Keeping Your Powder Dry Main Boise Valley Commercial Real Estate
I speak to building owners, developers, bankers, and tenants alike every day to get their sense of the local market. While there is no doubt we are experiencing market disruptions, most notably on the equities side of the house, there is quite a bit of quiet optimism out there. For those who have been through real estate cycles before, I see a lot of skilled eyes watching for the opportunities that are starting to show up.

Whether for you it is the war, devaluation of the dollar, the “R” word, the political primaries, the collapse of the sub-prime market, the banning of beer drinking on the Boise River, the residential foreclosure rates, or ___(add your own malady) ___, there is plenty of negative energy out there to go around. I’ll take the Donald Sutherland line from “Kelly’s Heroes” and say “Enough With The Negative Energy.” Now, I’m well on the other side 30, so that may not be the exact line, but you should get the point.

Within the last week, my partner and I have dealt & / or are dealing with more than one tenant going bankrupt. That’s a fact, Jack. After discussing the possible purchase price of a building just two weeks ago with another (and I might add “great”) commercial realtor, my client told me that he saw in an ad that the building was for sale at $23 / sf less (that’s over 30% less that the average asking price for that product). I almost (thank goodness it was almost) asked him what he was smoking. I called the other agent to ask what was going on and he told me his client said to dump it.  Ouch!
I’ve been speaking with several other commercial realtors for a retail client of mine who wants to relocate to Fairview in Meridian. Last week someone called it the “Miracle Mile.” Because, they said, it’ll be a miracle if it ever gets leased. Ouch! 
Well, owners are going to have to back off their asking prices and / or give some concessions if they want to get a deal done in today’s market. It’s unfortunate, but those projected ROIs aren’t going to materialize in the foreseeable future. However, a small ROI might be better than a negative one.  A few (I’m being generous here) months ago, it might have been a seller’s market – guess what – it isn’t right now. There are still plenty of deals going on, but if you want to play in today’s sandbox, you better make some field adjustments.
Bankers aren’t having any fun either, you know. Another counterpart and developer was telling me about how difficult it was to renew his loans recently. He said he’d never had to raise his voice with his banker before, but he felt like he was getting interrogated like he was in Gitmo, I don’t think they used water boarding, but he did mention burning cigarette butts. Afterwards, he said his banker called him a few days later &, thinking it was on the same subject, he didn’t great his banker with “due respect,” let’s say. Turns out his banker just needed someone to talk with because he (the banker) had to tell three clients – that day alone – that the bank was unable to renew those loans. Ouch!
So you can see why we’re starting to see some properties getting dumped.
Keep your eye on the ball & keep your powder dry, we’re starting to see some great opportunities for those who are ready, willing, and able. It is in times like these that experienced buyers make their real money.
Posted by Scott Nicholson at 5/9/2008 1:30:00 AM
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Comments (2)
Re:Keeping Your Powder Dry

Wow, I am having trouble with your examples and reconciling it with Eric's we have hit the bottom post yesterday.

Thanks for your observations, and I think you got the market sentiment...loans are getting tight, investors/owners are having to drop price in the face of rising inventory etc...

I don't want to be all doom and gloom since I am hoping to make some great buys in the future, however some of the bottom callers on this board...buy now buy now are not serving the interest of their clients.
Posted by on 5/9/2008 1:22 AM
Re:Keeping Your Powder Dry
What we've had happen on the commercial side is that the sales prices we were seeing were not supported by rents. Put another way, new product could not be leased at a high enough rate to justify the acquisition price. That should have driven investors out of the market and, for the most part, it did.

For those commercial developments completed late in the last cycle (most notably - unanchored strip malls)? Looks like we'll start seeing some good buys (and some good bys, I guess). Investments and developments are not for the weak of heart or those with thin wallets. Next time you hear someone slamming their "rich" landlord, remind them of the risk - reward concept. A lot of landlords are just trying to stay alive right now. The experienced ones are looking for distressed properties.

Actually, most of my financial associates are telling me that we are close to the bottom and the current consensus is that we have another year in front of us. One of my clients in the high end restaurant business told me the other day that he survived the bottom and is on the way back up, but we saw a few other high end restaurants which did not survive.

It does look like there is light at the end of the tunnel, but I'll leave that debate to the technicians & pundits. We'll spend our time looking for appropriate, market-supported, acquisitions. If your project pencils at the bottom of the market lease rates, you should be good. For those projects needing top dollar to pencil - well, good luck.
Posted by Scott Nicholson on 5/9/2008 7:39 AM
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