November 10, 2008

Tim Leigh’s Weekend Market Report
Hoff & Leigh, Inc.
4445 Northpark Drive, Suite 200
Colorado Springs, CO 80907
November 10, 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 = $110.83 (DOWN from $111.35, last week.)
There are currently 113 office buildings for sale.
This is 1,213,401 square feet, which represents a total market value of $134,479,895.

All Market Average Industrial Building Sale Price PSF = $74.63 (UP from $74.41 last week.)
There are currently 99 industrial buildings for sale. (This is 2 more than last week.)
This is 1,391,679square feet, which represents a total market value of $103,866,425.

All Market Average NEW-CONSTRUCTION Office Condo Sale Price PSF = $178.64
There are currently 53 newly-constructed office condos for sale. (This is 3 new listings since last week.) This is 98,066 square feet, which represents a total market value of $17,518,858.
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
There are currently 96 2nd generation office condos for sale.
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:

3919 Palmer Park Boulevard: This is a 2 story building located near the corner of Palmer Park and Academy just behind the Subway Sandwich Shop. Its major tenants are a shoe repair and an Asian massage parlor. Run out and make an offer on this at $396,000. The listing agent offers good terms (if you’re the seller). He wants one easy payment! I’m not feeling the love.

New Industrial Building listed this week:
905 Motor City Drive: This property intrigues me. It is one of our new listings. It sits atop of Motor City Drive. It has been used as the Southpointe Lincoln dealership’s tire store. The building is 2,952 square feet. The asking price is $375,000. It is perfect for a small auto related business or for your toys. The overhead doors are 12’ feet tall. Your motor home would fit.


Somewhat interesting property for sale:

3055 Austin Bluffs Parkway: This building is one that we’ve had listed for some time. The pricing strategy has just changed to “sell it now”. The property is very clean. It abuts the north side of Palmer Park. The lower level is leased on a long term basis. There is about 3,000 square foot for a buyer’s use. The building has a current assessor’s value of $622,687. The newly lowered asking price is $575,000. At 5,493 square feet, this is $104.68, which is less than the city-wide average sale price for office buildings. With the completion of the Austin Bluffs over-pass, access to I-25 is easy. If you are looking for a place to call home-sweet-home, I recommend looking at this.

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.

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.

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:

As I survey the landscape and recall the past week, I’ll report that we had a good week. In the midst of a falling stock market, which lost about 4% of its total value (ugh!) we were able to sell 2808 West Colorado Avenue, a 10,000 square foot office building and write several leases, including a lease for American Medical Response, who is re-locating an administrative office from the Denver area. As the world seems to be falling down on its financial knees, I remind you of the oft quoted statement that “When the blood flows deepest fortunes are made”. Now is the time to buy. If you are a commercial building owner trying to sell, and you don’t have to sell today, don’t.

As you read this report, you should note that the total number of office buildings for sale has decreased to 113 and the average price per square foot has dropped to $110.83. That there are fewer buildings on our “office buildings for sale list” is a reflection of more accurate data and better tracking. We have moved several buildings that were formerly classified as “office building” to a new category we’re developing, “mixed-use”. In our market, there seems to be more mixed-use properties than pure office, retail or warehouse. Mixed use property could be, for example, a former parts store on Fillmore Street that could now be used as a small office building.

There are 6 office buildings priced over $200 per square foot. There are 3 office buildings priced less than $45 per square foot. At the high end of the range, you’ll find mostly small buildings with good utility value that would be hard to replace on a square foot basis. On the low end, there are the usual suspects which are low price because of poor location and functional obsolescence. (And, lest you never forget, I’ll drive home the number’s 1, 2 & 3 rules of successful real estate investing – location; location; location!). For example, Potter Drive is one of the worst locations for an office building in the city. None-the-less, it continues to be an attractive entry point for buyers because of its pricing. Cascade Avenue and the area just north of the downtown remain one of the best real estate micro-markets in the city.

At the lowest end of the scale is 3645 Jeannine Drive. This is a 47,596 mixed-use property that is 50% office & 50% warehouse. I’ve left it on the office building list because it’s ½ offices. This is an attractive deal because of its pricing per square foot. The play is to buy it cheaply, add value with remodeling and re-tenanting and sell it on reasonable cap rate – say 10%. This deal will likely get done somewhere around $18.00 per square foot with an “equity kick”. With an improvement budget of $9.00 psf, the total cost for acquisition & reconstruction would only be around $27.00 psf. Bob Hoff and I handled the leasing on this property for several years. We kept it full. The tenants were always happy and the tenant turn-over was usually very low. It has since suffered through a period of very bad management which now creates the opportunity for a turn-around buyer.

I had the occasion to be involved in several conversations last week, or should I say counseling sessions? The general sentiment is that nobody has any money. It seems that nobody is buying anything and therefore, tenants are not able to pay rent. The rental income that was used to make mortgage payments is drying up. In fact, that is the case in many instances. Many building owners are jumpy because they have begun to experience this lost income and they now believe the mainstream press; that we are heading down a very difficult path into a prolonged recession. Many of my friends, who have been very strong financially, are concerned that they will run out of money before they run out of month. As the pendulum of leverage is good in good times, it is bad in bad times.

I have been coached that free-and-clear real estate is the way to go. I had always been doubtful, but in times like these, even low leverage ownership becomes at risk. The game is taught that the highest net worth is the winner. It should be taught that the highest free-cash-flow, without regard to net worth is the winner! Its not about net worth, it’s about net income.

I have met with several bankers who feel that the value of commercial real estate will drop significantly over the next 6 – 12 months because of lost income from reduced tenant rents. They are factoring that belief into their lending. I see investment lending becoming more onerous with higher debt coverage ratios and higher down payment requirements. Investment lending notwithstanding, there seems to be a pretty good pool of money available for buyers that are purchasing for their businesses use. SBA lenders, for example, have a couple of good SBA lending options with relatively low interest rates and low down payment requirements.

People want to know what I think. Here it is. It’s my opinion that we are the front end of an inflation caused by the Fed’s infusion of large amounts of capital into the monetary system, and that commercial buildings, (as will all hard assets), will increase in value over time. So hold on to your hat. We’re in for a bumpy ride over the next few months, but it’s not the end of the world. Business will be done in spite of what you hear and read. It’s my guess that we’ll feel the impact of the various bail-outs within the next few months. By next spring we’ll all feel better about the economy. The sun will be shining, the flowers will be blooming, the birds will be chirping, and the Incline will still be taunting. Some things never change. The economy’s not one of them.
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


To view our Office Matrix List please click below
http://hoffleigh.com/OfficeInsider.aspx

To view our Industrial Matrix List please click below
http://hoffleigh.com/IndustrialInsider.aspx