I’ve recently heard about five transactions in suburban New Jersey real estate markets, where sale prices for commercial buildings were extremely low. Of these five, two transactions have closed and three are under contract.
In some cases, sale prices have been so low that they equal nothing more than the rent most tenants would pay in the first year of a typical lease.
How low? Here’s the perspective:
The cost to newly construct buildings comparable to those that recently sold could be between $75.00 to $150.00 per square foot, or more, and corresponding rents could be in the $12.00 triple net to $45.00 gross per square foot range.
Ready? The buildings referenced above have sold or are under contract at prices ranging as low as $14.00 per square foot to as high as $39.00 per square foot! At $14.00 per square foot, that’s 18.7% of a $75.00 per square foot replacement value!
In all three instances, these buildings were sold either by their lenders or by the court through bankruptcy proceedings. Developers, investors, and others in the know, tell me this is just the beginning. They say that lenders are finally loosening their grip and actively seeking to sell properties that are in default on their mortgages and those on which lenders have already foreclosed.
Is this true? Are the flood gates beginning to open? Will we see a flurry of commercial buildings come to market around the country at below replacement cost? What will this do to prices for those buildings that are not in default? None of this sounds positive for sale values.
If the above is more than a blip on the pricing radar, the positive news is that it will likely foster transaction and lending activity. And, that’s a good thing.
How will the above effect pricing for corporate sale / lease back transactions? Will these events result in the wholesale lowering of commercial property rental rates across the country? Will it hinder or help to stabilize commercial property values?
What are your thoughts?
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Real Estate Strategies Corporation is a respected corporate advisory and transaction services firm that provides thought-leadership, decision-making, planning, project management, and transaction execution services to financial and senior executives at management team-led public, private, and portfolio companies, and not-for-profit organizations. Under the leadership of its award-winning CEO, Andrew B. Zezas, RealStrat’s clients engage the firm when acquiring, disposing, renegotiating, or enhancing occupied leased or owned real estate in New Jersey, Pennsylvania, New York, Connecticut, and throughout North America. By creating and executing Business DRIVEN Real Estate Solutions and identifying hidden Opportunities, RealStrat drives greater operational and financial performance in support of its clients’ stakeholder objectives, M&A requirements, and exit strategies.
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