Metro Volume and Pricing
Sales activity has increased.* The $510 million that changed hands in 47 investment transactions through the first half of 2012 amounted to 81.3% of the dollar amount accumulated in all of 2011, which claimed the highest annual total since 2008. The total for the second quarter alone was $257.7 million at a relatively high average selling price of $147 psf. In the quarter’s largest deal, Kaiser Investment Inc. paid Sonora Village Investors LLC $46.58 million ($188 psf) for the 356,000- square-foot, 16.0%-vacant, 1996-built Sonora Village community center in Scottsdale. The sale closed in May at an 11.4% cap rate.
Since the quarter ended, Whitestone REIT paid $16.3 million ($129 psf) for the 125,898-square-foot, 100.0%-leased Paradise Plaza property in Paradise Valley, EquityBites reported in August. “The company said that this price was a 30.0% discount to estimated replacement cost and that a $9.1 million assumed mortgage loan and cash financed the acquisition.”
Buyers over the past four quarters all told have focused most heavily on three dispersed submarkets—Mesa-Chandler in the East Valley, North Scottsdale-Paradise Valley and Northwest Phoenix/Glendale. The former led in property volume traded at 1.9 million square feet. The dollar total was $217 million. For 1.8 million square feet sold, North Scottsdale-Paradise Valley led in dollar volume and average price at $356 million and $200 psf. In Northwest Phoenix/Glendale, 1.6 million square feet sold for $168 million. All other submarkets had notably smaller property volume sales totals.
“In hard-hit areas of Mesa, Chandler, and Gilbert, where population growth did not meet prior expectations, buyers will be able to purchase highly vacant strip centers for below $60 psf,” reports Marcus & Millichap. “Well-capitalized local and California investors who waited on the sidelines will pay cash for troubled assets. The owner will renovate the property and adapt the use toward the changing demographics in the area. The new configuration, along with favorable leasing terms, will help the operator backfill the space over several quarters. After holding the asset for three to five years, the owner may list the stabilized strip center at a cap rate around 9%, depending on interest rates.”
Cap Rate Comparisons and Forecasts
The average cap rate, under 8.0% for the previous three quarters, rose to 9.7% during the latest. The steadier 12-month rolling cap rate has stayed within a few basis points of 8.5% since the fourth quarter of 2010. The 12-month cap closed the latest quarter at 8.3%, down 20 basis points from a quarter earlier, down 10 year-over-year. For the period ahead, Reis expects the 12-month cap to remain within a few basis points of its latest rate. Second quarter 12-month rolling caps for retail property sales in the Western region and the U.S. as a whole were 7.8% and 7.9%, down 10 basis points and unchanged from the quarter before.