SIOR Holds Essential Conference in Toronto
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SIOR held their world conference this past weekend in Toronto and for those who could not attend, here’s a brief recap.
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Finding Deals In Foreclosure Land
Foreclosure pricing has set the tone in the residential market. While we remain in Foreclosure Land, everyone wants a bargain. This way of thinking bleeds to what was once the “normal functioning” market. Many are anticipating the same will happen in the commercial area. But whether in good markets or bad, the same thing holds true. It’s hard finding deals and it takes ingenuity to make them work. Now more than ever, a tenant is the critical ingredient in almost every purchase.
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Foreclosure Land
It’s late in the Summer and temperatures are hitting 100 degrees. A few people are setting up large beach umbrellas in a tall tree planter. Others are unfolding beach chairs. Someone is dragging a large cooler full of beverages and food for the day. It’s not an unemployed broker’s beach paradise, but the west steps of the County Courthouse in Norwalk – the largest property auction of our lifetime. On an average day $30 Million of Trust Deeds are sold. The daily street auction is unsanctioned by the government and there is no institutional oversight. Day after day, it is the lender’s clearinghouse of foreclosed mortgages where clever real estate buyers stuff their portfolios full of cheap property. It’s a feeding frenzy of real estate bargains that may never be repeated.
Back to Local Markets
WHERE THE ACTION IS
Perhaps I should qualify. Where there is action, it’s on the local level. Now that plentiful financing has been squeezed from the market, there is no more room for mega projects, program development, or new concepts. It’s back to basics and that means individual businesses and landlords dealing with their own unique decisions. Loans are available through SBA programs but limited to business expansions. Local banks that were not burned by sub-prime also have resources for conservative lending. The land side is virtually dead for development except under the most risk averse situations. There is however considerable activity in securing tenants for build-to-suit, but locating sites is still a challenge.
Industrial Property Recession
Industrial property in Los Angeles is suffering for three major reasons. Poor business conditions, an unfavorable societal environment, and a credit freeze. As these trends continue, business will be conducted under recessionary circumstances. Meanwhile, new attention will be drawn to overcoming the current malaise by innovations in financing, industries, investors, and deal structures. Until then, it’s simple. Owners will drop their prices.
At the Edge and Stagnation of Valuation
The business of real estate is close to an end. Developing, investing and lending have all halted except for the most secure or distressed situations. An enormous swath of the industry is mothballed like an auto plant in the summer. Just like autoworkers, real estate practitioners are wondering if production will re-open. Lending divisions, development companies, land developers, and acquisition departments are closed until further notice. The biggest fallout is people we have all known for many years that are deciding what to do for the future.
The New Language of Industrial Real Estate and Its Pitfalls
Over the past 20 years, the decision matrix for locating a warehouse has grown so complicated that only a few real estate brokers have the ability to communicate on a technical level with clients. Many warehouse companies require labor studies, network rationalization models, transportation studies, and warehouse design. Many large brokerage companies have complied by starting practice groups within their firms or have hired talent outside to provide these services. Professionals that talk this new language are generally at the forefront of controlling the relationship.
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Container Freight Volumes Decrease
If there is one major driver that supports Los Angeles Industrial real estate, it is counted by container shipments that enter the Ports of Los Angeles and Long Beach. These shipments are singularly responsible for the development and leasing of large blocks of high-cube industrial space. When goods are flooding into the ports, industrial building development booms throughout Southern California.
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Be Nice To Your Tenant and Industrial Lands
The market has shifted and building owners can’t act like they are solely in control. It’s not that vacancies are so high, but business expansion and leasing activity has reduced to a crawl. Many tenants want to stay put and extend their leases until business comes back. Smart landlords are willing to grant these short term extensions rather than have an empty building.
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Things Are Changing……
Everyone has an opinion about where we are in the real estate cycle. Home builders and residential lenders see this as a crisis. Commercial brokers nationwide talk about a slow down. Just this month I have seen a lender take over negotiations in a land sale, a substantial money default on a development deal, and a newer investor unable to replace his interest only loan. We are also receiving calls from sellers who passed on our “low” offers earlier in the year and a few landlords are complaining about tenants getting behind in their rent. So far, most of the problems are related to financing and over-optimistic projections. Still, this a lot of personal incidents in a short period.
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