I attended the 2009 Databank Real Estate symposium on Thursday at the Cobb Galleria where two economists and four panels of real estate experts commented on the current state of the Atlanta Commercial Real Estate Market. All the formal economic indicators and anecdotal evidence points to a deepening of our current economic downturn with commercial real estate seeing the worst of it in 2009.
The important thing to keep in mind in an economic recession is that the economy is still producing deals and at worst we deal with GDP declines in the single digits. That means we're still humming along at 90-something percent of normal production. To survive in this climate, it is important to adapt quickly to the changing business situation.
For instance, we launched a website at http://www.gaforeclosuresearch.com to capitalize on consumer demand for foreclosed homes. The site lists all of the bank owned and pre-foreclosures available in the Atlanta residential market. We're picking up several leads a day from investors looking to purchase rental homes at a discount.
Financing
Bridge loans are still available because Fannie Mae and Freddie Mac exist.
50-60% Financing on most commercial deals.
Retail
Most retail tenants are seeking rent reductions to offset losses from lagging sales. In the rent reduction negotiation, the landlord requests two year's sales tax returns and two year's income tax returns.
Landlord looks for longer term leases and seeks to require the retailer to report their actual sales.
Ten Year supply of retail space : Shopping Center Group
Industrial Market
560 MSF total industrial currently in the Atlanta market
10 MSF average absorption annually
-3 MSF absorption in 2008
Duke Realty cap rates up 1.5-2.0%
9-10 caps on income producing properties and still not selling
New construction from the past several years has lost 60-70% of value
Best corridors: 1) I-85 North 2) I-20 West
No rent premiums anywhere
LEED certification is adding about $1-2/ft (75% paperwork) to the cost of new construction
Office
October 2006, Hines sold 1180 Peachtreee for a record $407/ft, 4.5% cap. This was the height of the office market in Atlanta.
80% Decrease in volume nationally from 2007-2008
Atlanta Office transactions: $180 B in 2007, $40 B in 2008
Flat Activity in tenant market
2008 flat absorption
Rental Rates decreasing
Expected 30% decrease in value from the record highs:
4th Quarter 5.9- 7.0% cap rates
7.0% cap currently
9.6% cap expected at bottom
Concessions: landlord funded not amortized
Some free rent even on small deals
Very high TI allowances more than required for buildout
Apartments
87-88% Occupancy lowest in 10 years
40% of rental market single family homes called "shadow market"
18-20% of rental market 50 units or more
Housing foreclosures growing shadow market
50% foreclosures bought by investors- half resold and half are turned to rentals
2000 new single family homes turned to rentals in February 2009
8,500 new apartment units expected in 2009 8-9k units/year
Condos turned to rentals called "switchbacks"
Loosing senior tenants to retirement communities, students to new dorms, corporate units to suite hotels, construction workers to extended stay, military to on base housing
CAP floor 6.75-7.0% in town
2008 4th quarter 6% caps were common
Sept. 2008 credit markets contracted seeing caps at 7.75%
Fannie and Freddie were buying 40% of LIHTC
CRA enticed banks to buy LIHTC-which they no longer need
LIHTC's selling for 95 cents on the dollar a couple of years ago now 65-75 cents on the dollar
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