Vacant commercial space is everywhere – especially with office condos around North SD County:
CR scooped me again with my own video – it had been a couple of months!
Jim Klinge
Klinge Realty Group
Broker-Associate, Compass
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I remember when they were building those, it seemed obvious that we were heading into a recession at the time. We commented that they would not be able to fill those. How could people who “do this for a living” fail to see what amateurs could see?
BTW, we just got back from another trip to LA, and the businesses along the 5 in OC and LA County are devastated. We’ve never seen such a depressing landscape along that route. Vast swaths of huge commercial/industrial buildings are absolutely vacant, all the way up the 5. Then we took another trip down Ventura Blvd. in the Valley to see how things are going in the retail industry. More vacancies than ever.
While the govt is pumping trillions of dollars into the RE and financial markets, making it appear as though things are stabilizing or improving, there are no “green shoots” in the real economy.
We underwrote the Ocean Collection property with EastWest and offered. $5.6. Like everyone else, they laughed at how out we were unable to see the true value of this property. It will probably be in F/C again in a year or so.
From $18M to $12M to $5.6M? And still no resolution? Ouch!
“How could people who “do this for a living” fail to see what amateurs could see?”
CAr, it didn’t matter. The developers get all the cash up front from the banks, pay themselves a handsome fee/salary/draw/whatever. If they sell, fine; more $$$ for them. If they don’t, the bank takes the loss.
It’s a win, win!!
Foreclosures: How cities compare:
http://money.cnn.com/2009/07/30/real_estate/worst_hit_foreclosure_cities/index.htm
I see those vacant office buildings in Carlsbad and Vista on my rides and think giant Ponzi. I’ve travelled a bit while on my ‘vacation’ and there are a number of locally owned furniture stores that have been around in Los Gatos, CA that are finally going out of business on the main strip including a Smith and Hawken store. I see a few closed car dealerships and a number of homes with unmaintained front lawns and of course a rather larger number of homes for sale. I get the same feeling drving through the foothills and neighoring towns (Santa Cruz, Scotts Valley, Ben Lomand and Felton). This place has really taken a turn for the worst the past two years. I’m sure the same thing can be said for Palo Alto, Saratoga, Cupertino, Mtn. View, etc… I know Silicon Valley has yet to go through a San Diego type devastation, but in ’06, I warned my friends still living in this part of town what was coming. They called me Chicken Little.
Jim nailed it: “There’s nothing price can’t fix.”…except broken egos. Prices are still not aligned with income and on the CRE side, overcapacity, underemployment, decreased consumer spending, etc., ad infinitum, will continue to erode the market.
It’ll take awhile to dissipate, but the benchmark in everyone’s mind for accurate property valuations was the peak of the bubble. IOW, the unsustainable should be the norm. Our ADHD country is in for a long, rude awakening. And when we come out the other side, the “new normal” won’t be pleasant for most.
Green shoots? Nope. Just wishful thinking…
I just got back from denver and stayed in aurora and the drive from aurora to denver intl airport is littered with empty commercial real estate and office parks. Too depressing.
We had a new commercial/residential development go in over 2 years ago in my little town: 11 commercial condos on the ground floor and 11 residential townhomes and 6 affordable apartment units on the top two floors. The location was questionable as it was located right near the freeway exit into town and next to my favorite auto repair shop.
But two hundred people showed up for the Grand Opening in 2007. As I remember, the townhomes were priced at $495-$595K with the commercial spots going for $300K.
Two years later, not one townhome has sold. They are now listed at $349,900 w/ $181/month HOAs. Why? Not only the poor location, but there are 18 killer steep steps to get to the townhomes above the commercial spots and only a large, open parking garage for residents with no extra storage. And all the kitchen windows on the back overlook the poorest section of town. I’ve heard that half are now rented at $1,500/month
As for the commercial, only one has sold. Two other spots are leased out. And the one sold? You guessed it– (just like Jim’s comment in the video) to a dentist who set up his first practice. I shake my head every time I drive by and wonder: What were the developer and the bank thinking?
We just leased a new building for our offices, moving this month from Carlsbad, 14k sq ft to Carlsbad 4k sq ft. The commercial agents are so high on them selves and the owners will not budge on price at all even with 30+% vacancies. Its the next chapter in disaster 2009! The experience was laughable. We went though both of these on your video of new ghost towns!
We send petro dollars overseas to “royal families” who control oil cartels, etc. We have drug cartels who are raking in the cash from our drug dependency. We send so much money, they don’t know what to do with it.
Those places are brutal regimes. They want to park their money in the most stable place they can find. That was the United States.
All this stuff we see as we drive around the places we live, we keep asking ourselves, “how much more retail and office space do we need?” And the chain restaurants just kept on coming.
The petro dollars and drug money had to go somewhere, so it went into what became our grossly overbuilt environment.
Again, most of this stuff (residential and commercial) was built just to park enormous amounts of cash. The world-wide leveraging craze allowed all the investors to cash out on the front end, if they had sense, and try not to get caught holding the bag.
Even finance has to observe the laws of nature. You can only build so much stuff at one time that serves a useful purpose (bubble formation).
Now American communities (we the taxpayers), are left to pick up the pieces. We are cleaning up the $#!#.
Virtually every office building in Sorrento valley has a space for lease sign. If qualcomm didn’t enjoy renting parts of many builders just to stick their sign up, the place would be a ghost town.
Wow, gotta love those big, generous asphalt parking lots. Nice inspiring places.
I think Consultant’s rant hits the nail on the head; there was so much cash looking for a home that any deal would do. Classic Ponzi. (Was the stock market at 14,500 all petro/narco/sino dollars too? Hmmm.)
Anyways, I would guess that the developer/investors of the first foreclosed commercial project had 20% of development costs into the deal, maybe $4,750,000 in addition to the $19MM loan! Most of it up front money. You can be certain that they are taking a hit too.
To buy a property, get approvals, get a construction and build it takes 3 years. A 2008 project could have been started in 2005 when residential was getting real spooky and unemployment was virtually non-existent. With all that cash money looking for a home it’s hard to resist the herd mentality when it comes to speculation. Commercial seems to always lag residential.
Now let’s sit back and see what happens when this same 3 year lag for development of residential begins to influence the market. Because nobody is building new homes. I read that MarketPointe realty advisers say that there is a 3 month supply of new detached houses but a 16 month supply of attached, (gotta love that “e” after point). http://www.marketpointe.com/housing_market_news/SD0209PR.pdf
“There’s nothing that price won’t fix.”
~~~~~~~~~~~~~~~~~~AGREED!
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We first started coming to NC to visit after my in-laws moved to San Marcos in 2001. There are office buildings here that were newly-built then that have had their “Available” signs up continuously for the past eight years. Why did anyone expect these to be any different? In order to fill commercial space, you need a long-term employment engine, and unrestrained real estate development is not such an engine.
Up north, Silicon Valley is still suffering the after-affects of the dot-bomb and the diversion of the VC that should have financed tech’s “next big thing” this decade to foreign wars and skyrocketing oil. Real estate prices there boomed along with the rest of the country, but mostly on existing housing stock because the prime areas have been built out for decades. The valley had a “jobless recovery,” and there was nowhere near the growth in housing bubble jobs that was experienced here in SD. SV will continue to drag on until someone with VC realizes that they need to get back to investing in tech again if they want to make any money, and then the tech employment engine will restart.
It isn’t often I disagree with our generous host but this time…
Price won’t fix CRE. There’s just too much CRE for norml supply/demand balances to reassert. Not until growth catches up but forever. There’s also been a huge disconnect twixt need and demand. We used to think demand=need. Not so anymore. Lots of companies for various reasons demanded far more than they needed. That is yet to play out.
Should have left Carlsbad as it was:
http://www.youtube.com/watch?v=s2PFBcwtM_s
Does anyone trust this stock market rally?Talk about a ponzi scheme.
I have a dozen donuts (to go with that cup of joe) that says many of these suburban office condos end up converting to some sort of residential.
Sounds preposterous, but a general contractor could clean up by offering a “conversion” package, and get government support to focus on low-income rentals.
As my second job, I own a small business.
We’ve looked at renting a larger strip-mall type facility several times the last few years in various parts of town.
What’s changed?
The vacancies, not the rent.
For the same reasons I’m not going to buy a house at bubble prices, I’m not going to lease a unit at bubble/full occupancy rates. Especially when occupancy is a fraction of what it once was.
Rental rates come down, more businesses will be interested and will have better chances of turning a profit.
Want an example (at least last I looked)? Do a Craigslist search in PB. You’ll see extremely small Tattoo and Yogurt sized locations available for lease at over $5,000 a month. Run some rough numbers in your head on that one.
There was a CRE offering in San Jose that was renting for 99 cents a sq ft., so 800 sq ft would go for a pretty decent price.
“I have a dozen donuts (to go with that cup of joe) that says many of these suburban office condos end up converting to some sort of residential.”
I don’t think that sounds preposterous at all. Some of the buildings in that video have more space between them and their nearest neighbors than a lot of newer residential developments. You’d just have to tear out a lot of the ashphalt and relandscape it.
I just got back from denver and stayed in aurora and the drive from aurora to denver intl airport is littered with empty commercial real estate and office parks. Too depressing.
I was in Denver too a few mos back and heading back there again (gotta love this ‘vacation’), but you can buy a nice detached SFR between 1700 – 2500 sqft home in or around Stapleton between 375K and 450K. Sure, there is a salary hit, but the price of available homes more than makes up for the salary decrease. A row home can be purchased and rented and be immediately cashflow positive in Denver.
Desmo,
No kidding. The bulk of the county has been ruined by city officials wanting growth and conscience-less developers. Extremely sad. And of course, we’ll never learn lessons from it.
Don’t suppose “desmo” is a hint at Ducati?
The crazy thing is people are still building. Jim, what’s w/ the building off Faraday and El Camino? Carlsbad was going to use as city hall at one time. I think it was a State Farm at one time.
Farmers Insurance Building?
The one the City of Carlsbad bought in 2002 for $16 million, have let sit vacant ever since, and spending $500,000 per year on it?
I think it got overshadowed by the golf course….
The U.S. housing market is starting to “bounce along the bottom,” the
director of the Federal Housing Finance Agency, James Lockhart, said Thursday.
Speaking in a interview with the Fox Business Network, he said that the FHFA’s
index, which reflect the book of business of Fannie Mae (FNM) and Freddie Mac
(FRE), is up 0.3% in the past three months. This stabilization of the market,
along with lower mortgage rates and lower house prices, could inspire some of
the people on the sidelines to start to buy. “That would really help the
market,” he said.
Here’s my favorite commercial failure in my neck of the woods: Moreno Valley Mall at Towngate. For you racing faces, it’s located where the Riverside International Raceway used to be.
The mall opened in 1992. There are store spaces inside the mall that have NEVER been occupied, not once in 17 years. In addition, there is a semi-underground parking garage level that has always been blocked off and never used.
There’s nothing really wrong with the mall location, they just built it about twice the size the area could honestly support.
I heard the shops in Bressi Ranch are going for $6.50/sq ft.
Come to Washington, D.C. The “see through” buildings litter the outer area of the beltway (495).