BETTER THAN NOTHING: The Countrywood Crossing shopping center in Cordova represented the largest commercial transaction of the past year, fetching  $55.2 million in March from outside investors. Despite that megadeal, commercial activity has declined significantly in Shelby County. -- PHOTO BY ERIC SMITH

After a prolonged and prosperous ride, commercial real estate stumbled in the past year with no signs of regaining its balance anytime soon.

Just 998 commercial sales were made in Shelby County from August 2007 through July 2008, down 17.6 percent from 1,211 sales during the previous 12-month period, according to the latest data from real estate information company Chandler Reports, www.chandlerreports.com.

Even worse, the total and average dollar amounts completely fizzled. The past year saw a mere $1.1 billion in commercial sales, down 52 percent from $2.3 billion, while the average sales amount of $1.1 million was a 41.8 percent decline from $1.9 million the year before.

Why the dropoff? Commercial real estate agents and lenders point primarily to one factor – tightened credit – which already was causing widespread woe in the residential sector following the subprime fallout that first became noticeable last August.

“Tougher underwriting standards and overall changes in the capital markets certainly make buying any type of commercial property more difficult than it was in first half of last year,” said Blake Pera of CB Richard Ellis (CBRE) Memphis’ multifamily division. “That’s Memphis, and that’s practically any market in the country right now. That’s one of the main reasons for why you’re seeing a decrease in the sales volume in every discipline.”

High drama

The decreases were indeed across the board and across the county. Nearly all property types saw large drops in sales from the previous year, while 25 of 34 Shelby ZIP codes that registered at least one sale saw declines.

Changes in the commercial lending landscape were mostly to blame, noted Rick Wood, senior vice president at Financial Federal Savings Bank.

Wood said a year ago roughly 70 percent of his bank’s – and indeed many other banks’ – commercial lending portfolio was “acquisition financing” for office, retail and multifamily. That’s changed dramatically, to say the least.

“This year, we’ve done one acquisition loan on an office building in Richmond, Va.,” Wood said. “That’s it.”

Now, 95 percent of business is refinancing existing debt. Granted, the refi business has kept some lenders afloat, but the drying up of institutional lending for acquisitions has taken a toll on the commercial sector.

“Institutional lending sources are being more cautious in their underwriting and determination of whether a particular property is financeable,” Wood said.

Tops and bottoms

The top ZIP code in terms of number of commercial sales was Whitehaven’s 38116 with 76, while the top ZIP code in terms of average sales price was Cordova South’s 38016 at $5.3 million.

The Poplar/Perkins ZIP of 38117 saw the largest sales increase at 76.9 percent, rising from 13 sales to 23 sales, and the Parkway Village ZIP of 38118 saw the largest decrease at 41.7 percent, falling from 115 sales to 67 sales.

(There was a minimum of five sales for all the above categories.)

As for top transactions, the largest sale of the past year was the Countrywood Crossing portfolio, which sold in March for a combined $55.2 million (in three separate deals worth $37.7 million, $12.2 million and $5.2 million) to Countrywood 1031 LLC.

The buyer is the locally based limited liability company of Inland Real Estate Exchange Corp., an entity of Oak Brook, Ill.-based real estate investment trust (REIT) Inland Real Estate Group of Companies Inc.

High-dollar deals

The top single transaction in terms of dollar amount was October’s $46 million sale of Watergrove Townhomes – since renamed Madison at Cypress Lakes – to Philadelphia-based BPG Properties Ltd., setting a Memphis multifamily record.

Next was Colonial Grand at Shelby Farms, which sold in July for $41 million to Louisville, Ky.-based NTS Realty Holdings LP, acting locally as Shelby Farms Apartments LLC.

Third was the Doubletree Hotel at 183 Union Downtown; it sold in September for $28.3 million to New York-based W.P Carey & Co. LLC and Watermark Capital Partners LLC.

Fourth was the Glenmary at Evergreen apartment complex at 1550 N. Parkway; it sold in April for $19.5 million to Newport Beach, Calif.-based Nationwide Health Properties Inc., which is converting the property into senior living. And fifth was the Crescent at Wolfchase apartment complex in Bartlett, which sold in August 2007 for $16.3 million to Pittsford, N.Y.-based Morgan Management LLC, acting locally as Morgan Crescent at Wolfchase LLC.

Leading the way in office sales was the 7130 Goodlett Farms Parkway building that sold in July for $13 million to Dallas-based JP Realty Partners Ltd., acting locally as JP-Goodlett LLC. (A related entity called JP CB LLC bought the neighboring office building at 1900 Charles Bryan Road for $5.9 million in a portfolio acquisition.)

The top industrial sale was the Meritex Logistics facility at 4836 Hickory Hill Road, which sold in December for $16.1 million to Irvine, Calif.-based Crown Realty & Development Corp., acting locally as Crown Memphis Associates LLC.

The Countrywood transaction, of course, led the way for retail.

Bottomless pit

Though sales were dim across all property types, multifamily shined the brightest, registering 117 sales; it was second only to vacant land over one acre, which notched 198 sales. Underscored by the high-dollar sales above, apartments continued to do well in investment circles, partly because of its lending parameters.

“Multifamily has always been the real estate product type that’s the most easily understood, both from owners and lending institutions,” Wood said. “It’s perceived as having less risk than office and retail. It’s the old theory that everybody has to live somewhere; that’s about as basic as it gets. Multifamily product, generically, is the same whether it’s in Seattle or Memphis or Fort Lauderdale. It’s just not that many moving parts as opposed to retail or office.”

Will all the moving parts of the commercial real estate market rebound during the next 12 months? Johnny Lamberson, senior vice president of CBRE, said a turnaround could be slow – and not just because of tightened credit.

“There’s going to be some deals that trickle out,” Lamberson said. “There’s also concern in some of these markets that since there have been no sales, there are really no good sales comparables. It’s very similar to buying a home: Nobody’s real sure where the bottom is. Nobody wants to be the fool buyer.”