For investors, cap rates have risen, so this is a good time to buy properties that have a long-term rent roll of creditworthy tenants. Conversely, speculative investors must beware (i.e. buying into a situation and pro-forma(ing) a lease-up scenario that is more aggressive than actual market velocity suggests).

Foreclosures in commercial properties are lagging the economy as existing leases expire and lower value renewals and extensions come into play. Further, landlords and their bankers are backing off of the deals that they pro-forma’d in lease documents -have to or they’re throwing in the towel competitively. Doing long-term discounted deals may keep landlords and bankers alive (they’ll have to renegotiate loans), but it will keep the industry in the dumps for some time to come.

Another interesting phenomenon is that tenants are asking for very rich tenant improvement letters these days. Sometimes the funds will actually go into fitting out the space. Other times, they’re actually using their landlords for debt financing that they can not get from their banks. Even more interesting – landlords with capital are meeting these demands and to some extent step into the shoes of commercial banks.

For end users that want to buy a building in which to run their business? The candy shop is open, and so long as their credit can support the mortgage (understand that they need to put more skin into the game now – just like residential) there are great values out there.

I generally disagree with your belief that commercial real estate (retail in particular) is dying. If you really look at the fundamentals of what percentage of retail transactions happen over the internet, it’s something like less than 2.0%. While that may change over time, retailing as we’ve known it will not change all that dramatically.

In regards to office space, being and working together is what companies are all about. I’d suggest to your friend that unless they exist in a technology-specific business, they stand little chance of succeeding in the longer run.

I work in the commercial real estate industry and think that the fundamentals underlying this downturn are mostly related to the capital flows and not over-supply as has been the case in most market swoons. Having been through a number of these ebbs and flows, I think it’s a particularly great time to invest in real estate. Risk will be rewarded and those with capital will be king. At this part of the last major real estate depression, Donald Trump was almost bankrupt, but he kept investing, made some good calls and got paid for the risk he assumed.

This is just my take, but feel free to disagree.

Social change takes time. Some sociologists agree that social change takes three generations to take hold. Therefore as a computer and internet generation hits the work force, there is no doubt that their buying habits will be different than their parents who may also shop online and ultimately changing the commercial retail. But some of these internet and computer age people still have the need for social interaction. Therefore, they will continue to shop at the mall or a retail center. Furthermore, many people conduct their research online and opt to go a store once all research has been completed to see a product in person and make the final decision onsite. Based on my own shopping experience, the reasons I would buy in a store after having conducted my online research include no delayed gratification and emotions. However, there have been times when I have opted to purchase an item online after seeing it in a store because of lower prices, no taxes and no shipping costs, all factors that went into consideration prior to making a purchase. What many retailers offer today is a combination of online and in store shopping experience for their customers. Take Wal-Mart for example. Customers may purchase products online and pick up the items in store. I wouldn’t be surprised to see more and more stores offer that combination.

However, to answer your original question “But even with an incredible loan to value, is it wise to pick up a bunch of deeply discounted commercial space right now?”, I offer this: according to Benjamin Greazel, director of Cohen Financials “There’s no better time to purchase a $1 million to $2 million in-fill retail property than today,”. His advice is for small investors who are starting out. Read the short article at: http://www.realtor.org/rmocommercial/Articles/2009/0909_commercial_retailforbeginners .

NWarrick,
Thanks for your comment. It will be growing there yes. As Powder Mtn becomes more developed, that area in particular will grow. How long ago did you buy though and how long were you expecting to hold it?