Crossroads office buy is a vote of confidence

A Michigan partnership paid $59 million for four office buildings and 20 undeveloped acres in the Crossroads section of Cary -- a sign of life in an otherwise barren investment environment.

MayfieldGentry Realty Advisors of Detroit led a retirement fund for Detroit police and fire employees in the $56.8 million purchase of Crossroads I-IV, which total almost 400,000 square feet, county property records show. The partnership paid an additional $2.2 million for six tracts zoned for more offices, shops or hotels.

The sale is a sign that investors continue to have faith that property in the Triangle will benefit from job and rent growth. But the price may indicate continued constraint in commercial real estate investment, brokers say.

The group paid about $145 per square foot for the offices, which are 95 percent occupied with tenants such as the Wake County Board of Education and the N.C. Joint Underwriting Association. The price per square foot is about 14 percent less than the average paid for Triangle offices in 2007.

Several brokers think the property, off Interstate 40 in one of the region's busiest office corridors, could have sold for up to 10 percent more a year ago, when banks were looser, bidders were bountiful and prices were peaking.

"Pricing right now, compared to historical norms, is still very high," said Jim McMillan, an investment broker at Grubb & Ellis/Thomas Linderman Graham of Raleigh. "But compared to the crest of the wave a year ago, we're probably about 10 percent off."

Lenders have been raising borrowing costs and asking for more equity in the face of a slowing economy. That has made it impossible for many prospective bidders to buy. The scenario has delayed or canceled several deals in the Triangle.

Office sales way down

Only $27.6 million in Triangle offices were sold during the first three months of the year, compared with $456 million during the same period a year ago, according to CB Richard Ellis data.

Many of the deals that are getting done now are for marquee properties. But the deals indicate a plateau, if not drop, in pricing.

A partnership that includes Highwoods Properties this month paid about $178 per square foot for The Forum office park in North Raleigh. That's 15 percent less than what a Colonnade office building, across Six Forks Road from The Forum, traded for in October 2006.

The Crossroads seller, Corning Road, put the portfolio on the market late last year. The company has owned the portfolio for about a decade.

"It was well-leased, good lease term on it, solid-credit tenants," said Edward M. Cherry, a vice president at Faison, Corning's Charlotte-based capital adviser. "We just thought it was a good time."

At least 10 investors bid on the Crossroads property. The ultimate price exceeded recent valuations, he said. Indeed, the price paid for the offices was 3 percent above the recently assessed tax value.

"If you've got good property, investors are going to be drawn to it," Cherry said. "Opportunities like Crossroads don't come on the market very often. When it does, people who want to be in the Raleigh-Durham market will step forward."

In the past two years, MayfieldGentry has bolstered its business in the region, snapping up 1 million square feet of offices, which account for almost one-quarter of its portfolio.

In December, the company led a partnership of private investors and the Michigan employees' retirement systems to pay $105 million for Venture Center I-IV and Venture Place on N.C. State University's Centennial Campus. A year ago, it paid $21 million for northwest Raleigh's Glenwood Plaza.