• Income producing investment properties are very hard to find.
  • All commercial market segments of real estate showed improvement over the 1st quarter of 2005.
  • Price of commercial land has skyrocketed within this last year.
  • Commercial rents fall short of providing reasonable returns on today’s construction costs.
  • Industrial vacancy demonstrates record lows from approximately 5.89% last year to approximately 5.64% for the 1st quarter of 2006.
  • Retail vacancy is virtually nil indicating pent-up demand remains.


As compared to last year, there are more homes on the market and prices appear to be stabilizing resulting in a more balanced relationship between buyers and sellers. Mortgage interest rates remain attractive with asking prices of homes in the Santa Maria remaining below those of surrounding communities.

The residential market remained strong for all of 2005. The median price of Santa Maria homes increased from $450,000 last year to $469,000 with an average per square foot sales price of $308 per square foot, which is above last year’s average of $265 per square foot. Building permits are down compared to last year. 525 single family units were completed in 2005, and 751 single family units were built in 2004. (Single family units include both detached and attached homes).

As of this article, there are approximately 460 single-family homes on the market in the combined markets of Santa Maria and Orcutt, which represents a historically normal four-month inventory. 424 homes sold during the period of October 2005 to the present.

The following are the primary residential developments in Santa Maria:

  • Rose Garden Village (SWC Westgate/ Battles) 291 SFR +/-50% Built. Builder: Inland Pacific.
  • Harvest Glen Townhomes (SEC Sonya Ln./Blosser Rd.) 203 townhouses with an approved tentative map. Builder: Capital Pacific.
  • Acquistapace Homes (SEC Sonya Ln./Western) 169 SFR with an approved tentative map. Builder: Capital Pacific.
  • La Vigna at Westgate Ranch (SEC Westgate/Battles) 142 SFR in plan-check for final approval. Builder: Jon Martin.

Several Market Notes Regarding Affordability
Due to the high housing costs, there is a continuing trend of multiple families purchasing and occupying entry-level single-family homes. Lenders express concerns with the highly leveraged financing composition (many second and third mortgages) of the home sales in the Santa Maria market. The concern is foreclosure potential, as there is evidence of some softening in asking prices for new tract homes in Santa Maria.

Contrastingly, for buyers with more equity and discretionary funds, the largest residential development under construction in the area is the 1,300+ home Trilogy community located on the Nipomo Mesa. (About 60 homes have been sold as of date of publication of this article). The homes range in cost from $600,000’s to low $1,000,000’s, and range from1,894 square feet to 3,694 square feet. The “resort lifestyle” community has 45 holes of golf Wanda 31,000 square foot “Monarch Club” which will house, among other things, a restaurant, fitness center, wine room, art studio, and learning center. The pace of sales has been reported as “good”. Total build-out is expected to take 8 to9 years. This project adds further diversification to the housing inventories .However, all the above,both entry level and destination,are becoming less affordable for the income of the area.


Retail space vacancy is virtually nil at approximately +/-1%.For the most part, there has been little anchored or general Retail space added to the city’s inventorying the last several years, however things are changing.

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.

As of this article, grading is taking place for the +/-117,000square foot Santa Maria Commons shopping center at the SWC of McCoy and Broadway. The site consists of 10 acres with Kohl’s as the primary Retail anchor store, and World Savings, Starbucks, and TMobilas smaller users. Pre-leasing has been brisk with only a limited amount of space remaining.

Construction is finishing up at Hunter’s Landing Highway FoodCourt at the SEC of Highway 101& Stowell Rd. on a 6,336 square foot steak house restaurant and a1,827 square foot gift shop.The former Stephen’s AutoCenter at the NWC of Skyway and Broadway is undergoing a re-development plan for approximately40,000 square feet of Retail and Office space. The existing structures will be demolished to make way for the new commercial complex.

New Retail on the horizon is the Westgate Marketplace(120,000 square feet) to be located at the NWC S. Blosser & Battles Rd., which is in the pre-leasing phase. In the Orcutt area, two shopping centers, Orcutt Plaza(230,000 square feet) and Orcutt Marketplace (295,000 square feet), are still awaiting approvals.The developers of the Orcutt Marketplace expect to receive entitlements by July, 2006, and anticipate commencement of construction 1st quarter of 2007.Asking rents for all of the above Retail centers are $1.75 per square foot per month NNN to $2.50 per square foot per month NNN.

Existing commercial/retail space within the City of Santa Maria (as of first quarter 2005) is approximately 3,966,000 square feet. Since last year, most of the former Home Base building has been leased leaving 22,000 square feet available at $1.35 per square foot per month NNN, and Club 24has taken approximately half of the former Montgomery Ward’s building leaving approximately30,000 square feet vacant. These are the only large vacant retail spaces remaining within the city.

Shopping center-sized land parcels are very hard to find. Prices can be expected to be$15.00 to 20.00+/- per square foot, if the land can be located.Well-located General retail C2zoned lots and smaller parcels,which are in very limited supply,can command prices of $30 to$50 per square foot (this includes anchored pads).


The Office market base inventory increased to approximately933,000 square feet from 865,000square feet last year, which is a7.8% increase over 2004. The previous year was approximately2.4% from 2003 to 2004, which indicates significant inventory for this relatively small market segment.

The following are significant Office projects in the city:

  • La Brea Plaza 700 Block of East Main 29,587 sq. ft. in two buildings
  • Betteravia Business Plaza NEC Betteravia and Miller 31,016 sq. ft., (fully leased)
  • Parkway Medical Center 2342 Professional Parkway 29,394 sq. ft. medical office

El Potrero Office Park (Fugate) Consists of 4 buildings totaling approximately 66,000 sq. ft. Two buildings have been completed and are 100% leased. The remaining two buildings are in the following stages:

  • Building C (12,748 sq. ft.) – The shell is nearing completion (estimated completion date June, 2006) Asking rental rate is $2.00/sq. ft./mo. Modified Gross with a $20/sq. ft. TI allowance.
  • Building D (15,501 sq. ft.) – The shell is completed with about 10% to 20% of the space committed for lease. 2.4% from 2003 to 2004, which indicates significant inventory for this relatively small market segment.

The Office market has tightened up somewhat during the last year. Concomitant with the increased absorption of space there has been an increase in Office rents.

Market rents for 2nd generation Office space are typically$1.20 per square foot to $1.25per square foot Gross, which is an increase over the previous year by approximately $0.10 per square foot. Ever-increasing construction costs are driving rental rates upward for new buildings. Rental rates for new office products have reached$2.00 per square foot Modified Gross with $20 +/- for Tenant Improvement allowances.

The story from last year still holds for medical use facilities in that inventory is extremely limited. Listed properties with medical build-out are virtually non-existent. Conversion of existing Office space for medical use is unlikely as typical office product has less parking than what is required for medical uses. Thus, medical expansion is forced into new construction with higher rents associated therewith.

Land prices are similar to the discussion in the Retail segment above, as Santa Maria’sC-2 zoning allows Office uses as well as retail uses. Land prices are increasing and hard-to-find smaller parcels are generally costing $20 to $50 per square foot (depending on location).


Vacancy is at an all time low at 5.45%. Both users/buyers and investors continue to drive transactions in the Santa Maria Industrial market segment. Stafford- McCarty databanks indicate that the industrial base for completed, functioning inventory in Santa Maria at the time of this article is approximately 6,907,000, an increase of about 155,000 square feet over last year.

The following are updates on vacated buildings, reported in previous years.

  • Former B. Allen Printing, 2625 Skyway Dr., 20,149 square feet, approximately–recently leased leaving approximately 10,000 sq. ft. vacant.
  • Former B. Allen Printing, 2601 Skyway Dr., 22,567 square feet, approximately– recently leased to Bethel Associates leaving +/-12,000 sq. ft. vacant.
  • 1235 W. McCoy Ln., approximately 40,000 square feet, back- filled with Ashley Furniture.
  • Former UPS Teleservices on Aviation Way, 36,300 square feet has been absorbed and occupied by the local company Café FX.
  • Former Radco Building, 2905 Industrial Parkway, 30,300 square feet has been absorbed by Berry Pack.

Key User Expansions:
Driscoll Strawberries purchased approximately 20 acres of land on Stowell Road and is building an approximately 150,000 square foot cooler and crate shed.

Radco has completed its60,000 square foot facility on6.23 acres of land on Industrial Parkway.

The Santa Maria market typical Industrial requirement has been 4,000+/- square feet, which is coming from tenants looking for incubator space and other small users. Multi-tenant Industrial projects offering smaller unit shave demonstrated greater absorption than last year. Conversely,Stafford-McCarty databanks show several well-located buildings,with units of over 10,000 square feet, having had vacancies for over 48 months. Overall Industrial employment has demonstrated flat to modest growth. Maintaining manufacturing companies in the Central Coast is becoming increasingly difficult due to the high cost of housing.

From a watch-see perspective of the market, the most noticeable project continues to be the seven building,139,000+/- square foot FairSky Technology Park. The targeted companies for this project have been larger office and R & D users, which have been noticeably absent from Santa Maria employer rosters. Multiple buildings in the Park were sold in 2005 to investors. There are plans to subdivide the approximate 20,000 square feet buildings into Industrial condominiums for the smaller user/buyers present in the market. Escrow transaction valuations for these products were in the mid-$90s per square foot, but now surpass the $100 per square foot level. As of this article, there are+/-30,000 square feet vacant.

A trend of non-traditional users is emerging: manufacturing zoned properties are hosting more non-manufacturing users.Non-denominational churches have been moving into Industrial properties, both free-standing as well as multi-tenant. Quasi retail users, such as furniture stores, and commercial services users are also back filling spaces.

Meyer Asset Management Phase II, 70,076 square feet (of a total 143,947 square feet), and Enterprise Business Park Phase II, 34,905 square feet, have both been completed.

This being said, speculative Industrial development continues with Myers Asset Management continues his speculative Industrial development and has purchased additional property along A Street proposing Industrial product but in smaller versions than the approximately10,000 to 20,000square foot building offerings of the last project.

There has been an active market for building sales the last year. Below area sampling of comparable building sale figures for 2005.

Building Size/sq. ft. Price/sq. ft.
1235 W McCoy Ln. 40,000 $91.88
2625 Skyway 20,149 $90.33
2240 A Street 11,113 $95.74
2390 A Street 11,848 $93.18
2330 A Street 22,024 $87.00

Central Coast Wine Services at 2717 Aviation Way (52,599 square feet existing) is adding 41,458square feet to its facility. The FoodBank of Santa Barbara County is constructing a 20,100 square foot warehouse at 490 W. Foster Rd.

Asking rents for 2nd generation multi-tenant buildings have increased and range from approximately$0.45 per square foot to $0.75 per square foot NNN.New construction shell rates are approximately $0.65 to $0.75 per square foot NNN.

Industrial Land

The price of Industrial land has climbed dramatically last year. An interesting example is excess land associated with the former Santa Barbara Research facility.The surplus 56 acres of PD-M1zoned land was initially priced at approximately $5.16 per square foot; however, the property has been reportedly in and out of escrow at a price of approximately $11.00 per square foot. Conversion of Industrial land for housing and Retail has come under scrutiny by the City Council. There exists sensitivity for creating an Industrial preserve. The M1zoned 56-acre former Santa Barbara Research site on Betteravia was turned down for conversation to Retail with Wal-Mart as the intended user. This property is attracting attention due to its strong location and larger size.

It continues to be increasingly difficult to find finished lot product. One to seven acre sale prices range from approximately $5.00 to $10.00per square foot, if they can be located.M2 PD land sales of six to twenty acres have sold for $120,000per-acre or approximately $2.75per square foot for land with partial infrastructure availability.

The Airport District, which controls the bulk of the M-1 Light Industrial zoned land, is proposing an approximate 42-acre Research Park of approximately 500,000 square feet. A portion of the project has been approved with 15-20lots, leasehold interest only, and the balance is still under District review regarding design and CEQAmitigation issues. This status has remained the same for the last three years. The District is awaiting a non-jeopardy biological opinion in order to proceed which they expect in the next few months.

The City of Santa Maria has annexed approximately 932 acres west of A Street between Santa Maria Valley Railroad to the north and Betteravia Road to the south),formerly known as Area 9 and the so-called “Robinson Helicopter”property (120 acres of industrial land along Betteravia Rd.) Although these properties have come into the City they lack infrastructure.It may be several years, in addition to heavy infrastructure funding not yet quantified, before it becomes buildable.

Several key land transactions:
The Betteravia Industrial Corridor has hosted several transactions,aside from the activity on the Santa Barbara Research property discussed earlier. The Maldonado family has purchased Unocal’s Industrial zoned land holdings along Betteravia Road in two acquisitions: 1) the approximately119 acre O’Donnell Fee for $3,850,000 ($0.74 per square foot) and 2) the approximate 13 acre Padereski Fee for $1,100,000 ($1.94 per square foot). Both these properties require improvement and infrastructure. The Maldonado family has become a significant Industrial landholder in the valley. Other transactions along the corridor:

Balance of Consolidated Lumber Property:

7.3 acres PD-CM
$5.92 per sq. ft.

Resale of the Sheehy Property:

12.7 acres PD-M
$4.47 per sq. ft.

Farmland valuations continue to move upward. Strawberry and vegetable ground values are approximately $30,000 to $40,000 per acre. Rarely will land land become openly available and potential buyers seeking to acquire growing ground will have to push the market to get seller’s attentions.

For comparative purposes,Oxnard land valuations are in the $65,000 to $70,000 per acre range. In the Salinas Valley,valuations are in the mid to high $50,000 per acre. Ground lease rates in Oxnard are surpassing Salinas. Reportedly, owners are seeking $3,000 to 3,500 per acre rental rates. As a comparison,Salinas Valley annual lease rates are $2,200 to $2,400 per acre for quality ground, Santa Maria Valley, $1,200 to $1,800 per acre. However it is anticipated that strawberry ground leases will pass the $2,000 per acre level in the near future.

Fess Parker sold approximately 213 acres of vineyard known as the Ashley Vineyard, $8,800,000 This demonstrated valuations for the production portions of approximately $35,000 an acre and $10,000 per acre for farming land.

Currently, capitalization rates for agricultural ground are ranging approximately 4 to 5%.

Commercial Investment

Capitalization rates continue their push downward, in spite of rising interest rates. The investment market area continues to surprise insiders with its continued price escalations. With interest rates rising, (Prime is at 7.75 at the time of this writing) and lower capitalization rates we see investment real estate becoming less attractive. Prospective 1031 reinvestment buyers are electing to pay capital gain taxes versus overpaying for property as prices continue to escalate.

The Capitalization Rate, (caprate), 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.

Shopping center, Office, and Industrial capitalization rates have ranged between 5.6 and 7.5, with low six’s being the target. Once again the cap rates have dropped approximately 0.5 cap rate from the previous year.

Ancillary issues and observations: The equity required for conventional loans and downpayments has climbed in order to bridge the gap between lender debt coverage ratio requirements(DCR) and current market rental rates. Hence, commercial real estate is following patterns of residential real estate in that buyers must come into transactions with bigger down payments in order to have manageable monthly mortgage payments.

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

2002 …….. 9.0 to 9.5
2003……… 7.0 to 8.0
2004……… 6.5 to 7.5
2005……… 5.5 to 6.5

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 declining market cap rates would correlate to the approximate purchase prices for the same piece of property and income according to the following years:

2002 …….. $1,100,000
2003……… $1,428,000
2004……… $1,538,000
2005……… $1,818,000

Shopping center investors/developers are telling us that it is difficult to add value by fixing up the property to attract higher rate paying tenants. They are now talking to us about “ground-up’ development, which translates to demand for sites in which to build.

Several market transactions between $1 million and $2.85 million that occurred in Santa Maria:

  • 1101 S. Broadway
    Multi-tenant Office
    3,860 sq. ft.
    5.6 Cap Rate
  • 326 West Main
    7,099 sq. ft.
    6 Cap Rate
  • 1234 Fairway
    Multi-tenant Industrial/Office
    20,100 sq. ft.
    7.5 Cap Rate

Santa Maria continues to be similar to other investment markets in that there is little availability of product. This condition also holds true for the balance of the Central Coast.


Santa Maria continues to be the only city in the Central Coast producing any significant quantity of housing stock. They are preparing themselves for continued growth for all market segments by annexation and infrastructure development.

Transactions for 2005 demonstrate confidence in the region and stability for the Santa Maria market, however, housing valuations and absorption show less vigorous signs than the boom of the last years. Commercial investment valuations may soften as the interest rates increase but at this time the litmus test for valuations of commercial assets remains reproduction cost.

Santa Maria remains the“watch spot” and economic engine for the central coastal region of California.