Suburban office sales pace picks up
(Crain's) — The stalemate between buyers and sellers seems to be abating in the suburban office market, where transaction volume for the past two years combined was less than a third the annual tally of 2007.
Eight big office buildings have sold so far this year in the suburbs for a total of $158.9 million. There were 14 sales all of last year totaling $268.8 million, according to data from Jones Lang LaSalle Inc.
Based on the number of properties on the market and those poised to close soon, Jones Lang's Jim Postweiler predicts volume this year could exceed $400 million — which would be the highest level since the steep plunge from the market's peak in 2007, when $2.09 billion in suburban office sales occurred.
"Someone flipped the switch," says Mr. Postweiler, a managing director at Chicago-based Jones Lang. "The prevailing mindset is we are at or past the bottom of this recession."
A sense that employment and the economy have stabilized — or at least aren't getting worse — has helped bring more buyers and sellers to the market, even though total vacancy in the suburbs now stands at 25%. Also, Mr. Postweiler says, the financing market for buyers has improved and there's more competition for assets, which has dampened buyers' return demands and improved things for prospective sellers.
Mr. Postweiler says prices have firmed up over the past year, even though the average per-square-foot price for all deals this year is a paltry $88. That's down from $103 a foot last year and isn't even half the 2008 level of $191.
This year's per-square-foot figure is being weighed down by distressed sales, the most recent of which transpired last week when a Rolling Meadows building that's only 17% occupied was sold at auction for $4.5 million. That amounts to $22 per square foot and is just 15% of the debt on the property.
Related story: Office building auctioned for 15% of balance due
On the other hand, Mr. Postweiler points to the suburbs' biggest deal of the year: the $80-million purchase of Central Park of Lisle. Even with a major tenant poised to exit, the roughly 600,000-square-foot complex at 3333 Warrenville Road and 4225 Naperville Road fetched $134 per square foot.
"That's pricing you would not have seen in late '08 and '09," Mr. Postweiler says.
The buyer of Central Park was White Oak Realty Partners LLC, a firm founded early this year by Richard Blum, former chief financial officer at Chicago-based Fifield Cos. Mr. Blum says he's betting the suburban market, where his firm is focused, will become more polarized as both investors and tenants gravitate to better buildings.
"I believe in this market full buildings tend to stay full and empty buildings will stay empty," he says. "As long as you've got a good building and a good location and you can take care of your tenants, you've got a shot."
White Oak has another acquisition in the works in the western suburbs, Mr. Blum says, and he's also mulling bids for buildings around O'Hare and in the northern suburbs.
Other notable sales in the suburbs include:
* Boston-based Davis Cos. gained control of the two-building Crossings complex at 1420 and 1520 Kensington Road in Oak Brook after acquiring the loan on the 295,000-square-foot complex for less than $20 million. The loan to the previous owner, Lakewood, Colo.-based Alliance Commercial Partners LLC, had a balance of about $36 million.
* Cole Capital Corp., a Phoenix-based investment firm that specializes in single-tenant properties, bought 955 American Lane in Schaumburg for $30 million, or $159 per square foot. The seller was U.S. Realty Advisors LLC, which paid $25.5 million in July for the building, which is leased to credit-rating giant Experian PLC.
* A venture led by local mortgage company executive Ruben Ybarra paid $11.5 million, or $67 per square foot, for a Rosemont office building at 6400 Shafer Court that's 56% leased. The seller was Boston-based lender Tremont Realty Capital LLC, which late last year took the property back from a unit of Grubb & Ellis Co. that had paid $21.5 million for the building in early 2007.
