Burton Management Group acquired 100 Northfield St. in Greenwich for $7.5 million, or $535.71 per square foot, from C. Dean Metropoulos & Co. last month. While commercial real estate fundamentals remain weak, well-leased properties are capturing hefty prices.

Office building sales in Fairfield County are raking in prices that would make any owner green with envy. In the midst of a market plagued by reduced rents, high vacancies and empty sublease space, it’s a phenomenon some say doesn’t have much staying power.

Brokers project that the trend will continue until the historically low interest rates begin climbing. In the meantime, owners will reap some hefty benefits.

Last month, Burton Management Group acquired 100 Northfield St. in Greenwich for $7.5 million, or $535.71 per square foot, from C. Dean Metropoulos & Co. Also in January, American Capital Group sold its Class A property known as Osprey House, which is located at One East Weaver St. in Greenwich. That building, fully occupied by four investment-grade tenants and a healthy hedge fund, is the newest office facility totaling more than 50,000 square feet in Greenwich. It sold for $32 million, or $388.81 per square foot.

“The issue today is not a lack of demand but a lack of product,” said Jim Tully, vice president of CB Richard Ellis. “If the interest rates rise, that will impact demand.”

Tully estimated that general cap rates are 100 to 150 basis points lower than two years ago. That makes for an attractive market for buyers. A cap rate is defined as the return generated by taking the net operating income of a property and dividing that amount by the purchase price, expressed as a percentage.

But at the same time, commercial property fundamentals remain weak. While Fairfield County’s commercial real estate market showed signs of recovery in 2003, it continued to struggle in the post-recession market, according to the CB Richard Ellis Market View. The return of surplus space on the market popularized free rent, free parking and other incentives at rates far below market averages. Competition drove rents down 4 percent from last year to $26.49. Stamford experienced the largest rent decrease of 7 percent – or $2.11 per square foot – to $28.67, according to the report.

Jeff Dunne, vice chairman of CB Richard Ellis in Stamford, said rental rates have dropped between 20 percent and 30 percent from their peak in 2001. Class A space in Stamford now rents from the high $20s to the mid-$30s per square foot.

Chasing Assets

Despite a weak market, capital funding continues chasing assets in Fairfield County and major areas throughout the country – particularly buildings with fully leased floors. Commercial property markets remain weak across the United States; however, a strong flow of capital into real estate has kept property values and pricing high.

According to a report released this month by AEW Capital Management, the flow of capital into commercial real estate has continued to accelerate dramatically, particularly from pension plans and other institutional investors. Total pension assets are growing once again, as a result of the rebounding stock market. Plan sponsors, especially public retirement systems, are aggressively increasing their allocations to real estate, resulting in billions of dollars of new equity capital flowing into the sector. New sources of real estate investment capital also continue to emerge as real estate garners the attention of a widening array of investors – from smaller pension plans, foundations, endowments, family offices and high-net-worth individuals to rapidly growing, private real estate investment trusts.

Real estate investment has gained popularity over the past few years as a stable alternative to the uncertainty of the stock market. As real estate investment trusts outperformed the Standard & Poor’s 500, an increasing number of investors poured their money into REITs. The U.S. Securities and Exchange Commission lists about 180 REITs with total assets of more than $300 billion. More than two-thirds are traded on the New York Stock Exchange, the American Stock Exchange and the Nasdaq.

In the real estate securities market, new capital is also coming from investment bank “wrap” programs, closed-end income funds and other products oriented toward individual investors. There are also significant flows of foreign capital coming into the United States as the dollar continues to depreciate against the yen, euro and Canadian dollar.

Major REIT investors in Fairfield County include Equity Office Properties and HRPT Properties Trust. The county also has seen its share of foreign investors.

“Are there foreign investors looking to buy in Fairfield County? Always,” said Jeff Dunne, vice chairman of CB Richard Ellis in Stamford.

Real estate’s shift from its own capital market to a fully recognized part of the broader capital markets has impacted pricing and real estate values, according to Douglas M. Poutasse, chief investment strategist at Boston-based AEW Capital Management.

“In today’s capital-flow-driven public and private real estate markets, true valuation is more difficult to discover. Investors are paying more for real estate on an absolute basis than they have in the past, but relative to the yields available from other asset classes, real estate pricing today appears quite reasonable,” said Poutasse. “Improved market conditions will depend on continued economic recovery, increased productivity and sustained job growth.”