In the latest sign that ultraluxury apartment living is spreading far beyond New York and San Francisco, a glass-sheathed tower changed hands in Chicago last week in a deal that is shattering records.
The 60-story building, named OneEleven, was sold for $328.2 million, or $651,000 per unit, the highest price ever paid per unit for an apartment building of more than 50 units in Chicago. The 504-unit building, located in Chicago’s downtown Loop neighborhood, was sold by a unit of New York-based Related Cos. and was acquired by Heitman, a global real-estate investment-management firm based in Chicago.
The purchase price “is emblematic of the seemingly insatiable demand for high-quality, large real-estate assets in primary markets,” said Ben Thypin, director of market analysis for Real Capital Analytics, a commercial-real-estate data and analysis firm in New York.
By most standards, the office market in Washington has lagged behind when compared with those in other major cities. Federal-government budget cuts and corporate contractions have meant rising office vacancies and stalling rents, for instance.
But those factors haven’t kept the prices paid for office buildings from climbing.
Last week’s deal involving PNC Place, a 12-story office building, is a case in point.
The property sold for $392 million, or $1,075 a square foot. That was the highest price ever paid, on a square-foot basis, for an office building in Washington, according to commercial-real-estate brokers.
Prices throughout the region have been rising fast. In the first half of this year, buyers of office buildings paid an average of $367.91 a square foot, up 29% over the same period last year, according to real-estate data firm CoStar Group.
The buyers of PNC Place, giant retirement-plan provider TIAA-CREF and Norges Bank Investment Management, the world’s largest sovereign-wealth fund, declined requests for an interview to discuss the transaction.
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Ben Thypin, director of market analysis at real-estate data firm Real Capital Analytics, says foreign buyers have been especially aggressive. In the first three quarters of this year, foreigners have invested $10.63 billion in office buildings in central business districts in U.S. cities—a 69% increase over the same time last year, according to Real Capital Analytics. “If you’re a large fund, you can’t make small deals,” said Mr. Thypin. “You need to place a lot of capital in big chunks. These Class A office buildings are large....They’re perceived as good stores of value. You’re not going to make home-run returns on these, but you’re not going to be losing money, either.”
Many struggling shopping malls are trying to find salvation by going small—in their purchasers, sales prices and, in some cases, size.
As the nation's largest mall owners sell off or give up their most-troubled properties—dogged by deteriorating neighborhoods, newer rivals and online sales—smaller real-estate companies are snapping them up at discount prices and trying to find ways to pull them out their death spirals. Sometimes, that involves demolition.
It is a high-risk turnaround game that is gaining favor among local companies and small specialists that are gambling they know local markets well enough to succeed where the big guns failed.
According to Real Capital Analytics, 48 of the 201 U.S. malls that traded hands since early 2010 were sold out of "troubled" situations, most often involving delinquent mortgages. In most cases, the value of those properties fell so sharply that they were sold for much less than was owed on them. In the past year, malls with defaulted mortgages were sold at prices amounting to an average of 63% of their mortgage balances, according to Real Capital.
"These mall transactions show that investors now are interested in higher risk but potentially higher yielding retail investments in the U.S.," said Ben Carlos Thypin, Real Capital's director of market analysis.
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MetLife Inc.'s recent purchase of the Reynolds Plantation, a posh lakeside golf and resort development in Georgia, is the latest sign that the insurer is back in the acquisition game.
MetLife paid about $160 million in equity and assumed debt for the Reynolds Plantation, which was acquired out of receivership, people familiar with the property said.
The deal raises MetLife's acquisition volume this year to a postcrisis peak of $820 million. That is below the recent annual peak volume of $1.2 billion in 2005 but up from $259 million for all of last year, according to research firm Real Capital Analytics.
"We like what we're seeing," said Robert Merck, global head of real-estate investments for MetLife, who declined to comment on expected returns from the Reynolds transaction. "You get decent income, especially compared with what you can get on fixed-income assets in this low-rate environment."
"They're starved for yield like everyone else so they need to venture out further on the risk curve and get back into buying," said Ben Carlos Thypin, director of market analysis at Real Capital Analytics, a New York real-estate-research firm.
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A Florida investor recently acquired one of Miami's best-known office addresses for $262.5 million, the biggest office deal in the city since 2008 and a gutsy bet that the city's commercial real-estate market is on the road to recovery.
Crocker Partners acquired the marble-clad Miami Center from Sumitomo Corp. of America, a unit of Sumitomo Corp., a Japanese global trading firm. Designed by Italian born architect Pietro Belluschi, the 34-story tower bearing CitigroupInc.'s logo includes the bank among its biggest tenants. The now-defunct Stanford Financial Group also occupied several floors before its collapse in 2009.
The deal last month comes as a trickle of buyers are prowling for bargains in second-tier markets, like Miami, where office rents and vacancies have yet to recover from the recession. Analysts say they are watching if large institutional investors will follow locally based Crocker's lead and help push up values and volume. "The market's healing, but it's certainly not all the way back," said Ben Carlos Thypin, director of market analysis for Real Capital Analytics, which tracks office deals.
Read More: http://online.wsj.com/article/SB10000872396390443295404577545401645668054.html?mod=WSJ_RealEstate_MIDDLETopNews
A housing portfolio is going on the block as Honolulu tests investors’ appetite for affordable apartments in a high-rent paradise.
The city and county of Honolulu hope to fetch more than $28 million for a 65-year lease on 12 affordable apartment complexes containing 1,257 units, according to Sam Moku, director of the city and county of Honolulu’s Department of Community Services. The properties were last appraised at $28 million in 2009, near the trough of the financial downturn, and values have since risen, Mr. Moku said. CBRE Group Inc. has been tapped to market the properties.
Apartments have recently been one of the hottest sectors of the commercial real estate market. And the same forces fueling demand for market-rate apartments are generating increased demand for affordable apartments, analysts say.
“Demand for apartment properties has grown broadly since the recession, with rental demand increasing as people got kicked out of houses,” says Ben Carlos Thypin, director of market analysis for Real Capital Analytics. Real Capital estimates the volume of affordable housing sold in 2010 rose about 80% from the year earlier, though 2011 is on pace to be slightly lower than last year.
Read More: http://blogs.wsj.com/developments/2011/11/23/a-rare-affordable-portfolio-sale-in-honolulu/#
The sale of the Shea Scottsdale shopping center just outside Phoenix helps explain a curious phenomenon taking place in retail real estate.
On one hand, one would expect investors to be shunning grocery-anchored shopping centers, which have been suffering from high vacancy and anemic rent growth. New competitors have surfaced, including online shopping and monster retailers like Wal-Mart Stores Inc. and Target Corp., that offer aisles of discounted food.
On the other hand, so far this year investors have snapped up $7.9 billion of retail centers with supermarkets, sending volume up 68% from the $4.7 billion sold in all of 2010, though the level is still well below the peak in 2007, according to Real Capital Analytics Inc., a real-estate research firm. The U.S. sales volume of all other retail properties rose 32% to $20.8 billion this year to date, from $15.7 billion in all 2010.
...."It's a question of betting on the right grocer in the right location," says Ben Carlos Thypin, director of market analysis with Real Capital.
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Institutional investors are once again scouring the hard-hit Atlanta real-estate market for bargains. In another recent deal, Parkway Properties Inc. last month said it was on track to buy the office and retail portion of the 50-story tower at 3344 Peachtree Road for about $346 a square foot in one of the priciest office-building sales Atlanta has seen in years.But that building is located in Atlanta's tony Buckhead section and is 93% leased. The price being paid in the Atlantic Station deal reflects relatively weak demand for properties that are a bit more challenged.
The 25-story office building is only 40% occupied. Since its completion in 2009, it has struggled to compete for tenants in a fiercely competitive market where the third-quarter office-vacancy rate of 20.8% hovered near a 25-year high, according to Reis Inc., a real-estate research firm. The retail complex is about 88% leased, although Mr. Maddocks says there are a number of expiring leases and some of the tenants aren't paying rent.
"That someone is willing to shell out this kind of money is certainly not bad news, but I'm not sure it implies any blessing on the Atlanta market," says Ben Carlos Thypin, a senior market analyst with Real Capital. "There's still a lot of pain."
Investor wariness of Atlanta is reflected by relatively low sales activity. The combined volume of retail and office sales in the Atlanta region rose just 6% last year to $901 million, from $846.8 million in 2009, according to Real Capital. By comparison, investment sales of retail and office properties in New York and its suburbs more than tripled to $7.4 billion last year from $2.3 billion a year earlier.
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Counting only those investors based in China, there has been just $62.6 million of Chinese investment in U.S. commercial real estate this year, putting China 12th in a ranking of countries, according to Real Capital. By comparison, Canada was the biggest source of foreign investment in U.S. real estate this year, with about $1.8 billion invested through August, its list shows.
But other forms of Chinese investment clearly are on the rise as that country's economy generates billions of dollars of surplus cash looking for opportunities. For example, China's sovereign-wealth fund, China Investment Corp., has been exploring buying stakes in U.S.-focused real-estate funds. These investments, should they occur, wouldn't be counted by Real Capital because CIC wouldn't be buying property directly.
There likely are numerous other wealthy individuals who use their own money made in China to invest in the U.S. as well as others who invest money from investors located in China and who are operating beneath the radar. Many are looking for opportunity in the thousands of distressed properties on the market resulting from the economic downturn.
"There's a lot of foreign money coming in through intermediaries, so it's not showing up in these numbers," says Ben Carlos Thypin, a senior market analyst with Real Capital.
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Ben Carlos Thypin
I am currently the co-founder of Quantierra, the world's first data driven real estate brokerage and investment manager. In my former life as Director of Market Analysis at Real Capital Analytics, I worked with press outlets large and small to provide them with great data and insightful commentary. Here are some of the results of this collaboration. For the rest, please check out the News Archive.