Even as commercial mortgage delinquency rates continued to rise amid a still-difficult financing environment, an affiliate of New York-based Matrix Realty Group struck a deal to acquire Corporate Center in Danbury, the onetime home of Union Carbide Corp. that is now leased to multiple tenants.
The deal was valued at $72.4 million, or $56 a square foot, and according to broker CB Richard Ellis was the largest multi-tenant transaction in the tri-state suburbs this year. At more than 1 million square feet on 100 acres of land, Corporate Center”™s office space is exceeded in Fairfield County only by Enterprise Corporate Park in Shelton and Merritt 7 Corporate Park in Norwalk. Despite the building”™s blue-chip tenants such as Praxair Inc. and Boehringer Ingelheim Pharmaceuticals Inc., Corporate Center is only 61 percent leased.
 “The execution of this complex transaction was possible due to a motivated seller and buyer,” said Jeffrey Dunne, a CB Richard Ellis broker.
Landlords holding debt on commercial properties are getting increasingly motivated to ensure they keep their facilities leased, as commercial mortgages come due this year and next ”“ and that is creating opportunities for motivated tenants, according to brokers.
In the first quarter, commercial mortgage delinquency rates reached their highest level since 2001, according to the Mortgage Bankers Association. From the fourth quarter of 2008, the 30-day delinquency rate on commercial mortgage loans rose by half to 1.85 percent of all such loans outstanding.
Landlords who need to refinance face problems if their buildings have a lot of vacancy, short term leases, or leases nearing the end of their term, according to the Society of Industrial and Office Realtors (SIOR), a Washington, D.C.-based trade group with a Connecticut chapter.
SIOR said brokers are advising their client tenants to renegotiate leases early, reap all available concessions and sign long-term leases. But some landlords balk at signing long-term leases with deep concessions, choosing instead to make short-term leases hoping the market will bounce back soon.
Jason Wuchiski, a broker with FirstService Williams, said he has seen little evidence of a panic mentality among owners of Fairfield County retail properties however, which he attributed to many of them owning their buildings outright.
As of April on a year-over-year basis, commercial property sales volume was down 47 percent in Connecticut according to a survey by the National Association of Realtors, the second worst rate in the nation after Georgia and far below a 26 percent drop nationally. While the Connecticut figures are subject to fluctuation due to the state”™s relatively small size, New York also had a sharp drop at 30 percent.
At the same time, however, commercial properties in Connecticut appeared to be holding their value better than in other markets, with the Nutmeg State”™s 10 percent figure besting an average 16 percent decline in New York, New Jersey and Massachusetts.
Still, commercial brokers in the Northeast and nationally have a dour outlook on the market. In the first quarter, the NAR index that measures broker activity in leasing existing and new office space fell to its lowest level since 1994, and had the sharpest year-over-year drop since the group launched the index in 1990. NAR stated the weakened index means commercial real estate activity can be expected to decline through at least the end of the year.
In the office market, sublease space is now affected by “shadow” space, empty offices that have yet to hit the market, according to SIOR. Once the recovery begins, shadow space could keep the office market slow to recover as firms fill up underutilized space before thinking of enlarging their space commitments.
“Significant job losses have reduced the demand for commercial space, while a lack of credit has stalled transactions and refinancing activity,” said NAR economist Lawrence Yun. “It is critical for the Federal Reserve to increase liquidity by purchasing commercial mortgage-backed securities. Because commercial real estate always lags an overall economic recovery, it will take some time for the commercial real estate market to rebound.”
