases upon lease rollover.
Located at 1700 East Pescadero Avenue, the distribution facility features 32-foot clear heights, 57 dock-high doors, two drive-in doors, a 185-foot truck court, 92 trailer parking spaces, 317 auto parking spaces and Early Suppression Fast Response (ESFR) fire sprinklers. The asset also has an office component inside the property, which is 9,470 square feet, or approximately 2.5 percent of the total building.
The overall 95 million square foot industrial market in the Central Valley remains very strong. The region recorded its 19th consecutive quarter of positive absorption with 2.8 million square feet of net absorption year-to-date bringing the vacancy rate down to 2.2 percent at the end of the third quarter.
The Tracy industrial market has also shown strong operating fundamentals. At the end of 2017, Tracy’s average asking lease rate of $0.45 triple-net had increased 15 percent over the past two years.
Ridgeline is known in the industrial sector as a merchant developer. The company does have a regional office located in Northern California in Roseville.