As commercial real estate values are highly dependent on the income they generate (they aren’t too productive as empty shells), vacant complexes are shocking their owners right now with selling prices far below what people thought were worth not too long ago.
Thus it’s probably a great time to buy empty commercial real estate disasters… if you somehow can also bring in tenants as well, or be the tenant.
Case in point, the 100,000 square-foot ghost building just snatched up by the University of New Mexico:
The University of New Mexico has a contract to buy the empty, 99,033-squarefoot building at 1650 University NE for $4.6 million, a steep 44 per cent discount from the asking price of $8,250,000 just one-and-a-half years ago. The property had gone into foreclosure.
“We think it’s a pretty fair deal,” said Tom Neale, associate director of real estate at UNM. “We’re really focusing on the building and what it will take for us to renovate and upgrade the (building) systems.”
UNM’s purchase of the building is not a done deal. “We still need to go to the regents for approval of the transaction,” Neale said. “We’ll do that when we’re satisfied with our building assessment.”
Yet it’s not just the owner of the building above who’ll be disappointed by this transaction, other owners of other empty distressed properties will shocked as well given that transactions set benchmark prices for others in the market. Thus empty properties drag each other down, and what the guy next door got is a bad sign for what you’re going to get.
According to the Moody’s/REAL All Property Type Aggregate Index, commercial property prices are down 40.2% since their October 2007 peak, yet have rebounded moderately from their recent low point in October 2009. Yet it’s key to highlight that there’s reportedly a stark difference in performance between the tenant-haves and the tenant-have-nots. If you’ve kept your tenants, prices may have only dropped 10% on average.
For the vacant properties, transactions such as above suggest there are a lot of owners out there who haven’t fully come to terms with just how little their properties would go for, if sold today.
Now don’t miss: The Most Depressing Commercial Real Estate Disaster In America >