Friday, December 25, 2009

Denver real estate fares better than most

Denver Business Journal - by Paula Moore

Times were tough for metro Denver commercial and residential real estate businesses in 2009, but not as bad as in many other U.S. cities.

The constricted debt market remained one of the biggest problems for all real estate businesses, including commercial developers and homebuilders. Lenders, partly because of new federal regulations, kept a tight rein on debt financing.

In the residential arena, sales of high-end homes slowed to a trickle this year. But the federal government’s $8,000 first-time homebuyer tax credit did what it was supposed to — stimulating sales of both newly built and existing homes in lower price ranges.

The tax credit and low mortgage rates drove most home sales.

“For Denver’s housing market, 2009 was a year of so many industry changes, from short sales to new loan and appraisal rules,” said Leeann Iacino, president/CEO of Re/Max Professionals: Colorado’s Most Prestigious Real Estate Co. “It was a year for not only the real estate professionals to retool their business, but also for the consumer to really understand all the changes.”

Iacino merged her company, Prestige Real Estate Group LLC, with Re/Max Professionals Inc. in April to survive the housing downturn. “We’ve been profitable since then,” she said.

Looking at commercial real estate, some tenants shopped around for new space, but many opted not to move because of instability in the job market and the economy at large, brokers said.

There were few large sales of office buildings, shopping centers and warehouses, but there was a steady trickle of sales in the $10 million to $20 million range. With property values down, brokers advised property owners not to sell unless they had to.

Many cash buyers sat on the sidelines much of the year, waiting for asking sales prices to hit bottom, but became more active as the year wore on. In what’s likely to be the metro area’s biggest apartment property sale of ’09, CB Richard Ellis Investors LLC — CBRE Investors for short — paid $55 million cash for The Metro apartments near Coors Field in mid-December.

Big sale in Q2

But even in the second quarter, metro Denver managed to have one of the country’s largest office-building sales for the period, when HRPT Properties Trust (NYSE: HRP) of Newton, Mass., bought the 667,000-square-foot Seventeenth Street Plaza high-rise in downtown Denver for $134.3 million.

“Denver is doing less worse than other cities and regions around the country, some of which are almost hopeless,” said Greg Morris, president/CEO of Denver-based Fuller Real Estate. “That’s just not the case in Denver. It all stems back to job growth.”

Morris and other experts believe the first half of 2010 will be challenging for commercial real estate, but that market will stabilize in the second half of the year. Real estate investors are already positioning themselves to make purchases in the new year.

There were still plenty of problem commercial loans and home mortgages this year, but in the latter part of ’09, lenders were more open to loan workouts to avoid foreclosures.

Despite those efforts, Colorado had a record 12,468 home foreclosure filings in the third quarter, according to the Colorado Division of Housing. But the amount of completed residential foreclosures was down 8 percent in the state for ’09’s first three quarters year over year.

More home foreclosures expected

Residential brokers expect more home foreclosures in 2010, partly because many adjustable-rate mortgages (ARMs) will come due in the fall.

The Denver area had relatively few commercial foreclosures this year, exceptions being the 1860 Lincoln office building in downtown Denver and the Ritz Carlton, Denver hotel’s condo component and athletic club space. But a wave of commercial loans are expected to come due next year, which could cause a spike in commercial foreclosures.

“The velocity of troubled loans should be more dramatic in 2010, but I don’t think we’ll see the level of commercial foreclosures some are projecting,” said Mark Lucas, managing director for Chicago-based Jones Lang LaSalle Inc.’s (NYSE: JLL) Denver-area operation. “We’ll see loan workouts continue to be the first preference of lenders.”

JLL’s metro-area office added a dozen brokers this year and beefed up its distressed real estate services. The firm also hired one of the Denver area’s top commercial real estate executives, Ann Sperling, to be COO of the company’s entire Americas division, after Sperling was let go by Catellus Development Group earlier in the year.

Catellus is part of Denver-based ProLogis (NYSE: PLD), one of the world’s largest owners of distribution centers.

ProLogis, after launching a major retrenchment in late 2008 to deal with the challenges of the soft global commercial real estate market, had raised $5.5 billion by fall.

Those funds were used to chip away at the company’s $11 billion debt and return to development mode.

To keep stimulating the housing market, the U.S. Congress extended the first-time homebuyer tax credit in November, and added a $6,500 credit for existing homeowners interested in buying a home. Both credits expire April 30, 2010.

Efforts to refine the complicated short-sale process also were put in place this year, and are expected to continue in ’10. Short sales are those whereby mortgage lenders allow homes to be sold for less than what’s due on their loans to avert foreclosure.

Sales of high-end homes — those priced at $600,000 and more — are expected to tick up slightly in the new year.

Some area homebuilders think the metro-area housing market appears to have hit bottom and is on its way back up. Frank Walker, vice president at Denver-based Oakwood Homes LLC, expects his company to increase metro-area sales 20 percent next year.