Prentiss Sells Six-Building Office Development

SACRAMENTO-A six-building, 574,000-sf office development here has been scooped up by a partnership of Tustin, CA-based Touchstone Investments and AG West Investors, an investment entity formed by New York City-based Angelo Gordon & Co. The partnership paid about $80.8 million for the portfolio, which includes two six-story buildings and four one-story buildings. The seller was Prentiss Properties. It was the Dallas-based company’s only assets in the market. Prentiss will continue on as the property manager and leasing agent. Touchstone Investments principal Greg Erickson tells GlobeSt.com that AG West Investors put up 95% of the equity for the acquisition loan, which was supplied by GE Capital. Erickson says Touchstone is the operating partner and asset manager in the relationship, and can increase its equity in the investment by meeting certain performance goals for the property.The buildings are located at 2495, 2485 and 2525 Natomas Park Dr. and 1740, 1750 and 1760 Creekside Oaks Dr. Located in the South Natomas submarket, the portfolio of properties is about 82% leased, with significant rollover on the horizon. The Internet service provider Earthlink has exercised a lease termination option and will be paying a fee in order to give back 75,000 sf in one of the six-story buildings in early 2006. “We feel that leasing in Sacramento will rebound sharply and these buildings are some of the best quality assets outside of Downtown,” says Erickson. “Many of the issues regarding state government are fading and rents and occupancy rates should continue to rise over the next one to two years.”Over the last several years, the portfolio had maintained an average occupancy of 95.5%. But the University of Phoenix recently vacated about 60,000 sf in some of the tilt-wall office product and MCI Worldcom kicked back some of its leased space in the properties during its bankruptcy proceedings.Erickson says the in-place cap rate on the investment is around 8.5%. Moreover, Erickson says he expects to have the property back up to 95% occupancy in the next six- to 12 months and then hopefully find a tenant to backfill Earthlink before its lease is up in February 2006. The monthly full-service asking rate for space in the properties ranges from $1.75 per sf for the low-rise buildings to $2 per sf for the mid-rise class A product. Both prices account for a tenant improvement allowance of between $8 and $12 per sf.Erickson says he is actively looking to make more acquisition on behalf of himself and his investment partners. His focus is on acquiring additional California office, industrial and R&D properties. Touchstone acquisitions over the past year or so include a 195,000-sf class A office building in North Hollywood for $23 million and an 80,000-sf office complex in Riverside for $7 million.