By Linda S. Morris, The Macon Telegraph, Ga.
Feb. 28--The commercial real estate industry in Middle Georgia took a powerful hit in 2009, and some say it will take years to see a significant improvement.
Various pieces of property slated for big shopping complexes a couple of years ago, are overgrown with weeds and bushes. Some strip shopping centers that were built during that time are still vacant. Other planned commercial and office developments have never gotten beyond the drawing board.
"There are niches and there may be pockets of places where people did fine, but overall as a general rule you will find that most commercial brokers will tell you that '09 was a pretty poor year," said Guy Eberhardt, associate broker with Coldwell Banker Commercial Eberhardt and Barry Inc., who works with clients throughout Middle Georgia. "It's a government sponsored recession and nobody knows what (the federal government) is going to do. ... Until consumer confidence comes back, and until retail sales come back, development is not going to come back."
Consumer confidence reached another all-time low this month, according to The Conference Board, a New York-based nonprofit that issues monthly reports on consumer confidence.
There are no sales of commercial properties because there are no buyers, Eberhardt said.
"If (the government) would get out of the way and let the market take care of itself, it would," Eberhardt said. "You have your foot in this murky water and you're trying to find the bottom. You are scared to step out because it may be 6 feet deep and it may be 16 feet deep. That's the uncertainty just killing the market because nobody knows where the bottom is."
A look at the number of commercial building permits issued and the values of those permits vividly captures the decline in the area's commercial real estate industry.
For example, 122 commercial building permits were issued in 2007 in Bibb County, representing a value of $155.9 million. In 2009, 15 building permits were issued for a value of $11.3 million.
While the number of building permits issued in Houston County in 2007, at 22, is not very different from the 17 permits issued in 2009, the difference in values those permits represent is huge. In 2007, the permits represented $36.2 million, but the permits issued in 2009 were valued at $2.7 million.
Construction woes trigger massive job cuts
The decline in the number of projects being built affects everyone from real estate agents, to architects and land planners to contractors and all their subcontractors, including electricians, plumbers, painters and many others.
Nationwide, more than 75,000 construction workers lost their jobs in January and the industry's unemployment rate jumped to 24.7 percent according to federal employment figures released earlier this month. The jobs shed in January was about the same for the past 12 months, Ken Simonson, chief economist for the Associated General Contractors of America, said in a news release.
Overall declines in construction activity have cost 926,000 construction workers their jobs since January 2009, the release stated.
Chuck Stroud, owner of Macon-based Stroud and Co., which specializes in building commercial and industrial developments, had to make reductions in his staff last year.
"During the first part of December, between attrition and layoffs, we probably reduced our field work by half," and now have about 20 employees, Stroud said. "I don't know that we've ever let anybody go in 20-odd years. ... That was tough for me. ... We just didn't have enough work to keep that many people busy."
His company still has a lot of projects in the pipeline, "but they are no closer to starting construction than they were a year ago," Stroud said. "I've had a lot of my customers say 'we plan on doing something, but we need to wait and see what the economy is going to do.' ''
One advantage Stroud and Co. has is it custom builds dental and medical offices, and those buildings are usually not available on the market, he said. However, some of those projects have been put on hold until the federal health-care reform issue is settled.
Uncertainty in the economy is causing a lot of people in the industry to sit back and do nothing, Stroud said.
"People would rather have bad news if it's certain, than have uncertainty," he said. "If you know you are going to get reimbursed at a certain rate, you can plan for that even if it's not what you wanted it to be."
Eberhardt agrees that insecurity in the economy is causing hesitation in development, but that doesn't mean everything is at a standstill.
"There are some leases and there are some sales," he said. "But you just don't have the activity in the market that we are accustom to and that we had. ... Our office is doing business and other folks are doing business, but I would say our office is down 50-to-70 percent. ... Where you do find some activity, a lot of the time it's going to be owner-financed" or in government projects.
Another Macon commercial real estate broker, Harold Causey, owner of Causey & Associates, said he's still working on some deals, but that his office also is down about 50 percent from two years ago.
"Obviously, the money has dried up," Causey said. "I've had several deals where the purchaser could not get financing."
But Causey said he believes there are better days ahead.
"It's been tough and I don't know the answer," he said. "I think we are in the bottom and we are going to come out of it slowly. Whether we see some better numbers in the next six or eight months or whether it's a period of over two-three years, we are going to start coming out of it."
Builders having tough time getting bank funding
Dan Wallace, principal engineer at Hulsey McCormick & Wallace Inc. in Macon, said his company, which handles residential and commercial work, began feeling the pinch in the commercial market in fall 2008.
"I never, ever want to do this again, but we had to let some guys go at that time," Wallace said. "We were up to 10 (employees), and we were at six two weeks ago."
The company is keeping busy -- mostly by working on some municipal and industrial projects -- but "we are probably doing 60 percent of what we did in 2007 and 2008," he said.
"What I'm not hearing from our clients is I'm not hearing that the lending situation has changed. Banks are offering loans but not at terms where people are used to dealing with them."
Zan Thompson, owner of Macon-based ZT3 Placemaker Studio, urban planning and design, said he is doing more institutional work, including work for Mercer University, churches and schools.
"The commercial end of it is as dead as the residential end of it," Thompson said.
Several projects are on hold waiting for financing, including several downtown condo developments and the Bibb Mill mixed-use project across Coliseum Drive from the new Macon Marriott City Center hotel, he said.
"It seems like every project I've got is pretty much on the shelf until somebody can get a loan and be able to move forward," Thompson said.
Thompson has cut his entire staff and moved his office from the Gateway Plaza building downtown to his home. He used to have six workers and some part-time people.
"It was the summer of '08 when I saw a dramatic drop and we started dropping staff at that point," Thompson said. "Right now it's just me," and his wife helps with some paperwork once a week.
Thompson cut his cost by working from his home, and he is able to hire computer-aided design operators -- who can't find permanent jobs -- as he needs them.
"That may be the way it's going to stay for a long time," he said. "I think it's going to take a number of years for the economy to come back and get anywhere close to what we were doing in 2007."
He has seen a glimmer of hope recently.
"If you pull out a magnifying glass, you can see a slight bit of work," Thompson said adding the work is mostly from a few people who have large tracts of land and some money in their pockets.
Thompson and others said getting bank financing for commercial development is a problem.
"I've heard horror stories about people who have tenants lined up ... and they still can't get the bank to lend money to build it," Thompson said. "In the old days, if you had 50 percent of the building leased, they would jump at lending the money."
There's a good reason for the changes prospective borrowers are seeing, said Kim Childers, president and chief credit officer for Macon-based State Bank and Trust Co.
"I think what probably existed three years ago is there was a competitive environment, and there was so much capacity within the financial providers," Childers said. "There was greater frenzy surrounding it three years ago. ... There were banks that would move beyond what I would term traditional underwriting guidelines as far as equity or as far as the documentation of repayment. ... There were some deals that were getting done that may not get funded in today's market. That may not be a bad thing."
While bank regulators and the banks themselves have, for the most part, not changed the criteria for borrowers, they are following the "more traditional norm of underwriting" that was already in place, he said.
"Deals that have identifiable repayment sources and funding opportunities that have a balance of risk between the lender and the borrower and shared equity, and if the underwriting criteria fall into place, there are still banks that are very viable and are prepared to fund (projects)," Childers said. "It may be that the new normal is the old normal."
Of course, some shopping centers and other commercial properties in Middle Georgia have gone through foreclosure during the past year, and banks have had to take back most of those properties. A recent example is the Ramada Plaza hotel in downtown Macon. The hotel's lender took back the property under foreclosure, and it plans to sell it an auction March 9.
"I used to think ill of people who filed for bankruptcy," Eberhardt said. "But in this market, it's hitting a lot of folks that didn't ask for it, didn't do anything to cause it, and it's not their fault. It hurts. You hate to see it happen."
Foreclosures can skew the numbers for comparable sales and in valuing property, Eberhardt said.
A report issued earlier this month by the Congressional Oversight Panel warns the worse is not over for existing commercial developments or the banks that fund them.
"The panel is deeply concerned that a wave of commercial real estate loan losses over the next four years could jeopardize the stability of many banks, particularly community banks, and prolong an already painful recession," the report states. "Commercial real estate loans made over the last decade ... totaling $1.4 trillion will require refinancing in 2011 through 2014. Nearly half are at present 'underwater,' meaning the borrower owes more on the loan than the underlying property is worth. ... Community banks ... face the greatest risk of insolvency due to mounting commercial real estate loan losses."
The considerable wave of commercial mortgage defaults "would trigger economic damage that could touch the lives of nearly every American," the report states.
Elections could influence industry's future
Eberhardt said he doesn't think new commercial development will see improvement for another year or two, and he hopes some elected officials in Washington, D.C., are replaced by what he calls "common-sense people."
"The elections this year may portend some improvement, but it's going to be late in the year," he said. "I don't look for any improvement until '11 at the earliest."
Companies that can hang on for awhile won't have as much competition when things turn around, Stroud said.
"I think a lot of people in our business are saying, let's tread water, try to keep our overhead met and keep our key people employed so that when things do turn around, we'll still be in a position to gear up," he said. "Some of these things in the economy just need time to work themselves out."
Stroud said he believes he has enough work to keep busy until summer, "and in this business that's not too bad."
Thompson projects that the economy won't turn until sometime next year and agrees about the election having a big influence on the economy.
"It's not turning around anytime soon," Thompson said. "It could take as much as 10 years to get back where we were in 2007."
Causey was a little more optimistic, and said he is starting to get more phone calls about work.
"I'm really looking forward to see what starts happening in the spring," he said.
"Prices have gotten down so low now and there are good chances for people to go out and get deals."
To contact writer Linda S. Morris, call 744-4223.
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