The commercial real estate market may not feel like the boom-boom days of 2007 for investment sales specialist Ryan Clutter, but it still feels pretty good.
Sales of office buildings spiked during the second quarter, highlighted by deals for uptown’s Hearst Tower and Fifth Third Center, and the Coliseum Centre, a six-building complex off Tyvola Road. According to research firm Real Capital Analytics, the number of office deals closed, 24, and the dollar volume, $708 million, are records for a single quarter in this market.
The totals are skewed by the three mega-deals: Hearst sold for $250 million, Fifth Third commanded $163 million and Coliseum went for $103 million. They accounted for nearly three-quarters of the dollar volume for the quarter. During the second quarter of 2011, only five office deals totaling $83 million crossed the finish line, according to Real Capital.
The average price per square foot for the quarter was $200, up from $143 a year earlier. The average capitalization rate, or the ratio between the net operating income produced by the property and its cost, was 7.6%.
The mixed-use Metropolitan development also is being marketed at around $110 million, and properties in two office parks off Tyvola Road, LakePointe and Vanguard Center, have been listed as well.
Clutter, executive vice president at CBRE Group Inc., leads the local team working on those deals. He also represented the sellers of Hearst, Fifth Third and Coliseum. The cluster of large transactions is a unique phenomenon, Clutter says.
He credits the Coliseum Centre sale for rekindling interest in Charlotte among real estate investors. The purchase by Vision Equities and CarVal Investors closed in April and drew coverage by The Wall Street Journal. CarVal, an investment manager, is a subsidiary of Cargill Inc., a huge multinational corporation based in Minneapolis. Vision Equities is based in Mountain Lakes, N.J.
“That deal in particular was a trendsetter,” Clutter says. “It helped create a little more of a buzz on Charlotte. People have continued to reference that deal as they look at other Charlotte deals.”
Although the Journal dubbed the suburban property a “risky bet,” the cap rate was an above-average 8.4%, despite the park’s 19% vacancy figure.
A few months after the closing, the purchase is looking rosier: United Technologies Corp., which acquired Coliseum Centre tenant Goodrich Corp., announced in June its plans to locate its aerospace-systems headquarters in Charlotte, creating 325 jobs. A city economic-development executive says the leading candidate to house that operation is the Goodrich building in Coliseum Centre, where the company occupies 119,552 square feet.
Fred Arena, managing partner and chief operating officer at Vision Equities, declines to comment on United Technologies’ plans. But he believes markets such as Charlotte, Raleigh and Nashville, Tenn., will benefit from corporate relocations and expansions as the economy recovers.
“Corporations are going to take a harder look at the economics of their companies, and the Southeast is going to be able to grow from that,” he says.
Investors will continue to look for real estate opportunities in Charlotte as long as sellers remain realistic about pricing, Arena adds. Buyers expect a healthier yield on purchases in Charlotte than they can obtain in “gateway markets” that include New York and Washington. That will moderate sales prices here.
“Even when it gets hot, it can change just as quickly when there’s greed and people start talking cap rates that you get in true gateway markets,” he says. “It’s easy to fall in love with the aesthetics of an asset and the dynamics of an area, but it’s got to pencil out.”
The market remains clouded with uncertainty, and not every deal reaches the finish line. In late July, Azrieli Group, a real estate firm based in Tel Aviv, Israel, walked away from a $245 million deal for the 42-story One Wells Fargo Center. The firm said findings from its due diligence caused it to rethink the acquisition. Azrieli Group declines to say what prompted the change of heart.
And after listing uptown’s BB&T Center, owner CIM Group took the building off the market when offers fell short of a target price of roughly $130 million.
Parmenter Realty Partners, a real estate investment firm based in Florida, is the new owner of Fifth Third Center, which totals 678,715 square feet.
John Davidson, managing principal at Parmenter, says the firm expects to reach its investment goals by finding a tenant for a prime space after it becomes available at the uptown tower. The building’s third-largest tenant, Wells Fargo & Co., has a lease for five floors totaling 110,777 square feet. The lease expires in February.
Davidson is glad Parmenter was able to strike its deal when it did, before the May meeting of the Urban Land Institute, which was held in Charlotte.
“We’re opportunistic buyers, and we felt like this opportunity presented itself because of where Charlotte is in the cycle,” he says. “We had gotten fairly comfortable that Charlotte is recovering, and that story really hadn’t gotten out to the broader market.
“I don’t think that’s necessarily true today,” he adds. “Particularly after the ULI conference, I think people have awoken to the fact that there’s a lot of good things going on in Charlotte now. So I think we were a little bit fortunate there.”