The sellers range from old-line real-estate families to pension funds, insurance companies and other big investors. The buyers are often real-estate investment trusts, whose returns have soared recently; investors shifting money into real estate from the stock market; and eager foreigners taking advantage of a weak dollar.
Among the biggest sellers is Calpers, which often joins with other big investors when it buys real estate. Together with those partners, Calpers has sold $6.5 billion of office buildings and shopping centers in the past three months alone, accounting for half of its real-estate investments. Those properties often sold for record prices, and Calpers has more real estate on the block. It has on the market a $1.4 billion portfolio of industrial buildings it owns with Chicago-based Jones Lang LaSalle Inc.'s LaSalle Investment Management.
One partner that sold along with Calpers was Hines Interests LP in Houston, which sold 12 buildings at "substantially higher numbers than our optimistic expectations," said Daniel MacEachron, a senior vice president. The prices, which were 5 percent to 10 percent higher than what they expected and 15 percent above the appraised value, broke per-square-foot sales records in Greenwich, Conn., Seattle and Washington.
Driven by low interest rates and almost insatiable demand, real-estate prices rose strongly in most areas last year. According to Real Capital Analytics Inc., a New York real-estate research firm, the average price for apartment buildings rose 26 percent in 2004, while industrial properties were up 21 percent, office buildings gained 6 percent and retail properties increased 14 percent.
The prices for buildings keep rising even though vacancy rates remain high in many areas and rents are stagnant or falling. And some of the biggest price jumps occurred in markets where occupancy and rental rates at office properties have suffered the most, such as the Houston and San Francisco metro areas, where prices for office buildings soared 55 percent and 41 percent, respectively, according to Real Capital Analytics.
As it did during the stock-market bubble, trading volume has increased. A record $182 billion of apartment, industrial, office and retail properties changed hands last year, a 50 percent jump from 2003, according to Real Capital. More than $29 billion of apartment, industrial, office and retail properties went up for sale during the first two months of this year, more than double the nearly $12 billion of properties that hit the market during the same period last year.
To be sure, real-estate investment firms and pension funds sell real estate for different reasons, and there are reasonable arguments — such as rebounding demand and low interest rates — to justify the higher prices.
In addition, other sophisticated investors are buying, though often they are being forced to put money to work to diversify their funds or because they have taken in substantial amounts of money that they need to invest. Even amid the lofty prices, many maintain that commercial real estate continues to be a good investment given the alternatives: a sputtering stock market and a vulnerable bond market.
