Thursday, December 15, 2005


A Bubble in Commercial Real Estate?

Is there an office bubble? It's a segment of the market with which I'm not familiar enough to make an educated analysis.

The ongoing purchase of Arden, the largest owner of office buildings in Southern California, would certainly seem to indicate that the big boys aren't worried about losing any money in that market.

Here's an excerpt from a news item at GlobeSt.com (Hat tip to LA Observed):
"It should definitely sell at a premium to the stock price," Silvers tells GlobeSt.com. "Given what I know about Arden, it's not desperate to sell and it's going to hold out for a fair price." The premiums above stock price that are being paid for REITs going private "reflect the disparity between Wall Street's valuation of real estate versus Main Street's valuation of real estate," Silvers says.

...

Whoever buys Arden will instantly become one of the largest owners of office buildings in Southern California. Arden as of Sept. 30 was the largest publicly traded owner of office properties in the region, according to the REIT's latest filing with the SEC, with 116 mostly suburban office properties, consisting of 192 buildings totaling more than 18.5 million sf. The company's portfolio was 93.1% leased, up about half a percentage point from a year ago, and its debt totaled $1.6 billion.
If Arden's new owners are the likes of Morgan and GE, they also would likely retain the REIT's management team, which would enjoy "more financial freedom" under private ownership, Silvers observes. "They would not have to worry about the Sarbanes-Oxley costs, and if the buyer includes someone like GE, they would also have access to lower cost debt," he points out.

— The Boy in the Big Housing Bubble