The Visintainer Group of Fresno represented a Los Angeles investor in the purchase of the Capital Village shopping center in Rancho Cordova. Image via Visintainer Group
Written by Edward Smith
A Fresno brokerage penned a deal last week for what it says is the largest commercial transaction for an area real estate firm this year.
The Visintainer Group represented the buyer of the Capital Village shopping center in Rancho Cordova, a Sacramento submarket, with plans to parcel out the center and its ten buildings.
Anchored by a UC Davis medical building, Capital Village includes a mix of national chains, local tenants and mixed-used office space — all of which attracted the buyer to the 94,525 square-foot center, said Brett Visintainer, principal for Visintainer Group.
The buyer was a Los Angeles-area investor.
At a purchase price of $36 million, Visintainer said within a year they should be able to flip it for a collective mid-$40 million price tag after separating the property into parcels for individual sale.
Visintainer said they have already received two offers on the UC Davis building. Another building housing Habit Burger, FedEx, a gym and a poke restaurant will hit the market this summer.
They plan to stabilize the buildings by filling out any remaining vacancies and then sell the properties at a much lower capitalization rate, which weighs net cost versus rental income to determine risk for investors.
National names such as Panera, Chili’s and a nearby Lowe’s — not included in the purchase — generate reliable foot traffic, according to the sales brochure from Chicago, Illinois-based JLL Commercial Real Estate, who represented the seller. Real Estate company Merlone Geier Partners previously owned the property, according to Visintainer.
Landing the deal was “extremely competitive,” said Visintainer. The property had garnered nearly ten other interested buyers and Visintainer had to go through buyer interviews “having to show our strength.”
They went as far as putting up a $1 million nonrefundable release prior to escrow, Visintainer said. The buyer would’ve forfeited those funds should they have walked away from the deal.
The $36 million price tag represents the biggest deal for a brokerage from Stockton to Bakersfield six months into 2022, according to CoStar, the commercial real estate reporting website.
The deal also comes as interest rates continue to click upward. Visintainer sees the increasing cost to borrow money affecting sales “tremendously.” It will become harder for purchases with low capitalization rates to offset interest rates for investors.
“You’ll start seeing this toward the end of the fourth quarter and definitely into 2023 where pricing is going to have to start significantly changing because the debt markets are driving buyers to make different decisions on the prices they are willing to pay,” Visintainer said.
At the same time, this means sellers will have to reevaluate their pricing.
“I think where brokers and sellers are going to have to make some changes is understanding how to price things because that’s going to impact their ability to sell,” Visintainer said.
He says despite the increased caution, the market remains strong.
A lot of deals under $5 million are getting cash offers and 1031 exchanges will bring a lot of money into the market.
“If you need debt, you have to buy it right,” Visintainer said. “You can’t be coming in and taking down debt and creating negative leverage because all of a sudden cap rates are going to be lower than interest rates.”