Wednesday, November 14, 2007

555 Monroe off the market

This is an interesting story, because the prevailing wisdom (mine included) is that a quality asset with a good tenant base will not be as affected by any current market shifts. Yet Principal Financial has apparently taken the Quaker Oats building off the market because the offering proces did not live up to expectations.

I would not panic, but let's look at this briefly. The building is 95% leased to a single credit tenant, the Quaker Tropicana Gatorade division of Pepsico on what is reported as a long-term deal. Sounds like a high quality asset to me, and just what you'd want to buy in a crazy mixed-up market.

Maybe some investors are spooked by the possibility of one tenant blowing out, leaving you with an empty building. Without doing due diligence and actually reading the leases, you don't know how much of Pepsico is on the hook for the lease or what the tenant's termination rights, if any, are. And also remember, today's major company can be tomorrow's junk. Look at the Big Three auto makers.

The lack of acceptable offer could also be because of rates in the CMBS market or because Principal is only going to sell for top dollar and buyers are looking to get bargains right now. It'll be interesting to see how and whether a trend develops.