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New York

Class A building sales fall the hardest

While the first quarter of 2008 showed a clear drop off in building sales from the prior year, a quarterly report from Cushman & Wakefield shows that some sectors of the market fared better than others.

The report shows an extreme drop-off of 95.2 percent in the dollar value of Class A office building sales to $582 million in the first quarter of 2008,
from $12.1 billion the previous year. This compares to a comparatively mild drop of 62 percent for sales of all other offices, to $524 million in the first quarter of 2008, from $1.4 billion in the first quarter of 2007. The volume of multifamily buildings traded fell around 59 percent to $289 million in the first quarter, from $702 million in the first quarter of 2007.

Across all categories, building sales fell 89 percent to $1.7 billion so far in 2008, from $15.5 billion in the first quarter of 2007.

According to Scott Latham, executive vice president of Cushman’s
capital markets group, a substantial portion of the Class A sales
volume from 2007 was the result of two huge portfolio deals: SL
Green’s purchase of the REIT Reckson and its property holdings and
Blackstone Group’s acquisition of Equity Office Property Trust.

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Latham estimates that these two trades accounted for around $10
billion in Class A office building sales in the first quarter of 2007.
So far this year only two Class A office deals have closed, he said.
120 Park Avenue went for $520 million and 30 West 57th Street went for
$56.5 million.

Latham predicts the sluggish pace of sales will pick up later in 2008,
but not to the record levels seen last year.

Buyers get particularly cautious when there are so few big investment
building trades because it becomes hard to gauge what properties are
worth, Latham said. This can cause a slowdown to drag out even longer.

He uses an analogy to explain the phenomenon, “If you are on line at a
store and 15 people in front of you pay $10 for a baseball hat, you
know the hat is worth 10 bucks,” he said. “In real estate you have to
make your own bid, and if nobody else is on line, it’s hard to
determine buildings’ values.”