    For Sale
    For Lease
    Both

Office properties attract fewer investors in '08

<< Back

1/30/2009

Friday, January 30, 2009

Office properties attracted fewer investors in ‘08
St. Louis Business Journal - by Lisa R. Brown

Coming off the high-flying days of recent years, 2008 was a bust for office investment sales.

According to Colliers Turley Martin Tucker data, office sales volume in St. Louis plummeted last year to $307.9 million, a 66 percent drop from $909.5 million in 2007. Compared to the past six years, sales volume in St. Louis in 2008 was 40 percent below average.

“With the national credit crunch, investment property sales have stopped,” EVS Realty Advisors stated in a market report in late 2008.

Coming off a disappointing year, brokers are advising their clients that the first half of 2009 is a good time to both buy and sell.

“Buyers with at least 25 percent equity will receive favorable loan terms despite the tight financing market,” a Grubb & Ellis report on the St. Louis investment market said. “Owners will find the first half of 2009 is a good time to sell for two reasons: Quality properties will be in high demand for buyers with capital, and the current 15 percent capital gains rate makes it an ideal time to sell and take cash rather than re-invest.”

Finding financing is one of the biggest challenges. Doyle Shockley, a commercial real estate broker and president of Shockley Commercial/Industrial in St. Charles, said brokerages’ relationships with lenders are key to making an office transaction possible. “When business conditions are slow or tough, people get more selective with their brokerage choice,” Shockley said. “Only a few banks are lending money right now.”

Chris Fox, principal and managing director of Gateway Commercial, a member of the Cushman & Wakefield Alliance, said underwriting properties has become more difficult, as the economy is causing many tenants to reduce their work force or shut their doors altogether.

“The advice we’re giving is, the more stability you can bring to your asset, the better the asset will be received in the marketplace,” Fox said.

Sellers can adjust the credit mix of their tenants when possible and renegotiate leases before they’re set to expire. Sellers also can make capital improvements, Fox said, such as adding a new roof or upgrading a building’s mechanical systems.

David Morris, senior vice president in the Clayton office of Grubb & Ellis|Gundaker Commercial, said 1031 exchange deals will increase this year based on an expectation that capital gains taxes will rise due to the new administration in Washington.

Additionally, Morris said he expects sales volume will increase as buyers and sellers look to identify the bottom of the market. “The stage is set for opportunistic buyers, who are anticipating that the market will bottom out, at which time they’ll be pouncing,” he said.

One firm looking for opportunities is St. Louis-based Pace Properties Inc. Principal Rob Sherwood said the firm is looking both locally and nationally to spend between $15 million and $20 million to expand its office portfolio.
Pace Properties manages 37 properties totaling 3.5 million square feet of space. Of that amount, Pace owns 27 properties, both office and retail, totaling 1.9 million square feet in several states. The bulk of Pace’s holdings are in the St. Louis market.

Sherwood said Pace’s strategy in the current economy is to be a value investor — to buy office properties owned by distressed sellers that need to unload their real estate. Pace is looking for office properties with up to 200,000 square feet of space with 20 percent or higher vacancy, built after 1980 that have good access and visibility. Pace closed Dec. 31 on a 118,000-square-foot office building in Columbus, Ohio, for $5.25 million or about $44 a square foot, much lower than the market average.

“When we come out of the recession, we believe there will be a bigger bounce on rental rates,” Sherwood said.

lrbrown@bizjournals.com

2Q Retail Trends Report