LEASED ANOTHER ONE! 999 Cattlemen Road.

This one was a double header: I sold this unit at 999 Cattlemen Road (Unit A) week prior to an investor and put a new tenant in the space on Friday for three years. Congratulations to Dance Artistry, Inc. on their new 2,280SF home. They look to be open on approximately July 1, so feel free to pay them a visit. The location is perfect for them - lots of glass and an endcap unit. Thank you!

In 2010, Will Investors Who Hesitate Be Lost?

Good question.

None of us has a crystal ball, so it's tough to really determine if this is the case. Judging by my own experience, there are some fairly nice deals out there if you have access to money and are willing to keep the property until things recover. The problem with all of this is, without a good ability to predict what's going to happen, are these deals looking good because we're looking through the glass at prices now vs. 2006, or prices now vs. 2001? As I've stated before, I don't think certain assets can get any cheaper (while some certainly can). Seems as if my phone rings more with potential buyers as of late than potential tenants - something I haven't experienced since 2007. The banks I deal with on REO properties are behaving a little more proactively now than at this same time last year. One thing's for sure: we will not know when the bottom is here. THIS GUY (link) seems to think those who "overwait" the market for markedly lower prices than we have now will be sorely disappointed and miss the boat. I tend to agree.

From National Real Estate Investor (link at bottom of article).

In 2010, Will Investors Who Hesitate Be Lost?

Nov 1, 2009 12:00 PM, Sibley Fleming

While German and Chinese investors are already buying assets at discounted prices, many domestic investors are hoping to time the market to pick up even better deals.

With some $1.5 trillion in commercial mortgage debt expected to mature over the next three years and only $300 billion in equity sitting on the sidelines, more distress is imminent, according to Jeffrey Rogers, president and chief operating officer of New York-based valuation and consulting firm Integra Realty Resources.

Integra's clients include pension funds such as the California Public Employees' Retirement System, and investment banks like Goldman Sachs and Morgan Stanley.

“Whenever you're in that type of environment, where you don't have the liquidity to take out the mortgage debt, prices come down,” he explains.

The imbalance should result in a further decline in commercial real estate valuations. Over the next six months, Rogers predicts that property values will decline another 4% to 9%, on top of the 39% drop that's already occured since the peak in December 2007.

Currently, 48% of Integra's valuation assignments involve distressed assets, defined as real estate owned (REO), short sales, assets refinanced with an equity infusion, failed bank assets, assets resulting from bankruptcy, and assets with significant deterioration in operating income.
Real-life scenario

What will bring more distress to market? Rogers offers up this example: An investor acquired an office building in New York at the peak of pricing two years ago and didn't sign a personal guarantee. The property is underwater and its loan matures at the end of the year, but the bank is willing to extend.

Here's the sticking point: Although the property is 95% leased, a single tenant occupying 15% of the space is coming up for renewal at year's end. The big tenant says he'll leave unless the owner provides $2 million in tenant improvements.

“As an owner, am I going to put that money into an asset that I am under water on and having to extend my loan? No, I'm not going to do it,” Rogers maintains. “With my $2 million I'm going to go and buy a distressed asset and just write off whatever equity I have in that property.”

At this point the bank will have to decide whether to let the asset deteriorate further, to become an equity investor and retain the tenant, or to simply take the asset back and try to sell it. “This has already started to happen,” Rogers observes, “and is really at the crux of starting to get these defaults rolling.”   Read more.

Tough Times For Commercial Real Estate

Our local newspaper is figuring out what many of us have known for a while: the local commercial real estate market is pretty bleak. But that all depends on which side of the fence you're on. Interestingly, 2009 for me was a fairly busy one, with nearly all of my deals occurring on the leasing side. Last year I saw a lot of relocation...basically people moving from one leased space to another because of more favorable rents and aggressive tenant incentives. I did not see all that many startups, though. I do agree (as I had stated in this 12/19/09 post), GDP and employment will lead the way out of the recession. For the most part, however, asking rents are still way too high in some parts of town to attract new startups in such a tough economy. One thing's for sure, landlords who don't have particularly attractive or strategic locations, and who refuse to get aggressive are going to end up getting steamrolled. Story link below (Sarasota Herald).

Tough times for commercial real estate

By KEVIN L. McQUAID

Published: Monday, January 4, 2010 at 1:00 a.m.

To borrow a biblical expression, it may be easier these days to pass a camel through the eye of a needle than it is to get a commercial real estate loan.

Despite federal bail-out money intended to stimulate lending, loans for investment in office buildings, shopping centers, industrial sites and raw land are increasingly rare, the result of falling values and other factors.

Commercial property owners and mortgage brokers say the lack of capital also stems, in part, from new federal regulations intended to staunch foreclosures and halt the aggressive lending practices of the early 2000s.

"It's ironic that the federal government put all the stimulus money into banks, while another branch of the government is over-regulating capital reserve requirements on banks," said Brett Hutchens, chief executive officer of Casto Lifestyle Properties, a Sarasota development firm that owns shopping and lifestyle centers nationwide.

"The same government is providing both the carrot and the stick to lenders," Hutchens said. "It's created gridlock and made lending and borrowing very, very difficult."

"It's a Catch-22 the government has imposed," said N.J. Olivieri, president and owner of Sarasota-based Horizon Mortgage Corp. "They tell the banks to make loans but then tell the FDIC to tighten the restrictions on new lending."

New regulations notwithstanding, lenders say the pullback in available credit is appropriate, given the shaky economy.

"Banks are simply not looking to take extended risk today," said Charlie Murphy, chief executive of the Bank of Commerce, a Sarasota lender, and a board member of the Florida Bankers Association, a trade group.

"It's not unusual for banks, in bad economic times, to tighten their lending standards," Murphy said. "And regulators are not too happy these days about allocating new money to commercial real estate."

Other forces

Banks have been hurt, as well, by other forces beyond their control.

Most notable has been the exit from the lending market by risk-averse insurers and pension funds, typically a key source for permanent mortgages.

That has crippled commercial real estate owners seeking to refinance or simply shift loans from banks, as is usually done.

That, in turn, has forced banks to keep mortgages on their books, which further limits their ability to cut new loans -- especially in the construction and real estate sectors.

The precipitous drop in commercial real estate values -- combined with falling rental rates on nearly every property segment -- represents the largest factor in the dearth of lending, however.

Retail rental rates have fallen by as much as half, and many tenants remain unable to pay rent at all, part of the fallout from the longest economic recession since the Great Depression.

Vacancies, too, from super-regional malls to neighborhood-anchored strip centers, have risen dramatically.

"In many cases, shopping centers are full, but not all of the tenants are paying rent," Olivieri said. "Landlords don't want their space to go dark, so they're letting them stay put."

Office rents have also fallen, in Southwest Florida and nationwide -- by 20 percent to 30 percent in some cases.

"In some submarkets, there is an even greater devaluation of rents," said John Harshman, president of Harshman & Co., a Sarasota commercial real estate brokerage firm.

The lack of income, and decrease in values, has forced many property owners to come up with new equity on loans to satisfy lenders' re-appraisals, investors say, even on performing mortgages.

Regulators, too, are calling on banks to beef up reserves and loan coverages by thinning loan-to-value ratios.

Restrictions

Meanwhile, the few commercial real estate loans that are available come with excessive restrictions, including onerous equity requirements and repayment schedules, which are also the result of new federal regulations.

In many cases, lenders that once required investors to put down 20 percent or 30 percent equity are demanding twice those percentages -- and borrowers' personal guarantees -- before they will consider loaning money.

"We've gone from having an unsecured line of credit, on a performing loan, to getting a commitment for just one-year from the bank, and the terms are complex," said Andy Dorr, a senior vice president with Githler Development Co., a Sarasota real estate investment and development firm.

As a result, Horizon and others have begun lining up equity partners for developers or investors, Olivieri said.

At the same time, Dorr said, the costs associated with commercial real estate borrowing -- appraisals, origination fees, legal expenses and environmental analysis -- have increased in many cases.

The hiked fees and the lack of new capital are both tied, investors and lenders say, to the fear that a commercial real estate meltdown is in the offing. Already, development giants such as mall owner General Growth Properties have defaulted on commercial real estate loans -- a signal to some analysts that another wave of foreclosures is ahead. Next year alone, hundreds of billions of commercial real estate loans, many of which were cut during the real estate boom and required interest-only payments, will mature or come due nationwide. When that occurs, many predict, defaults will spike.

"Everyone keeps saying that commercial real estate is the next shoe to drop," Hutchens said. "Well, I have to agree: It's about to drop."

The answer, industry experts say, can be summed up in a single word: Jobs.

"We have to stimulate the economy with more jobs and small business," Murphy said. "When we have jobs, then businesses expand and the economy cycles upward. The opposite is also true, and it creates a vicious, self-fulfilling prophecy."

"People have to go back to work," Olivieri said. "Specifically, in construction.

"Construction has always led the way out of recession; it's key. It starts the employment cycle, and then retailers hire and the cycle returns to supply and demand. But if you don't have a job, if you don't know where your next dollar is coming from, then you don't spend," Olivieri said.

Unfortunately, for Florida, that job growth may be a long time in coming.

Unemployment in Southwest Florida stands at 12.7 percent, slightly above the 11.5 percent statewide average, which is at the highest level since October 1975. Nationally, unemployment is just under 10 percent.

Even more dire are some economists' predictions that Florida's unemployment rate will not fall to 6 percent -- within the range of a moderately healthy economy -- until 2018.

If that proves true, experts believe commercial real estate will remain depressed well into the future.

"The 12 percent unemployment rate in Sarasota and Manatee counties, and the 10 percent rate nationally, will create more commercial real estate vacancies," Harshman said. "And more vacancies will, in turn, further drive down commercial real estate values."

LINK

5203 Cortez Road - Finally 100% Leased!

Another one in the books! Leased the very last unit in Scott Paint plaza at 5203 Cortez Rd yesterday. 1,150 SF goes to Budget Signs for 6 years. Congrats, guys. Glad I was able to help. Enjoy your new home!

FYI, this center had 4,600SF+ vacant when I took over leasing duties in November. Good to end the year on such a positive note.

Great marketing = great results. :)

So Long, 2009.

What a year you were.

Business was very much like a roller coaster this past year, with most my deals occurring during the summer and within the past two months (Nov-Dec). Overall I would rate 2009 as not too bad. 95% of my sales came from leasing. Nearly 100% of my leasing deals were taking people out of high rent situations and repositioning them into lower rent opportunities.

I have more bank-owned inventory than I did last year and I am only expecting that to increase. I am also expecting those waiting in the wings for distressed assets to finally start showing up, probably in the mid to latter part of 2010.

Where's the bottom? Who knows. And no one is likely to know until things start turning around. I believe (and have always believed) Florida's geography will help it emerge a little sooner than other distressed areas. If you're looking for a sign, keep an eye on GDP and employment figures.

So here's a toast to the year that was: 2009. Don't let the door hit you in the ass on the way out.

Leased! Leased! Leased! Leased!

Two units leased since December 1 in this strip mall next door to Wal-Mart on Cortez Rd. I have one 1,150sf unit left and that one looks like it might be spoken for. Welcome to Allison's Dance Centre and Purple Coconut Hair Salon. Allison's took 2,250sf for 3 years and Purple Coconut took 1,200sf for 2 years. Out of my approx. 40 listings, this property has been the most active.