The Outlook on Local Real Estate
Optimism and confidence are up but a few concerns linger
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The Real Deals
But for now, there are genuine values to be found. “If you can qualify for credit, building prices are low—a bargain compared to three to five years ago,” says George.
Interestingly, rates are historically low and regulations are less stringent for Small Business Administration (SBA) loans. “It seems they’re almost the same as standard commercial loans, with lots of documents and questions to answer,” George says. “If you can’t afford 20 percent down, you can qualify for 10 percent down on SBA loans. It’s a good thing that government is funding more money through the SBA.”
In terms of leasing, people can find deals in commitment, says Schwartz. “We can do a lot more for a client who will sign a five-year lease than someone who will sign on for 12 months.”
And Cresa has seen a flight to Class A office space at competitive rates, reports TJ Blitz, managing principal. “There’s also a surplus of office furniture that allows for plug-and-play opportunities where a tenant can move into a space with very little out of pocket expenses.
“The Class B and C office space market is still very soft, with significant vacancies, allowing for very aggressive rental terms,” he continues. “In all office product types we’ve been able to help our clients obtain aggressive rental concessions of free rent, generous tenant improvement packages and low escalation rates.”
Hagen is seeing a slight disconnect between buyers and sellers on the commercial side. “There aren’t as many transactions among existing properties as we’d expect,” he says. “People are holding on to apartment buildings, for instance. A lot of buyers think everything is on sale right now, but sellers may not be willing to bring the price down to what the buyer is looking for.”
Many home buyers and real estate investors have found bank-owned property, short sales, foreclosures and auctions to be good places to find distressed properties. “And they’re selling for well-below-market prices, Machotka says.
Lakefront homes have been particularly hard hit by the bargain bonanza. “It’s a lifestyle choice many people are choosing not to pay for,” Sprinkman says. “The price points and property taxes are higher and it’s more expensive to live there. But for people who appreciate the lifestyle there are some phenomenal values.”
There are distressed owners and properties in financial difficulties across both the commercial and residential markets,” says Jesse. “There are real values if you’re a buyer with access to credit.”
Sara Investment, with more liquidity than good deals in the pipeline, invests in bank-owned properties. “Sellers of commercial investment properties are a lot less motivated for a variety of reasons,” says Schwartz. “People want to hold on to cash-flowing properties. Or they may be waiting for property values to rebound to avoid selling at a loss. Or they may be using cash flows from a performing property to offset struggling properties.
“For these reasons, banks are offering the best deals out there,” he continues. “They’re motivated to get foreclosed properties off their books, and the favorable interest rates help the cash flows on investment properties. Four out of the last five purchases we’ve made have been from banks and they’re all providing solid returns to investors.”
Although, notes Cegelski, compared to other regions there aren’t a lot of distressed property sales in Dane County. “We came through the recession better than most of the country,” he says.
At Your Service
Our experts have each honed their unique strategies for assisting consumers and businesses with their real estate needs. First Business Bank is actively looking for new clients.
“We’re open for business,” says Hagen. “We work with a lot of existing businesses and also lend to new commercial real estate clients. As projects come in and go through underwriting, we may see things we have questions about, and we sit down with the businesspeople and talk through it, so they can see how we underwrite projects and structure their plans accordingly. Relationships are key.”
Johnson Bank has recently provided acquisition, construction and expansion financing to customers. “We help people take advantage of market opportunities and our lending continues to surpass expectations,” Cegelski marvels. “In 2011 we surpassed $1 billion-plus in closed mortgage loans for the second year in a row. About 70 percent of them were refinances that helped customers reduce their interest rates and monthly payments.”
He’s glad to see new home construction and purchase activity in 2012. “Johnson Bank is a privately held Wisconsin business,” he says. “We understand owning and running a family business and we make decisions with customers’ best interests in mind. We want to see the city grow and support customers through growth and business succession.”
Inland Companies is working with several banks on foreclosed properties. “Our level of tenant representation has never been higher,” says Herl. “They’re looking at properties they never thought they’d have access to. Landlords have to make serious concessions to get people to stay and sales of troubled properties are still high. Rather than investment sales, we’re assisting mainly cash buyers waiting for troubled properties.”
Murphy Desmond is involved in all aspects of real estate markets. “We represent buyers, sellers, landlords, tenants and banks. Our attorneys also work with debtors and creditors on bankruptcy and workout scenarios,” Jesse explains. “Many transactions these days involve either a distressed seller or bank-owned property, and there are fewer ‘typical’ transactions with just a buyer and a seller involved.”
Lee & Associates, too, spans the market spectrum. “We do our best to match qualified buyers with lending sources, whether it’s an SBA or a traditional loan, along with tax credits and other sources of funds that can help facilitate purchases,” says George. “On the leasing side we use the benefit of the market to represent tenants—where three places might have fit your needs in past years now there are six or seven. Tenants have the luxury of being more aggressive in negotiations.
“In working with landlords, we help them understand where their properties fit in the market,” he adds. “We do enough leasing and sales that we can educate tenants, landlords, sellers and buyers. Some prospective tenants want to go out and ask for the moon, and we can help them reach good, realistic deals. Our strength is that we can provide a tremendous amount of data so people can make very educated decisions.”
Cresa takes a different approach, representing only tenants. “We’re conflict-free,” declares Rikkers. “Much like an attorney only represents one party in a transaction, we believe representing both sides is a conflict of interest.”
Cresa strives to remind clients that their tenancy is a valuable commodity, one that can be leveraged to their advantage. “To be sure, there’s an art to this process, but a good real estate professional—provided they’re operating from a conflict-free position—can create an environment where landlords
compete for a tenant’s business and where, ultimately, the tenant can make a fully informed, fully quantifiable business decision regarding their space needs,” Apter adds.
Sara Investment prides itself on being accommodating when it comes to getting people into its space. “If they’re willing to pay market rent and sign on for a few years, we can offer some very attractive incentives in terms of tenant improvement allowance, build-out, signage and even free rent,” says Schwartz. “We can also provide loans to clients unable to obtain financing from a bank. Then we amortize the loan over the initial term of the lease so they pay it along with their rent every month. I encourage my brokerage department to get really creative with leasing because each deal is different.”
Dines Inc. demonstrates the strength of the downtown market to potential customers. “We spend a lot of time working through analysis and statistics to better inform our buyers and sellers,” Dines says. “We hope 2012 is as good as 2011—our dollar sales were up 86 percent last year versus the prior year—and though it’s early, we’re seeing very positive momentum again this year.”
The Sprinkman Real Estate Team knows it’s vitally important, especially for relocating buyers, to evaluate their lifestyles. The team specializes in helping them do so. “We listen to what they enjoy and find the right community for them,” says Sprinkman.
“Also, our website is very community oriented. You can visit it and find out about neighborhoods as well as houses,” she continues. “It’s important to learn about a community before selecting a house. We’ve worked very hard to make our marketing and our website great resources for buyers, or for homeowners looking for a roofer or another service provider. It’s a one- stop-shop.”
Spancrete’s customers are mostly general contractors and Krell serves the area west of Waukesha, including greater Madison. “We design and manufacture our product to ensure we’re using materials in the most efficient way possible,” he says. “We’re seeing efficiency play more of a role in decisions to move forward with projects. Owners want reassurance that they’re getting the most value for their investment, so we assemble the right resources in the infancy of projects to give owners the confidence to move forward. We’ve also driven out waste in our internal processes to benefit owners.”
This year has started similarly to 2011, Krell indicates. “Things have improved, but we’re seeing more optimism and expect an uptick toward the second half of the year. There’s more confidence and less uncertainty in the market.”