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MILPITAS, CA-Sobrato Development Cos. is under contract to acquire the 265,324-sf first phase of McCarthy Ranch Marketplace here for a price believed to be in the upper $60-million range. Annual small shop and restaurant sales at the well located institutional-grade center are between $600 and $800 per sf, according to sources familiar with the property. The seller, a separate account client of Rreef Funds, acquired the eight-year-old property in the late 1990s for $38 million. The transaction is expected to close around the end of February.

McCarthy Ranch Marketplace sits at the intersection of Highway 880 and State Highway 237, a location that benefits from some of the highest traffic counts in the country and exceptional demographics. Built in 1995 by Irvine Co., Phase I has a total of 21 tenants, 17 of which are investment grade national credit including Border's Books and Music, Best Buy, PetsMart, Office Max, Ross Dress for Less and Jamba Juice. Adjacent to a Wal-Mart store, the center is 100% leased. The in-place capitalization rate on the deal is believed to be between 5.5% and 6.25%.

Mike Federle of Grubb & Ellis has the disposition assignment on behalf of Rreef. He declined to confirm the aforementioned investment numbers, but tells GlobeSt.com that the property generated 20 offers, most of them private buyers he describes as "aggressive and not hindered by policy." One source with a Southern California company that made an offer on the property tells GlobeSt.com it got beat out by "a private investor who offered $2 million of non-refundable earnest money," presumably Sobrato, an executive from which did not return a Friday phone call seeking comment.

In explaining the interest in the asset, Federle says there has been an enormous population explosion in the region over the past several years, and much of it has been thanks to well-educated foreigners from Europe and the Middle East who are making good money. Around McCarthy Ranch, annual household income is in the $130,000 range, he says. The other big piece of the puzzle is that some 265 million sf of R&D office and industrial space is located within 10 miles of McCarthy Ranch Marketplace and most big parks don't have food zoning, says Federle.

"So all those people with lots of disposable income stream out of these parks into four or five different centers; the flow is so big that companies have staggered lunch hours to accommodate the demand," he says. "McCarthy gets a huge flow of those folks for four hours every day, and when I say huge I'm talking 25,000 people."

There are some issues with the property related to tenant viability. Office Max has announced it will close its 24,000-sf store at that location, though it is committed to leasing the location for the next four or five years. At the same time, Federle says that because of when the property was built there are box tenants paying $14 to $15 per sf while the market average is closer to $28, depending on the size of the box and the high end is $36 per sf. "I don't think [the new owner] will hit those numbers, but the rents [at McCarthy Ranch Marketplace Phase I] are ridiculously low compared to market," he says.

Instant Insights /

McCarthy Ranch Marketplace Under Contract

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