Commercial RE sales grind to halt
Boston Business Journal
by Denise Magnell
Friday, April 11, 2008
The market for Boston's downtown office buildings cratered during the first three months of this year, posting a 98.7 percent year-over-year drop in sales as the credit crunch took its toll on what was a blistering market just a year ago.
The city saw $57.3 million in office-building sales during the three-month period, compared to $4.3 billion a year ago. Total commercial sales -- which included offices, retail, apartments, industrial and hotel properties -- fell 97 percent to $152.6 million during the quarter, compared to $5.2 billion in the same period in 2007, according to figures from Real Capital Analytics, a real estate research firm in New York.
"There's been a significant disconnect between buyers and sellers in the market," said Dan Fasulo, managing director of research at Real Capital Analytics. "Sellers are not willing to reduce their prices, and anytime there's a standoff, there's going to be a significant drop-off in commercial activity.
"What our savior is in this down market is that Boston doesn't have an over supply of office buildings and that keeps rents and occupancy high."
Throughout Greater Boston, there were $144.8 million in office sales, a 97.5 percent drop from $5.7 billion a year ago; total commercial sales accounted for $767.3 million in first quarter this year, compared to $7.7 billion during the same period in 2007.
That represented a 90-percent decline for all commercial sales in Greater Boston.
The first-quarter figures for 2007 were skewed by the $3.8 billion spent for two dozen commercial buildings in Greater Boston when Blackstone Group LP purchased Equity Office Properties Trust in a $39 billion leveraged buyout.
The Boston portion of the buyout accounted for more than half of the office sales in greater Boston that quarter. Fourteen of the buildings were in downtown Boston, many considered trophy properties.
But even if those big deals had not occurred, the drop-off would be profound. Without factoring in the Blackstone effect, all commercial sales in Greater Boston would be down by nearly 80 percent, and office building sales in particular would still be down by 92.4 percent.
Real estate executives are hopeful the market could right itself by summer.
"There's been a dramatic decline in the number of transactions, both in opportunities to buy as well as actual sales," said Scott Jamieson, managing director of capital markets group at Jones Lang LaSalle in Boston. "But I don't see this inactivity as being protracted. By summer, we'll see both buyers and sellers again."
Holding back
For now, industry experts say investors continue to hold back due to a tight credit market and an aversion to big, risky deals.
William Moylan, senior vice president and partner at CB Richard Ellis/New England, said he's seen "a 5 (percent) to 15 percent decline in pricing."But he said his firm has about 18 commercial property listings in Greater Boston right now, compared to a dozen in late 2007.
Moylan doesn't attribute the sales slowdown strictly to the weakened credit market. Because so much property changed hands in the last two years, he said, the new owners of major commercial properties may choose not to sell for a while.
Moylan said brokers can adapt to a down cycle in the market by advising their clients on financing alternatives. "They need to engage the building-owners in a discussion about whether they want to refinance, or recapitalize, or maybe seek new partnerships," he said.
Some attractive properties have been put into play. In February, two Financial District office buildings went on the market -- One Federal Street, a 38-story building owned by New York-based Tishman Speyer Properties LP, and 100 Franklin St., a nine-story building owned by Oasis Development Enterprises.
Tishman Speyer Properties LP bought One Federal Street two years ago for $514 million in a robust market.
But 100 Franklin St., on the other hand, was bought by Oasis for $19.5 million in 2004 for what was considered a discounted price as the region's recession lingered.
Cushman & Wakefield of Massachusetts Inc., is the broker for both properties.
Jones Lang LaSalle's Jamieson said investor confidence will have to be restored before any real movement takes place in commercial sales again.
"There's ample capital that has been raised with the single purpose of investing in commercial real estate, but investors' advisers are telling them to wait," he explained. "What signals the end of that no one knows for sure."
Denise Magnell can be reached at
denisemagnell@bizjournals.com.
