Are better market days coming soon

February 26, 2010
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What is bad news for some may be good news for others, and that may mean better days are just over the horizon for the commercial real estate investment market.

Colin Kraay, a vice president with Grubb & Ellis|Paramount Commerce and a member of the firm’s investment group, has seen market activity pick up the past few months. He said his team has recently been involved with six sales transactions that totaled nearly $7 million.

The most promising deal was The Hinman Co.’s purchase of the Horizon Office Park. The office park has six buildings totaling 182,000 square feet and sits near 28th Street and Cascade Road. The asking price was $5.4 million. Horizon Office park has 20 tenants and is 50 percent occupied.

“It’s not an insignificant park. It’s got significant frontage along I-96 in Cascade. There are three or four buildings that are visible from the highway. So it’s kind of an interesting and unique project, in the regard that six buildings are 30,000 square feet apiece and were sold at one time,” said Kraay.

“The buyers are going to be coming in and breathing new life into the park, which is kind of in need of it. It needs somebody to come in and bring success to it,” he added.

Kraay said the transaction represented a pretty typical deal in the market, in that a bank-owned piece of real estate, which had suffered from occupancy challenges and a lack of capital investment, was bought by a local West Michigan investment group.

The Hinman Co., based in Portage, has an office in Grand Rapids. The firm already owns three office structures in Centennial Park, along with the Glenwood Hills office building, and all are near the Horizon Office Park.

Kraay said just those holdings alone serve as proof that The Hinman Co. has invested heavily in the office market here, and the firm’s latest acquisition expands its presence nicely. It also set the pattern for the type of acquisitions that could dominate the market this year.

“There are two sides to every story. The negative is that the building is a distressed asset. The positive is you’ve got investors that are willing to take a chance in this marketplace and, frankly, could hopefully achieve a pretty great return for their portfolio and also breathe new economic life into a park,” he said of the transaction.

As values have fallen throughout the county and foreclosures have occurred, the asking prices for properties have dropped. The total value of all commercial buildings in Kent County is expected to drop by slightly more than 3 percent this year, or $123.4 million. So prices are likely to continue downward once all the assessments become official in April.

“We’re in a marketplace right now that is kinder to buyers than to sellers — no doubt about that right now. But over the last 90 days, our investment team here has closed on at least six transactions. We’ve got four or five more pending, and these are all new investments — a lot of local investors getting ready to step back into the marketplace,” said Kraay.

The market can use those investments: Sales volume has been down the past two years from the activity recorded in 2007, a slide that also happened nationally. Real Capital Analysts reported that total investments fell from $426 billion nationwide in 2007 to $31 billion in 2009. Tight credit, the recession and a shaky financial market held transactions down last year.

But GE|PC predicted at its January economic forecast breakfast that more deals would happen this year because investors are more likely to be better capitalized and more willing to take advantage of the market’s glaring weakness.

“Our forecast speaks to the fact that pricing is just starting now to come around, and people are feeling good enough about the economy that they’re ready to pull the trigger and start making some investments in the market,” said Kraay.

“The reason there are opportunities out there is (that) there are distressed sellers; there are banks that need to get rid of properties. But that creates opportunities for well-capitalized investors who can take advantage of the current marketplace, and that is definitely a trend that we are going to see continue throughout the year.”

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