When a Bay Area investor saw the run-down L.C. Black Building in downtown Modesto eight years ago, he was convinced it was a diamond in the rough waiting to be polished back to perfection.
Rick Klein figured a few million in renovations could fully restore the 1925-vintage office building, so he bought it "as is" for about $2.2 million in 2004.
Over the next couple of years, Klein dumped more than $6 million into fixing up the I Street landmark, which he renamed Eleven Eleven Courthouse Plaza.
His crews got it looking great inside and out, but his timing couldn't have been worse. Before remodeling was complete, Modesto's commercial real estate market had collapsed and tenants weren't willing to pay what Klein needed to cover his debts.
In 2009, Klein and his investment partners lost the building to Fremont Bank, which had loaned $6.15 million on the property. The bank became the landlord while it tried to sell the place for $4.5 million.
To get more of the near-empty building leased, the bank reduced its rental prices. That worked well enough to secure tenants for about 62 percent of its 33,617 square feet of office, retail and storage space.
Now new owners are going to test their luck with the property.
Clovis real estate investors Ronald and Kristin Howe recently completed a $4 million deal to buy Courthouse Plaza. To make the sale work, Fremont Bank agreed to loan the Howes $3 million.
"They bought it at a good price," said Chris Atkinson of Los Angeles, who represented the Howes in the real estate transaction. "Their plan is to hold it as a long-term investment … and to maintain it in great condition."
Leasing agent Randy Brekke is optimistic about attracting businesses to the building.
"We're extremely well- poised for tenants going forward," said Brekke, who has handled the building's leases since Klein owned it and will continue doing so for the Howes.
Tenants include Firkin & Fox restaurant, the Stanislaus Council of Governments, Integral Investment Advisors, Barrett Business Services Inc. and California Rural Legal Assistance.
Brekke agreed the Howes got a good deal buying "a nice building in an extremely good location at well below replacement cost."
But there are lots of empty offices competing for tenants in downtown Modesto, and Courthouse Plaza isn't the only building to be bought out of foreclosure at a bargain price.
Texas-based Iron Creek Ventures acquired City Mall — the former J.C. Penney building at 11th and J streets — in January after its owners defaulted on $2.2 million in debts.
Much of its 45,000 square feet of office space was vacant when Iron Creek took over. To make it more marketable, the new owners have spent $100,000 on paint, carpet, a remodeled lobby, better signage and improved security.
Like Courthouse Plaza, City Mall has been renamed. It is now City Center Professional Offices.
"We are willing to make the investment necessary so that our buildings are contributing assets to the community," said Mark Self, Iron Creek's chief executive officer.
While Courthouse Plaza and City Center are adjacent to each other on 11th Street, their lease rates and conditions are significantly different.
Courthouse Plaza is seeking $1.45 per square foot per month for its ground-floor space fronting I Street and $1.05 for second-floor space. Those "triple net" prices do not include the cost of utilities, insurance, maintenance or property taxes.
City Center is seeking 95 cents per square foot per month for its corner suite, which includes ground-floor and second-floor space. Its second- and third-floor offices go for 75 cents. Those "full service" prices do include the cost of utilities, insurance, maintenance and property taxes.
Neither building has its own parking.
Bee staff writer J.N. Sbranti can be reached at jnsbranti@modbee.com or (209) 578-2196.
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