Boston, MA – This event is jointly held by the New England SIOR Chapter and the Mass Chapter of NAIOP. Approximately 300 commercial real estate professionals attended this event. Tom Farrelly, the New England SIOR Chapter President welcomed the attendees to the program and thanked the sponsors. He introduced the program. The event would begin with an economic overview by Harvard Kennedy School’s Edward Glaeser who provided a snapshot of the economy and its impact on the local real estate market. Then some of Greater Boston’s most senior real estate professionals gave sector reports with a special look at the office, multi-family and capital markets. Panelists explored the drivers and market fundamentals behind 2011 statistics, including emerging trends in specific markets, new growth areas, and a general outlook for the future.
Frank Petz of RBJ & Partners on the Capital Markets
Frank concluded the program by stating that the capital markets have had a great time in the last 12 months and that Boston is in the top 3 markets in the U.S. for investors. It has been fun and he welcomed the other panelists to join the party but it was time to get back to basics. His sector is not trading as much in volume but still attracting big prices. He said that as a comparison, 2007 was a ridiculously high year of volume but now he is experiencing in 2011 the same low volume that he had in 2001. There is ample (a ton) of capital. Cap rates are down and the volume of transactions is increasing.
The 2011 YTD volume breakdown = 10.3% of sales are greater than $50 million; 3.4% are in the $25-50 million range and 86.2% are less than $25 million.
He is seeing more activity along Rt. 495 because there is too much demand inside Rt. 128 and very little or no product to buy inside Rt. 128. There are smaller deals along Rt. 495 and not as much large portfolios to purchase.
Core trophy sales are also back as the Hancock Tower traded at $490 psf.
Frank stated there were still distressed opportunities in the market but not much movement on pricing. The distressed properties have 50% or more in vacancies and the core trophy assets are back. He is not seeing as much distressed sales in Boston and therefore does not see any Tsunami occurring. Lenders are looking to place capital to work and there is debt available which is driving deals.
Frank is experiencing extreme compression. Boston cap rates are in the 4.5-5.0 % range. Recently Bay Colony sold at 6.9% cap; Landmark Center at 5.7% but its unusual to see cap rates below 5% unless its multi-family but it is happening.
• The 10 Yr. T-Note is hovering below 3% so the spreads are widening. For instance, from 2001-2011 the 10 year average = 342 bps over the 10 yr T-Note.
• Jan. 2005 the spread was 265 bps over the 10 Yr; Jan. 2007 it was 182 bps spread and now April, 2011 it is 361 bps over the 10 Yr. Note.
• Mortgage Spreads are Narrowing In terms of lender’s interest rates, Frank stated the spreads are getting narrow for lenders.
• In June, 2001 mortgage rates were 230 bps over 10 yr. T-Notes; March ’07 = 109 bps; April ’09 = 272 bps; May ’11 = 192 bps and June ’11 = 225 bps. We still have positive leverage.
• Frank concluded that the CMBS market is finally back. In 2009, there was $0.9 billion of volume and the estimate 2011 volume is $50 billion.
We would like to thank Garry Holmes, SIOR for organizing this event and to the following sponsors:
Cushman & Wakefield
Grubb & Ellis
Jones Lang LaSalle
Greenburg Traurig LLP