Big supply, no demand: Vacant land returning to market

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A growing number of platted and undeveloped vacant tracts of land in the Pikes Peak region, originally scheduled for residential and commercial building, are returning to lenders.

The numbers are surprising even to veteran brokers, now charged with listing and selling foreclosed properties for banks and lending institutions.

Grubb & Ellis Quantum Commercial Group managing broker Dale Stamp had just returned from “a morning full of meetings with banks” when the CSBJ caught up with him.

“We’re spending a lot of time with banks that had funded vacant land primarily for residential development — mostly in north and east Colorado Springs,” he said, adding that so far, his company “hadn’t seen a huge problem with larger commercial properties.”

“Right now anyone that has to sell could take a bath,” he said. “There’s just no market for large tracts of vacant land.”

That said, Stamp confirmed that some “incremental” residential lots are selling, mostly to smaller local builders who continue to build a few homes in affordable neighborhoods. “Fortunately banks are still willing to lend on those — unlike the standstill in financing for commercial property,” he said.

American National Bank Regional President Bill Berenz was not surprised at Stamp’s assessment and pointed to the relationship between the Bamberger Research Co.’s latest report about single-family lots inventories and building permits issued.

“It’s true. Just look at the statistics from a few years ago and today,” he said. “In 2005 and 2006, the supply of lots was relatively small because of the record number of permits generated. In first quarter 2006, for example, we had a 12-month supply of lots. Today, it’s an 81-month supply.”

There were 4,881 platted lot permits recorded during the first quarter of 2006, compared to 6,282 lots during a  tougher third quarter 2009 market.

As a result, developers and investors who counted on the boom times to continue are now facing overwhelming carrying costs, especially on improved land which is taxed at a much higher rate than unimproved property.

Some who invested heavily in infrastructure two or three years ago felt they had to continue, even though demand had stalled.

“When starts are down as low as they are and subdivisions were in development, it just added to the inventory,” he said.

Both Berenz and Stamp acknowledged that even incremental lot sales provide a sign of more positive days ahead.

“Fortunately we’re still growing — many cities aren’t. And we have some local builders who are buying lots in small quantities,” Stamp said. “We’ve got a number of things going for us — and we will recover because of our large military presence and organizations like UCCS helping us develop a vision for the longer economic haul.”

Commercial sectors take hit

The term “special servicing” is used to describe property that has gone back to the lender to rework terms with the borrower, or to be sold following foreclosure.

A third quarter snapshot from and analysts at Realpoint showed which commercial real estate categories are already in the midst of workouts and bank-owned real estate action so far this year.

About $4.5 billion of securitized commercial mortgages were transferred to special servicing last month, according to Realpoint.

That increases the number of loans in special servicing to 3,428, with a balance of $58.3 billion, or 8.08 percent of the entire commercial mortgage-backed-securities universe.

The numbers are growing on a daily basis and were listed by category in CRE News and posted on last week.

Property Type #Loans Balance $million
Retail 1,153 19,925.49
Multifamily 912 11,582.04
Office 653 9,690.59
Other 211 8,644.10
Hotel 297 6,960.65
Industrial 187 1,289.85
Healthcare 15 178.86
Source: Realpoint

“The tie that binds many of the loans is overly optimistic underwriting,” the report said, adding that billions of dollars of CMBS are still being added to the list each week.

So far, Colorado Springs commercial real estate accounts for little, if any, of these totals, Stamp said.

“There’s a little in each of those categories,” he said. “Vacant land designed for single family development is by far the largest commodity in our area.”

Million dollar industrial sale

Mattlyn LLC has purchased an industrial facility at 3725 Interpark Drive for $1 million. The 16,000-square-foot building, constructed during 2001, includes a 1.8-acre lot.

The seller, Michael Underwood, and the buyer were represented by Charley Conrad of Olive Real Estate Group.

The building will be occupied under a long-term arrangement by Optimum Filter, a locally based company that is involved in the design and manufacturing of custom filter housings and other specialty stainless products, Conrad said.

The manufacturer will consolidate operations in the building, which provides plenty of room for growth.

UMB building adds tenants

D. Deerman Ltd., an oil and gas company, and Advanced Systems Group have leased office space in the UMB Bank building at 101 N. Cascade Ave.

Andrew Oyler and Russell Stroud of Grubb & Ellis Quantum Commercial Group represented the landlord, 101 N. Cascade LLLP, on the 3,299-square foot top-floor Deerman lease.

Lucas Hayes of Equis Commercial Real Estate represented the tenant.

Oyler and Stroud also represented the landlord and Advanced System Group on a 1,500-square-foot lease in the same building.

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