Real Estate Investing

From our friend Les Jones is evidence that this could be the time to stop building.  We have an overabundance of housing, strips malls, empty restaurants, and other retail so it’s time to consider just stopping until we fill what’s currently vacant.

Slate magazine gave us this information last year,

And supply is up. This decade’s build­ing frenzy produced a bumper crop of new retail space—from McStrip malls built near new McMansions to hip new bou­tiques in the ground floors of hip new Mi­ami condo buildings. But the occupants for new retail space haven’t ma­terialized.

In my own real estate profession, we are hearing more and more about how agents are converting to a mobile office.  One company, for example, has about a 2,000 square foot office space that’s big enough for hundreds of agents.  Because when they go to work for the company, they are required to invest in a blackberry for all their internet work, faxes, texts, and contacts.

With these opportunities present, perhaps Seeking Alpha is correct in stating we have way too much commercial real estate now available.

We have twice the retail space per person as any other country and most have a fraction - a small fraction - of what we have. And for the government to now be acknowledging that CRE may be a problem is, well, a vast understatement. We will see.

Is it time to stop building and start living?

One of the agents dearest to my heart just walked out the door for his final goodbye as an agent with our company.  He is one of many agents who are flocking to different offices, retiring their licenses, or just going inactive - casualties of the tough real estate market.

In his honor, here’s the Verve with Bittersweet Symphony.

Although our branch of the office has lost several agents these past few months, no one’s departure has really surprised me until now. My friend was pretty entrenched here, but his abilities to work in the commercial end of real estate were quite limited. The company he is moving to offers a special mentoring program for agents looking to get into commercial real estate.While I think that all agents need to now focus more clearly on their business plans, marketing, and how to use the latest technology for the benefit of their buyers and sellers, going into commercial right now may be extra challenging. According to USA Today, the economic downturn has pounded this market.

Contractors, investors and developers are bracing for what could be the worst real estate crunch since the early 1990s, when the industry built a small city’s worth of speculative office buildings that later went begging for tenants. Commercial property sales plunged 73% last year, according to Real Capital Analytics. Vacancy rates are rising, and hundreds of large properties are in default.

I hope for my friend, he’ll be wildly successful. But I have a feeling it’ll be just as challenging at the company next door as it is right here.

The owner of the company where I work in Middle Tennessee came to our meeting this morning and confirmed what we’re all thinking through some real evidence: the market is coming back.

Although he believes it’ll take until the second quarter of 2009, the biggest indicator is in new construction.  In my county, there were 75 more closings in new construction than “starts.”  This means that the building industry may be slowing down enough to get rid of the excessive inventory of new homes.  As demand comes back, then existing homes alongside more manageable new construction will stabilize the market.

Corbet Property Real Estate News agrees with this assessment, using for data the information that was reported in the Wall Street Journal,

Inventory levels are starting to slow with a prediction that when we reach a 5-month of inventory level sometime in 2009, which historically signals a tightness in the housing market, this will eventually turn around the housing market all together.

However, when we talk about a recovery we also should see what’s happened in the last two years.  The big guy from my company said that although our market is off, we’re off the least.  Our sales are only down 20 to 25% from the glory days of two years ago while the east and west coasts have suffered a reduction in home sales of up to 60%.  Those companies are going through some painful cuts, including cutting staff, closing offices, and renegotiating the salaries of managers just to keep the doors open.

In the long view, the agents who provide solid service and are committed to a career in real estate will survive.  Just as the mortgage companies who have smart lending practices in place will survive. 

On the commercial side, we heard today that commercial real estate is finally beginning to slow somewhat.  For example, one well-known pharmacy-type store used to allow franchises for almost zero down.  Today this company requires about 20 percent downpayment.

In my opinion and from reading and hearing what others are saying, we aren’t quite out of it yet, but the big improvement is coming soon.  I feel it in my bones!

Magnificent photo from here.