Explosion of Commercial RE signs in the Spectrum area

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irvinesinglemom_IHB

irvinesinglemom_IHB

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Maybe I had been brain-dead before a few weeks ago, but I just recently noticed that there are "For Lease" and "For Sale" signs up all over the place on the roads I drive every day: Jefferey, Irvine Center Drive, Sand Cyn, etc. It seems like they've multiplied in a big way over just a few weeks. I was planning on posting something about my observations eventually, and this post I found on Piggington just now prompted me to start the thread:








By I Have a Brain on 2/16/2008 at 12:44 p.m.





Surfin:





I majored in Finance in college, and have a hard time with this one:





"derivatives on securitizations created on expected returns." My focus is usually real estate, so I will leave this one alone.





I can say this, I think there may be a "bubble" bursting in small commercial properties as well. I did some work recently in the Irvine Spectrum. In the past 5 years well over 500 so-called "owner user" small office, industrial, and flex buildings were built. The first several phases of these projects went great.





Trouble was, starting about 05 or 06, people began speculating on these deals as well. This is the worst part: I was told by several commercial brokers that the "owner users" were in many instances speculators. Some of these buyers had to get the 10% downpayment for their SBA loans by taking equity from their homes. Double Jeopardy?





Now, the developers are still pushing prices of over $500 psf for these small buildings, while the original buyers cannot "flip" their buildings at $400 psf. Brokers tell me these buildings will be back to $300 psf in 24 months.
 
It's not Irvine specific, but I have been reading a lot of articles lately saying that Commerical REITs are setting up to be ideal shorts. The same easy credit problem that created the housing mess also infected Commercial Real Estate. The only difference is that people purchasing Commercial Real Estate generally were a little better off than the Casey Serin types who bought lots of houses.
 
I've seen the same thing around almost all areas in Irvine and surrounding cities.



I used to work for a fast-food restaurant in the Tustin Marketplace and my boss told me how it takes $6000 per month to rent out his small space.
 
According to the Q4 report by CBRE on the commercial market for OC, south county (this includes the spectrum area) had a total vacancy rate of 12.9%, and this was up from 10% in the 3rd quarter. In Q4 the absorption rate was negative -105,050 sqft., Q3 had a negative -22,086 sqft., and YTD the total was a net absorption of 62,275 sqft. IMO, if Q1 of 2008 shows a negative number, the YTD will become negative. At the time of the report, there was just under 1mil sqft. under construction in south county.





<img alt="" src="http://img701.mytextgraphics.com/photolava/2008/02/17/2007q4crevacancy-49jsyj0my.jpeg" />





I think your findings are the same findings from those that are "in the know". Of course, they remain optimistic about the CRE market. I dunno about you, but with hardly any job creation, and the trends that the chart shows, my common sense tells me it is not looking pretty. But, I also read calculated risk, and maybe CBRE should too.
 
Same thing in the Irvine Industrial area...which again is bad news for all the Irvine Urban-style-living developers too....I can't see many People who do not work in Irvine wanting to live in one, it defeats the whole purpose really...
 
Graph, it would be great to add a third Column for Churches, they have taken over hundreds of thousands of sq feet of Industrial area....
 
In my neck of the Woods it's mainly Industrial space and I guess some Office Space? But deffinately a lot of Industrial...Just take a look at the Jamboree/McGaw intersection.
 
Those numbers were strictly office space. The numbers for retail, and industrial are below.





Retail





<img src="http://img108.mytextgraphics.com/photolava/2008/02/18/2007q4cbreretail-49jvy0h6o.jpeg" alt="" />





<img src="http://img702.mytextgraphics.com/photolava/2008/02/18/2007q4cbreretailvac-fcseaxnv.jpeg" alt="" />





Industrial





<img src="http://img109.mytextgraphics.com/photolava/2008/02/18/2007q4cbreindust-49jvzo3en.jpeg" alt="" />





<img src="http://img107.mytextgraphics.com/photolava/2008/02/18/2007q4cbreindvac-1ja1fx1t.jpeg" alt="" />





So, retail is only hurting slightly, with the negative net absorption, but industrial is holding up pretty well.
 
Last week I sat through a presentation of a market analysis of a site in Orange County. The report is proprietary, so I can't post any of the cool graphs, but the upshot is that commercial is oversupplied through 2012 without a recession to slow absorption. It could get worse. One surprising thing was the strength of retail. Apparently every available site during the bubble went into residential, office or light industrial. Most areas saw little retail development from 2002-2006. The District and the other new one at Alton and Jamboree are the only significant addition to supply in our area. Don't be surprised to see new or renovated commercial retail sites come on line to meet the shortage over the next couple of years.





Hopefully, apcme will comment on this thread. He knows more about this topic than all of us combined.
 
<p>IR, </p>

<p> Yep, this is what I've been suspecting for quite a while. My only down side is collecting data is difficult for those not in the business (Engineer ya know...). My only issues with what I see is the OVER development of the Jamboree corrador. Right now renovation of existing building is starting to pick up.... My only question is how people are going to pay for goods in a recession?</p>

<p>anyways good luck</p>

<p>-bix</p>
 
<em> Hopefully, apcme will comment on this thread. He knows more about this topic than all of us combined.





</em>I agree, and I hope he does find his way here to comment.


<em>


Getting commercial real estate information from CBRE is like getting a press release from a pharma company on their new drug.





</em>Very true, but I was thinking more like a NAR report on the market. See... CRE is just fine, even if they have trouble with the math on jobs.


<a href="http://www.voitco.com/webftp/4Q07OCOff.pdf">


Here is Voit's Q4 report</a>. It has some more detailed info on the Spectrum area.





<img src="http://img108.mytextgraphics.com/photolava/2008/02/18/voit2007q4over-49k7pbro9.jpeg" alt="" />





<img src="http://img701.mytextgraphics.com/photolava/2008/02/18/voit2007q4vac-49k7pnknr.jpeg" alt="" />





<img src="http://img109.mytextgraphics.com/photolava/2008/02/18/voit2007q4absorp-49k7qpp5s.jpeg" alt="" />





<img src="http://img109.mytextgraphics.com/photolava/2008/02/18/voit2007q4header-49k7rldun.jpeg" alt="" />


<img src="http://img107.mytextgraphics.com/photolava/2008/02/18/voit2007q4numbers-49k7rvxhg.jpeg" alt="" />
 
I've been eyeing both of these industrial units for some time. Both of these entry level industrial condos have just dropped in price from last week. T-man and Irvine Renter, I know we've speculated the bottom of housing for Irvine to death, but what would be your best guess on what price these industial condos will be selling at in 2012? The net charges seem quite high, but that's the cost of having an high image Irvine business address.



<img src="http://i37.tinypic.com/15yptt.jpg" alt="" />

<img src="http://i33.tinypic.com/2mwzct3.jpg" alt="" />
 
These buildings are not in the high profile area (towards Research, and not facing a major street). They are also converted warehouse, trying to 'pretend' to be office buildings. Commercial RE downturn has just started. I think the prices would be significantly less in 2012.



One of the largest in Irvine Spectrum just filed bankruptcy.

http://lansner.freedomblogging.com/2009/09/09/developer-owned-by-brens-son-files-bankruptcy/35769/





[quote author="PANDA" date=1253674559]I've been eyeing both of these industrial units for some time. Both of these entry level industrial condos have just dropped in price from last week. T-man and Irvine Renter, I know we've speculated the bottom of housing for Irvine to death, but what would be your best guess on what price these industial condos will be selling at in 2012? The net charges seem quite high, but that's the cost of having an high image Irvine business address.



<img src="http://i37.tinypic.com/15yptt.jpg" alt="" />

<img src="http://i33.tinypic.com/2mwzct3.jpg" alt="" /></blockquote>
 
Vic,



The area i like is Goddard/Tesla/Wald/Scientific. Do you know if there are many 2500 - 3500 sqft starter industrial units in this area and are you familiar with this area? I know that many of these starter industrial condos started popping up in Irvine starting from early 2000. I believe Koll Center I was selling for $300-$325ppsf just for the shell during 2005/2006 peak. If you think Commercial RE downturn just started, what is your best guess where these two industrial condos will bottom at? If prices started to get down to $192/ppsf, I think i would be very interested buying one of these units.
 
I work in large multi-family investment area and I would say that prices have started to tick back up in the last 60 days. I don't know if that is applicable at all to industrial condos, but it is definitely happening.



When people say that commercial RE is about to blow up and has years to go they are completely wrong....or at least looking at it sideways. Commercial RE has already completely blown up. Prices are down 30% to 40%. Rents and revenue are way down. Vacancy is way up. All that has already happened. What hasn't happened yet is for all of the upside down loan problems that the value declines created to be recognized by those that are going to suffer the losses. The lenders are already way upside down on billions of commercial RE loans, they just haven't recognized and accounted for the problem yet. So I guess it depends on your perspective if you think that the commercial RE decline has years to go because like I said earlier, prices have started to tick upwards a little bit in multifamily. Of course it doesn't hurt that in multi-family you can get great loans from fannie and freddie that no other commercial RE sector gets.
 
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