Sacramento Icon Park Tower Goes for $165M

SACRAMENTO—Park Tower, a 489,171-square-foot class-A downtown office building, was recently acquired for a commanding $165.5 million by Prime US REIT. As one of the tallest buildings in Sacramento, the office asset consists of 24 stories of office space, retail and parking garage space.

KBS serves as the US-based asset manager for the portfolio which included identifying and sourcing this asset on behalf of the portfolio.

“This is the first new acquisition for the portfolio since listing 11 properties on the Singapore Exchange last year,” says Rod Richerson, KBS regional president for the Western United States. “Acquiring Park Tower is a strategic investment into a prime location and a premier asset. At 92% occupancy, Park Tower is one of the top five buildings in the downtown Sacramento market with strong in-place cash flow and a diverse base of credit tenants.”

Park Tower is located at 980 9th St. and 1010 8th St. The asset is within walking distance of the state capitol building; Downtown Common, a newly developed mixed-use entertainment and shopping complex with 670,000 square feet of retail and entertainment; downtown’s retail and entertainment core, and Golden 1 Center, the Sacramento Kings’ basketball arena.

“The $165.5 million purchase price was a high number because the building is one of the larger towers in downtown Sacramento,” Brent Carroll, senior vice president for KBS, tells GlobeSt.com. “On a price-per-square basis, our purchase price was actually lower than the last class-A building sold which was 400 Capital Mall. In addition, Park Tower is an icon in the downtown Sacramento market. It is a 24-story office and retail tower with parking that is above market standards, encompassing 489,171 square feet in the heart of a flourishing California city. The tower is also within walking distance of some of Sacramento’s most significant government, retail and entertainment destinations. In short, it is one of the top-tier office assets in downtown Sacramento.”

Park Tower is also near 60,000 undergraduate students at UC Davis and Sacramento State University. A 15-minute drive to Sacramento International Airport and 90-minute drive to San Francisco, the property has access to major freeways, trains and the downtown Sacramento light rail system as well as Napa Valley and Lake Tahoe.

Grant Lammersen, Steve Golubchik and Tyler Myerdirk of Newmark Knight Frank brokered the transaction.

“In identifying Park Tower for Prime, KBS has leveraged its deep understanding of the outstanding market fundamentals to purchase one of the premier office towers in the downtown Sacramento market,” says Lammersen.

Bruce Fischer, Christine Fan and Howard Chu of global law firm Greenberg Traurig’s Orange County office represented Prime as legal counsel in the acquisition.

According to state figures, government jobs make up 26% of Sacramento county’s total wage and salary employment. And, Sacramento’s expansion beyond government into tech and other industries is positively affecting investing in the city.

“Sacramento has always been a hub for the politics, public sector jobs and advocacy work,” Carroll tells GlobeSt.com. “But, in recent years, the climbing cost of living amid the influx of tech wealth has forced an exodus of longtime Bay Area residents into the Sacramento area. Sacramento’s expansion into industries beyond government is having a very positive impact on investment in the city. Typically, when a market diversifies into additional business categories, it is effectively diluting risk and strengthening its economy, which is highly attractive to investors.”

And as of late, the Sacramento market has experienced significant economic growth. The city’s unemployment rate hit a record low of 3% in September 2019 with construction, manufacturing and healthcare leading the way in job growth.

“The city is seeing a tech boom to rival Silicon Valley in terms of highly skilled tech workers,” Carroll tells GlobeSt.com. “In addition, consumer sentiment is high and office vacancy rates are at all-time lows. All of these factors played into KBS’ assistance in Prime US REIT’s acquisition of Park Tower. As one of the largest investors of commercial property in the nation, we only invest in exceptionally well-located assets in thriving business districts where powerful value creation is possible. We seek out properties in markets with strong job and population growth, solid transportation infrastructure, excellent walkability and respected universities. This asset, and the Sacramento market as a whole, match well with our investment strategy.”

A LEED Gold-certified property, Park Tower’s office tower was originally built in 1992 and renovated in 2019, while the parking area was constructed in 1961 and renovated in 1998. The building features a suite of onsite tenant amenities including a recently renovated fitness center, locker rooms, conference center and tenant lounge.

The property includes a three-story atrium lobby, highly efficient building systems, 15,000 to 28,000 square feet of flexible floor plates and parking in two garages at a ratio of 2.4/1,000 as compared to competing office towers at a ratio of 2/1,000.

“There are plans to upgrade the lobby, refresh the corridors and update the conference room to make them best-in-class for tenants,” Carroll tells GlobeSt.com. “We are also creating a brand-new tenant lounge, giving the building a more modern live/work/play atmosphere. To fill the last 8% of vacancy, we will implement our successful spec suite program, building out tenant suites without a committed tenant. These suites are extremely high quality and unique. Many office owners are incorporating spec space into their assets, however, not many are incorporating it at this high level.”

The value of Prime speaks to KBS’ quality of ownership and hands-on asset management, Carroll says.

“Client asset portfolios are managed with an owner/operator mentality. Our core strength is acquiring and managing assets like Park Tower that are rare finds in the competitive office acquisition environment,” Carroll tells GlobeSt.com. “Each of these points makes this transaction highly significant for Prime, KBS and for office tenants seeking well-amenitized premier class-A space in downtown Sacramento.”

Indeed, Sacramento’s healthy fundamentals bode well for continued growth. According to a fourth quarter 2019 Sacramento market report from Newmark Knight Frank, the Sacramento office market maintained its positive momentum in the fourth quarter to finish the year strong. Net absorption was positive for the 13th consecutive quarter totaling 159,317 square feet, which brought the year-to-date total to a positive 780,922 square feet.

Sacramento’s office market also features high barriers to entry with less than 5% vacancy in class-A office assets and no new projects under construction in the downtown market. Currently in development is a mixed-use project called The Railyards which will double the size of downtown Sacramento when completed. It is the largest in-fill development project west of the Mississippi River and will include up to 515,00 square feet of retail, 10,000 housing units, a 21,000 seat soccer stadium and a 1.22 million-square-foot 18-acre Kaiser Medical Center.

Several major tech, biotech and healthcare firms have a presence in the region including the Intel Corporation, Hewlett Packard, Apple, Sutter Health, Affymetrix, Lipomics Technologies Inc., Calgene LLC, Novozymes Biotech Inc. and Volcano Therapeutics.

“Private companies are increasingly drawn to Sacramento for its abundant young and highly educated workforce and lower cost of living,” Richerson adds. “More than 34% of individuals in the area have a college degree.”