While the general perception of Cape Cod’s commercial real estate market is that the market is showing some evidence of stabilizing, mixed signs were evident in the month of October 2011.
Yearly transaction figures for the month of October from 2008 to 2011 indicate total dollar volume (distress and non-distress sales) in October 2011 continued to rise from a low point achieved in 2009. The October 2011 level of $10,289,000 reflected a modest 1.5% increase from the same month in preceding year. The year-over-year average transaction sale price in October 2011 also posted higher at $605,235. The number of individual commercial real estate sales recorded in in October 2011 (17 sales) was essentially on par with the number recorded in October 2010 (18 sales).
The proportion of distress commercial real estate sales (i.e., liquidation, foreclosure, deed–in-lieu, etc.) in October 2010 and 2011 was fairly consistent as well. Against the back drop of a noticeable increase in distressed asset sales in 2009 and 2010, it is uncertain whether the number of distressed sales in 2011 will exceed prior levels. However, based on year to date transaction figures and information on various commercial properties under “watch list” status and others currently scheduled for auction, distress transactions in 2011 will likely account for a notable share of overall transactions. Interestingly, contrary to the popular notion that the vast majority of defaults involved “easy credit” loans placed in 2005 to 2007, a recent analysis indicates sufficient numbers of commercial mortgages were placed in prior years and as far back as 2002.
The leasing market in October 2011 continued to be characterized by high supply and soft demand as it remains hampered by the low level of new business formations and anemic business expansion. Tightening state and local budgets and cut backs among local non-profits have served to limit demand for rentals as well. Attractive base rates, terms and good availabilities exist for all property types (including medical) in essentially every commercial and light industrial area on Cape Cod, MA.
Selected business brokers have reported an uptick in the number of inquiries from prospective purchasers seeking available opportunities. This is an extremely positive sign for this relatively dormant slice of the local market which is poised to serve business owners eager to transition out of a business at reasonable terms and the many buyers who are reportedly actively seeking new and promising opportunities. In fact, a slow and steady return may be underway as Carey Commercial in Hyannis, MA has brokered a number of restaurant sales in recent months. Recent lodging transactions also suggest a renewed interest and more business-only transactions are happening or are in the works.
The availability of commercial financing continued to improve in October 2011 as local and regional lenders are projecting increased confidence and leveraging various initiatives. SBA 504 loans in particular have become popular in recent months as these loans can finance the purchase and improvement of business real estate, and heavy machinery and equipment often long term and at both attractive fixed interest rates and down payment requirements. These loans are often instrumental in creating new jobs in the region.
In October 2011, headline news in the new construction sector came in the form of two school proposals slated to commence on the near future. The William Sturgis Friends of Education Foundation, Inc. purchased a 5.97+ acre parcel of land located along West Main Street, Hyannis, MA for a proposed 42,000 square foot expansion of the Sturgis Charter Public School. The project cost is in excess of $10 million. Later in the month, Cape Cod Lighthouse Charter School acquired the former Regal Cinema in East Harwich, MA. The Lower Cape charter school will complete a $2.0 million conversion of the 19,500 square foot building which is slated to be finished in 2012. Cape Cod Lighthouse Charter School has operated from leased space Orleans, MA since its founding in 1994 and intends to relocate to the East Harwich facility. Also in October 2011 OCW Retail/The Wilder Cos. presented for Site Plan Review a plan to construct an 8,050 square foot free-standing commercial structure on an out parcel at Southwind Plaza along Iyannough Road in Hyannis, MA.
By and large, local commercial real estate brokers surveyed were generally optimistic and encouraged by the steady increase in property inquiries, the improved availability of acquisition financing, and the overall regularity in which deals are now getting done albeit at a lower volume. Local opportunity buyers, acquiring for investment purposes or owner-occupancy, are among the most active prospects. Consistent with the time of year, essentially all brokers indicated they had one or more transactions in the works with end of the year closings targeted. Absent any urgency or special contingencies, extended transaction periods appear to be the norm for the time being.
Joseph P. Egan is a MA Certified General Real Estate Appraiser and MA Real Estate Broker with nearly 30 years of professional valuation experience. Through a specialization in commercial real estate and closely-held businesses, since 1991 he has completed over 700 appraisal, brokerage and consulting assignments concerning all types of commercial real estate assets and going concerns located on Cape Cod, Martha’s Vineyard, Nantucket, and Plymouth County, MA. Clients served generally include attorneys, banks, corporations, developers, investors, and owners of closely-held and family businesses. Prior to relocating to Cape Cod, Joe worked in the New York Metro Area and throughout CT with leading regional and national appraisal firms such as Cushman & Wakefield. Please contact Joe here.
