Trophies vs. Trash – it’s just one way to explain what is happening in today’s commercial real estate market.  The Trophies are those main-and-main, big city stabilized assets that are the envy of every serious institutional owner.  And because the number of those assets is finite and the capital chasing them seemingly endless, prices–believe it or not–are going up and cap rats are being compressed.

The sales of those few Trophy assets are also the ones that major publications report on when they declare that the worst is over.  The recent sale of the Pritzker/Hyatt Office Building in downtown Chicago is an example of a trophy selling to California-based The Irvine Company for $625 million,  or $420 per SF. 

The divide between Trophies and Trash is also tracked by two diverging indexes.  The Green Street Advisors’ Commercial Property Index tracks 47 REITs, which in summary didn’t report the low as low and the rebound bigger than the Moody’s/Real All Property Type Aggregate Index, which tracks all same asset sales over $2.5 million. The Moody’s index, not surprisingly, reported a lower low and a much more modest rebound. 

The trash is obviously the other assets,  the dime-a-dozen suburban office buildings that are trading at per pound value and sometimes not more than dirt price, and non-anchored retail centers that were built ahead of the rooftops and now sit next to corn fields in the Chicago collar counties and next to cactus-filled deserts in Phoenix.  The retail properties are oftentimes half empty and with little hope of attracting  tenants that can afford to pay anywhere near the rental rates that justify their one-time value of $300 per SF.  The challenge as a buyer is to determine what type of property you are buying, not be teased by the notion of comparison to buildings that are defined as the other and pay accordingly.  There are markets for both, but the prices differ as much as corn does from cactus.