Warehouse Distribution Property Changes Hands

The Mill Stores warehouse and distribution facility located at 128 Breed’s Hill Road, Hyannis, MA recently changed hands. According to public records, the 27,000SF structure on 4.13 acres conveyed in early July 2008 for $3.7 million to RAM Construction LLC of Bedford, MA. The buyer was reported to be a F.W. Webb Co., a plumbing supply company with locations throughout New England.

The property located in Independence Park, between the Cape Cod Potato Chips plant and Breed’s Hill Condominium, is one of a few high bay and sprinklered facilities of this size on Cape Cod. The property also offers several truck height docks and a large truck parking area.

Those of us who have been here long enough to remember will recall this structure was originally built in 1989 by The Myers Furniture Co. for use as their warehouse and distribution facility.

A Price to Pay for Too Much Focus on Price?

In navigating the cross currents of the Cape Cod commercial real estate marketplace it seems many commercial real estate participants are missing the big picture by focusing too much on price levels. Much like an adept physician seeking to develop a timely and supportable prognosis by probing, prodding and questioning a patient, reliably deciphering market factors requires looking well beyond the leading indicators or “gimmies” such as price levels. Along with the seasoned physician, this is where the commercial real estate market participant’s cognitive skill comes fully into play!  

Certainly recent prices paid for similar Cape Cod commercial properties will always be relevant indicators. However, the most important thing to remember about real estate prices — like cherished school photographs taken in early September and eventually passed on to relatives months later at Christmas – much can change in between! Since real estate transactions often take many months to consumate, report and be acknowledged by the marketplace much can and will change in between. It’s no wonder real estate prices are what economists call a classic lagging indicator. Couple this fact with the forward thinking and “not at real time” nature of real estate markets, the inherent limitations from an over reliance on price levels are apparent. 

In a market cycle where the number of commercial real estate sales are trending down, price levels are in a state of flux,  and the supply of available properties is abundant, it’s no wonder the real estate market is an imperfect marketplace.

But given the current scenario where do we turn, beyond price levels, for more answers in this imperfect or unstructured marketplace? In short, I suggest back going to the basics where greater reliance is collectively placed on four additional key market indicators:

1. Contract prices for properties currently under agreement.
2. Regularly updated figures on transaction volume with demand ranked by property sector.
3. Familiarity with sensibly priced comparable listings with a sharp focus on the number of days-on-market, any history of price changes, and possibly the number of showings and feedback.
4. Most importantly, obtaining from a reliable source the who, what, where, when, how and why surrounding any pending or closed transaction. Sources may include the Buyer or Seller, an attorney, broker, tenant or other party.  And in the current tight credit market, consider the perspective of a trusted local commercial banker to be invaluable.

Clearly seeing the big picture beyond price levels, understanding all the moving parts and applying sound investigative skills will separate you from the pack in the coming market cycle. Over reliance on one piece of information such as price levels is essentially reaching for the low hanging fruit and a sure sign of hanging on to 2004-2007 market thinking. The times (and the market), they are a changin!

Survey Assesses Thinking and Strategies of U.S. Real Estate Professionals in Current Economic Climate

In Grant Thornton LLP’s 2008 Real Estate Survey, nearly six in 10 real estate executives (57%) have a pessimistic outlook regarding the U.S. economy for the next year, and almost half of the respondents (48%) have similar feelings about the real estate industry’s business outlook. These numbers show a sharp decline in optimism from 2006, when only 15 percent of respondents had a pessimistic outlook about the economy, and a scant five percent were pessimistic about the real estate industry’s outlook.

Despite these pessimistic economic and industry outlooks, respondents’ attitudes toward their own companies remain much more positive. Half of the respondents express an optimistic outlook for their own companies in the coming year, and only 12 percent had a pessimistic outlook. In 2006, 80 percent of respondents had a positive outlook for their own companies in the next year.

When asked about the single most important issue facing their industry in the next year, more than one-third of real estate executives (36%) chose the national economy. Other concerns included earnings and operation results (21%), the ability to access capital (19%), tenant relationships (10%), and rising costs (5%), among others. 

Survey respondents also weighed in on anticipated rate changes in the market. These are some of the predicted rate changes in the coming year:

• 69 percent think the unemployment rates in their market will increase.
• Three-fifths (61%) predict vacancy rates will rise in their market.
• 79 percent of respondents expect capitalization rates to increase nationally.
• 76 percent believe the capitalization rates will increase in their market.
• Half of respondents (51%) think interest rates will decrease.

Survey respondents are focused on a wide range of issues and strategies, including:

Grant Thornton LLP’s 2008 Real Estate Survey was designed to elicit the opinions and activities of a broad range of real estate industry professionals. The real estate executives were polled in two ways. First, an invitation to participate in the online survey was sent to nearly 1,900 real estate contacts in Grant Thornton’s database. This effort was followed up with a communication to 4,000 developers, owners and investors who are members of the National Association of Industrial and Office Properties (NAIOP). NAIOP’s members include developers, owners, investors and other professionals in the industrial, office and mixed-use real estate industry. A total of 341 survey responses were collected between March 2, 2008, and March 26, 2008.

Respondents of the survey described themselves as developers (41 percent), real estate investors (17 percent), real estate owners (11 percent), and asset managers (9 percent). Others included real estate property managers (5 percent) and construction contractors (1 percent).

Grant Thornton LLP is the U.S. member firm of Grant Thornton International Ltd, one of the leading global accounting, tax and business advisory organizations. Visit Grant Thornton LLP at www.GrantThornton.com.

Cape Cod Commercial Real Estate Transactions Fall to Lowest Level for the Month of May since 1999

The softening demand for commercial real estate on Cape Cod, MA continued in May 2008 as the number of completed transactions fell to its lowest level for the month of May since 1999.

In May 2008 a total of 23 commercial property transactions were recorded at the Barnstable County Registry of Deeds. The recent recordings reflect a modest yet continued decline from the 27 transactions recorded in April 2008. In the past ten years, the highest level in the month of May was achieved in 2004 with 48 transactions. The number of Cape Cod, MA commercial real estate transfers posted in the month of May has steadily declined in each subsequent year.

A total of 76 transactions involving commercial real estate assets located throughout Barnstable County, MA were recorded through May 2008. Year-to-date, commercial property transactions through May 2008 are down 22.45% compared to the same five month period in 2007.

Commercial property dollar volume in May 2008 was just over $19.8 million. This figure included $9.121 million from the sale-leaseback of six Rockland Trust Co. branch banks located on Cape Cod, MA. (See related story.) In May 2007, the total commercial property dollar transaction volume was substantially higher at $118,945,750. This figure, however, includes $106.0 million from three Cape Cod, MA properties sold as part of a $500 million portfolio sale completed by the Flatley Company of Braintree, MA.  Among the ten New England investment properties conveyed, local assets included Southwind Plaza and the Borders Bookstore building in Hyannis, MA and The Falmouth Mall in Falmouth, MA. The joint venture acquisition was completed by the Wilder Cos. of Boston and O’Connor Capital Partners in New York.

In May 2008, transaction activity was favorable in the restaurant and small mixed-use classes. Activity for commercial condominiums of all types, a bell weather sector on Cape Cod, continued to reflect a steady drop off in demand.    

Note: Recorded sales include “arms-length transactions” and generally exclude conveyances among related parties, convenience sales, acquisitions by governmental agencies, and certain foreclosure related transactions.