The jaw-dropping $121.5 million that an investor paid last month for Fells Point's Union Wharf apartments was the starkest example yet in Baltimore of how a booming national real estate market is pushing some firms to turn to smaller, riskier cities.

Nationwide, sales and prices have climbed to levels comparable to those in years leading up to real estate crash, with some $425.7 billion in transactions and about $400 billion in loans made last year, according to Real Capital Analytics and the Mortgage Bankers Association.


The activity has been driven by firms flush with stock market gains and money from foreign investors competing in a sector considered relatively safe and profitable. Now, as prices climb in the major metro areas, some are looking for opportunities in other cities.

"We're seeing this push into markets that weren't as attractive before, due to the fact that other markets are so expensive," said Ken Riggs, president of the real estate firm Situs RERC.

In the Baltimore region, the volume of commercial real estate deals increased nearly 72 percent in 2014 to $3.69 billion, according to Real Capital Analytics, which tracks deals worth more than $2.5 million.

That's less than 2006 and 2007 but significantly more than just a few years ago.

The transactions are continuing. In the first quarter of 2015, sales volume was up about 8.5 percent from the same period last year, RCA estimates. The 47 deals were worth $936 million.

"There's activity across the market," said Jim Costello, a senior vice president at the firm. "What's going on is there is just a lot of capital … looking for safe, yield-driven investment, and commercial real estate fits that bill."

Much of the activity is focused on the multifamily market, which has been buoyed across the country by rising numbers of renters, low-interest rates and relatively accessible financing from Fannie Mae and Freddie Mac.

Of the 242 commercial properties sold in Baltimore last year, 48 were apartment complexes. They represented $1.2 billion of the total investment — the most of any sector, RCA reported. That's up about 58 percent since 2013, though still down about half from the 2006 peak.

In the first quarter of 2015, there were 11 transactions worth more than $413 million.

Nationwide, office properties have recovered more slowly, as an unsteady labor market leaves continued high vacancies. But sales figures suggest appetite is returning in that sector as well.

There were 43 sales of office buildings in the Baltimore area last year totaling $761.3 million, nearly double 2013 figures and topped only by 2007, according to RCA.

Jamie Woodwell, vice president of commercial real estate research at the Mortgage Bankers Association, said the levels of commercial real estate activity nationwide "make sense," even as high investment costs push returns down.

"We've seen strong property performance, growing property values and the lower interest rates all driving originations," he said. "So the levels we're seeing right now make sense, given all that."

Private buyers accounted for most of the Baltimore-area deals last year, but institutional investors — pension funds, insurance companies and hedge funds — are becoming more involved.


In March alone, the 281-unit Union Wharf complex was snapped up by a company tied to J.P. Morgan. A New York firm that places capital for pension and insurance funds was part of the team that closed on Towson's 383-unit Colony at Kenilworth for $44.2 million.

In Pikesville, a limited liability company linked to the TIAA-CREF pension manager purchased the 147-unit Excalibur Apartments for $33.5 million.

In all, institutional investors were involved in an estimated $843.5 million in deals in the Baltimore area last year, an increase of nearly 28 percent, and placed another $146.5 million in the first quarter of 2015, according to RCA.

Union Wharf sold after one of the firms in its ownership group — the Cigna health insurance firm — saw the market opportunities, said Tom Bozzuto, CEO of The Bozzuto Group, Cigna's partner in the project. The sale brought more than $432,000 per unit — a record for an apartment complex in the city — after competing firms upped their bids.

"Demand is strong all over the country, and certainly Baltimore — as demonstrated by this sale — is a place that investors are increasingly enthusiastic about," Bozzuto said. He said the property's good location and quality design also played a role.

Christine Espenshade, managing director of capital markets for JLL, said Baltimore's "renaissance story" has helped pique investor interest.

Espenshade has worked on several multifamily deals.

"In each of the instances we've had 10-plus bidders who have been interested," she said. "It creates a bit of an auction environment."

Corporate Office Properties Trust, based in Columbia, plunked down $63.5 million for 250 W. Pratt St. in March. The transaction followed a handful of deals in 2013 and 2014.

Two more office properties are on the market. At least one of them — the marquee Transamerica Tower at 100 Light St. — could draw an institutional buyer, brokers said.

"Those investors that may have always been suburban investors definitely want a piece of the urban now because it upgrades their portfolio," said Jonathan Carpenter, a Baltimore-based managing director for DTZ, who worked on the 250 W. Pratt St. deal.

The activity is good news for local governments, which receive a boost from taxes charged to transfer properties and record the new deeds. In Baltimore, for example, revenue from transfer and recordation taxes rose from $42.9 million in fiscal 2012 to $74.6 million in fiscal 2014. The taxes came to $33.5 million for the first half of fiscal 2015.

But the city shouldn't get used to it. As prices climb, Riggs predicted the market will come in for a correction within two years.

"It's not a scary time," he said. "Hopefully, we've learned, but we are in a cyclical business."