Friday, September 2, 2011

Open Minds Necessary In Climate Where Jobs Reports, Retraction In Product Availability, Pent-Up Demand Create Mixed Scenarios

Recently, I wrote of the perfect storm that is emerging in CRE as we combine pent-up demand, low inventory of quality Class A and institutional properties, and the movement of institutional buyers toward secondary (and occasionally even tertiary) markets.

I have noticed in just the past seven days or so that a number of commercial listings are disappearing from online sites like LoopNet, and Exceligent, which we use locally, but those same properties don't seem to be changing hands. Speculation among myself and many peers on this phenomenon the past week is focused mostly on the likelihood that Sellers feel they can't move the product, so take it off market and try again next spring.

It may not get any better. Today's jobs report is making a gloomy forecast -- for many -- even gloomier. No net increase in jobs since 1945 is a stat that made my jaw drop. Job lines in many markets, combined with companies looking at, perhaps, further retrenching will surely put some more pressure on commercial/investment real estate. And I'm sorry, but I'll say it --  as if problems weren't bad enough we have a White House that seems hell bent on attacking employers through rhetoric and regulation. Which is especially problematic at a time when we need markets that encourage employers to hire and expand.

There are a few bright spots, of course. Multifamily still remains hot and bidding wars for quality properties are not unheard of. I have a single-tenant retail site in contract. An offer written and presented the same day the listing was published. A competing offer came in the same day from a REIT, likely doing the same thing we were -- scouring markets for new product multiple times a day.

Further, investor groups are taking advantage of lender difficulties and snapping up homes large and small. I know of an initiative from one group to acquire luxury homes at a discount, adding them to portfolios of rental estates in different parts of the nation.

So we may be in for more than just a few months of rough sledding, as I often say.

I remain optimistic. There are opportunities for investors, whether they are acquiring or disposing of inventory. Its about being creative, thinking outside the box. As we say in an exchangor organization to which I belong, "what is the seller willing to do to help the buyer take the property?" Its not always about price reduction, if that is necessary.

Sometimes it means an acknowledgment from the seller that the market dictates price, not what one "hopes." Sometimes the answer is owner financing, in full or in part. Some sellers are receiving full price for their property, but taking a collateralized indentured note that matures a few years down the road. You would be amazed what you can do with a holster full of creative tools. I counsel with my clients, whether they are buying and selling. There are pros and cons to any scenario you can envision. It comes down to what is in the best interest of the buyer, or seller, at any given moment in time, both in the short term, and when addressing their longer term wants and needs.

Success for the next 12 months will mean brokers and agents thinking outside the box, and buyers and sellers being open-minded about every possibility imagineable for them to achieve their financial goals.

More plainly stated: The party that digs in their heels and refuses open, frank discussions will likely end up very disappointed.

No comments: