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Commercial Real Estate Spotlight on the Best

Commercial Real Estate: A Market Rebounding

by J. Rentilly

A

lthough the past decade’s graphs of the commercial real estate market performance in the Phoenix area closely resemble the elastic and wildly extreme trajectory of a bungee-cord adventure, a recent report from W. P. Carey School of Business at Arizona State University finds the extremes are likely over and suggests the region is in the early stages of recovery.

“That recovery is not going to happen overnight, though,” says Karl Guntermann, Fred E. Taylor Professor of Real Estate at ASU and author of the new report. “It’s going to take years, not months, but the worst appears to be behind us. This is going to be a slow crawl to normalcy.”

For many, “the worst” was bad — really bad. After a peak positive rate of change of 28 percent in the third quarter of 2006, the Phoenix area commercial real estate market — comprised of industrial and office space, retail, storefronts and apartment buildings — nosedived to an annual negative rate of 40 percent by the end of 2009. But 2010, Guntermann says, was basically a “flat year”

— no growth, no loss. And, although office vacancy rates are still above 20 percent in the area, retail vacancy remains more than 11 percent and industrial real estate vacancies are the highest in America, according to Blue Chip Economic Forecast, also issued by ASU, Guntermann says the first quarter of 2011 suggests an annual rate bounce back of 13 percent on the 68 percent loss.

Much of that growth is in the apartment or multi-family dwelling sector, which has seen double-digit growth over the past two quarters, primarily because Phoenix’s residential housing market has been so hard hit by foreclosures. More than 60 percent of April’s residential transactions were on foreclosed properties. Many of those displaced homeowners are migrating to apartment buildings. With demand slowly inching toward supply in that sector, some investors are beginning to snatch up those properties, and at deeply discounted rates.

Once attracted to residential properties for flip or rent, big investors, those able to hold static portfolios for five years or more, are intrigued by return potential on quality

commercial properties now available “for 50 to 60 cents on the dollar — pre-housingbubble, 2004 price levels,” Guntermann says.

“They’re seeing the potential.”

For a more substantial, wider-ranging recovery for commercial real estate to occur, Guntermann says the Phoenix region’s overall economy must rebound from its harrowing four-year decline. When an economy grows, unemployment rates drop, property prices rise, consumer spending moves upward, businesses expand or begin and developers launch new projects. For more than one year, commercial development in the Phoenix area has been, essentially, frozen, although a recent federal report revealed that Phoenix added 10,400 retail-sector jobs in 2010, well ahead of most major markets surveyed. Guntermann believes these small wonders are signs of an

Tenants Can Weather the Commercial Foreclosure Storm Foreclosures in the commercial market have been heating up lately, although generally avoiding the emotion-tinged headlines of its residential counterpart and, reassuringly for business, generally not disrupting tenants’ office, retail or industrial operations. Even the Viad Building, a high-profile landmark in Phoenix’s Central business district, was caught in this toll — having a Notice of Trustee’s Sale recorded in 2010 and, ultimately, sold out of receivership in mid-May of this year.

Questions about the legality of the receivership process have emerged. The process begins when a property is being foreclosed on and the lender asks the court to appoint a receiver to manage and sell the property, but the debate now is whether, by appointing a receiver,

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the court is circumventing the 91-day foreclosure period that the property owner can use as his final chance to restore his loan to good standing. There is nothing in either case law or statute that specifically gives the court the right to order a sale of property in receivership.

In a growing number of cases, the defaulting property owner is ceding to his lender a “deed in lieu of foreclosure,” avoiding having a foreclosure on his record by preemptively giving the property to the lender. Not all lenders, however, are eager to take this type of deed because it would carry any intervening loans that the property owner may have taken on, whereas a foreclosed property would come free and clear of such additional debt.

Tenants in these situations are often protected from the ownership upheaval, thanks to a “non-disturbance and attornment” agreement that guarantees the continuation of their lease and directs them to pay the lender instead of the owner, or the new owner instead of the old one. Such an agreement may be part of a deed of trust or a subordination agreement (often required by a new lender who enters the picture after the lease is in place, to put his rights in higher priority than those of the lessee, as priority would otherwise follow a date of recording sequence). While lenders are, for the most part, loathe to vacate tenants and lose that income, such jeopardy does exist for lessees who do not have a non-disturbance agreement in place. —RaeAnne Marsh

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Recovery will gain traction over a few years, not months, says Guntermann, with many experts checking 2014 as a year of good cheer. because commercial construction has been at a virtual standstill for almost two years, there won’t be new supply in the pipeline,” he says.

Recovery will gain traction over a few years, not months, says Guntermann, with many experts checking 2014 as a year of good cheer. As the area’s overall economy regains some spark, businesses open and expand and demand for commercial properties increases, developers of new properties will pick up blueprints and nails again, too — a case study in the interconnectedness of all things.

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For now, Guntermann — whose nationally recognized report is compiled from sources like CoStar Group, Real Capital Analytics and IonDataExpress, and compares prices of a single property against itself at different points in time instead of comparing different properties with different quality factors — suggests investors who can afford to hold property in a market only very slowly recovering would do well to buy commercial properties. “When the market turns around, it will take two to three years for new projects to go through the approval-and-construction Rd am tt D process,” he says. “So properties bought at rtle a B today’s prices should be Rd good investments.” ek Cre

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imminent, though incremental, move toward normalcy. He also finds good news in the corporate earnings forecasts of Phoenixbased businesses, which he tracks on Bloomberg Arizona. Traditionally, a company’s earnings forecasts link quite directly with the quantity of commercial real estate they’ll need, and the numbers for many major corporations in the area look good, he says.

In the interim, Guntermann encourages investors to take advantage of the rockbottom prices available for many commercial real estate properties, noting that the small rise in sales he’s reported means supply and demand will eventually balance. “Vacancy levels will go down, rents will go up, but,

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Commercial Real Estate Spotlight on the Best

Cassidy Turley BRE Commercial Cassidy Turley is a leading commercial real estate services provider with over 3,000 professionals in 60 offices nationwide. The firm completed transactions valued over $17 billion in 2010, manages over 430 million square feet on behalf of private, institutional and corporate clients and supports over 25,700 domestic corporate services locations. The firm recently ranked in the Top 10 on the Lipsey Co.’s Commercial Real Estate Top Brands Survey, and was ranked #1 by Real Estate Alert for Office Sales in 3 of the Top 6 Markets.

Cassidy Turley provides regional real estate services with local Phoenix market leader Cassidy Turley BRE Commercial. A leader in the Phoenix market since 2003, BRE offers brokerage investment and advisory services in office, industrial, retail, investment, multi housing and land as well as property management.

Cassidy Turley serves owners, investors and occupiers with a full spectrum of integrated commercial real estate services— including capital markets, corporate services, project leasing, property management, project and development services, and tenant representation. Cassidy Turley’s global reach beyond North America extends to more than 70 offices in over 25 countries across Europe, Asia Pacific, and the Middle East through its partnership with GVA, the founder and majority shareholder of GVA Worldwide. GVA Worldwide is a leading global service company with over 2,500 real estate professionals including many focused on institutional real estate sales throughout the world.

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Cassidy Turley’s team of professionals is dedicated to consistently delivering solutions that produce superior results and champion your business goals. We believe in face-toface relationships and that hands-on problem solving is fundamental. We become your partner and advocate, and are passionate about achieving long-term success on your behalf by: ▶▶ Attracting and retaining the best people. ▶▶ Leveraging our private ownership structure to provide you with the highest quality service. ▶▶ Delivering the local and industry knowledge you need through our comprehensive market research capabilities.

Cassidy Turley BRE Commercial’s Client Services Department offers a comprehensive team of real estate industry experts to provide full-time service and support for the company’s brokers, clients and the community it serves. Cassidy Turley BRE Commercial’s Client Services Department includes a fifteenperson team focused on research, marketing and graphics, mapping, public relations, publishing and web development. Each department works directly with the brokers to assist them in the development and creation of any service they need.

For more information on Cassidy Turley BRE Commercial visit www.brephoenix.com.

For more information on Cassidy Turley visit www.cassidyturley.com.

Profile Company Name: Cassidy Turley BRE Commercial Main Office Address: 2375 E. Camelback Road, Suite 300 Phoenix, AZ 85016 Phone: (602) 954-9000 Website: www.brephoenix.com Number of Offices in Metro Phoenix: 1 Number of Commercial Agents: 80 City Nationally Headquartered: St. Louis, MO CEO / Managing Director: Bryon R. Carney, President & Managing Partner No. of Years with Firm: 25 years Year Est. Locally: 1973 (established BRE affiliation in 2003) Specialties: Office, Industrial, Retail, Investment, Multi Housing, Land and Property Management throughout the Metropolitan Phoenix market and Arizona

FINANCIAL: Property Sold in 2010 Value: $289,372,361.00 Square Footage: 8,672,303 SF Property Leased in 2010 Value: $311,138,393.00 Square Footage: 4,652,904 SF No. of Commercial Transactions Closed in 2010: 820 transactions closed in 2010

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Commercial Real Estate Spotlight on the Best

CB Richard Ellis CB Richard Ellis’ Phoenix office has been serving clients since 1952, growing to become a dominant player in the metropolitan Phoenix commercial real estate market. From asset services to brokerage services, and throughout its business lines, the local office has earned a reputation as a respected leader in the business community with its vast market knowledge and enduring culture of client service.

Despite its market dominance, CBRE believes that the truest measure of its success comes from providing superior service to its clients — delivered by knowledgeable, creative and tenured employees, many boasting more than 20 years in the marketplace. It is their dedication to teamwork and commitment to excellence that makes it possible to serve the diverse needs of clients.

Whether facilitating the design, construction and move of a new corporate headquarters or strategically planning and negotiating complex lease agreements, CBRE

is the only commercial real estate firm in the Valley to offer a fully integrated, global service platform to its clients, delivering seamless execution and measurable results.

CB Richard Ellis is a leader within the local commercial real estate community. It has been recognized by numerous organizations and publications. Here are just a few of the company’s awards: Arizona’s 2010 Most Admired Companies Arizona Business Magazine and BestCompaniesAZ have selected CBRE one of 43 winners for the inaugural “Arizona’s Most Admired Companies Awards.” This prestigious award is based on how the company has performed in the following areas: Workplace Culture, Leadership Excellence, Corporate and Social Responsibility, and Customer Opinion.

Best of the Best Award — Commercial Real Estate Industry Ranking Arizona Magazine has honored CB Richard Ellis with a “Best of the Best” award for 2011 — the firm’s

third award in three years. Chosen by the top companies in the state, this award recognizes CBRE as the best business in the commercial real estate industry.

Ranking Arizona — #1 Commercial Brokerage Firm As a result of the largest business opinion poll in the state, CB Richard Ellis has topped the list of commercial brokerage firms in Ranking Arizona Magazine’s 2011 list of the “Best of Arizona Business.” This marks the 13th year CBRE has ranked #1 in this category.

Best Places to Work 2010 CB Richard Ellis is proud to be chosen as one of the “Best Places to Work” in the Valley by the Phoenix Business Journal and BestCompaniesAZ. This is the seventh year in a row CBRE has received this award.

Profile Company Name: CB Richard Ellis Main Office Address: 2415 E. Camelback Road, Phoenix, AZ 85016 Phone: (602) 735-5555 Website: www.cbre.com/phoenix Number of Offices in Metro Phoenix: 1 Number of Commercial Agents: 79 (2010) City Nationally Headquartered: Los Angeles, Calif.

CEO / Managing Director: Craig S. Henig, Senior Managing Director, Arizona Market Leader No. of Years with Firm: 11 Year Est. Locally: 1952 Specialties: CB Richard Ellis serves real estate owners, investors and occupiers of all commercial property types, providing strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting

FINANCIAL: Metro Phoenix Property Sold in 2010 Value: $910M Metro Phoenix Property Leased in 2010 Value: $669M

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© 2011 CB Richard Ellis, Inc. MSC8423_05/11

Economists call it “creative destruction.”

When market forces upend the traditional order.

We call it the time to act. #1 in real estate serViCes worldwide 602.735.5555

www.cbre.com/phoenix

Commercial Real Estate Spotlight on the Best

GPE Commercial Advisors GPE Companies is a privately held, thirdparty real estate company serving a range of clients, from private individual investors to publicly traded corporations to international investment groups. GPE does not develop or own properties, in order to avoid conflicts of interest, and focuses 100% of its efforts on exceeding client expectations.

Now in its fifth decade, GPE is a leader in Arizona’s commercial real estate market.

Offering services for all property types, including office, retail, flex/industrial, dental and land, GPE has facilitated acquisitions, sales and leasing transactions exceeding $1.25 billion in real estate value. In addition, they have a division specializing in all areas of healthcare real estate.

GPE Commercial Advisors and its property management and construction supervision company, GPE Management Services, collectively represent more than 10 million square feet of commercial space in the Phoenix Metro area.

The name GPE has earned an enviable reputation of providing expert knowledge, research and resources to their national and international clients. GPE’s commitment to exceptional service and creative marketing strategies solidifies its position in the Phoenix market and beyond in successfully forging close and lasting relationships with its clients.

Both divisions of GPE continue to experience growth with the addition of several high-profile commercial real estate brokers, property managers and support

staff to their teams. GPE’s goal is to continue to assemble the top commercial real estate professionals in the Valley who hold the same high level of expertise and commitment to their client’s success.

2011 Ranking Arizona ranks GPE Commercial Advisors as the Valley’s #1 commercial real estate company in the category of 23 brokers or fewer and GPE Management Services among the top ten property management companies. GPE has also been named a Top Leasing Firm by CoStar Power Broker Awards, and one of the Valley’s “Best Places to Work” by Phoenix Business Journal.

Profile Company Name: GPE Companies Main Office Address: 7201 E. Camelback Road, Suite 250 Scottsdale, AZ 85251 Phone: (480) 944-8155 Website: www.gpe1.com Number of Offices in Metro Phoenix: 1 Number of Commercial Agents: 26 City Nationally Headquartered: Scottsdale, AZ CEO / Managing Director: David M. Genovese, P.C. No. of Years with Firm: 27 Year Est. Locally: 1973 Specialties: Sales, Leasing and Property Management of Office, Retail, Flex/Industrial, Medical, Dental, Land, and REO

FINANCIAL: Property Sold in 2010 Value: $19.6M Square Footage: 164,298 Property Leased in 2010 Value: $30.4M Square Footage: 330,455 No. of Commercial Transactions Closed in 2010: 187

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