What will fuel Eagle County’s commercial real estate?
July 19, 2010
EAGLE COUNTY, Colorado – Scott Schlosser is a veteran of the local real estate business who never really shared in the mid-decade’s whirlwind. That’s because he specializes in commercial property.”Commercial wasn’t ever part of the boom,” said Schlosser, a broker with Eagle Valley Realty. “The regulations with commercial lending were much more stringent than they were for home lending.”These days, Schlosser is like a lot of other real estate brokers – working his tail off, hoping the market improves. But, he said, he’s starting to see a little more interest in commercial property, due, in part, to lease rates that are coming down from boom-day highs.That, he said, makes the current climate a good one for people thinking about starting a business. But those with start-up dreams need to have plans in place and numbers that will satisfy cautious lenders.Schlosser said lease rates are finally dropping because lenders have finally seen enough zeroes on cash-flow statements and are ready to take something instead of nothing.What’s taken so long? The answer isn’t as simple as it seems to a layman.The problem, Schlosser said, is that when lease rates drop for one unit in a complex, it affects that property’s overall value. In a short downturn, owners and lenders are unwilling to sacrifice the bigger picture for a near-term benefit. But as this slump has lingered, lenders are now willing to work with new tenants. Something, finally, is better than nothing.Getting creativeIn Gypsum, Amy and Chris Pates built the commercial complex near the Costco store that has Heidi’s Deli as its anchor tenant. The Pateses built the building during the boom, and expected location to drive both tenants and customers to the store. But not long after the building was finished in 2008, the world’s economy fell off a cliff, and the Pateses have been trying to fill up their shopping center since it opened.The Pateses tried a store of their own, and another store has come and gone. Now the building has The Art Center, an idea Amy Pates had for a nonprofit venture. It also has CrossFit, a workout facility, and another nonprofit is moving in. Still, there’s space available.”We’ve really had to be creative,” Amy Pates said. “So many national retailers (aren’t growing) and it’s been hard for mom-and-pop stores to get loans.”Schlosser said commercial real estate has always been a trickier proposition. In fact, Marci Colby of Alpine Bank’s Edwards office said not a lot has changed as far as her employer’s lending philosophy is concerned.Loan officers at Alpine still need to make sure a prospective borrower has covered lending’s traditional “five Cs” – character, capacity, capital, conditions and collateral. These days, lenders will also probably look for loan guarantees from the Small Business Administration.But while startups might seem like an obvious idea during a downturn, Colby said the applicants she’s seen lately are people buying existing businesses.”We have quite a few cases where owners are selling to someone new,” Colby said. The former owners aren’t seeing the prices they might have seen in, say, 2007, Colby added, but there are transactions being made.But while people who want to sell might be taking less, Schlosser said that lease rates and lending haven’t changed all that much over the years. Landlords are getting rates geared to the Consumer Price Index from Avon to Eagle, he said. And lending for purchases remains tricky.”You’re not going to get a 30-year fixed loan,” Schlosser said. “It’s always been adjustable, with annual reviews.”That’s why commercial has always been a tougher market for brokers, and why there are only a handful of people who specialize in it, he said.How to improveNo one wants to talk in terms of a “turnaround” for the economy. But what’s it going to take for things to at least get better?There may be some signs of improvement. Pates said she’s talking to more people these days about space in her building. And Schlosser said he’s had several showings in the last few weeks. Tish Palmer of East West Partners said she’s had a little more interest in property she’s listing these days.Keith Thompson of Gateway Land & Development is listing something a little different – commercial space in Edwards with the prospect of an owner being able to live on-site. Thompson said he’s talked to several potential buyers over the past few weeks, most of whom are interested in the idea of being able to live and work in one place.As far as Schlosser’s concerned, though, what finally gets commercial space to move will be a reality check in the valley.Schlosser recently caught a flight from Dallas to the Eagle County Regional Airport. The flight was overbooked, and listening in on random conversations on the plane he was struck by the variety of things people wanted to do when they got here – from golfing to hiking and biking to just a visit to the Vail Farmer’s Market.”People want to come here,” Schlosser said. “We need to attract those people. Better things will follow as long as we’re unique and different.”