Comments on CoStar Article About Institutional Transactions

This morning, CoStar published an article entitled Institutional Investors Throwing Big Money Around Class A Quality Retail PropertyThe article highlights several recent large transactions that have taken place and interviews guys from CBRE, Marcus & Millichap and Jones Lange LaSalle for opinions.  A few of the points/quotes caught my attention and I thought I’d share my comments on the matter.

First off, M&M’s Bernie Haddigan comments on the fact that these recent transactions are all of class “A” assets and states the reason he believes high quality assets continue to trade (emphasis mine):

"What is coveted in today’s market is prime locations and prime credit. With the St. Regis deal, for example, even in the worst of times, someone recognizes that there’s significant intrinsic value there. The best locations are the last to go down and the first to recover," said Haddigan, adding, "Irreplaceable premium deals are going to trade."

Haddigan said Marcus & Millichap is "finally starting to see increasing amounts of better quality deals come on the market. The profile of the buyer in all those cases is someone who wants stable, high quality, infill deals and they’re buying at 200bps above where they would have been 2-3 years ago at low leverage. There still is a lot of capital that will buy quality to park in their portfolio."

I have always preached quality first to my clients.  I have never been an advocate of chasing cash flow across the country.  I believe this is a recipe for disaster.  At the end of the day, no matter what the property, the asset you are buying is LAND.  Tenants come and go and buildings depreciate.  What I want to know is when my tenant leaves or goes bankrupt, whether in 1 year or 20, how long will it take me to find a new tenant and can I be sure that the rent I will get is the same or greater than my current rent?  Essentially, did I buy good dirt?  If I did, my dirt will have appreciated at a greater rate than the rental increases of the lease which encumbers my property, ensuring the realization of passive upside – or appreciation.

This mantra would, of course, rule out ever purchasing a single tenant Starbucks building – in any market – as there is not a single other tenant that is able to pay $6.00 PSF / month for a 1,700 square foot building on a 15,000 square foot parcel with 6 parking spaces.


This next quote kills me.  It is from Kris Cooper of Jones Lange LaSalle (emphasis mine):

"The problem is you have to have a seller that’s willing to sell at a cap rate that’s ridiculous compared to where it was just two years ago. Why would you sell a good grocery anchored center at an 8%+ cap rate today when that same center two years ago sold for a 6% cap? There’s got to be a reason they need to sell, whether they need cash, they have a debt maturity coming up, etc. Otherwise, why not hold it for two years and wait out the cycle and sell it at a presumably lower cap rate," said Cooper. Buyers are wise to this issue, too, which puts the seller at a further disadvantage, said Cooper.

Let me think about that for a moment.  Well I would think it wise to sell a property at an 8.00% CAP Rate, even if it traded at a 6.00% CAP Rate two years ago if I thought it was going to be worth a 9.00% CAP Rate next year.  That is the first reason that comes to mind.

Saying “why not hold it for two years and wait out the cycle and sell it at a presumably lower cap rate” is one of the most ridiculous statements I’ve read this year.  Has this guy been in this business for more than 5 years?  If so, he would realize that CAP Rates were never before at the levels we just saw in this last boom.  Saying CAP Rates (prices, values, rents, etc.) are just going to jump back to previous levels in “two years” is just stupid and irresponsible.

CBRE’s George Good seems to agree with me here (emphasis mine):

On the cap rates these deals are closing at, Good said, "Certainly these cap rates are dramatically different than two years ago, but looking at it on a 10-year or 20-year history, they could even be considered aggressive."

Yes, even today’s CAP Rates could be considered aggressive from a long-term historical perspective.  Remember that when you are deciding to hold your property because you think the value is coming back in the next “two years.”

M&M’s Bernie Haddigan adds a dose of reality, also contradicting Cooper’s statement, with the following quote (emphasis mine):

"No one really knows how deep and how long this is going to be. Most people seem to think that 2010 is not going to be any better than 2009. I think by the second half of 2010 we’re going to see a lot more transactional velocity because people are just going to surrender to the fact that the market is not coming back to 2007 values until maybe the beginning of 2019. I think we’re going to see yield requirements jump and prices go down," said Haddigan.

Related Posts:


  1. Joshua says:

    to be devils advocate – my reading of coopers statements led me to believe he was giving the "owners reasoning" behind holding. i dont think he was advocating that position. of course, i only read the article once and quickly. but he is right in the fact that no one will sell in an up cap rate market unless their is a need to (whether it be debt, issues with the property/location or quarterly valuation at a public company). most people who bought before 2006 will choose to hold and see what they can work out because their basis is not completely out of the ballpark (like in 2006/07 early 08).

    your comment on buying "good dirt" is absolutely spot on though. its the only true concern in single tenants. 1. how is the income stream and how long will i have it? 2. what can i do with it when that expires?

  2. I actually thought about that but he should have clarified if that was the point he was making.

  3. I’ve some question to you personally, create to individuals I don’t e-mail

  4. Really great site thank you so much for your time in publishing the posts for all of us to learn about.

  5. Shelby says:

    What a stuff of un-ambiguity and preserveness of precious know-how concerning unexpected feelings.

    Also visit my webpage: Shelby

  6. Appreciating the persistence you put into your blog and in depth information
    you present. It’s nice to come across a blog every once in a while that isn’t
    the same old rehashed information. Great read! I’ve saved your site and I’m adding your RSS feeds to my Google account.

  7. An outstanding share! I’ve just forwarded this onto a friend who has been conducting a little homework on this. And he in fact bought me breakfast due to the fact that I stumbled upon it for him… lol. So let me reword this…. Thank YOU for the meal!! But yeah, thanks for spending time to talk about this matter here on your web page.

  8. Vernita says:

    It’s really a great and helpful piece of info. I am glad that you shared this helpful info with us. Please stay us up to date like this. Thank you for sharing.

  9. Millie says:

    Hello I am so thrilled I found your website, I really found you by accident, while I was researching on Yahoo for something else, Nonetheless I
    am here now and would just like to say kudos
    for a incredible post and a all round enjoyable blog (I also love the theme/design), I don’t have time to go through it all at the minute but I have saved it and also included your
    RSS feeds, so when I have time I will be back to read a great deal more, Please do keep up the superb b.

  10. Highly energetic post, I enjoyed that a lot.
    Will there be a part 2?

  11. Stan says:

    Hmm it appears like your website ate my first comment (it was extremely long) so I guess I’ll just sum it up what I submitted and say, I’m thoroughly
    enjoying your blog. I too am an aspiring blog blogger but I’m still new to everything. Do you have any tips and hints for first-time blog writers? I’d
    certainly appreciate it.

  12. Albertina says:

    Hi! Someone in my Myspace group shared this site with us so I came to take a
    look. I’m definitely enjoying the information. I’m book-marking and will
    be tweeting this to my followers! Exceptional blog and excellent style and design.

  13. save money says:

    I was wondering if you ever thought of changing the layout of your site?
    Its very well written; I love what youve got to say.
    But maybe you could a little more in the way of
    content so people could connect with it better. Youve got an awful
    lot of text for only having one or two pictures.
    Maybe you could space it out better?

  14. I’m truly enjoying the design and layout of your site. It’s a
    very easy on the eyes which makes it much more enjoyable for me to come here
    and visit more often. Did you hire out a developer to create your
    theme? Exceptional work!

  15. I loved as much as you will receive carried out
    right here. The sketch is attractive, your authored material stylish.
    nonetheless, you command get got an edginess over that you wish be delivering the following.

    unwell unquestionably come more formerly again since
    exactly the same nearly very often inside case you shield this increase.

    Have a look at my blog post: haarausfall medikament

  16. This design is incredible! You obviously know how
    to keep a reader entertained. Between your wit and your videos, I was almost moved to start my own blog (well, almost…HaHa!) Fantastic
    job. I really enjoyed what you had to say, and more than that,
    how you presented it. Too cool!

  17. Ηey therе! Do you know if they make any plugins to protecft against hackers?
    I’m kinda paranoid about losing everƴthing I’ve worked hard on. Any tips?

    Here is my homepage … natural skincare

  18. Spot oon with this write-up, I absolutely believe that this website
    needs a lot more attention. I’ll probably be retuurning tto
    see more, thanks for the advice!

    Look into my webb blog :: Metal Slug app

  19. Hi there, You have done an incredible job. I’ll definitely digg it and personally suggest to my friends.
    I am sure they’ll be benefited from this site.

  20. Su modelo Oasi fue clasificado por la revista Climbing como el
    mejor pie de gato en 2013 en los E.U..

  21. Hi, its pleasant post concerning media print,
    we all be aware of media is a wonderful source of facts.

  22. I am regular visitor, how are you everybody? This article posted
    at this web page is actually good.

Leave a Reply