The collapse of valley land mogul Carl Berg’s deal to sell his Mission West Properties portfolio is simply a case of bad timing, say industry experts who predict his “extremely attractive” real estate will find a buyer once the markets settle.Berg announced Sunday the deal to sell his almost 7 million-square-foot portfolio for $1.8 billion fell apart after a bank pulled the loan from the buyer, believed to be Starwood Capital Group of Greenwich, Conn. The deal, in play since the end of May, was caught in the credit crunch triggered by the meltdown of the residential sub-prime markets.

Berg’s experience may become more common as lenders re-evaluate their own situations, causing a slowdown in the investor market. But experts say if that occurs, it shouldn’t last long given the appetite for office properties.

The volume of U.S. real estate transactions in 2007 already has reached record levels, and the year is not over. So far, $160 billion worth of office properties either closed or is in contract, according to Real Capital Analytics, a real estate tracking firm based in Manhattan. That number compares to 2006 when $130 billion was traded during the entire year.

“2007 was just an amazing first half for activity,” said Dan Fasulo, managing director for Real Capital. “We’ve had record sales volume for most of the markets on the coasts of the United States, San Jose specifically being one of the standouts for the strong activity.”

Some major transactions this year include the Blackstone Group’s decision to sell real estate acquired when it bought the West Coast CarrAmerica portfolio in 2006 for $5.6 billion, and its $39 billion purchase earlier this year of Equity Office Properties.

But Fasulo said the figures also reflect the high number of trades in the market. Many properties are being bought, sold and then sold again, some trading as much as four times in a year.

One sizable transaction in play since March involved Arden Realty of Los Angeles, which closed late last week on almost 6 million square feet of real estate located in 106 buildings from San Diego to Seattle, including 500 Forbes Blvd. in San Mateo. The properties were once owned by CarrAmerica, now Blackstone.

Joaquin de Monet, Arden president and chief executive officer, said Arden is not dependent on outside financing to close its deals. But institutional investors who rely on banks to fund their deals are affected by the tightening credit situation.

“There will be fewer players that can step up,” he said. He predicted a repricing of commercial real estate that could lead to declines in value.

But de Monet said Arden, which holds its real estate for three to five years, expects its investments to pay off in the long run. Arden now owns approximately 16 million square feet of commercial office properties, including 1.4 million square feet valued at $360 million in Silicon Valley.

“Our assessment is that we feel good about where we are going given the fundamentals in the office market,” he said, listing declining vacancy rates, rising rents, the high cost of construction and low unemployment rates.

Allen Cymrot, founder of the real estate blog www.netgainrealestate.com, said when those market fundamentals are present, commercial real estate offers a good deal, even if the market is experiencing an overdue correction.

While the problem began in the residential market where sub-prime loans were made to buyers with shaky credit, now almost all lenders are taking another look at their lending standards.

“They’re saying, `We weren’t aware it was that bad, so we need to take a look at all our loans.’ The review has gone beyond the problem of the sub-prime loan,” he said. “This is very healthy. Many of these loans were foolishly made.”

As for Berg, who said he’s in no hurry to sell, experts predict he’ll get his price eventually.

“That deal was stuck in the middle. The (buyer) made a bid for Mission West based on old lending terms,” said Fasulo. “Volatility is the enemy. Once a new baseline is established, then we’ll start to see deals picked up again.”

Source:

http://www.mercurynews.com/search/ci_6613940?IADID=Search-www.mercurynews.com-www.mercurynews.com&nclick_check=1