Welcome to my blog - Big news!

Hello clients and followers:

I've made a career change I would like to make you aware of. Recently I joined Sperry Van Ness Commercial Real Estate Advisors in Cornelius. It has been many years since I've been with a national firm and I'm looking forward to getting back into the group setting. The prospect of being able to leverage a national name into institutional and lender owned projects is exciting. We are at an interesting time in the commercial cycle and I wanted to be able to take full advantage of the situation.

I believe things are turning in earnest!

As many of you know from my previous articles, I've been waiting for the market to turn up and the activity level that brings. As in the mid 90's, once things have turned positive in peoples minds two primary activities occur. First, tenants flood the market in an attempt to lock in advantageous long term leases. The marketplace switches from risk less short term leases to long term deals that offer the long term benefit of low rates. Second, buyers see opportunity to snap up great properties at attractive prices. Investors know CAP rates will begin to go down and properties with large upsides will begin to disappear. We are already seeing institutional buyers assuming some risk and purchasing investment grade properties.

The window on this trend lasted about three years in the mid 90's. The old joke among brokers who understood the cycle in about '92 was "stay alive 'til '95". By '96 most big upside deals were gone and those who took the risk were already starting to unload their investments and taking profits. Of course if you remember then they had tax problems which made 1031 Exchanges all the rage.

While the fundamentals of this recession and others are very different, history repeats itself. I agree we have serious issues on the forefront such as the national debt, the value of the dollar, potential hyper inflation or that 70's favorite "stagflation" and other big problems. Life tends to go on and business moves forward. Overhead will always be a tenants consideration and investors will again look to the inherent safety of real estate. In the words of one of those 19th century tycoons "family fortunes are made in the worst of times". In other words, money is made in the buying not the selling.

I hate to use so many cliche's but they are there for a reason. To remind us to control our fear and focus on our goals. We invest and do business like we fight wars - for the last crises.

Let's talk about what I'm seeing. Fear and uncertainty is waning. I have tenants talking about three year deals. I have people serious about buying buildings for their business. There are non-distressed sellers thinking about entering the market. Creativity is what I'm focusing on. Lending is still tight so I'm discussing purchase money mortgages with sellers. There is no place truly safe now to invest your proceeds so why not take back a note? The traditional rules of lending are back and likely going to be around for awhile. That means careful underwriting and large down payments. If you have a property that won't appraise or not attractive to a bank what will you do? Get creative.

Landlords, how are you going to create value? Once we have tenants back in the market it will still take several years for rates to recover. Competition will still be tough. You have heard me discuss value added deals before. Tenants take deals where something is thrown in to sway them. It can be services, furniture, improvements and particularly free rent. It can also be something unconventional to a landlord's thinking such as complete HVAC maintenance and repair. What will you use to "win the deal"?

Give me a call to tell me your thoughts and what you are seeing. Thanks for reading.

Tadd Holzen
704-458-5552
tadd.holzen@svn.com

Good news for the Commercial RE markets!

Finally! The news we have all been waiting for. CoStar, a major real estate database tracks markets and it is their belief we are in the early stages of an office market recovery. According to their findings we are in the second quarter of positive net absorption of office space. With this said, the turnaround is "anemic" at best and they are not predicting any rental rate increases for another 3 or 4 quarters. Third quarter national vacancies stood at around 13.62%




Now you ask, how does this affect me? Let's break it down. Obviously these are national trends and every market is different. For the Charlotte region it seems Class "A" properties are seeing action from cash rich major corporations. As I predicted months ago, once the turn is apparent there will be tenants entering the market to lock in great deals for years to come. The "B" and "C" properties are not seeing this effect as of yet. Small business is still suffering and is yet to start coming out of bunker mode. There are still very few "warm bodies" in the market and what few there are have enjoyed aggressive offers from landlords. We are still seeing many subleases coming to market and having to compete with these is troublesome for landlords. If you think you are alone, don't! I met with portfolio manager last week with 5-6 million square feet of office and industrial space last week. He said his rents are down 30-40%. Let's not be negative here however, tenant failures seem to have stabilized significantly from last year.





How about sales? I had coffee with a banker recently and he said lending is still very tight. His bank, like many, is sitting on cash and putting very little money out there. The loans they are looking at are being scrutinized like never before. Loan to value ratios are back to more traditional levels. The other half of the equation is that most sellers are not interested in competing with the distressed sale market. They will wait this out. I read a statistic recently that 50% of all sales were in the distressed category. The good news here is we are actually not talking about many sales!






So where do we stand? I still believe the election will be pivotal in this recovery. The small businesses I deal with want some certainty in the economic and political arenas before they take on any risk. Same with investors. There is cash waiting on the sidelines. Real estate is going to look good again in that window of opportunity between lease rate increases and acquisition prices. As with any investment, money is usually made on the buy.





Thanks for reading and let me know what is going on in your world.



Tadd Holzen
T.A. Holzen Commercial, Inc.
Tadd@Holzencommercial.com

The State of the North Charlotte Market - Aug. 2010

The continuing theme of my posts have been about the state of the market as I see it. Since I receive a number of calls each week about this subject it seems to be on the forefront of most peoples minds.

First, office and small industrial sales are almost non-existent. I have condos at prices well below replacement cost with little or no interest. Until small businesses have confidence in the economy and lending I do not see this changing. This group does, however, continue to pursue discount leases on short terms to keep their options open and reduce risks. Thankfully, the "fear factor" that was persistent last year seems to have disappeared and businesses are either gone or have adjusted to the new reality. Retail leasing and large industrial deals seem to be picking up. Loopnet, a major commercial database is showing a leveling off in lease rates and Costar is calling the bottom, for at least the industrial market, as last Spring.

According to Costar the industrial absorption has turned positive in all but one of the markets they track for the first time in six quarters. Their prediction for an increase in price growth is that it is still a year or two away. One positive note to their article is that new deliveries of space are at historic lows due to the lack of financing. This will enable a quicker rate recovery. According to their data the industrial vacancy rate is 10% with the actual space being marketed at almost 15%.

For the Charlotte office market the Costar report says the vacancy rate increased in the second quarter of 2010 to 15.18% from 14.56% for the previous quarter. Of the major markets they track about half are showing signs of improvement. Again, one positive factor is deliveries of new space are getting to record low rates. An odd prediction; due to conversion and obsolescence some markets may experience a negative inventory growth in 2011 and 2012. That means markets are actually shrinking!

What about investment sales? I know they are out there as there are brokers looking for clients. The numbers of lookers seems to be lower than I would expect in this market. As I have pointed out in the past, once the perception of a bottom has occured there is usually a flurry of investors in the market for 2-3 years. What will the flurry look like this time around? It's hard to say but investors may not be sitting on the hoards of cash they were in the mid 90's.

Many of you are thinking about how to cut overhead on your properties. Taxes and insurance are obviously the major components. Now is the time to consider an appeal on your RE taxes if you have not seen a readjustment. Also, review your insurance for possible areas of savings.

The tax law changes slated to take effect at the new year are also a popular topic. For those who live off of investment income and capital gains rather than employment income things may change dramatically. Capital gains rates will rise from 15% to 20% and the dividends tax will rise from 15% to almost 40% with another increase two years later. Many rules for small businesses regarding expensing and depreciation will also change. Personal tax rates will rise across the board with the highest rate moving from 35% to almost 40% and exemptions/deduction will change. It's time to get educated and start planning.

For those thinking of liquidating property over the next year or two it may be a good time for us to discuss the benefits of IRS 1031 exchanges and rules for installment sales. Both of these are great ways to help avoid the tax bite. I can get you started in the right direction prior to costly discussions with your tax attorney or accountant.

How can I help you in the realm of commercial real estate? Feel free to give me a call. Thanks for reading!

Tadd Holzen

704-458-5552

Tadd@Holzencommercial.com

Follow up to the state of the market - May 5th

In my May 5th posting, I discussed the current market conditions and how they compared to the events of the early 90's. As many of you are always interested in where the market stands, I thought I would provide some interesting information. According to Loopnet research:

In Q1, overall sales in Charlotte decreased 74% compared to the prior year. Over the last twelve months, the price per square foot for office property is down 73%, multifamily is up 26%, industrial is down 32% and retail is up 12%.

Of course this doesn't mention that 2008 wasn't such a good year either!

The bright news is I am seeing signs of activity, albeit slow. The "fear factor" seems to be waning from what I heard from small business owners over the last several months. For some businesses it seems sales have returned to their norms. As mentioned in my last article, the election will have a major impact on businesses' psyche. Many believe there will be a major house cleaning in government in the fall and those people may already be acting on the belief.

Something unusual is happening in the investment market. In an article on CoStar, the author believes CAP rates have actually fallen from 8-9% last year to 7% this year! I found this very hard to believe as I haven't seen any activity in investment sales. He expands further in the piece to say this may only apply to the highest quality properties with stabilized revenues. This trend may also be the result of REIT's, foreign funds and pension funds heading back to the market. I don't believe regular properties are going to do any better than 9-10%, but I also don't expect rates to get near 12% as they did in the mid-90's. Of course, this doesn't mean a thing if you can't borrow the money for the project.

What about lending?

In an article from the National Association of Realtors they performed a survey of loan officers last month. In that survey most lenders did not change their practices in Q1 and a small fraction of banks actually tightened lending to businesses and households.

There is a lot of conflicting information. I talk to lenders and they tell me they are busy. I believe it is mostly refinancing.

So who are we actually seeing in the market?

A few segments seem to have most of the activity. I'm seeing a lot of start ups, such as folks who have lost jobs or businesses and are starting something new and downsizers (those who have scaled way back, such as RE brokers). I'm seeing race teams back and out looking. The ad money must be flowing.

According to CoStar research, the major tenants in the largest markets are out shopping for long-term lease deals to solidify their positions for years to come. As I predicted in my last blog, this is the next phase of the cycle and usually a busy one. Once the economy catches up to the small businesses they will also get out looking for steals on long leases.

Feel free to write back about activity in your world. As always, let me know how I might be able to assist you in your commercial real estate activities.

Thanks for reading.

Tadd Holzen

704-458-5552

Tadd@Holzencommercial.com

http://www.holzencommercial.com/

Where do we stand in the Commercial Real Estate Market Cycle?

As a commercial real estate broker people ask me everyday; where do we stand in the commercial real estate market right now? Well, here in the Charlotte area and in particular the Lake Norman area we stand in the ditch! Never have I seen such a slow market as the last year and actually the last two years. What are market rates and prices? Your guess is as good as anybodies.

Everyday there are calls from appraisers and questions from clients about market numbers. How do you make a market when nothing is moving. Does a distress or foreclosure sale make the market? Doubtful.

What is happening are kick the can down the road deals. Almost no sales and just short term leases. There is not enough confidence in the business community, at least the small business community, to enter into long term leases. So we get short renewals and one and two year leases.

Are we at the bottom? Who knows. There is a lot going on out there that gives cause for pause and angst. Sitting on your hands seems safe. In my opinion we are at the bottom and have been. We may continue to stay here through the election. All we need is a reason to sit and wait, right?

Interestingly, while some landlords and sellers are in trouble and have to do anything possible, many have been able to hang on. There is not much of a market so why do anything crazy unless you have to.

The banks know this too. I'm shocked at the number of problem mortgages where the bank is not moving on a foreclosure. They don't want things on their books that they then have to dump. Better to stall and let owners work out their problems.

A valuable comparison is to look at the last commercial crises of the late 80's and early 90's. I was green in the business then didn't know any better. I thought every deal was very difficult. The crash in the market was then brought on by the banks. Banks would lend over 100% to a developer. Guys were building properties and making their money on the building completion! Selling or leasing was just gravy, if you cared. The project didn't even have to make sense. The market became overbuilt.

There was an interesting saying in the business: Stay alive till '95. That's when the old timers thought the market would resemble normal times. It was true but things didn't really improve until the late 90's. That's a ten year cycle! We are likely going into out third year of this go around. I believe we will stay here until something happens to instill confidence in the economy. It may be an election, a return to lending, who knows? Once people think we are past bottom what happens then?

Around '92-'93 there were guys with cash running around looking to buy properties from the RTC, banks, insurance companies at 25 to 50 cents on the dollar. I was selling those investment properties to older guys who said they would never see this market again. Two and three years later I was selling the same properties at double the money.

What about leasing? Similarly, you couldn't give space away early in the cycle. Once things turned many businesses ran out to sign five year leases to lock in great deals. Those were the days of a great rate, lots of free rent and whatever else you want!

So you say, "This is great info Tadd but what should I do?"

In my opinion we are at the worst. If we see major changes in November the small business community may reenter the living world. Plan on making your deals in early 2011.

If you are a buyer you are going to have to look hard for great deals. This time I don't think you can just look at the menu of foreclosures. You are going to have to dig and see who can't hold on any longer. Are you a tenant? By now you have changed your business to the new paradigm. Take advantage of the lag in market improvement and do long term deals. Landlords who had the ability to ride this out want to stop taking losses quickly. Remember rates are sticky on the downside, not the upside.

For landlords and sellers my advice is continue to be aggressive. Free rent is meaningless right now. Trade free rent for a quickly escalating lease. Create a value added situation to attract tenants. It may mean furniture in a deal, buildout, etc., something to make your space more desirable. It has always surprised me how owners would let space sit for years until exactly the right deal came along. The answer was usually risking a loss versus guaranteeing a loss. Selling; get creative. Can you hold paper or do a land contract? Installment sales make great sense if there is nowhere to reinvest. Does anyone remember how many deals were done before the banks gave money to anyone with a pulse?

How can I help you? Take a look at my website: http://www.holzencommercial.com/

Tadd Holzen