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Thursday, Mar 28, 2024

RE Market Is Full of Buyers, Fewer Sellers

RE Market Is Full of Buyers, Fewer Sellers By SHELLY GARCIA Senior Reporter In a typical year, Stacy Vierheilig, a broker with Charles Dunn Co. Inc., sells three or four office buildings most of her business comes from leasing. But Vierheilig has already sold three buildings this year and has four more deals in escrow. “So I’ll end up with seven, which is double my norm,” Vierheilig said. For a handful of brokers like Vierheilig, building sales are picking up the slack in a lifeless office leasing market, provided, that is, they can find product to sell. “Overall, I definitely think there’s been an uptick in activity and sales, not only from owner/users, but also from investors,” said Trevor Belden, principal with Lee & Associates. “The reason is pretty simple: There’s a lot of people with money they’ve pulled out of the stock market and they’d rather put it in real estate than in Sun Microsystems.” Office real estate has continued to increase in value even as vacancy rates have increased, although prices have dropped somewhat since the attacks of Sept. 11. That has driven a lot of private investors into the market. And with interest rates at rock bottom, companies that previously leased their workspace are finding that buying the property outright can be more cost-effective. Adding to the demand are investors from the multifamily end of the real estate market who have begun to explore commercial properties because demand in that market too is outstripping supply. “A lot of people have refinanced their properties because rates are down low, which means they are sitting on a lot of cash,” said Katherine Bergh, senior investment associate at Marcus & Millichap, who handles multifamily transactions. “They don’t want to put the money in the bank, and they want a higher return.” As a result, brokers say they are inundated with inquiries from prospective buyers. “The faxes come in, the calls come in, they’ve got $10 million, $15 million. We get referrals from lawyers and accountants,” said Jeff Luster, president of Major Properties in Hollywood, who just sold a property at 3255 Cahuenga Blvd. and 3249 Cahuenga Blvd. to Larabee Sound, which is using the building for its studios and for rental property. “I have people putting offers on buildings in escrow, and they want to offer more than it’s in escrow for.” The last quarter of 2001 and the first quarter of 2002 saw little change in office sales activity from the comparable periods a year ago in the San Fernando Valley, according to data from CoStar Group Inc. But if the buying interest isn’t translating into additional sales on an overall basis, it has more to do with the availability of product. “There is very little inventory and what is on the market is quite highly priced,” said Luster. The same dynamics driving buyers are also working to keep supply low: Landlords who sell don’t have a lot of good choices for reinvesting their money. “It’s a vicious cycle,” said Mark Perry, first vice president at CB Richard Ellis. “None of them want to sell because there’s no product, and there’s no product to buy because no one wants to sell. That’s the big hurdle right now.” With demand far exceeding supply, prices are rising steadily. While there is no data that breaks out the Valley, national statistics show office building prices have risen from the $135 a square foot range in early 1999 to an average of nearly $150 per square foot by the end of last year, according to CoStar Group Inc. Asking prices for buildings in the 5,000 square feet to 20,000 square feet range in the Valley are selling for $150 per square foot to $175 per square foot. “Last year, the average purchase price was a lot lower,” said Belden. In the West Valley, some prices have climbed to $200 a square foot and more for smaller buildings in far less desirable areas, such as Canoga Park. “The asking prices on a lot of the smaller building properties are over-inflated,” said Brian Forster, co-owner at TOLD Partners, who also owns a number of office properties. “They only really make sense for the owner/user and not an investor. When you’re looking at, some are over $200 asking prices, they don’t make sense.” But where prices that require rental rates of $2 per square foot don’t make sense in some areas of the Valley, they can still pencil out in many other areas. So while some buyers have been dissuaded, many others have not. “We’re finding there’s a lot more buyers than last year, so when there’s product, it gets gobbled up and we get multiple offers,” said Perry. “Last year we’d have five or 10 offers (on a property), now we’re ending up with 15 or 20.” Those brokers that are finding opportunities to bring properties to market say they are doing so with a lot of digging and cold calling. Then too, some owners are betting that the softness in the market is only going to get worse. “Sellers are starting to see it’s not as rosy as it was two years ago,” said Belden, whose sales transactions this year so far are double what they were in the first half of 2001. “A year ago there was a huge gap between what sellers wanted to get and what buyers wanted to pay. That gap is starting to close.”

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