by Paula C. Squires
One of the country’s biggest players in real estate investment brokerage is increasing its Virginia presence. Marcus & Millichap Real Estate Investment Services opened an office in Williamsburg this spring to be within easy reach of the population centers stretching from Richmond to Virginia Beach.
“It’s a great area,” says Gary Lucas, a managing director and senior vice president for the Encino, Calif.-based company. “Growth has been strong. There’s a lot of nice retail that has been built over the two to three years.”
Lucas acknowledges that business isn’t booming during an economic downturn, but says the private company is getting into new, smaller markets to build relationships and opportunities for investors. “We figure it’s just a cycle, and we’re working through it.”
Marcus & Millichap already has 78 offices in major cities across the country, including one in Washington, D.C., and a smaller, satellite office in Reston. The company says that it closed investment deals worth more than $20.7 billion last year for private and institutional clients, figure just slightly higher than its business volume in 2006. In Virginia, it’s currently listing more than $150 million worth of inventory ranging from hotels to industrial, office and multifamily projects.
So, are people investing in commercial real estate after the collapse of the residential real estate market? In a word, yes. High-net-worth individuals are on the lookout for good deals, says Jay Sloan, a broker in the Williamsburg office. “As prices go down and banks tighten up reins on lending, people with real money come out,” he says. “It gives them a chance to maximize their opportunity, to buy in a down cycle and sell in the next up cycle. The margin of profit is much greater for them.”
Pushed out of the market are buyers in need of financial leveraging. At a time when banks have tightened up on lending, it’s not easy for investors to raise equity or meet requirements for debt financing, with Sloan seeing some banks requiring as much as 40 percent down.
According to him, Marcus & Millichap has done many deals recently in Virginia, including the sale of Beaufont Mall in Chesterfield County. County records show that the 46-acre community shopping center, assessed at $16.4 million in 2008, sold for $17 million in February to a private owner. Apparently, it’s being redeveloped into a sustainable
retail/office project, according to Timmons Group in Richmond, which has been retained to provide civil engineering services. Sloan says he recently got a sales contract on the Days Inn Hotel at the Norfolk Airport.
A majority of the firm’s transactions involve private investors, including individuals, partnerships, family trusts and developers. With overall transactional volume down across all commercial real estate sectors, Sloan is noticing increased interest in apartments and storage centers. Those trends track the economy. As fallout from the subprime
mortgage crisis leads to more foreclosures on single-family homes, some people are moving into apartments and may need extra space to store goods.
Besides Williamsburg, Lucas says the company plans to open several other new offices in Portland, Maine, Pittsburgh and Jackson, Miss.
In theory it’s a good time to buy, he notes, with some distressed properties offering price reductions. Yet, Lucas sees resistance from some sellers. “They’re hanging on.” Since many commercial properties are income-producing, “tenants are still paying the rent. So instead of selling at some bottom price, they’re holding so there’s a reduction in
Plus, some buyers might be spooked by foreclosures. While delinquency rates on commercial mortgages remain low, residential real estate is seeing many defaults. A few commercial projects in Virginia have ended up in trouble. For instance, construction stopped earlier this year on the Marquis Shopping Center in Williamsburg after contractors filed liens against developer Premier Properties. Premier defaulted on its loan, and the primary lender foreclosed on the property in late July. That same lender, CIT, later purchased the Marquis during a foreclosure sale, paying a reported $20 million for a 240-acre property assessed at more than twice that amount. CIT plans to find another developer to finish
the project so that liens can be paid and the shopping center — with some stores already open — can generate revenues to repay $32.8 million in community development bonds.