The second quarter was a great one for investment sales.
Due to the lack of available office product downtown, investors have been flocking to the suburbs where they have been met with tight markets and quality assets. Some examples of this trend include:
- National Development buys New England Executive Park (office) in Burlington for $216,000,000
- Athenahealth (user) buys 311 Arsenal St. (office) in Watertown for $168,500,00
On the multifamily side, sales skyrocketed from $116,150,000 in Q1 to $282,192,502 in Q2 in the Greater Boston area. One of the biggest deals in that sector was the Mack-Cali purchase of Alterra at Overlook Ridge in Revere for $87,950,000.
And on the Industrial side, aggressive financing has made it possible and affordable for companies to purchase their next location, boosting activity and decreasing vacancy rates in both the industrial (down to 8.4%) and flex (down to 11.6%) markets.
To dig a little deeper into these trends, we sat down with two of our resident experts, Doug Jacoby, executive vice president/principal and David Ross, executive vice president/principal.
1) What are the hot investment areas right now?
Doug Jacoby: Locally, Boston is still the hottest for all asset classes, with Cambridge and Central 128 next in line. The hottest sectors remain “core” assets in these great locations, while safety and the ability to finance are the primary factors driving interest.
David Ross: Even acquisitions that are trading for core pricing, in the best locations, can be argued as “value add” or “core plus” investments with strong underwritten rental growth and market improvement.
2) It appears as though rates will be on the rise. How is this impacting activity right now?
Ross: Interest rates are only one consideration when buying and selling multifamily product, but in terms of other sectors, long-term office, industrial and retail assets will be hit hardest by the rising interest rates, and the most sensitive to borrowing costs. Whereas multifamily will be less impacted by rising interest rates because of the opportunity to increase rents, based on the strong rental demand.
3) What kinds of properties are buyers looking for?
Jacoby: The number one factor driving interest is cash flow, leased assets. However, buyers are looking for several factors: for example, stabilized properties, new construction, and all classes A, B and C, in different locations.
4) What is on the market right now?
Ross: In terms of deals we are working on in the market, we have a 71-unit apartment complex, available in Acton, and recently closed on Nashoba Apartments, also in Acton for $134,000/unit. We also have 10 units, located at 135 Beacon Street in the Back Bay coming to the market, which is already generating a lot of activity.
Jacoby: We have had an active spring and summer taking several properties to market in Boston as well as the suburbs including 5-9 Broad Street in the Financial District, One Lewis Wharf a jewel box office building in Boston’s North End waterfront, and a first class office/flex building in Woburn. The last half of the year looks to be quite active with multiple closings on the horizon.
5) How are cash deals affecting the market?
Ross: We are seeing local buyers that are averaging over their portfolios and have large sums of money in either cash or equity in existing properties. This happens when interest rates drop, rents rise and you get cap rate compression. Further, few buyers will need mortgage contingencies and will take down an asset on a credit line or pay cash. The competition for multifamily properties is very spirited, meaning all recent marketing efforts have resulted in a multiple bid situation, and prices have exceeded expectations. This is because multifamily is the preferred product type throughout all classes.
Jacoby: Overall, cash deals are preferable when they are offered but typically this occurs only as an incentive to select a buyer. Low borrowing costs are too attractive for assets to remain unleveraged.