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Sales of commercial properties lag in Valley
youngstown
Though sales for new and existing homes increased significantly in Ohio and across the Mahoning Valley in June, the outlook for area commercial real estate looks bleak, according to local commercial brokers.
Sales of commercial property — just one of several economic indicators — are difficult to quantify. Their performance often is a measure of both the growth in a particular region and the confidence of lenders and buyers alike, says Joe Stefko, a commercial broker with Metro Group Inc. in Youngstown.
According to the U.S. Bureau of Economic Analysis, gross domestic product rose 2.2 percent during the first quarter of 2012 and 1.5 percent in the second quarter. During the first quarter, consumers and businesses moved in opposite directions. Consumer spending advanced 2.9 percent, while businesses cut spending by 2.1 percent.
The first quarter also saw more federal, state and local governments cut spending.
But commercial property sales are rising on the back of moderate economic growth, improving upon the stagnant sales of years past.
In its second-quarter report, that covers 54 of the nation’s largest markets, including Columbus, Cleveland and Cincinnati, the National Association of Realtors pointed to rising employment in office-using industries, increased international trade and a housing market turning owners into renters as just a few reasons for commercial vacancy rates declining.
The association anticipates an increase in commercial property sales in almost every region of the country through the third quarter of 2013.
The report also notes, however, that issues with financing remain. Despite year-over-year growth in commercial and industrial loan portfolios at many regional and national banks, the association reported that 70 percent of commercial brokers nationwide said at least one sale had failed to close as a result of financing problems.
Stefko, who has sold commercial real estate in Youngstown since 1985, said he wasn’t surprised.
“Nobody is buying on speculation anymore; they’re not willing to take the risk,” he said. “When they are willing, typically they take a cash position and make an offer that is not at all acceptable.
“If you’re a Walgreens, you aren’t going to have a problem getting into a building,” he added, “but if you’re a small business owner looking to open up a hot dog stand, the funding just isn’t there to drive demand at the moment.”
This, many brokers agree, is due largely to a bank’s unwillingness to underwrite investments on commercial property.
Banks view the purchase, brokers say, as being dependent on the success of the business and, at times, banks can be reluctant to expose themselves to such risks.
“This is why home sales will always outpace commercial sales,” said Michael D. Klacik, a broker and co-owner at Klacik Realty in Poland. “Lending institutions are very skeptical with any type of business operating in a rebounding economy. They’re naturally stringent with new homeowners, but even more so with investors looking in to commercial property — there just has to be a major proven track record in order for a bank to give the go-ahead.”
Both Klacik and Stefko estimated thousands of commercial properties are for sale in Mahoning and Trumbull counties, especially when multifamily apartment complexes are counted. A healthy number of commercial listings for an area that size should range between 500 and 1,000, Stefko said.
The area experienced a surge in commercial real-estate sales about 15 years ago, but when the 2002 recession set in, many companies downsized and scaled back on property and office space. Klacik said this is one reason why parts of the Valley have a high number of vacant buildings. Today, that supply outweighs demand, he said.
But Klacik was quick to point out that “prime commercial property” has sold quickly in some parts of the Valley. He said properties along parts of U.S. Route 224 have recently sold fast and in high numbers .
Lenders also are diversifying their offerings with asset-based lending, capital market and commercial leasing groups and preferred lending programs to meet the financing needs of a broader spectrum of clients.
“It will just take more time and more effort to get [commercial] sales back to where they were 10 or 15 years ago,” Klacik said.