Easier credit, agreeable sellers drive up property sales
(Crain's) — Commercial property sales are back in vogue in 2010.
Through the first half of the year, sales of Chicago-area office buildings, shopping centers and industrial properties were up compared with the same period last year, according to data from research firm Real Capital Analytics Inc.
The biggest increase came in the retail sector, where 17 local malls and strip centers were sold for $177 million, a robust 329% increase from the dollar volume in the first half of 2009.
The other big gainer was the suburban office market, where 13 properties fetched $228 million, a 230% increase in volume from the year-earlier period, data from the New York-based Real Capital shows.
The return of activity can be attributed to the credit market, as loans have become easier to come by, and to sellers more willing to pull the trigger than they were a year ago. The economy seeming to have bottomed out also has helped.
“There was a lot more uncertainty last year; that made transacting much more difficult,” says Ryan Stoller, a Chicago-based regional asset manager with KTR Capital Partners, a New York investment firm looking to buy industrial properties here. “I think now we've reached relative stability in terms of not only cap rates but market rents. Rents have stabilized, so it's a little easier to peg values.”
Nationwide, sales of major commercial properties, including apartment buildings, jumped 67% from the prior-year period to $36.2 billion. June sales tallied an impressive $9.7 billion, the highest monthly total since September 2008, according to Real Capital.
“Investors in U.S. assets brushed off concerns of a reversal in the economic recovery,” Real Capital writes in its 2010 Mid-Year Review report. “At the mid-year point, evidence of a recovery in the investment markets is clear. Sales volume is rising, and in some cases exploding, and there has been a broad improvement in prices with cap rates now falling across all property types.”
So-called capitalization rates, an investment return gauge that measures a property's first-year yield, fall when prices are rising. According to Real Capital data, nationwide cap rates in all sectors are down from the end of year. The downtown office cap rate was 6.6% in June; suburban office was 8.5%; retail was 8.0%; and industrial was 8.2%.
Locally, sales of industrial properties — warehouses and factories — totaled $166 million through June, a more modest gain of 35% from the first half of last year.
Downtown office sales tallied $91 million through June this year, a 48% decline from the first half of last year, when volume was $175 million.
Of course, in July the new office tower at 300 N. LaSalle St. sold for a whopping $655 million to KBS Realty Advisors LLC in one of the biggest office sales nationwide this year. So the annual tally for office sales this year is certain to be higher than last year's — and probably the highest since volumes peaked in 2007.
That's likely to be the case for other property types as well.
KTR's Mr. Stoller, for instance, says his firm currently has two Chicago-area properties under contract compared with one local acquisition it made in the first half of the year. He wouldn't provide details of the two pending sales, other than to say one is a “distressed” property.
In January, the firm paid $9 million for another distressed asset, a vacant O'Hare-area warehouse that a lender had taken control of last fall.
Related story: Firm buys industrial property near O'Hare from bank
Mr. Stoller says he's encouraged by leasing activity in the industrial market so far this year and by the pipeline of big deals now in the works.
“There's certainly more of a positive feeling in the market right now,” he says. “I see no reason why the second half shouldn't continue the positive momentum.”
