New Short Pump ’subdivision’

Per rezoning case C-3C-10, Ed and John Clay intend to subdivide a 2-acre parcel on the west line of Pump Road into as many as 7 single-family residential lots, with a minimum lot size of 11,000 square feet. The development would presumably work around the existing 2,600 square foot residence constructed in 2004 and assessed for $162,100 (improvements only). The parcel is situated at the northwest corner of Pump and Sunrise roads, just north of Church Road in Henrico County’s West End.

Richmond Real Estate Musings

Commercial real estate assessments in Chesterfield reportedly dropped 6.4% between 2009-2010. Hanover County’s commercial real estate essentially stayed flat according to this article. The City of Richmond experienced an 8-10% drop, while Henrico saw a much larger drop–15% according to the Times Dispatch. How well do the local assessor’s capture what’s happening in the marketplace? Moodys.com developed a price index which tracks resales of commercial real estate throughout the country, and which reveals a 43% price decline from the market peak in 2007 and a 33.5% decline from the end of 2008. Interestingly, the most recent report shows a 1% INcrease in the index for November 2009 (the most recent month for which full results are available)–the first increase in 13 months. Between Richmond and Charlottesville I am party to several resales of timber and subdivision acreage which support 18% to 28% value declines since 2007. Paired sales or resales are hard to identify and analyze. Rental rates and ultimately net operating income for income-producing properties are not widely advertised, but not difficult to analyze. Where data is available, declines are well into the double-digits locally. To summarize, everyone knows commercial real estate is bleeding. How much is debatable, but it’s certainly more than the 0-6.4% that Hanover and Chesterfield report.

Multi-family vacancy rate, Richmond, Virginia

CB Richard Ellis released Q4 2009 figures for multi-family properties last week. Richmond came in with a vacancy rate of 7.6%, just below the 7.4% national average. Perhaps the more important comparison is the spread between year-over-year vacancy. The national uptick was 40 basis points; Richmond’s was 160!

Richmond MSA gets new Administrator

Flying under the radar was the announcement that New Kent County (Richmond MSA) hired the County Administrator from Fluvanna County (Charlottesville MSA). I consider this somewhat of a coup for our ‘area’ because Cabell Lawton is a top-notch individual and extremely proficient presence in local government. I can’t help draw parallels between local ‘politics’ and collegiate and NFL football coach shuffling. The Douglas Freeman graduate worked his way up the ladder in Fluvanna and established himself as the anchor in a tumultuous, and an arguably 2nd-tier, municipality to a higher profile locale.

Conservation easement and new state park

Charlottesville has been in an uproar for the last week or so over its largest PUD tranforming into a state park. Biscuit Run was permitted for over 3,000 homes, commercial space, a school, and ancillary uses typical of master-planned communities in Central Virginia. The 1,200 acre site just south of I-64 is now to be acquired by the Commonwealth for $9.8 million, quite a bit less than the $46.2 million paid for it in October 2005. It should be noted that the carrying costs and soft costs (for development) probably exceed $50 million as of December 2009. The developer (Hunter Craig) reportedly has negotiated the sale of the property to the Commonwealth for $9.8 million. Although I’ve never heard of conservation easement tax credits being approved post-sale, the Daily Progress reports that the transaction is called a “Bargain Sale”. So the Seller will presumably apply for tax credits (both Federal and State I guess) in 2010 and can use them or sell them. Posts on the Daily Progress website in response to the articles written about the deal suggest that the community (and reporters) feels the developer will make out like a bandit in this deal. By my calculations, which are admittedly rough since this is a very difficult tract to value, Forest Lodge, LLC stands to lose 50% of its investment. Below is a simple tax credit analysis which shows the value of the Federal and State credits if sold on the open market. The principals of Forest Lodge, LLC are indeed wealthy and could probably utilize the credits themselves, in which case the ‘value’ of the credits is intrinsically higher. The assumptions are thus: the as-is value of the tract is approximately $10,000 per undeveloped unit, or $30,000,000. I would have guessed the market value as-encumbered, i.e., no development rights, to be be somewhere in the $10,000 per acre range. However, I guess the case will be made that the ‘value’ is $9.8 million as evidenced by the sale to the Commonwealth. The rest of the numbers fall into place. I’ve met Mr. Craig and concluded that he and his partners/advisors are incredibly bright. I have to believe that this deal was the best that they could hope for. There are obviously more moving pieces that what has been reported by the Daily Progress and my simple analysis, but I can’t see any way that he and his partners can be made whole in this scenario.

White Oak apartments, Henrico County, Virginia

On January 14, the Henrico County Planning Commission will hear the request of White Oak Crossing Acquisition, LLC to rezone approximately 30 acres comprising the northwest quadrant of I-64 and Laburnum Avenue. The maximum unit count is 350. According to the SCC, the registered agent (applicant) is John Grier who is located in Carytown.

2010: The Year Not to Sell Commercial Real Estate

PriceWaterhouseCoopers and the Urban Land Institute conduct interviews and surveys every year to guage market sentiment for the coming year. For 2010, over 900 market particpants responded. Here are summary highlights:

(1) 2010 will be the worst year in the report’s 30-year history for investors to sell. Conversely, buyers with cash will be presented with better opportunities that in 2009.

(2) Lending will continue to be extremely strict.

(3) Rents and occupancies will continue to fall, with recovery not expected until late 2011 or 2012.

(4) Retail and office will experience the greatest demise. Apartment properties will experience the quickest recovery.

(5) The housing market will stabilize despite persistent foreclosures. Residential lending will likely be strict.

(6) New construction will be infeasible due to “bargain-basement” existing inventory sinking below replacement cost. Developers are expected to “…close up shop, hit the links, convert operations to asset and property management, or become a workout specialist like everyone else.” This forecast for developers isn’t just for 2010, it’s for 2011 and 2012!

(7) Buy beachfront condos in overbuilt prime resort areas.

(8) Buy land, particularly infill sites in prime areas. Although respondents anticipate a 5- to 7-year hold, land prices are not expected be this cheap, ever again.

(9) Public REITs which avoided overleveraging will stabilize in 2010, recapitalize, and lead real estate recovery.

(10) National markets by geography: Washington DC, NOVA, and Norfolk/Virginia Beach, rank among the top areas NATIONALLY for commercial investment, commercial development, and residential homebuilding prospects in 2010 and the near term. Unfortunately, these and nearly all areas received marks below “fair”

(11) 2010 will usher in value losses of 40-50% for many property types from their 2007 highs

Needless to say, there was very little (if anything) positive about the coming 24 months.

Charlottesville PUD—->State Park?

As reported by the Daily Progress, the 1,231-acre master-planned community just south of the City of Charlottesville could become a State Park. According to the developer Hunter Craig, approximately 3,000 of the 3,100 permitted homes were planned, 2,200 of which would be attached units involving townhouses, condominiums, and apartments. An additional 150,000 square feet of commercial area are planned, mostly involving neighborhood ancillary uses. Proffers for the project included an up-front cash payment of $1.0 million to support a joint City-County transit authority, a revenue sharing plan, the aforementioned park system, $1.8 million for athletic fields, construction of a new school, $17,500 per single-family detached unit, $11,900 per townhome unit, and $12,500 per multi-family unit. The total value estimate of the proffers (both cash and non-cash) from the developer amounts to approximately $30,860,000.

Although City officials seem generally displeased, I imagine that the community in general is ecstatic.

Commercial real estate loans are coming!

As reported in the Times Dispatch, Xenith Bank (soon to be Xenith Bankshares) will soon become a lending reality in Richmond. These guys (Gaylon Layfield, Chris Cottrell, Dixon Wallace, etc.) are going to be bringing some money to Richmond’s commercial real estate market.

Richmond’s position in real estate cycles, Q3 2009

Dividend Capital Research’s quarterly cycle monitor was released yesterday. According to the report, all commercial property types in the Richmond area are mired in the “Recession” phase of the real estate cycle. No surprises for us I guess.