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A recent article in National Real Estate Investor gives insight on Standard & Poor’s March GRA Commercial Real Estate Indices.  Overall, national commercial property prices have risen over 5% from March 2007 to March 2008.  The strongest performing region in the month-over-month indice was the Pacific West region.  For more details, click on the link below.

Commercial Property Prices Still Gaining

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AOL Money and Finance has created a list of retailers facing problems. So far we have not seen too many closures in the Inland Northwest. The only closure of note in Spokane is the CompUSA. Take a look at the list below:

• Linens ‘N’ Things – closing 120 of 589 stores. Filed for chapter 11 bankruptcy protection in May.
• Disney Stores – closing 98
• Foot Locker – closing 140 of the 3,785 stores in addition to the 274 stores it closed last year.
• Wilson’s Leather – closing 160 stores.
• Home Depot – closing 15 stores.
• Ann Taylor – closing 117 stores.
• PacSun ‘Demo’ Stores – closing 154 stores in addition to the 74 stores it closed last May.
• Lonestar Steakhouse – closing 27 locations.
• Zales – closing 105 stores. Will have 2,145 locations open.
• Pier 1 Imports – closing 25 stores. Closed 79 in 2007.
• Friedman’s Jewelers – closing 120. Closing stores and laying off employees as it goes through bankruptcy proceedings.
• Dell – closing 140 stores.
• 84 Lumber – closing 140 stores. Directly impacting by the nation’s housing market. Closed 12 stores in December.
• Sharper Image – closing 90 stores. Filed for bankruptcy protection.
• Pep Boys – closing 31 stores.
• Ethan Allen – closing 12 of 300+ stores.
• Rite Aid – closing 28 stores.
• Sprint/Nextel Corp – closing 125 stores.
• Movie Gallery – closing 400 of 3,500 stores.
• Saks – closing 1 store.
• CompUSA – 103 stores will be shut down or sold.
• Kirkland’s – closing 30 to 130 stores.
• Fashion Bug, Lane Bryant and Catherine’s – closing 150 stores.

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Google has created a powerful tool called Google Trends that enables consumers to chronologically view search & news activity for popular terms. Below is a chart of the term “Commercial Real Estate“.

What does this tell us? If you look closely you will notice a spike in activity at the end of each calendar year and at the end of each fiscal year. These periods are historically busy months for commercial real estate brokerage, especially for 1031 exchanges. To try out different terms visit www.google.com/trends

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While the other markets are crying…

The Residential Real Estate collapse… the Credit Crunch … Wall Street swoon…

It’s Still A Buyers Market in Commercial Property

With the relentless drumbeat of negative market news and the current funding credit crunch, you might be thinking now is NOT a good time to be buying commercial properties.

Not so … here is the word on the street…

These market forces have actually made this one of the best times to continue to acquire commercial properties and build your portfolio.

Here are 4 Reasons why . . .We are very active in the market with over 1000 units of multifamily under contract and researching new properties daily. Here’s what we are seeing that is quite new and a pretty large change from conditions 6 - 9 months ago.

1) Uptick in Commercial Foreclosures: For the last couple of years the Commercial Property market has seen nearly as much speculative buying as the Residential side.

In the niche of properties priced at less than $10M - the segment dominated by non-institutional buyers - many people have overpaid for their properties. And the banks went along with them.

Many owners now find them selves over-leveraged and we are seeing an increase in Commercial Property Foreclosures. This is a bargain hunters dream

2) A Return to Rational Prices: The current credit crunch has positive effects. Those same speculative buyers and easy financing are now way gone. With financing MUCH more difficult these days and the speculators out of the picture, asking prices have come down to reasonable levels we have not seen in nearly a year.

3) More Flexible Sellers: Sellers know the lenders are only funding solid deals that are well priced. We are seeing sellers be MUCH more flexible on negotiations both at contract and retrade stages of the purchase.

And with the Speculative Buyers out of the market Sellers are seeing fewer offers as well. They are very hesitant to let your contract go if you are a serious buyer and much more flexible at the bargaining table.

4) Only Solid Profitable Deals Allowed: In fact, lender underwriting right now is so conservative that only solid, four star, profitable deals will get funded. Now is a great time to build your portfolio because, if you can get a property funded in this market, you are going to have a screaming profit machine when the market turns back up again.

Get ‘er done… So as you see the head lines day-after-day touting the bad news in the financial market, remember this…

Right Now is a great time to continue to look for good values in the property markets and if they’re underwritten now in a way that the banks will fund, you’re going to have a great project down the road.

Article Source: Commercial Property 2008 - While Everyone Else is Cryin’ Just Keep Buyin’

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Investing in commercial real estate is attractive for a variety of reasons. Commercial real estate investment offers a number of distinct advantages, several of which are discussed briefly below.

1. Positive Cash Flow Investment in income-producing properties often generates an income stream that can be used to fund different needs, such as retirement.

2. Tax Advantages As a result of deferred taxation, the after-tax return on commercial real estate typically is greater than an alternative investment with a comparable before-tax yield. The cost-recovery deduction normally defers (and saves) taxes, an effect that is magnified by debt financing.

3. Appreciation In addition to the periodic cash flows, the sale (or reversion) cash flow of a property can represent an increase in value.

4. Inflation Hedge Real estate investment typically has been an excellent hedge against inflation.

5. Diversification Commercial real estate offers diversification from other investments such as securities (stocks and bonds) and commodities, which have different risks.

6. Psychological Benefits The fact that real estate is a physical asset (i.e., bricks and mortar) provides a certain amount of psychological security over more nonphysical assets such as securities.

7. Positive Leverage/Principal Reduction In many cases, an investor may obtain financing with a lower interest rate than the overall un-leveraged yield of the property. This will increase the yield to equity, including reduction of the mortgage balance.

Credit: CCIM Institute

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Despite a growing interest in Asia, U.S. real estate, by a wide margin, has risen to the top of the global property market among foreign investors, with New York City and Washington named the top two global cities for foreign investors’ real estate dollars according to the results of the 16th annual survey released today by the Association of Foreign Investors in Real Estate (AFIRE). The survey was conducted in the fourth quarter 2007 among the association’s nearly 200 members. Collectively, AFIRE members hold $700 billion of cross-border real estate, including $230 billion in the U.S.

We do no see a great deal of foreign investments in the Spokane/CDA MSA.  It can be difficult to direct foreign dollars to a tertiary market with a smaller economic base.  However, with the weakening of the U.S. dollar there has been a noticeable influx of Canadian capital. Below are some noteworthy statistics from AFIRE’s survey. The full report can be found at www.afire.org

Top Five Global Cities for Foreign Investor’s Real Estate Dollars

     1. New York; up from #2 in 2006
     2. Washington; DC up from #4 in 2006
     2. London; down from #1 in 2006
     4. Paris; down from #3 in 2006
     5. Shanghai; up from #9 in 2006

Most Stable and Secure Countries for Real Estate Investments

     1. U.S. - 56% of vote
     2. Germany - 11% of vote; up from #3, with 4.5% of the vote in 2006
     3. United Kingdom - 8.8% of vote; down from #2, with 11% of the vote in
        2006
     4. Australia - 8.8% of vote; up from #5, with 3% of the vote in 2006
     5. Japan - 5.3% of vote; with 3% of the vote [tied with Australia],
        unchanged from 2006

Countries Offering the Best Opportunity for Capital Appreciation
 
    1. U.S. - maintains ranking; increases percentage of votes to 26.2% from
        23% in 2006.
     2. China - moves into 2nd place from 3rd; increases percentage of votes
        to 21.4% from 14.8% in 2006.
     3. India - falls from 2nd to 3rd; decreases percentage of votes from 18%
        to 16.7% in 2006.
     4. Russia - moves from 5th to 4th; although percentage of votes decreases
        to 7.1% from 8.2% in 2006.
     4. Mexico - moves from 7th to 4th (tied with Russia); increases
        percentage of votes to 7.1% from 4.9% in 2006.

Top U.S. Property Types

Within the U.S. property market, the most dramatic change was a total reversal of investors’ preferred U.S. property types, with every property category shifting and, most dramatically, office properties falling into fifth place and retail properties rising to first.

     1. Retail - from 5th place in 2006
     2. Hotels - from 3rd place in 2006
     3. Industrial - from 4th place in 2006
     4. Multi-family - from 2nd place in 2006
     5. Office - from 1st place in 2006

Top U.S. Cities

The ranking of the top five U.S. cities echoed respondents’ choices in 2006:

     1. New York
     2. Washington, DC
     3. Los Angeles
     4. San Francisco
     5. Seattle

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Think prices in our market are too high? According to CoStar lease rates in the building range from $110 to $140 per square foot/year.  Compare that to our annual rates of $12 to $24 square foot.

Full Article

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