November 2, 2008

Tim Leigh’s Weekend Market Report
Hoff & Leigh, Inc.
4445 Northpark Drive, Suite 200
Colorado Springs, CO 80907
November 2, 2008

Attached is our complete listing of all properties for sale in Colorado Springs, based on property type - office, industrial and condo. This is the most complete listing that we are aware of. It’s our goal to provide this information, updated weekly. We develop these lists by basic research and cross-checking data points from the PPCIE, local broker's individual web sites, The Turner Book and any other public information domain we can find.

You are receiving this information because, at some point, you asked or a friend referred your name to be included in our e-mail Insider’s List. If you no longer wish to receive this information, send an e-mail reply to me (tim@hoffleigh.com) and ask to be removed. Alternatively, if you know someone who could benefit from the receipt of this information, forward this e-mail to them, and suggest they contact us, so we can consider adding them to our exclusive list.

All Market Average Office Building Sale Price PSF = $111.35 (UP from $107.96, last week.)
There are currently 116 office buildings for sale.
This is 1,264,185 square feet, which represents a total market value of $140,722,895.

All Market Average Industrial Building Sale Price PSF = $74.41 (NO Change from last week.)
There are currently 97 industrial buildings for sale.
This is 1,384,127square feet, which represents a total market value of $102,996,425.

All Market Average NEW-CONSTRUCTION Office Condo Sale Price PSF = $180.18
There are currently 50 newly-constructed office condos for sale. (There are no changes since last week.) This is 92,066 square feet, which represents a total market value of $16,588,858.
Interior build-out costs from shell-space range between $50 to $100 psf.
We anticipate 1 office condo closing this week. The office condo market seems to be picking up a bit of steam, however slowly.

All Market Average 2nd Generation Office Condo Sale Price PSF = $140.88 (DOWN from 143.71, last week)
There are currently 93 2nd generation office condos for sale. This is 3 more than last week.
This is 114,431 square feet, which represents a total market value of $16,121,363
2nd generation office condos are defined as “office condos which have been previously occupied and therefore, are already built-out”. It is my opinion that now is an opportune time to purchase 2nd generation office condos because they can be purchased at very deep discounts from their newly constructed counter-parts and from their replacement costs.

New Office Buildings listed this week:
None worth bragging about.

New Industrial Building listed this week:
None worth bragging about.

Somewhat interesting property for sale:

3645 Jeannine Drive: This is the deal of the week, this week. We have decided to drop the price to reflect the current market. The property has been listed at $1,650,000 ($34.67 per square foot), which is the lowest cost per square foot listing in the market. Apparently the market still doesn’t like the pricing so we’re lowering the price to $1,100,000, cash. This property will take about $375,000 to remodel. When its’ done, the $1,475,000 “all-in” investment ($30.99 psf) is a newly remodeled building, (including a new roof, new parking lot, new HVAC, new windows, new paint & carpet), property, with multi-small-tenant leasing opportunities that should generate around $31,000 in gross MONTHLY income. This is a case study of a property where someone wants to buy low, add value and increase the balance sheet and income value.

In case you missed the description last week, the building is a 47,000 sf mixed use facility with warehouse on the ground floor and many small offices littered across the top floor. It is located just south of Austin Bluffs, just west of Academy. The warehouse space should lease-up for $6.00 psf modified gross and the offices should lease-up for $10 psf modified gross. The presumption is that the Tenants will pay rent plus utilities, snow removal, janitorial and landscaping charges.

3707 Parkmoor Village Drive: This is a bank repo. They are now very interested in selling. The asking price is $60.00 per square foot. This is selling on a 10% cap rate. The physical plant is in good condition. If you are looking for cash flow, this would work. The tenants are B rated and on short term leases, but generally, with buildings of this class, once the tenant is in place, they stay in place.

5030 Boardwalk: This is a good deal because of the financing. The Seller will carry the mortgage on soft terms. Also, this is a USER SALE. The property is a good example where there has been a diminution of value because of a waning trade area. The building is clean and should not need any modification. Typically, a user/purchaser would utilize 1 of the 4 rental units and lease-out the other 3. The building is 6,383 square feet and priced at $84.60 per square foot ($540,000). The Seller will carry financing.

Want to know more? Contact me Tim@HoffLeigh.com
View 100’s of listings on our web site, www.HoffLeigh.com.
719-630-2277

Tim’s Market Notes:

“The warm weather; the warm sunshine, the crisp autumn leaves and the blue-bird skies seem to relax the spirit and soul and slow the pace of play.”

With the falling stock market; oh, wait, the rising stock market; oh, wait the falling stock market, its hard to know what to do. My advice is to take stock of the good things, and enjoy the Colorado life-style. The markets will continue to be choppy for the foreseeable future, and they will continue to affect your commercial real estate decisions. At the end of the day, it’s likely that the sun will continue to shine and people will continue to do business. Of course now may be good time to pay-down some debt and conserve some dry powder.

The question of the week has been, “Who or what can you trust?” Does the rise and fall in the stock market feel like pump & dump, where the market makers are raking in huge profits? Not to be too cynical, but you do have to wonder. I was speaking with one of my money manager friends this week, who manages over $500M dollars. He’s the real deal and in my opinion, a pretty smart guy. He validated my statement. His advice has been to “stay put”. If you are in cash, stay in cash; if you are in stocks, stay in stocks.” My advice is the same but couched into my world it’s “If you’re a seller and your property’s not selling, lower your price to the market and be a seller. Otherwise you’re a buyer. And, if you are a buyer, stay put.”

By the way, who can you trust? Here’s a commercial message. You can trust your Realtor. Not because he’s such a good guy or because he’s so bright, but because you can run the numbers yourself and validate his statements. You don’t have to wonder if the financial statements contain real figures or not. And, as Virgil McCormack used to tell me, “figures lie and liars figure”. What’s good asset class should you be investigating now? Ah, “that would be Real Estate Bob”. If you are interested in steady cash flow and appreciation on a very tax favored basis, give me a buzz at 719-337-9551 or Tim@HoffLeigh.com. Don’t think you can afford a commercial property? Don’t worry. Even our residential deals make sense for many small investors.

Talking to the guys at Lightening Lube over the weekend, they tell me that their retail customer business is down 40%. They are not alone. On East Platte Avenue, one of the local used car dealers used to carry 8 cars in inventory every month; he now carries 4, and he didn’t sell any cars this month! It’s pretty tough as a Landlord to collect rent in that deal. We have had a couple property insurance agencies, who I thought were totally impervious to any recession or drop-off tell us that their production has fallen off-the-table. One guy, who is a “hitter”, was about in tears trying to negotiate a rent reduction. He said he’s not had this dismal a production run in over 25 years!

Luckily, at the Global Headquarters, we’ve not seen a huge drop-off in new leasing activity. However, hopefully, win, lose or draw, when the election is over this week, people will settle down, realize the consequences of the election and start to move their businesses forward. I think that will be the case and we expect a pick-up in commercial property leasing and sale activity city wide.

Speaking of the election, I saw a very insightful quote this week, “It’s time for the great princes of property to share their resources. Growth will not provide for the poor; only redistribution will” No, the quote is not Obama’s. It’s attributed to Franklin Roosevelt from a speech delivered in 1932.

I had a chance to speak to a couple of commercial banks regarding their lending policies this week. One very large bank with offices littered across the entire west, told me that they are increasing their down-payment requirements, raising their rates and increasing the debt coverage ratio to 1.4, even while the FED has lowered their fed funds rate. I pointed out this incongruity. Their reasons were 1) their rates are tied to LIBOR, not prime, (and I was told that this is more and more the case); and 2) I was told that most banks expect all commercial real estate values to drop in the near term and that increased down payments were to cover their margins in that case.

So, where you might have otherwise expected a commercial loan with 20% or 25% down, you can now expect 30%, 40% or 50% down payment requirements and rates starting in the 7% range, or more, depending on your history and current credit. I was told that the deals that are getting done are with increasing cap rates, at or above 8%. There is a very clear indication of falling values. (Of course other lending options exist – SBA, seller financing, sandwich leasing, etc.) Feel free to call if you’d like to discuss the current state of lending in detail and how it may affect your situation.

Many of my friends have been renegotiating loans and in the process have had capital call requirements “just to renew”. If you want to witness a macro-unwinding of otherwise good real estate investments, (and if you have several million dollars and want to take advantage of someone’s bad luck), check out General Growth. They are a publicly traded company that buys shopping centers. Their market capitalization rate has dropped off the charts; their stock price has fallen (from the $50’s per share – to below $3.00 per share at last look!) to the point of absurdity and millions of dollars have been lost in the process. This is all because of the credit crisis and that likely, some young, inexperienced loan officer, who hasn’t seen bad times, and who is still soaking wet behind the ears, has forced them to pay-down on loans to refinance. From what you can read and see, General Growth hasn’t been able to match their capital call requirements with current liquidity and will likely go out of business. That will be a tragedy.

And lest we forget the housing crisis that started all of this, here are a couple of things I learned last week. One is that in Minneapolis, where it’s just about to deep-freeze, in many of the low income areas, where the buyers who couldn’t afford to purchase bought with option-arms or some other trick pony and have since been foreclosed upon; the municipal government has stepped in and has started to knock down many of those homes. The theory is that when winter comes, since there are no buyers for those homes, and if there were, no lending for them, the liability attendant with vacant homes and potentially burst water & gas pipes is greater than vacant ground.

And, from a US Senate witness, “There will be this situation. There will be 3 mortgages in a block on all equally valued property. One mortgage may be for $3,000 on a house, another for $4,000 and another for $5,000, on houses that originally sold for $7,500, which are cut down in value now to $4,500. The man who holds the $3,000 mortgage on the 1st property wants to get his money. Someone comes along and says, “I’ll give you $2,500 for it.” He replies, “Make it $2,750” and the deal is closed on that basis. That fixes the value for all the houses in the entire row.” This is from a Senate hearing in 1931.

You could make the same statement, but increase the prices and you would be describing situations all across the US in depressed real estate markets. I was told that this is the case with homes in Los Vegas, where sales are robust, but at 40% of former sales prices. Think of the poor schmuck who is still living in his house where he paid $375,000. The property on either side of his house has been foreclosed-on and now is on-the-market for $175,000. What do you think he’ll do? What would you do? How about, quit paying and use some new government program to purchase the neighbor’s house at the discount. Or after the foreclosure, buy your own home back from the bank or government. Yes, the system is jacked-up, but it’s the current market reality.

If all of this isn’t enough to make you lose your senses, I was driving down Garden of the Gods Road on Friday. I’ll admit, it had been a long week by then and I was running on low batteries. Some low-life, with a shiny ear lobe, and who looked like he had been the victim of a nail gun injury, shaved head and darkly tinted windows pulled next to me with his boom-box booming full tilt with some nasty Rap blaring; his bass was up as loud as it could go, to the point of making my 4-Runner vibrate. I couldn’t stand it. I decided to fight-fire-with-fire. I turned-up Rush as loud as I could. I turned-up the bass as loud as I could. I rolled-down my windows and shot Rush back as loud as I could. Who knows if I made a dent; but I felt better knowing I had done my part to save civilization.

Want to know more? Contact me at Tim@HoffLeigh.com

Focus on Charitable Event

What: Red Kettle Breakfast
When: December 2nd, 7:00 AM
Where: Antler’s Hilton
Why: Fundraising Kick-Off for The Salvation Army
How: Show up and pay up

Want to know more? Contact me at Tim@HoffLeigh.com

I hope you had a profitable week and next week is better!

Sincerely,

TJL
Tim Leigh
719-337-9551
Tim@HoffLeigh.com


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