‘Petaluma is more active today than it has been in 16 years’

PETALUMA — Basin Street Properties, a major builder of the Telecom Valley cluster of startups in Petaluma around the dawn of the 21st century, has invested in that market with even greater vigor, buying 11 office buildings totaling more than a half-million square feet.

In the second-largest transaction in its four-decade history, the Reno-based real estate developer, investor and manager on Wednesday bought 568,722 square feet in three projects for an undisclosed price. The properties were the remainder of the 14-building, 842,000-square-foot portfolio a joint venture of New York-based Investcorp International and Napa-based PB&J Acquisitions had purchased in February 2012 for $65 million.

The properties Basin Street just purchased are 87 percent leased to 24 companies, namely Amy’s Kitchen, Camelbak, The Gap’s Athleta brand headquarters, Calix Networks, Clover-Stornetta Farms and Wells Fargo. About $1 million in capital improvements are planned for the properties, including landscaping and upgrades to the climate-control systems.

“Petaluma is more active today than it has been in 16 years, from the late 1990s,” said Matt White, Basin Street Properties CEO.

That amount of tenant interest from within Petaluma as well as from Marin County and San Francisco, together with little new office space makes such deals attractive for investors, he said.

Basin Street now has a more than 4 million-square-foot portfolio of office, light-industrial, retail, multifamily and hospitality properties in the North Bay, Sacramento area and Reno, Nev., and more than 2 million square feet in the North Bay alone. The company has become the largest office landlord in the “Biggest Little City in the World,” according to Mr. White.

At more than 2 million square feet, the North Bay portfolio now is as much as twice the size as it was when Basin Street sold much of its office holdings — 1.4 million square feet in 44 buildings in Sonoma and Marin counties — for $263 million in 2005.

“Now the North Bay [portfolio] is twice as big as it was in 2005, but it is much more diversified in tenant sizes and types,” Mr. White said. “We were much more tech-heavy in 2005, and today we have a real cross-section of the economy.”

In the late 1990s, as the emergence of the Internet economy was super-heating investment in high-technology companies, especially in telecommunications equipment, demand for space along the Highway 101 corridor from Novato to Santa Rosa was primarily for 20,000–70,000 square feet, but now space requirements largely are for 5,000–15,000 square feet from tenants in a variety of industries in Sonoma and Marin counties, he observed.

“In a lot of ways, in the 1990s we became a one-trick pony in telecom and rode it to the top and got beat up by it,” Mr. White said. “It’s exciting that we’re back to economic growth of the 1970s to 1990s — slow, diversified growth.”

Basin Street started reinvesting the 2005 portfolio sale money in purchases and projects in Sacramento and Reno then relocated its headquarters to the latter in 2009.

After selling at the high point in the office market, Basin Street returned to the North Bay at the depth of the market, starting in 2011 by re-acquiring eight Petaluma buildings it had sold in 2005 then buying back 17 Santa Rosa area buildings in 2012. The latter was Basin Street’s largest single deal, Mr. White said.

While Basin Street has reached beyond office space to hospitality, multifamily and retail projects and properties in the North Bay and the other markets, office space likely again will be the focus for the company going forward, he said. Yet, this year Basin Street plans to move forward on apartment and hotel projects in Sonoma County, but they will be ancillary to office projects, the way a Marriott Courtyard hotel the company has started building in Reno is meant to support Basin Street’s three surrounding office towers.

Demand for office space in Petaluma likely will limit options in the submarket to the point that new office projects will emerge, Mr. White predicted.

“I think that by the end of 2015 the majority of the vacant space in the market will be taken by new tenants, and by 2016–2017 I think there will be building of new office space in the marketplace,” he said.

That’s quite a change from the aftermath of the bursting of the tech bubble in 2001 that saw the dispersion of the Telecom Valley cluster and as much as one-quarter of Petaluma’s office space being available for lease by the mid-part of the last decade.

Steve Leonard, Brian Foster and Trevor Buck of DTZ are marketing the new properties for Basin Street.

Properties at a glance

Lakeville Business Park

Location: South Petaluma
Properties: 205,777 square feet in three single-story office–flex space buildings and two two-story class A office buildings

South Petaluma Business Center

Location: 1800 and 2000 S. McDowell Blvd.
Properties: 149,735 square feet in two two-story class A office buildings in Lakeville Business Center, fronting on Shollenberger Park and the Petaluma River. Formerly known as South McDowell Landing.

Petaluma Business Center

Location: 1031, 1035, 1039 and 1125 N. McDowell Blvd.
Properties: 213,210 square feet in four single-story office and flex buildings fronting Highway 101