The $1,000 Per Square Foot Ceiling Has Been Shattered
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The $1,000 sq ft barrier has always been the holy grail of commercial real estate. First a property on the Venture Capital Mecca of Sand Hill Road sold for 1,000 a square foot, now we have 2 properties in Manhattan selling for this amount.
Real estate is always pushing new levels, but this is a historic one that many in the field will remember for a long time.
Nevertheless, it happened earlier this year, when Boston Properties sold the 1.2 million-square-foot, class A office complex at 280 Park Ave. to a foreign investor for about $1.2 billion, or $1,018 a square foot. Soon afterward, Sitt Asset Management and Steve Sutton sold the 15-story, 298,000-squarefoot office building at 1466 Broadway, aka Six Times Square, for about $300 million, or $1,007 a square foot. “These prices are insane,” as Crazy Eddie, the pitchman for a now-defunct electronics store, would say.
Many industry leaders expect prices to continue to rise.
“I have been on Wall Street since 1980 and have seen many markets where people have been shocked by seemingly crazy prices,” the chairman of Signature Bank, Scott Shay, said. “Seemingly crazy prices are not really crazy when underlying business activity justifies them. In this case the sustained higher levels of commercial rents and profitability has decreased cap rates and raised multiples. Based upon decreasing vacancies, increasing rents, and the fact that New York has weathered the effects of 9/11, the risk premium inherently priced into this market has dropped as well. Any time a market has moderate, or only one way, volatility for a long term, risk premiums decrease and prices thereby increase.
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Pingback by Mixed Messages and Puppeteer Pricing | Redfin San Diego Sweet Digs on 8 March 2008:
[...] tolerance is low. I am up in arms with the market today so I’m dedicating this post to nonsensical pricing. It’s all about pricing strategy gone awry. Honestly, who’s selling homes and [...]