Commercial Real Estate Frontline

Property owners, here’s your good news, the stalemate is ending.  You have just summitted a mountain of transactions and have been sliding down the other side,  as represented in CoStar’s chart showing national sales volumes for office properties. You’re wondering, what’s selling? And for how much?

The appraisers are wondering, too. “There just aren’t any comps out there,” as stated by 3 appraisers that have called our office in the past 3 weeks.  “We’re calling around trying to value a subject property and are having a tough time finding lease and sale comparables to determine market value.”

Typically, the national office market measures approximately $2 to $3 billion in sales, which from 2004-2007 looked like an aberration when it reached a high totaling $18 billion. And in less than 2 quarters, we’ve quickly ridden down the other side and are looking for the bottom.  No wonder there aren’t any comps.

To those looking for comparables, the comparables are coming.  The market will be repriced and you’ll have transactions to study.  The next question will be: what will those deals be worth?

Our crystal ball says: watch for the second two quarters of 2009 to show more market activity than the previous two.   Speculators exit the market and investors reactivate.  Sellers, Buyers, and their Lenders battle over what market values really are, and by the end of the year, expect to see that chart beginning to point toward the mean.

During the second half of the year, buyers creep into the market, testing the bottom to see which sellers are the first to accept that the game has changed. These sellers are labeled “distressed.”    Some are.  Many aren’t.  These pound wise sellers see that their properties are worth more now, leaving the impending battle over new values for the penny foolish sellers who enter the market needing to sell in 2010 (see more on this topic here), when we have more auctions, actual distressed sellers, and more supply that’s competing for the same buyers.

2011 looks cloudy right now. There’s talk of some employment growth, which helps to absorb excess space created by this year’s job losses, but we believe this “return to the mean” may take some time to process.  If you’re holding property  with an anticipated exit in the next 24-36 months, you may be pound wise to enter the market today instead of holding out for penny foolishness tomorrow.

About the Author:Jeremy Cyrier is a principal with MANSARD Commercial Properties and member of the CCIM Institute faculty.  He offers advisory services and brokerage expertise to commercial real estate owners and tenants.
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