NORTHEAST SNAPSHOT, MAY 2008

New Haven, Connecticut Investment Sales

The investment sales market in New Haven continues to capture the attention of investors from around the United States. The area’s premium fundamentals have garnered interest from firms ranging from private companies to REITs. HRPT, a Boston-based REIT has been active in acquiring office and industrial properties in the region. The REITs largest acquisition was the Winstanley portfolio, which sold in 2006 for $97 million and included 14 flex and industrial properties throughout the region. 

Winstanley Enterprises, has also been active in the area. Recently, the development firm expanded its New Haven presence with the acquisition of a second biotech facility, 25 Science Park, which it purchased in 2007 for $14.5 million. In addition, at 300 George Street, Winstanley developed a 500,000-square-foot biotech office building. The Hampshire Companies, a New Jersey-based private investment fund, has also amassed several notable properties in the New haven market over the past few years. 

Over the past 12 months, several large transactions have been completed by educational institutions in the New Haven marketplace. Yale University recently purchased the 136-acre Bayer Pharmaceutical campus in West Haven for $109 million. The campus, which includes 550,000 square feet of laboratory space, will advance Yale’s research capabilities and aid in finding new cures for diseases. Aside from this recent investment, the university’s hospital affiliate is currently developing a 400,000-square-foot Cancer center that is set to rival the nation’s top centers.

Other educational institutions making an investment in New Haven include Quinnipiac University. The school plans to expand its graduate studies program with the approximately $40 million purchase of Blue Cross/Blue Shield’s 104-acre, 600,000-square-foot office campus. With the growth in research and development from these types of institutions, a stability not seen from the private sector, and ultimately growth in ancillary businesses, can be expected in the region.

Institutional investors, which have historically shied away from the region, have recently jumped into the fold with several major transactions. New Boston Fund purchased 545 Long Wharf Drive for $40 million. The 260,000-square-foot Class A office building was sold by AT&T. And a 270,000-square-foot Class B office building located at 1 Long Wharf Drive was sold to an entity funded by RREEF America for $38 million.

The higher yield opportunities found from deals in the region in comparison to larger marketplaces such as Boston and New York have been the main reason for the greater amount of investment dollars flowing into the region. As investment dollars in the region increase, a larger pool of investors have begun to seek deals in the region and a greater liquidity now exists, which has helped increase long-term valuations on properties.

Also, earlier this year, the Baker industrial portfolio was sold to Lighthouse Real Estate Ventures of Long Island, New York, for $209 million. The 25-property portfolio was scattered throughout New York, New Jersey and Connecticut. Eight of the industrial/flex properties were located in the New Haven region off Interstate 95 in Orange and Milford, Connecticut.

The western industrial submarket will likely see upward pressure on flex rental rates, as there is minimal opportunity to add new supply to this market area. In addition, much of the investment activity has been focused along the I-91 corridor, where there is good transportation access in comparison to the I-95 corridor. The majority of the region’s best industrial developments are centered in towns proximate to this corridor in the New Haven County region. 

Overall, in 2007 sales were down from 2006 by approximately 15 percent, and there was a 50 percent decline in sales of more than $2 million from August through December 2007 in comparison to the same period in 2006, a direct correlation to the tightening credit conditions. Similar conditions are expected for 2008; however, despite fewer transactions, pricing has been slow to move downward on deals that are getting done. This trend exemplifies New Haven’s underlying fundamentals with regard to strong lease and vacancy rates. 

The majority of the development in New Haven has been focused around the area’s existing institutions, mainly healthcare and education related facilities. The region has a highly educated labor pool that the institutions are leveraging off of for industries related to pharmaceuticals, life sciences and high technology. Yale’s new 400,000-square-foot Cancer center development, due to be complete in 2009, is anticipated to have a significant impact on New Haven. 

A $160 million development of an apartment tower with retail is due to commence this year at the Shartenberg site in downtown New Haven. The developer, Becker and Becker, is set to build a 400,000-square-foot building with 475 apartment units, ground floor retail and 500 structured parking spaces. This development will help solidify the current mixed-use development trend ongoing in downtown New Haven.

The renaissance of the area has expanded the downtown residential base and helped increase the cultural and restaurant scene in the city. Thus, the downtown New Haven market will continue to be an interesting market for investors and developers as one of the region’s main engines of growth, Yale University, will continue its expansion both of its main campus and medical and research capabilities. Opportunities for smart growth alternatives along with access to a major train station linking the city to New York appear beneficial.

— Steven K. Inglese is a principal at the New Haven Group, Inc., an investment sales brokerage firm

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