CHARLOTTE – Several real estate executives spoke about the condition of the city’s real estate market Tuesday morning from the stage in a glitzy ballroom at the uptown Hilton, which coincidentally is in one of the submarkets they were most excited about.
The tone in the room was mostly positive, as would be expected from a corporate-sponsored event called “Third Annual State of the Market.” More than 200 people had registered for the event, which was hosted by Bisnow, an event coordinator and electronic business news publisher, and sponsored by accounting, tax and advisory firm CohnReznick; Bohler Engineering; and Federal Capital Partners.
Each of the six panelists said they see Charlotte as an improving real estate market.
But the breakfast wasn’t all rainbows and butterflies. The panelists each spoke briefly about challenges and concerns they have in Charlotte real estate, and what they see on the horizon in their crystal balls.
The panelists’ optimism in the Charlotte market is rooted in three submarkets that are among the wealthiest in the city: Ballantyne, Uptown and SouthPark. In responding to a question about the overall state of the Charlotte real estate market, all six mentioned at least one of those submarkets.
Peter Pappas, principal of Charlotte-based Pappas Properties, said he’s noticed a lot of new activity in SouthPark and uptown. And he isn’t alone.
“Charlotte is tightening in uptown,” said Tori Kerr, managing director of asset management with Houston-based Hines. “Large blocks of space (around town) are disappearing.
“In the last couple of years, it’s been great to see institutional investors come into the market.”
Barry Fabyan, senior vice president and manager with Bissell, said Ballantyne is a submarket in which his company has continued to see growth.
“We have made our bed in that part of the world,” Fabyan said. “(We have) 5.5 million square feet of office space and we’re seeing office swing back to landlord’s market.”
Fabyan said Bissell is giving away fewer concessions – perks that encourage tenants to lease space – and is not giving away free rent, both signs of the emerging landlords market. During the tougher economic times, it wasn’t uncommon to see leasing companies offering free or reduced rents for a few months to entice potential tenants.
The panelists said the strengthening leasing landscape in those submarkets has led to more interest from developers and investors in those areas. In addition to Pappas, Kerr, and Fabyan, the panel included Chris Thomas, a partner with Childress Klein Properties; Bryan Howell, vice president and managing director of the Charlotte office of Parkway Properties; and Bryan Kane, vice president of acquisitions for Federal Capital Partners. The moderator was Cristi Lewis, a partner with CohnReznik.
But even with the growing markets and the likelihood of new commercial development in those markets, the real estate executives didn’t exactly exude confidence. Building speculative space, a sign of a bullish real estate market, still seems a way off, the panelists said.
In tougher economic times, when a developer wants to put up a commercial building, such as an office building, a lender will want to ensure it’s making a good investment. To do that, a lender may require a project owner to have commitments from tenants in the form of preleases. If a building gets a certain percentage of space filled in advance, a lender is much more likely to cough up the cash.
The real estate insiders weren’t in complete agreement on the percentage of a building that must be preleased before a lender is comfortable, but they did all agree that it’s a sizable chunk. Kerr said in a market like Charlotte, developers should expect to have a building 50-percent to 75-percent preleased before a lender will be willing to finance the project.
Howell, of Orlando, Fla.-based Parkway Properties, said 50 percent is on the lowest end of the spectrum. He said developers should expect to lease in the 60-percent range before getting financing.
Others have circumvented the preleasing requirement by paying cash for their buildings. Fabyan said his company has used equity to finance its projects during the recession.
“Nobody is going to lease until they can ride an elevator,” he said. “Bissell hasn’t had the guts to go to a lender.”
But even if the market isn’t back to prerecession highs and spec office space isn’t popping up all over the city, Kerr said, she expects development.
“The market is tightening,” she said. “New development looks much more likely than it did 12 months ago.”