September 26, 2008

Tim Leigh’s Friday Market Report
Hoff & Leigh, Inc.
4445 Northpark Drive, Suite 200
Colorado Springs, CO 80907
September 26, 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 = $111.48 (DOWN from $111.77, last week.)
There are currently 136 office buildings for sale.
This is 1,450,562 square feet, which represents a total market value of $161,715,795.

All Market Average Industrial Building Sale Price PSF = $74.58 (UP from $74.47 last week.)
There are currently 96 industrial buildings for sale.
This is 1,360,367 square feet, which represents a total market value of $101,451,425.

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.

All Market Average 2nd Generation Office Condo Sale Price PSF = $143.371
There are currently 90 2nd generation office condos for sale. (This is 2 more than last week.)
This is 99,289 square feet, which represents a total market value of $14,269,030.
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.

Closed Sales
Currently, we have 41 buildings, sorted by office, retail or warehouse. Our list grows with input from our friends at Unified Title Insurance Company and information from our network of friends, like you. If you are aware of any closed transactions, let us know. We’ll add that data to our list for everyone’s benefit.

In the office category, our most recently closed sale comp is 1265 Lake Plaza Drive. This is a 4,006 sf office building where the Seller brought over $100,000 to the table to close. The lowest price office sold comp continues to be $41.31 psf. The highest price office sold comp continues to be $190.97 psf.

New Office Buildings listed this week:
1765 South 8th Street: 4,800 square feet, $ 750,000; $156.25 per square foot.
13 North Nevada Avenue: 13,045 square feet; $2,300,000; $171.64 per square foot.

New Industrial Building listed this week:
715 Valley Street: 14,700 square feet; $925,000; $ 62.93 per square foot.
2110 Spectra Drive: 5,500 square feet; $489,000; $ 88.91 per square foot.
331 South 14th Street: 4,270 square feet; $439,900; $103.02 per square foot.
305 Cragmoor Road: 1,288 square feet; $275,000; $213.51 per square foot.

Other, somewhat interesting listings:

6835 White Fir Lane: This is a 6,000 sf, multi-tenant bank owned property for sale. My interest was peeked was because the asking price was just reduced $100,000. (It’s #73 on this week’s matrix). Because the property is being marketed as an investment opportunity, I called the listing Broker to obtain a basic APOD (financial detail – see sample attached hereto); rent roll, number of rental units, rent rates, etc. Because it is being marketed as an investment, I presumed the Listing Broker would have this basic information. Sadly, but not unexpectedly, that was not the case. I was told the property has 14 rental units. 2 of them are occupied by tenants paying “approximately $1,300 per month.” I was told on the QT, that the former listing broker had it priced at $1,500,000 and therefore, the new price represented a real bargain! My underlying question is, “Are 2 Dumbbells better than one?” Does the fact that the 1st listing was terribly overpriced mean that the 2nd listing, which is still overprice, is not overpriced? Unfortunately, I know situations where buyers bought based on this presumption. In my opinion, this property in its location starts to become interesting at $35 - $50.00 per square foot. (OK, my perspective with this property is the RTC days, when a lot of commercial property sold for $10 psf!)

715 Valley Street: This is an investment property offered for sale with an 8.91% cap rate. The tenant is Atrium Windows & Door Company, which has 80 manufacturing & distribution centers in 23 states. They are a single tenant and occupy 14,700 sf on 1.92 acres. The asking price is $925,000 which is $62.93 per square foot.

Walgreen’s in Warrenton, Oregon: This is a single tenant Walgreen’s with a 7.5% Cap Rate priced at $183.57 per square foot. The building was constructed in 2006. It is a 50 year, corporate backed, absolute net lease. Warrenton is the retail-hub of the immediate trade area with the only Big Box format grocer.

Our investment advisory goal is to match the appropriate opportunity with the investor’s needs & goals.

Want to know more? Contact me at Tim@HoffLeigh.com or RD@HoffLeigh.com. You can always see 100’s of listings on our web site, www.HoffLeigh.com. Our phone number is 719-630-2277.

Tim’s Market Notes:

“The road to good intentions is paved with hell.”

It sounds like the bail-out is going to be announced later this (Sunday) morning. I had proclaimed the start of a real estate depression last Wednesday, September 24th at 11:00 AM. My proclamation might have been the same as “Dewey Defeats Truman!”

In my defense, I had just returned from a closing where I was told by a savvy local banker that 6 of his contemporary banks had just stopped making commercial loans and that “the regulators” had swarmed down on one of our local banks. For my own account, my lender appraised one of my projects as part of a new tenant-finish loan request. They approved the loan, but with stipulations. In their process, the bank arbitrarily discounted their newly acquired appraisal by 30% and then, to add insult to injury, only agreed to loan 80% of the newly lowered value. Furthermore, a friend of mine, who is working-out several large multi-million dollar situations with his various lenders, said that any attempt to refinance would require substantial infusions of new capital as a condition precedent to making new loans. Effectively, these new lending requirements put him out of the game because he has insufficient liquidity.

I’ve been through major real estate down-turns; the 70’s; the 80’s; the 90’s. About every 10 years. In each case, our local economy was sufficiently resilient to withstand the down-turns and in the 2nd case, being libeled the foreclosure capital of America. In each case, we rebounded strongly and in spite of the tech bubble & bust, local real estate values generally continue to double every 10 years. Unfortunately, what I’m seeing and hearing on the street is that our economy is in unchartered water. When Bob Hoff calls me to find out what’s going on, I get concerned. When one of my personal advisors tells me that he has moved money from one bank to another to “spread the risk and be covered by the FDIC”, I get concerned.

I’m not an economist or political commentator and in the context of this column, you may be asking, “What is the impact on our world?” (This is the world you share with us at Hoff & Leigh), which is to say the world of Class B commercial real estate. Our sale transactions have slowed. Our lease transactions have increased. I’m forecasting that we’ll continue to see more leasing vis-à-vis sales. I’m forecasting continuously slowing sales because of new lending requirements. If you own commercial real estate, the good news is that rent rates should tend upward as demand for lease space increases. The other good news is that in spite of national politics and institutional melt-down, there will always be an economy. People and small businesses will always be buying & selling something to someone.
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There are 303,000,000 Americans (not counting the illegal Mexicans) and 6.2 billion other people in the world. They all want to eat, every day. They create demand for all types of goods and services. And my underlying business theory is, that to be successful, we only need to do business with a very thin slice of the pie.

Over the past week, I have fielded several calls asking, “Where should I invest?” If you have sufficient liquidity, given the current financial & political situation, Colorado real estate stands out as a safe & bargain priced investment option. Especially as the 4th quarter moves closer to “year-end”, banks normally want to clean-up their balance sheets and bargains should start to surface. For the less adventurous, another alternative is “Pass book savings, please.” I was told, but have not confirmed that the Fed is going to issue 0% bonds and that there is a strong demand for them because of their intrinsic safety. I have several friends who told me they would line-up for them. So there you go, 3 good alternatives.

I’m guessing that in the short run, most investors will find that they’re not really investors, but savers. That at the end of the day most will be glad to receive the return of their money and will care less about the return on their money. If you want to continue to be “in-the-market”, and this is a crass commercial message, buy real estate!

Real Estate 101:

Equity growth strategies

Definition of Equity: The delusional number we carry on our financial statement that becomes a discounted reality when we have to sell.

1. Found Equity: This is the difference between what the property is worth in the open market and the discounted price you paid. In essence, you obtain this equity by “finding” the deal. Finding the deal is the hardest part of any deal.

2. Passive Equity: This is what happens when you follow Mark Twain’s advice, “Don’t wait to buy real estate. Buy real estate and wait.” The theory is that if you hold a property long enough in the right market, based on historical norms, you’ll experience passive equity.

3. Amortized Equity: This is what typically happens when the monthly payment is made. I have a full discourse on this kind of equity, but suffice to say, in short form, for most Class B property owners, which is most of the investing market for the average guy, this is the true Pathway to Riches. It is achieved simply by paying-off the debt! Class B building owners should not look to increasing rents and Cap Rate valuations over time. They should look for increasing value because of amortizing equity and nominal market appreciation because of the increasing costs of money, manpower and materials.

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

Marketing 101:

Community based marketing:

Community based marketing is my theory on data base marketing, which says “The entire market is like an onion”. The outer layers contain the noise of the market place. To be successful, you have to peel away the outer layers. Working in the outer layers is where most salesmen & marketers spin their wheels. Sales are made and deals get done consistently easily at “the core of the onion with your constituency.” Your constituency is the group of buyers and clients that is willing to listen to your message. Your constituency is your community. And if you merely market to your community, you will work less & earn more. Note to professional marketers – that would be all of us – (because we’re all in sales & marketing) – marketing is defined as “telling your story and allowing the customer to find you”. The question for you today is, “who are you telling your story too?”

If you want a copy of my full article, e-mail Tim@HoffLeigh.com.

Non-Profit Highlight:

Holly Trinidad’s Red Ribbon Cutting for The Red Cross was well attended Thursday night. You were invited by this column. If you did not attend, you missed it! David Harmon, our award winning vintner friend from Napa showcased his DIII pinot noir. If you want to order some of his fine wine, contact Dave directly at 707-495-2464 or by e-mail at dharmon@vino.com. If you mention this column he’ll give you the friends & family discount! The event was held for the Pikes Peak Chapter of the American Red Cross. They need to raise awareness & money. If you’d like to know how you can help, contact David Just at 719-785-2701 or DJust@pparc.org. Or you can contact Holly Trinidad at 719-630-2277 or Holly@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

To view our Office Condo Matrix please click below
http://hoffleigh.com/HLIOfficeCondos.aspx