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VOL. 123 | NO. 250 | Tuesday, December 23, 2008

Commercial Real Estate Sales Down 18 Percent

By Eric Smith

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REDEEMING QUALITIES: The Kroger-anchored Mendenhall Commons shopping center at 540 S. Mendenhall Road was part of a $41.6 million retail portfolio that sold in November to a real estate investment trust, bolstering an otherwise lackluster commercial sales month. -- PHOTO BY ERIC SMITH

A familiar theme in the commercial real estate market continued in November as a couple of high-dollar transactions kept the month out of the doldrums. Not surprisingly, though, those numbers didn’t do much to salvage an otherwise dismal year.

Two shopping centers sold for a combined $41.6 million to a real estate investment trust last month, accounting for two-thirds of November’s total dollar amount. Following that portfolio plus a lucrative warehouse transaction valued at $8.4 million, not many significant deals happened on the commercial front.

There were 58 commercial sales in Shelby County in November, an 18 percent decline from 71 sales in November 2007, according to the latest data from real estate information company Chandler Reports, www.chandlerreports.com.

Thanks to that trio of multimillion-dollar deals, the average sales price in November was $1.2 million, a 65 percent increase from $716,827 the same month a year ago. The total dollar amount of $68.7 million marked a 35 percent increase from $50.9 million the same month a year ago.

Big money

The saving grace for November was a newly formed joint venture between Weingarten Realty Investors and Hines Real Estate Investment Trust (REIT), both of Houston. The organization bought a majority share of two local Kroger-anchored retail centers for $41.6 million, ranking it among the largest commercial deals all year in Shelby County.

The group, named WRI HR Venture Properties I LLC, bought 70 percent of the Commons at Dexter Lake at 1675 N. Germantown Pkwy. for $29 million and 70 percent of the Mendenhall Commons at 540 S. Mendenhall Road for $12.6 million.

The deal was part of an aggregate $271 million deal that included 12 properties and 1.5 million square feet in multiple states acquired by WRI HI Venture Properties. The centers are anchored by a mix of grocery and other retail box stores.

The 167,000-square-foot Commons at Dexter Lake sits on 23.5 acres at the southwest corner of Dexter Road and North Germantown Parkway in Cordova. Tenants include Kroger, Stein Mart, Samuel’s Furniture, Marshall’s, Dress Barn and Cingular Wireless. The Shelby County Assessor of Property’s 2008 combined appraisal of the center’s three parcels is $24.7 million.

The 80,000-square-foot Mendenhall Commons sits on 5.73 acres at the southeast corner of Sanderlin Avenue and South Mendenhall Road in East Memphis. Tenants include Kroger, Pei Wei Asian Diner, Lucchesi’s Ravioli & Pasta Co. and Breakaway Running. The Assessor’s 2008 appraisal is $9.5 million.

Weingarten will continue to manage and lease the properties.

Out-of-town investor

The other big deal last month was the sale of a 342,860-square-foot, one-story warehouse at 4219 Air Trans Road for $8.4 million. HSA Commercial Real Estate of Chicago – operating locally in the deal as Memphis Air Trans LP – was the buyer. This was the company’s fourth high-dollar industrial acquisition in the past couple of years.

HSA Commercial has now spent more than $70 million for a Memphis portfolio totaling about 2.5 million square feet. This latest asset joins the 138,014-square-foot Chickasaw Distribution Center at 5100 S. Hickory Hill Road, the 1.9-million-square-foot Willow Lake Business Park and Corporate Park in Hickory Hill and the 362,473-square-foot warehouse at 5321 Shelby Drive in Parkway Village.

Eric Ogden of HSA Commercial told The Daily News the company is bullish on Memphis because of the city’s distribution and logistics advantages, starting with its largest employer.

“Because you’ve got FedEx, because you’ve got UPS, because you’ve got a significant number of railheads there, it plays like a much bigger distribution hub than the (square footage) would indicate,” Ogden said.

HSA’s most recent deal helped Parkway Village’s 38118 ZIP code lead the county in November in terms of the number of commercial sales, with nine. Those sales averaged $1.4 million and totaled $12.8 million. The top area for total sales dollars was Cordova North’s 38016 at $30.8 million, aided by the Commons at Dexter Lake deal.

Apartments were the top property type for number of sales in November with 10, although those sales averaged only $248,715.

Financial vacuum

Not surprisingly, the commercial mortgage side in November was bleak, made worse because the largest transactions didn’t involve local financing. Shelby County saw just 34 commercial mortgages last month, down 8.1 percent from 37 in November 2007.

The average mortgage amount of $555,661 was a 24.7 percent decline from $738,371 and the total mortgage activity in terms of dollar amount was $18.9 million, a 30.8 percent decline from $27.3 million the same month a year ago.

The top commercial lender in terms of dollar amount was First Tennessee Bank NA, with four mortgages averaging $690,688 and totaling $2.8 million. It was followed by FSB Mortgage with one sale at $1.3 million and Trust One Bank with one sale at $1 million.

Despite a few promising sales last month, this year is still far shy of 2007. Through Nov. 30, there have been just 797 commercial sales, a 25 percent decline from 1,066 through the same period of 2007.

The average sales price of $977,197 is off 49 percent from 2007’s $1.9 million, and the total sales dollar amount of $778.8 million is 62 percent shy of 2007’s $2.04 billion.

Chandler Reports is a division of The Daily News Publishing Co.

PROPERTY SALES 61 262 16,169
MORTGAGES 28 132 10,054
BUILDING PERMITS 88 424 38,360
BANKRUPTCIES 36 92 7,564