MILPITAS, CA-The 265,324-sf McCarthy Ranch Marketplace here has changed hands for $63.1 million. The new owner is a pension fund client of L&B Realty Advisors of Dallas. The seller was a separate account client of Rreef.

Built in 1995 at the intersection of Highway 880 and State Highway 237, McCarthy Ranch marketplace was 100% leased at the time of sale. Tenants include Borders Books & Music, Best Buy, PetSmart, Ross, Sportmart and Office Depot.

Michael Federle, Robert Comartin and Nicholas Bicardo of Grubb & Ellis’ San Francisco office handled both sides of the transaction. Federle originally sold the property to Rreef in 1998 on behalf of McMorgan + Company for $38 million.

The price paid equates to a 6.25% first year cap rate. Federle tells GlobeSt.com there has been a jump in cap rates from last fall, when the similarly sized and tenanted Bridgepoint Shopping Center in San Mateo received more offers and sold at a 5.40% cap rate, or about $94 million.

In addition to interest rates, which have jumped 100 basis points since last fall, some of the discount is due to the fact that Office Max and maybe one other tenant will need to be replaced in three or four years. The rest of the tenants are doing quite well and are expected to stay, he says.

GlobeSt.com reported in January that Sobrato Development Cos. was under contract to acquire the property for a price believed to be in the upper $60-million range. It was not immediately clear what killed that deal.

McCarthy Ranch generated 18 solid offers. 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.”

Office Max has announced it will close its 24,000-sf store at McCarthy, though it is committed to leasing the location for the next four or five years. 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,” said Federle in January.

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