Some local real estate experts are surprised that the Bon Carré Business Center fetched $30.5 million in a three-day online auction that ended Wednesday.
At more than 700,000 square feet of rentable space, the per-square-foot price for the former shopping-center-turned-business park comes to more than $40.
“A price of $40 per square foot isn’t unreasonable if you are buying a 40,000- or 50,000-square-foot building,” says commercial broker Matthew Laborde of Elifin Realty. “But if you are buying an 800,000-square-foot building that is only 50 percent occupied it is a lot.”
Bon Carré has a 67.4% occupancy rate, according to online marketing materials.
Others agree the price is surprisingly high, noting that a previous attempt to auction the property failed to produce any offers—even at the minimum bid level of just $12 million.
It’s important to note, however, that the property also lists a net operating income of some $2.9 million a year. At $30.5 million, a $2.9 million NOI would equate to a CAP rate of 9.5, which is “fair and appropriate” for this market, according to Wesley Moore, an appraiser with Cook, Moore, Davenport and Associates.
“If they can really generate $2.9 million a year and they expect to perpetuate that, then $30.5 million is a reasonable price,” he says.
But it’s not at all clear that the new owners will be able to sustain that level of net operating income. In recent years, the center’s occupancy rate has fallen to its current levels from the low 90% range, as several long-term tenants have downsized or left. Later this year, its occupancy will shrink further, when State Farm and its 47 workers leave the center.
A lot, however, depends on the identity of the winning bidder. Officials with Ten-X Commercial, the California-based company that conducted the online auction declines to say, citing rules of confidentiality.
Local brokers with Beau Box Commercial Real Estate, who handle leasing for the center, also declined to comment on the identity of the buyer or their intentions for the property.
“We will allow the next steps in the process to play out between the property owner and the highest bidder,” says Bill Sanders of Beau Box.
Those steps will include due diligence. Between now and Feb. 7, when the property is scheduled to close, a lot could still happen to derail or change the terms of the deal, according to Tom Cook, also of Cook, Moore, Davenport and Associates.
“It’s a long way from closed,” Cook says. “There could be serious deferred maintenance issues. I’ll feel a lot more confident that this is actually going to happen once it’s closed.”