Scotsman Guide - December 2008 Commercial Edition

Local Markets:

Then and Now

22 | New York

Ground Zero growth guides Manhattan

22 | New Orleans

Supply and demand quandaries for multifamily

28 | Denver

Convention boost could aid tourism, retail

Capsules by Jennifer E. Garrett, Jennifer Landree, Darrick Meneken, Tony Stasiek and Ivanna C. Sukkar

28 | Seattle

Bye, WaMu — hello, empty office space?

“There are always opportunities in real estate markets. You just have

to keep your focus on local activity in the regions and neighborhoods

in which you are interested in buying.”

30 | Houston

What to do with 9 million square feet of new space

— David Lereah, All Real Estate is Local

30 | Las Vegas

Questions arise with CityCenter’s suspension

True, former National Association of Realtors Chief Economist Lereah wrote this passage shortly after titling his previous book Why the Real Estate Boom Will Not Bust. But a year after All Real Estate is Local ’s release, its sentiment holds true — especially for commercial real estate in today’s economy.

Although 2008 ends with capital scarce across all sectors, bright spots for ’09 likely will pop up on a local level first — be they in Los Angeles’ historically solid retail market or Denver’s, which reported a $153.9 million boost after hosting August’s Democratic National Convention.

These cities are two of the many we’ve profiled in Scotsman Guide’s Spotlight feature since June 2006 — and among the 10 markets we’re updating here, as the calendar turns.

As much as uncertainty reigns nationwide for commercial brokers, trends in these local markets could dictate where success lies in the months ahead.

32 | Miami

International business keeps sectors afloat

32 | Chicago

Office-vacancy rate stays strong

34 | Los Angeles

Rosy predictions appear spot-on

— Tony Stasiek

34 | Washington, D.C.

Riding the rails of government expansion

New York

What We Said

“It is unclear how the office market will react to the 8 million square feet of new office space coming online with the estimated completion of the World Trade Center in 2012. … Manhattan property-owners in many sectors continue to command rents unheard of in other big cities, putting a squeeze on affordable housing.”

— Manhattan, December 2006

What Happened

Office-vacancy rate, Manhattan (second quarter): 5. 7 percent

^■ Rate in second quarter 2007: 6. 6 percent ^■ Rate in second quarter 2006: 8. 7 percent

Until completion of the Freedom Tower on the World Trade Center site — now scheduled for 2013 — the rebuilding of Ground Zero will top New York’s commercial real estate news. Falling office prices and faltering condominium projects, however, are also grabbing headlines.

The apartment market, on the other hand, holds steady. The combined apartment-vacancy rate in Manhattan, the Bronx, Queens and Brooklyn was 2.3 percent during the second quarter of this year,

according to Reis Inc. That compares favorably to rates of 2.4 percent and 2.9 percent during the second quarters of 2007 and 2006, respectively.

Reis projects apartment-vacancy rates in these boroughs to stay at or below 3.2 percent through at least 2012. Office-build-ing owners, meanwhile, face a vacancy rate expected to reach almost 8 percent by the time Freedom Tower’s 2.6 million square feet of office space come online.

— Darrick Meneken

What the Locals Say

“While there has clearly been a softening in the aggressiveness from buyers, we are starting from a place of enormous strength. So we have room for some softening in condo prices. We have room for softening in office rents while continuing to be a healthy and fundamentally sound market. And I think that differentiates New York from most other markets.”

— Scott A. Singer, executive vice president, The Singer & Bassuk Organization

New Orleans

What We Said

“Gulf Opportunity Zone Act tax incentives for builders and small-business owners have played a role in the more than $1 billion worth of commercial and residential permits issued since August 2005.”

— August 2006

What Happened

Apartment-vacancy rate: 4 percent

^■ Rate in June 2005: 6.2 percent

Average apartment rent: $1,317

^■ Average rent in June 2005: $1,021

New Orleans’ apartment properties no longer see the waiting lists that accompanied the city’s regeneration after Hurricane Katrina. But multifamily absorption could continue to be an issue for the area three years after the big storm.

According to GCR Associates, Katrina destroyed 182,416 area rental homes — many of which were in low-income regions. Many returning residents chose or were forced to relocate to less-flood-prone areas.

What’d they find? Apartments at a premium. Spurred by tax incentives such as the Gulf Opportunity Zone Act, builders and owners were able spruce up the city’s multifamily inventory considerably — completing what analysts compare to a 10-year

makeover in about a quarter of the time. Hence the city’s large rent increase — with the average rent for an apartment in Orleans Parish ($1,317) far exceeding the U.S. Department of Housing and Urban Development’s 2008 fair-market rate for a one-bedroom unit ($846) in the metropolitan statistical area.

Given the state of the credit markets, boosting multifamily supply to meet the considerable demand is tricky. Add that to New Orleans’ geographical restrictions — it’s bordered by swamp or water on all sides — and the city could be in a tight spot in more ways than one.

— Tony Stasiek

What the Locals Say

“The main catalyst for development since Hurricane Katrina has been the tax credit. But now with the challenges in the market, and considering Fannie Mae and Freddie Mac, new construction projects are on hold. If your project is under construction right now, you’re probably fine. But it’s a matter of getting in before the window closes.”