Presents

Commercial Real Estate

A special Commercial Real Estate Section spotlights the industry and three of the "Players" who are working hard to empower our commercial real estate market.

Of ce | Retail | Industrial | Multi-Family Dwellings

COMMERCIAL REAL ESTATE

Spotlight on the Best

Commercial Real Estate: A Market Rebounding

by J. Rentilly
LTHOUGH THE PAST decades graphs of the commercial real estate market performance in the Phoenix area closely resemble the elastic and wildly extreme trajectory of a bungee-cord adventure, a recent report from W. P. Carey School of Business at Arizona State University nds the extremes are likely over and suggests the region is in the early stages of recovery. That recovery is not going to happen overnight, though, says Karl Guntermann, Fred E. Taylor Professor of Real Estate at ASU and author of the new report. Its going to take years, not months, but the worst appears to be behind us. This is going to be a slow crawl to normalcy. For many, the worst was bad really bad. After a peak positive rate of change of 28 percent in the third quarter of 2006, the Phoenix area commercial real estate market comprised of industrial and of ce space, retail, storefronts and apartment buildings nosedived to an annual negative rate of 40 percent by the end of 2009. But 2010, Guntermann says, was basically a at year

no growth, no loss. And, although of ce vacancy rates are still above 20 percent in the area, retail vacancy remains more than 11 percent and industrial real estate vacancies are the highest in America, according to Blue Chip Economic Forecast, also issued by ASU, Guntermann says the rst quarter of 2011 suggests an annual rate bounce back of 13 percent on the 68 percent loss. Much of that growth is in the apartment or multi-family dwelling sector, which has seen double-digit growth over the past two quarters, primarily because Phoenixs residential housing market has been so hard hit by foreclosures. More than 60 percent of Aprils residential transactions were on foreclosed properties. Many of those displaced homeowners are migrating to apartment buildings. With demand slowly inching toward supply in that sector, some investors are beginning to snatch up those properties, and at deeply discounted rates. Once attracted to residential properties for ip or rent, big investors, those able to hold static portfolios for ve years or more, are intrigued by return potential on quality

commercial properties now available for 50 to 60 cents on the dollar pre-housingbubble, 2004 price levels, Guntermann says. Theyre seeing the potential. For a more substantial, wider-ranging recovery for commercial real estate to occur, Guntermann says the Phoenix regions overall economy must rebound from its harrowing four-year decline. When an economy grows, unemployment rates drop, property prices rise, consumer spending moves upward, businesses expand or begin and developers launch new projects. For more than one year, commercial development in the Phoenix area has been, essentially, frozen, although a recent federal report revealed that Phoenix added 10,400 retail-sector jobs in 2010, well ahead of most major markets surveyed. Guntermann believes these small wonders are signs of an

Tenants Can Weather the Commercial Foreclosure Storm

Foreclosures in the commercial market have been heating up lately, although generally avoiding the emotion-tinged headlines of its residential counterpart and, reassuringly for business, generally not disrupting tenants office, retail or industrial operations. Even the Viad Building, a high-profile landmark in Phoenixs Central business district, was caught in this toll having a Notice of Trustees Sale recorded in 2010 and, ultimately, sold out of receivership in mid-May of this year. Questions about the legality of the receivership process have emerged. The process begins when a property is being foreclosed on and the lender asks the court to appoint a receiver to manage and sell the property, but the debate now is whether, by appointing a receiver, the court is circumventing the 91-day foreclosure period that the property owner can use as his final chance to restore his loan to good standing. There is nothing in either case law or statute that specifically gives the court the right to order a sale of property in receivership. In a growing number of cases, the defaulting property owner is ceding to his lender a deed in lieu of foreclosure, avoiding having a foreclosure on his record by preemptively giving the property to the lender. Not all lenders, however, are eager to take this type of deed because it would carry any intervening loans that the property owner may have taken on, whereas a foreclosed property would come free and clear of such additional debt. Tenants in these situations are often protected from the ownership upheaval, thanks to a non-disturbance and attornment agreement that guarantees the continuation of their lease and directs them to pay the lender instead of the owner, or the new owner instead of the old one. Such an agreement may be part of a deed of trust or a subordination agreement (often required by a new lender who enters the picture after the lease is in place, to put his rights in higher priority than those of the lessee, as priority would otherwise follow a date of recording sequence). While lenders are, for the most part, loathe to vacate tenants and lose that income, such jeopardy does exist for lessees who do not have a non-disturbance agreement in place. RaeAnne Marsh

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Recovery will gain traction over a few years, not months, says Guntermann, with many experts checking 2014 as a year of good cheer.
imminent, though incremental, move toward normalcy. He also nds good news in the corporate earnings forecasts of Phoenixbased businesses, which he tracks on Bloomberg Arizona. Traditionally, a companys earnings forecasts link quite directly with the quantity of commercial real estate theyll need, and the numbers for many major corporations in the area look good, he says. In the interim, Guntermann encourages investors to take advantage of the rockbottom prices available for many commercial real estate properties, noting that the small rise in sales hes reported means supply and demand will eventually balance. Vacancy levels will go down, rents will go up, but, because commercial construction has been at a virtual standstill for almost two years, there wont be new supply in the pipeline, he says. Recovery will gain traction over a few years, not months, says Guntermann, with many experts checking 2014 as a year of good cheer. As the areas overall economy regains some spark, businesses open and expand and demand for commercial properties increases, developers of new properties will pick up blueprints and nails again, too a case study in the interconnectedness of all things.
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For now, Guntermann whose nationally recognized report is compiled from sources like CoStar Group, Real Capital Analytics and IonDataExpress, and compares prices of a single property against itself at different points in time instead of comparing different properties with different quality factors suggests investors who can afford to hold property in a market only very slowly recovering would do well to buy commercial properties. When the market turns around, it will take two to three years for new projects to go through the approval-and-construction process, he says. So properties bought at todays prices should be Rd good investments. ek Cre
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COMMERCIAL REAL ESTATE

Spotlight on the Best

GPE Commercial Advisors

GPE COMPANIES IS a privately held, thirdparty real estate company serving a range of clients, from private individual investors to publicly traded corporations to international investment groups. GPE does not develop or own properties, in order to avoid con icts of interest, and focuses 100% of its efforts on exceeding client expectations. Now in its fth decade, GPE is a leader in Arizonas commercial real estate market. Offering services for all property types, including of ce, retail, ex/industrial, dental and land, GPE has facilitated acquisitions, sales and leasing transactions exceeding $1.25 billion in real estate value. In addition, they have a division specializing in all areas of healthcare real estate. GPE Commercial Advisors and its property management and construction supervision company, GPE Management Services, collectively represent more than 10 million square feet of commercial space in the Phoenix Metro area. The name GPE has earned an enviable reputation of providing expert knowledge, research and resources to their national and international clients. GPEs commitment to exceptional service and creative marketing strategies solidi es its position in the Phoenix market and beyond in successfully forging close and lasting relationships with its clients. Both divisions of GPE continue to experience growth with the addition of several high-pro le commercial real estate brokers, property managers and support

staff to their teams. GPEs goal is to continue to assemble the top commercial real estate professionals in the Valley who hold the same high level of expertise and commitment to their clients success. 2011 Ranking Arizona ranks GPE Commercial Advisors as the Valleys #1 commercial real estate company in the category of 23 brokers or fewer and GPE Management Services among the top ten property management companies. GPE has also been named a Top Leasing Firm by CoStar Power Broker Awards, and one of the Valleys Best Places to Work by Phoenix Business Journal.

Pro le
Company Name: GPE Companies Main Office Address: 7201 E. Camelback Road, Suite 250 Scottsdale, AZ 85251 Phone: (480) 944-8155 Website: www.gpe1.com Number of Offices in Metro Phoenix: 1 Number of Commercial Agents: 26 City Nationally Headquartered: Scottsdale, AZ CEO / Managing Director: David M. Genovese, P.C. No. of Years with Firm: 27 Year Est. Locally: 1973 Specialties: Sales, Leasing and Property Management of Office, Retail, Flex/Industrial, Medical, Dental, Land, and REO

FINANCIAL:
Property Sold in 2010 Value: $19.6M Square Footage: 164,298 Property Leased in 2010 Value: $30.4M Square Footage: 330,455 No. of Commercial Transactions Closed in 2010: 187

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