Let's make a deal | Major commercial transactions in Q1 reflect a mix of the safe and the speculative
“You sellin’? You buyin’?” Any New England sports fan knows those guys outside of Fenway Park and the Boston Garden: the guys hawking extra Sox and Celtics tickets like their next meal depends on it. As obnoxious as they may be, they know how to cut to the chase. As I recently watched the scalpers in Boston, it got me thinking about what’s going on in the commercial real estate market. Who is buying and selling and what trends does it suggest relating to your own commercial real estate needs and goals?
In the first quarter of 2011, as of April 15, there were six commercial sales in greater Portland over $1 million. Two were owner/occupied properties and four were pure investment sales. In February, First Atlantic purchased a two-floor condo at 100 Waterman Drive in South Portland for $1.65 million. They plan to build-out and occupy about 12,000 of their 16,000 square feet, with intentions to lease the remainder. The other owner/occupier deal was the much-publicized Sebago Brewing Co. purchase of a retail condo in the new Hampton Inn on Fore Street in Portland. SBC bought a 7,000-square-foot unit as a vanilla shell for $1.45 million. They are in the middle of building out the restaurant and plan to open for business later this spring.
It’s interesting that both of these purchases were condos and part of new, multi-tenanted projects. The Hampton Inn will have 122 hotel rooms and include 12 residential condos, each currently under contract or sold. 100 Waterman is an attractive office building that had the misfortune of being built just prior to the real estate collapse in 2008. However, with the First Atlantic sale and the first floor under contract to the South Portland Housing Authority, this property will finally see some life. Both of these purchases suggest that end-users are willing and able to secure attractive financing and pay competitive prices for newer properties.
The other four significant sales were income-producing properties sold to investors. In what might go down as the sale of the year, 155 Gannett Drive in South Portland sold for $3.65 million. I say it’s the deal of the year not because of the sale price, but because of the creative conditions under which it was marketed and ultimately sold. For years, the building was leased to FairPoint Communications. As we all know, FairPoint did some serious downsizing and made plans to vacate this entire 22,400-square-foot, Class A office building. So the building owner’s broker began looking for replacement tenants and/or buyers. Along came the federal government, which happened to put out a request for proposals on behalf of U.S. Customs and Border Protection. They showed interest in 155 Gannett and a developer was secured, who then put the building under contract subject to working out a lease with the government. Five months later, the lease is signed, the sale closed and the new owner is making a nice return with a government-secured tenant for 10-plus years. Now that is a nice commercial real estate deal.
Two other good-sized deals were a bit more conventional. The RSVP building on Forest Avenue in Portland was packaged as a long-term lease-back. The property ultimately sold in March for $2.14 million. The other was a 40-year ground lease where the Hilton Garden Inn sits at the Portland International Jetport, which sold for $2.1 million. It is a safe, long-term investment but has limited upside. These two sales were aggressively priced at lower cap rates and investors still stepped up. It shows there remains a healthy appetite for long-term real estate investments, even if the annual returns are slightly less than shorter-term, riskier purchases. It has a lot to do with Economics 101 — there simply isn’t a good supply of quality investment properties on the market, so demand remains strong and prices adjust accordingly.
The final large sales transaction took some guts and foresight from the buyers. The Clapp Building at 443 Congress St. in Portland, while historically a strongly tenanted building, was facing significant vacancies. When it went on the market, there was over 20,000 square feet of space available, which limited the interest from buyers. However, a local investment group took a calculated gamble and purchased the building in March for $1.6 million. They bought the building with a tenant, Planned Parenthood, pre-committed to two floors, which immediately helped stabilize the rent roll. They then were able to land Local Thunder, a marketing firm, for a full floor and are now in negotiations with an office tenant to fill the final vacancy on the first floor. So in the course of a few months, they purchased a half-empty building on Congress Street (a difficult commercial stretch of late) and are in the final strokes of having it 100% occupied.
It’s clear there are good deals to be had for both owner/users and investors. We’ve seen safe plays and we’ve seen aggressive, speculative plays. As you gauge your own commercial real estate needs and goals, keep tabs on what’s going on in the market. So the questions remain: You buyin’? You sellin’?
Justin Lamontagne, associate broker at CBRE/The Boulos Co. in Portland, can be reached at jlamontagne@boulos.com. Read more of Justin’s columns here.
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