Rising commercial realty demand still meets hurdles to a sale
By Marilyn Bowden
Recent transactions suggest that demand for commercial real estate is there, but significant impediments still make getting to closing an uphill march.
Often the sales that close are not ordinary market-driven deals. Wayne Ramoski, an executive director at Cushman & Wakefield, recently sold a 160,000-square-foot office warehouse on 8.3 acres in Wynwood to M Management Inc., whose principal owns other properties in the area.
"It was a failed development that fell into bankruptcy under Chapter 11," he said. "The property had two different owners and was mired in litigations for many years.
"When the main entity filed for bankruptcy, the court ordered the sale of the asset."
The sale was supposed to come within four months, he said, but the property was on the market for more than two years. "Initially we had it under contract for $14 million. It closed for $5 million."
A typical seller would hold the property rather than accept that evaluation, Mr. Ramoski said. "A buyer's view of value is not what a seller's view is, but a seller with a gun to his head has a different motivation.
"We don't see a lot of deals unless there is financial pressure to sell."
Mike Silver, first vice president at CBRE, sold a new 156,871-square-foot industrial facility on eight acres built on spec at Flagler Station to ATC (Abboud Trading Corp.) for $11.922 million, or $76 a foot. He said it was initially offered at $110 per square foot.
ATC, a distributor of computer paraphernalia, is in one the few industries in an expansion mode, Mr. Silver said, along with medical equipment and food.
"They looked at the building when I first started to market it, about eight months prior to the deal," he said. "They offered in the high $80s per foot, but the developer, First Industrial, did not accept that.
"But when First Industrial became more aggressive and reduced to $89 a foot, I went back to them. Because they offered all-cash, which is key in today's world, and a short due diligence period, the price was acceptable to the seller, and the sale took place."
The lack of comparable sales is making it most difficult to determine what fair market is in today's market, Mr. Silver said, "so it becomes a matter of how aggressive the seller wants to be to dispose of a particular property.
"Definitely buyers are in the driver's seat and making much better deals than they would have when the market peaked around June of "07. Prices have dropped 10%-30% — in older properties, as much as 30%-50% — but sales are not actually happening."
Marcus & Millichap Senior Associates Drew A. Kristol and Kirk D. Olson completed the sale of the 21,868-square-foot Bird 74 Shopping Center, 7378 SW 40th St., for $4.45 million, or $203 a square foot.
It helped, Mr. Kristol said, that the center is 100% occupied, with all tenants current and little or no deferred maintenance.
"There's a lack of deliverable, stable shopping centers where the rental structure is not overmarket," he said. "Also, it's in a very strong, dense, high-traffic retail corridor where there are few shopping centers available ever, period. As a result, we had multiple offers." Both buyer and seller were Florida-based limited liability companies.
Mr. Kristol said Marcus & Millichap, which concentrates on private rather than institutional transactions, has closed on a number of deals around South Florida, including a small hotel, a Navarro-anchored shopping center and a small commercial retail building.
"Price is a function of perception and expectation," he said. "Our job as brokers is to manage those expectations so everybody can walk away happy."
Paco Diaz, a senior vice president at CBRE, said he closed the sale of a 7,500-square-foot retail space at 337 Lincoln Rd. for $8.12 million, about 20% less than it was initially listed for before the market went south.
"When the economy froze, the seller took it off the market," he said. "Then last year he wanted to try again."
In a separate transaction, Mr. Diaz said he sold a 45,000-square-foot Circuit City space in Palm Beach County to El Dorado Furniture for about $98 a square foot — also about 20% less than what it was listed for five or six years ago.
"The keys to sales are still location, price and the ability of the buyer to either buy all-cash or have financing lined up," he said. "But a seller who doesn't have to sell would be crazy to put something on the market today."
John K. Crotty and David C. Metalonis, senior vice presidents and partners at Colliers Abood Wood-Fay Commercial Real Estate Services, closed a $4.925 million all-cash sale-leaseback deal on a 54,000-square-foot, two-story office building at 2000 S Dixie Hwy.
The seller was Sungard iWorks, an IT solutions firm serving the insurance industry that occupies 35% of the building. The buyers, a group of Venezuelan investors, were represented by Scott Sime of Holly Sime Realty.
"This worked because it was all cash, there were no financing contingences and the pricing was realistic," Mr. Crotty said. "Sellers are coming to terms with where the market is, and buyers are realizing that offers still have to be somewhat competitive. There isn't blood in the streets in every deal."
But the picture may be improving. Mr. Metalonis said 90% of all commercial properties offered nationwide last year did not sell, but the first three months of 2010 have seen year-over-year increases in sales.