Last year’s largest Commercial Real Estate deals display a significant contrast in market trends.
As a final follow up to last month’s post in the MacRo Report Blog entitled Commercial Real Estate Sales Volume for 2015 in Frederick County Increases Over Prior Year, I thought we’d share a bit more detail about three interesting transactions.
Let’s put this into perspective: there were 142 CRE recorded transfers in 2015. From that the median size was $414,000, and the average transaction was $2,103,782. Big difference! In case you’re not up to speed on your mathematical terminology here’s a link from vocabulary.com.
That difference means that when you consider that 127 of the transfers ranged in size from $100 to just under $5 million, the remaining 15 deals in excess of $5 million made up over 65% of the dollar volume last year!
Digging deeper, the top 3 deals totaled over $82 million, which equals over a quarter of the $301 million in commercial real estate sales.
These transfers comprised of two hot market properties and one sector that will need years to recover from:
Number 3: The Patriot Center, 45 Thomas Johnson Drive, Frederick
56,500 square feet Medical Office building for $16,900,000
Seller: Clear Sail Associates, LLC (Marvin Ausherman), Frederick, MD
Purchaser: CNL Healthcare Properties, Inc., Orlando, FL
This sale closed on July 31st and was part of the portfolio transaction where CNL purchased two Ausherman owned medical buildings located on either end of Thomas Johnson Drive. The other one being the Liberty Professional building located at 194 Thomas Johnson. This sale ranked number 11 on the leader board at $7.35 million for 25,000 SF.
Ausherman is not known for selling product out of his commercial and industrial real estate holdings, but clearly couldn’t pass up these two sales which yielded $299.12/SF at Patriot and $294.00/SF at Liberty. These figures top the market for office space transfers in 2015.
Across the country, the medical office market is hot!
Number 2: Frederick Corporate Park, 10 buildings, Lots 4, 5A, 7 12A, 12B, Spectrum Drive, Frederick
450,000 square feet of mostly office use and some flex space for $20,000,000.
Addresses: 7485 New Horizon Way, 7495 New Horizon Way, 7435 New Technology Way, 7445 New Technology Way, 7450 New Technology Way, 7470 New Technology Way, 7490 New Technology Way, 5303 Spectrum Drive, 5302 Spectrum Drive and 5325 Spectrum Drive.
Seller: The Artery Group, LLC (via Frederick Tech I Owner LLC), Chevy Chase, MD
Purchaser: 270 Technology Park (Maryland) Lender LLC (CIM Group, LP), Los Angeles, CA
It was in August of 2010 that the MacRo Report Blog mentioned this project in an article entitled ‘Extend and Pretend’ Alive and Happening with Frederick Real Estate. In it we focused on how the lender for the Frederick Corporate Park, owned by Artery which purchased the property in 2005, chose to gamble by not foreclosing on a property that had been in default for years.
At that time the primary tenant Wells Fargo occupied close to 60% of the total project, but when they exited, a void was left that Artery could not cover. So for at least the last 6 years, that mortgage holder played the game of “extend and pretend” as a means to attempt to protect the $165/SF original Artery purchase price.
At long last in July of 2014, CIM Group LP of Los Angeles’ Wilshire Boulevard fame contracted to acquire the defaulted project for about 25% of Artery’s initial buy figure. The closing took place on February 18, 2015.
At the end of the day, the “extend and pretend” strategy may not have been the best strategy for the lender.
Number 1: 300 Cormorant Place – The Retreat at Market Square, Frederick
200,000 +/- square foot six 4-Star Multi-Rise 206 unit Apartment Buildings for $45,750,000
Seller: Johnson Development Assoc., Spartanburg, SC
Purchaser: Inland Residential Properties Trust Inc., Oak Brook, IL
This was a whopper of a deal! Consider the fact that the property was purchased for that $45.75 million figure and that Inland was able to land a 100% interest only loan! On top of that the average sales price of the 1, 2 and 3 bedroom units topped out at $222,087 per.
With 2015 reported net operating income of $2,699,250 before debt service and a possible interest rate of 5% or less, it’s possible that Inland could be experiencing a $400,000 net-net return on a zero dollar investment. I imagine anyone could have purchased the property under those terms, right? Wrong.
So there’s a taste of the top three transactions of 2015 … every commercial real estate broker’s dream.