Bitwise Industries listed its two downtown Bakersfield office buildings for sale this week, along with its last remaining Fresno property, in a move that would monetize equity on the heels of $80 million in new investment.
The inclusion of a 15-year lease-back commitment suggests Bitwise won’t pull out of the local market anytime soon, and so the broader significance of Thursday’s listing may be that it will gauge market interest in a workforce training company whose value has reportedly tripled since 2021 to top $600 million.
“How much it’ll sell for, and what they’ll get out of the sale, will depend upon how the market views the strength of Bitwise,” Bakersfield office broker Matt Starr of ASU Commercial said. He noted Bitwise is basically marketing an income stream as the sole tenant of three buildings totaling 133,983 square feet with rent set to jump 2.5 percent yearly.
A spokeswoman for Bitwise said revenue from any sale of the local properties will be reinvested in Bakersfield, where the company will continue to operate as it has.
“That money will stay in the community,” spokeswoman Katherine Verducci said. She noted the company has closed sale-leaseback deals on three buildings it previously owned in Fresno, adding, “It’s less liability for us to lease versus own.”
In Bakersfield as elsewhere across its 10-city network, Fresno-based Bitwise contracts with local government to train people from disadvantaged communities to code, use business software and become entrepreneurs. The company has done well in Fresno, more so than in Bakersfield, by leasing co-working space to people who value being part of a busy tech hub. Last year Bitwise bought Bakersfield-based process outsourcing company Stria LLC.
No price was listed for the three properties, but together they are estimated to be worth tens of millions of dollars. They are being packaged as a portfolio rather than as individual investments.
When asked if $40 million was a reasonable price for the three-building portfolio, Jeffrey Andrew, a local office broker at Cushman & Wakefield, responded, “I think it is a bit aggressive based on interest rates and the credit of the tenant but it’s a fair asking price for a starting point.”
Confidential marketing materials reviewed by The Californian show the two-story former Turk's Kern Copy building at the southwest corner of H and 18th streets, at 17,608 square feet on a quarter of an acre with more than $2.5 million of upgrades under Bitwise, would start at $422,592 in annual rent.
The materials show the old Vincent's Cyclery & Sporting Goods at 1723 18th St., with three stories and 21,936 square feet on a little more than a sixth of an acre, received almost $3.7 million in improvements and would begin at $526,464 in rent per year.
The unimproved former Porterfield Hotel building sandwiched between the two ultra-modern structures was not mentioned in the marketing paperwork put out Thursday by Los Angeles-based Stream Capital Partners. Bitwise bought the building last year.
Starr observed that the rent price, amounting to $2 per square foot in what’s called absolute triple net terms, is not unheard of in the local market but that such a level has not previously been seen in downtown Bakersfield.
Bakersfield office broker David Williams at Colliers International said sale-leaseback deals like the one Bitwise proposes are a common way to shed debt, capture value and unlock capital. By remodeling and modernizing the buildings in recent years, he noted, the company has created equity.
“This type of transaction,” Williams said by email, “allows the company to improve the balance sheet and converts non-liquid assets into working capital.”
Andrew said by email sale leasebacks help tenants raise money. Companies buy a building in need of fixing up and they make upgrades, he said, before selling them at a much higher price based on an updated building with a long-term lease.
“Then they take the proceeds and invest in other properties or use the funds to grow their business,” Andrew wrote.
Last month, Bitwise announced receiving $80 million from a variety of investors that included a Goldman Sachs asset management fund focused on social equity.
In 2021, the company received $50 million from JPMorgan and others. Bitwise’s first major investment round came in 2019 with $20 million from Kapor Capital and New Voices Fund.