Facility managers have been staking out the Tahoe Basin market for three-and-a-half years, looking for property to develop a Tahoe Government Center. Using a property solicitation, they determined that buying land and building out a space would run about $500 a square foot.
This estimate was based partly on the price tag of a circa 2005 11,400-square-foot building in Tahoe City called the Customs House Building.
Because no built options seemed viable, the county zeroed in on land in the Kings Beach area as the preferred site. However, the length of time required to get permitting in the environmentally-sensitive area and the short building season due to snowy conditions mean property could not be completed until 2014 at the earliest.
That left the county with a problem because the lease on the Assessor’s Tahoe offices expires in June of 2020. The Environmental Health and Community Development Resource agencies were also looking at ticking clocks that would go off before new construction would be ready.
Then an opportunity opened. The Customs House Building that had been researched and rejected because of the $5.2 million price tag went into foreclosure and was put on the market by the bank at $3.7 million.
“Because we had been researching the market so thoroughly, we knew it was way below market rate and acted quickly,” said Mary Dietrich, Placer County assistant director of facilities.
The county offered $3.4 million and the bank accepted.
“The fact that this is available for under $300 a square foot is unbelievable,” said Supervisor Jennifer Montgomery whose 5th Supervisorial District includes the County’s portion of the Tahoe Basin. “This is really an opportunity we don’t want to pass up.”
The one question mark is that the bank included a provision that requires the county could complete its due diligence in 90 days and close 10 days later. That would give the county the keys at the end of June.
Two professional tenants already leasing the building would stay in their suites.
“We have been through the Tahoe Regional Planning Agency process before, so know getting approval in three months is going to be a challenge, but because we have done our homework we have a level of confidence that we can meet the deadline,” Dietrich said.
The bargain buy will solve the county’s short-term facilities need, but it is not enough space for the long-term plan. That is why the county plans to move forward with plans for a Tahoe Government Center in King’s Beach and will determine what to do with the Customs House Building later.
Dietrich suggested it could be used for a planned public safety office or – if the market has recovered sufficiently – be sold at a profit.
The Good and Bad
The purchase is both good news and bad news for the local commercial real estate market, according to Garrick Brown, director of Research in the Sacramento office of Colliers International.
“It can lower property values because it is a transacted deal that will be used to value other properties,” Brown said.
On the other hand, whether it was a city or private entity that purchased the building it would have been at a lower price.
“The good thing is that it reduces inventory and what the market needs most is to move through this mess,” Brown said.
Brown called the sale an exception, rather than a trend, however. He pointed to the failed attempt by the state to sell $2 billion in properties as part of a Golden State Portfolio. Bids came in way under asking prices.
“I wish more government agencies were in a position to take advantage of these opportunities,” Brown said.
JT Long can be reached at firstname.lastname@example.org