Some predict commercial property fallout nationally; locals optimistic

With the housing market hitting rock bottom in parts of the country, some analysts predict the commercial real estate sector could be next.

However, those familiar with the local commercial market are optimistic Southeast Missouri won't suffer the same fate.

"Due to the conservative nature of our area on the part of both lenders and buyers of commercial property, the impact could be minimal in comparison to other parts of the country," said Tom Kelsey, a commercial broker with Lorimont Place Ltd.

According to the Cape Girardeau Multiple Listing Service, commercial property sales volume has dropped by as much as 70 percent compared to sales in 2007. However, many commercial transactions are not reported to the Multiple Listing Service, as commercial brokers are permitted to enter only properties that are for lease and not for sale.

"There has been a dramatic shift in the confidence of the public in general when they are looking at property to buy or lease," said Cynthia deJournett Austin, a broker with Realty Executives of Cape County. "Business owners are weighing every dime much more carefully these days and hesitating to make high sales projections.

Plaza Galleria, 2021 Independence, was an ice skating facility with various shops. The building has been vacant for several years. (Fred Lynch)

"2009 has marked the first year that I have personally seen a lease with an option to purchase fail to come to closing," Austin said. "The tenant and hopeful buyer just did not make a go of the business and had to opt out of the purchase they had every intention to go through with just a little over a year ago."

Though local real estate professionals believe the area commercial market will hold its own in 2010, a recent national survey of 900 lenders, developers and investors in the industry believe commercial property will hit rock bottom next year.

Respondents of the Emerging Trends in Real Estate 2010 report predict commercial real estate values will decline 40 to 50 percent from 2007, when the average value was around $207 billion. Most affected will be retail and office properties, the report said, reflecting a rising unemployment rate and declining consumer confidence.

"Our report participants find that a sense of nervous euphoria is growing among liquid investors who can make all-cash purchases," said Stephen Blank, a senior resident fellow for real estate finance at Urban Land Institute, which co-released the report. "Those that are patient, daring and selective could score generational bargains on premium properties from both distressed sellers and banks that are clearing out unwanted bad loan and real estate owned portfolios. However, once the property market recovery begins and gains traction – likely before 2012 – any rebound could be restrained by a lackluster economy and rising interest rates."

Steve Taylor, president and chief executive officer of First Missouri State Bank of Cape County, said while commercial lending at his bank has slowed down overall, he said some sectors are faring better, such as office strip centers and complexes.

Most of this commercial real estate building is vacant on U.S. 61 north of Jackson.

"Those usually fare well even when things get rocky such as in today's economy," Taylor said.

Regent's Parc, 1610 N. Kingshighway, is among the newer office buildings that have consistently leased space. Built in 2008, the building is home to its first tenant, Banterra Bank, Saffron Bistro, Edward Jones agent Michael Domian, Big Brothers and Big Sisters and Brielle Salon. The Parmele Law Firm is expected to move in by December.

Austin, who is handling the leasing at Regent's Parc, said all of the businesses at Regent's Parc have reported higher sales compared to this time last year.

Less than a mile away on Kingshighway is North Pointe Center, which has leased space to Beef O'Brady's, Casa Mexicana, LA Weight Loss and Subway since its buildings opened in 2007. Sandy Helwege, a broker with Coldwell Banker Abernathy, said she and her husband, Gary, receive four to six inquiries from interested tenants per week. She said negotiations are underway with potential tenants to fill a 5,000-square-foot space expansion.

"Once the building came out of the ground, the phone calls started both from consumers and fellow realtors," Helwege said. "When some properties are sitting vacant, this one seems to be seeing its fair share of action."

Other construction of commercial properties include a Candlewood Suites hotel on Mount Auburn Road near Highway 74, a John Deer dealership near the Cape Girardeau Regional Airport, the Cardiovascular Consultants building at Bloomfield Road and Broadview Street and Southeast Missouri Hospital and Saint Francis Medical Center's cancer centers.

Still, while some commercial properties have steadily filled space, others continue to remain completely or vastly unoccupied. These include the Plaza Galleria shopping center at 2001 Independence St., which has sat vacant since 2004, and a shopping center at 2362 U.S. 61, which has only one of 12 spaces filled.

Kelsey said filling those properties is much more difficult than selling a home, which typically has many more buyers interested and is easier to sell.

"Commercial property marketing involves a more extensive and comprehensive outreach advertising campaign," Kelsey said. "This includes entering the property on multiple Internet commercial databases, networking with other commercial brokers outside the region who might have prospects coming to the area, having relationships with local, regional and state economic developers and keeping abreast with the needs of local business clients.

"Our company has instituted these various measures and others to insure each commercial property we handle for our clients are adequately showcased in these various ways," Kelsey said. "Thus far we have been very pleased with the results."

As for the future of commercial real estate, Kelsey said commercial real estate will hold its own in 2010.

"Barring some unforeseen national financial meltdown, it is my opinion commercial real estate in Cape Girardeau and Southeast Missouri will continue to steadily grow," Kelsey said. "We presently have a number of prospective buyers and tenants in the marketplace looking for various types of commercial properties and we feel this activity will continue on at a respectable level through this year and into next."

bblackwell@semissourian.com

388-3628

Pertinent addresses:

2001 Independence St., Cape Girardeau, MO

2362 U.S. 61, Jackson, MO

Regent's Parc, 1610 N. Kingshighway, is a new commercial real estate building.FRED LYNCH flynch@semissourian.com

1610 N. Kingshighway, Cape Girardeau, \O