Foreclosures Boost Commercial Real Estate Sales!
Carlton Procter from PNJ.com reports on the effect that foreclosures have had on commercial real estate sales. Specifically, he discusses how foreclosed commercial properties have amped up the overall sales of commercial properties in Pensacola Florida. That said, it is the authors opinion that sellers (banks or distressed owners) are still valuing their properties at a higher price than market. As a result, buyers are sitting on the side lines until prices become more realistic. Does this sound familiar? Sounds like residential real estate a few years ago.
Foreclosures Boost Commercial Real Estate Sales
With tighter credit demands from lenders and an oversupply of available properties, sales of commercial real estate in Pensacola continue to be sluggish at best.
Still, in overall dollar value, the top 10 commercial sales in 2010 doubled those of 2009 — totaling about $60 million compared to the previous year’s $27 million.
Leading the way in commercial sales are properties that have been foreclosed upon.
“We are doing a lot of work in that area, with multi-family residential leading the way,” said Justin Beck of Beck Property Co. “It’s easiest to get financing these days for multi-family properties.”
Three entities of J.I. Kislak Inc., of Miami Lakes, paid a total of $11.5 million cash for three apartments that went into foreclosure last year and were owned by Miami-based Ocean Bank.
The three, with a total of 481 units, are:
• Villas at Jasmine Creek on East Nine Mile Road. It was purchased for $6.5 million, down from $14 million at the last sale in 2006.
• Villas at Jasmine Park on North Ninth Avenue. The cost was $2 million.
• Villas at Jasmine Fields on West Fairfield Drive. It was purchased for $3 million, less than half of the $6.5 million purchase price in 2006.
“We own the Ashley Club and Arbor Club apartments in Pensacola and have been operating them successfully,” said Thomas Bartelmo, the president and CEO of J.I. Kislak. “So, we are very familiar with the market there and had been looking for opportunities to buy distressed properties. We feel like we got the three properties at a price where we can make some money.”
Two of the three apartment complexes only are 50 percent occupied, Bartelmo said. But he believes with renovations, effective marketing and management, those numbers will improve.
He also said the company’s investment in Pensacola will be a significant shot in the arm to the area’s economy.
“We have all types of work to do there at those three properties, including roofing, asphalt, interior renovations,” he said. “We’re negotiating with various local vendors now, and at the end of the day, we will be putting a lot of people to work.”
Market Still Struggling
Despite the investments made over the past year by J.I. Kislak Inc. and other national firms, commercial market sales still have a long road to recovery, according to local brokers.
Eight of Escambia County’s 10 largest commercial sales in 2010 were to companies based in South Florida, Minnesota, Georgia, New York and Washington, D.C.
“There is still very little liquidity in the commercial marketplace,” said John Griffing, owner of NAI Halford in Pensacola. “We are continuing to have some success with the leasing end of our business, but sales are different.”
He said banks are generally lending only to those borrowers who actually are using at least half the property they intend to buy, not to investors.
“Users are the only buyer types who we are seeing have any success in borrowing money,” Griffing said. “As far as speculative buyers, they are finding it very difficult to get the money to leverage deals.”
He said the market also still is hamstrung by buyers waiting for already depressed commercial property prices to decline even further.
“We are seeing some interest in vacant commercial land, but the potential buyers are not quite pulling the trigger,” he said.
Foreclosures CarrySales
Metro Market Trends President Al Muller said the commercial sales market over the past 12 months has been similar to the residential market — dominated to a large extent by foreclosures and short sales.
“The commercial guys I’ve talked to lately are doing many more leases than sales,” he said. “These days, you can negotiate a lease for commercial property, and if you’re not certain where the market is headed, it’s a good way to go.”
Beck said the Pensacola market must work its way through the inventory of distressed commercial properties before the overall market regains momentum.
For the commercial market to really get rolling again, he also said, sellers must start putting more attractive numbers on the table for investors.
“On the buy side of commercial properties in Pensacola, there is still an enormous chasm between buyers and sellers. Sellers have got to get more realistic on prices,” he said.
“Nobody I talk to these days thinks there is going to be a major ramp-up or fast recovery in the market. I think we’re going to see slow growth for a long time, and this will be the ‘new normal’ for the commercial market.”