Statistics vs. Reality - Truth from the "Trenches"

These days, we are all hearing from the "experts" and the "Feds" that the recession is ending. But – do those of us out here "in the trenches" agree that this is true?

Statistics are one thing, but the reality of the situation is another thing entirely. In my world – the world of commercial real estate – Q2 2009 financial results were not positive. Managed networks, such as NAI Global Real Estate Services, made small positive advances. Independently-owned real estate firms, such as NAI Commercial Jacksonville, prospered, and salespersons who shouldn’t have even been in the commercial real estate business in the first place, quit their firms in droves for the perceived “security” of salaried jobs – and that’s a good thing.

Because Jacksonville’s office market is dominated by financial services/business back-room/account reconciliation/service sectors, a lot of space is becoming available as these business sectors consolidate. These consolidations should lead to new real estate opportunities that can serve to kick-start a recovery.

If the recession is indeed ending, it means we have already "bottomed out", but because businesses have "figured it out", commercial real estate’s hard assets must be dealt with. We will be crawling along the "bottom" for a while longer.

Market Forecast - Partly Sunny with Storm Clouds Diminishing...

Are we weathering the storm? I believe I see a trend developing! Many companies have now repositioned themselves to survive this downturn. Through layoffs, budget reductions, and overall just doing more with less, many firms are beginning to gain confidence that they will survive. Now that their “houses” are in order, they are beginning to think, once again, about profitability. To these companies, banks and lenders remain the proverbial “cloud” on the horizon. Many real estate experts concur that banks are failing to recognize that there are solutions available and work with owners who are “upside down” – or have negative equity in their properties. There is a lot of money on the sidelines of the distressed asset program just waiting to be utilized; however, banks are not willing to recognize that they have these distressed assets on the books and take the required step of “writing down” the asset in order to facilitate a sale. Lenders must begin to do this in order to bring an end to the commercial real estate recession.

As the “dog days” of August roll on, I foresee a continuing “flatness” to the marketplace tempered by an outlook that we may be slowly heading in the right direction.

Finally, if you are a tenant whose lease is expiring in 2009 and 2010, you are in the right place at the right time. Now is the time to enter the marketplace and explore your options. If you navigate to the “In the News” page of the NAI Commercial Jacksonville website, www.naicommjax.com, you can read about a large tenant in a healthy industry who, I can assure you, just made an excellent deal for themselves.

Summer 2009 Observations

It has been a month since my first post, and it is interesting to note that a few of my observations have proven to be accurate. First, the larger commercial real estate corporations - that are losing money across the board - are putting their respective “houses” in order. Staff reductions combined with investor/shareholder offerings are working. Second, in New York City, an up-tick in leasing is being reported, because solid companies are beginning to take advantage of the “soft” market conditions – and so “the beat goes on………”

Commercial real estate recessions are problematic. Even when companies/people choose to “sit on their hands”, they have to move forward eventually or they will stagnate. The effects of this stagnation can be worse than the actual recession, and I always tell my clients that if they are able to take advantage of soft market conditions, they should act! Even though rates are down, adopting “a deal’s a deal” philosophy can generate cash flow and help to stimulate the local economy. For example, if a landlord commits to a lower-than-usual rate of return on a deal, there are many industries that will still benefit, i.e. contractors, subcontractors, architects, furniture salesmen, moving companies, electricians, IT companies, printing companies, etc…….

Before a commercial real estate recession can end, it must not only be impacted by those that can and do take advantage of the economic cycle, but it must also include those that understand that even a deal with a reduced rate of return is better than no deal at all……

Current Market Conditions

Like the weather in Jacksonville on June 8, 2009 the current conditions are cloudy,stormy with potential clearing insite. Let's start with Commercial Brokerage houses, in general many commercial salemen jump off the bandwagon during troubled times and in Jacksonville this is happening. The larger corporate owned shops i.e. CBRE/JLL/C&W have restructured their operations, reduced commissions to their brokers,laid off salaried employees and cut expenditures anyway possible and they are still losing vast amounts of money. The independent owned and operated shops i.e. NAI/Colliers/Coldwell Banker cut expenditures anyway possible but the removal of Coporate Overhead makes being an independent attractive.

The property owners, fight to collect rent, must be willing to work with their tenants or they could lose them as well as facing renewals for their tenants that demand large rent reductions or they will relocate. Landlords with vacancies are aggresive and it forces other landlords to be agressive in renewals. Companies that are doing well and have strong financials can make some good deals and it doesn't matter if it's Retail, Industrial or Office. That's the stormy side, the clearing side is deals are being done, good companies are expanding and taking advantage of current conditions and space absorption is happening. NAI Commercial is taking advantage of the market and the conditions and is poised to weather the storm.