The Hole Report
The Commercial Corner - Mid Year 2011
The local commercial market has picked up pace and gained a lot of traction since 2010. Although the number of sales have not increased dramatically, the lease activity, the level of acquisition activity and the interest in commercial properties has picked up pace. Recent transactions have given our commercial market more stability.
Starting to gain traction in the local commercial market: With more sales booked or under contract, we are gaining more traction in the commercial markets. As more sales close, appraisers have more data to evaluate properties. Buyers can feel more confident about the value of commercial properties and the CAP rates they are getting and build confidence in local values.
Locals capitalize on Commercial Market: Several local owners and businesses have taken advantage of some real opportunities in our local real estate market. The Wort hotel is now the owner of the Roundup (the new Wort Plaza) and the adjacent Sundance Hotel. The new Wort Plaza has attracted local businesses at strong lease rates. The Stagecoach property in town is under contract by a local property owner. CES closed on 1⁄2 of the Pioneer property near the hospital for their operations. The buyer of the Pearl at Jackson commercial space is two local professional businesses. A local resident recently acquired the Whole Grocer. Leases are in place for the old Main Even location by a local business, Axis gymnastics and sports academy. The building on Pearl Street that is now under contract was leased to local businesses. A local gallery leased the space adjacent to Mountain High pizza. A new local bread & baking company, Persephone Bakery, was started by a local businessman who purchased commercial property for his business, and all of the available space in the Kmart Plaza was rented up in a very short period of time. To some degree, our local markets have benefited our local economy.
While there is still commercial office space available, much of the retail commercial lease inventory that was on the market early in the year has been filled.
Looking Forward: As more commercial deals close, confidence grows! Buyers looking to get a “steal” on properties will be less and less likely to find them.
Cash flowing properties will continue to be valued by the income they produce. The higher the net operating income produces, the higher the possible property value.
It is more efficient to buy existing commercial property than it is to build. Buyers will continue to purchase existing commercial real estate until it becomes more cost effective to build or the reason for building outweighs the cost of the existing commercial property.
Cash is still king in this market. Cash Buyers can make more aggressive offers and can avoid traditional bank financing.
If you have questions about the market or would like to discuss your property, please feel free to contact me at (307) 413-2700 or email me at michaelpruett@jhrea.com.
The Hole Report
The Commercial Corner - 1st Quarter 2011
The local commercial market was relatively slow in 2010. Data reveals 7 commercial closings for 2010, 3 of them were reported in MLS. One was a distressed property on the Town Square listed at $5,400,000 that sold for $4,500,000 and another was a development project on Scott & Snow King listed at $11,700,000 which sold for $6,187,500 to the Town of Jackson. The other was a commercial business that sold for $650,000. There were a few other sales in the Teton County that were not listed in MLS. The Round Up, a retail building 1 block from the Town Square listed at $4,650,000 is currently Under Contract in MLS. Commercial sales in Teton Village struggled as 2 development properties were repurchased by the banks at foreclosure.
According to the Local Lodging Report February 9, 2010, “It appears that the local lodging market, like most other segments of the economy, has experienced a slow down; as evidenced in the local average daily rates and occupancy rate. But since the lows of 2009 the 2010 season has shown some improvement. This trend is expected to continue for at least the near future.”
Lease rates seem to have stabilized somewhat as local business has slowed & tenants have renegotiated their terms with their landlords. Some of the commercial lease inventory that was on the market early in the year has been filled. Second floor office space on or near the Town Square dropped to around $25sqft and seems to still lease in that vicinity. For further information, please call me directly at (307) 413-2700 or email me at MichaelPruett@JHREA.com.
The hardest hit part of the commercial market is raw land or redevelopment property. At the height of the residential condo market and with the land development tools in place, this property peaked over $200 sqft. As condo sales trailed, financing options tightened, and elected officials questioned the PMUD development tool, the value of raw development land dropped.
Commercial sales are stalled due to bank financing. Banks do not yet have a secondary market to sell commercial loans and lending regulations are still tight. Some banks are beginning to consider some in house financing for qualified buyers on commercial properties.
Locally, the PMUD is still weathering a moratorium. There are a handful of approved development projects that have their entitlements & are waiting to be built.
The Joint Comprehensive Plan review process will kick into gear with the elected officials in 2011 and likely will take the better part of the year to review. The outcome of this review will direct future land regulations and future opportunities in the Town and County.
What does all of this mean?
It’s a Buyer’s Market
Cash is still king in this market. Cash Buyers can make more aggressive offers and can avoid traditional bank financing. Buyers have a great opportunity to find good deals. The supply of commercial space and the stringent lending guidelines help drive commercial prices lower. Cash buyers should be able to buy commercial property at a discount. The challenge is finding a willing Seller at today’s prices.
Be Realistic
If you are selling your commercial property, be realistic with today’s market values and price your property accordingly. Buyers are looking for “below market value” properties or income producing properties that cash flow. Buyers will value commercial property today by the income they produce more than the value of the asset. In many cases, if a commercial seller is not pressured to sell their property, there is a gap between the Buyers and Seller valuation of the property. Creative options like Seller financing might contribute to the success of commercial sales in today’s market. If you own Commercial real estate and want to know a value of your property in today’s market, please call me at (307) 413-2700 or email me at MichaelPruett@JHREAssociates.com.
Lodging Outlook Remains Favorable
According to the Local Lodging Report February 9, 2010, “Until Jackson completely escapes the wake of the national recession, market-wide occupancy and average rate will almost inevitably decline in the near term. The long-term outlook for the market, however, is very favorable. Jackson Hole is one of the few ski destinations to have a summer peak season that meets or exceeds demand levels during the winter. Hence, the area's proximity to highly frequented national parks has not only served to minimize occupancy losses during the current downturn, but will enable the market to recover more quickly than other ski resort destinations. Planned development initiatives in Teton Village, coupled with the projected increases in skier and national park visits, should further serve to stimulate demand and secure Jackson’s place on the map.”
If you are looking for real estate lodging opportunities in the Town of Jackson or Teton Village area, please call me at (307) 413-2700 or email me at MichaelPruett@JHREAssociates.com to discuss the options. More often than not, these types of properties are not found in MLS.
Development Property
Future development opportunities will be largely determined by the Land Development Regulations (as well as the economy) that result from the Comprehensive Plan. If development standards remain the same or improve, then it could be a good time to purchased land in the right location and wait. There are several properties in Town that have already gone through the costly entitlement process that could be good opportunities for Buyers looking to develop.
Looking Forward
There are some key indicators to watch for in the market as we move forward. Regulatory agencies need to loosen the regulations on banks and take some pressure off to open up available credit for the commercial sector. This has still not happened and in fact some think there is a commercial “write down” in the banking industry coming in 2011.
Cash flowing properties or properties with development rights might have more added value. Since few transactions exist to gain true measurable comparables, a cash flow or development scenarios may weigh more heavily in their analysis. One thing commercial owners can do is get an appraisal on their property. This will give you an indication of where your property values are today. You can also contact me for a free property analysis, MichaelPruett@JHREAssociates.com. Creativity in this environment can also offer new options for commercial property owners. Creativity by Sellers such as offering owner financing can also help close deals.
The PMUD moratorium could be a good opportunity for Buyers to get extra density on the approved yet not built projects as the rules may change going forward. Cap rates on residential and commercial development in the Town and County could have an impact on prices as supply may be limited. With the condo conversion moratorium lifted, some commercial properties that “condo” their properties could also see some added value.
If you have questions about the market or would like to discuss your property, please feel free to contact me at (307) 413-2700 or email me at MichaelPruett@JHREAssociates.com.
The Hole Report
The Commercial Corner - 2nd Quarter 2010
The local commercial market has still been relatively slow. MLS shows only 3 commercial closings for the first 6 months in 2010. One of these sales was a distressed property on the Town Square listed at $5,400,000 that sold for $4,500,000 and another was a development project on Scott & Snow King listed at $11,700,000 which sold for $6,187,500.
Lease rates have come down as business has slowed & tenants have renegotiated their terms. Second floor office space on or near the Town Square dropped to around $25sqft but seems to have stabilized.
Commercial lending is still difficult as lenders regulations are still tight for commercial loans. The result of this stricter commercial lending environment is still evident in Teton County.
Even with this few transactions, commercial activity has picked up. According to Wells Fargo Securities Economics Group, “the expiration of the homebuyers’ tax credit & better labor market conditions could help fuel multifamily demand. Apartment property fundamentals have already shown signs of stabilization. Apartment net absorption rose in each of the past 3 quarters, and effective rent growth posted a mild gain in the first quarter after 5 consecutive quarters of negative rent growth.”
Locally, the PMUD is weathering a moratorium. At this point, there is no telling if it will be changed, go away or be modified. There are a handful of approved development projects that have their entitlements & are waiting to be built. They seem to be stalled in development due to financing & risk losing their density approvals.
Town elected lifted a moratorium on condo conversions. Several commercial projects have started to move forward with condominiumizing their properties.
The Joint Comprehensive Plan review process completed a year and a half review and submitted recommendations to the elected officials to cap residential and commercial development in the Town & County.
What does all of this mean?
This is a good time for Commercial Buyers to get into the Jackson Market.
Buyers have a great opportunity to find good deals. The supply of commercial space together with the stringent guidelines in the lending market drives commercial prices lower. Cash buyers or buyers with cash and very strong credit may be able to buy commercial property at a discount.
Buyers are looking for income producing properties that cash flow. Buyers will value commercial property today by the income they produce as well as the price per sqft of the asset. This can make well run properties in the Lodging Overlay more valuable since they can rent short term and produce more income. Commercial Buyers that have been sitting on the sidelines looking for opportunities are starting to do more than kick the tires on deals.
Cash is still king. Cash Buyers can make more aggressive offers and can avoid traditional bank financing.
Don’t wait too long
If you are selling your commercial property, don’t wait too long. Be realistic with today’s market values and price your property right. Consider getting a current appraisal or contact me for a free market assessment MichaelPruett@JHREAssociates.com.
Be Creative
Creativity in this environment can also offer new options for commercial property owners. Consider new business markets for your space. Executive Office Suites can offer renters “allinclusive” fixed rent without having to dole out much needed capital expenditures on things like furniture, phones, equipment and sometimes utilities.
If your lease is coming due, it might be a good time to consider re-locating your office to a better location or to renegotiate your lease as lease rates have dropped.
Creativity by Sellers such as offering owner financing can also help close deals.
Looking Forward
No on can predict the real estate market. There are some key indicators to watch for in the market as we move forward. Regulatory agencies need to loosen the regulations on banks and take some pressure off to open up available credit for the commercial sector. This has still not happened and in fact some think there is a commercial “write down” in the banking industry coming.
Cash flowing properties or properties with development rights might have more added value. Since few transactions exist to gain true measurable comparables, a cash flow or development scenarios may weigh more heavily in their analysis. One thing commercial owners can do is get an appraisal on their property. This will give you an indication of where your property values are today. You can also contact me for a free property analysis, MichaelPruett@JHREAssociates.com.
Locally
The PMUD moratorium could be a good opportunity for Buyers to get extra density on the approved yet not built projects as the rules may change going forward. Cap rates on residential and commercial development in the Town and County could have an impact on prices as supply may be limited. With the condo conversion moratorium lifted, some commercial properties that “condo” their properties could also see some added value.
Download a pdf of the 2nd Quarter Market Report.
The Hole Report
The Commercial Corner - 1st Quarter 2010
Historically, commercial transaction data has not been tracked to the same degree as the residential data. Since many commercial transactions take place outside of MLS, commercial data has been difficult to find and hard to collect. Some reasons for this might be that Sellers do not want tenants to know their property is for sale or that Buyers are looking for something very specific and Sellers are approached about a possible sale without ever marketing their property. This sales data & information was not tracked or available until now. Our goal is to provide you with more detailed data within the commercial market in Teton County.
The commercial environment in Teton County operates very differently from the residential market. While the economy and financial impacts might have similar results in slowing down the market, the criteria for buying and selling commercial property are very different. The Town zoning and overlays play a big role in the price and value of a commercial property as does the location, size and cash flow. The more density a property has for development or if it lies within the lodging overlay (LO - an area of town that can be rented short term), the more value it will have as a development opportunity.
Relative to residential transactions, there are few commercial transactions. To compare the most recent 3 years of data, the total number of residential transactions in 2007, 2008 and 2009 were 899, 424 and 225 respectively. Compare that to the total number of commercial transactions in those same years and you have 51, 29 and 9 transactions. The sales volumes are also less. In those same years, the residential market recorded sales of $1,576,666,537, $726,074,650 and $334,845,233 respectively while the commercial sector recorded sales in those years of $268,398,334, $51,071,600 and $22,452,000.
Currently, the Commercial market is very slow. Commercial sales and transactions have dropped significantly in the past 3 years. 2009 Commercial sales volume dropped 57% from 2008 while the total number of transaction sold dropped 69% in the same period. Transaction volume was $268,398,334 in 2007 with a total of 55 sales. Compared to 2009 sales volume of $22,452,000 with a total of 9 transactions, this indicates a 53% drop in sales per transaction over that period, an indication that commercial prices have come down significantly.
According to the Comprehensive Plan Task force data, there are approximately 4,576,840 sqft of commercial space currently in the Town of Jackson. There is an additional 3,436,980 sqft of commercial available for a total possibility of about 8,013,638 sqft of commercial space.
So, why is the commercial market so slow right now? One of the main reasons is because the lending environment has changed. Prior to 2006, the lending regulations on commercial property were less stringent and there was more comfort in the market that real estate would sell. There was generally less focus on what was going on in the global economy and more focus on the supply & demand in the local markets. Borrowers were paying their loans and banks were competing for customers.
In 2006, the regulatory agencies implemented stricter guidelines for lending on commercial real estate. The new guidelines determined how much commercial real estate banks could have on their books. This regulatory pressure on banks limited the amount of commercial real estate in their portfolio.
The collapse in the global market place caused a contraction of wealth and of demand for real estate without affecting the supply. As such, banks contracted too and imposed stricter guidelines on borrowers. To ensure quality commercial loans and reduce risk, banks lowered the loan to value percentages and required more cash or equity up front with multiple repayment sources.
The result of this stricter commercial lending environment is evident in Teton County. The Town of Jackson currently has 5 development properties that have been approved by the Town but have not yet been developed.
Crystal Ball - Looking ahead
No on can predict the real estate market. There are some key indicators to watch for in the market as we move forward. Regulatory agencies need to loosen the regulations on banks and take some pressure off to open up available credit for the commercial sector. This has not happened and in fact some think there is a commercial “write down” in the banking industry coming.
Currently, it seems that the supply of commercial space exceeds the demand. Vacancies are up and this causes leases rates to decline. This, together with the stringent guidelines in the lending market drives commercial prices lower. Cash buyers or buyers with cash and very strong credit may be able to buy commercial property at a discount.
Cash flowing properties or properties with development rights might have more added value. Appraisers value commercial properties using several methods; a cash flow method, the development potential of the property and historical comparables (similar to residential properties). Since few transactions exist to gain true measurable comparables, a cash flow or development scenarios may weigh more heavily in their analysis. One thing commercial owners can do is get an appraisal on their property. This will give you an indication of where your property values are today.
One thing is certain, we will continue to watch and measure the commercial market data for you to give you better insight into this sector of our real estate markets.
Download a pdf of the 1st Quarter Market Report.
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