Buyer beware

October 12, 2016 admin


Commercial property fundamentals in the United States remain strong for the most part, although gains are moderating. That’s encouraging. Transaction volume has slowed compared with 2015’s high-water mark, but the amount of capital chasing quality assets continues to grow, fueled by increasing interest from cross-border investors. Fierce competition has resulted in record sale prices in many markets for most property types. Despite the frothy prices, the allure of real estate’s relatively high yield in today’s low interest rate environment is hard to resist.

The U.S. housing market also continues to heat up — home prices across the country have recovered and some major markets are seeing record deals.

For the past few years, headlines about record-setting transactions have become common. Whether it’s a penthouse apartment in Manhattan, a hotel property in Chicago, an office tower in Dallas or Hugh Hefner’s Playboy Mansion in Southern California, the real estate market is producing some eye-popping prices.

Recent headline grabbing, record-setting deals include:

  • Last year, The Blackstone Group acquired Chicago’s Willis Tower for $1.3 billion, the highest price ever paid for a U.S. office property outside of New York City.
  • Also in 2015, Hong Kong–based Gaw Capital Partners purchased the tallest skyscraper in the Pacific Northwest, Seattle’s 76-story Columbia Center, for $711 million, the highest price paid in a single-asset deal in the region’s history.
  • On the residential side, a penthouse apartment on 57th Street in Manhattan set a new record when it sold for more than $100 million in early 2015.
  • 2015 also saw the most expensive hotel transaction in New York City’s history, on a per-room basis, with the $230 million sale of the 114-room Baccarat Hotel (more than $2 million per room).
  • In April 2016, German investment manager Union Investment Real Estate paid $315 million for the 452-room LondonHouse, a boutique hotel on Chicago’s North Michigan Avenue. The $697,000 per room was the highest unit price ever paid for a hotel property in the Windy City.
  • Union Investment made another big splash earlier this year, acquiring the 17-story, 440,000-square-foot Seaport office tower in Boston for $452 million, establishing a per-square-foot record of $1,027.
  • In August, SL Green Realty Corp. sold a 40 percent stake in Manhattan’s 11 Madison Ave. to PGIM Real Estate that values the office tower at $2.6 billion. SL Green acquired the 2.3 million-square-foot property in 2015 for a record $2.29 billion.
  • In Dallas’ booming Uptown district, local real estate firm Gaedeke Group acquired 17Seventeen McKinney office property for a record $510 per square foot, a total price tag of more than $185 million for the 19-story, 361,000-square-foot high-rise.
  • Just recently, the 1,523-unit Breakers Resort apartment community in Denver sold for a record price of approximately $350 million.
  • And Hef’s storied Playboy Mansion found a buyer this summer, selling for a Los Angeles County record of $105 million. (In case you are wondering, a condition of the sale was that the 90-year-old Hefner would be allowed to remain at the residence for the remainder of his life.)

Bottom line: It’s a good time to be a seller.

LarryFinalwebv2The views, statements and opinions expressed in this article are those of the author and are not necessarily those of Institutional Real Estate, Inc.

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Larry Gray is editorial director of Institutional Real Estate, Inc.

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