Office Buildings For Sale

The Wall Street Journal has an article today about trophy office buildings being put up for sale.  Owners are attempting to take advantage of rising prices (read: falling cap rates) in these properties. The story references two completed transactions and a couple of buildings that are on the market to make the point that high profile Central Business District (CBD) office towers are experiencing some liquidity as capital is willing to commit to these properties.

Hines is noted for having sold one (750 Seventh Avenue, NYC) and offering a participation in another (One North Wacker Drive). Beacon Capital Partners has sold Market Square in Washing DC and is considering selling the 1211 Avenue of the Americas property.  These are significant to advisors because: a) the North Wacker Drive property is currently owned by Hines REIT, b) Market Place was purchased by Well REIT II, and c) certain REITs may be able to if benefit hey are prepared.  Hines is obviously trying to take some small advantage with its marketing of the Wacker Drive building.  W.P. Carey's portfolios also tend to have a significant portion of the portfolio in Class A, CBD properties.

The Wells REITs also tend to have this type of property represented in their portfolios.  Wells REIT II has eight properties that are readily identifiable as likely to participate in this strengthening market. However, this portfolio is very immature, so the properties are likely not ready to be marketed.  As if to illustrate the point, one of the recently acquired properties, Market Square, is one of the properties highlighted in the article as a fortuitous sale.  The $615 price tag for the 680,000 square foot building represented a $900 per square foot purchase.  The cap rate has been estimated at 4.5%.

Wells current offering, Wells Core Office Income REIT, is just starting its acquisition program.  Just as in the REIT II portfolio, a significant portion of the Core portfolio can be expected to go into this type of property.  As the Market Square acquisition illustrates, these buildings are becoming very expensive.  This may put the Core REIT at a disadvantage.

Another offering that may find these developments a hindrance is CNL Macquarie Income REIT (CMIR).  Intended as a core income real estate fund, CBD office could be expected to be a part of the portfolio.  While the REIT has not acquired any CBD properties to date, any such acquisition could be a drag on performance.