Steve McCarty and Greg Stafford, Stafford-McCarty Commercial Real Estate
(Reported as of the First Quarter 2008)


  • The number of residential building permits and units built decreased in 2007 vs. 2006.
  • Commercial leasing is relatively stagnant
  • Industrial and Office vacancy rate has increased appreciably
  • Retail vacancy, although increasing, continues to be very low

If you have not driven through Santa Maria for a while, do not be surprised by all of the real estate signs posted. Juxtapose this with all the bad news regarding the residential real estate market, and you may come to some dour conclusions about the overall market. Although softening, the commercial market has been holding its own.

The following is a brief description of the various market segments.


Stafford-McCarty, in last year’s article, discussed emerging news of the sub-prime fallout and how it may affect the Santa Maria market in 2007 and the first quarter of 2008.

The shift, noted last year of having more sellers than buyers, has really hit home. In 2007 there were 1,034 home sales in the Santa Maria Valley as opposed to a total of 1,335 in 2006, a 22.5% drop in number of sales. The most telling statistic is the tremendous surge in the sale of REO homes (foreclosed homes), a result of the much talked about sub-prime fallout. There was a steady increase every month in 2007 of REO sales starting with two (2) sales in January 2007 and increasing to thirty-three (33) in December 2007. (The increase in the number of REO sales remains unabated for the start of 2008. There were fifty-three (53) REO sales in February 2008 – a 2550% increase over February 2007. However, the total number of home sales was ninety-five (95) homes, which is the highest number of sales in one month since mid summer of 2007.)

The median price of homes in the last quarter of 2007 was $300,000, a huge drop from the previous quarter where the median price was $352,500. There was a constant diminution of the median price throughout 2007. The median price was $393,450 in the first quarter of 2007 and sled downhill to a median price of $300,000 by the end of the year. It was predicted this time last year that home sales would increase significantly as the summer of 2007 approached. Sales did, in fact, pick up but the median price plummeted. May and June (100 and 109 sales respectively) saw the highest number of sales for the year.

The average days on the market (DOM) have actually decreased as the year passed. The DOM was 64 in the last quarter, 79 in the 3rd quarter, 87 in the 2nd quarter and 92 at the start of 2007. We assume the reason for the shorter DOM toward the end of the year was because buyers were reacting to what they believed to be bargains in the plethora of REO offerings.

Not seen for years and indicative of the weakened residential market, there are several entitled residential tracts formally “on the market” in the Santa Maria Valley. The most prominent are:

  • Sevilla – consisting of 6.80 ac. of residential zoned land and 3.22 ac. of commercial land.  A tentative map has been approved for 69 single family homes.  Asking price:  $7,500,000.
  • The Terraces at Pacific Crest – a 112 unit multi-family townhouse project with an approved tentative map.  Asking price:  $5,250,000.
  • Centennial Square – consists of 72 units of multi-family townhouses and 10,000 sq. ft. of commercial with an approved tentative map.  Asking price:  $4,500,000.


After years of absorption in our regional markets we are starting to see vacancy increases for retail, although modest. Hardest hit retailers are the sectors dealing with new home construction. With recent homebuyers not being able to meet their mortgages there are few funds left for purchase of furnishings and appliances. The most obvious victim of the distressed market is Ashley Furniture’s Santa Maria operation, which simply shuttered its doors – Christmas decorations can still be seen in the windows.

Available commercial/retail space within the City of Santa Maria (as of first quarter 2008) is about 85,000 sq. ft. Retail space vacancy continues to be very low-approximately +/-2.7% (total retail inventory base in the City of Santa Maria is approximately 4,143,000 sq. ft.). Approx. 95,000 sq. ft. has been added since the last reporting period.

Commercial Vacancy Rates
City of Santa Maria Metropolitan Area
(Year End and First Quarter of the Next Year)
(+/-) 1%
(+/-) 2%
Source: Stafford-McCarty Commercial Real Estate

Several Project Updates:

The +/-117,000 sq. ft. Santa Maria Commons shopping center at the SWC of McCoy and Broadway is near final build-out. The site consists of 10 ac. with Kohl’s and Rite Aide as the primary retail anchor stores.

There are plans to re-develop the former Stephen’s Auto Center at the NWC of Skyway and Broadway into a project known as Lakeview Promenade. This is a mixed use project of approximately 70,0000 sq. ft. of retail, restaurant and fitness use as well as approximately 265 residential condominium units. The Environmental Impact Report (EIR) is under way.

The Westgate Marketplace (+/-120,000 sq. ft.) to be located at the NWC S. Blosser & Battles Rd. is in the pre-leasing phase.

Update on two large retail developments planned for Orcutt, in which we have reported in the past:

Orcutt Plaza (approximately 225,000 sq. ft.): The property has been annexed into the City of Santa Maria. Now that the property is under jurisdiction of the City it is moving forward. The next step is for the development plan to proceed through the City for entitlements.

Orcutt Marketplace (approximately 295,000 sq. ft.): This center is a mixed-use development, which will consist of office, retail and hospitality. The center will be anchored by a 35,000 sq. ft. Spencer’s Fresh Market. Other tenants expressing interest is a Starbuck’s drive-thru and an ARCO service station. Another aspect of the development will be an upper end hotel-motel consisting of 105 to 125 rooms.

From a larger perspective, pressure to build shopping centers may be off as national retailers turn their focus to profitability versus expansion, especially in less then first tier markets such as Santa Maria. Land values for retail development are still holding as properties are still scarce. A buyer may expect to see prices ranging from $25 to $50 per sq. ft. depending upon size and location of the property.


The office market was somewhat less sanguine in 2007 (and 1st quarter of 2008) as compared to 2006. Last year we characterized the office market as being “very tight”. That’s not the case this year. The office vacancy rate, as of this article, is approximately 6.2% in Santa Maria as compared to 2.1% in 2006. There was approximately 71,842 sq. ft. of new office space added to the base inventory in 2007, which is just a little less than what was added in 2006 (82,000 sq. ft.). The most significant of the new buildings are as follows:

  • 1510 E. Main, medical office, 14,702 sq. ft.
  • 1418 E. Main, Shepard Medical Office/Surgery Center, 15,298 sq. ft.
  • 1520 E. Main, VA Outpatient Clinic, 36,600 sq. ft.

Medical office construction dominated the newly built office segment of the market-approximately 93% of new construction was medical office. Conversations with property owners, reveal that inquires for office space have tapered off considerably in 2007 and at the start of 2008. The typical 2nd generation asking rates are anywhere from $1.10 to $1.25/sq. ft./mo./NNN. Newer space has asking rates of $1.75/sq. ft./mo./NNN and up.

The current economy is seriously affecting real estate and financial services in the area (as well as nationally), and we fully expect to see more office square footage come on the market during the remainder of the year. Demonstrated decrease in demand has translated into softer asking rates and “deal making” concessions. Several office owners are dropping their rates, offering free rent, performing more tenant improvements and crossing their fingers to attract tenants. There appears to be no need for speculative office construction in the near future.

Commercial Vacancy Rates
City of Santa Maria Metropolitan Area
(Year End and First Quarter of the Next Year)
Source: Stafford-McCarty Commercial Real Estate

The price of appropriately zoned land allowing construction of office is similar to the discussion of land prices in the Retail segment, as Santa Maria’s C-2 zoning allows office uses as well as retail uses. Land prices remain firm. Hard-to-find smaller parcels are generally costing $25 to $50/sq. ft. (depending on location).


Industrial vacancy increased significantly in 2007 – from 3.6% in 2006 to 5.7% as of the date of this article. There is currently close to a half million square feet of industrial space available for lease (the industrial base is approximately 7,432,000 sq. ft.). We reported last year that the industrial vacancy rate was at an all time low. Santa Maria is now closer to what is considered to be a normal healthy rate of +/-5%.

Commercial Vacancy Rates
City of Santa Maria Metropolitan Area
(Year End and First Quarter of the Next Year)
R and D / Industrial  / Warehouse
Source: Stafford-McCarty Commercial Real Estate

The wine industry continues to absorb space and is a major stakeholder in the industrial market segment. Vintage Logistics took approximately 20,000 sq. ft. of Ashley Furniture’s warehouse operation. Last year Central Coast Wine Services on Aviation Way completed approximately 43,000 sq. ft., the latest in their multi-phased series of expansions bringing their facility to approximately 250,000 sq. ft. The adjacent Fess Parker’s Wine Center is preparing to a build a facility for Consilience Winery of approximately 20,000 sq. ft. on its surplus land. In addition, Fess Parker leased approximately 30,000 sq. ft. of facilities on Industrial Parkway. Although not in the City, Betteravia Farms leased a vacant cooler of approximately 10,000 sq. ft. south of Orcutt to a local wine concern for barrel storage.

Although just completed to make last year’s reported inventory, Driscoll Strawberries +/-156,000 sq. ft. cooler and crate shed is now operational. Okonite, a long time Santa Maria manufacturer and employer, completed its 76,0000 sq. ft. addition. Cloud Star expanded its operations into the former Boston Pet facilities consisting of two buildings of +/-20,000 sq. ft. each on W. McCoy Lane.

Rental rates are holding steady with, in some cases, minimal increases over 2006 rates. Rents for 1,000 to 4,000 sq. ft. spaces are approximately $0.75 to $0.85 per sq. ft. NNN. Demand has tapered off in the “bread and butter” user segment of the Santa Maria market place. Typical multi-tenant industrial units, in the range of 1,000 to 4,000 sq. ft. are seeing vacancy increases. Not only has demand fallen off, but more inventory in this product type was added last year.

The seven- building, 139,000+/- sq. ft. FairSky Project originally targeted for larger office and R & D users has been, to a large extent, halved into smaller units of approximately 10,000 sq. ft. Users vary widely. Valuations for these products are in the $125 per square foot range for a finished shell. As of this article, there is 18,658 sq. ft. vacant or approximately 13% of the complex.

Meyer Asset Management is actively under construction on the western side of A Street and has completed the first phase of a 174,973 sq. ft. development. Twenty-one (21) buildings (98,680 sq. ft.) of its thirty-four (34) building development have been competed and the remaining thirteen (13) are being finished. Seven (7) buildings have sold and several have been leased. Sale prices have been the in the +/-$165 per sq. ft range depending upon the initial build-out.

The Fairway Industrial Center has broken ground on the 107,494 sq. ft. twenty-two (22) building industrial project on Fairway Drive.

Retaining manufacturing companies has been difficult in the Central Coast although Santa Maria is one of the most affordable areas.

Below is a list of significant industrial building sales for 2007.

 Industrial Building Sales
Santa Maria Area 2007
(Year End and First Quarter of the Next Year)
Sq. Ft. Building
Land w/Bldg
2905 Industrial
2 ac
1360 W McCoy
1.4 ac
1340 W Betteravia
1317,41 W McCoy
2.52 ac
2245 A Street
.78 ac
2295 A Street
.42 ac
Source: Stafford-McCarty Commercial Real Estate

Industrial Land

Owners of land with ready-to-build entitlements continue to see strong valuations. Finished or near finished lot product is minimal. Valuations between the M1, CM and M2 are becoming more singular. One (1) to ten (10) acre sale prices can range from $7 to $12 per square foot. Some noteworthy land transactions: on La Brea (M2 zoned land), seven (7) acres sold to Mid State Concrete, five (5) acres sold to Hayward Truss. (Other lots in the immediate area are in escrow)

The Airport District, which controls the bulk of the M-1 Light Industrial zoned land, is proposing a multi-phased research park of approximately 500,000 sq. ft. (Phase One- 42 acres) The overall project area is approximately 132 acres of leaseable land on the south side of the airport, and 55 acres along Skyway Drive and Hwy 135. Huge news, the District has been granted its non-jeopardy biological opinion from Fish and Wildlife (this took over four years to obtain), allowing them to proceed. The Specific Plan was approved December of 2007. More than likely the Project will be on hold until a new Airport General Manager is brought on board to replace retiring Gary Rice.

The approximately 932 acre industrial annexation, known as Area 9 (west side of city), is still several years away before market size parcels are available due to the lack of infrastructure and the in place vehicle for concomitant funding.


The demand to own strawberry and vegetable ground has set new high record prices. As noted in previous articles, rarely will quality land become openly available on the market. Two key transactions for 2007: approximately 110 ac. was purchased for approximately $43,000 an acre. Only months later a vegetable ranch of similar size was sold for approximately $56,000 an acre.

This brings the Santa Maria Valley close to other key regions: Oxnard land valuations are in the low to mid $70,000 per acre range, Salinas Valley, valuations are in the mid to high $50,000 per acre range.

Commercial Investment

Commercial building sales for 2007 were meager when compared to 2006. One of the highest priced properties to sell in 2007 was the so-called Hollywood Video at 1846 N. Broadway. It sold for $2,350,000. It is now on the market for sale, again, at an asking price of $2,890,000. Another interesting “For Sale” property is 2602 Airpark Dr. The property was purchased by the seller in 2006 for $3,500,000 as an income property, but it is now back on the market for $3,950,000 vacant.

We saw a continued decline in 1031 buyers for 2007. With fewer transactions, the need to find exchange properties declined even from 2006, which was a mediocre year for exchanges. Stafford-McCarty discussed in the 2006 article how properties with low cap rates, and relatively high interest rates at the time, would become increasingly less attractive as investments. However, the dynamics are changing. Cap rates are inching upward and commercial loan rates are decreasing (prime rate is 5.25% as of this article versus 8.25% last year). If this trend continues, we may be seeing neutral leverage and, possibly, positive leverage in the immediate future. With the so-called “credit crunch” (higher standards for conforming loans), obtaining purchase loans for commercial property may be more difficult than it was in 2006. This typically translates into more cash required from the borrower.

All in all, retail, office and industrial capitalization rates have remained about the same from the previous year. Santa Maria like the rest of the Central Coast markets have a scarcity of investment product.

Following are capitalization rate ranges evinced over the last six years:

Capitalization Rates
City of Santa Maria Metropolitan Area
(Value based upon $100,00 annual net operating income)
Cap Rate Ranges
9.0 to 9.5
7.0 to 8.0
6.5 to 7.5
5.5 to 6.5
6.0 to 7.5
6.0 to 7.5
Corresponding Valuations
$1,100 M
$1.428 M
$1.538 M
$1.818 M
$1.666 M
$1.666 M
Source: Stafford-McCarty Commercial Real Estate

To illustrate the capitalization influence on valuation, let us assume a commercial building produces a net income to the investor of $100,000 per year. The market cap rates would correlate to the approximate purchase prices for the same piece of property and income according to the following years as noted in the table.


The overall economic picture of the Santa Maria real estate market is less rosy than it was a year ago. All segments of the commercial real estate market are experiencing increased vacancy rates this year from last year. The retail segment has held up the best.

Land prices seem to be bucking the trend: improved and semi-improved lots for the most part are maintaining their value due to scarcity and agricultural land prices have never been higher, in fact a record year for ag.

We see the sale of foreclosure homes and correlated declining prices capturing more headlines and yet this in turn may be the opportunity for homebuyers who have been shut out of the previously escalated market.

As of the date of this article, we observe signs that lead us to believe current trends will exacerbate for the remainder of the year. The present lowering of interest rates are encouraging as we anticipate some good buys in the market.

* For the purpose of this report, databank numbers include functional, non-competitive inventory (older buildings and warehouses) and excludes non-market square footage such as mini-storage, airport hangers, etc.

A Cap Rate (Capitalization Rate) is calculated by dividing the annual net operating income (NOI—which does not include debt service) by the purchase price, e.g.. $100,000 NOI/ $1,500,000 purchase price equals .0667 or a 6.67 cap rate.