Companies grab deals as vacancies rise, lease rates fall

Grim real estate statistics and a few good news nuggets were shared this week at the Valley Real Estate & Economics Conference in Modesto.

Here's the good stuff first. Commercial brokers revealed that business deals are in the works to:

  • Lease the 61,600 square feet building Mervyn's used to occupy in Modesto.
  • Sell the 59,520-square-foot building on Modesto's McHenry Avenue that Rite Aid will soon vacate.
  • Build an 800,000-square-foot distribution center in Patterson.
  • Purchase a 200,000-square-foot facility for plastic bottle recycling in Turlock.
  • Lease 250,000 square feet for an expanded food-processing company in Modesto's Beard Industrial District.
  • "We see things happening that are more and more positive every single day," said Richard Rand, owner of Rand Commercial Properties in Modesto. He was among the most upbeat of the conference speakers. Rand said the real estate slump is enabling business owners to expand into larger spaces and pay lower rents.

    There's certainly plenty of empty space to move into.

    "Vacancies are rising here," said Tim Bettencourt, a partner in CoSol Real Estate in Modesto. "Every (shopping center) is facing vacancies or rate-reduction requests from tenants."

    Retail centers had about a 6 percent vacancy rate at the end of 2007. Bettencourt said vacancies rose to 10 percent by the end of 2008, and he expects it to peak this year at 13 percent to 15 percent.

    Bettencourt estimated that about 1 million square feet of retail space in and around Stanislaus County is vacant because of store bankruptcies.

    That's why retail lease rates are dropping. A couple of years ago when the real estate market was booming, Bettencourt said shopping center anchor tenants were paying $1.15 to $1.35 per square foot per month. He said those prime spots can be leased now for 85 cents to $1 per square foot per month.

    Some stores may be leasing for even less.

    The old Mervyn's building on McHenry, for instance, has been listed for lease for 75 cents per square foot per month. Bettencourt said a deal is pending for that property and a letter of intent to lease has been signed, but he wouldn't reveal the new retailer's name.

    Bettencourt said there's also a deal to sell the Rite Aid building at 2401 McHenry for about $50 per square foot. Rite Aid is building a new drug store down the street, so the chain has been trying to sell the older store.

    "McHenry has always been the traditional retail strip for Modesto," said Bettencourt, expressing his confidence the many vacant buildings along that street eventually will be filled.

    Industrial space vacancies also have been rising in Stanislaus and San Joaquin counties, said Mark Reckers of Lee & Associates Commercial Real Estate in Stockton.

    Reckers said industrial land sales have declined in the two counties, dropping from 978 acres in 2007 to 330 acres in 2008 and just 67 acres this year.

    Some of the industrial deals in the works for Stanislaus, Reckers said, include construction of an 800,000-square-foot distribution center.

    That project for an unnamed company reportedly could create more than 200 jobs in Patterson's Keystone Pacific Business Park.

    Also revealed were pending plans to lease 250,000 square feet to a food processor that's expanding in the Beard Industrial District.

    A new plastic bottle recycling company looks headed this way, too.

    That recycling firm has agreed on a price to buy a 200,000-square-foot former sheet metal manufacturing facility owned by Varco Pruden Buildings on Tegner Road in Turlock. The tentative buyer has until the end of this month to complete its "due diligence" on the deal.

    If that sale goes through, Turlock economic development manager Heidi McHally-Dial said the recycler would hire about 50 people. It would be part of the city's Westside Industrial Specific Plan area, where two other big projects are under construction:

    Sensient dehydrated foods is building a 225,000-square-foot plant on South Walnut Road where 20 new jobs are expected.

    And United States Cold Storage is putting upg a 212,000-square-foot food storage and distribution facility on Fransil Lane where 40 new jobs are expected.

    "Hats off to Turlock because they're really ahead of the game," said Reckers, who noted how that city is in the process of creating 2,000 acres of additional industrial space. He said Modesto, by comparison, less than 10 acres in the process of being added to its industrial inventory.

    Bee staff writer J.N. Sbranti can be reached at or 578-2196.