But that 2000 scenario is expected to change for the better this year, Ronald J. Rogg, senior associate/investment properties in the Orlando office of CB Richard Ellis Inc., tells GlobeSt.com.

"The lower cost of capital will continue to have a positive effect on leverage transactions and lower interest rates should result in lower capitalization rates," Rogg says. Debt capital sources are abundant, "but are not willing to do high loan-to-value deals," he says.

For most of 2000, pension fund advisors and life insurance companies were on the sidelines because their office portfolios were over-allocated, either by asset type or geography.

But despite a lackluster performance in 2000, "Orlando continues to remain a market that is very desirable for existing investors to expand market share and for new investors who desire market entry," the office specialist tells GlobeSt.com.

For instance, Rogg's three-person investment properties group consisting of himself, Nan B. McCormick and Michael C. Phipps is currently tracking about 2.5 million sf of available office properties for sale in Central Florida. That compares with 1.8 million sf sold in all of 2000; 4.2 million sf in 1999; and 3.4 million sf in 1998.

Adding to market activity this year will be sales of REIT non-core assets and joint ventures with institutional capital due to REITs' inability to raise Wall Street capital, Rogg says. The funds from sales will be used to fuel higher-yielding development projects and for stock repurchase programs. "Many REITs believe their stock is underpriced relative to net asset value," the analyst says.

While he is bullish on the general investment sales scene, Rogg is not that confident portfolio sales will also bounce back in metro Orlando. "Prior to 1999, institutions were willing to pay a premium for portfolio acquisitions, citing anticipated operating efficiencies and the desire to dominate a particular market," the broker says. But during 1999-2000, portfolio sales for sub-institutional grade product reflect a discount to value.

"Portfolio buyers are now opportunistic investors with short holding periods and a desire to turn the portfolio through one-off transactions," Rogg tells GlobeSt.com.

He also feels sellers this year may have a more realistic view on the value of their assets compared to last year. In 2000, "sellers' pricing expectations were greater than the market could bear," he points out. "Thus, many market deals were never transacted." And opportunity funds, normally an activity buying class, were busy trying to sell properties purchased several years ago.

Among the largest deals last year were the two-building, 257,380-sf Pizzuti Development Co.-owned asset in the Lake Mary/Heathrow submarket that went for $41.7 million or $162 per sf to Lexington; a 227,814-sf Opus Development building that sold to TIA for $36.4 million or $160 per sf; and a 156,132-sf Simmons Vedder property, $18.7 million or $120 per sf.

"As the capital markets improve, so will the level of activity," Rogg reasons. "Orlando will continue to draw investor interest. Pension fund advisors, REITs, syndicators, individual and foreign investors continue to purchase property based on net operating income while taking into consideration comparisons of capitalization and yield rates of other real estate and non-real estate investment opportunities, and acquisition costs relative to replacement value and the cost and availability of permanent financing."

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Rebound Will Boost Sagging Office Investment Sales, CBRE Analyst Predicts

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