Ok, so it’s no Ferrari-like speeds for the commercial real estate market recovery, but the first signs of some promising momentum comes on the distressed properties track.
For the past 2+ years distressed property offerings have sat pretty much untouched while buyers tried to determine the best time to re-enter the market (ie. when values hit bottom and stabilized). It looks like 2010 is it. In the First Quarter,184 transactions closed compared to 102 in the First Quarter of 2009, a nearly 45% increase year over. 2010′s number is more in line with transaction volume during the first quarters of 2008 (187) and 2007 (189). A good indicator that buyers with cash have decided the timing is right to pursue deals.
While the activity level among distressed properties is a good sign, it must be noted that assets in good standing are not moving without considerable discounts. Take, for instance, the recent sale of One Main Place in Portland. This Class A office tower had 97% occupancy and a strong tenant roster. It was purchased in 2006 for $69 million and recently sold for $59 million.
OFFICE AND INDUSTRIAL PRICES – CLOSING THE GAP
Distressed office prices have been trending down from their 2007 peak. But lately the price gap has narrowed with top prices declining and bottom prices slightly increasing. Since late Third Quarter 2009, distressed office properties have sold for anywhere from $70 to $140/SF. During the same time period, nondistressed office properties sold for between $110 and $200/SF.
Three years ago, distressed industrial properties were trading anywhere from $20 to $80/SF. In late 2008 and early 2009 there was a brief rally in industrial prices, but today the price bottom is back around $20/SF. The top of the price scale is around $40/SF, narrowing the gap between high and low by $40/SF. Nondistressed flex and industrial properties have been selling for between $40 and $85/SF.
THE ACTIVE BUYER POOL TENDS TO BE LOCAL/REGIONAL
The mix of buyers of distressed office properties during the recession years breaks down as follows:
- Regional developer/owners – 26%
- National developer/owners – 17%
- Individuals – 14%
- Corporations – 14%14%
- Investment managers – 11%
Over the last six months, investment managers have decreased their share to less than 5%, while banks and government entities have increased their share of purchases. No doubt a portion of the government increase comes from assumption of numerous corporations with considerable real estate holdings.
The mix of buyers of distressed flex and industrial properties since 2007 breaks down as follows:
- Regional developer/owners- 23%
- Corporations – 20%
- National developer/owners – 16%
- Investment managers - 11%
- Individuals – 11%
Over the last six months, corporations have become the most active buyers accounting for 3 out of every 10 purchases. Regional developer/owners follow closely at 28% while investment managers’ share has fallen to 8%. Individuals now account for less than 4%.
source: CoStar
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