04 Projection
Contract
Closed
2010 VOLUME
ALL PROPERTY TYPES
$35 billion
exist on this property.”
Part of the explanation for today’s pric-
ing is that net rental incomes have declined
so significantly from their peaks, about 30%
below 2006-2007 levels in Phoenix, that
investors believe they are buying into a mar-
ket with substantial potential for increased
net rentals when jobs come back, Hannum
AVERAGE CAP RATE BY SECTOR
OFF
IND
01
02 03 04
Source: Real Capital Analytics
RET
ing to Peter Hauspurg, chairman and
CEO of Eastern Consolidated Real Estate
Investment Services in New York City. He
explains one of the differences: Right
about the time that New York City office
building prices peaked at about $1,500 per
square foot in 2007 (when 450 Park Ave.
sold for $1,540 per square foot). “The
market was still doing leases that were well
north of $100 per square foot.” In those
days, investors were assigning higher val-
ues to buildings with vacancies on “the
expectation that leases would continue
their ridiculous ascent of 10% a year.”
Once the recession arrived, “vacancy
became a liability overnight.”
Roughly a year later, prices had plunged
APT
6.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2008 2009 2010
Source: Real Capital Analytics
“Far from a fire
sale, this was a
stiff, multiple-offer
competition.”
KEVIN SHANNON
CB Richard Ellis
to about $350 per square foot, but in yet
another turnaround, prices this year have
rebounded to around $650 a foot, accord-
ing to Hauspurg. “It’s not because the fun-
damentals have improved,” he says. “We
still have pretty high unemployment, and
there is no real growth in any of the sectors
here, but there is so much capital on the
sidelines that the few assets that have
become available have been bid up. It’s
surprised us all how rapidly pricing has
rebounded.” And cap rates, too. Most of
the deals are at sub-6% cap rates, “which is
near where they were at the peak of the
market,” Hauspurg adds.
says. “Although the cap rates and the num-
ber of investors feel similar to what it was
like in 2006, investors are buying for very
different reasons today. They feel that the
market has hit bottom from a pricing and
net rental income perspective, so the only
direction is up, unless you believe that the
world is going to come to an end.”
Investors today are buying far below
replacement costs, at prices on par with the
cost to build comparable properties in the
1980s, he says. In the A and B+ markets,
properties are selling at the same as prices
as 10 years ago, and in the class C market,
prices are well below that.
In addition to buyer appetite, that com-
petition has returned among lenders.
“When I bring a grocery-anchored shop-
ping center to the market, there is a feed-
ing frenzy among lenders,” says Michael
Cantwell, president in the Denver office of
Johnson Capital. On the other hand, “For a
power center or a lifestyle center, there are
virtually no takers.”
Cantwell’s remarks underscore how the
current investment market—although
resembling the heyday of yesteryear in
terms of pricing, cap rates and even interest
rates—differs dramatically in that buyers
and lenders are much choosier than before.
These days, both favor necessity-driven
retail, but the specialty and upscale-ori-
ented projects have fallen out of favor. The
