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Capital Markets | Investment Properties
97%-leased to four tenants
4643 Quail Lakes DriveStockton, California
$5,575,0007.16% cap rate
INVESTMENT CONTACT
RANDY GETZExecutive Vice PresidentLic. 00828903+1 916 446 [email protected]
CBRE, Inc.500 Capitol MallSuite 2400Sacramento, CA 95814
LOCAL MARKET CONTACT
BRIAN PETERSONFirst Vice PresidentLic. 0718738+1 09 476 [email protected]
CBRE, Inc.3247 W. March LaneSuite 100Stockton, CA 95219
01EXECUTIVE SUMMARY
AREA OVERVIEW / MARKET TRENDSTENANCYFINANCIAL
OVERVIEWPROPERTY OVERVIEW
02 03 04 05
2
EXECUTIVE SUMMARY
CBRE, Inc., as exclusive advisor, is pleased to offer for sale a two-story office building fronting I-5 in Stockton, California. Containing 24,077 rentable square feet, this
sleek, glass-framed building was constructed in 1985 and is 97% leased to four tenants with staggered lease terms. The largest tenant, occupying 43% of the building,
is the Internal Revenue Service which has been a tenant since 2004 and executed a 10-year extension in 2016. At that time Tenant invested heavily in specialized space
improvements, suggesting the likelihood they intend to remain at this location for some time.
The asset is priced at $5,575,000 with a going-in capitalization rate of 7.16%. Our Argus discounted cash flow projects if the asset is held for 10 years and then sold,
the cash return could approximate 9.7% and if debt is utilized, the annual yield may exceed 17%. With clean common areas and landscaped grounds, this conveniently
located high-visibility property sits on a 1.82-acre parcel with on-site parking for 104 vehicles, a ratio of 4.32 per 1,000 square feet.
Office vacancy throughout the Central Valley decreased 40 basis points in Q2 2018 to 10.1%, matching the lowest vacancy reported since 2011. In Stockton vacancy
in Class B office properties similar to the Subject has fallen to 6.0% per CoStar data. The tight market is giving landlords of Class B office properties additional leverage
when negotiating leases with new tenants.
THE OFFERING
3
OFFERING SUMMARY
PROPERTY TYPE Office
ADDRESS 4643 Quail Lakes Dr., Stockton, CA 95207
NET RENTABLE AREA ± 24,077 sf
OCCUPANCY 97%
OFFERING PRICE $5,575,000
PROJECTED YIELDS
Initial capitalization rate: 7.16% (excludes
value of TI repayments)
Argus 10-year:
cash: 9.7%
leveraged: 17.0%
YEAR BUILT 1985
• Offered at $5,575,000
• Attractive 7.16% going-in cap rate
• Stabilized investment with staggered lease rollover
• Excellent freeway visibility
• Nearby W. March Lane affords access to shopping and dining
• Attractive, well-maintained improvements
• Low submarket vacancy
• Generous parking: 4.32 per 1,000 sf ratio
INVESTMENT HIGHLIGHTS
TENANT SF LEASED
OCCUPANCY
COMMENCED EXPIRES
MONTHLY
RENT/SF
Internal Revenue Service 10,289 2004 April 2026 $1.97 (1)
Stearns Lending 5,682 April 2017 March 2022 $1.70 FSG
New Body Medical 3,800 May 2016 April 2026 $1.80 FSG
(1) Tenant pays additional “operating rent” of $0.67 psf/month.
SELECTED TENANTS
4
AREA OVERVIEW
Stockton, California, with a dynamic, multi-cultural
population of 310,000, is the county seat for San
Joaquin County and the 13th largest city in California. It
is situated along the San Joaquin Delta waterway which
connects to San Francisco Bay as well as the Sacramento
and San Joaquin Rivers. The city is 60 miles east of San
Francisco and 45 miles south of Sacramento, the state
capital.
Until the recession hit in 2007 Stockton was one of the
fastest growing cities in California. Having successfully
emerged from the downturn Stockton today is one of the
most fiscally healthy cities in the United States. In 2017
the California Policy Center ranked Stockton 18th out
of 116 cities with populations of 200,000 or more for
fiscal health. With a May 2018 unemployment rate of
5.3%, the City has regained its prominence as a strong
economic engine in California’s Central Valley.
With a centralized location and abundant affordable
housing, many people from the Bay Area find the less-
congested, more affordable lifestyle of the Central Valley attractive. As they
sell expensive Bay Area homes and move their equity to inland areas like
Stockton, the growth in population continues to fuel new development and
strong economic growth. The City’s enthusiasm and optimism has taken the
form of ambitious municipal improvements such as the downtown waterfront
development which is home to a new sports arena, a minor league baseball
stadium, and mixed-use retail and residential projects.
The City has a number of lovely residential communities situated along its
waterways featuring single-family homes priced at about one-third what they
would be in the Bay Area. With its more than 100,000 trees, Stockton was
recognized by Sunset Magazine as the "Best Tree City" in the western United
States. Twice the National Civic League recognized the City by bestowing its
coveted All-America City designation.
BRUCEVILLE RD
Stockton Waterfront
4643 QUAIL LAKES DRIVESTOCKTON, CALIFORNIA
NMAP NOT TO SCALE
5
PROPERTY OVERVIEWPROPERTY SUMMARY
ADDRESS 4643 Quail Lakes Drive, Stockton, California 95207
COUNTY San Joaquin
PARCEL NUMBER 112-200-31
TOTAL LAND AREA ± 1.82 acres
PARKING TOTAL / RATIO 104 / 4.32:1,000 SF
ZONING CG: Commercial General
YEAR BUILT 1985
TYPICAL FLOOR AREA ± 13,000 SF
CONSTRUCTION TYPE Steel & Glass
NUMBER OF STORIES 2
EXTERIOR Glass
FOUNDATION Poured concrete slab
Roof Flat, with a rubber membrane
Windows Fixed Casement
Elevators One
HVAC Gas-fired forced hot air
Security/Fire Systems Yes
InteriorPainted drywall; floor coverings include carpet, linoleum and tile; fluorescent lighting fixtures
Restrooms Separate men’s and women’s restrooms on each floor
DUE DILIGENCE ACCESS A website containing documents and additional information about the property has been set up. Please contact us if you would like to receive a link to access the due diligence site.
6
SITE DESCRIPTION
The property is situated off Quail Lakes Road immediately east of Interstate 5. The building is easily visible from the freeway creating potential signage opportunities
for certain types of tenants. The parking field contains 104 parking stalls that wrap around the building and is served by a main point of ingress and egress from the
east off Quail Lakes Road into the Quail Lakes Office Plaza. Access to Quail Lakes Road is primarily from W. March Lane, a freeway access point and a primary arterial
and commercial corridor through north Stockton.
Parcel lines are approximate and for illustrative purposes only.
7
FLOOR PLAN - 1ST FLOOR
NOT TO SCALE -- ALL DIMENSIONS ARE APPROXIMATE.
8
FLOOR PLAN - 2ND FLOOR
NOT TO SCALE -- ALL DIMENSIONS ARE APPROXIMATE.
9
PARCEL MAP
10
The financial summary is a projected post-closing income and expense
statement. The offering price represents an initial capitalization rate
of 7.16% on net operating income, plus the net present value of the
Internal Revenue Service’s tenant improvement repayments at a 7%
discount rate. (The TI payments have not been capitalized). The Argus
discounted cash flow will be made availalbe on request. It projects
10-year yields of 9.7% and if debt is utilized the return is projected to
be 17.0% annually.
FINANCIAL SUMMARY
FINANCIAL OVERVIEWValue before IRS payments @ 7.16% cap rate $5,477,296
Net Present Value of IRS repayments for TIs (@7% discount) $97,704
Purchase Price $5,575,000
Price per Square Foot $232
Net Rentable Area 24,077
Prospective Financing:
Type Fixed
Interest Rate 4.75%
Principal Amount @ 70% LTV $3,902,500
Down Payment $1,672,500
Amortization (years) 30
Years Due 10
Estimated Monthly Payment $20,357
Estimated Annual Payment $244,287
Occupancy 97%
Scheduled Gross Income $592,350
plus expense reimbursements $0
Adjusted Scheduled Gross Income $592,350
less vacancy and collection n/a
Effective Gross Income $592,350
less Operating Expenses ($200,270)
per square foot $8.32
Net Operating Income $392,081
per square foot $16.28
Less Annual Debt Service ($244,287)
Pre-tax Cash Flow $147,793
Cash-on-cash 8.8%
Argus projected cash IRR 9.7%
Argus projected leveraged IRR 17.0%
11
RENT ROLL
The rent roll presents current rent, scheduled increases, and annual rent for the 12 months commencing September 1, 2018.
LEASE TERM CURRENT BASE RENT ESCALATIONS OPTIONS
SUITE TENANTRENTABLE
SQ. FT. START END MONTHLY PER SQ.
FT. ANNUAL LEASE TYPE DATE
NEW MO. RENT
PER SQ. FT.
NO. X TERM
OPTION RENT
PRO RATA
100 & 200 Stearns Lending (1) 5,682 Apr-17 Mar-22 $9,659 $1.70 $117,333 gross Apr-19 $9,944 1.75 2x3-yr. 95% fmr 24%
Apr-20 $10,228 1.80
Apr-21 $10,512 1.85
101 NGC 3,556 Jul-14 Jun-19 $5,500 $1.55 $66,000 gross none 2x1-yr. +3% 15%
102, 201, 202 I.R.S. - shell rent (2) 10,289 Feb-16 Apr-26 $20,264 $1.97 $243,168 (2) none 43%
Operating rent $6,904 $0.67 $82,849
TI repayments (3) - Feb-16 Feb-21 $3,454 - - (3)
103 New Body Medical (4) 3,800 May-16 Apr-26 $6,833 $1.80 $83,000 gross May-19 $7,083 1.86 1x5-yr. see (4) 16%
May-20 $7,333 1.93
May-21 $9,100 2.39
May-22 $9,400 2.47
May-23 $9,700 2.55
May-24 $10,000 2.63
May-25 $10,300 2.71
Total Leased 23,327 $52,615 $592,350 97%
123 Vacant (Empire space) 750 Mo. 6 $1,238 $1.65 $14,850 gross 3%
Total Property 24,077 100%
(1) Tenant has one-time right to terminate at the end of the 36th month with payment of early termination fee (See Section 2.3 of Lease). Tenant’s options commence at 95% of market rent, no increases specified. Tenant gets $3.00 psf refresh allowance on each renewal option.(2) IRS pays operating rent of $82,848.70 per year in addition to its base rent (see Lease Amendment No. 2). Tenant has right to terminate early with 90 days written notice starting April 10, 2021. Per Owner Tenant has occupied space in the builidng since 2004.(3) Per Lease Amendment No. 2, annual tenant improvement repayments from 4/10/18 through 4/9/21 total $41,453.49/year. This cash flow has not been capitalized.(4) Tenant is receiving an evenly-distributed annual rent discount equal to two months of free rent in each of the first five years of its lease, ending April 2021. Tenant’s option rent is not specified in the lease. We assumed option commences at the year-10 rate and increases 3% annually.(5) Per Owner, tenants pay some expenses directly. See leases for detail.
12
EXPENSES
Expenses were taken from Owner’s 2018 budget, but with property taxes
adjusted for sale and property management fees estimated at 3% of
effective gross income, typical for the market.
Occupancy %: 88% 95%
2018 PRO FORMA
Ad Valorem Property Taxes 48,000 64,165
Direct Levies 396
Utilities-Gas & Electric 48,600 48,600
Sewer, Water, Trash 15,076 15,076
Insurance 5,220 5,220
Management (2.5% of EGI) 30,309 17,771
Repairs and Maintenance 6,950 6,950
Janitorial / Cleaning 19,436 19,436
HVAC 6,300 6,300
Fire/life/safety 3,636 3,636
Landscaping / Parking 6,720 6,720
Association dues 6,000 6,000
TOTAL OPERATING EXPENSES 196,247 200,270
13
TENANT PROFILES
2/8/16-4/19/26
10,289 sf
www.irs.gov
The Internal Revenue Service (IRS) is the tax collection arm of the United States. The government agency is a bureau of the Department
of the Treasury, and is under the immediate direction of the Commissioner of Internal Revenue who is appointed to a five-year term
by the President. The IRS is responsible for collecting taxes and administering the Internal Revenue Code, the main body of federal
statutory tax law of the United States. The duties of the IRS include providing tax assistance to taxpayers and pursuing and resolving
instances of erroneous or fraudulent tax filings.
The IRS has approximately 77,000 employees and an annual budget of approximately $11.5 billion.
The United States of America has a credit rating of Aaa from Moody’s Investor Services.
4/1/17-3/31/22
5,682 sf
www.stearns.com
Stearns Lending, LLC is one of the largest mortgage lenders in the US and the fifth-largest privately held lender nationwide. The
company is headquartered in Santa Ana, California where it was founded by Glenn Stearns in 1989.
The Company was included on the Inc. 5000 list of fastest-growing private companies in America in 2013, 2014 and 2015. In August
2015 Stearns’ parent company, Stearns Holdings, LLC, was purchased by The Blackstone Group.
5/1/16-4/30/26
3,800 sf
www.newbodymd.com
New Body MD is a surgical center and medical spa specializing in aesthetic plastic surgery including body contouring, liposuction, and
other cosmetic procedures. They also provide a wide array of non-surgical procedures such as laser hair removal, skin resurfacing,
botox, pulse light treatments, chemical peels and hydrafacials. There are three doctors operating at the Subject’s Stockton location.
4/1/17-3/31/22
5,682 sf
www.northgatecre.com
Northgate Commercial is a fully-integrated commercial real estate brokerage firm providing real estate services for local and national
companies, investors, landlords and tenants. The company, which has a team of 19 individuals, is headquartered at this Stockton
location.
14
AREA OVERVIEW / MARKET TRENDS
AREA OVERVIEW: STOCKTON
Stockton, California, with a dynamic, multi-cultural population of over 310,000, is the county seat of San Joaquin County and the 13th largest city in California. It is
situated along the San Joaquin Delta waterway which connects to San Francisco Bay as well as the Sacramento and San Joaquin Rivers. The city is 60 miles east of San
Francisco and 45 miles south of Sacramento, the state capital.
4643 QUAIL LAKES DRIVESTOCKTON, CALIFORNIA
W MARCH LANE
Quail Lakes Shopping Center
W MARCH LANE
15
Until the onset of recession in 2007 Stockton was one of the
fastest growing cities in California. In 2017 the California
Policy Center ranked Stockton 18th out of 116 cities with
populations of 200,000 or more for fiscal health. With a May
2018 unemployment rate of 5.3%, the City has regained its
prominence as a strong economic engine in California’s
Central Valley.
With a centralized location and abundant affordable
housing, many people from the Bay Area find the less-
congested, more affordable lifestyle of the Central Valley
attractive. As they sell expensive Bay Area homes and move
their equity to inland areas like Stockton, the growth in
population continues to fuel new development and strong
economic growth. The City’s enthusiasm and optimism has
taken the form of ambitious municipal improvements such
as the downtown waterfront development which is home to
a new sports arena, a minor league baseball stadium, and
mixed-use retail and residential developments.
The City has a number of lovely residential communities
situated along its waterways featuring single-family homes
priced at about one-third what they would be in the Bay Area.
With its more than 100,000 trees, Stockton was recognized
by Sunset Magazine as the “Best Tree City” in the western
United States. Twice the National Civic League recognized the
City by bestowing its coveted All-America City designation.
Stockton’s central location permits ready access to many
world-class destinations including the California Central
Coast, San Francisco, the Napa Valley wine region, Lake
Tahoe, and Yosemite National Park. The community also
offers many local recreational opportunities such as
professional sports teams, an Olympic ice rink, and the far-
flung Delta itself with thousands of miles of waterways for
16
MARKET TRENDS: STOCKTON OFFICE MARKET
The Central Valley office market finished Q2 2018 with 46,072 square feet of net absorption. The market-wide vacancy rate decreased 40 basis points to 10.1%,
matching the lowest vacancy in the Central Valley market since 2011. In Stockton the vacancy rate for Class B office properties similar to the Subject has fallen to 6.0%
per CoStar data. The tight market is giving landlords of Class B office properties additional leverage when negotiating leases with new tenants.
Although average asking rents were reported unchanged during Q2 2018, market fundamentals remained sound and quality space is becoming harder to find. Class
A rates are starting to climb, which in turn is causing owners of Class B and C properties to reduce concessions which increases the net effective rent flowing to landlords.
Falling vacancy and a virtual absence of new construction suggest a steadily improving economic environment for landlords as the market continues to tighten.
water skiing, sailing, and other
water activities. There are also
many opportunities to enjoy
music, theater, dance, literary
events, and other cultural
and entertainment activities
throughout the year. The City
even has its own symphony
orchestra and opera company,
and annually hosts the wildly
popular Asparagus Festival.
The City is home to several
highly-regarded institutions of
higher education including the
University of the Pacific and its
affiliated McGeorge School of
Law, California State University
Stanislaus-Stockton, San Joaquin
Delta Community College, and
Humphreys College and School
of Law.
4643 QUAIL LAKES DRIVESTOCKTON, CALIFORNIA
Quail Lakes Shopping CenterW MARCH LANE
Brookside
N
to Sacra
mento >
17
OFFICE SALE COMPS
4643 QUAIL LAKES DR STOCKTON, CA
4747 FEATHER RIVER DR STOCKTON, CA
300/330 NORTHGATE DR MANTECA , CA
3461 BROOKSIDE RD STOCKTON, CA
3485 BROOKSIDE RD STOCKTON, CA
2316 ORCHARD PKY TRACY, CA
3203 W MARCH LN STOCKTON, CA
DATE SOLD Subject 5/25/17 5/19/17 3/6/17 2/22/17 1/11/17 7/14/16
SALE TYPE Investment Investment Investment Investment Investment Investment Investment
PURCHASER TBD Khatri & Sons LP Khatri & Sons LP Pellarin Enterprises Pellarin Enterprises Mercado Revocable Trust Pellarin Enterprises
MAJOR TENANT(S) IRS; Stearns Lending
Social Security Administration; Hedy
Holmes Staffingmultiple tenants
Optimal Hospice Care; Stearns Lending; Partners Commercial
Real Estate
Aaron Reeves, DMD; Tpx Communications
California Milk Advisory; Snelling Staff
Srvcs
First Amer. Title Ins.; Gem Carpet Care;
Prime Lending
BUILT 1985 1983 1995 2004 2006 2005 1993
OCCUPANCY 97% 100% 100% 100% 100% 100% 100%
PRICE $5,575,000 $3,800,000 $3,650,000 $2,950,000 $4,434,500 $4,500,000 $3,000,000
CAP RATE ACTUAL 7.16% 8.33% 6.50% 6.00% 6.00% 6.65% unreported
PROPERTY SIZE 24,077 22,920 18,874 13,000 17,228 14,083 12,714
PRICE/SF $232 $166 $193 $227 $257 $320 $236
ADJUSTMENTS TO VALUE
MARKET TIMING - 0% 0% 0% 0% 0% 0%
LOCATION - 0% 10% -5% -5% 0% -5%
AGE/CONDITION - 0% -5% -20% -20% -20% -5%
OCCUPANCY - 0% 0% -10% 0% 0% 0%
USE/TYPE - 0% 0% 0% 0% 0%
TOTAL ADJUST. - 0% 5% -35% -25% -20% -10%
ADJUSTED VALUE $5,575,000 $3,800,000 $3,832,500 $1,917,500 $3,325,875 $3,600,000 $2,700,000
ADJ. VALUE PSF $232 $166 $203 $148 $193 $256 $212
1 2 3 4 5 6
18
MAP: OFFICE SALE COMPS
1
2
34
5
6
MAP PROPERTY
Subject - Placer Title Center 11321 & 11333 Prospect Dr., Jackson
1 279 Placerville Dr., Placerville
2 200 E. Highway 12, Valley Springs
3 1270 Broadway, Placerville
4 1319-1353 Broadway, Placerville
5 1906 Vista Del Lago, Valley Springs
6 384 Placerville Dr., Placerville
13
4
6
NMAP NOT TO SCALE
19
AFFILIATED BUSINESS DISCLOSURE
CBRE, Inc. operates within a global family of companies with many subsidiaries and related entities (each an “Affiliate”) engaging in a broad range of commercial real estate businesses including, but not limited to, brokerage services, property and facilities management, valuation, investment fund management and development. At times different Affiliates, including CBRE Global Investors, Inc. or Trammell Crow Company, may have or represent clients who have competing interests in the same transaction. For example, Affiliates or their clients may have or express an interest in the property described in this Memorandum (the “Property”), and may be the successful bidder for the Property. Your receipt of this Memorandum constitutes your acknowledgement of that possibility and your agreement that neither CBRE, Inc. nor any Affiliate has an obligation to disclose to you such Affiliates’ interest or involvement in the sale or purchase of the Property. In all instances, however, CBRE, Inc. and its Affiliates will act in the best interest of their respective client(s), at arms’ length, not in concert, or in a manner detrimental to any third party. CBRE, Inc. and its Affiliates will conduct their respective businesses in a manner consistent with the law and all fiduciary duties owed to their respective client(s).
CONFIDENTIALITY AGREEMENT
Your receipt of this Memorandum constitutes your acknowledgement that (i) it is a confidential Memorandum solely for your limited use and benefit in determining whether you desire to express further interest in the acquisition of the Property, (ii) you will hold it in the strictest confidence, (iii) you will not disclose it or its contents to any third party without the prior written authorization of the owner of the Property (“Owner”) or CBRE, Inc., and (iv) you will not use any part of this Memorandum in any manner detrimental to the Owner or CBRE, Inc.
If after reviewing this Memorandum, you have no further interest in purchasing the Property, kindly return it to CBRE, Inc.
DISCLAIMER
This Memorandum contains select information pertaining to the Property and the Owner, and does not purport to be all-inclusive or contain all or part of the information which prospective investors may require to evaluate a purchase of the Property. The information contained in this Memorandum has been obtained from sources believed to be reliable, but has not been verified for accuracy, completeness, or fitness for any particular purpose. All information is presented “as is” without representation or warranty of any kind. Such information includes estimates based on forward-looking assumptions relating to the general economy, market conditions, competition and other factors which are subject to uncertainty and may not represent the current or future performance of the Property. All references to acreages, square footages, and other measurements are approximations. This Memorandum describes certain documents, including leases and other materials, in summary form. These summaries may not be complete nor accurate descriptions of the full agreements referenced. Additional information and an opportunity to inspect the Property may be made available to qualified prospective purchasers. You are advised to independently verify the accuracy and completeness of all summaries and information contained herein, to consult with independent legal and financial advisors, and carefully investigate the economics of this transaction and Property’s suitability for your needs.ANY RELIANCE ON THE CONTENT OF THIS MEMORANDUM IS SOLELY AT YOUR OWN RISK.
The Owner expressly reserves the right, at its sole discretion, to reject any or all expressions of interest or offers to purchase the Property, and/or to terminate discussions at any time with or without notice to you. All offers, counteroffers, and negotiations shall be non-binding and neither CBRE, Inc. nor the Owner shall have any legal commitment or obligation except as set forth in a fully executed, definitive purchase and sale agreement delivered by the Owner.
COPYRIGHT NOTICE
© 2018 CBRE, Inc. All rights reserved. This information has been obtained from sources believed reliable, but has not been verified for accuracy or completeness. You should conduct a careful, independent investigation of the property and verify all information. Any reliance on this information is solely at your own risk. CBRE and the CBRE logo are service marks of CBRE, Inc. All other marks displayed on this document are the property of their respective owners. Photos herein are the property of their respective owners. Use of these images without the express written consent of the owner is prohibited. 20906183-263649
20
INVESTMENT CONTACT
RANDY GETZExecutive Vice PresidentLic. 00828903+1 916 446 [email protected]
CBRE, Inc.500 Capitol MallSuite 2400Sacramento, CA 95814
LOCAL MARKET CONTACT
BRIAN PETERSONFirst Vice PresidentLic. 0718738+1 09 476 [email protected]
CBRE, Inc.3247 W. March LaneSuite 100Stockton, CA 95219 Capital Markets | Investment Properties
4643 Quail Lakes DriveStockton, California
