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Deal Activity Reaches Fever Pitch At Year-End

CoStar Data Reflects Effort to Offload Properties By Sellers With The Highest Tax Exposure
January 2, 2013
Congress and President Obama weren't the only entities negotiating through the holidays. A slew of large commercial real estate transactions closed in the run up to Jan. 1 as many sellers unloaded properties before the expiration of the Bush era tax rates, hoping to avert the prospect of higher capital gains taxes on property sales.

The volume of transaction leads entering the CoStar research pipeline, generally in line with the previous year during the first three quarters of 2012, jumped in the fourth quarter from a year ago, based on selected CoStar transaction lead data through Dec. 31, according to Brian Kerschner, real estate economist for Property and Portfolio Research (PPR), CoStar's analytics and forecasting company.

The composition of those deals was also eye-opening, with transactions for lower-value property and loans up even even more sharply in the fourth quarter than leads for higher-value transactions.

For the purposes of the PPR analysis, lower-value transactions are deals that are below established minimum value thresholds, as determined by sale price, loan amount or assessed valuation. Such assets are most likely to be sold by owners hoping to avoid tax consequences.

Higher-value deals trading above minimum established values, which can vary by geography and are typically executed by entities such as REITs and pension funds with less exposure to capital gains taxes, were also higher than a year ago, but by a significantly smaller factor than lower-value transactions.

While CoStar will continue to comprehensively research property markets across the country before releasing final transaction and sales volume data for the fourth quarter, the transaction leads provide a window into relative activity levels in the CRE marketplace during the closing weeks of 2012, according to Kerschner's research.

The research provides further evidence of the surge in deal activity reported by CoStar in the weeks following the Nov. 5 election.

Deals that closed in the waning days of 2012 included the following:

  • acquired its Seattle headquarters campus from Vulcan Real Estate in a deal valued at nearly $1.16 billion. The project in South Lake Union includes 11 buildings totaling 1.8 million square feet.

  • Cupertino, CA-based Mission West Properties, Inc. completed its previously announced agreements to sell all of its real estate assets for about $1.3 billion. The company sold certain assets to a joint venture sponsored by affiliates of Divco West and TPG Real Estate for about $400 million in cash and $398 million in assumed mortgage debts and other obligations. Mission West also completed a separate transaction in which certain operating partnerships will retain their assets and liabilities with an approximate net value of $525 million.

  • Dexus Property Group sold the majority of its U.S. industrial portfolio for $561 million as part of its strategy to exit the U.S. market by April, reallocating proceeds from offshore property sales to core Australian properties, CEO Darren Steinberg said. The sale of 26 of Dexus's 27 American properties was achieved at a significant premium to their book value.

  • Pinnacle Entertainment, Inc. (NYSE:PNK) agreed to buy eight Ameristar Casino properties for nearly $870 million, plus the assumption of $1.9 billion in debt. Pinnacle has seven casinos in Louisiana, Missouri and Indiana, with a racetrack in Ohio, while Ameristar runs eight casino hotels in 11 states, including Illinois, Kansas and its home state of Nevada.

  • TIAA-CREF acquired a 49% equity ownership in the residential portion of New York by Gehry at Eight Spruce Street, the Frank Gehry-designed building, from Forest City Ratner Companies in a deal that values the 76-story, 898-unit high rise at $1.05 billion. Original partners Forest City and National Real Estate Advisors (NREA) are retaining 26% and 25% stakes, respectively.

  • RFR Holding, in partnership with an undisclosed real estate investment fund, has acquired the property known as 285 Madison Avenue, a 26-story office building in Midtown Manhattan’s Grand Central district. Advertising and communications agency Young & Rubicam, which is relocating, sold the 1929-vintage property for a reported $189 million.

  • San Diego-based Retail Opportunity Investments Corp. announced it closed on three Southern California shopping centers and is under contract to acquire a fourth in a $114 million deal from a private California investor. The shopping centers totaling 444,000 square feet.

  • Clarion Partners LLC acquired a six-building office portfolio in the Fort Point section of Boston for $129.3 million on behalf of an institutional client.

  • A partnership of Elco Landmark Residential and Timbercreek Asset Management acquired a portfolio of four apartment properties in Texas, North Carolina and Virginia from Colonial Properties Trust (NYSE: CLP) for $95.4 million.

  • KBS Real Estate acquired the Tower on Lake Carolyn in Irving, TX, from SP III 909 Lake Carolyn Parkway, L.P for $46 million.

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