Owners of important name office buildings in some U.S. cities are competing to put them up for sale to make the most of surging prices before it is too late.

A few weeks ago, owners of the Willis Tower in Chicago, Constitution Center in Washington, the Seagram Building in New York and numerous other large properties have put all or portions of them on the block. They are hoping to cash in on the near-boom-era prices being paid by yield-hungry investors discouraged by the volatility of stocks and low interest rates in the bond market.

The rush comes as the U.S. economy shows new signs of weakness, raising questions about the direction of office rents and vacancy rates.

Last month, the total value of new sales listings of U.S. office buildings was $8.7 billion, according to real estate research firm Real Capital Analytics. That was the highest level since 2008. Preliminary data for May show $10 billion in new listings, which would be the highest monthly total since late 2007.

Recently, recession sales activity in the office market has been slow. Lenders have held onto distressed assets rather than sell them, frustrating many investors who hoped to take advantage of the pain of others. Even as values rise, many owners continue to resist selling because they don't like their options for investing the proceeds.

The abrupt rise in values has come over the past year, a nearly short time period in the real estate market. Present day deals include the sale of 750 Seventh Ave. in New York's Times Square by Hines Interests for a price of $485 million and Beacon Capital Partners' sale of Market Square in Washington for a record $905 a square foot.

"We're making decisions to sell because we're achieving very fair values," said Fred Seigel, Beacon's president.

Beacon considers marketing 1211 Ave. of the Americas in the upcoming weeks, for which the company would look to retrieve well above the $1.5 billion that it paid in 2006, according to people familiar with the matter. The 45-story property houses the headquarters of News Corp., publisher of The Wall Street Journal.

The strong hankering office property is limited mostly to major cities. Suburban office markets, which are getting harder hit by the economic downturn, are suffering from weak vacancy and rent rates, putting a damper on investor demand and values.

Investors are more energetic on commercial property because there was little overbuilding during the bang. Rents have been climbing in cities like New York and Washington, although they remain heavily dependent on job growth.

"There is still a lack of quality product for sale, and investors want to be in these markets," said Douglas Harmon, a broker at Eastdil Secured who is marketing the Willis Tower along with real estate firm Newmark Knight Frank.

The financing market and interest rate environment are key factors for these situations. Buyers are finding it easier and less expensive to borrow and, with interest rates at unexpected lows, even a low yield on office property becomes attractive.

Undoubtedly, the rise in value is being powered by trends in the capital markets than by improving rents. For example, in Midtown Manhattan, rents are still 36% below their peak, according to Cushman & Wakefield and growing less quickly than values.

To be sure, the sales numbers are still leagues below their 2007 peak, when buyers were able to borrow nearly the entire price of buildings. That year saw a peak $209 billion in office-building sales in the U.S., according to Real Capital. For 2011, real estate advisory firm Jones Lang LaSalle projects $73 billion in office sales, up from $43 billion in 2010.

By: Elizabeth Martinez, Editor
Mortgage Lending News, LLC
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