For the first time in two and a half years, I have a very positive outlook for our local commercial real estate market. Activity is way up since the last quarter of 2010 and pricing in the market has stabilized. Buyers and sellers can get a real understanding of where the market is heading because there are more transactions and comparables to base pricing off of.
The market is completely dominated by owner users not investors. The investor community for the most part is still waiting on the sidelines for large shifts in foreclosures and distressed properties. There is little tolerance for the risk of purchasing assets with significant vacancies unless prices are extremely attractive.
Small Business Administration (SBA) and seller carried financing are the two staple ways to finance projects now. You can purchase a building with SBA working capital and construction loans, and the average SBA interest rate is just under 5%. Although rates have been steadily climbing over the last month, SBA is a welcome alternative to conventional financing which requires 35-45% down for comparable interest rates. Moreover, government-backed SBA lenders are eager to make deals with 10% down.
Right now the greatest challenge is not finding qualified buyers but a lack of quality properties available. Many sellers are hesitant to list their buildings because of their perception that the market is bad. It is actually a very good time to sell properties because interest rates are still very low. If interest rates shoot up and the prices of properties do not come down, mortgages become unfavorable. Low interest rates are great for buyers and allow sellers to sell higher while keeping mortgages manageable for buyers. In addition, because there is a scarcity of quality properties on the market, when an appropriately priced building enters the market, there is high demand for it.
Entertainment and Real Estate
Things seem to be coming back to normal in the entertainment world. I am seeing growth and movement in not only support and ancillary creative users but production companies looking to house shows. I was able to lease a beautiful facility here in the east valley to a visual effects and 2D-3D conversion company.
I sold a 15,271 square-foot, free-standing industrial space built in 2003. The high clearance, tilt up construction building was originally offered at $150 per square foot and sold for $116 per square foot with SBA financing coupled with a construction loan of $200,000. I was able to close it within 45 days.
I leased a 14,500 square-foot creative office space in Burbank. This is a very high end space with polished concrete exposed ceiling and glass perimeter offices. An entertainment user looking to expand and better service its high-end studio clientele took the space.
I leased an office/retail space on Colorado Boulevard in Eagle Rock that I divided into two suites totaling 5,000 square feet. I leased the spaces at an excellent rate to a music school and a real estate company.
I closed a lease option to buy for $1,100,000 on 4,000 square feet of office in Sherman oaks near the intersection of Sepulveda and Burbank Boulevards. This was an SBA deal through East West bank.