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VOL. 124 | NO. 84 | Thursday, April 30, 2009

Commercial Real Estate Slump Continues

By Eric Smith

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BRAVE NEW WORLD: The Summer Commons retail center at 5124 Summer Ave. was the top commercial sale in March, fetching $3.5 million, but it was a foreclosure sale. -- PHOTO BY ERIC SMITH

The start of spring brought the first sign of hope in the commercial real estate market.

But while March sales showed a decent gain over the previous month, the numbers were significantly down compared to the same month a year ago.

Shelby County notched 59 commercial sales last month, a 25.5 percent increase from 47 sales in February 2009, but a 39.8 percent decline from 98 sales the same month last year, according to the latest data from real estate information company Chandler Reports, www.chandlerreports.com.

As Johnny Lamberson, senior vice president at CB Richard Ellis Memphis, noted, it’s still “very tough” to get deals done, especially when bank loans are involved. Most of the transactions occurring these days are all-cash deals. The biggest problem is getting both sides of deals to see eye to eye on price – and for buyers to secure financing.

“We still have, in some instances, a significant pricing gap between buyers and sellers,” Lamberson said. “If we’re lucky enough or fortunate enough to get through that hurdle, then we still have to find debt. I don’t see it any easier today than I saw it a year ago.”

Tough going

Commercial sales averaged $417,390 in March, down 62.1 percent from $1.1 million in March 2008 and down 24.8 percent from $554,788 in February. The sales total last month was $24.6 million, down 76.5 percent from $104.6 million in March 2008 and down 5.7 percent from $26.1 million in February.

The dearth of large transactions wasn’t surprising to Dan Whipple, president of Crye-Leike Commercial, who said he works a lot of the “small deals,” sales or leases valued around $2.5 million or less.

“The deals that are getting done overall are less than $10 million. Until there’s debt in the market, that’s going to continue.”
– Johnny Lamberson
Senior vice president, CB Richard Ellis Memphis

Typically, they involve small businesses or individual real estate investors looking to make a commercial acquisition or lease. Without a doubt, the few deals that have trickled into the books have kept the market afloat during this slow period.

Whipple added that the current marketplace has provided opportunities. As properties lose value, bargains arise, which could spark qualified buyers to begin investing again.

“There is some buying going on by people who are savvy, and also people who have the money, they know this is the time to buy,” Whipple said. “If you find one of those, you need to take him and find him a piece of property.”

What’s more, Whipple pointed out, is companies in this climate can lock in better long-term lease rates, often for much less than they have been able to recently. That, too, could signal some movement in the market.

“There’s a good bit of rent renegotiation going on. There has to be,” Whipple said. “Those small retail centers that have less than 100,000 square feet in them, those people have got to scratch to keep those tenants. A lot of them are cutting deals just to keep their tenants.”

Selling low

Proof of the market’s continued struggles can be found in some key figures from last month’s data. For example, only eight transactions totaled $1 million or more, while the average amount was less than $500,000.

But perhaps the most telling sign of the current state of affairs is in the details of the top sale for March – which was a foreclosure.

The Summer Commons retail center sold for $3.5 million March 5 on the Shelby County Courthouse steps to a local entity related to New York-based NATIXIS Real Estate Capital Inc. NATIXIS Real Estate Capital was the holder of the loan in default on 120,000-square-foot center.

That deal was followed in the month’s rankings by a storage portfolio: A collection of limited liability companies called the Northwest and Southern Self Storage Partnership bought two self-storage facilities for $2.4 million from 4Guys LLC, which developed the properties in the 1990s.

The portfolio includes the Southern Self Storage facility at 4740 Getwell Road in the Oakhaven/Parkway Village area and the Northwest Self Storage facility at 3891 Thomas St. in Frayser.

Third was a tenant-in-common deal. Countrywood 1031 LLC, which owns the Countrywood Crossing shopping center in Cordova, sold 3.56 percent of the 175,000-square-foot shopping center to a California entity for $2.2 million.

Lamberson said while in some instances the gap between buyers and sellers has narrowed, there seems to be an expectation of falling prices, which has stunted the market’s recovery.

“If it’s a quality project, then there’s a good chance the seller doesn’t have to sell because it’s a performing asset,” he said. “If they want to sell in today’s market, they’re going to have to realize a price that wasn’t going to be the same they would have achieved two years ago.

“People are definitely looking for what they would consider the value-added, opportunistic place,” Lamberson added. “The deals that are getting done overall are less than $10 million. Until there’s debt in the market, that’s going to continue.”

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

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RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 86 393 21,159
MORTGAGES 94 424 24,785
FORECLOSURE NOTICES 0 93 8,703
BUILDING PERMITS 173 1,010 43,347
BANKRUPTCIES 52 292 14,194
BUSINESS LICENSES 15 90 6,491
UTILITY CONNECTIONS 28 167 13,678
MARRIAGE LICENSES 12 89 5,158

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