Is it time to sell? Industrial investors demand Reno-Sparks opportunities

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Basin Street Properties recently sold its Mill @ McCarran mixed-use flexible business park to Reno for $ 26.2 million. Photo: Casey Prostinak


Demand for investment property in the industrial market continues to drive sales in northern Nevada, even for assets that are not yet listed for sale.

Basin Street Properties, which owns and manages 825,000 square feet of office space primarily in northern Nevada primarily among several downtown office towers, recently divested its only flexible industrial property at Mill Street and McCarran Boulevard in as part of an off-market sale. Hidden Valley LLC purchased the property for $ 26.2 million.


Basin Street acquired Mill @ McCarran in 2010. The versatile flexible-use business park includes nearly 130,000 square feet of office, industrial, retail and showroom space. Tenants include the Sierra Pacific Federal Credit Union, the Department of Veterans Affairs, Friends of MS, and Indian Health Services.


Dominic Brunetti, Scott Shanks, Chris Shanks and Matt DeRicco of Dickson Commercial Group represented Basin Street in the sale, while Lyle Chamberlain of Lee & Associates represented the buyer.


Frank Marinello, vice president of acquisitions and development at Basin Street Properties, told the NNBW that several positive factors came together and led to the sale.


“The timing of the sale and the market were aligned with our business plan for the project,” said Marinello. “We executed our investors’ goals and delivered a well-maintained and 95% occupied project to the new owners, as well as maintained project management for the new owners. “


Basin Street has approximately 5.2 million square feet of retail, office, residential and hotel properties in its broad portfolio, including many similar flexible mixed-use properties in California. Mill @ McCarran, however, was his only Nevada property in this asset class.


Investors near and far continue to clamor for Reno-Sparks investment opportunities as they seek opportunities to either enter the market or diversify their holdings in a thriving industrial market.

Franck Marinello

“We are seeing a lot of interest not only in California but also beyond in Reno real estate,” said Marinello. “It is certainly easier to be a seller than a buyer in today’s environment. But we will also continue to try to grow in Reno and we will continue to invest in our existing assets. We believe very strongly in Reno in the short and long term.

That said, investment opportunities, as well as new or renovated space for business relocations, remain scarce for industrial properties in northern Nevada.


According to Cushman & Wakefield’s second quarter industrial market report, the overall vacancy rate in Greater Reno-Sparks was only 2.2%. In the first two quarters, tenants absorbed 2.7 million square feet of warehouse and distribution space, the company said.


EXPERTS: BEWARE OF CHANGES IN TAX LAW


Matt Harris, vice president of industry group at Avison Young, told the NNBW that the industrial market remains tight across size ranges for potential customers.


“This goes for small new businesses looking for their first space, from the top level up to big box stores,” Harris said. “It puts a lot of stress on clients and affects their decisions, deadlines and their ability to thrive. “

Matt harris

Harris said commercial property owners should be hyper-focused on potential changes to current tax laws, particularly the 1031 stock exchanges, which allow investors to defer capital gains tax on the sale of property. ‘investment properties on condition that they transfer their products to a “similar”. good replacement.

President Biden alluded to changes to the 1031 exchange process in his U.S. Plan for Families, and he fired another shot through the arc in his Fiscal 2022 Treasury Green Book.


Among the proposed changes is an increase in the long-term capital gains tax rate, which currently caps at 20% based on income.


“We’re telling homeowners that if they plan to sell in the next couple of years, they should be sellers today because they know what the playground looks like today,” said Harris, who is also government co-chair for the National Association of Industrial Properties and Offices (NAIOP). “They don’t know what it will look like in 2022… It could crush the whole industry.”


Todd Blonsley, senior vice president of investments in Marcus & Millichap’s Reno office, also encourages local owners to seek investments and 1031 swap deals outside of their home markets when the story makes fiscal sense.


“Too many people persist in investing in their garden,” said Blonsley. “They want to walk past and see it, but at the end of the day these properties are professionally leased and managed. So whether it’s 10 miles from your door or 1,200 miles from your door, it doesn’t matter if it’s a good deal.

Todd blonsley

Blonsley points to the recent sale of the office of cosmetic surgeon Charles Virden, who has ceded his building on a 10-year leaseback and is completing a 1031 exchange in an out-of-state property.

“This is an example of someone selling with current California-influenced local market conditions and low interest rates, and redeploying capital for a higher return at a time when there is little choice in an agreement with a stronger tenant at twice the term, ”said Blonsley. “If anyone is considering selling, they might want to do it now. You don’t do this if capital gains tax rates increase (and will be) similar to individual taxpayer rates.

“It has the potential to really destroy the financial prudence of people who have been long-term investors – and it’s just not the 1 and 2 percent.”


Q3 STATISTICS AND TRENDS


On October 19, the Reno branch of Kidder Mathews released its third quarter report for the Reno-Sparks Industrial Market. Below are some key statistics:

  • The region posted gross absorption of 1.4 million square feet and positive net absorption of 1.2 million square feet in the third quarter.
  • The overall vacancy rate fell from 3.94% in the second quarter to 2.67% in the third quarter, a decrease of 32.2%.
  • The I-80 East Corridor submarket had the largest positive net absorption with 788,050 SF, followed by the North Valleys submarket with 427,867 SF.
  • For the rental business, the largest contract in the third quarter was a 260,847 square foot lease to Panattoni Development and the North Valleys shopping center of CALSTRS, followed by a 209,520 square foot lease to the Ingenuity industrial center of CALSTRS. Hillwood and Avenue 55 and a 162,240 square foot lease at Conco Business Park. .
  • Average asking rates continued to increase from Q2 to Q3 – and even more year over year: from Q3 2020 to Q3 2021, flexible rates went from $ 0.79 / sq. Ft. To $ 0.923 / sq. Ft. (16.8%), average rates have gone up from $ 0.55 / ft². SF to $ 0.739 / SF (34.4%), and wholesale rates went from $ 0.43 / SF to $ 0.553 / SF (28.6%).

Go to kidder.com/research for the full report.

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