June 1, 2008

Slow Sales

With the subprime situation limiting the amount of debt that can be placed on commercial properties, many single-tenant-retail real estate investors find that they cannot obtain the debt terms they need, particularly for deals valued at more than $5 million. Because money is off the market, expect to see a slower transaction pace, assets spending a longer time on the market and a period of dark stores, reported Ryan Butler, senior associate for Stan Johnson Co. And as CMBS activity creeps back into the game, expect the market to return to historical spreads over Treasuries, said Benjamin Harris, managing director & head of domestic investments for W. P. Carey & Co.

Net lease experts also foresee a rise in cap rates of at least 100 basis points, to between 8 and 9 percent. But Jeff Hanson, president of Grubb & Ellis Realty Investors L.L.C., believes that if the country does enter a recession, it will be shallow, as gross-domestic-product growth has been positive, job growth has experienced only a slight decrease and the drop in consumer spending has not been as drastic as anticipated.

"In the past 40 years, this is the slowest slide we have seen," he said, noting that President George W. Bush's economic stimulus incentives total $110 billion and will help keep a floor under the economy until it begins to see relief, which is predicted to occur during the fourth quarter of the year.