Below is a recent commentary in Finance & Commerce written by Burl Gilyard. It is looking at events in commercial real estate that are happening elsewhere and wondering if they are the signs of potential good things to come in the the Twin Cities market. These events are encouraging and it is certainly good to see that some transactions are starting to happen. It helps us to answer a question that is on many peoples minds these days – “Are we there yet?” Has the commercial real estate market in the Twin cities reached the bottom ? Are we starting to see the beginning of a rebound? I think that in the next several months we will start to see some of these encouraging signs happening in our market as well.
by Burl Gilyard Staff Commentary
A press release landed in my e-mail inbox on Friday afternoon. No, that’s not news —when you work at a newspaper, people who have press releases to send have a way of finding you.
But this one caught my eye: Houston-based Hines announced the sale of a New York office building for a large pile of money. Specifically, Hines sold the 600 Lexington property for $193 million. The 36-story building includes 303,515 square feet and is currently 93 percent leased. The deal works out to roughly $636 per square foot, a price that would be unheard of in Minneapolis. But this is Midtown Manhattan. The seller, a subsidiary of the Hines U.S. Core Office Fund LP, had paid about $91 million for the property in 2003. What do Houston and New York have to do with Minneapolis? In today’s global economy, everything is connected.
Over the last couple of years, things have been pretty slow on the investment sales landscape. Potential buyers have had trouble finding financing, and potential sellers have often balked at the idea of taking less money than they’d planned on for their properties Maybe I’m just in a “New York State of Mind,” to quote the old Billy Joel song. But this Manhattan office deal seems like a signal that things are starting to loosen up, that more deals will follow. And that could be good for the Minneapolis market.
The privately owned Hines has a notable footprint in downtown Minneapolis. Before the capital markets cooled, Hines was a player in downtown’s last big deal: Hines and a joint venture partner acquired the three-building, 989,000-square-foot campus now known as Washington Square in January 2008 for approximately $118 million. (The deal included a parking ramp.)
And then as I was scanning The Wall Street Journal today, I noticed a tidbit dated May 19 that looks like another hopeful note for commercial real estate dealmakers. The Washington, D.C.-based Mortgage Bankers Association reported last week that the amount of commercial mortgages originated in the first quarter was up 12 percent compared with last year. That’s another encouraging signal for a market that’s heard a lot of radio silence during the last two years.
There’s an ineffable but undeniable psychological factor to how markets move. If no one is doing deals, people are wary of doing their own deals. But if deal traffic heats up, everyone wants in on the game. Minnesota native Bob Dylan famously sang that “you don’t need a weatherman to know which way the wind blows.” Who can argue? All you have to do is keep an eye on the New York office climate and have faith that Minneapolis will follow Manhattan.