September 13, 2009

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Hoff & Leigh’s Weekend Market Report
Hoff & Leigh, Inc.
Leasing, Sales, Management, Buyer or Tenant Representation
4445 Northpark Drive, Suite 200
Colorado Springs, CO USA 80907
September 13, 2009

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 = $111.40 (DOWN from $111.67 last week.)
We are currently tracking 146 office buildings for sale.
This is 1,532,916 square feet, which represents a total market value of $169,769,173.

All Market Average Industrial Building Sale Price PSF = $82.63 (DOWN from $82.66 last week.)
We are currently tracking 136 industrial buildings for sale.
This is 1,657,154 square feet, which represents a total market value of $136,924,656.

To view our most recent Colorado Springs Business Journal Ad please click below
http://hoffleigh.com/Doc/9.9.2009.pdf


Tim’s Market Notes

Moo! Moo! Think of cows. Bob Hoff taught me 25 years ago, “A cow’s only worth how much milk it gives.” It’s so simple, really. “Glub; glub; glub”, Bob would say, “Think of fish. Don’t we wish there were more of them?” And of course, we’re all Anglers, and until Mr. Market fished them all out, there were plenty to catch.

Fredo Corleone had a way of attracting fish. His secret, he confessed to Anthony, was to recite the Hail Mary. When I was a kid, Leroy Ellis, who owned LeRoy’s Minnows & Bait Shop in Cass Lake, Minnesota, and whose minnows “Were guaranteed to catch fish or die trying!” used to teach us to low softly into the water; “Here fishy, fishy. Here fishy, fishy”. I’m not sure either method works today.

And now, we’re re-instructed what we already know; it’s always about cows & fish. And, after all those late night TV “no-money-down” infomercials, where believing the unbelievable, I assured myself, “I really am rich and doggone it, people like me!” All this because I own real estate; er, or, could that be, the bank owns it?

“I say, sixteen tons and what do you get? Another day older and deeper in debt. Saint Peter don’t you call me ‘cause I can’t go; I owe my soul to the company store!”

And since then, I’ve read an interesting book written by a really smart guy who said “You’re not buying the building, you’re buying the land & the location and the building’s anecdotal.” And, he said “You’re buying the location’s ability to generate cash flow.” (Moo! Moo!) That’s evident in pricing and that’s clearly evident with a listing at 1757 South 8th Street.

I’ve written about 1757 in the past. It’s a property where I reported the price dropped from $475,000 to $299,000. And now, I’ve got a prospect that’d like to gin-up an offer for $175,000 ($19.92 psf), but even at that price, he’s ambivalent about the deal because of the Class D location and his guess that the location’s ability to generate cash flow is paper-thin. We estimate the final lease rate (for a newly remodeled space) in this project will be around $3.00 NNN (the net costs are around $4.87). If the deal gets done, it will be among the lowest cost per square foot sales we’ve seen this year. How much milk can the cow give? Brother, can you spare me an udder?

What else is going on? 3204 North Academy is a 32,000 sf office building whose price dropped $950,000 to $5,000,000. That’s $156 per square foot; that’s a 16% price reduction and that’s a start. The assessor says it’s worth $3,499,000. Call me when this price gets closer to Urantia.

3132 West Colorado Avenue is on the other side of the universe. It’s a small, 1,700 sf (office) building and in fact, it ain’t much of a building but it tells an interesting story. Drive-by; you’ll understand. In fact, much of (the north side of the street) the 3100 block of West Colorado Avenue tells an interesting story of a neighborhood in dentrification & need of a wrecking ball. The assessor says the property’s worth $148,500 (based on closed sales). The listing agent says, even with his 8.3% drop in price, it’s worth $209,000 (based on his experience as a fisherman). Who ya gonna believe? The problem with the property is that it’s too small to be utilized for any real commercial purpose, (“Ya cain’t pull enough milk from a calf’s teat to justify the price!”), except maybe, as a target - Wham!

Here’s an idea. Let’s think about knocking down about every-other awful small, dilapidated meth-house on West Colorado Avenue. We could create a special urban renewal district that’d spur new, “green”, in-fill construction and spawn a residential & commercial renaissance on the west side. Say, now; there’s an idea; a public-private partnership with positive economic goals and outcomes. Hmmm; maybe some government intrusion’s not that bad, after all.

500 West Bijou is a property that took another price-hit last week, but at least it was a hit with a contract. (Note to self: It’s better to take a hit with a contract than get a contract with a hit.) This building’s the old Lighthouse Baptist “Can I get a witness, please?” Church. The property’s under contract and has a 2nd offer in back-up position which tells me that we’ve found that wily Mr. Market. Oh, yes, my friend, he’s around. You just have to justify an appearance. The contract price ($500,000) is a 4.3% reduction from its list price. The assessor says it’s worth $600,000. Now, we’re talking!

And 4615 Northpark Drive took another price reduction last week; from $975,000 to $950,000 (the assessed value). This is a 13,500 sq ft office building with 2 acres; zoned M-1; located just east of the Interstate at Garden of the Gods Road. This property’s seen a free-fall in pricing, but now “seems” to be “fairly valued”. Likely, Mr. Market will say, “It’s not”. It was originally listed for $1,350,000 ($100 psf), which seems reasonable in most rational markets, because, “Good luck replacing it for that!” (Especially with 2 acres). But Mr. Market’s fish aren’t biting.

How about office condos? Office condo prices have been dropping like my Momma’s thermometer in a dark, cold, North Dakota, January night. Our Northgate project is a great example. What a great project. But, “Bring us an offer, please!” Northgate is one of the most underappreciated office-condo projects on the market; the view corridor is amazing; the location is superior and we have dropped our pantaloons. Nonetheless, Mr. Market told me I was nuts. He said, “Until you price that product to my liking, you’ll need to continue your rehab!” Dang him. “Hello; my name is Tim and I own overvalued real estate.” Repeat after me; Dang, that reminds me of Dr. Kochtu, who used to yell, “You crazy Bastards!”

I’ve continuously tried to outsmart Mr. Market, but as usual, I can’t. He’s way too clever. He keeps beating on me, “Unless you lower prices; unless you lower prices; unless you lower prices, I won’t release any fish into the stream. I won’t allow any rational buyer’s come-out of hiding.” “Hello ‘o. Where are yooo?” “I am hiding . . in the front hall closet!” Darn old, mean, Mr. Market.

Matt (our home-run UCCS intern) has been trend-lining the prices of office & industrial buildings for sale in Colorado Springs since July. He says the trend in both cases, is down. A couple of contractor friends of mine told me, because there’s no significant work in-the-pipeline, that the winter season is looking grey, cloudy & cold. They’ll likely drop a significant number of employees from their rosters.

So, for validation, I went to see Henry Yankowski & Bob Gorker at the Regional Building department (www.pprbd.org), and while I was impressed with them and their organizational efficiency, I was concerned by the figures shown on their web site. They really do indicate a low-level of new construction in the pipeline. Here’s a corollary, “low levels of construction = a non-recovering economy.” Mr. Market told me that when we get new jobs, we’ll create a demand for commercial real estate. Until then, hang-onto your hats, “thar’s a strong wind-a-blowin!” And I’m sorry Fred, your statistics notwithstanding, I don’t see a turn-around until 2011.

And that leads to non-existent land sales. No new jobs means, “no demand”; no demand means “no new development”; no new development means “no construction”; no construction means “no land sales.” It’s a vicious cycle, but that’s how it works.

Want real life? I have a friend with one of the premier tracts of land for sale along I-25. It’s at Monument Hill. It’s the southeast corner. It’s 30 acres; relatively flat; easily developed and is pre-approved by the county for commercial & residential. Mr. Market said it’s (most likely) a long-term, patient-money deal. It’s for sale - only $1.68 psf ($2,200,000). Last week, I advised my friend that it’ll likely sell for significantly less. The best comp is the recently closed sale of the 25-acre dog-track property for $1.38 psf. The Monument site is a Class A parcel located ½ way between the 2 largest metropolitan areas in the state and so far, we can’t give it away. So, ask me again, “How’re we doing?”

To add a little insult to injury, Bridgewater Associates reports in their August 28th newsletter,

“In our tracking of the imbedded losses in the financial system, it has been clear that the losses on commercial real estate are likely to be very big, and that they will be the last to hit.

We are now beginning to experience the tip of the iceberg of these losses, providing an early window into how this interesting game might play out. At the headline level, there are $2.5 trillion in commercial real estate loans outstanding, with more than $1.0 trillion coming due in the next 3 years.

The average loan outstanding has a loan-to-value of 100% versus 65%-70% at origination, and our expected losses on those loans are about $700 billion through the cycle.”

Banks hold 52% of the bad loans. In the best case, borrowers will have to show up with 30% - 35% in new equity to stay in-the-game. So, are you having trouble understanding why your bank won’t make that commercial real estate loan? According to Mr. Market, you’re overpriced. If you’d like a copy of the entire article, shoot an e-mail to Tim@HoffLeigh.com.

To end on a positive note, and please realize, that as gloomy as I sound, I’m a really a bold optimist; don’t forget, we live in Colorado Springs; we’ve got a view of Pikes Peak; we’re hard working, and mostly, we have “hot” wives or husbands and our kids are smart. There’s abundant opportunity for entrepreneurs & opportunists with cash and/or ability.

Here fishy, fishy. Here fishy, fishy. It’s never as bad as they say; I guarantee that it’s not the end of the earth; 2012 will come and go and the Mayans will be proven wrong.

Have a profitable week and as always, if I can help you with any aspect of your real estate portfolio; leasing, sales or management, let me know: 719-630-2277 or Tim@HoffLeigh.com

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