For “A” Assets, the Cap Rate Party Continues

Aggregate local transaction volume was just shy of $459 million, a 292% increase from 2009’s lackluster performance of $117 million. The dramatic increase is a continuation of the trend of increased transaction volume that started in 2010 and 2011 where total volumes were $331 and $359 million, respectively. Excluding multi-family and office product sales, the second half of 2012 showed a slowdown of sales, but it was likely more of a wait-and-see attitude until after the election.

Performance in 2012 can be attributed to four primary influences:

  • Falling interest rates;
  • A healthy job-creating local economy in the midst of a faltering national economy;
  • A rebounding secondary market for financing sources; and
  • Charleston is simply now on the map for investors across North America.

Still, the recovery is not broad and deep. For example, of the 40 sales in 2012, only one multi-tenant retail center sold and only three office buildings of any significance, all in the fourth quarter. The bulk of the transactions were in the very hot multi-family and the continued white hot net-leased market where debt and credit, lease term and liquidity, respectively, have won the affection of investors for the near term.

Retail Centers

A cooling off of this sector occurred with just one sale in 2012. The North Rivers Market power center across from Northwoods Mall sold in September 2012 to Hawthorne Retail in Charlotte at about $45/SF. Hawthorne plans a major renovation, re-tenanting and rebranding of the center. Financing sources, co-tenancy issues, and tenant health/credit continue to be critical points for underwriting retail deals; that, and unwilling (or unrealistic) sellers.

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