Richmond, Virginia's Commercial Real Estate Market - A Meltdown in Slow Motion?

Real Estate Agent with RE/MAX Commonwealth

Front page news in today's paper indicates that the commercial real estate market in Richmond, Virginia is slowly deteriorating, with more properties in danger of default on existing debt.  According to Real Capital Analytics, a New York commercial real estate research firm, there are 25 distressed properties here in the Greater Richmond Metro area, with a total debt balance of $371M.

Trepp, another New York firm that evaluates and tracks commerical mortgage information, has 66 Richmond properties on a watch list, including two big shopping centers owned by Taubman Centers Inc., Stony Point Fashion Park and Regency Square Mall.  These properties are considered distressed because of increased debt-to-income ratios caused by decreasing rents.  Less income = higher debt-to-income ratio = possible violation of debt service coverage ratios and covenants in commercial mortgages.

The Taubman Center mall properties are great examples of the difference between distressed properties vs. distressed sellers.  These properties are not distressed, in the way we tyically think of distressed properties.  They have good tenants, the owner is spending money on tenant upfit, new tenants are signing leases.  Distressed sellers own performing assets, but have gotten themselves into trouble by over-leveraging, or can't access capital, or are just victims of the market downturn and decreased rents and property values.

Silver lining in this news:  For commercial investors with access to capital, you should be able to pick up some great deals for well-below actual values.  But everyone realize, it's going to get worse before it

Comments (1)

Jim Tucker

The commercial real estate ("CRE")business is a "lagging indicator" of economic health by any measurement we are able to apply and from everything we know from past economic downturns. The most recent Korpaz Report by Price Waterhouse and the Urban Land Institute puts the Richmond CRE-market at the first stage of the recessionary cycle that says we have not hit "bottom" yet. It also forecasts that we can expect real rent-growth probably in early 2012 which is how we can identify when we enter the recovery stage.

More than just a message for capital-rich investors, this is a message to those looking to expand or relocate leased facilities and it is a wake-up call to owners to become more creative in arranging lease terms and more effective property management to meet market conditions.

We've entered a period in our economy when traditional thinking simply will not do. Creative problem-solving will be at a premium for all participants and stakeholders in the years ahead. Those individuals and companies that are willing to embrace new thinking and new collaboration in the months ahead will be winners. Those who do not will be part of the creative distruction that fuels our economic culture.

Feb 01, 2010 12:18 AM