How Sacramento Benefits from the Bay Area Exodus: Q&A
Originally posted to Multi-Housing News
Thanks to its proximity to the Bay Area, Sacramento, Calif., has been steadily growing in the past few years. Since the onset of the pandemic, Bay Area residents looking for more affordable options have chosen Sacramento as a place to live. “The pandemic has highlighted the Central Valley—and especially Sacramento—as a desirable and affordable place to live,” said Joe Muratore, co-founder & principal of Graceada Partners.
The company’s primary focus is to invest in office buildings and retail centers. However, the firm recently acquired Westlake Apartments, a 148-unit community in the Pocket neighborhood of Sacramento. Multi-Housing News reached out to Graceada Partners’ principal to find out what makes the multifamily business an appealing investment option in times of economic uncertainty.
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Why did you decide to invest in multifamily? Why now?
Muratore: The Westlake Apartments acquisition plays into our strengths in construction, repositioning and rebranding, so we felt like it was a great fit for our portfolio. The neighborhood is on a private lake in a highly desirable location. While we have a lot of expertise with office buildings and retail centers, this gives us a new asset class to be in, in Sacramento and the Central Valley.
My business partner and I believe in the philosophy of continuing to keep moving. Historically, this is an asset class with too much attention on it. During COVID-19, however, we’re finding that it is a good time to get a reasonable deal on multifamily real estate. There are fewer players in the game right now. Beyond that, people have been sitting on the sidelines waiting to see what’s happening. Because of these conditions, we were able to get 10 percent better pricing on this acquisition. We can achieve a higher threshold in this asset class because there are fewer competitors and pricing is more favorable.
Tell us more about your plans for Westlake Apartments.
Muratore: This property sits on Lake Greenhaven in the Pocket-Greenhaven neighborhood of Sacramento. It is 40 years old and well-suited for repositioning. We will be leading with a $1.2 million external remodel of the property and then a $12,000 per unit internal update. We are repainting the complex, updating the landscape, modernizing the pool area, creating a fitness center and creating barbecue areas by the lake. We’re also adding a pet park and pet washing station.
Additionally, we’re upgrading the entire complex to modern, dual-pane windows. We’re upgrading the kitchens and the bathrooms with new countertops and lighting, and we’re adding new, modern floor coverings. We’re investing more capital than what most value-add will and that is a hallmark of our strategy.
Westlake Apartments
Do you plan to expand your Sacramento multifamily footprint? What type of properties are you looking for and why?
Muratore: We do. We are actively looking for more properties like this one. We look for properties in great locations that are in need of significant updating. In addition to looking at expanding our multifamily footprint in Sacramento, we’re interested in commercial properties in Bakersfield, Fresno and Stockton—essentially, across the entire Central Valley of California.
How does Sacramento fit into your investment strategy?
Muratore: Very well! Sacramento has emerged as one of the most stable and desirable cities to live in in America. It remains considerably more affordable than the Bay Area and has a very stable economy. It is the second-largest government center in America, after Washington, D.C. Rent prices have increased in Sacramento amid the pandemic as people flock there for more stable housing costs. It’s an economy that is well-positioned both now and as we recover from the pandemic. Also, we are Central Valley natives and glad to play a role in further improving the region. It fits our mission.
To what extent has the pandemic affected your plans and operations? How has your business strategy changed since the onset of the pandemic?
Muratore: Being contrarian investors, we have taken an aggressive approach this year. The pandemic has highlighted the Central Valley—and especially Sacramento—as a desirable and affordable place to live. With people working from home, they are looking for more affordable options that still have some proximity to the Bay Area. Sacramento emerges as an excellent option in that equation. While we’ve been monitoring Sacramento and it has become a key part of our portfolio this year. In addition to Westlake Apartments, we also acquired a large office complex in Sacramento that’s state-leased.
We really like our position from the edge of the Bay Area. There is a lot of valuable commercial real estate and the Central Valley is the fastest-growing part of the most populous state in America. The pandemic has accelerated this growth.
How do you expect the multifamily market in Sacramento/California to perform this year and in 2021, considering the current economic conditions?
Muratore: We expect trends already in place to accelerate. For a long time, we have been betting on the Central Valley. People have been moving here for affordability and quality of life. Its proximity to the Bay Area makes it incredibly appealing, too. They can stay within a train ride or drive to their network, yet enjoy a lower cost of living and more space.
Looking at the state, we think there will be some turbulence over the next year or so, but, ultimately, California has a 3.5 million-unit housing shortage. Demand and occupancy in Sacramento remain very strong. We plan to aggressively invest through the downturn as we continue to build the Graceada Partners portfolio here in the Central Valley.