CIP Blog

Knoxville Real Estate

The Knoxville market has been an interesting place the last couple of months.   I just returned from the Knoxville Area Association of Realtors (KAAR) Trade Show and found many residential realtors content with the market’s direction, not thrilled just content.  Of course they are residential realtors, not commercial.  Commercial tends to lag about 12 to 18 months behind the residential market.  That is what happened on the way down, will it happen on the way up?

There is good news from the lenders side.  From several developers and mortgage brokers I have talked to institutional lenders are loosening the strings and getting more aggressive.  Most of that is for permenant financing.  Banks however are very tight fisted with the money on commercial deals and that may not change anytime soon.

On the leasing and sales side of the market it really depends on who you talk too.  Many brokers say they are working hard and showing space but not many deals are closing.  

If you talk to Spery Van Ness/RM Moore you will get a different story.  In today’s Property Scope put out by the Knoxville News Sentinel you can read about the success RM Moore has had in the first quarter of 2010. 

http://blogs.knoxnews.com/flory/2010/04/local_brokerage_sees_jump_in_c.html

Looking for some good news in commercial real estate? Sperry Van Ness/R.M. Moore is happy to oblige.

The local brokerage firm said this week that its sales and leasing transactions were up 450 percent in the first quarter, compared to the same period in 2009, while volume was up 863 percent.

“We feel it is a great sign of the economy recovering and heading in the right direction,” firm president Roger Moore said in a news release. “Our leasing activity in both retail and office has been excellent in the first quarter with over 150,000 square feet leased.”

As far as businesses coming to Knoxville, the city contiues to be one of the top locations for business, although the city did call a few spots in the release of yesterday’ s Forbes Best Places for Business and Careers. 

From the Knoxville News Sentinel:

Metropolitan Knoxville dropped to No. 56 on Forbes’ 2010 list of the Best Places for Business and Careers.

That’s down from No. 43 on the 2009 list and a high-riding No. 10 in 2008.

Plummeting 46 spots in two years, that’s the bad news. The good news is that Knoxville still ranks higher than 144 of the 200 largest metros in the country.

It’s all relative.

Forbes considered a dozen metrics for its 12th annual rankings, including the cost of doing business, projected job growth, cost of living, income growth, educational attainment, crime and others.

 The leaders on the metro list are mostly “Midwestern and Western cities, areas with reasonable business costs, strong economic outlooks and a solid quality of life,” the Forbes story says.

Des Moines, Iowa is No. 1, followed by Provo, Utah; Raleigh, N.C.; Fort Collins, Colo.; and Lincoln, Neb.

Knoxville’s overall ranking was hurt by lower rankings in the cost of doing business, income growth and job growth categories. The sharpest decline was in income growth, falling to No. 193 from No. 142 in 2009.

The cost of doing business (labor, energy, taxes and office space) ranking in 2010 is No. 27, compared to No. 19 last year. The job growth ranking (five-year annualized figures) for this year is No. 116 compared to No. 92 in 2009.

As I mentioned, the news wasn’t all bad. Knoxville showed improvement in some metrics. The city’s ranking for educational attainment (share of population with a bachelor’s degree or higher) rose 11 spots to No. 84 from No. 95 on the 2009 list.

Metro Knoxville’s crime rate, sensational crime stories notwithstanding, also is better. Knoxville’s ranking (crimes per 100,000 people) improved to No. 117 from No. 126 last year.

The Knoxville area’s cost of living ranking (based on cost of housing, utilities, transportation and other costs) also improved, rising to No. 76 this year from No. 83 in 2009.

And, finally, Forbes expects Knoxville to generate more jobs than it did last year. The city’s projected job growth ranking rose to No. 126 from No. 142.

I think Roger Harris put it best when he writes is all about your perspective.   Being one of the top 60 cities in the country for business is a great accomplishment.  Also, these surveys can be cyclical.  If Tennessee or Knoxville has a bad year in recruitment or another rated metric it can significantly effect the rankings.

Knoxville is still getting shots a quite a few big projects.  From what I have been told the Knoxville Area Chamber Partnership has been inundated with requests for information from major companies.  And I expect to see the trend continuing in the near future. 

If you have any questions pleaes feel free to contact me at 865-584-3967 or jcazana@ciprop.com.

www.ciprop.com

Knoxville's Newest Office Building

There is a PR saying that goes “All publicity is good publicity”.  Some believe it, some don’t.  I like to pick and choose the times to like it. 

Certainly anytime one of your brand new buildings is a lead in the Knoxville News Sentinel it can be a good thing…unless the topic is how empty it is.  That is what happened last Friday.

Center Court at Lonas is a 40,000sft Class-A office building near the intersection of Lonas and Weisgarber in West Knoxville.  It has everything going for it…

Location: two minutes to I-40, 8 minutes to Pellissippi Parkway, 10 minutes to downtown.

Construction: Brick with floor to ceiling windows and ample parking.

Lease Rate: $19.00psf (full service net of tenant utilities).  You will not find a lower lease rate for a new building in Knoxville. 

Neighbors:  Bush Brother’s Beans and Pilot Oil corporate headquarters, two of Knoxville’s most successful businesses (this area breed’s success). 

What it doesn’t have are tenants.  The building was completed last summer and has had lots of activity but we haven’t closed any deals. 

Much of this is due to the recession.  The economy has done lots of things to the office market.  For one it has forced businesses to table expansion plans; but another factor is many corporations have downsized and looked to sublease their left over space.  If you could find sublease space for your company in a Class-A building for $11.00psf you would jump at it.  This is happening all over Knoxville and the nation.  

Commercial & Investment Properties has developed many of the buildings in the Papermill/Weisgarber corridor; Bush Beans Headquarters (originally called Wimbledon Park), Pilot Oil HQ (named Central Park West) and the Atrium.  That is five buildings within a mile of each other and there is currently no space available in any of the five. 

 Center Court will soon join them.  As a glass half-full type guy I like to think the building is 100% available instead of 0% occupied.  It gives us lots of possibilities.

 If you read the article below you will see my quote about the wave and the ebb.  Ask any one in commercial real estate and they will tell you it is a real thing.  A good example is our development Century Park at Pellissippi. 

100% leased prior to completion.

When built in 2004, Century Park I was 100% leased prior to completion.  That never happens in multi-tenant buildings in Knoxville.  In fact, it’s the first time we had done it in 35 years of business.  A year later we built our second building in the development.  It took 11 months before it was even 40% leased.  The wave and the ebb. 

 Is there pain in commercial real estate?  Yep.  With the proper planning, experience and insight can you get through it?  Absolutely. 

 Feel free to contact me if you have any questions jcazana@ciprop.com.

 Enjoy Josh Flory’s article.

 http://www.knoxnews.com/news/2010/feb/18/pain-seen-local-commercial-real-estate/

If you’re looking for new office space, Center Court at Lonas has plenty of it.

Located in West Knoxville’s Weisgarber Road corridor, the two-floor, 40,000-square-foot building was completed last June — but so far it has no tenants.

That’s bad news for the developer but a good example of the pain that’s afflicting the commercial real estate industry locally and nationally.

As the economy continues to struggle, the pinch is being felt by owners of commercial property and the banks who gave them loans. Some observers are worried that the commercial mortgage industry is headed for a collapse similar to the residential meltdown, which sparked the recent recession.

The Center Court office building was launched by veteran development firm Commercial & Investment Properties, and leasing director Justin Cazana said Thursday that the company builds in contingencies to make sure it’s protected. “It’s a cycle that sometimes you catch the wave and sometimes you catch the ebb,” he said. “And we caught the ebb.”

Across the country, though, there is growing concern that some landlords are headed for a wipeout. Earlier this month, the Congressional Oversight Panel issued a report saying it was deeply concerned that commercial loan losses could jeopardize the stability of many banks, “and that as the damage spreads beyond individual banks … it will contribute to prolonged weakness throughout the economy.”

As the report noted, the financing strategy for commercial property owners is different than that used by the typical homeowner. Once a building is leased, for example, the amortization schedule on the commercial mortgage may stretch over 30 years, but the mortgage term is much shorter, meaning it must be refinanced anywhere from three to 10 years after it goes into effect.

The report said that between 2010 and 2014, about $1.4 trillion in commercial real estate loans will reach the end of their terms and nearly half are currently underwater, meaning the borrower owes more than the underlying property is worth. That means it could be very difficult for many of those property owners to get new financing.

“A significant wave of commercial mortgage defaults would trigger economic damage that could touch the lives of nearly every American,” the report said. “Empty office complexes, hotels and retail stores could lead directly to lost jobs. Foreclosures on apartment complexes could push families out of their residences, even if they had never missed a rent payment.”

East Tennessee won’t necessarily be spared from that impact. At a roundtable discussion Thursday, commercial broker Roger Moore, the president of Sperry Van Ness R.M. Moore, said that historically Knoxville has been more immune to recessions. “I think everybody understands we’re really part of this one,” said Moore.

Maribel Koella, principal of brokerage firm NAI Knoxville, said in an interview that asking prices for property are going down and that lease rates are going way down. “Landlords have figured it out,” she said. “In order to compete with the property down the street, they have got to lower rents.”

At Thursday’s forum, Koella also echoed Moore’s point about pain being felt in the local market. According to NAI’s numbers, the total volume of commercial.

On occasion we will post stories from the Knoxville News-Sentinel (or other publications) related to Knoxville commercial real estate or Commercial & Investment Properties (CIP).   This one happened to come out today.

Josh Flory did a masterful job breaking down the last few hours of negotiations and deal making that went into a closing of this magnitude (during the holidays, no less).  

This was a project that literally started years ago and continued with hundreds of man-hours over the past six months.  Everything from negotiating the sale price, to financing, to determining construction costs for the improvements were detailed.

Here is a link to the story as well. http://blogs.knoxnews.com/flory/2010/01/hotel_deal_included_meetings_o.html

With his deal for the downtown Holiday Inn Select on the line, Nick Cazana got an unpleasant surprise a few weeks ago: one of the banks that was supposed to provide financing had dropped out.

So what did the developer do? He called Jim Clayton.

“Jim put me on hold and about two minutes later (he) had his executive lending team on the line with me,” Cazana recalled in an interview on Tuesday.

The call paid off. Clayton Bank & Trust stepped in to provide half of the bank financing for a deal that Cazana calls the most complicated of his career.

The sale of the downtown Holiday Inn at 525 Henley Street was finalized on the last day of 2009, but details of the transaction have become more clear this week. A deed on file with Knox County showed that Cazana’s group paid $8.5 million to buy the hotel from a group led by Chattanooga developer Franklin Haney .

Cazana said Tuesday that Harrogate-based Commercial Bank — which has offices in Knox County — is lead lender on a $10 million financing package that was split equally with Clayton Bank.

According to Cazana’s attorney, Commercial Bank is the holder of tax-exempt bonds that were issued by the Knoxville Industrial Development Board, with Clayton Bank buying an interest in the bonds. Knoxville City Council last year approved the bond issue under the federal Empowerment Zone program, although no public money is to be used to pay off the bonds.

Cazana has outlined a renovation plan for the hotel worth more than $4.5 million and said a private investment group is putting $4 million into the deal. He declined to identify the investors, but said they are individuals who already have a substantial financial interest in Knoxville.

Asked Tuesday about his bank’s participation in the hotel deal, Clayton, the bank’s CEO and founder of Clayton Homes Inc., cited the nearby Knoxville Convention Center, saying the Holiday Inn seemed like the last easy, quick opportunity to have a first-class lodging facility adjacent to the meeting facility.

Clayton also indicated that the quick work highlights the advantage of local banks.

“If we had had board committees and credit committees across the plateau or across the mountains, it’d have been impossible,” he said. “But we got together in the conference room, you see, and brought in a couple of board members and we had the deal done.”

Clem Renfro, regional executive officer for Commercial Bank, said his bank has a long-standing relationship with the developer.

“We became involved (in the project) because Nick’s our customer and we have extremely high confidence in he and his staff and his team,” the banker said.

Cazana said he never spoke with Haney during the negotiations, but that an important role was played by Tom Ingram, the former chief executive of the Knoxville Area Chamber Partnership who is now a key strategist for Knoxville Mayor Bill Haslam’s gubernatorial campaign. Cazana said Ingram contacted him in midsummer, indicating that Haney wanted to work out a deal.

But while the hotel sale has been finalized, the negotiating isn’t over completely. The Holiday Inn building is connected to a city-owned common area and mechanical rooms, and to meeting spaces one floor down from the hotel lobby. Cazana’s group is hoping to acquire the city-owned space, although his attorney, Culver Schmid, emphasized that the state also has an interest in the property and would have the ultimate say in such a deal.

Cazana said Tuesday that his group is assuming the lease for the common area, under which the city is paid $100,000 a year. The city, he said, spends about $125,000 a year on maintenance for the space. Cazana is hoping for a deal in which his group would take ownership of the space in exchange for assuming the maintenance costs and investing $250,000 to $350,000 in renovations.

Bill Lyons, the city’s senior director of policy and communications, said the issue won’t come up at the next couple of city council meetings, but said that “we have no reason to believe that (it) won’t all work.”

At any rate, renovations have already begun at the Holiday Inn. On Tuesday, Cazana showed the building, where a worker on stilts was removing ceiling tiles from the dingy back-office area, and many of the wall coverings had already been torn off.

Later, he walked through the guest area of the hotel, highlighting a red-patterned hallway carpet which had already been removed from the lobby — “early Tijuana” was his description of the style — and showing where workers had already torn into a bathroom to determine what was behind the walls.

And despite the challenges, the hotel project also has been unique in a positive way. As he walked back through the lobby, the developer said the deal is “the only project I’ve done in 40 years (that) has 99 percent … support.”

——More from the Property Scope Blog———–

This morning’s KNS has an interesting story about how the downtown Holiday Inn sale came together:

With his deal for the downtown Holiday Inn Select on the line, Nick Cazana got an unpleasant surprise a few weeks ago: one of the banks that was supposed to provide financing had dropped out.
So what did the developer do? He called Jim Clayton.

“Jim put me on hold and about two minutes later (he) had his executive lending team on the line with me,” Cazana recalled in an interview on Tuesday.

The Scope also had to leave some interesting details on the cutting room floor, such as this comment from Cazana:

“I was concerned the whole time that this transaction would not close.”

The developer said the deal had to be finished by the end of the year because of a deadline related to the Empowerment Zone bonds. As a result, his team had to put the pedal to the metal in the last couple of weeks.

Cazana said his CFO talked to Clayton at 7:30 on Christmas Eve morning, and that a group including himself and Clayton met for more than two hours later in the morning.

Cazana said the closing started at 10 a.m. on New Year’s Eve, and didn’t wrap up until around 4 p.m.

Thanks for reading