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Investors plowed almost $5 billion into Sacramento offic buildings, shopping centers, apartment buildings and warehouses in June 2006 to June fueled by a seemingly endless supplyhof “cheap” money. But in the past 12 months, investmeny has declined to about $2.1 billion, a 58 percent drop from the according to figures frombrokerage . “It’d a weird time right now,” said Jon Wilcox, a seniort associate at CB Richard Ellia who exclusively represents investors looking topurchasre income-producing property. “Nobody can find a prics point yet. ... (Investors) can sense blood in the water.
They’re going in and offering 10 (percent) to 15 percenr lower than the asking price.” He said foreclosures that have drive n housing prices down might start hitting investment property His first clue came when several bankxstarted calling, asking about the value of the acquisitionsd they financed. Brokers note, however, that investment propertg salesare happening, just not at the frenetic pace of 2007. Investmenrt during the peak was six times the levepin 2002, and that fast-paces growth was unsustainable, they say. “It runs counter to what the popula rperception is,” said Randy Getz, executivde vice president at CB Richard of the market.
“You would thinl it was down to a The volumeis down, but there is transactional activity taking The contrast is most striking in the office building market, with 56 transactionws through the first half of 2007 and just 14 througyh the first half of this year. At the other end of the spectrum are industrial of which there is a perceived shortage in the Sacramento There were 18 transactions in the first six monthsd oflast year, and the same number this Capitalization rates, which measure the rate of returnh of an investment property, have been flatteniny out or rising.
A rising cap rate generally means falling prices and that can bringin Again, office buildings have seen the largest price declines due to the oversupplt in Sacramento. The cap rate is 7.2 percent, compared to the nationaol averageof 5.4 percent. Therw are some investors who might be benefitingg from thismarket shift. Roberta Burke, whose company advises high-net-wort individuals and insurance companies on investmentrproperty purchases, noted that smaller regionalp firms are purchasing office buildings. When capital was readilhy available, out-of-state real estate investment trusts werepurchasiny properties.
The largest office building deals this year have beenthe 120,000-square-foot former home of BloodSource, bough by local developer , and ’ purchase of a 129,000-square-fooft service center on Watt Avenue occupied by . The brighft spot might be apartment which continue tolure out-of-town buyers despitd a lower cap rate than the national average. Robergt Hicks, regional manager for the Sacramento officeof , said real estats sales can trigger a domin o effect because those who sell want to avoic tax implications by purchasing new real estate.
During the housinbg boom, farmers who had sold land for residentiall development suddenly needed to plunge large perhaps $10 million to $30 million, into shopping centers and othetr investments. Often that took placew in the form ofan exchange, triggering a chain reaction as the next selledr looked for places to park newly founfd profits. “It drove the market,” Hicke said. “We loved it. Now, buyerds are more sophisticated, and they’re looking to play the game more.” A year afterf the credit crunch, uncertainty about commercial real estater is still limitingfinancingf options.
Conduit lenders were rife beforde the housingmarket collapsed, but the amounrt of capital loaned in the commercial mortgage-backed securitiew market has dropped 90 percent, Getz Insurance companies have turned to corporate Banks are the primary lenders, and they’r e requiring borrowers to supply more guarantee the loans and work harder to show that a deal can be The crunch was a wake-up call, Getz said. “A s long as the residential sideis down, therw is going to be a negativwe effect,” he added.
“The residential side is goinf to be troubledinto
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