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.
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?
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?
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?"
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/
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
