Commercial real estate sales should rebound this year to 2004 levels, as both investors and financiers try to take advantage of a bottoming market, a prominent Boston sales broker said today.
"The big deal market is back," said James McCaffrey, managing director of the sales brokerage Eastdil Secured, speaking at the annual NAIOP Massachusetts mid-year market roundup. "The equity for big deals has been raised, and the debt market is back. In the next 60 to 90 days, you’re going to see dramatic numbers on sales volume and on pricing."
Nationally, Eastdil’s for-sale portfolio has more than tripled in recent months, McCaffrey said. In Boston, the firm has roughly $5 billion in deals queued up. Those deals include the Bay Colony Corporate Center in Waltham, the Atrium Mall in Chestnut Hill, 100-150 Staples Drive in Framingham and a 1.3 million-square-foot industrial portfolio owned by the industrial REIT AMB Property Corp.
The company is also marketing debt on the Natick Mall and on 125 High St. in Boston, as well as distressed properties at the Swansea Mall and at 400 5th Ave. in Waltham.
McCaffrey said activity is being driven by cash-rich REITs and institutional funds that have a mandate to get money out the door. Competition, and a sense that property values have bottomed, are creating a bidding environment that’s driving up pricing for stable assets; that’s enticing more sellers of core assets into the market, creating a positive feedback loop.
Debt markets are also pushing things along, McCaffrey argued.
Easy debt helped push commercial sales to record levels – more than $18 billion in deals closed in 2007, according to data from CB Richard Ellis. When that debt froze in 2008 and 2009, sales followed, falling to less than $1.1 billion in 2009.
Even in the second half of 2009, when institutional buyers began bidding up the price of stable buildings, investors wouldn’t touch buildings with near-term debt maturities; they were demanding both healthy cash flow and long-term in-place debt. Now, McCaffrey said, "Even if a property has a near-term maturity, equity is becoming confident that the debt markets will be able to [refinance] them."
Hans Nordby, a director at Boston-based Property & Portfolio Research, said a national economic recovery was "tepid but heading in the right direction."
"This is, by in large, the most optimistic we’ve been in three and a half years," said Nordby, who also spoke at the conference.
Nordby said Boston-area employment was rebounding, and predicted employment figures would surpass their 2001 highs by 2013 or 2014. Commercial real estate statistics will take longer to rebound, he said, because even though relatively few companies put big chunks of sublease space on the market in 2009, "most everybody has gray space" to backfill.
