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Commercial real estate sales increasing in medium-sized cities

9/28/2016 | Real Estate Blog

Pennsylvania commercial real estate investors may have heard about the recent $150 million sale of the Datran Center in Miami. The deal, which was made jointly by Acre Valley Real Estate Capital and ABS Partners Real Estate, reflects the trend of investors moving from major to medium-sized cities.

Because properties in many major cities such as San Francisco and New York are rising in price, a lot of investors are focusing on smaller, more affordable commercial real estate properties found in places such as Dallas, San Jose and Miami. For this reason, Acre Valley and ABS have purchased other properties in medium-sized cities including garden apartments in Cary, N.C. and office facilities in Charlotte, N.C.

According to ABS’s co-managing partner, the company is seeking properties where the rate of return, called the capitalization rate, is about 6 percent. The cap rates were around 4.25 for Class A stabilized New York properties during the last six months of 2015, which was lower than Datran Center’s 6-percent rates. Boston’s cap rates ranged between 4.5 and 4.75 while San Francisco’s cap rates were between 4.75 and 5.5, according to a study done in February 2016 by CBRE Group Inc.

The study also found that the most expensive office markets in the U.S. were the downtown areas of Boston and San Francisco as well as the mid-town area of New York. Falling cap rates is an indication of price hikes.

Successful investing in commercial real estate takes a great deal of forethought, knowledge and experience. Investors may also benefit from the experience of a local real estate attorney who can help address legal issues regarding partnerships, purchase and sales agreements, and title and zoning matters.