How much would you pay for the most sought after address in the state?

When I logged in to The News Funnel this morning, I saw more than one article about the recent sale of 100 College Road West.  I knew that Ivy Realty was selling the building, not long after buying it and leasing the building in its entirety to Sandoz.

But when I read the article and saw a purchase price of $63.5m, I stopped.  I took out my calculator and punched in the numbers.  American Realty Capital paid $412 per square foot for the building based on Sandoz’ 12-year lease.  Considering Ivy Realty purchased 100 and 150 College Road West in February for $121 per square foot, it’s obviously a home run for Ivy.

The article further mentioned that the deal was struck before the building was even on the market for sale. So why was American Realty Capital so anxious to pay what many, including me, think is a huge price for a suburban office building?

As an outsider looking in, I have to think that the long term health of the Princeton submarket played a big part in this sale.  The educated workforce, the proximity to the university and cache that comes along with it, and the connectivity between New York and Philadelphia all help make “Princeton” one of the most sought after addresses in the state.  Currently, there are no blocks of available Class A space over 100,000 sf in the submarket, and the availability rate is the lowest in the state. Since 2011, Princeton has had positive absorption each year, and has maintained a higher asking rental rate than the state average.

While it is my prediction that the Princeton submarket will continue to outperform others in the state, sale prices in excess of $400 per square will be few and far between.