Industrial, retail property sales fall

Apartments holding up in weak commercial market

In each of the past four years, investors have set sales records in the Triangle by dumping more and more money into shopping centers, skyscrapers and other kinds of commercial real estate.

But more than halfway through 2008, the streak is waning, as stricter lending standards make it harder for many to buy, and as sellers refuse to budge on the overheated prices common a year ago. At least $1.2 billion in office, industrial, retail and apartment properties were sold through June 30, CB Richard Ellis data show.

The total, bolstered by $850 million in apartment sales, is on pace to eclipse all but one full-year tally by the brokerage's Raleigh office. But a closer look at the other types of properties sold shows why the total could fall far short of the record $2.6 billion in sales tallied in all of last year:

* Only $20 million in industrial-property sales closed through June 30, down 86 percent from the same period last year.

* Just $242 million in offices were sold in the first half of the year, down 47 percent from the first half of last year.

* And the $91 million in retail centers sold through June 30 -- on pace to beat the 10-year annual average of $178 million by a hair -- is a paltry sum when compared with last year's $523 million.

Higher borrowing costs and the need for more equity have hurt sales, obviously. But so have sellers. There are still prospective buyers who are encouraged by the region's employment growth. But asking prices rarely have gone down even though competition for properties has waned. Until the gap closes, fewer deals will get done.

"There's a lot of bark, but not a lot of bite right now," said Jim McMillan, a Grubb & Ellis/ Thomas Linderman Graham broker who specializes in property sales. "It's probably going to be this way for a while. ... Sellers are going to have to" budge.

In some cases, they have. For example:

* In early April, a partnership including Highwoods Properties paid $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, sold for in October 2006.

* Later that month, a group led by MayfieldGentry Realty Advisors of Detroit paid $145 per square foot for about 400,000 square feet of Crossroads Corporate Park offices. The Cary buildings sold for 14 percent less than the average paid for Triangle offices in 2007.

Others have been able to keep their prices up.

Last month, an investment group from Hialeah, Fla., paid $22.3 million for two TBC Place buildings. The price, about $126 per square foot, was about 16 percent more than seller America's Capital Partners of Miami paid for the Durham buildings less than two years ago, when the market was revving with high-dollar deals.

And this month, a partnership including Crown West Realty paid $14.5 million for a 325,000-square-foot distribution center on T.W. Alexander Drive in Durham. The price, about $45 per square foot, was roughly 75 percent more than what seller Medline Industries paid in 2001, when the tech bust had depressed values of Triangle distribution centers.

"There are fewer buyers out there," said Chris Norvell, a Colliers Pinkard broker who represented Medline. "But there are still good buyers out there."

The shining star this year has been apartments. Sales have surged as companies such as Equity Residential of Chicago and UDR of Denver unload dozens of properties across the country, including at least 26 in the Triangle. Lenders have been willing to support those deals in part because rental demand is growing as fewer would-be homeowners are able to qualify for mortgages.

But much of the financing for apartment sales has come from government-chartered companies Fannie Mae and Freddie Mac, which offered what was considered some of the most reliable capital. And now, as the companies struggle, investors wonder whether the flow of multifamily loans will be pinched.

"The second half of this year will be very, very slow in terms of [sales] activity," said Ben Kilgore, a CB Richard Ellis broker specializing in property sales.