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Monday, March 21, 2011

Buyers and Sellers Starting to Converge

By Walsh Mannas (Calgary)

It was not too long ago when I recall working with the Calgary Investment Team on a sales assignment to sell a newly constructed office building in Calgary, entirely leased to a government tenant on a 15 year lease, when we were confronted by prospects asking us what they were going to do with the property in year 16.

That was absolutely the low point in Calgary’s market. Headlease vacancy was rising, sublease vacancy was skyrocketing and no one seemed to have a solid grasp on just when the pain was going to subside. In this market the only product that was finding any traction was new, fully leased, well located properties.

The market today is different, almost entirely so. There are market participants looking for all asset types and for the first time all quality classes as well. Cap rates have compressed considerably, in the case of the most sought after asset type, currently retail properties, the compression has been well over 50 basis points.

We have seen an increase in demand for all asset classes due in part to the availability of financing on both the debt and equity side of the transaction. Interest rates remaining at or near historical lows have made capital abundantly available to most market participants and have filled the coffers of REITs all across the country.

This is a positive omen for the CRE market as this abundance of capital has entered the market while a number of owners are still reflecting on the illiquidity they witnessed during the downturn and trough of the market. Many of these owners re-evaluated their holdings during the crash and steadfastly know which properties carried them through the crash and which properties made them uneasy. It is this pairing of contrasting realities that I feel will create the most dynamic investment market we have witnessed since the peak in 2007.

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