Dave Levitt, a partner with Brad Rosely in Third Coast Development Partners, believes the industrial market has generally adjusted to the economic realities it currently faces.
He also that said an interesting part of that glum reality, which was largely created by the financial industry and a lack of supervision over it, is deals can still get done and are getting done.
“Listing prices for properties available for purchase are 50 percent to 60 percent below replacement costs,” he said
“Couple these low prices with SBA or similar financing options, and qualified owners or users have an unprecedented opportunity to purchase buildings at extremely low prices,” said Levitt, whose firm transformed a Holland Township industrial site into a mixed-use development called the Federal Square Business Park.
Levitt also said that while asking rents haven’t dipped very much in the past year, the actual lease rates for deals that have closed have regularly dropped below the traditional $3-per-square-foot price tag.
“In either case — lease or purchase — West Michigan tenants can enjoy unprecedented low-occupancy costs,” he added.
Levitt thought the GM, Chrysler and Lear bankruptcies, along with the domino-effect fallout for auto suppliers, wouldn’t have a key affect on selling prices. He said the biggest issue currently for a buyer isn’t price; instead, it’s finding the financing to make a buy.
“There is very little room for additional discounting,” he said.
On top of that, building owners may not have enough market freedom right now to price their holdings on their own — even if some actually wanted to drop prices dramatically.
“While, theoretically, it is easy to assume that there is always room for prices to drop, the stakeholders — such as lenders, bankruptcy courts and other interested parties — will influence how low a building price can go,” said Levitt.
“Rather than lower pricing, the savvy owner will offer seller financing or a lease-to-own deal as a way to induce a transaction,” he said.
Even though the GM and Chrysler bankruptcies will close more plants and put more square feet on the market, Levitt felt bankruptcy can give a seller more power. To explain, Levitt pointed to a recent case that involved a Third Coast client who had filed for bankruptcy protection but also wanted to sell a large manufacturing facility.
“The bankruptcy process allowed the seller to hold firm on pricing because all the typical creditors were held at bay, and the court demanded the highest and best price,” he said.
Although he doesn’t believe prices will drop significantly below current levels anytime soon, Levitt didn’t think property values would rise very much in the near future either. So owners can relax a bit knowing that their prices won’t hit zero. Investors, though, probably will remain a tad nervous because time is money and the clock keeps ticking.
“The fact is, at the current rates, we are not likely to see significant additional price drops. That said, it is likely that even as the economy improves, the overhang effect of these surplus facilities will keep prices moderated for some time,” said Levitt.
“In short, a well-financed owner and user can take advantage of this market. But investor buyers will not likely move fast in this current environment.”