When Smoke Gets In Your Eyes

As of this writing the Federal Government has taken over Fannie Mae, Freddie Mac, bailed out AIG, overseen the sale of Merrill Lynch to Bank of America and allowed Lehman Brothers to go into Bankruptcy and maybe insolvency.  Now that’s a productive 10 days no matter how you look at it.

Unfortunately it is not the productivity that we especially wanted to see.  The net effects are a financial market in turmoil, banks who won’t even loan to one another, dramatic drops in the stock market and an investment community that is shell shocked.

The question now is what do we do when the smoke finally clears?  When I say we I am really talking about real estate invesments.  No one really knows where we are headed not to mention what we do on the way to getting there.

It seems safe to say that the financial mess and the general economic doldrums that the United States is in will not correct itself in the very near future.  Some say things will get better in a year and others feel that we still have 3 years to go.

In my opinion we  do have at least a year to wait and probably 2 or 3 years of a challenging economy.  Most markets take 3 to 5 years to fully develop and turn around and we are in this one approximately 2 years.  What to do in the meantime?

Owners of properties have an interesting decision to make.  In general, rents, while soft, are not collapsing in Orange County.  Office rents are being aggressively negotiated by landlords and are definitely lower than a year ago.  However, retail space is holding much firmer and industrial is somewhere in the middle.

If an owner thinks that they would like to sell in the next couple of years it seems apparent that they should be marketing their property now.  Things are not going to get any better for the foreseeable future and they could get a lot worse.  Hesitating can cost real money.

It’s a good time to get very aggressive with office vacancies and do what’s necessary to fill them. Who knows how many people will even be looking for offices in the future.  This is a tenant’s market and there is no use pretending otherwise.  Owners big and small are coming to that same conclusion.

Buyers are in the beginning of a great market.  This is the start of a time when significant profits can be taken. For those who have staying power, deals can be cut that are huge discounts from 2 or 3 years ago on office properties.  Deals are not as plentiful in retail or aparments but those days are most likely coming, especially in retail where rents got extremely high.  Riduculous offers from just a few months ago may well be welcomed in the next few months.

As always there will be winners and losers in this market and as always we may be plenty surprised at just who they are.  Hang around, things are just starting to get interesting.

Tags: apartment sales, economy, negotiating office rents., office leases, office sales, orange county real estate, real estate investments, retail leasing, retail sales