The commercial real estate brokers who listed local property in 2010 are proud they found buyers.
But they’re not very proud of the prices they negotiated.
In compiling the biggest deals of 2010, Crain’s located 122 sales that topped $1 million in metro Detroit. However, only 10 of the deals were greater than $10 million. There were just 20 sales in 2009.
An analysis of the deals shows an average sale price of $47 per square foot. That’s down from the $51 per square foot in 2009 and down significantly from the $63 calculated by the Washington, D.C.-based CoStar Group in 2007.
Driving the deals, in part, is the pent-up demand among investors and companies in the region, said Mark Woods, managing director of Southfield-based Signature Associates.
“You can only do nothing for so long,” he said.
As a result, Woods said, the companies that can invest in their facilities are doing so, and the buyers with access to capital are making their moves.
“And the banks and owners are saying “it’s time,’ ” Woods said. “They’re changing their position and deciding to sell for whatever amount they can sell for.”
Along with the deals come opportunities.
Buyers are finding chances to buy buildings at record low prices. Among the deals watched by the industry in 2010 is the acquisition of the Riverview Building in Southfield by the Southfield-based Farbman Group.
Bought for $5 million at 60 percent occupancy at the end of 2009, the 183,000-square-foot building ended 2010 at 85 percent occupancy as the building’s low cost basis allows rental rates that have undercut the Telegraph corridor.
Stories like that have motivated buyers in the Detroit market.
“There’s a high volume of deals right now in the $5 million to $10 million range,” said Farbman’s CEO Andy Farbman. “What’s huge is that the velocity of transactions can create some stability in pricing, which will make investors feel more comfortable in the market.”
He said the fourth quarter of 2010 was one of the best ever for the investment sales division of NAI Farbman, the company’s brokerage.
“And the first quarter is looking just as good,” he said. “That means we’ve touched the bottom.”
Along with investors, users of real estate have taken advantage of the times as well.
General Electric Co. bought a 121,000-square-foot building in Belleville for $5.3 million, giving up the idea of building a facility.
In the automotive sector, Germany-based Weber Automotive Corp. spent $9.5 million on a building in Auburn Hills; Korean Techno Semichem Co. Ltd. bought a 131,000-square-foot building in Northville for $4 million; and Ontario-based Magna International Inc. spent $4.9 million for an Auburn Hills building.
In the services sector, Troy-based Doeren Mayhew & Co. PC purchased a 77,000-square-foot office building in Troy for $3.4 million; Southfield-based First Mercury Insurance Co. purchased a 97,000-square-foot building for $3.2 million; and Southfield-based ImageSoft Inc. bought a 15,000-square-foot space in Southfield for $1.4 million.
Companies that buy their real estate rather than lease can save money, provided it’s the right fit, said Steve Morris, managing director of the Southfield office of Newmark Knight Frank.
“Owner-users who purchased a building at less than 50 percent of replacement costs can save significant sums over leasing, provided they are able to hold the property for seven to 10 years,” he said. “However, if an owner-user buys a building that has more space than they need, they will lose money on their investment if they have to carry the vacant space for a long time.”
And 2010 also showed a return to some of the large deals the Detroit market has seen in the past.
General Development Co. bought 212 acres of land no longer needed by Chrysler Group LLC for $2.5 million.
The company then signed a lease and developed a 78,000-square-foot building for U.S. Farathane. Later in the year, the lease was converted to a sale, with Farathane buying the building for $15 million and $2 million for some of the land around the building.
Gary Weisman, co-owner of Southfield-based General Development, said he bought the land during a bad time for local real estate because he knew the market would come back.
“It was a time where people had to make a decision, panic or double-down,” he said. “We chose to double-down because we believe in this marketplace.”