Last year was surprisingly strong for office and industrial investment sales in central Connecticut. On the heels of three stagnant years, more square feet of office space traded hands in 2012 than this market has seen since the 1980s.
Twenty-one office buildings totaling 2.9 million square feet sold for $272 million last year. Comparatively, only 18 office buildings sold between 2009 and 2011 (the annual market average the previous five years was 17).
The good news for local and out of market real estate investors is that this active sales environment has continued into 2013.
Through August, 10 office buildings totaling nearly 1.4 million square feet have traded hands in central Connecticut. That doesn’t include the sale of Blue Back Square, the 450,000 square-foot mixed use dining, retail and office destination center in West Hartford.
Ronus Properties, the original owner, sold Blue Back to Starwood Capital Group for $106 million. Not only is this sale noteworthy for its size, but it also proves that central Connecticut can attract institutional investment from outside the market in the aftermath of the 2008 credit crisis.
Blue Back Square was one of four sales that have highlighted the market so far this year. Two others were 55 Farmington Ave. and Connecticut River Plaza in Hartford, both acquired by the state of Connecticut. The state paid $52.5 million for both properties, which total 841,000 square feet.
Meanwhile, the fourth significant sale also occurred downtown: West Hartford’s The Fremont Group paid $22.7 million to buy the 12-story, 293,639-square-foot Metro Center, which fell into foreclosure in 2009. That deal was also significant because it showed local investors still believe in the fundamentals of their own market.
The suburban market has been active as well.
Seven months after RBS Citizens foreclosed on three properties in Farmington, each has been re-sold, and to three different investors. UConn Health Center purchased 195 Farmington Ave. for $135 per square foot; local investors Mark Siegal and Brad Baran acquired Farmington Mountain Office Park for $4.8 million; and Bristol’s Industrial Builders & Realty bought 2 Batterson Park Road for an undisclosed price.
Increased demand from tenants is also driving sales activity.
Realty investor Mark Greenberg acquired 525 Brook St. in Rocky Hill as a vacant property and then leased the building to the Capitol Region Education Council. Meanwhile, Keystone Cos. from Simsbury purchased 103 Woodland St. in Hartford from VNA Healthcare, and leased the building to St. Francis Hospital.
This flurry of office building trades is fueled by investor optimism in the market — both in the national and central Connecticut economies. The return of strong pricing is also giving current owners the opportunity to sell properties that would have been difficult to trade between 2008 and 2011.
As a result, the pipeline of new sales activity is strong: six significant office properties will hit the market this fall.
The most notable is Hartford’s Goodwin Square, which is expected to be auctioned by LNR. The mortgage servicing firm foreclosed on the signature downtown Hartford office tower late last year and has decided not to invest additional capital in the property. Instead, LNR wants to sell Goodwin as underperforming asset with upside.
Between investors looking to invest capital and lenders selling foreclosed property, the investment sales market in central Connecticut is expected to remain strong for the next two to three years.
Meanwhile, other lenders are currently investing in foreclosed buildings, but are not long-term owners of the real estate. Properties such as Hartford’s CityPlace II and the five-building portfolio in Windsor’s Griffin Park will also likely hit the market in the near future.
This potential flurry of sales activity will redefine the central Connecticut office market as new owners purchase real estate amidst an improving economy.
Patrick Mulready is a senior vice president and partner at commercial realty firm CBRE/New England in Hartford.
