NEWARK, NJ−At the RealShare conference here last week, HFF’s Jose Cruz gave a vivid account of investor frenzy that broke out over the recent sale of the Wyndham Worldwide headquarters office building in Parsippany: “Three rounds of bidding, six finalists, with a variety of investors staying in the hunt – REITS, pension funds, Israeli investors, insurance companies.”
His fellow panelists congratulated Cruz on a sale that priced out at $400 per square foot. Then, NorthMarq Capital‘s Greg Nalbandian brought the discussion on “Opportunities in Investment and Finance” back to earth.
“That is extraordinary,” he said of the scrum to acquire the Parsippany building from Mack-Cali, won by the Griffin Capital REIT of California, which paid $96.6 million. “I see it as evidence of a bifurcated market.”
Nalbandian says there is a dearth of “core” transactions – mid-range, “bread-and-butter” deals – being made for New Jersey office space. “It’s either value-add deals for very distressed or vacant properties at $20-$30 per square foot, or Jose’s deal for $400 per square foot,” he said at the panel.
Cruz had mentioned the beginnings of a trend toward acquisition of older suburban office properties as a “contrarian play,” and Nalbandian retorted, “We don’t see any core deals, except a few MOBs (medical office buildings.)”
The NorthMarq executive said he has been frustrated trying to advise clients on potential office acquisitions in a still-depressed market environment, with the possibility of interest rate hikes hovering, and little evidence of other core deals being made to offer as “comparable” statistics.
“I’m trying to run comps – let’s say at a 9% cap’ rate, $130 per square foot pricing, because that’s what I believe makes sense – and there are no comps. I can’t find any.” Nalbandain said. “The client is saying: ‘If we make the deal at that pricing, what is our exit plan? Who would be our exit buyer?’”
Without evidence to show there are other buyers who believe this is a reasonable climate in which to invest, Nalbandian said, many potential investors will not make a move.
“What will be interesting is when guys like Adam (Altman of KABR Group, another panel member) can stabilize some (value-add) deals that can serve as comps,” he added.
Altman, whose company specializes in reviving distressed properties, said his take on today’s office market is that “the landlord has got to open the wallet, give a lot of refresh money, and do it quickly” to make a deal.
KABR has acquired four buildings at the Overpeck Centre office park in Ridgefield Park in the last several years. Two weeks ago, the company and partner Kushner Cos. announced that American Stock Transfer & Trust Co. will take 45,000 square feet at the 300,000-square-foot 55 Challenger Road building. The companies picked up the Bergen County property in 2012, when office leasing seemed to have a reached a new nadir, but when they had already successfully repositioned another building at the Overpeck Centre. See previous story here.