Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
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replacement cost," says Larry Emmons, CCIM, SIOR, senior managing director at Newmark Grubb Knight Frank in Southfeld, Mich. Buyers are looking for class A and B multitenant, multistory buildings in prime suburban markets — namely Southfeld and Troy — as well as in Detroit's central business district. Tenancy throughout the Detroit metro really fell of during the recession as the big auto frms struggled and auto suppliers were forced to cut back. In a number of ofce buildings, occupancies dropped from 80 percent to as low as 30 to 35 percent. Once occupancies start coming back to more than 50 percent, people start to take notice, Emmons notes. "You couple that with the fact that most of these buildings have been able to be purchased way below replacement cost, and that is another good barometer for out-of-town investors," he says. NGKF recently brokered the sale of the Travelers Tower I and II buildings in Southfeld. Te two class A buildings, which combined total 790,000 sf, were listed afer Tanksgiving last year. Te property quickly attracted nine written ofers within a three-week period with the highest bid exceeding pricing expectations by nearly $2 million. Te three highest ofers were all from out-of-town buyers in New York and Chicago. Office Market Stats Transaction Volume Billions Tertiary Market Hurdles Given the investment opportunities that still exist in large secondary markets and top suburban markets, national buyers have been slow to trickle down to tertiary markets. At some point, institutional investors will eventually turn to the tertiary markets. Te tipping point will come when pricing becomes too high or the available product on the market is not meeting demand. However, that shif could still be at least a year or two away for many markets. For example, investors are slow to move back into markets such as Omaha, Neb., which has an ofce market that spans about 20.5 million sf. "When we had our last period of very, very white hot real estate market in 2006 and early 2007, we didn't see the national buyers come to the Omaha market until the very end of that trend," says Ember Grummons, CCIM, an investment broker at Investors Realty in Omaha. However, brokers such as Grummons are beginning to feld calls from interested ofce investors. "I think that trend is coming, but it is the very leading edge," he says. Tose ofce properties that are trading in tertiary markets are largely occurring among small, owneroccupied buildings. Local buyers also are fnding opportunities on "broken deals" and properties that have high occupancies, need repairs or maintenance, or have been mismanaged, he adds. For example, Grummons recently represented a local buyer in the acquisition of a 136,000-sf class B- suburban ofce building in Omaha. Although the building is 93 percent occupied, the buyer is assuming unfavorable fnancing with an existing above-market rate conduit loan. $90.0 $80.0 $70.0 $60.0 $50.0 $40.0 $30.0 $20.0 $10.0 $- '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Price PSF $350 $300 $250 $200 $150 $100 $50 $- '01 Source: Real Capital Analytics 28 July | August | 2013 Commercial Investment Real Estate