Commercial lowlights: rents down, vacancies up,
boston.com
By Thomas C. Palmer Jr., 3/3/2002
Some heavy hitters from the real estate world gathered one morning last week to discuss ''Investment 2000: Where Are the Opportunities?''
As James McCaffrey, a Trammell Crow Co. principal and the moderator for the unusually well-attended National Association of Industrial and Office Properties breakfast put it, they were there ''defending the downtrodden developers in the state.''
Highlights in the commercial real estate situation circa early 2002 indeed turn out to be mostly lowlights. Vacancy rates up to 12 percent in Boston, 25 percent in the 'burbs. Businesses sitting on their hands.
''For the first time in 10 years, we're all operating in an environment when rents are going down and vacancies are spiking,'' said McCaffrey.
However, four panelists emphasized things could be worse.
''Ten years ago, we were in a bunker,'' said Kenneth Witkin, managing director of the Fleet Real Estate Finance Group. Today, ''Our peer banks are in sound shape and active in the marketplace.''
Yes, the capital that was washing around buying big property is sitting still. But, said Charles Wu, managing director of Charlesbank Capital Partners (which used to invest Harvard's money but now does even bigger things), ''The $1 billion Wall Street firms have gone overseas. That's good for us.''
And Peter Madsen, managing director of Pembroke Real Estate, a Fidelity Investments company, said construction costs are a hair lower than they were, getting the permits to do deals a bit easier.
What hasn't come down is land prices.
These big players are mostly sitting and waiting. Whereas many like them, and the companies and investors they work with, were in serious pain in the last prolonged recession, now it's different.
`'The biggest beneficiary of Alan Greenspan's generosity is us,'' said Wu. ''You're refinancing at rates that are unheard of.''
That refinancing - and the fact companies were not heavily borrowed in the first place - is saving them. ''Our clients are able to carry 16 to 18 percent vacancies,'' said Witkin. ''Refinancing provides a solid cash flow.''
Lessons? ''We should have seen it coming,'' said Jonathan Davis, chief executive of the Davis Companies. Companies were leasing space without the bodies to fill it.
''The absorbtion rate went way out of skew with the employment numbers,'' he said.
Lessons? There's financial discipline out there now. ''If capital doesn't maintain its discipline,'' said Witkin, ''we're in for some pretty rough sledding three to five years from now.''
And when will things turn around?
For that, the panelists turned to the 500 in pinstripes who were just finishing up their croissants.
Real estate recovery in three months, anybody? No hands raised.
Six months? A few.
Nine months? A few more.
Twelve months? Most hands went up. The consensus.
And, 18 months? Yes, there are some pessimists out there, too. |
