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RETAIL: Rancho Bernardo retail real estate bouncing back

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Though many "For Lease" signs still dot the streets and avenues of Rancho Bernardo's shopping downtown, tenants and developers are scoring deals that mean storefronts are starting to fill up again.

Retail spaces in North San Diego and Southwest Riverside counties are split by class: Top-flight properties visible from major roads, with proximity to grocery stores and pharmacies, attract premium customers, while lesser locations struggle to find tenants.

While Rancho Bernardo has retail space at all grades of quality, it has less retail space for its population than many other areas, so its storefronts are likely to fill up first, brokers said. A recent spate of deals on distressed property and a willingness by landlords to lower rents have put Rancho Bernardo on the rebound ahead of other parts of the region.

"It (Rancho Bernardo) is feeling an upturn," said Don Zech, co-founder of CDC Commercial Inc., a Rancho Bernardo brokerage. "It's more prevalent because it's a smaller market and tighter."

Zech and other commercial brokers said a normal market has from 15 to 20 square feet per person. Rancho Bernardo has 16 square feet for its 40,000 residents.

But even in a tight market, Rancho Bernardo felt the effects of the recession, and vacancy rates climbed as businesses failed. In recent months, the tide has started to reverse because of a willingness to cut deals on the part of sellers and landlords.

In the past year, three major retail buildings sold.

The San Diego National Bank building on Bernardo Center Drive sat empty for 18 months after the bank itself failed in October 2009. Then late last December, Ron Bamberger and two partners at Boardwalk Development Inc. bought it for $2.5 million from the Federal Deposit Insurance Corporation, just $100,000 more than its previous purchase price in 2000, he said.

"Buying a vacant building is risky; we had trouble getting a loan," Bamberger said. "But it's the best building on the street."

The building sits right on the road, near grocery shopping and a pharmacy. It's got traffic light access and it's right in the heart of Rancho Bernardo's downtown. That makes it Class A retail, he said.

Bamberger eventually got a loan for more than the purchase price of the property, thanks to a lender who believed the building would eventually sell for twice the purchase price. He and his partners invested $350,000 in improvements and lease fees. As of August, it was fully renovated and fully let, with Pacific Western Bank on the bottom floor and Lifestyles Real Estate on the top.

Bamberger said that while lease rates in the area had dropped since the peak, he got pretty close to his asking rate.

The building is right on the street, and it's architecturally different from surrounding structures.

"It's good retail in a good community," Bamberger said.

Other shopping centers have struggled more. Behind his bank, the Plaza Shopping Center has a string of empty storefronts in its back tier, and others scattered around its lot. But even that center is starting to improve.

"The Plaza is leasing up," said Randee Stratton, a commercial broker for Cassidy Turley BRE Commercial, who recently placed a tenant there. "Rents are down from the height of the market."

In the 12 months ending June 30, the asking lease rate in Rancho Bernardo slipped 12.2 percent to $2.23 a square foot, according to commercial brokerage CB Richard Ellis.

"This is the good old days," Bamberger said, "when you can make a deal on a distressed, vacant building."

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