BROKER BONANZA
Commercial Building Sales Yield Stellar Year for Brokers
By MATHEW PADILLA
Orange County’s top brokers shrugged off a soft leasing market to grow deal volume by $3 billion last year. The catalyst: a flurry of sales of all kinds of buildings.
The volume of sales and leases at the 25 largest brokerage offices in the county rose to $12.6 billion in 2003, versus $9.7 billion a year earlier, according to the Business Journal’s ranking. That’s a 30% gain in sales and leases in the period.
Sales were strong across the board: offices, industrial buildings, retail shops and apartments, said Kurt Strasmann, who heads Grubb & Ellis Co. in Orange County. He said many of the brokerages here focused their efforts on sales.
“We all made a lot of money,” Strasmann said.
Indeed, most offices enjoyed sizable gains in volume last year, with some doubling and even tripling compared to 2002.
The increases were aided by the Federal Reserve Bank, which engaged in unusually aggressive fiscal policy last year, lowering the benchmark federal funds rate to 1%. Other interest rates dropped with it, but regained some ground in the fall.
In fact, the persistence of low interest rates meant that 2003 played out in much the same way as 2002.
Leasing activity was soft amid a dearth of new jobs. But low rates enabled investors to borrow money cheaply, brokers said. Thus investors are buying buildings, even though OC’s office vacancy remains above 10%,it’s about 14%,and rents are down.
Buyers last year included wealthy individuals, some avoiding taxes; institutions such as pension funds and insurance companies; real estate investment trusts; investment funds; and investors grouped together in a form of shared ownership known as tenant-in-common.
Another category of buyers is owners of small companies who acquire small industrial and office buildings and then lease them back to their businesses. As long as rates remain low, it makes more sense for them to buy than lease, brokers said.
No. 1 CB Richard Ellis Inc. in Newport Beach participated in the strong sales trend last year. The brokerage concentrates most of its investment brokers in Newport Beach, according to Steve Case, senior managing director and a partner with the company.
The CB office did 128 sales deals last year, up 4% versus 2002. Overall, CB’s Newport Beach office reported $1.6 billion in sale and lease volume last year, up 20% from a year earlier.
On the other hand, CB’s Anaheim office saw deal volume drop 7% to $504 million in 2003. That office, which focuses on commercial leases, dropped three places on the list to No. 10.
“The leasing activity was down a little bit year over year,” Case said.
Sales of shopping centers launched the Irvine office of Sperry Van Ness up to No. 2 on this year’s list from No. 12 last year.
About 60% of Sperry’s company-wide volume is from the sale of retail buildings, according to John McDermott, regional manager. Volume at the Irvine office was 55% retail. The office’s total volume was more than $1 billion last year, up 194% from 2002.
In 2003 the Irvine office grew from 28 to 44 brokers, McDermott said. He joined the company about two years ago from No. 6 Marcus & Millichap Real Estate Investment Brokerage Co. and made recruiting one of his priorities, he said. His office also brokers apartment deals as well as some office and industrial sales.
McDermott said low interest rates aren’t the only reason why sales are so hot. He said both banks and investors are throwing money at real estate.
“More capital than ever has been available,” McDermott said.
In late December, Sperry lost one of its star retail brokers, Reza Etedali, who formed Reza Investment Group of Irvine. Etedali said his team at Sperry closed $600 million in deals last year, which would amount to 60% of the office’s total.
Since Reza Investment Group didn’t close any deals last year, it’s not on the list. But Etedali said his brokerage is working on $300 million worth of deals so far this year.
Etedali said the retail market remains hot. He said interest still is strong from buyers seeking a 1031 exchange. A portion of the federal tax code, known as 1031, enables an investor to avoid paying capital gains taxes on a sale if the investor buys another income-producing property within a certain period.
Grubb & Ellis Co.’s Newport Beach office jumped three spots to No. 3 on the list with $985 million in sales and leases, a 71% increase compared to a year earlier. About 50% of the deals were industrial sales with some leases.
Strasmann said private investors are tackling larger properties. In the past, rich individual investors bought properties for $1 million to $7 million, Strasmann said. But now they are pooling together to buy properties from $20 million to $40 million, he said.
Faris Lee Investments’ Irvine office held the No. 4 position with $800 million in sales; the company does not broker leases. Voit Commercial Brokerage’s Irvine office dropped two places to No. 5, despite doing $780 million in deals, up 10% versus a year earlier.
A new face on the list is No. 12 Cresa Partners of Orange County Inc., formed by brokers from Dallas-based The Staubach Co. Cresa reported a 3% decline in sale and lease volume to $428 million, versus a year earlier.
Other newcomers on the list: No. 23 Travers Realty Corporation of Orange County, No. 24 Beitler Commercial Real Estate Services in Irvine and No. 25 HealthWest Realty Advisors Inc.
