Land Sales

Not too long ago, you could make a decent living specializing in land sales.   That changed about 3 years ago with the beginning of our current recession.    At that time, I had one tract under contract with a well known home supply retailer and several other properties next to a quarry under contract with a large industrial company.    All were supposed to close within a month and then suddenly they were all wiped out in just a few weeks time.   

The residential real estate bust, the financial market meltdown and the shock waves that followed effectively ended development.    Now three years later, many of the developers went belly up and most of the financing available for new projects dried up.   The obvious result is that the demand for land has declined tremendously.    Accordingly, prices for land are roughly 40% less than they were 3 years ago.  

Presently on KCREA, there are approximately 600 listings for land.   As of last Friday, (March 25) KCREA only reported 3 parcels of land having sold in the first 3 months of 2011.     At that rate, it would take 50 years for all of these parcels to sell.  

When development was rampant, many developers were willing to buy land that needed rezoning, or needed to wait on sewers or other infrastructure.   That is no longer the case.    If a developer is lucky enough to have a project in the works, they want land that they can use immediately not something that would be available in a year or so.  With that in mind, at least for now, I am not taking new land listing on properties that would need rezoning or that do not already have basic infrastructure in place.

Recently, I called on several companies I have dealt with and asked about their development plans for 2011.   Almost all of them told me that they were still waiting to see if the economy would improve more before commiting to new projects.     Still, I cant help but feel that this is about to turn around.   Many companies have been sitting on the sidelines for 3 years now.   At some point, they need to either begin development again or consider shutting down.  

The thing to take away here is that if you have commercial land you would like to sell, you need to talk to someone who understands the market to be successful.   The commercial land market is a very difficult market still and unless you have 50 years to wait to sell your property, you need to do everything possible to make that property stand out in the top 1% of all the land available for sale.

Have a great day all.  

David

David W. McCoy
Associate Broker
Commonwealth Commercial Real Estate
10444 Bluegrass Pkwy
Louisville, KY  40299

KCREA Commercial Sales Snapshot

I spent some time this afternoon mining the KCREA data base for information on Commercial Real Estate Sales.   KCREA (Kentucky Commercial Real Estate Alliance) provides our Commercial Information Exchange which is similar to the residential MLS. 

So far this year, there have been 34 sales reported on KCREA totaling $14,572,400.   (About 11 sales per month.)   Doing the math for you, the average sale was $428,600.    However, the median sale price was $182,500.     In other words, although the average sale price was $428,600, most of the properties sold for far less than this.   This is due in part to the fact that the top 4 sales totaled $4,420,000, nearly a third of the dollar amount of all sales YTD.  

The recorded sales included 7 multifamily properties, 10 retail properties, 3 land properties,5 industrial properties, 7 office properties and 2 special purpose properties.    Presently on KCREA there are 86 multifamily listings, 309 retail listings, 600 land listings, 219 industrial listings, 299 office listings, 67 special purpose listings, 15 farm listings, 23 shopping center listings, and 5 hospitality listings.   

What you can take away from this is that overall sales are down from last year.  (last year averaged more than 4 sales per week vs 2,8 sales per week YTD).   But if you are selling, you probably are happiest if you are selling a multifamiliy property where more than 8% of the listed properties sold in the first quarter.   You are probably saddest if you have commercial land on the market where only 0.5% of the listed properties sold in the first quarter.  

Final conclusion is that we are continuing a buyer's market with inventories growing and number of sales slowing.   The successful seller will act agressively in this market to make sure that there property is in the top 5% of all comparable properties in price and condition.

I am interested in your questions and comments.   Let me know if I can help with your  real estate needs.

Thanks all and have a great day.   Good luck to all those running the Papa John's 10 mile run in the morning!

David

David W. McCoy
Associate Broker
Commonwealth Commercial Real Estate
10444 Bluegrass Pkwy
Louisville, KY  40299

Disappointing New Home Sales Data

One of the big stories in the Real Estate world today is that New Home Sales plummeted in February to the lowest level of sales since record began in 1963 AND median prices are at a 7 year low.

Why should we be surprised?   Consider the following:

• Unemployment is still high.  Nationally 8.9% is reported and locally unemployment increased to 11.2%.  Bad as this is, other indicators indicate that this greatly underestimates the situation.   Gallup's poll of unemployed AND part time workers seeking full time work reported 19.9% "broader unemployment."  Other measures estimate a "broader unemployment" exceeding 20%.
• Credit is still tight.   Although interest rates remain at historically low levels, getting loans is very difficult.  Financial Institutions are appropriately more stringent than they were during the sub-prime lending days.  The net result is that the percentage of people who can qualify is much lower.
• The Mortgage Foreclosure Crisis is not over.  According to a study by CoreLogic, nearly one fourth of all mortgages are underwater - meaning that they owe more on the mortgage than the property is worth.  That study also found that another nearly 5% of homeowners had 5% or less equity remaining.  With home prices continuing to decline, you would expect this number to be increasing.
• Incentive Programs have expired.  During 2009 and 2010, the Federal and State governments offered tax incentive and even rebates on home purchases.    This seemed to spur demand primarily for the new homeowners and primarily in the lower end of the market.   The effect was to increase sales.   Indirectly, it also helped to boost sales prices of lower end home.    For the Federal program, the homeowner was required to stay in their home for a minimum of 3 years to keep the credit.   A homeowner selling the home before that time would be subject to repaying the tax credit.  

We cannot reasonably expect unemployed or under-employed people to be able to buy a home.  We also are reducing the pools of people who can even qualify for a home.   Homeowners who are underwater or nearly underwater cannot afford to change homes.   Their best strategy if they can is to continue to make their monthly payments and hope that they can continue until home values improve.    People who have taken advantage of the incentive programs cannot be expected to buy a new home for 3 years.  

Many of these factors will overlap.  But considering them together, it is not hard to get to a qualified pool of home buyers of about 50% of what there was a few years ago.  

The key to this problem is jobs.   All of the other factors will fall into place when the job market improves.   The latest estimates I have heard is that although there is evidence of overall improvement in the economy, economists do not see the labor market improving for 2 to 3 more years.

Although I hate to do a column of grim news, the important thing for consumers to know is that in this environment, real estate strategies are different from when we are in times of high cotton.   Standard strategies of boom times simply aren't effective when you are in a bust cycle.

If you have a real estate question or property you would like to discuss, give me a call.  

Thanks so much.   Have great (albeit chilly) day!

David

David W. McCoy
Associate Broker
Commonwealth Commercial Real Estate
10444 Bluegrass Pkwy
Louisville, KY  40299

Japan

You would have to have been under a rock to not know about the giant disasters that are still unfolding in Japan.    Yet things seem to be quite different than they were for Haiti.   Although it is difficult to know at this point, the pictures I have seen make me beleive that the damage is much greater.   On the other hand, while the final death toll is still uncertain, it also appears that the number dead will be fewer.  

The world seems united in their condolences for Japan but of course, Japan is no Haiti.   Japan has long been the world's second largest economy and remains the world's third largest economy.   Japan has some of the world's best engineers and certainly is very technologically equipped and adept.    Their government is still in place and seems very capable of organizing relief efforts.   Because of Japan's place, it would seem that much of the world is still uncertain how to respond.

Still, I think it would be a mistake to sit idly by.   Japan has been a long time ally of the United States.  In Kentucky, Japan has invested heavily in our state and provided our economy with thousands of jobs.    While I appreciate the support offered by the United States and the US Red Cross, I personally would like the state of Kentucky itself to find some way to provide aid or assistance.     The Japanese people have been good friends of ours.   Our friends are now in desparate need of help and as their friends I would like to be there for them.

David

David W. McCoy
Associate Broker
Commonwealth Commercial Real Estate
10444 Bluegrass Pkwy
Louisville, KY  40299

Louisville C-Store - My Busiest Listing - 8116 Blue Lick Rd

8116 Blue Lick Road is a former convenience store in Southern Louisville and it is presently my busiest listing.     The building is about 1950 Square Feet and it sits on about a 3/4 acre lot.  It is on Blue Lick Road about 0.1 mile off of Preston Highway and is near Jefferson Mall.    It is zoned as C-2.

Most of the callers are interested in leasing the property.  Several would like to open car lots.    Several would like to re-open the property as a C-store.   Others want to open a different kind of store.   I've had a few wanting to open a small restaurant.    

The owner however is most interested in selling the property.   She originally had the property listed at $164,000 and while we had a number of people inquiring, we have not had any written offers.   Realizing that presently the commercial real estate market is slow, the owner decided to drop the price to $130,000, hoping that would spur some of those on the fence to action.   

I have been surprised at the amount of interest in this property.    We have calls on this property all the time and LoopNet has informed me that it has been one of their top 10 listings in terms of overall activity for the Louisville market for the last several weeks.  

I have a motivated seller and a very active listing.   If anyone has an interest in buying or knows someone who does, let me know.   I would love to have this property sold.

Thanks, all.   Enjoy the basketball tourneys.

David

David W. McCoy
Associate Broker
Commonwealth Commercial Real Estate
10444 Bluegrass Pkwy'
Louisville, KY  40299

Louisville Residential Sales - Indicator of Economic Activity

As a commercial broker, I am careful about giving advice on residential real estate.   Still, I try to keep up with the residential market because after all, residential sales is an indicator of economic activity.     The news of late has been reporting several promising indicators that we are emerging from the recession.   Hopefully, that is the case but I would have to say that at least locally, that trend is not so certain.  

On the good side, I noticed in the last week, a couple of very high end homes under construction.   In the last three years there has been very little new home construction at all, so seeing some higher end homes being built seemed positive.   Reinforcing this trend was a recent article in Business First in which Canfield Development says that they have had a big increase in activity over the last 3 months and have put some 14 lots under contract. 

On the negative side, existing home sales seem to have dropped.   This week GLAR reported only 147 home sales last week.   I don't think I am exaggerating to say that existing home sales have been down pretty consistantly since all of the Federal rebate programs ended last Fall.    Making things more difficult, the inventory of active home listings for GLAR has swelled to 9,104 homes on the market.   

At this rate, the average Seller can expect to wait well more than a year to sell their home.    This would seem to indicate continued downward pressure on existing home prices, which matches the reports I am hearing from my friends in the residential real estate world. 

My guess is that we are in a transition.   Market forces appear to me to be continuing to exert downward pressure on pricing but perhaps the higher end market is indicating that the tide is turning.   

Have a great day, all.   

David

David W. McCoy
Associate Broker
Commonwealth Commercial Real Estate
10444 Bluegrass Pkwy
Louisville, KY  40299

Louisville Office Stats

KCREA (Kentucky Commercial Real Estate Alliance) has added some new features with statistics from their data.   Some of the information is data I used to mine periodically, which is nice because it can be a little easier to get.   Last week I decided to check it out a little and printed a Summary of Louisville and Jefferson County Office activity.    (for purposes of comparision, the report was printed on March 1, 2011.)

In the previous month, 7 properties were leased and 2 were sold.   Average asking rate to lease office space was $15.40 / SF but actual reported lease rates were $9.14 / SF.    Average asking price to sell office space is $80.82 / SF but actual reported sales averaged $65.66 / SF.   Properties that sold averaged 438 days on the market.  

Of course you have to be careful with statistics.   Given that there are very few transactions, it may not be wise to rely too heavily on the averages.    In my mind the most telling figures are the number of transactions themselves.    Both Sales and Leasing numbers are down significantly and while I might not put too much emphasis on the actual rates, I think it is telling that the information we do have indicates steep discounts from asking price on deals that were done.  

Happy Mardi Gras, everyone.   Hope you get some Red Beans and Rice, some beignets, and maybe even a Hurricane to celebrate.    

David

David W. McCoy
Associate Broker
Commonwealth Commercial Real Estate
10444 Bluegrass Pkwy
Louisville, KY  40299

Gas Prices and Commercial Real Estate Market Activity

I have a new theory that Commercial Real Estate Market Activity correlates inversely with gas prices.   In other words, in my completely unscientific set of observations, it appear to me that when gas prices go up, market activity goes down and vice versa.   A week or so ago, I had one of the busiest weeks I have had in perhaps 2 years, with showings every day.   Since then, with all of the turmoil in the Mid East, gas prices have been heading north and activity has been heading south.  

Although it is unlikely that I will take the time and effort to do a reasonable study, this makes sense to me.   In today's world, Average Joe may not know a lot about the Stock Markets and even if he does, unless he has a lot of investments, I think that it is unlikely that he checks it regularly.  

Gas prices however are a different matter.   In today's world, gas prices may change daily or sometimes even more than once a day.    People see the pump price and keep up with whether prices are up or down.   For Average Joe, gas prices are as real an indicator of the economy and what to expect as the DJIA or S&P 500 would be for Wall Street.    And it only takes a little common sense to be able to understand how that might effect your life.   Higher energy prices means more expense for Joe Average, not just to fill his tank but also in the super markets.   Sharp increases in energy prices could mean more economic problems.

Actually, gas prices are probably not a bad indicator.   I will continue to keep an eye on it.

Have a great day all and let me know if I can help with your commercial real estate needs.   Maybe I can find you a new location where you dont have to drive as far.  (smile)

Take care.

David

David W. McCoy
Associate Broker
Commonwealth Commercial Real Estate
10444 Bluegrass Pkwy
Louisville, KY  40299

Gazing in the Crystal Ball for Commercial Real Estate

2011 has been touted the year for recovery for Commercial Real Estate.    Perhaps, depending on how you would define recovery.   

2010 showed a heavy increase in the number of commercial real estate transactions over 2009 and yet some firms are reporting that 2010 was a much more difficult year than 2009.   For leasing, the reason for this seems to be that the length of the lease terms were down as was the average price paid AND average amount of space leased.   The net effect would be that while the number of transactions was up, the total value of those transactions remained low.     For sales, selling prices were just lower partially because we began to see more of the Short Sale / REO phenomenum for commercial property.

Looking ahead to 2011, the average number of transactions has slowed again.   In the mean time, the amount of inventory has increased nearly 10% in the last few months.    Pulling out my old economics text, it would seem to me that these are signs of decrease in demand AND also increase in supply.   Both of these factors tend to deflate prices.

So, at least for the foreseeable future, I expect these trends to continue.   Prices will have downward pressure and while prices are declining, lessees will be reluctant to sign long term commitments.   We are still having prospects ask for short term leases which landlords would not have considered 2 or 3 years ago.  In fact, one colleague reported an inquiry yesterday, where the prospect wondered if they could lease by the day or perhaps even the hour.   

Part of a recovery is the correction phase and we seem to still be in the correction phase.   As always the recovery will follow but I am afraid that there is still going to be some pain for Sellers and Lessors for a while. 

Have a great day.  

David

David W. McCoy
Associate Broker
Commonwealth Commercial Real Estate
10444 Bluegrass Pkwy
Louisville, KY  40299