Repositioning of former PetCo building under way

The former PetCo building at 5720 N. Academy Blvd. is undergoing a repositioning analysis.

The former PetCo building at 5720 N. Academy Blvd. is undergoing a repositioning analysis.

Increased retail closings or lease defaults have spurred repositioning efforts and marketing creativity on the part of some building owners.

A former PetCo store at 5720 N. Academy Blvd in the Berkshire Center, for example, was purchased during 1993 by a Pebble Beach, Calif., investor for $775,000. The pet supply company’s 12,558-square-foot lease ran out earlier this year and seasonal tenant, Spirit Halloween, leased the space through the second week during November.

Once the temporary tenant leaves, however, the building’s future is unclear, said co-listing broker Jim Spittler of NAI Highland Commercial Group.

“Because of the way it’s built, it’s designed to be a single tenant destination retail building,” he said. “We may have to find a new, an entirely different market from its past use as a pet store and an appliance store before that. Neither is viable now. Pet stores have all landed, so have appliance stores; so it’s time to get creative and find a new user.”

He pointed to the impact a repositioning project under way on Garden of the Gods could have on surrounding business.

“It’s good news, for example, that Chick Fil-A is getting close to opening where the old Hungry Farmer restaurant was,” Spittler said. “They’re one of the premier fast-food brands now. That’s a classic repositioning — one that potentially could revitalize a segment of that corridor.”

Group commercial portfolio manager Suzan Parra and assistant manager Taryn Nelson will develop a proposal for remodeling, tenant finish, utility consumption, security and other items designed to increase return on investment.

Quarterly highlights

October always brings wrap-up reports from all sectors. Here are a few highlights from the CSBJ real estate desk:

National Prequin research on private real estate investment

The amount of capital raised by private-equity real estate investment funds designated for U.S. property has dropped by 92 percent since the third quarter of 2008.

Property-focused funds added $1.9 billion during Q3, according to Prequin, a research firm. That was in stark contrast to $24.1 billion raised during the same period a year ago.

Third quarter equity raised was 49 percent less than the $3.7 billion raised during the previous quarter. Perhaps an even clearer picture comes from commercial equity deals closed.

Through September 2008, there were 30 fund closings; a year later, that number was down to five. Commercial financing has definitely “taken a haircut,” for now anyway.

Third quarter Colorado Springs Apartment Rent and Vacancy Survey

The following results were just published by Apartment Insights and sent along by multifamily broker Doug Carter of Doug Carter LLC.

“The 7.8 percent citywide average vacancy represents a 0.7 percent improvement compared to the 8.5 rate this summer and 9.9 percent average vacancy the prior quarter.

Compared to the past six months, the latest figures equate to more than a 2 percent improvement — and the lowest citywide vacancy during the past 13 years,” Carter said, adding that the most recent market vacancy peak was a citywide average vacancy of 14 percent that occurred during 2003.

The report is a collaborative research effort by Real Data of Phoenix, Apartment Appraisers and Consultants of Denver and Doug Carter LLC of Colorado Springs.

Loopnet commercial real estate transactions survey

In response to a third quarter Loopnet.com poll of commercial real estate brokers, 31 percent of more than 1,200 respondents said they believed it would take more than two years for the number of commercial real estate transactions to return to second quarter 2009 levels.

Another third said market values will slip by 11 points, to 20 percent, before beginning to rebound. Multifamily properties are expected to present the best long-term investment opportunities during the current cycle. And perhaps most sobering, a whopping 56 percent of those polled had no plans to invest in commercial real estate during the next 12 months.

ERA Shields local report

Real Estate broker Eddie Hurt sent along the company’s Stat Pack which covers market trends through Sept. 10.

Among the company’s key observations was news that some neighborhoods are starting to see home price appreciation. “Buying leverage for all buyers is strong,” they wrote, adding that sellers who can differentiate their homes from the pack have a better chance of selling. They emphasize, not surprisingly, that “now is the time to buy.”

On the flip side, high unemployment depressed the buyer pool — and some areas have not seen appreciation (think north and north central Colorado Springs and Tri-Lakes as well as some older west side neighborhoods).

“Poor market conditions elsewhere in the country have also hit relocation traffic hard,” Hurt said. The end of the first-time buyer $8,000 tax credit is Nov. 30, unless Congress extends the deadline — a powerful threat to a recovering market.”

“About 40 percent of all transactions nationwide are first-time buyers. That number is slightly higher in ‘younger’ Colorado,” the report said. “A lack of down-payment cash on hand for conventional or FHA-approved home sales has been a deterrent to closing. While the average MLS sold price comes in at 97.5 percent of the asking price — a respectable ratio — don’t be fooled. … The hidden story there is that the sold price really wasn’t the sold price. The average $225,000 home seller paid $2,500 in closing costs on behalf of the buyer, which is another 1 percent hit. And that $225,000 home might have been listed for $230,000 when it got a contract.”

Commercial office market

Grubb & Ellis real estate economist Bob Bach took a look at the U.S. commercial office market activity for the third quarter.

He found that the national vacancy rate ended the third quarter at 17.1 percent, up slightly from the second quarter.

In contrast, vacancy during first and second quarters increased more rapidly. The good news: the lower growth in vacancies suggests some moderation in the market.

In related news:

Third-quarter net absorption up and down

The amount of available square feet leased totaled a negative 11.3 million square feet, an improvement compared to the first and second quarters, when tenants vacated a combined 37.6 million square feet.

“Absorption was positive in 20 of 67 markets, led by Baltimore with 686,000 square feet. Pittsburgh, Austin and San Antonio also ranked near the top, suggesting some resilience in the Mid-Atlantic and central Texas regions. Seattle, Chicago and Boston saw occupied space empty by 1 million square feet or more,” Bach wrote.

Sublease space

Another 10.5 million square feet of sublease space came onto the national market during the third quarter. The total for the year is 124 million square feet, not far from the peak of 146 million square feet that hit the market during 2002.

Rent rates

Asking rental rates were down slightly for the third quarter, with Class A and B rates off by 1.9 percent and 1.3 percent, respectively. For the year, Class A and B rates were off by 4.3 percent and 3.7 percent — and Bach said evidence showed that the pace of decline was accelerating.

Year-to-date effective rates, which include periods of free rent and above-standard tenant improvement allowances, are off by 15 percent compared with 2008.

New construction

This category ended the quarter at 45.6 million square feet, its lowest level in more than four years.

More concerning, Bach said, is that the new project pipeline is expected to empty for several more quarters as existing construction projects are finished and new starts are rare.

Summary

“For a sustained office market recovery, employers must start adding jobs — and it won’t be easy. Most economists think that hiring will be sluggish for several more months and possibly years,” he said, adding that industry analysts at IHS Global Insight predict the total number of jobs in the U.S. will not return to pre-recession levels until 2013. “That implies that the office vacancy rate will not return to equilibrium until perhaps 2014.”

Becky Hurley covers real estate for the Colorado Springs Business Journal.