Commercial real estate.

• Position: Industry Outlook - Interview

The commercial real estate market is primed for a rebound. With vacancy rates falling, pent-up demand will soon outpace the available supply of commercial space. Industry insiders discuss the implications of low inventory and scarce construction activity combined with exploding demand.

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PARTICIPANTS:

Back Row:

John Dahlstrom, Wasatch Properties; Bruce Bingham, Hamilton Partners; Greg Shields, Pentad Properties; Mark Bouchard, CBRE; Jacob Boyer, The Boyer Company; Carl Barton, Holland & Han.; Michael Drury, United Mergers and Acquisitions

Front Row:

Steve Peterson, Millrock Capital; Brandon Fugal, Coldwell Banker Commercial; Eric Woodley, Prudential; Chris Child, Marcus & Millichap; Steve Kieffer, Big-D Construction; Scott Bennion, Riverpark Development; Nick Teseros, Newmark Grubb ACRES; Graig Griffin, Keller Williams Park City; Jeff Edwards, Economic Development Corporation of Utah; Andrew Bybee, Thanksgiving Park and Thanksgiving Station;

Seated:

Kip Paul, Cushman & Wakefield I Commerce; Shelli Menegos, BOMA Utah; Vasilios Priskos, InterNet Properties; Peter Corroon, Ninigret Group; Jon Anderson, Anderson CRG

What is the state of the commercial market at the moment? Anyone want to give us a 10,000-foot view of how things are going in this current climate?

FUGAL: Utah has joined the national stage, officially. We are seeing more Fortune 500 and national players, both tenants and buyers, evaluating the Utah market. More so than ever before. We have seen mass transit come to Utah along the Wasatch Front over the course of the last few months, which is going to usher in a whole new era of growth and change. And for the first time we are seeing improvement in all sectors. Housing is on fire. Office, retail, industrial and the investment market seem to be coming back. So we are in the midst of a perfect storm of activity and growth that will hopefully carry us forward into the future.

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CHILD: At Marcus & Millichap we have nationally record-low inventories. We also have, at the same time, more qualified, experienced buyers, many of whom are part of either hedge funds or equity firms or kind of mini equity firms that have pulled together in order to meet the higher equity requirements. They want to take advantage of the low interest rates and they are having a hard time finding inventory.

CORROON: Steady and rising is what I'm feeling out there. In just the short few months that I have been in the market, we are seeing more national companies taking a look at Utah.

BOUCHARD: I agree we are attracting more national attention. Salt Lake City has one of the better-performing markets in America over the last few years. We are getting a reputation for stability--that we know how to attend to our affairs--which is attracting a great many corporate clients of interest.

The challenge is that we are a small state with a limited workforce. Major capital investors in big companies aren't necessarily looking at just the equation of the stability that we can offer and some of the better qualities we have, but also the limiting factor of how deep our workforce is. That's coming up more and more often as you really delve into it. It's not the director of real estate globally any longer that is looking at expansions for companies. It's the director of HR. They are really looking at the human capital element more than they are looking at the real estate element when they are considering expansion. That's an area we have some work to do with shoring up here in Utah.

EDWARDS: Our office also sees that upward trend in interest. Right now we have about 334 projects--qualified leads that come into our office that we have clearly identified as being an interested lead. If you take the "tire-kickers" out of that group, there's 165 active projects. The diversity of interest is just all over the map.

DRURY: We are seeing a lot of activity supported by mining, oil and gas. There's a lot of large companies moving into the Uintah Basin that have now discovered the oil reserves and the infrastructure that we have to offer so close; up in the North Dakota region, they don't have the infrastructure that we have.

Are there any sectors that are doing particularly well, or any that are particularly challenged right now?

CHILD: Our top broker is a young broker named Adam Lewis. He has been beating his head against the wall trying to sell industrial and office distressed for the last five years, and he is hitting it out of the ballpark this year. He has more closings and more in the pipeline this year than any other broker. I think that's a good story for what's happening right now.

FUGAL: Distressed deals?

CHILD: Yes. They are half occupied, $60 a square foot. He has an investor pool that is coming in and buying them who can see that things are going to improve, that they are going to be able to re-tenant the buildings. These are dog-eared, but good quality, good locations, especially in Utah County and even in Ogden, which really has had some great growth.

The sector that sticks out to me is multi-family. In Utah County, where we have two universities that are growing rapidly, we have multifamily projects sticking their head up all over the place.

SHIELDS: In addition to that, we've got probably a thousand new hotel rooms in various stages of planning in the downtown Salt Lake area, and more coming. In suburbia they are slow and a little hard to put together. And that's in addition to wherever the convention hotel ends up.

Do you see the hotel interest just in Salt Lake County or is it elsewhere?

SHIELDS: It starts here but it is going out elsewhere and picking up. Almost everybody is up. It bleeds down. The better properties do better first. The B and C properties are starting to see upswings finally. They were more hit by the recession. But it's expanding out, and sites are hard to come by again. Entitlements are difficult. But it's continuing to expand, and we will probably see more new developments outside of Salt Lake coming on line in the next 12 months. Most of them in the last 12 months that are in process are here in Salt Lake City.

GRIFFIN: We will certainly see more in Salt Lake City, maybe even another super luxury product in the next couple of years. Pretty much everyone is looking, the Who's Who. We have a lot of national companies who aren't there that are looking.

The super luxury would go into Park City?

GRIFFIN: Yes. We may see a third player there. But the number of inquiries we have had for hotel sites is far more than we can deliver.

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