Investor Conrad’s portfolio of properties growing rapidly

Zokku Lounge is his fourth retail acquisition over the last three months

Premium content from Sacramento Business Journal by Sanford Nax, Staff Writer

Date: Friday, October 26, 2012, 3:00am PDT – Last Modified: Thursday, October 25, 2012, 2:03pm PDT

Noel Neuburger | Sacramento Business Journal

Real estate investor Ethan Conrad is spending $200,000 to renovate the Zokku building.

Sanford Nax

Staff Writer- Sacramento Business Journal

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Sacramento real estate investor Ethan Conrad has been busy lately, acquiring the former Zokku Lounge on J Street and getting it ready for leasing or sale, and going into escrow this week on a vacant high-tech building elsewhere in the region.

Conrad wouldn’t talk about the latest deal because it hasn’t closed, but was more forthcoming on Zokku, which is across the street from Downtown Plaza and was a popular nightspot until it closed about two years ago. Conrad added it to his stable of properties — which now totals 70 encompassing 3 million square feet — at what he calls a “substantial discount.”

Wells Fargo, which had acquired the property in foreclosure, originally listed it at $1.2 million. Conrad wouldn’t reveal the price, but others put it at around $705,000.

Ethan Conrad Properties Inc. has more than 50 employees, including 17 in the company’s Natomas office and approximately 40 construction workers.

Zokku is the fourth retail development Conrad bought in the last three months. They include a 30,000-square-foot retail building in West Sacramento occupied by Royal Sleep Co., the Glenbrooke Shopping Center at Watt Avenue and La Riviera Drive, and an 81,561-square-foot building on Folsom Boulevard in Rancho Cordova.

Conrad is spending more than $200,000 to renovate the 12,000-square-foot, three-story Zokku building. The former owner had invested about $1 million, but it wasn’t move-in ready and Conrad is installing a new heating and air conditioning system and putting on a new roof, in addition to other upgrades. He hopes to attract a restaurant or nightclub operator, or another user. It is described in marketing material as “relatively turnkey” with restaurant, kitchen, bar and lounge and dance floor.

“It’s a phenomenal location,” Conrad said. “The bones are certainly good, and at one time Zokku did extremely well.”

Conrad owns retail, office, industrial buildings and subdivision land. He also bought about 100 houses in south Placer County over a two-year span, but believes that market is saturated with investors. He is selling the subdivision lots to builders, and is focusing much of his attention these days on retail property.

He describes himself as a “buyer of value-added real estate … I can often create additional value through remodeling and repositioning.”

His last two deals were straight purchases, but he often buys notes on troubled properties and then gets the titles in exchange for releasing owners from their loan obligations.

“Lenders would rather sell the note than take title to the real estate,” he said. “It’s faster and not as much risk for them. … In every note I’ve bought, the borrower is happy I did that because they don’t get a foreclosure on their record.”

He estimates he goes forward with one of every 50 deals he views. He typically buys and holds, but the Zokku site is offered for both sale and lease because someone may want to occupy it, he says.

The Zokku purchase made sense, said real estate agent Dave Herrera of Colliers International, because the previous owner paid $3.1 million for the building and had a higher mortgage payment. Herrera represented buyer and seller in the transaction.

Conrad typically purchases buildings for less than replacement value — meaning they can be remodeled and leased or sold for less than the cost of building anew, said Jared Dong, an associate at Terranomics Retail Services in Sacramento.

The market is heating up, though. Retail real estate here is starting to show signs of life, with five consecutive quarters of growth, according to the most recent report from CBRE. The vacancy rate decreased to 11.3 percent, down 1.4 percent from a year earlier. Vacant storefronts are filling up and retailers are again considering expansion. Developers with a tenant in hand are sniffing around for sites, Dong said.

Thus, local investors such as Conrad will have to share the marketplace with more out-of-town investors, Dong said.

“You can compete with them head on, which often isn’t a good idea, you can look for more off-market deals or you can go for the type that Ethan and others go after,” Dong said.

Conrad said he is proceeding cautiously.

“People ask me how many buildings will I buy next year, but I don’t know. I’m driven by finding good value and not by a number. I’m not buying buildings with the hope they go up in value; it has to make sense today.”

Ethan Conrad
Ethan Conrad Properties Inc.
Age: 47
Single; has a 7-year-old daughter
Office location: 1300 National Drive, Suite 100 Sacramento
Education: Bachelor’s in business management from California State University Sacramento