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# Everything must go: Time to sell and reinvest profits
- URL: https://www.smdp.com/everything-must-go-time-to-sell-and-reinvest-profits/
- Published: 2005-03-09T16:00:00.000Z
- Updated: 2026-10-24T23:35:27.000Z
- Author: Guest Author
- Tags: Opinion, Downtown, #archive-import

*By JODI SUMMERS*

Offices, shopping centers, industrial buildings and apartments were all hot ticket properties around Los Angeles in 2004\. Investment dollars, inspired by continued low interest rates, and a growing perception of property as a safe alternative to the stock market, piloted the commercial property investment market to new heights last year.

Check out these figures: Commercial property buyers spent more than $4.2 billion on office buildings in LA County last year, according to Cushman & Wakefield Global Real Estate Services. That’s 6 percent more than 2003, and double the 2001 figure.

“There have been gobs and gobs of money thrown at real estate,” confirms Nicolas Buss of PNC Real Estate Finance.

Sales are up, prices are up. The Los Angeles Times reports that the average price per foot for office buildings rose to $196 in 2004, up from $156 in 2003\. Meanwhile, prices downtown hit $350 a foot in 2004\. Sale prices are above $400 per square foot in downtown Santa Monica.

A member of the Action Apartment Association in Santa Monica called downtown, "A real sucker's bet. Market conditions don't justify the higher prices."

Office vacancy rates in downtown Los Angeles fell 2 percent to 17.3 percent in the third quarter 2004, but that's still well above the 10 percent level that the office building rental experts consider equilibrium. Around the county, vacancy rates came down 2 percentage points to 15.5 percent. The decline in vacancy rates did-n't boost office rents, which continue to be flat throughout LA County.

"I would say the market is overvalued, based on historical comparisons of prices per square foot," said Wayne M. Brandt, managing director of real estate finance for RBS Greenwich Capital. "Cash flows are being overvalued by investors who have an abundance of capital to invest."

The Real Estate Research Corp. has concluded that investors are currently looking for an average 11 percent internal rate of return on all property types, ranging from 13.3 percent on hotels to 10 percent on multi-family rental properties.

They may be looking for an 11 percent IRR, but the RERC study show that investors are currently willing to accept going-in capitalization rates averaging 9 percent, with multi-family rental properties (7.8 percent) and hotels (11 percent) serving as book-ends.

Experts say that the increase in prices and decrease in returns can again be attributed to the lowest interest rates in recent history. Do the numbers — on big properties, the internal rate of return can be more satisfying than the stock market. Inspired by these impressive returns, institutional investors decided they needed real estate in their portfolios.

These investors joined the bidding war, competing with investment trusts, foreign investors and wealthy individuals looking for a tax break. As a result, it pushed up prices up even further, and limited returns.

Money Magazine notes that across the country, institutional real estate sales — from hedge funds, overseas investors, to private equity funds and partnerships — surged 50 percent to $180 billion. They also noted that the commercial mortgage market rose 10 percent to $2.2 trillion.

At this period in the investment cycle, real estate has become the venture of choice, creating a market that favors sellers. Around Santa Monica, properties that have been owned for 20 to 25 years are being sold for 10 times appreciation.

"Now is the time to take that profit and reinvest in other deals," said C. Frederick Wehba, chairman of private investment firm BentleyForbes. "It's such a great time to be selling."

A national survey of commercial real estate investors by Marcus & Millichap Real Estate Investment Brokerage Co. found that nearly two-thirds of commercial real estate investors expected the economy to be stronger a year from now, compared with 37 percent who felt that way in 2004\. Nearly 75 percent of them plan to boost their real estate investment over the next 12 months by a median of 17 percent, compared with 13 percent in last year's survey.

PNC Real Estate Finance also predicts that real estate will still be a money magnet in 2005 — if yields on bonds and other types of assets this year continue to look less attractive. (Jodi Summers is director of the investment division at Boardwalk Realty Santa Monica. For your real estate needs, , or call (310) 309-4219.)

*Originally published in the Santa Monica Daily Press print edition on March 9, 2005.* [Read the original PDF.](https://s3.us-east-1.amazonaws.com/smdp%5Fbackissues/030905.pdf?ref=smdp.com)