The future of the suburban office market has been unclear in the recent months, but the recent sale of 97 suburban office buildings by Liberty Property Trust to Greenfield Properties is a clear indication that institutions are running from the suburban office market segment.
Details of the Liberty Property Trust / Greenfield Properties Deal
In a recent announcement released by Liberty Property Trust, the company disclosed that the sales agreement consisted of 4.0 million square feet of office properties, 2.3 million square feet of flex properties, and 274,000 square feet of industrial properties and includes Liberty’s Jacksonville, Florida portfolio in its entirety, all of the office properties in Maryland, Southern New Jersey and the Fort Washington submarket of Philadelphia and flex properties in Minnesota. The company stated that the entire transaction is expected to close in stages with a first closing in late 2013 and a second closing in early 2014 – subject to the satisfaction of customary closing conditions.
Where Does That Leave the Suburban Office Market?
Potentially in hot water because more institutions will follow suit. Companies that purchase suburban office space will most likely do one (or all) of the following:
- Spin off the winners at a higher cap-rate on the purchase to investors
- Sell the single tenant or smaller buildings to users who typically pay a premium to own their building
- Keep and manage core assets, either locally or product type, for cash flow
- Re-purpose certain assets into re-positioned properties (such as multifamily) by adding parking or additional space to add value
There will be a certain asset set that just needs to be sold. That will happen probably sooner rather than later. In the end, there is a profit to be made by buying at that level – below replacement cost.