January 11, 2013

Four on Friday: How Will Commercial Real Estate Fare in 2013?

Last week, the Atlanta
Business Chronicle published an article detailing the 2013 commercial real
estate forecasts of several prominent industry figures; Hartman Simons managing
partner Summey Orr was quoted in the piece (note: subscription required to
access the link).

For this week’s Four
on Friday, we touched base with four Hartman Simons partners to get their takes
on how the sector will fare in the coming 12 months. By and large, our
attorneys were optimistic about 2013. Read on to get their detailed takes …

BurstinerGil Burstiner:
We are seeing vastly improved deal flow.
Unlike 2009, 2010 and part of 2011, 2013 should see a strong rebound in the
national and local real estate economies, following on the heels of a
dramatically improved 2012.

Banks will
continue to unload problem loans and REO assets, which will continue to create
deal flow, both for pool buyers and for one-off buyers. Non-distressed asset
sales between arm’s-length buyers and sellers, which were almost non-existent
during the slump, also have continued to pick up and continue to follow the
trend established last year.

significantly, however, the pace of new development that we’ve been involved in
– particularly in retail, office and industrial – will continue to improve over
2012. Deal flow has picked up significantly, and my belief is that neither the
debt-ceiling debate, nor Europe, nor sequestration (defense budget cuts) will
significantly alter the pattern of recovery.

HartmanPeter Hartman:
After four very tough years with many ups
and downs, I’m optimistic that the volume of real-estate transactions will
continue to grow on a steady basis throughout 2013. Over the last four years,
we have seen virtually no new ground-up development. Starting in the middle of
2012, we started to finally begin work again on a number of new projects. These
projects are slated to begin construction in 2013, with openings scheduled for
2014. I believe that once developers start to see that development is again
possible, we will see a lot more deals being explored and hopefully started.


SimonsBob Simons:
The past four years have seen the broadest
and largest real-estate-market correction within my lifetime. In 2013, as
housing markets and values in major metropolitan markets continue to move
towards stabilization, this will benefit commercial real estate values as well.
As commercial values reach stabilized levels for extended periods of time (six
months or more), we should see more lenders getting back into commercial real
estate, creating a competitive and stronger lending market. 

We already have seen
cap rates on “core” assets reach 2007 levels, and this trend will continue as
institutional money seeks out the high-credit/lower-risk opportunities. In the
secondary and tertiary markets, there are value opportunities for the best-located
commercial properties, but otherwise values in these markets will be depressed
for years to come.


WoodBuzz Wood:
Commercial property valuations
for higher-quality commercial developments have fared surprisingly well, due in
large part to the extended period of historically low interest rates. Whether
valuations for lower-quality developments will benefit from the search for
returns is questionable, however.

with the increase in construction and development activity that occurred during
2012, construction starts during 2013 will pale beside the figures from the early
and mid-2000s. This may increase retail and office occupancy rates a bit,
though the battle of the Internet versus sticks ‘n bricks and telecommuting versus
cubicle life will continue to drag on these increases.

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