Sales of commercial properties valued at $5 million or more totaled more than $2 billion in San Diego County through May — the first time that has happened since 2007.
Cassidy Turley (CT), which tracked office, industrial, retail and multifamily transactions, reports $1.2 billion in the first quarter alone, a 34 percent increase over the same period a year earlier.
Institutional and private buyers each accounted for 42 percent of the sales volume. Real estate investment trusts (REITs) accounted for the remaining 16 percent.
JLL (NYSE: JLL), which surveyed commercial properties priced at more than $10 million, counted more than $900 million in such transactions in the first quarter. That survey didn't include retail assets.
Regardless of the survey, it seems clear that the competition for a limited number of well-located commercial buildings will be increasingly stiff throughout 2014, exacerbated by many owners wanting to hold on to buildings where they see a strong return.
Louay Alsadek, a CBRE (NYSE: CBG) executive vice president and capital markets specialist, said while he likes what is happening with the market, there simply isn't enough inventory regardless of the product type.
"The pool of prospective buyers continues to grow. There just aren't enough properties," Alsadek said.
Lynn LaChapelle, a JLL (NYSE: JLL) capital markets managing director, agrees that this is a problem, but added that owners still may be willing to sell if a target price is reached.
LaChapelle said she is seeing a lot of transactions "that are trying to get over the finish line."
"August is a vacation month for Wall Street, so people are working now so they can pull the trigger after Labor Day," LaChapelle said, adding that there is a lot capital seeking multifamily projects in downtown San Diego, as well as existing multifamily properties.
The three top sales transactions as noted by CT through June were office and office/industrial properties.
They included Starwood Capital Group's $295 million acquisition of 1.05 million square feet of a former Kilroy Realty Corp. (NYSE: KRC) portfolio in Carmel Mountain Ranch and Sorrento Mesa; Emmes Asset Management's $155 million purchase of a total of 747,633 square feet at 701 B St. and 707 Broadway in downtown San Diego; and Parallel Capital Partners' $72.5 million purchase of the 278,787-square-foot Wateridge Plaza complex on Wateridge Circle in Sorrento Mesa.
At the other end of the spectrum, a Colliers International "Private Client" report identified trends in properties valued at $10 million and less.
By Colliers' accounts, the average price for owner/user acquisitions in the $10 million and less category was $217-per-square-foot during the first quarter of the year, compared with $180-per-square-foot in the same quarter in 2013, representing a 21 percent increase.
Colliers pegged non-owner/user investment office sales prices at $208-per-square-foot in the first quarter, or a modest 5 percent increase from the same period in 2013.
Alsadek said that more capital is around now than before the recession.
The capital for commercial property acquisitions isn't coming from a single source. Commercial mortgage-backed security (CMBS) lending volume is expected to reach more than $100 billion nationally in 2014, CT says.
The CMBS market may have returned, but a CBRE report concluded that banks were the most active commercial property lenders, accounting for nearly 42 percent of the originations, compared to just 11 percent for CMBS in the first quarter of 2014.
CT says lending volume is expected to increase this year here despite the limited number of properties.
In addition, while underwriting criteria has eased somewhat, lenders remain "very disciplined and focused, scrutinizing asset quality, location, historical asset and market strength."
Loan-to-value ratios are better than during the recession, when it might have been necessary for a developer to put up half the capital, but the ratios haven't reached pre-recession levels, when 70 percent loans were common.
CT said average loan-to-value ratios hovered around 65 percent for 2013 loans, compared to the 70 percent-plus levels seen in 2005 and 2007.
CT said banks, life companies and CMBS lenders are expected to continue to serve as key sources of commercial real estate loans.
There could be some issues down the line. While 2014 will see a relatively modest volume of maturities, CT predicts the figure will triple by 2015 and quadruple by 2017 nationally.
"It remains to be seen what the condition of the financial market will be by then and how the market will digest these loans," CT concluded.