"During the first half of this year, we saw historically low transaction volumes," comments executive director Darrell Betts with Cushman & Wakefield of Texas Inc.'s Houston office. "There's still money on the sidelines, but it wasn't going anywhere."
Nor, it seemed, are occupancies. Grubb & Ellis Co.'s Q2 figures pointed to a total vacancy of 15% and absorption of negative 520,000 square feet. CB Richard Ellis' figures weren't much better, showing a vacancy of just under 14% and absorption of negative 720,000 square feet.
Still, says Grubb & Ellis Co.'s Ken Page, occupancy levels in Houston are healthy, at least compared to the rest of the nation. "But it's difficult to get a loan," notes Page, who is executive vice president at the Houston office. "If you get one, it's not attractive. So not a lot of transactions are happening."
Another factor stalling sales is a lack of distressed assets. "We're getting a lot of inquires from buyers saying they've raised half a billion to buy distressed assets," Page says. "So we're in the waiting game for these distressed assets to pop up." Unfortunately, he adds, as loans become due and don't get refinanced, foreclosures will occur, with properties coming back onto the market.
Betts agrees, believing a number of those foreclosed assets will likely make their way to the market during the remainder of 2009, leading to an increase in transaction activity. "The distressed assets are starting to trickle in," he remarks. Also on the market, he continues, are smaller deals and value-add opportunities that are attracting mainly private capital. "But we expect the second half of the year to have properties at a much larger dollar volume trade hands," he comments. "As we're starting to see signs that the economy is near the bottom, people are preparing themselves for the ride back up."
Page, however, isn't quite so optimistic about a transaction volume increase, though he agrees some distressed assets will come to market later in the year. Sellers forced to sell, or who have assets in foreclosure, will likely generate a benchmark market figure buyers can finally hang a hat on. Financing, however, still remains a problem.
"The seller who doesn't have to sell shouldn't be doing so in this environment," Page adds.
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