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VOL. 126 | NO. 105 | Monday, May 30, 2011


Slow Deals Latest Signs of Times

MICHAEL WADDELL | Special to The Daily News

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Office and industrial deals across the Mid-South are taking longer to get accomplished thanks to shaky confidence and more financial hurdles coming out of the economic downturn of the past few years.

But brokers across the area are witnessing more activity lately and are beginning to see some light at the end of the tunnel.

“The overall time spent with any one transaction on average has increased without question,” said Ron Riley, executive vice president of operations at In-Rel Properties Inc. and president of the Memphis Area Association of Realtors Commercial Council. “On the sales side, the overall velocity of deals is significantly down. That creates idle time for brokers, attorneys, appraisers and lenders. Therefore, all parties are truly sinking their teeth into the deals, and when that happens, by nature, things will get negotiated. All parties are trying to ensure no stone is left unturned, and if you look hard enough you will find issues.”

Dick Faulk, a principal at Crump Commercial LLC, agrees that deals are taking longer – and the reasons are two-fold.

“One, we are coming out the recession and everyone’s taking a slow approach, much like an athlete that has been injured and is just taking the cast off,” he said. “Two, because of the downturn in the economy there are a lot of options out there for companies to choose from. So there’s not a mass rush to grab the last spot in town, and companies are looking at a lot of options to suit their future growth.”

Faulk, who specializes in industrial properties, said it will take some time to repair the lack of confidence in the market.

“Activity has picked up and it is stronger than it was in the first quarter of 2010,” he said. “We were really at the bottom at that point. There has been a return of some of the confidence to the market, but we still aren’t at where we need to be. There are some great buildings for sale right now ranging anywhere from 10,000 square feet to 250,000 square feet, but with the lack of confidence and tougher financial restrictions it becomes a difficult situation.”

Tougher financial restrictions due to a large number of defaults in the commercial sector over the past few years have slowed down the sales process.

“For sales, it is financing that is making it harder for deals to get done,” said Johnny Lamberson, senior vice president of CB Richard Ellis Memphis. “People need more time to get loans, and lenders are probably doing more due diligence than they used to. Across the board, there has been defaulting in all commercial sectors, and there doesn’t appear to be any slowdown.”

Riley thinks activity is picking up on the office acquisition front as savvy investors realize the market has bottomed out. He said the window of opportunity is currently open for companies with staying power.

Leasing activity, however, is still struggling.

“Activity on office leasing I would say is a slow trickle at best,” Riley said. “There is no question that we have bottomed out in this economy. Companies are starting to realize that the fundamentals are improving, and now is the time to act to lock into best long-term deals.”

Larry Jensen, president and CEO of Commercial Advisors LLC, is optimistic about leasing activity after the first half of this year.

“There are actually more forward-looking projects now compared to this time a year ago,” he said.

“We are seeing some movement and increased activity that is encouraging.”

Jensen points out that there has been a 10 percent to 15 percent diminishment in office rents in East Memphis in the Poplar/I-240 corridor, but there has been some recovery lately.

For example, Highwoods Properties recently announced it is more than 50 percent leased at Triad Centre III, a building that opened in the midst of the slump.

Office space in the Mid-South experienced very little change in overall rental, vacancy and absorption rates from the end of the fourth quarter of last year to the end of the first quarter of 2011, according to information from CBRE’s first quarter market report.

That’s a sign the market may be at the bottom with nowhere to go but up.

Jensen also indicates that there are only three or four industrial properties currently available measuring near 500,000 square feet, but there are more than 25 available in the 200,000 square foot range.

PROPERTY SALES 0 133 1,342
MORTGAGES 0 131 1,047