Tight Credit Put Squeeze On ‘08 Commercial Real Estate Sales

By Eric Smith

As with the residential sector, 2008 was a year to forget in commercial real estate, which suffered declining sales and endured a nationwide credit crunch throughout the year.

“The big storyline in ’08 was that lenders weren’t lending,” said Johnny Lamberson, senior vice president at CB Richard Ellis Memphis. “It put a real tightening on deals getting done. If deals weren’t highly leveraged, as the year went on it became harder and harder to get transactions closed because nobody was lending money.”

That assessment showed up in the year-end numbers. Shelby County saw just 848 commercial sales in 2008, a 27 percent decline from 1,166 sales in 2007, according to the latest data from real estate information company Chandler Reports, www.chandlerreports.com.

The average sales amount last year was $944,235, down 48 percent from $1.8 million in 2007, while the total sales figure in terms of dollar amount was $800.7 million, down 62 percent from $2.12 billion in 2007.

In decline

Mortgage activity indeed declined, with only 424 commercial mortgages in 2008, a 37.1 percent decline from the 674 mortgages made in 2007. (This report included only loans taken at the time of sale, not refinancings.)

Also, last year’s average mortgage amount of $1.1 million marked a 67.2 percent dropoff from $3.5 million in 2007, and last year’s total dollar amount of $484.9 million marked a 79.4 percent dropoff from $2.35 billion in 2007.

The top commercial lender in 2008 in terms of total dollar amount was Regions Bank, doing business as Regions Mortgage, with 22 mortgages averaging $1.4 million and totaling $31.4 million. It was followed by GMAC Mortgage Corp. with three mortgages averaging $6.6 million and totaling $19.7 million, and Wells Fargo Ltd. with seven mortgages averaging $2.7 million and totaling $19.2 million.

First Tennessee Bank NA was the top lender in terms of number of mortgages with 38, followed by Regions’ 22 and BancorpSouth Bank’s 16.

Among the deals that did occur, the Oakhaven/Parkway Village ZIP code of 38118 – bolstered by airport-area warehouse and distribution centers – led the county with 69 sales averaging $982,076 and totaling $67.8 million.

The Cordova North ZIP of 38016 was tops in both average sales amount at $6.9 million and total dollar amount at $110.3 million.

Also, the top property type was vacant land over one acre with 167 sales averaging $590,936 per sale.

Small but large

A handful of high-dollar, high-profile deals kept the market afloat in 2008. The Countrywood Crossing shopping center on North Germantown Parkway led the county in terms of dollar amount, fetching a combined $55.2 million for three properties in March.

The buyer, Countrywood 1031 LLC, 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 Cos. Inc.

That deal was followed by two Kroger-anchored shopping centers – the Commons at Dexter Lake at 1675 N. Germantown Parkway and the Mendenhall Commons at 540 S. Mendenhall Road. The buyer was WRI HR Venture Properties I LLC, a real estate investment trust (REIT) that paid $41.6 million for 70 percent of the centers.

As for office sales, the top deal in Shelby County last year was the PennMarc Centre office building at 6401 Poplar Ave., which Union Realty Co. LP sold for $14.5 million to Highwoods Realty LP, an entity related to Raleigh, N.C.-based Highwoods Properties Inc.

Next, two local entities related to Dallas-based JP Realty Partners Ltd. bought a pair of Class A office buildings in the Goodlett Farms development just south of Interstate 40 between Whitten and Appling roads. One of those was the 253,831-square-foot building at 7130 Goodlett Farms Parkway, which JP-Goodlett LLC bought for $13 million.

In play

The top multifamily transaction last year was the Colonial Grand at Shelby Farms apartment complex. It sold for $41 million to Louisville, Ky.-based NTS Realty Holdings LP, and the Cordova multifamily property has since been renamed Park’s Edge at Shelby Farms.

It was followed by Tacoma, Wash.-based Gintz Group, which sold the 172-unit Midtown apartment complex at 1550 North Parkway for $19.5 million to Newport Beach, Calif.-based Nationwide Health Properties Inc. The new owner will lease the property back to Gintz Group, and it will be operated as an independent- and assisted-living senior housing facility called Glenmary at Evergreen.

On the industrial side, HSA Commercial Real Estate of Chicago added to its Memphis portfolio with a pair of acquisitions. The company paid $9.1 million for the warehouse at 5321 Shelby Drive and $8.4 million for the warehouse at 4219 Air Trans Road.

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.

No relief for the weary

The fourth quarter numbers were equally dire. Just 177 commercial sales were recorded during Q4 (October through December) in Shelby County, down 34 percent from 267 in Q4 2007, according to Chandler Reports.

The average commercial mortgage amount of $813,610 was down 29 percent from $1.1 million, and the total dollar amount of $144 million was down 53 percent from $305.4 million.

Oakhaven/Parkway Village’s 38118 was the top ZIP code for sales with 18 deals averaging $912,931 and totaling $16.4 million.

Also, 96 mortgage loans were made in Q4, a 35.1 percent decline from 148 in Q4 2007, while the average mortgage amount of $573,909 was a 58.9 percent decline from $1.4 million and the total dollar amount was a $73.3 percent decline from $206.6 million.

GMAC Mortgage was the top lender in terms of dollar amount with one loan totaling $10 million, and First Tennessee Bank led in terms of number of mortgages with nine.

Lastly, the top property type in Q4 was vacant land over one acre with 30 transactions averaging $386,840 per sale.

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