People who live and work in California’s State Capitol of Sacramento are still reeling from the de-leveraging effects of the housing collapse. Many workers lost good paying jobs and could no longer maintain their mortgage payments, ultimately losing homes to foreclosure. Others, who were able to keep their jobs, experienced such a dramatic reduction in home values that equity lines of credit were cut off and refinancing to take advantage of historic low rates became impossible.
An article by Sacramento Business Journal’s staff writer, Sanford Nax, suggests Bay Area investors continue to buy Sacramento commercial real estate for higher yields. The recent closing of a 13 unit apartment complex in South Sacramento by Brian Jacks, Regional Vice President of East West Commercial Real Estate, is discussed. Click here to see article.
Less than two months ago, I received a call from a San Jose based apartment investor who had become disenfranchised with the continued rise in commercial real estate prices throughout the Bay Area. A simple comparison of apartments for sale in both Sacramento and San Jose (within specific parameters) resulted in an average difference in cap rate (annual yield) of 3%. The San Jose apartments we considered offered an average cap rate of 5.7%, while the Sacramento apartments offered 8.7%. It doesn’t take a genius to realize that a higher yield on a commercial real estate investment means more cash in the investor pocket. Naturally, the investor decided it made more sense to invest in commercial real estate (apartments) here in Sacramento, which is once again becoming quite a predictable phenomenon, as discussed in this 1st Quarter 2012 Multifamily Investor Newsletter.