Office buildings aren't selling like tacos this year, a selected group of lenders, brokers and appraisers tell GlobeSt.com. The reasons are varied.

"There is a marked difference between what the sellers are expecting and what the buyers want to pay," Michael O'Hanlon, executive director, Insignia/ESG, Dallas, tells GlobeSt.com Southwest Bureau Chief Connie Gore. "There is a disconnect." No trophy properties have changed hands in Dallas since 1998.

Randy Baird, senior director, Cushman & Wakefield of Texas Inc., knows why. "The herd is steering away from office," Baird tells Gore. "There are a few contrary buyers but the major players are on the sidelines."

Sellers are smug. Rent rolls are solid. The cash stream is strong. Occupancies are high. "Nobody wants to let go," Jim Turano, senior vice president, Henry S. Miller Commercial Co., Dallas, tells Gore. "They're ginning out some cash and they like that."

On the West Coast, investment sales, too, are in the toilet. Property owners are lowering rents and tossing out concessions but they're holding onto their assets. A 33,000-sf flex building owned by Wyse Investments is an example. The space was being marketed at $22 per sf but Central Oregon-based Serveron Co. leased the quarters at a 15% discount.

"We are seeing offers as low as $16 per sf that included free rent, extra tenant improvement dollars and furniture for longer-term deals" Portland broker Pat Schreck tells GlobeSt.com West Coast Bureau Chief Brian Miller.

In Chicago, sales of office buildings are also crawling. It took Parkway Properties Inc. of Jackson, MS two years to land the 30-story, 1.07 million-sf 233 N. Michigan Ave. Parkway building. Parkway paid New York-based Tishman-Speyer Properties $175 million or $163.55 per sf. But Tishman rejected Parkway's earlier $130 million bid for 111 E. Wacker Drive, a comparable property.

"If square footage is the only yardstick used, Parkway did well, considering US Equities Realty Inc. research shows Shorenstein Co. paid $183 per sf last year for two buildings in the shadow of Illinois Center," reports GlobeSt.com Midwest Bureau Chief Mark Ruda.

"Although we are still able to finance well-leased/located class A and B office properties, they are no longer on the top of the lender's radar screen like they used to be," Patten says. Prices are down from 2000 and even 1999, he says.

Michael S. Sorich, a longtime area commercial appraiser and a principal with Integra Realty Resources Orlando, anticipates office vacancies in Orlando in 2002 will shoot above the current 12.4% level because of fallout from the high-tech industry. "Right now, however, investors are shying away from Orlando for the near term to see how we fare over the next few months," Sorich tells GlobeSt.com.

Ronald J. Rogg, head of investment properties/Florida, CB Richard Ellis Inc., sees the same scenario evolving. "Office deals are not tough to find," he says, "just tough to close."

Roggs says, "sellers are still not dropping prices to meet buyers' expectations" and feels leverage "clearly is on the side of the buyers." Rogg's division is currently tracking over 3.8 million sf of office properties available for purchase in metro Orlando with an aggregate value of $430 million. Per square foot prices are down by 25% from last year, he says, but owners are not staging a fire sale.

Unlike Rogg, Jeffrey Bloom, an investment broker with Arvida Realty Services Commercial Division, Winter Park, FL, is finding prices on office properties "still very good, mostly about $100 per sf on cap rates of around 9.5%," he tells GlobeSt.com. "I don't think asking prices are being reduced in direct proportion to rental rates at this time."Bloom finds few owners ready to sell these days. "There are a lot of new owners who need time to season and who have some wherewithal to ride out down times," he says.

George D. Livingston, founder/chairman, Realvest Partners Inc., Maitland, FL, puts Blooms observation in another perspective. "Owners are not under pressure to sell as they were in the late '90s," Livingston tells GlobeSt.com. "The feeling now is just not of panic."

One big reason for that attitude, the developer says, is that older buildings "generally are still cash flowing, so the sellers can wait for their price or wait for a better future opportunity."

Greg Morrison, managing broker, Carter & Associates-Oncor, agrees with his colleagues that "there is a lot of capital (in the market) but buyers and sellers are on different pages." He says "prices are flat due to the low amount of (investment) activity."

Morrison adds, "Everybody is watching the economy and softening markets, so there is caution among buyers and developers." He says, "the consensus in Orlando is that this is a short-term slowdown. Growth will continue, but at a moderate pace."

Instant Insights /

BIG PICTURE: Office Sellers Aren't Dropping Prices as Buyers Watch from the Sidelines

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