CRE Console is certainly not breaking this story, but we did a double-take today on two deals which were announced.
1. REIT to buy office complex from Buck for $97 million
Chicago Daily Real Estate reported that Commonwealth REIT (fka HRPT Properties Trust) has agreed to pay The John Buck Company $97 million for Triangle Plaza, a 630,000 square foot office complex near O’Hare Airport.
At roughly $97 million, the price would be about $154 per square foot for the 631,445-square-foot complex. The price is about $5 million more than the $92.15 million Buck paid for the complex in 2006.
On an NOI of $7.6 million, this price equates to a 7.83% cap rate. Originally, Eastdil was whispering a 7%, or a price of $109 million. While this price did not come to fruition, a $5 million capital gain on a deal acquired at the peak of the market, is a feat unto itself.
2. Louisville Deal Pushes the Limits
Today’s Wall Street Journal reported that KBS Realty Advisors has agreed to pay about $115 million for National City Tower, a 38-story office building in Downtown Louisville, Ky. Meridian Realty Investments paid $95 million for it in 2005.
Meridian then did what was in vogue at the time, and immediately syndicated the deal under a TIC structure, bringing the total capitalization of the property up to $114 million.
A TIC sponsored at the height of the market breaking even (maybe not after all sponsor and brokerage fees are paid…) in 2010 is a rarity, but combine that with KBS Realty venturing into a true secondary market like Louisville to pay this price will be a surprise to many.
One thing to note is that both buyers have a lower cost of capital relative to other investors, as was recently noted by Joel Ross in his recent blog post titled, Moody’s vs Green St. The Value Battle. They’re Both Wrong:
…REITs are the main buyers, and based on specific deals I have seen, they are way over paying just because they need to spend all that capital they just raised, and their cost of capital is well below the ordinary real estate buyer capital cost today.
Ross goes on to say, “To say a trophy building in Manhattan is indicative of anything is equal to saying a 100 room hotel in serious distress in Omaha is indicative of anything. Neither is indicative of much beyond itself.”
While we would tend to agree with his point, with KBS Realty’s deal in Louisville, it could serve as an indication that prices have stabilized for core assets, even in secondary markets.