[February 26, 2009]

The News & Observer, Raleigh, N.C., Real Deals column: Shopping center sale shows lending is tight

(News & Observer, The (Raleigh, NC) Via Acquire Media NewsEdge) Feb. 26--As lending remains tight, buyers continue to reap the benefit. The latest example comes from Northwest Raleigh.

Midland Atlantic of Cincinnati paid Kerr Family LP $7 million for Pinecrest Pointe, an 89,000-square-foot center on Leesville Road south of Interstate 540.

The price was 12.6 percent less than the tax value, which was assessed at the height of the commercial real estate boom. More telling, perhaps, is the cap rate: 9.5 percent. The 20-year-old center was 90 percent leased at the closing Feb. 12.

At the height of the lending boom, bidders big and small abounded, and prices soared faster than a property's rents, leading investors to accept lower returns.

Cap rates, the ratio of a building's annual net income to its purchase price, dropped to an average of 6.7 percent at the beginning of last year from 7.9 percent at the beginning of 2004, according to Real Capital Analytics, a New York real estate researcher.

But as banks have tightened up, they've required more equity from borrowers -- as much as 50 percent in some cases.

Many banks have shut out the most illiquid borrowers. And fewer bidders mean lower prices, so those who have to sell are doing so at a discount.

A nationwide study released this week by Moody's and Real Estate Analytics shows commercial property values fell 14.9 percent in 2008.

Nationally, retail real estate sales in 2008 came to just $19 billion, down 74 percent from 2007. Cap rates are expected to rise north of 7.5 percent this year. "How much more retail cap rates rise remains an open question," analysts at Real Capital write.

But a sign that lenders are still dealing: Midland got 92 percent financing from Tristate Capital Bank of Pittsburgh.

Anthony & Co. wants to capitalize on the tight lending environment. The Raleigh brokerage opened a division that focuses strictly on distressed assets and projects.

It will help lenders, developers and investors unload or buy properties that aren't meeting investor expectations as a result of management issues, defaults or debt obligations.

The division's clients are often reluctantly taking over ownership responsibilities today, said Jim Anthony, the company's president. "We can analyze it, reposition it, manage it, entitle it, and sell it to optimize values," he said.

Anthony expects the division to grow in the months ahead. But as lenders loosen, properties will move, and the unit will wither.

"It's a service designed to meet a need that we hope won't be around for too long," he said.

The foreclosure sale of Hasentree, the luxury golf community in northern Wake County, has been postponed again.

SunTrust Banks, the lender hoping to recover about $39 million borrowed by Raleigh developer Creedmoor Partners, pushed to March 13 the auction of the majority of the 934-acre project. The sale, which could be postponed again, was scheduled for today. It's the third time it has been rescheduled.

For sale is a package encompassing portions of the project that haven't been developed, as well as unsold parcels that have been developed, open space and amenities including the golf course, tennis courts, activity centers and walking trails.

The delay could give potential bidders more time to examine the parcels in northern Wake County, perhaps leading to higher bids.

The added time also could give Creedmoor, led by Triangle real estate veterans Carlton Midyette and Henry MacNair, a chance to find new financing.

jack.hagel@newsobserver.com or 919-829-8917 To see more of The News & Observer, or to subscribe to the newspaper, go to http://www.newsobserver.com.

Copyright (c) 2009, The News & Observer, Raleigh, N.C.

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