GlobeSt.com EXCLUSIVE: $2B in Class A Sales Sets New City Record

"There are some large deals in the pipeline," says John Alvarado, senior vice president for locally based Trammell Crow Co., "and there's a chance they could close this quarter. There was such a flood of product that it couldn't all get done." Alvarado, who tracks investment sales of office buildings larger than 100,000 sf, tells GlobeSt.com that the 66 transactions, five fewer than the year before, drew $2 billion from the sale of 18.1 million sf of class A space. In 2004, 19 million sf changed hands for $1.7 billion.

In Alvarado's year-end analysis, the average sale price was $29.8 million versus $23.7 million in 2004. In yet another breakdown, sales averaged $102 per sf, up $10 per sf from the year before. Cap rates differed just a shade: 8.3% for 2005 sales and 8.4% for 2004. Occupancy, though, was significantly higher: 83%, on average, for last year's trades versus 77% in 2004.

The past two years have been markedly different for class A sellers. In 2003, there were 36 sales, totaling 8.7 million sf, at $83 per sf or roughly $72.2 million, according to Alvarado's records.

Alvarado says private buyers, this year like last, led the field of spenders, laying out $822 million. Pension fund advisers spent $750 million and REITs, $170 million. Tenants-in-common buyers last year were few and far between in Dallas, he acknowledges. TIC deal-making, down from previous years, not only is facing increased scrutiny from the lending community, but private buyers are aggressively shopping on their own due to the continued low cost of debt, he explains.

The $250-million sale of Lincoln Centre in North Dallas was the largest single deal of the year. Chicago-based Equity Office Properties Trust did pull in $520 million for a 10-building portfolio, but it came from three buyers in four transactions. The third-largest deal was 1700 Pacific, a CBD high rise that garnered $96 million. Deals getting pushed to this year include JPMorgan International Plaza, a landmark piece of North Dallas real estate, and the CBD's Harwood Center, St. Paul Place and KPMG Center.

"I'm not expecting it to be significantly different in capital markets activity this year from last year," Alvarado says. "There are still some good quality assets that are likely to come to market. This year isn't going to be completely void of trophy sales." In fact, he adds, hold periods are getting shorter so top-tier product bought just two and three years ago could make its way back to the available list as could some office portfolios. "As long as pricing stays as strong as it has, sellers will feel compelled to bring properties to market," he says. And logically, class B owners are hoping their time too has come.

From a national perspective, the Southwest again fell in third place with $6.3 billion in class A office sales. Holding true to the past, the Northeast led with $25.7 billion and the West Coast was second with $13.5 billion. Midwest deals totaled $5.5 billion and the Southeast, $3.1 billion. Alvarado says the office sector logged $54.2 billion in sales nationwide last year versus $37.3 billion in 2004 and $32.4 billion in 2003.