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VOL. 124 | NO. 187 | Wednesday, September 23, 2009

‘Hoops of Fire’ Squelch Commercial Real Estate Activity

By Eric Smith

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HIGH POINTS AND LOW POINTS: The High Point Funeral Chapel on Summer Avenue ranked as the second highest commercial real estate deal in August, a month that saw another decline in sales as buyers struggle to find acceptable financing. -- PHOTO BY ERIC SMITH

The economy hasn’t extinguished commercial real estate deals, but it certainly has changed the way they get done.

Shane McElveen learned about the tedious process of property acquisition when he looked into buying the High Point Funeral Chapel at 3788 Summer Ave. in the Berclair area. McElveen, who had worked at the chapel as senior vice president, was trying to buy the business from owner G. David Keller.

It took nearly six months to get the deal done, but McElveen finally secured a Small Business Administration loan – facilitated by Trustmark National Bank – and he is now CEO of HPC Services Inc., the family-owned entity that bought the chapel and mortuary business and now runs it.

For McElveen, who owns the company with his mother, Charlotte, it was worth the wait and the hassle of dealing with the “new normal” economy.

“With the business being a recession-proof business – everybody needs a funeral home – with it being successful and with the books looking good already, it was a no-brainer,” McElveen said. “It was just a matter of all the paperwork and all the hoops of fire that we jumped through.”

Red tape parade

Mounds of paperwork and hoops of fire are common themes for commercial deals these days, and the numbers show fewer businesses are able to navigate them. Shelby County saw just 39 commercial sales in August, a 24 percent decline from 51 in August 2008 and a 34 percent decline from 59 in July, according to real estate information company Chandler Reports, www.chandlerreports.com.

Sales last month averaged $563,925, down 31 percent from $816,194 in August 2008 but up 31 percent from $431,759 in July. And the total amount of commercial sales in terms of dollars was $22 million, a 47 percent dropoff from $41.6 million in August 2008 and a 14 percent dropoff from $25.5 million in July.

Jon Albright, president of the Memphis Area Association of Realtors and a partner at Investec Realty Services LLC, said the problem in commercial real estate has plagued that sector of the market for a while.

“Acceptable financing is still a large part of the equation, and I think people are still wanting to make sure the economy is definitely going to rebound and be consistent with some type of modest growth,” Albright said. “Those two factors, I think, are still the big ones that are out there.”

Another factor is pricing, Albright noted. For the past couple of years, a significant hurdle for the commercial market has been buyers and sellers not seeing eye-to-eye on the value of properties. That is starting to change, albeit slowly.

“I think people have been forced to be realistic about pricing numbers,” Albright said. “Not all locations and all areas have been affected to the same degree that people think. There are areas that have been very consistent and have not lost any value, per se.”

Value added transactions

McElveen’s company’s, HPC Services, bought the High Point Funeral Chapel in two parcels for a combined $3.4 million, ranking it as the second highest deal in August. First was a three-parcel portfolio on East Shelby Drive that Richmond, Va.-based transportation and shipping company Estes Express Lines bought from Overland Park, Kan.-based YRC Inc. for $4.2 million.

Rounding out the top five in August were the only other deals to surpass the $1 million mark. The third biggest transaction was the Whitney Manor and Frayser Manor apartment complexes in Frayser, which sold out of foreclosure to a Connecticut-based entity called Group 40 LLC for $2.2 million.

Next was the Super 8 motel at 6015 Macon Cove near Bartlett, which sold for slightly less than $2 million to a Texas-based entity called Uma Manglam Hospitality LLC. And fifth was the Quality Inn motel at 6068 Macon Cove near Bartlett, which sold for $1.4 million in a substitute trustee’s sale to A&P Hotel Funding LLC.

As for the top commercial property types sold in August, vacant land over 1 acre led the way with six transactions, followed by warehouse with four sales, and multifamily and neighborhood shopping center with three sales apiece.

Serious money

Steve Woodyard, president of Woodyard Realty Corp., a company that specializes in multifamily deals, has experienced an upswing of late, highlighted by his company’s most recent sales of Ashley Manor and Park Tower.

Multifamily always has been strong because it spreads the risk for the investor: one resident leaving doesn’t affect occupancy the same way if a tenant departs a retail center. Also, people always need a place to live.

“That is a good, safe, secure asset,” Woodyard said.

Woodyard said the “cocktail party buyers” – those who casually discuss wanting to purchase something over drinks – have gone away, but more reliable seekers remain in the market.

“What we’ve got now is the real buyers that are out there looking for real deals, and they’ve got cash,” he said. “We’ve seen a big increase in activity, and have a lot of pending contracts. They’re all painful, working through the lending process, but the buyers are there with the cash that want to buy.”

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

RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 57 280 1,209
MORTGAGES 55 244 916
FORECLOSURE NOTICES 8 52 151
BUILDING PERMITS 158 699 2,751
BANKRUPTCIES 37 157 618
BUSINESS LICENSES 12 77 276
UTILITY CONNECTIONS 0 0 0
MARRIAGE LICENSES 0 0 0