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Opportunities arise in distressed commercial market

Commercial real estate has begun to spin through its own recessionary spiral.
As a result, a new category – distressed commercial real estate – has become an increasingly attractive commodity to some investors.
Like other areas of the country, the Pikes Peak region has attracted motivated buyers from real estate investment trusts, targeted bond funds and private investors – all lining up to finance or buy property at a discount.
Downward price pressure is affecting Colorado Springs commercial real estate owners and landlords.
In his second quarter market report, Palmer McAllister/Cushman Wakefield broker Peter Scoville cited an office vacancy rate of more than 31 percent in the city’s three primary submarkets — North Interstate 25, the central business district and Airport/Southeast.
“The Colorado Springs Class A office market is comprised of approximately 9.5 million square feet,” he wrote. “Market conditions, which began to soften in mid-2008, continued to deteriorate further through the second quarter of 2009. Lease rates, which had not been adversely affected in previous quarters, are now starting to reflect a downward trend as owners vie for a limited number of prospects to fill the growing number of vacancies.”
The upshot for investors: as space opens, cash flow declines — leaving owners who face a loan refinance in a precarious position.  Banks will ask for a new cash infusion based on lower occupancies and recessionary lower appraised values — and few owners can meet the new requirements.