LWR Commercial Real Estate
Commercial Investment
Commercial Sales Still Few and Far Between
Jul 28th
According to Moody’s/REAL Index, the transaction velocity has slowed to practically nothing and the prices made their second most dramatic fall after April. See below for the full article.
CRE Prices Continue to Drop in May, Says Moody’s/REAL Index
Jul 23, 2009As the economic uncertainty continues, real estate prices continue to fall. The Moody’s/REAL National All Property Type Aggregate Index from Real Estate Analytics L.L.C. measured 125.04 for May, a decrease of 7.6 percent from the previous month. That represents the second largest one-month decline after April’s 8.6 percent drop. The index, which has captured price data through the end of May 2009, is now 28.5 percent lower than it was a year ago and 34.8 percent below the peak measured in October 2007.
“We cannot underestimate the enormity of what the data has represented in the past two months,” said Neal Elkin, president of REAL. “The fact that this month’s price decline is less than last month’s price decline might be seen as a positive sign in some circles. It could suggest that bottom in prices maybe starting to form, however, we need see higher transaction dollar and deal volume in order to draw a more would definitive conclusions.”
While Transaction volume in the overall market has fallen to its lowest level yet. There were 282 transactions capture by REAL in May and of those, 52 were qualified as repeat-sales transactions to be incorporated into the calculation of the index
As Featured in Herald Tribune Business Monday
Jul 27th
An experienced hand in a tough era
JOE HEMBREE: Past lean times help prepare him for the current slump
Joe Hembree at his downtown Sarasota office.STAFF PHOTO / MIKE LANG
Published: Monday, July 27, 2009 at 1:00 a.m.
Last Modified: Friday, July 24, 2009 at 7:06 p.m.
Last Modified: Friday, July 24, 2009 at 7:06 p.m.
SARASOTA – Anyone can sell, lease or manage commercial real estate in the middle of a boom.
The difficult task comes when buyers and tenants are hard to come by and banks are exerting pressure on owners to perform on their loans.
In lean times such as these, it pays to have experience. And Joe Hembree has experience.
The 62-year-old commercial real estate veteran, who heads a 17-employee commercial real estate brokerage in downtown Sarasota, prides himself on being able to manage problem properties in difficult times.
He managed the old Southeast Bank building at Five Points in Sarasota for eighteen months after it was seized by regulators during the savings and loan crisis. At a time when buyers were just as scarce as they are today, he sold the 75,000-square-foot structure to insurance executive Bill Griffin for $2.5 million in 1993.
At the beginning of this decade, Hembree’s firm was appointed by the bankruptcy court to manage a 300,000-square-foot health care complex at the corner of Bahia Vista Street and Tuttle Avenue in Sarasota after the former owners ran into financial trouble. Hembree was charged with leasing and maintaining the buildings and finding buyers who could figure out what to do with the complex. In 2002, Hembree sold it to Sarasota investors David Band and Mark Kauffman, who turned it into a successful medical operation.
In 2007, Hembree’s firm took over the Acculab Laboratories’ 13,258-square-foot industrial warehouse on Northgate Boulevard in Sarasota after the company’s owner was charged in 2007 with Medicare fraud and filed for bankruptcy protection. Hembree’s firm found a buyer who paid $620,800 for the building in May 2008.
In each case, Hembree was handed a problem and had to figure our what to do.
“You have to find out what is missing to make a deal work,” Hembree said.
In the case of the Southeast Bank building, Hembree found a buyer who needed extra parking — something the Southeast Bank building had plenty of. Hembree was able to show Griffin that it would cost about the same amount of money to buy the building and its parking lot as it would have to erect a new parking building nearby.
With the health care building, it was a matter of finding patient, deep-pocketed investors who were willing to experiment and see what would work.
“Distressed properties require buyers who are diligent and persistent,” Hembree said. “Problems bring opportunities, but you have to keep trying things to see what will work.”
With the Acculab building, it was a matter of working with the bankruptcy court and finding a solution that would maximize the return for creditors.
Though Hembree has had a history of success in turning around properties, he is the first to admit that he cannot help everyone.
If someone came to him today and said they had to get $18 a square foot in rent to make their project work, he would have to pass on the opportunity.
“I can only make suggestions based on the reality of the market,” Hembree said.
Reality in the commercial market is not pretty these days.
After topping out in 2006, sales, prices and lease rates of commercial properties have been dropping. At the same time, commercial foreclosures are on the rise.
The biggest problem, Hembree said, is that banks are beginning to turn up pressure on owners of commercial real estate — even those who are current on their interest payments.
As the value of properties drop, banks are asking owners to bring more money to the table if they want their loans renewed.
“The biggest concern going forward is how banks are going to handle all the properties whose values are getting down where they are equal to what has been borrowed,” Hembree said. “If banks start demanding payment, it’s going to be a disaster.”
In the midst of the chaos, Hembree is confident that clients will seek out advisers who have been there before.
“There are so many people out there advising clients that have only been in the business for 10 years or less and have never been through something like this,” Hembree said. “All they’ve known is a sustained boom and have no other point of reference.”
Proof there are deals out there: even for land!
Jul 21st
Eola Capital LLC, one of the Tampa Bay area’s larger office landlords, bought 72 acres of undeveloped land near the Lee Roy Selmon Crosstown Expressway in southeast Tampa.
Crosstown Owner LLC, whose address is the same as Eola Capital according to state corporate records, paid $2 million for 72 acres, or roughly $27,800 per acre, according to a deed filed July 9 with the Hillsborough County Clerk of Court.
“That’s an unbelievable deal for Eola Capital,” said Derek Pettigrew, an associate land broker atCushman & Wakefield Inc. in Tampa.
Crescent Resources, based in Charlotte, N.C., is reorganizing under Chapter 11 of the U.S. Bankruptcy Code. The development company, owned by Duke Energy Corp. (NYSE: DRE) and Morgan Stanley, is one of the better-known local developers.
Crescent Resources developed Corporate Center, a Westshore office complex adjacent to International Plaza in Tampa, and the 263-acre Hidden River Corporate Park near the University of South Florida in Tampa.
The company said its June 10 bankruptcy filing was necessary for it to reorganize its finances, reduce its debt level and improve its capital structure.
Orlando-based Eola Capital, which owns 1.6 million square feet in the Tampa Bay area, couldn’t be reached for comment.
Tampa Bay Business Journal – July 9, 2009
/tampabay/stories/2009/07/06/daily54.html
Landlords Cut Rates and Lease Terms
Jul 7th
According to Commercial Property News, landlords are getting shorter leases and tenants are happy with the shorter fuse.
The average terms for office and industrial leases reached their lowest levels of the decade in the second quarter, according to a report by real estate services firm Grubb & Ellis Co. The average office lease during the quarter was just 52.3 months, while the average industrial lease came in at 43.4 months. The recession and weak corporate revenues have prompted many tenants to opt for short-term renewals as existing leases expire, as opposed to longer extensions. And landlords, for their part, are in no position to demand longer terms, given the downturn in demand for space across markets and resultant switch from an owners’ market to a renters’. However, some owners are only too happy to ink tenants to shorter-term leases, hoping that rental rates will rebound by the time those shorter leases are up, this allowing them to jack rents back up.
Commercial Real Estate Getting an SBA Booster
Jul 6th
The SBA is getting involved in the commercial real estate market to protect and create jobs. The Herald Tribune details how the program is supposed to work.
By JERRY CHAUTIN
Herald-Tribune ColumnistPublished: Monday, July 6, 2009 at 1:00 a.m.
Last Modified: Friday, July 3, 2009 at 5:48 p.m.It is something old and something new. It is also something borrowed.
The something new is a worthwhile enhancement to U.S. Small Business Administration’s 504 loan lending. The 28-year-old program can now be used to refinance your existing commercial real estate while it also funds your expansion.
But to understand the enhancement, we need to briefly review the something old.
It allows you to borrow up to 90 percent of your cost to build, buy or expand a commercial real estate building. The funds can also be used for capital equipment, furnishings, fixtures and fees incidental to the transaction. Examples of suitable real estate include owner-occupied, commercial condominiums, offices, warehouses, franchises, restaurants, car washes, bowling alleys and skating rinks. Investor-owned properties do not qualify.
Job creation is 504’s raison d’etre.
“For every $50,000 guaranteed by the SBA, (the borrowers) must be able to demonstrate that they are creating or retaining at least one job,” says Karen Mills, SBA’s administrator. As part of the federal stimulus initiative, job creation has temporarily been relaxed to one job per $65,000.
The program “is administered by about 270 certified development companies in a partnership with the commercial lenders and the SBA,” Mills says.
Christopher Crawford is president and chief executive of the National Association of Development Organizations. It is the trade association for the nation’s CDCs.
He says, “Since this program has been created in 1986, more than 3 million jobs have been created or retained by 504 loans, and that is by far the largest economic development program within the federal, state or local governments”
SBA typically guarantees 40 percent of the project cost in the form of a subordinated debenture. Simultaneously, a conventional lender makes a 50 percent first mortgage. The remaining 10 percent equity is injected by the borrower.
You can read more online at tinyurl.com/yukpux.
The refinancing enhancement allows you to borrow money to pay off an existing commercial real estate mortgage that is not involved with your expansion. It cannot exceed 50 percent of the expansion cost for your new project.
Thus if your cost is $6 million to build your new manufacturing plant, you can also borrow $3 million to pay off the loan on your existing plant. Your total funding would be $9 million.
The 504’s loan-size constants are up to the lenders and CDCs. Most feel comfortable in the $200,000 to $10 million range.
As with most new programs, the dibbuk is in the details. Accordingly, lenders and CDCs will be poring over SBA’s procedural notice to understand the critical essentials.
Meanwhile, stay in touch with your banker, NADCO and its members for up-to-date information as the refinancing enhancement unfolds. See nadco.org for NADCO members and more about 504.
This story appeared in print on page D8
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