New Orleans' CityBusiness magazine interviews Robert Hand, President, Louisiana Commercial Realty, on New Orleans' commercial real estate. New trends show there is some speculation in buying of commercial properties that have been on the market much longer than the average property. This is a classic sign of a healthy commercial real estate market. here is the text of the article.
"Office and retail space in the New Orleans region is moving with increased frequency, and many of the properties changing hands through sales and leases have lingered on the market for extended periods of time, according to data from Louisiana Commercial Realty. That suggests deep-pocketed speculators and other investors are diving into the distressed property market, which Louisiana Commercial Realty owner Robert Hand considers a healthy sign for the local economy. He dissected the data in a November 16 conversation with CityBusiness.
Can speculation be a problem if it’s just speculation only? It’s a healthy sign. What I am deducing is that these properties these are not loved because they have been on the market almost twice as long as normal . They are usually blighted properties that require lots of attention. Maybe they are in a tough neighborhood.
But buyers recently have come along and decided to speculate and buy these things that previously were difficult properties. If they weren’t difficult properties, they wouldn’t have been on the market for very long. We can rule out whether they were on the market an extraordinary long time due to being overpriced because on average they were sold near the average price for properties over the last 12 months — that shows a healthy commercial market. It shows a healthier economy.
The asking office lease rate is dropping. Are lease rates simply dropping enough that they are stimulating movement? The properties that sold or leased were transacted at 15 percent below the list price, which is about average of what we’ve seen the last 12 months. The only unusual thing is office properties leased or sold recently were also on the market a lot longer than normal.
If you look at the asking lease price, it was $16.74 versus the last 12 months at $17.39. So of the properties that were leased or sold, it doesn’t appear they were overpriced. The lease and the asking price were both under the average.
Retail listings are up, as are days on the market for those sold or leased. Does this mean that space not previously in demand is moving because retail is expanding? People want the low-hanging fruit first. When property on the market for a long time finally starts being leased or sold, it means that speculators are coming into the market. That’s really a healthy sign.
Buyers are now more willing to take risks. Normally the banks won’t loan money for speculation. This tells us probably the buyers might have deeper pockets with more equity. They are willing to buy those difficult, unloved, properties that up until now they weren’t.
Industrial property listings are increasing. Is it a buyer’s or seller’s market in the industrial sector? I still think it’s a buyer’s market in the industrial sector because you still have a lot of what I call elasticity, which is, of the additional supply that comes on the market, how does that affect price? What we are seeing is people looking to buy and lease is still pretty price sensitive.
The average property leased in the industrial sector leased for $4.59 a square foot, which is down almost 50 percent from the 12-month average, which was $6.18 a square foot. Some of that depends on the area. Elmwood is $6, Mid-City is $4.50 and New Orleans East is $2.50. But on average what we saw recently was industrial properties that were leased at prices below the last 12 months which is a buyer's market.
There’s more vacant land available, both in the number of listings and millions of square feet. The days on the market are much fewer. What does that tell us? It’s not really a seller’s market because the prices are not higher than normal. Of the properties that were sold, they were sold 24 percent below the list price. Sometimes it’s just because land is hard to value sellers price land too high.
It really depends on what you are going to use it for. You can have somebody that is going to put it in the gas station that makes it highly profitable, and they are willing to pay more for it than someone who is going to put in a parking lot which is less profitable."
New Orleans' Industrial real estate supply is up, lease prices are up but sale prices are down. In the industrial sector so far in the month of November, there are 110 properties for sale totaling 3.2 million square feet, an 18 percent increase in supply over the last 12 months. The average asking sale price is $39.48 per square foot, down about two percent from the last 12 months, and the average asking lease rate is $4.52 per square foot, up about 3 percent over the last 12 months. The surprising number is that it took 188 days to sell or lease industrial property, which was 27 percent faster than normal. The last 12 months witnessed an average of 5 properties leased and 2 properties sold each month.
In June 2006, Robert Armbruster purchased a 40,000 square foot of land at 1667 Tchoupitoulas for $1,100,000 financed by Gulf Coast Bank. Just 2 blocks from the New Orleans Convention Center and even closer to the recently repurchased defunct Entergy Power Plant, $1.1 million appeared to be a good deal for the property at that time. After a few years of not developing the property, Armbruster gave the property back to the bank. In 2009, celebrity Wendell Pierce and his childhood friend, businessman Troy Henry were able to purchase the same property for $600,000 -saving an astounding 45% of the original price- an ideal example of how commercial real estate development can provide enormous opportunity, but not without substantial risk.
The new buyers wanted to develop the site into a service station with the ability to sell gas to the abundant truck traffic on Tchoupitoulas. With Second Line Stages housing hundreds of production trucks, and the surrounding wharfs frequently trafficking transportation containers on 18-wheelers, it was an ideal location for a gas station. Prior to development here, the closest gas station was inconveniently located on the opposing side of Lee Circle, out of the way of the nearest entrance to Route 90 and the interstate. Seems like a no-brainer; the only reason nobody ever thought of it was that at the time speculators were too busy planning the redevelopment of the power plant that would accommodate major tenants like Bass Pro Shops. Unfortunately for the development duo, the land is zoned “mixed use”, a category of industrial zoning that has a stringent “conditional use” restriction that requires approval by the New Orleans City Council. In such an industrialized area, who would have guessed that a gas station wouldn’t be allowed?
Breaking it down: the three major types of industrial zoning are mixed use, light industrial and heavy industrial.
The most lenient of the three, "mixed use zoning", allows the following without conditional use restriction:
In comparison, “light industrial zoning” allows truck repair and vulcanizing shops, but allows truck stops only as a conditional use, which means it requires city approval and a site plan review.
Lastly, “heavy industrial zoning”, being the most limited of the three, allows trucks stops only as a conditional use.
Ultimately Pierce’s plans were still hindered under the given zoning for the property. Hitting road blocks under all three industrial zoning categories, one would think commercial zoning would allow something as necessary as a gas station to such a busy area. However, commercial zoning C-1A still only allows gasoline service stations as a conditional use. Ironic, considering it allows something as archaic as “tinsmithing”.
How then, should one go about pursing such an endeavor without the hindrance of additional governmental approval? Clearly, interpreting the zoning law can be extremely risky. A commercial real estate broker will represent you in researching these issues ahead of time. Most specifically, you want to look for one with advanced designations such as a CCIM, SIOR or an MBA.
After several years of planning, the property at 1667 Tchoupitoulas is currently being developed and gas will be available for purchase soon.
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New Orleans Zoning Code (Sections 7.6, 11.54 and 15.2.12)
New Orleans Assessor's Office
The Louisiana unemployment rate has been lower than the national rate 90 percent of the time since 2002. Most of the variance occurred during several months in 2005 due to Hurricane Katrina, but since then the Louisiana unemployment rate has been consistently below the national average.
The Louisiana labor force is at its highest in years at 535,000 workers and the number of those employed is now 499,000. The number employed is 14 percent higher than at the worst level in 2005 but is still 17 percent less than its peak of 600,000 in June 2005.
Just looking at the difference between the national unemployment rate and the Louisiana rate, called the variance, you can see that Louisiana has enjoyed more people working the last 10 years than the national average. The current unemployment rate in Louisiana is 7.0 percent, compared to the national unemployment rate of 7.9 percent.
Unemployment Rate Varies Widely Among States.The southeastern states are all red showing higher unemployment from 8 to 9.9 percent. Califormia, the 5th largest economy in the world, has unemployment exceeding 10%, along with Nevada.
LA Commercial Realty, LLC
Bureau of Labor Statistics. ( all rates not seasonally adjusted, age 16 and over, table ID LNU04000000)
The Bureau of Labor Statistics released the latest economic news today that the unemployment rate was 7.9 percent but that doesn't tell the whole story. How many people are working? The civilian labor force is 155.6 million, up 578,000 in October, and the participation rate is 63.8 percent. How many new jobs were added in October? Total employment for October 2012 rose by 410,000 and nonfarm employment rose in October by 171,000. How many people are not working? There were 12.3 million people unemployed in October 2012.
We still have 8.3 million workers employed part-time because their hours were cut back or they were unable to find work, down 269,000 in October. What you don't see is that we have 2.4 million people "marginally attached" to the work force, about the same as last year. These individuals are not in the labor force but had looked for a job sometime in the last 12 months and are wanting to work and are available for work. They are NOT counted. If they were counted, the 2.4 million would be added to the 12.4 million reported unemployed for a total of 14.8 million and an unemployment rate would be 9.5 percent. The number of long-term unemployed, jobless for over 27 weeks, was 5 million, around 40 percent of total unemployed.
The bottom line is that with large numbers of people not working, the economy has no driving forces to grow rapidly. Which is why we are witnessing slow GDP growth, 30 year treasury rates at 2.92% ans 2 year treasury notes at .28 percent.
But that's not all you need to know. The unemployment rate is not the same for all groups. For teenagers, the unemployment rate is 23.7 percent, for blacks 14.3 percent, for Hispanics 10 percent, Asians 4.9 percent, whites 7 percent, adult men 7.3 percent and adult women 7.2 percent.
Where Is The Job Growth?
Professional and business services added 51,000 job in October, health care added 31,000 jobs, retail 36,000 jobs, leisure and hospitality added 28,000 jobs.
This news release presents statistics from two major surveys, the Current Population Survey and the Current Employment Statistics survey. The household survey provides information on the labor force, employment, and unemployment that is a sample survey of about 60,000 eligible households conducted by the U.S. Census Bureau for the U.S. Bureau of Labor Statistics.
The establishment survey provides information on employment, hours, and earnings of employees on nonfarm payrolls; the data is collected each month from the payroll records of a sample of nonagricultural business establishments. Each month the CES program surveys about 141,000 businesses and government agencies, representing approximately 486,000 individual worksites, in order to provide detailed industry data on employment, hours, and earnings of workers on nonfarm payrolls. The active sample includes approximately one-third of all nonfarm payroll employees.
For both surveys, the data for a given month relate to a particular week or pay period. In the household survey, the reference period is generally the calendar week that contains the 12th day of the month. In the establishment survey, the reference period is the pay period including the 12th, which may or may not correspond directly to the calendar week.