Look who’s driving now

11/24/2015

“Users want to produce things in the space, not just out of the space.”

Stan Stouder

Have you noticed season is ramping up and we have both different and more drivers on our roads?  Since my last Market Watch article, we also have different users and fewer transactions driving our commercial real estate market.

Our market drivers have changed lanes, from corporate users to more individual investors.  And unlike the traffic on our roads, the number of sales, not the total purchase prices, seems to have tapered.  We’re seeing fewer, but bigger, deals.

Commercial real estate offers investment alternative

“As alternative investment returns continue at their lackluster rate, individuals with stockpiled capital are crying out for opportunities.”

Stan Stouder

Users, as compared to investors in property, are generally more focused, quicker to make decisions and better funded, because they want to produce things in the space not just out of the space. Individual investors have varied levels of acumen and financial reach, and more splintered objectives.

The more articulate and upfront the individual investor can be about their business insights, financial reach and priorities, the more pleased they’ll be with the result.

As alternative investment returns continue at their lackluster rate, individuals with stockpiled capital are crying out for opportunities for cash investments that strike the best balance between risk and return.

Commercial real estate is answering that call.

The amount of sales activity has lessened, but deal sizes have increased.  A prime example is the $74.350 million purchase in October of seven buildings and a 1.1 acre parcel on 5th Avenue in Naples.  Collier Company records show these same properties sold for $77.5 million in 2007, and $53 million in 2013.

The land market also bears this out.

In Lee County, 100 commercially-zoned land parcels have sold as of October, 2015, compared with 141 in all of 2014. Yet the dollar volume of those 100 sales is already 79 percent greater -- $217 million versus $121 million.

The largest sale in 2014 for all types of commercial real estate was $24 million.  So far in 2015, the $24 million mark is the 8th largest sale.

Lee County’s top 10 commercial transactions as of October 2015 have an aggregate sale price of $344 million, compared with $149 million in all of 2014 -- a 131 percent increase in dollar volume.

Auctions, the big event

“Brokers are calling on auction companies more often as an additional marketing tool to better serve their clients.”

Stan Stouder

Auctioning commercial property is another trend I see.  October 27th was the final bid date for 1,484 acres up for auction in the North Cape.  These 1,484 acres are composed of multiple-parcels being sold by a family who owned them for more than 50 years.

Auctions of commercial real estate have traditionally been used to sell distressed, or single purpose, or outlier properties.  But now brokers are calling on auction companies more often as an additional marketing tool to better serve their clients – the North Cape example a case in point.

Why is that?  Technology, and how auction companies get paid, have changed.

Thanks to the Internet, today’s auctions of commercial property are often done online. Anyone with a computer is a potential bidder, albeit an electronically registered one; ergo, they must give up their contact info.  With technology, this big data is easier to accumulate and tap to alert buyers on this cumulative bidder’s list of all future auctions.

Auction companies no longer take part of the broker’s fee.  The buyer pays a ‘buyer’s premium’ to the auction company, and the seller pays their broker   If the buyer of a property isn’t local in nature, or the property is of sufficient size or use to merit an out-of-market buyer, your broker’s local property and market expertise, coupled with an auction company’s marketing power, could reach a broader audience faster than either might reach working alone.

Driving these roads, we’ll safely reach our destination if we adapt to these current conditions rather than cruising like it’s still summer. We’re already working on Market Watch 2016 on February 23 to help you see the real estate road ahead.

Stan Stouder CCIM is a Founding Partner of CRE Consultants. Contact him at stan.stouder@creconsultants.com. For more details and analysis, check out our latest Market View report available free at creconsultants.com.

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