Despite a recent foreclosure on a Trumbull commercial building ”“ and a few more in the offing in Fairfield County ”“ real estate veterans are voicing more optimism that the local office market will avoid a broad spate of failures in 2012, as some had feared.
Lenders recently foreclosed on a 160,000-square-foot office building at 35 Nutmeg Drive, according to brokers with Cushman & Wakefield, and at least one other building in Stamford appeared to be on the ropes.
Still, while the default rate on commercial property loans nationally rose slightly in the second quarter to 4.3 percent, according to New York City-based Real Capital Analytics, that was the smallest increase in three years.
In a survey published last month by the Connecticut Business & Industry Association and several other organizations, nearly four in five of professionals surveyed expect commercial real estate prices to decline in the next three months, though nearly half expect sales to increase somewhat in the near future.
Just one commercial building sold in Fairfield County through the first three quarters of 2010 among more than 450 office buildings in the county tracked by Cushman & Wakefield. That was the Clairol facility on Blachley Road in Stamford, a mixed office and industrial property totaling more than 710,000 square feet, purchased by Spinnaker Real Estate Partners and two other investors for $17.5 million or nearly $25 a square foot.
Distressed properties drawing attention
That is not for lack of available capital, however, as investors like Greenwich-based Starwood Property Trust bid on distressed properties. A significant gap still exists between buyers and sellers of commercial property in Fairfield County, according to Jim Fagan, managing director of the Stamford office of Cushman & Wakefield. Whereas buyers are looking to purchase assets at historically low pricing ”“ with the promise of future profits in an eventual market rebound ”“ owners and lenders are trying to hang onto their properties in hopes of a quicker rebound.
“We see capital on the sidelines jumping in and buying property again,” Fagan said.
Don”™t expect a return to the go-go days of 2007, however, when some 50 buildings sold in Fairfield County alone, and more than 30 more in adjacent Westchester County, N.Y.
Still, Cushman & Wakefield predicts that sale prices for properties will increase, albeit not compared with 2007 levels due to a stabilizing marketplace.
Banks, owners seeking viable solutions
Still, real estate professionals say activities have increased among “special servicers” hired by banks, who check out properties that could be at default in bank loan portfolios.
”˜The smart building owners have already been speaking with their lenders and trying to figure out a way to satisfy both parties,” said Tim Rorick, senior managing director in the Stamford office of Colliers International. “Lenders are not in the real estate management and leasing business, so between them and the owners, it”™s in both their best interest to work it out at the end of the day. ”¦ The larger portfolios usually have savvy real estate owners who have already been working on this for years.”
At the same time, some property owners have benefited by a few large buildings that have essentially been out of commission during the past year ”“ including the former Clairol plant that is being readied for new tenants, and the former General Reinsurance Corp. headquarters in Stamford that offers more than 500,000 square feet of high-end space. Companies appear not to be as eager to sublease space, removing another competitive dynamic for building owners.
Perhaps most importantly, Fairfield County has little new construction coming to fruition, except for Building & Land Technology”™s completion of multiple buildings in Stamford”™s South End.
“This cycle was unlike previous cycles in that we did not see a lot of building (construction) at the end,” said Ken McCarthy, managing director of research for Cushman & Wakefield. “It ended too soon ”“ there was a lot of stuff that could have been built in the final two years ”¦ that didn”™t go up.”
