Donald Teel

Seldom can it be said that the market is both a ‘buyers’ and a ’seller’ market simultaneously. But this seems the case as we prepare to enter the second half of the 2009 commercial market.

Pinching down on Buyers is the absence of simplified capital lending, something necessary to their investment strategies. Sellers are experiencing what I call “refi shock” as banks tighten their rules for lending qualification in the wake of declining property values.

The conundrum is realized as buyers and sellers are forced to work in a market that favors both. The conundrum is one of uniquely creative transaction partnerships, where neither the buyer nor the seller can pop the cork on a Champaign bottle and light-up a victory cigar.

The Buyer vs. Seller Conundrum

This paradox of market realities or, clash of interests, is actually a moment of investment opportunities where banks can become the third party servants to buyers and sellers.

Cooperative positioning of the principals in a commercial investment transaction actually empowers the buyer and seller, making the market slave to both.

We are entering a new commercial reality, where winners and losers are not created so much as “beneficial parties” are created. It is time for the transaction principals to craft, not a winner take all deal, but a “partnership reality” that is necessary for the economics of a transaction to mutually benefit both in a way that creates market survivability.

I’m still seeing “attitude” with principals and this mental swagger is killing transactions, daily.

Our Brave New Weird

Ours is an industry high on client fiduciary and rightly so. Representing clients is what commercial real estate brokers do; it’s our core and the nucleus of transaction integrity.

What happens, however, when buyer and seller brokers, minimize the unnecessary and counter-productive posturing and gesturing seen in transaction negotiations? Nothing! Unless, of course, the negative energy of “I am right, you are wrong” is replaced with a new paradigm for cooperative transaction creation.

Sellers are going to increasingly find themselves on a razor edge as they face property turnover and reinvestment. Therefore, they must give and not just get.

On the other hand, buyers are facing a financing reality where they are going to not only need the good will of sellers, but perhaps some of the seller’s equity to convince lenders to lend.

I’m seeing a greater level of hostility born of a sense of market frustration that is counter productive to principals and brokers. As tensions rise in a frustrated market, the need for admission that we are indeed in both a buyer’s market and a seller’s market; they are becoming one-in-the-same.

Email Donald Teel – Senior Associate, Arizona Commercial for answers to your investment questions or, if you prefer, call him, toll free at 877-777-9100.

McCormick Place - Prescott, Arizona

Post Sponsored by Donald Teel

What is the current state of commercial property ownership, user potential, performance and values in the Prescott, Arizona area?

Where is the commercial real estate market headed in 2009 and beyond and what should property owners be doing to focus on property performance going forward?

At Arizona Commercial, we believe it is critically important for owners of commercial property within the tri-cites of Prescott, Prescott Valley and Chino Valley to consider executing a thorough “Property Performance Analysis” or PPA, based upon changes taking place in the general market but especially with respect to changes taking place in commercial mortgage lending.

The Myth of Immunity

The tri-cities commercial real estate market is not immune from the impact of the economy on property performance in larger metro markets such as Los Angeles and Phoenix.

The local commercial market is directly impacted by the strength of the general ecomomy, unemployment, housing and most importantly, lending.

The decline in residential property values, a slowdown in new construction, the reversal of commercial appreciation rates and unemployment are all contributing to changes in the performance of all segments of the commercial real estate market.

Listen to a podcast about this topic:

Property Performance Analysis

Arizona Commercial is currently engaged in conducting “Property Performance Analysis” (PPA) with commercial property owners as a FREE service designed to guage an owner’s financial objectives, the current financial performance of a property and the short and long term financing needs associated with the property.

Because we anticipate new challenges to commercial property performance as a direct result of the general conditions of the economy we think it imperative that owners assess their property performance situation sooner rather than later, and that they develop a sound financial plan going forward.”

Jim Pullaro – Broker, Arizona Commercial

Arizona Commercial’s PPA includes an assessment of and owners’s financial objectives measured against the quality of tenant mix, correct property use, lease performance, operating cost analysis, mortgage situation and estimations of user demand through 2010, with specific recommendations in each category.

Arizona Commercial’s PPA is like a property physical, in a sense. It measure the critical components related to the health of a commercial property and sets forth prognosis and treatment before problems begin.

Listen to a podcast about this topic:

Refinancing and Replacing

Commercial property owners and investors are keenly aware of the need for quality “R and R” or, refinancing and replacing. These are the two keys to perpetuating long term performance.

Lenders are currently tightening requirement for new commercial loans and refinancing. Qualification requirements are more stringent and under-performing properties or, select segments (property types) within the commercial real estate market are finding it more difficult to secure financing.

A PPA can signal issues fan owner may face before they become critical and assist with pre-planning for mortgage refinancing, property replacement or, both.

Commercial real estate investments require monitoring, adjustments and sometime immediate changes in order to keep them performing. A PPA can flag areas where an owner can and should make adjustments in order to keep performance healthy.

Until recently, many properties were performing as a result of a strong demand and easy financing. Therefore, many owners ignored or postponed the need for regular property analysis. In today’s economy there is no guarantee that a property will appreciate or perform without careful “hands-on” attention and management of the components of performance.

Listen to a podcast about this topic:

Email Donald Teel for a confidential Property Performance Analysis or, if you prefer, call him at 928.777.8100 and if you are out of state call toll free to 877.777.9100.

What is the state of the commercial foreclosure market?

Will we see mortgage defaults in the commercial sector? Will the degree of defaults parallel the residential market collapse.

Sand State Foreclosures. Nevada, Arizona, California and Florida, the so-called “sand states” are experiencing the beginning of what can only be described as a plummet (my word).

According to the Las Vegas Sun, April 2, 2009, 25% of Las Vegas commercial real estate is troubled and Commercial properties valued at a whopping $7.885 billion are in trouble in Las Vegas as casinos struggle under the weight of the recession and office buildings and shopping malls lose or are unable to find tenants.

This phenomenon is being replicated in each of the “Sand States” as the federal government’s promised mortgage financing relief continues to be illusive to commercial investors.

On a National Scale: Getting Ugly. “We haven’t yet seen the worst of the effects of the recession on the commercial markets,” said Stuart Saft, a partner at the law firm of Dewey & Leboeuf LLP in New York, who specializes in real estate. “That’s still to come.”

Indeed, according to Real Capital Analytics, “Delinquent loans increased by 43% in the first three month of this year to $US65.9 billion, according to data from New York-based research firm Real Capital Analytics Inc. That’s up from $US46 billion at the end of 2008.”

Worse yet, the decline in commercial real estate values is now at 30% since peaking in 2007 and predicted future declines may add another reduction of 11% in 2009.

According to Deutsche Bank AG’s report on March 25, 2009, the number of commercial repossessions by banks will spike in the next 18 months.

View the full article on WA Today: Defaults Rise, Worst Yet To Come For Commercial Property

The Los Angeles metropolitan area has about $US7.5 billion distressed properties, a 168% jump from December. Las Vegas had a 54% increase, to $US6.1 billion, Real Capital said.

Metropolitan areas with more than $US1 billion of commercial properties in distress more than doubled to 11 from five. Philadelphia, Chicago, San Francisco, Austin and Houston, Texas, and Detroit joined New York, Las Vegas, Miami, Phoenix and Los Angeles.

Manhattan distressed commercial real estate has risen by 36% this year to $US4.2 billion, according to Real Capital.

Real Capital Analytics (RCA) tracks distressed commercial properties and their disposition via its Trouble Asset Radar and reporting tool.

A search of RCA troubled assets for the Southwest United States yielded the following results:

US Southwest U.S. Distressed Commercial Assets











There is no question about the decline of commercial real estate values and with such declines, troubled assets, foreclosures and commercial REOs will become a contemporary reality.

My Advice. Investors-owners should be agressively pursuing alternative financing where needed and/or, releasing properties through strategic sales where seller financing is allowable.

On a positive note here are the most active commercial market in the US according to RCA.

2997 Centerpointe East, Prescott, Arizona - Newer Industrial

This is but one example of the tenant-investor opportunities available in the central and northern Arizona market areas.

Centepointe East features the newest industrial property opportunities in the market and this piece is the most affordable of them all.

Property Description:

New free standing industrial building with 3 overhead doors, good parking, in new business park. Ask about Owner terms for potential purchase.

Location Description:

Located off Highway 89A between the communities of Prescott, Prescott Valley and Chino Valley, easy access to 1-40, and 1-17

Lease and Purchase Information:

There are three suites available within this building; Two 1,500 s.f. and one 2,000 s.f. Best of all they are priced at an amazing $0.25 per s.f. per month, plus NNN. In addition, this property can be purchased with a potential seller financing.

Contact me about this property or email me. If you prefer, you may call me toll free at 1-877-380-1000.

Okay, now what about Prescott, Arizona’s commerical market on a per square foot basis? What does it mean to owners and buyers. Is it time to buy? Is it time to sell? If so, how?

My recent suggestion to my Broker didn’t go over too well. “What we should be doing is pricing property for sellers on a ‘per square yard’ basis and for buyers on a ‘per square foot’ basis,” I said. He grimaced…I walked away.

High Value Market

We are a high value marketplace. Commericial real estate values in Central and Northern Arizona generally and in Prescott, Arizona in particular are declining creating an interesting investor market. Indeed, we appear to be nearing the bottom of the trough and it is and has been for some time…a buyer’s market.

We won’t be changing the marketing analysis to a per square yard formula but the principle behind the notion spells out the reality.

Resisting the Market Realties

Some owner’s are resisting the truth inherent in the current makret realities and in so doing they are actually capitalizing the reduction of their property value.

This is especially true in the industrial product sector where the demand has dropped to dangerous lows. Are there still buyers? Yes, but they have turned into razor sharp investors looking for select, easy to finance industrial properties.

In those cases where seller can play banker, they should. Let me go further, they must. Buyers are not looking for low-lying fruit…they are looking for fruit on the ground!

Entrenched commercial property owners who are either over-leveraged are surfacing at an alarming rate. The graph lines between market values and mortage principle balances are within sight of one another and in somecases they are crossing.

Some Sellers Can Sell Now

F&C owners should be encouraged because they are the few that can actually sell NOW, create a paper asset through cash flow and in some cases receive a much higher yield than if they hold on. An owner’s iron grip may prove to be his/her undoing.

Some owners sell now and some are…more will.

Prescott, Arizona industrial properties are wobbling like tops that have lost their centrifugal force.

Prescott, Arizona office space is flat, at best, with vacancies on the rise.

Prescott, Arizona medical…holding.

Prescott, Arizona retail is a nail-biting, month-to-month experience.

Leasing in 2008 was up 50% over 2007, while sales were down nearly 50% for the same time period.

It all makes me wonder, should we start marketing properties like carpet by pricing them per square yard? No, but after all is said and done, it’s always the numbers whether you are a seller or a buyer!

Contact me for a market report. Or, if you are a serious investor, call me, toll free at 1-877-777-9100.