April 9, 2010

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
April 9, 2010

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All Market Average Office Building Sale Price PSF = $101.72 (DOWN 0.73 from last week)
We are currently tracking 86 office buildings for sale.
This is 797,887 square feet, which represents a total market value of $81,158,314.

All Market Average Industrial Building Sale Price PSF = $98.44 (DOWN 1.44 from last week)
We are currently tracking 71 industrial buildings for sale.
This is 860,125 square feet, which represents a total market value of $84,671,156.

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http://hoffleigh.com/Doc/Tim%20Leigh.pdf

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Tim’s Market Report

The following is an excerpt from a letter that I wrote last week. After I wrote it, I thought this information could be instructive to the market and if you follow the math, you can see where our current, Class B office-building sale market is, and where I believe it’s headed. Remember, don’t shoot the messenger; I’m merely reporting facts as they lay themselves before me.

“The average office building for sale (in the market today) is listed at $101.72 per square foot (psf). Your building’s 10,963 square feet, ergo, at the average, your building should be listed for $1,115,156.36. It’s not; your building’s listed for $1,325,000. And in normal times, you’d be OK. Somebody would make an offer, because you weren’t out of range.

However, The Tax Assessor says your building’s worth about $42.22 psf ($465,000 - in rough numbers). The Assessor’s market valuations come from “sold-property-comps” which are the benchmark that the whining, Mr. Market demands before a property actually sells. (A few years ago, we used to lampoon The Assessor and say his valuations were about 25% - 50% under the market; now we say he’s pretty wily. Hmm. . . And a few years ago, I had a full shock of dark-brown-hair!) My, my, o’my, how things have changed!

The reality is, investment buildings are worth a multiple of their net income; period. Your building’s net income is $44,000 (and that presumes no debt) which means your building’s worth about $440,000 (which interestingly enough, is similar to The Assessor’s value). I’m sure you paid more than that, so I’m sure this is terrible news; but it’s Mr. Market’s reality.

And, while this won’t likely make you feel better, realize “you are not alone”. Here’s a direct comp & validation of the free-fall in pricing we’re experiencing in the Class B office building market; 6208 Lehman Drive; a 3 story office building near the corner of Lehman & Academy; the Sellers paid $2,050,000 in April 2002 – (8 years ago) and Hoff & Leigh has had the property reasonably listed for sale for over 2 years for $1,900,000. That’s all reasonable in normal times. Heck, in normal times, somebody would make an offer because the pricing was not out-of-range.

Then there was this meeting. I think it was at The Julie Penrose Fountain because all I remember was this very cold water splashing my face. No, wait - it was with some Bankers who provided the building’s current appraisal for me to analyze. Yea, that’s right. It was the bankers who were carrying that darn pail. The new appraised value? $795,000. And no, that’s not a misprint.

The new appraised value is $32.72 psf. That’s a loss in value of $1,255,000! That’s a loss in property tax collection of $21,500! OK, think with me just a bit. If you’re planning a city-wide budget and you see this startling diminution of value in 1 building; then another and another and another, well, you get the idea. Houston – we have a problem! The appraisals author said the Lehman Drive property won’t “stabilize” for at least 5 years and even then, he expects its stabilized value recovery to only 50% of its previous sale price.

All building prices have fallen. They continue to fall and they will fall further. If you don’t have to sell for a few years you might be OK. If you have a bank note coming due, you have a serious problem.”

Folks, “this time it’s different” and these facts require serious thought and attention. It’s been said, and I’ve written, that we have enough vacant commercial space that it will take nearly 25,000 new jobs to fill it. Because of supply & demand dynamics, rents (and attendant building values) have dropped like a dead man tossed from the Golden Gate Bridge, and will continue splat one after another so long as we continue to carry the dead weight of vacancy on our backs. And without serious attention to city-wide ED (no Bob, that’s Economic Development), we will continue to carry that weight.

FROM THE CAMPAIGN (aka, “The Life & Times of Tim”)

Over the past couple of weeks, I’ve met with well-placed people who have independently indicated 2 things that are very troubling to me and should be to you, too; 1) we have a significant gang problem in Colorado Springs that’s becoming worse; and 2) we have a diminished capacity to protect ourselves because we’re laying-off cops because of budget cuts. Ok, will somebody tell me how that makes any sense? This is something we need to fix.

Actually, I was told the ruthless Zeta gang has set-up shop. The Zeta’s are the enforcers for the Mexican drug cartels. They’re a vicious group started by Mexican military “special-forces” deserters. These are the guys that chop-off heads and tie victim’s faces onto soccer balls. They like Colorado Springs because of our location along I-25, (a major drug delivery corridor), and that we have a diminishing police presence. Hmm. . .

And I met with Allen Greenberg – the new editor at the CSBJ. Allen’s come-up with his bullet list for what the next mayor should look like. He says the new mayor should be: 1) Someone who can pull Colorado Springs out its current funk; 2) someone who won’t turn the mayor’s office into a place of ideology; (just fill the pot holes and turn-the-lights back on, please); 3) someone who knows how the government functions – he’s not looking for dilettantes or wannabes; 4) someone who can be trusted to serve the interests of everybody; and 5) someone who can work with the city council in a cooperative, rather than adversarial manner.

He told me that Indianapolis Mayor Hudnut said a Mayor’s job is to conduct the orchestra; that a lot of people are playing different roles and it’s the Mayor’s job to get them playing in harmony. Gee, I wonder if Allen saw my 3 campaign promises; my number 1 promise is to conduct the orchestra; and I wonder if Mayor Hudnut knows how to line-dance?

Up this week; many meet & greet meetings (say that 3 times as fast as you can after a cool glass pinot noir on the back deck); a final water tour; continuing study on the strong vs. not-strong mayor and the city’s budgeting process; just trying to understand how the model-T works and where the bodies are buried.

And I don’t want to end on a low note. In fact, the more folks I meet around the city and the region, the more encouraged I become and the more compelled I am to believe that we can fix what’s broken; we can live-within-our means; we can provide citizens with the protection we demand; fill-the-pot-holes and get the lights turned-back-on.

Sincerely,

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