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VOL. 124 | NO. 105 | Monday, June 1, 2009

Commercial Sales: Nowhere to Go But Up

By Eric Smith

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SLOW CYCLE: Regions Bank was the top commercial lender in April in terms of dollar amount, making one loan for $1.3 million. It was slim pickings for commercial mortgages, with activity falling 36.8 percent in terms of number of loans and 75 percent in terms of dollar amount, according to Chandler Reports. -- PHOTO BY ERIC SMITH

Shelby County’s commercial lending landscape remained bleak in April as activity fell for the fifth time in the past six months.

Just 24 commercial loans were made last month, a 36.8 percent decline from 38 loans in April 2008 and a 22.6 percent decline from 31 loans in March, according to the latest data from real estate information company Chandler Reports, www.chandlerreports.com. (Data for this report include only commercial mortgages taken at the time of sale and not refinancings.)

What’s more, the average commercial mortgage amount of $298,946 marked a 60.4 percent drop from $755,550 in April 2008 and a 28.2 percent drop from $416,305 in March. Toss in April’s total mortgage volume of $7.2 million – down 75 percent from $28.7 million a year ago and 44.4 percent from $12.9 million the previous month – and it’s clear the situation continues to worsen.

“Overall, demand is fairly soft for new projects,” said Rick Hall, executive vice president and senior commercial lender at Renasant Bank. “I think everybody is concerned about budget deficits, government spending, all that sort of thing, and how that’s going to play out. There’s not much confidence in the market right now, so I think everybody’s holding close to the vest.”

It all depends

Banks and mortgage companies were on the short end of what activity did occur last month, as seller-financed projects led the way in April in terms of number of commercial mortgages, with seven deals averaging $158,571 and totaling $1.1 million.

“... If you’re waiting to find out what the absolute bottom is, you’re probably already past it.”
– Will Chase
President, Triumph Bank 

As for the top lender in terms of dollar amount, Regions Bank, doing business as Regions Mortgage, ranked first with one loan at $1.3 million.

Regions was followed by Boatman’s Bank with two loans averaging $244,000 and totaling $488,000; Paragon National Bank with two loans averaging $243,375 and totaling $486,750; InSouth Bank with one loan at $473,000; and BankTennessee with one loan at $415,427.

Through April 30, Shelby County has seen 115 commercial mortgages, down 30.3 percent from 165 loans during the same period of 2008 and down 52.1 percent from 240 loans during the same period of 2007.

Loans this year have averaged $469,243, a 61.5 percent decrease from $1.2 million in 2008 and a 92 percent decrease from $5.8 million in 2007.

Among the commercial property types that generated any kind of mortgage volume, multifamily remains the most viable.

However, as Blake Pera of CB Richard Ellis noted, financing from Freddie Mac and Fannie Mae is pretty much the only thing available in the multifamily sector, and that’s limited to well-performing Class A and B, or newer, properties.

“Everybody says apartments are the easiest to finance, and that is true, but it does have to be trophy or close to trophy product,” Pera said. “That leaves a big void, and really what you’re seeing are a lot of distressed sales and unstabilized properties because of the economic climate. The light at the end of the tunnel is that there is some financing out there for us. But it depends what you’re selling.”

Out of work, out of business

The biggest deterrent to an increase in mortgage activity – really, any commercial transactions – is employment, most analysts said.

Hall said jobs continue to be the driving factor for commercial lending because businesses simply aren’t looking to make capital investments as they struggle to maintain payroll and weather the economic storm. With no jobs being created locally or nationally, the outlook is grim for the immediate term.

“We don’t see any employment increases at all; in fact, it’s going in the other direction,” Hall said.

Will Chase, president of Triumph Bank, agreed that employment is the biggest issue, one example being GM and Chrysler dealerships facing mass layoffs. That said, Chase said he believes the economy could see some improvement by year’s end.

“I don’t know if we’ll see things turn upward, but I think we’re close to the bottom. I think the mood is we’re not going to get any worse,” Chase said. “There’s a lot of capital out there, and I think the money that’s sitting on the sidelines is waiting to see if the economy turns. If it truly is at the bottom, that’s the time to think about buying something.”

Chase cited a Warren Buffet saying that goes, “If you’re waiting for the robins to begin chirping, it’s already spring.”

“What that means is that if you’re waiting to find out what the absolute bottom is,” Chase said, “you’re probably already past it.”

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

PROPERTY SALES 36 154 6,546
MORTGAGES 34 94 4,129
BUILDING PERMITS 201 554 15,915
BANKRUPTCIES 43 126 3,396