Commercial property investors are focusing on the best buildings in major U.S. markets, driving up prices in six cities as the rest of the country hovers near the post-crash bottom, according to the MIT Center for Real Estate.
The CHART OF THE DAY shows prices for “trophy” commercial properties are up 19 percent since bottoming in New York, Washington, San Francisco, Boston, Los Angeles and Chicago. The Moody’s/REAL Commercial Property Price Index tracking the entire U.S. has gained 1 percent from a seven-year low in October 2009.
Investors are competing for properties seen as “relatively safe cash cows,” said David Geltner, director of research at the MIT Center in Cambridge, Massachusetts, and creator of the six-city index. Last week, Boston Properties Inc. agreed to buy Boston’s John Hancock Tower, New England’s tallest building, for about 40 percent more than what the sellers paid a year ago.
“There’s a lot of money out there that wants to invest in good, solid, safe, cash-yielding inflation-protecting investments, and there are not that many properties on the market,” said Geltner. “Demand is really focused because it’s so risk-averse. They really want just these blue-ribbon cities and these blue-ribbon properties.”
Geltner’s index, compiled with data from New York-based research firm Real Capital Analytics Inc., tracks each sale in the six cities where the previous price exceeded $10 million. It excludes properties held less than 18 months; some that are part of portfolio deals; and so-called troubled assets that are sold by lenders, or sold by owners under pressure, as defined by Real Capital. It includes sales in each city’s suburbs.
The MIT and Moody’s indexes both track office, retail, industrial and apartment properties. The data are through July.