| Like much of the US economy, the commercial | | | | sector tends to lead in a recovery while office |
| real estate market has been down the last few | | | | space tends to follow them. We need to see |
| years. However, according to Moody's Investor | | | | some continued strengthening in retail sales for |
| Service, US commercial retail prices have made | | | | retail properties to start moving. There is a |
| modest increases from November 2009 through | | | | significant number of "big box" (i.e. large retail |
| January 2010. This is from an all time low in | | | | outlet or distribution spaces) that are on the |
| October 2009. Is this the start of a recovery for | | | | market right now. Retailers and distributors are |
| commercial real estate and particularly what is the | | | | going to think long and hard about acquiring a |
| trend in the Minneapolis area? The following are | | | | 450,000 square foot facility. We see these types |
| opinions given by two realtors, who have a | | | | of properties being vacant for a very long time, |
| combined 45 years of experience in commercial | | | | unless someone comes up with some creative |
| real estate. | | | | ways to utilize them. |
| What is the current situation in your view? | | | | Are there still good "deals" out there in terms of |
| First of all, it is important to understand that the | | | | property acquisition? |
| problems in commercial real estate are not the | | | | Rental rates are still at an all time low. Even if |
| same as the current residential real estate crisis. | | | | average prices have nudged up slightly nationwide, |
| The residential real estate crisis was caused by a | | | | we believe you should be able to get rock bottom |
| lot of bad debt allowed by overly lax qualification | | | | or very close to bottom rates. Now would be an |
| standards. There is not that kind of bad debt in | | | | excellent time to negotiate some long term lease |
| commercial; instead a lot of businesses went | | | | rates. |
| under due to a long deep recession, thereby | | | | How is the Minneapolis/St. Paul area compared |
| creating a lot more inventory on the market. The | | | | with the rest of the nation? |
| rate of businesses going bankrupt has apparently | | | | While things have slowed down significantly in this |
| slowed down and it appears that most of the | | | | region, we are not seeing the devastating situation |
| companies that are still in business now are going | | | | that Detroit is seeing with the automotive |
| to survive. Many of the larger corporations | | | | industry downturn. We also see New York, San |
| actually have improved their cash situation. There | | | | Francisco, and Washington D.C. as being harder hit |
| is not any "poison" debt out there that still has to | | | | than Minneapolis. The Twin City area has a fair |
| "work its way" out like in residential real estate. | | | | amount of diversity and has a high concentration |
| However this does not mean that we won't still | | | | of businesses in Health Care and Medical |
| see commercial foreclosures due to the economy. | | | | Technology. These markets tend to do better in |
| The economy needs to continue to improve so | | | | recessions than other industries. There is a |
| businesses can start investing again. We believe | | | | possibility that that the Twin Cities will see some |
| that the worst is past, in fact, for the first time in | | | | strong economic recovery sooner than many |
| several months we actually have seen a little | | | | other regions of the country. |
| activity on the user end (companies looking to | | | | When the last time commercial real estate was |
| buy or lease). Previous to that, all the activity was | | | | was was thriving? |
| by companies looking to sell or lease out space. | | | | The mid 1990's to early 2000 were very good |
| This does not mean that we expect to see things | | | | times for commercial real estate. After 9/11 a big |
| booming any time soon. Even companies that are | | | | downturn occurred. Commercial real estate |
| in good financial shape are more reluctant to | | | | recovered between 2003 and 2005 and was |
| make a move right now, because there is still a | | | | actually booming for the 2 years prior to the |
| lot of uncertainty. We see the buying process | | | | October 2008 stock market crash. |
| taking a lot longer and lease commitments are | | | | When do you think it will start to thrive again? |
| being made for shorter terms than in the past. | | | | We believe that the industrial sector of this |
| Many reports that we see suggest that money | | | | economy needs to expand significantly for us to |
| will start flowing back into commercial real estate | | | | see the kind of activity seen during the 1990's. |
| by the end of 2010. | | | | The dotcom boom in the late 90's created a huge |
| What are some major factors that could affect a | | | | expansion in the technology sector. When industry |
| recovery? | | | | thrives, demand for warehouse and manufacturing |
| One big factor is fear. Companies are afraid to | | | | space increase. Office space follows as growing |
| make major moves right now. If the economy | | | | companies expand their support functions. The |
| continues to improve, we believe that there could | | | | jobs created by industry spur on the retail |
| be a significant uptick in acquisition activity as | | | | industry which continues to fuels economic |
| businesses gain confidence. The industrial and retail | | | | growth. |