GlobeSt.com EXCLUSIVE: $1B Plus of Sales Nearly Triples Old Record

DALLAS-In a trouncing of the prior record, sellers realized $1.2 billion from the trades of 149 industrial properties totaling 44 million sf in Dallas/Fort Worth. Every indicator--except cap rates, of course--reflected an increase over last year as portfolio sales from in- and out-of-state investors raised the bar to a new height.

The most significant change in last year's investment sales activity was "the pricing got so elevated that it became common to see negative leverage in the first couple years," Josh McArtor, vice president of industrial investment sales for Dallas-based Trammell Crow Co., tells GlobeSt.com. "People are betting on the future." McArtor says the just-tallied total for 2005 sales of institutional-quality buildings with 30,000 sf or more not only is a record-breaker, but the buildings sold at a higher price per sf and occupancy. The old record, set in 2001, was $492 million in 84 transactions. In comparison, the 2004 take was $693.38 million for 28 million sf in 125 transactions.

Several portfolio sales were bumped to this quarter. In the past week, Parker Equities Inc. of Dallas sold 630,000 sf, mostly high-end showroom and flex space in the metropolitan submarket in North Dallas. The CB Richard Ellis Inc.-steered sale, led by executive vice presidents Jack Fraker and Randy Baird, most likely picked up a higher price than the norm due to the addresses and product type. Other carry-over deals are the New York City-based ING Clarion Partners' sale of a 4.5-million-sf portfolio, of which one million sf is in North Texas; Beverly HIlls, CA-headquartered Cohen Asset Management's sale of 603,000 sf; and Denver-based ProLogis' portfolio turnover of 600,000 sf in the Dallas metro and 320,000 sf in Greater Houston.

McArtor's data shows institutional-quality industrial space fetched an average of $41 per sf last year, up $2 per sf from 2004. Bulk warehouse space went for $39 per sf in 2005 versus $32 per sf in the previous year. The average value of each 2005 transaction factored out to $14.7 million whereas it was $8.7 million in 2004. And the average size of the sold product also increased from 303,606 sf to 229,967 sf. Likewise, occupancy was higher: 87% on average for the sold space, up 13% in the past year.

As indicative industrywide, cap rates went down. McArtor says the region's average dipped 50 basis points, with 2005 closing at 7.9%.

McArtor says Dallas/Fort Worth is getting its fair share of the deep-pocketed buyers' allocations although it's just a fraction of the near $35 billion spent last year in the US. "It's a price per sf issue," he explains. The area's total sales rank in the Top 3 in terms of the amount of sold space, but "our value in terms of rents is lower," he points out. "That's why it's just $1.2 billion."

As for the rest of this year, McArtor predicts "the velocity is going to continue." The difference, though, is there will be more regional portfolios brought to market rather than the for-sale product being just a piece of a nationwide package, he says. Nonetheless, he says the price per sf will continue to rise if for no other reason than construction costs are still climbing and the region's class A locations are rapidly diminishing.