A financier’s point of view
In a recent article for Commercial Investment Real Estate (CIRE), Benjamin Nummy, vice president with Morgan Stanley takes a look at real estate financing for today’s surviving technology ventures and dot.coms. He warns that the amount of vacant office square footage will increase dramatically in the next two years and the result will be lower rents. For those who work with technology clients, he advises on how to make deals more attractive to lenders, brokers and owners. Industrial and retail markets are not expected to suffer the same contraction he sees for the Office market, but he does see a slowdown for the next 18-24 months. “The multifamily market is the bright spot in the commercial real estate industry,” he writes. “Growth in household formation, non-married households, and migration to the United States has increased demand for the multi-family product.”
Some of his advice to brokers includes: negotiating long-term leases; obtaining larger security deposits that can be reserved by lenders for downtimes; and highlighting below-market rent situations. In the latter case, Nummy says, “From a lender’s perspective, rents of 75 percent less of sustainable market rates offer a competitive re-leasing advantage in weak markets.” The financier also promises that while returns may not be as high as those generated two or three years ago, “plenty of capital remains in the market” for technology-oriented transactions, and liquidity exists for the well-structured deal.
Commercial real estate
Some national experts seem to think that unless the economy suffers an unexpected negative event, that we may see a “soft-landing”— good news for commercial brokers who have seen significant market contraction already. Jack Barthell, partner-in-charge of real estate capital markets at PricewaterhouseCoopers in New York, says in the November/December 2001 issue of CIRE that we may see a soft landing, and “the commercial real estate industry may avoid recession altogether and transition straight into recovery.”
He also points out that the purchase or management of commercial real estate in a contraction phase forces owners to be proactive. “Owners and investors must evaluate their properties’ susceptibility to diminished demand by closely managing tenant leases; monitoring expenses (particularly capital expenses); assessing the impact of new supply on the market; and considering their…redeployment and redevelopment opportunities,” he says, noting that “the flip side of adversity may be opportunity.”
“Carpe diem” has been the recent motto for a number of local commercial brokers. Here’s an overview of the latest Pikes Peak region transactions:
NAI Highland Commercial Group brokers Bob Garner, Randy Dowis, Michael Palmer, Jim Spittler and Frank Tuck report a number of new leases completed in the past two weeks. Garner was the listing broker on the 3,114 square feet lease of industrial space at 4646 Northpark Drive to Mission Foods. The tenant was represented by Olive Real Estate Group. Garner was also the listing broker on the lease of 3,285 square feet to Bravo Screen Printing (represented by Jerry Knauf of Grubb & Ellis/Quantum) at 4602 Northpark Drive. Randy Dowis and Michael Palmer teamed to represent the tenant, TRW, Inc. on the 13,956 square feet lease of office space at the intersection of Highway 24 and Wooten Road in the Platte Airpark. Dowis notes that the lease represents an expansion for TRW, Inc., necessary as the company recently won a contract, teamed with Boeing.
Also from NAI Highland, Jim Spittler leased 4,011 square feet of additional space to Goodwill Industries at Five West Colorado Avenue — an attractive storefront location with plenty of parking. The Landlord and listing broker was Mark Cunningham. According to Goodwill program manager, Connie Barrick, the space will be used as a recreation and leisure center to serve the Goodwill’s clients and referrals. The space has been leased for seven years and will allow clients a place to enjoy social interaction, to use the Center’s TV area and kitchen, and to receive specialized therapies. Barrick complimented both Spittler and Cunningham for helping turn a dream into a reality.
Frank Tuck of NAI Highland Commercial also reports the lease of 3,054 square feet to Development Associates, International, a religious non-profit organization at 5245 Centennial Office Campus. Tuck and Tom Stoen are the property’s landlord.
Palmer McAllister’s retail broker, Steve Hunsinger, just leased 6,000 square feet to The Famous — a downtown eatery and steakhouse at the former Roger’s Shoes location at 31 North Tejon. According to Hunsinger, his tenant anticipates opening this Spring. For the business lunch and dinner crowd, The Famous sounds like one of those great spots for discussing deals, offering a pleasant ambience and mid-priced menu. Mark Useman and Paul Engel of the same firm just finalized the lease of 8,000 square feet of Industrial space at 3310 Fillmore Ridge Heights to expanding food service provider, A & R Services.
Engel and Kevin Heinicke also represented the tenant, The Right Move, Inc., on the lease of 7,200 square feet at 1709 Jet Stream Drive in the Business Center at Northgate. The Right Move, a growing moving and storage company needed additional office space and storage. The landlord’s representative was Steve Bach of Bach Commercial.
The RE/MAX Properties, Inc. brokers captured more than 16 percent of the market in residential sales and listings transacted in 2001, according to the company’s calculations, based on data from the Pikes Peak Association of Realtors MLS from Jan. 1 – Dec. 31, 2001. Including new builder transactions, the company reports more than $800 million in listing and sales volume last year. This will no doubt motivate increased competition from Prudential Professional REALTORS and ERA Shields Corporations who ranked number two and number three, respectively, on the Top 25 list for 2001. According to their report, RE/MAX listed or sold more than 4300 properties.
Calendar note: OSHA training seminar set for February 21
Trish Sorvald at the Housing and Building Association of Colorado Springs sent along information on the upcoming OSHA Training Seminar, sponsored by the National Association of Home Builders, on Thursday, Feb. 21 at the Holiday Inn off Garden of the Gods. The event is scheduled from 7:30 am to 3:30 pm, and includes a breakfast buffet, lunch and refreshments along with important updates from OSHA on recognizing “The Big Four Safety Hazards for the Home Building Industry.” Sounds serious. Cost is $35 (paid in advance by check or credit card), and reservations may be made by calling 592-1800. The Feb. 15 deadline is just one week away….
National housing stats
In a Jan. 17 report, the National Association of Home Builders (NAHB) says that housing starts rose 2.2 percent in 2001 — in spite of a declining economy and last Fall’s terrorist attacks. That represents more than 1.6 million units started, according to figures released by the U.S. Commerce Department. Year-end figures showed a 3.4 percent decline in starts for the month of December, due to a shortfall in multi-family production. The NAHB also noted that the Housing market index rose four points in January 2002 to pre-Sept. 11 levels. “This substantial gain, coming on the heels of an eight-point rise in December, indicates that builders’ confidence in the single family market has fully rebounded,” says Bruce Smith, NAHB president and a home builder from Walnut Creek, California.
MAME award reminder
According to Janet Rummel of the Housing and Building Association of Colorado Springs, the annual MAME housing industry award nominations are due at
the HBA offices no later than 4 p.m. on Feb. 8. This year’s theme is “An Evening in Monte Carlo,” and announcement of the winners will take place at the Annual Awards Presentation Dinner to be held April 13, 2002 at the Broadmoor International Center. For more information call 592-1800.
A financier’s point of view