VOL. 124 | NO. 55 | Friday, March 20, 2009
Commercial Real Estate Hangs on for Dear Life
By Eric Smith
The pulse of commercial real estate is barely detectable, but the fact that it’s still registering a beat is remarkable considering the trauma it’s suffered over the past year.
From March 2008 through February 2009, commercial sales in Shelby County declined 35 percent compared to the prior 12-month period, according to the latest data from real estate information company Chandler Reports, www.chandlerreports.com.
Just 742 commercial sales were logged during that time, a dropoff from 1,140 during March 2007 through February 2008. That mark was on par with the three previous 12-month periods.
At $877,288, commercial deals averaged less than $1 million over the past 12 months, a 39 percent dip from $1.4 million during the previous period. Also, the total sales volume in terms of dollar amount for the past 12 months was $650.9 million, a 60 percent decrease from $1.63 billion.
Tightened credit coupled with the demand for more equity proved to be one of the most debilitating factors in the commercial realm. With loans harder to obtain, deals simply fell apart, and that has provided a key storyline for the industry.
“In most cases, the equity requirement has increased and underwriting is much tougher,” said Jon Albright, president of the Memphis Area Association of Realtors and a partner at Investec Realty Services LLC. “Hopefully there will be more of a middle-of-the-road approach on that in the near term, because I think banks and lending institutions have got to continue to loan in this environment.”
Not surprisingly, loan activity has fallen dramatically as commercial mortgages tanked during the past year. Just 394 commercial mortgages were made in Shelby County from March 2008 through February 2009, a 38.2 percent decline from 638 year over year.
Mortgages averaged $1 million – less than half of the previous year’s $2.1 million – and the total mortgage amount of $407.5 million marked a 69 percent dip from $1.31 billion the previous year.
The top lender for the past 12 months was U.S. Bank NA, with three commercial mortgages averaging $6.4 million and totaling $19.1 million. It was followed by Regions Bank, doing business as Regions Mortgage (21 mortgages averaging $844,647 and totaling $17.7 million); GMAC Mortgage Corp. (2, $8.5 million, $17 million); Wachovia Mortgage FSB (4, $3.4 million, $13.5 million); and PNC Mortgage Corp. (1, $12.8 million, $12.8 million).
David May, executive vice president of commercial and real estate banking at Regions Bank, acknowledged the industry-wide decline in mortgage activity. But he noted that the current climate makes it important to foster relationships with clients, which means focusing on a customer’s deposit, investment and credit accounts rather than merely taking orders.
“For all banks, capital is precious these days. And so you just need to be thoughtful … about who you want to team up with in extending credit,” May said. “We want to team up with those who want to have a relationship with us.”
Deploying capital in this economy is a more calculated endeavor, May added, but for qualified customers, plenty of credit exists and loans are still being made, even if it’s a slower pace.
LONE RANGER: Who knows when another office building like the Triad Centre III in East Memphis will take shape in light of the slumping economy? As commercial real estate continues its slide, not many new developments are likely to begin within the next year. – PHOTO BY ERIC SMITH
“We underwrite to our client and the request on the table. We look at that, and we evaluate it,” May said. “Do we evaluate it any differently from safety and soundness and credit ability? No, we’re looking at a relationship and the ability to repay us.”
Points of light
Despite the dearth of commercial sales and mortgages during the past year, a handful of eye-opening, high-dollar deals have occurred.
The March 2008-February 2009 period got off to a scorching start when the Countrywood Crossing retail center in Cordova sold for $55.2 million – in three separate transactions – to Countrywood 1031 LLC. One of those parcels, 2281 N. Germantown Parkway, sold for $37.7 million to come in second place among single transactions.
That followed the Colonial Grand at Shelby Farms, an apartment complex in Cordova that sold for $41 million to NTS Realty Holdings LP. The company has since renamed the property the Grove at Shelby Farms.
Third on the list was the Commons at Dexter Lake, a Kroger-anchored retail center at 1675 N. Germantown Parkway in Cordova, which sold for $29 million. That center sold in a portfolio along with Mendenhall Commons at 540 S. Mendenhall Road in East Memphis, which fetched $12.6 million.
WRI HR Venture Properties I LLC – a joint venture between Weingarten Realty Investors and Hines Real Estate Investment Trust, both of Houston, bought 70 percent of those centers.
The Glenmary at Evergreen at 1550 North Parkway sold for $19.5 million to Nationwide Health Properties Inc., which is converting the property to an independent- and assisted-living senior housing facility.?And the PennMarc Centre at 6401 Poplar Ave. in East Memphis sold for $14.5 million to Highwoods Realty LP. The partnership, an entity related to Raleigh, N.C.-based Highwoods Properties Inc., bought the office building from Union Realty Co. LP in October.
In on the ground floor
Among the top property types that sold within the past 12 months, vacant land over one acre led the way with 135 sales averaging $502,770. That category was followed by apartments (85 sales averaging $1.4 million); warehouses (81, $823,338); office building (52, $1.3 million) and single-tenant commercial properties (51, $235,290).
Multifamily, the top category following vacant land, remains one of the few bright spots in these dark times, noted Steve Woodyard of Woodyard Realty Corp. He said with companies such as Freddie Mac and Fannie Mae still financing multifamily purchases, that sector is strong relative to others.
“It’s not the heyday of three years ago, where everything worked, but there are still good deals and good buyers are getting financing,” Woodyard said. “The opportunity is there. For those that have been waiting on the sideline. For those that have been waiting for this time period, this is their time now to build some wealth over the next five- to 10-year period.”
Chandler Reports is a division of The Daily News Publishing Co.