It's a tale of two markets. Or so says a recent report on second-quarter transactions released late last week by Real Capital Analytics (RCA), a New York-based commercial real estate research firm. On the surface, the quarter’s numbers looked good compared to the listless 2009. Sales rose to $5 billion in the second quarter, putting the total at $9.6 billion for the first half of the year. That’s an impressive 69.6 percent jump in transactions over the first half of 2009. But dig deeper, and the numbers don’t look quite as impressive. In the first quarter, 534 properties of $5 million or greater sold. That’s only a 16.8 percent increase from a year ago.

So what’s with the jump in prices? Basically, more trophy properties are selling. “I think that points further to the weight the larger transactions in primary markets are having on the market as a whole,” says Ben Thypin, senior market analyst at RCA, noting that most of the uptick in transactions came from the Northeast and Mid-Atlantic, while the West only saw slight gains in volume and pricing. (The Midwest was, once again, quiet.)

The Big and Small Sell
If they were properly located, both garden-style apartments and high-rises saw strong pricing and demand.

RCA, in fact, says garden properties hit a turning point in the second quarter with property sales growing to $3 billion (192 properties) from $2.3 billion (144 properties) the previous year. “There were a fair amount of sub-6 percent cap rates for garden properties,” Thypin says. “The assets in quality markets are trading at low caps regardless of whether they’re garden or high-rise.”

Overall, high-rises posted sales of $4.3 billion (198 properties) in the first half of the year, a whopping 192 percent increase over a year earlier. In the second quarter, volume fell slightly from the previous quarter to $2 billion, but the number of properties selling rose to 110 from 88. The reason for this—RCA said high-rises in the second quarter sold in markets other than high-priced Meccas such as New York and Washington, D.C.

Distress Still a Dribble
Meanwhile, distressed sales made up about 30 percent of all sales in the first half of the year, but only about half of distressed resolutions were via sales. The others were restructured or refinanced.

Thypin thinks that once the economy improves, banks and servicers will look at putting more of this distressed product on the market. “Once people see the economy is improving, lenders and servicers will put more inventory out there because they have a better chance of selling at a decent price,” he says.

And when sales activity increases, some people think financing will follow. “We’ll start to see a gradual increase in sales activity that will also promote financing activity,” says Peter Donovan, senior managing director of Los Angeles-based CB Richard Ellis’ Multi-Housing Group.