In Orange County, for example, some office buildings―including distressed properties and one of the largest FDIC sales on record at the time―have sold for prices that their new owners say will enable them to offer substantially lower rents. That is expected to place even more pressure on the county's office market, which was one of the first-hit and hardest-hit by the subprime mortgage industry collapse and its impact on office properties.
The Orange County buildings mirror what's happening with buildings in a number of other markets where buyers are acquiring office properties at prices well below what they sold for a few years ago and sometimes for less than the value of the debt on the buildings. For example, New York Life Insurance Inc. sold a downtown class A office building in Portland, OR recently for less than was owed on it. The lender took back the 415,000-square-foot (net rentable) building from a CalPERS joint venture that paid $108 million for the 25-year-old property and two adjacent parcels in 2007 using a $70-million acquisition loan that went into default this summer.
Among the other factors at work, on a local basis, is the federal government's need for space in the Washington, DC area, which is granting that market something of a reprieve compared with other US office markets. Without federal activity, Washington would be in the same boat as other struggling markets right now, according to a recent GlobeSt.com report. The report noted that Brokers in the DC area market say that the federal government―after finalizing several large, 100,000 plus leases in recent months―is poised to do the same in 2010.
And yet another factor, this one working in favor of tenants, is the effort by landlords to have their property taxes reduced because of declining values. Tenant rep firm Studley recently advised clients that, with building values now down approximately 50% from their peak, tenants should be negotiating lease terms that ensure building owners are passing along their savings when they obtain property tax reductions.
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