Cover Story--Commercial Real Estate: Best of a Bad Situation

Stuart Meredith: “It appears that the economy has turned the corner."

Bob Copty: “Long term, our industry will experience some systematic changes as a result of this recession."

Dennis Cronk: "With the gradual loosening of credit and the obvious increase in inquires, we are gearing up for a bright future.”

Mike Waldvogel (above): "... Seeing enough sustained business that they can project out for more than a couple of months at a time.”

Ben Harris (right)

Story, Photos by DAN SMITH

The optimism is almost palpable. It is based on hard evidence: leases, sales, renewals, incoming calls. Commercial real estate’s rainy days appear to have moved into the sunshine.

Mike Waldvogel of Waldvogel Commercial in Roanoke puts it this way: "Business property is very attractive right now. We’re seeing small business owners taking the leap and leasing space or purchasing property; this is a change from very tentative one-year lease renewals that have marked our market for the past 18 months.

"In many cases, these business owners—like the sole practicing attorney or the plumber—are seeing enough sustained business that they can project out for more than a couple of months at a time.”

Those are brassy words for the middle of an economic hangover, but Waldvogel is hardly alone in his sentiment. This region has but a few full-time commercial real estate firms, so getting a pulse is relatively easy, and the pulse here is registering like a romantic heartthrob has just walked into the room.

Stuart Meredith of Hall Associates says, “It appears that the economy has turned the corner. We cannot predict the speed of the recovery time, but are looking for increased commercial inquiries later this year.”

Dennis Cronk, president and CEO of Poe & Cronk, puts it this way: “We are seeing signs of improvement. With the gradual loosening of credit and the obvious increase in inquires, we are gearing up for a bright future.”

Ben Harris, who covers the New River Valley for Poe & Cronk, sees pretty much the same basic scenario in the NRV, where there “has seen a decrease in sales volume, commercial sales and leasing rates have remained fairly consistent compared to larger markets around the country.

Bob Copty of Thalhimer/Cushman & Wakefield Alliance in Roanoke sees some permanent change as a result of economic conditions. He says, “Long term, our industry will experience some systematic changes as a result of this recession. Competent advice, holistic property management, and transactional excellence will be at a premium. Risk will be avoided. The days of unregulated growth, easy money for commercial development, and low capitalization are over for a while.”

None of this came about without effort. Commercial real estate professionals tend not to sit in the office and wait for something to happen. In the Roanoke and New River Valleys, they have been busy changing to evolving into the realities. Hall Associates set up a new division, a direct result of the economic challenges.

Stuart Meredith says, “Our establishment of an Asset Management Division [headed by Boyd Johnson, came about in order] to meet the needs of the commercial real estate community … Holders of commercial real estate under economic stress, foreclosure or in estates are [served] in a manner that reflects current business conditions and the impending changes in the tax codes.”

That mean s a lot of individual attention. Waldvogel sounds like a football coach regrouping after a loss: “The current economy has reinforced the importance of focusing on the basics and keeping our clients informed about changing conditions in the real estate and lending markets. Communication is key, as is establishing reasonable expectations up front. We’ve found that while transactions are overall taking longer to complete, the sale or lease can be achieved if it’s well-structured from the beginning and if all parties know what to expect.”

For Cronk, it’s about client education and agent training: “The current environment makes it very important to educate our sellers and landlords on pricing and preparing their properties for sale or lease. In order to meet this challenge, we are focusing on training our agents on improving their marketing skills and increasing their knowledge of financing techniques so they may fully assist their clients.”

Even the downside has its attractions, says Cronk: “The weakest parts of the business are in the areas of raw land for development and local retail leasing. On the industrial side of the business we are seeing opportunities for acquisitions with rental rates remaining stagnant. Leasing of office space continues relatively strong despite the limited availability of quality office space, especially in the Central Business District, where we find occupancy rates better than the national average.”

There’s almost no new office construction, but rental rates are moving south in most areas, Cronk says.

Says Meredith, “The economic climate has made us look at unique ways to market properties and focus on specific sales, leasing and management needs. E-mail marketing software and social media sites have increased targeted marketing and enhanced technology.”

It all takes work and thought, insists Copty: “Thalhimer and the Roanoke office have developed an expertise in areas such as troubled asset sales and leasing for lenders, short term asset management, and construction management. Retail sales/leasing and property management have been growth areas for our company and by adjusting our approach to processing that work, we have had great success for our clients and our brokers.

“The traditional brokerage business, sales and leasing, have been the hardest hit. We have plenty of work; the challenge is getting to closing. We have stressed collaboration between buyers, sellers and lenders to identify an acceptable result. Three years ago we asked ‘how fast can we get this done?’ Now we are asking ‘can we get this done at all?’”

Clients are catching on, says Harris: “The public is more educated and cautious due to these economic times; therefore, we are seeing more risk adverse buyers looking for better returns on their invested capital. In many cases, some investors are still waiting to see if values will come down before they buy or lease. Others with capital tucked away in securities, may find that now is the time to evaluate other forms of investments, such as real-estate.”

The positives are clear, says Meredith: “The types of commercial properties that have been most attractive are investment, multifamily, and office properties. Activity on land for development, unoccupied industrial and warehouse use, and retail have been the slowest movers. This is typical of the economic cycle. This may change as the jobs market improves in 2010 and 2011.”

Small business is leading the charge to recovery, says Waldvogel. “We believe that speculative development will be stunted for quite a while still and that business owners purchasing property for their small businesses will continue to lead the upswing.”