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BREA, CA-Guthrie Development Co. of Costa Mesa, CA has sold 22 of the units in its newly completed Guthrie Lambert Business Center in Brea, CA and has the remaining six in escrow, but Guthrie president John O’Brien doubts the market would support the project were it to get started now. “We timed it right,” he says. “Most units were pre-sold, but the market has changed since then.” By contrast, he reports few buyers have shown interest in a 13-unit condo conversion project the company is launching in San Dimas, CA.

O’Brien attributes the sales fall-off to the disappearance of speculative and investment buyers, many of whom were funding their purchases through refinancing their homes. The remaining market consists almost exclusively of owner-users. But many of them have been sitting on the fence to see what happens in the credit market. “Most of these buyers are financed through SBA programs, and while rates have come down on those, they’re watching to see if they drop even more,” says the Guthrie exec.

Richard Eggemeyer, president of Eggemeyer Commercial Real Estate in Bellingham, WA, says a condo project his company completed last year, the first in his market, did very well, but projects currently in construction are selling very slowly. “We probably have a 12-month inventory with what’s standing and what’s coming out of the ground,” he says. “We’re getting quite a bit of price resistance. There’s a disparity between construction costs and what the consumer is expecting.”

Eggemeyer pegs asking prices in the Bellingham market at $100 to $110 a sf, with $20 a sf in tenant improvements. He says buyers expect to pay $80 a sf tops. “Most people do not understand how energy costs have impacted construction costs. Costs are up about 30% to 40%. We still have a disconnect,” he tells GlobeSt.com.

O’Brien says there’s a similar disconnect between sellers and buyers of development sites. “We haven’t found any land in our market that makes sense in terms of what we can sell our product for,” he remarks. “Sellers have high expectations as to what they can achieve, but we’re not going to stretch. We’re going to stay pretty disciplined.”

Tulfra Realty Co., a Rochelle Park, NJ company that specializes in buying and repositioning Northern New Jersey industrial properties, has acquired the 50-year-old, 507,400-sf L.A. Dreyfus Co. building in Edison for conversion to industrial condominiums. Though Tulfra partner S. Lloyd Tulp says his company and its acquisition partner, investment funds manager Hampshire Cos. of Morristown, NJ, are confident of the project’s viability, the acquisition comes at a time the industrial-condo market appears to have entered a period of slackened interest. Tulp says the Dreyfus building’s age reduced its value to a point where the cost made sense in his market.

Despite the fall-off in demand, O’Brien believes the underlying fundamentals remain strong. In fact, he is using the down time in Southern California to scout Phoenix and Salt Lake City for lower-cost development possibilities. But those markets, especially the latter, remain largely untested, which could be problematic.

Ryan Smith, vice president of San Antonio-based Cross & Co. reports his company abandoned plans for what would have been that market’s first industrial condo project and will rent the space instead. “We marketed it for six months but really didn’t have any activity,” he says. “I don’t know if it was the lack of depth in the market, the change in economy or our inability to market. But I don’t see any upside in condos here at this point.”

O’Brien acknowledges each market is unique when it comes to industrial condos and must be closely examined, but he says markets where the product has proven itself will turn around as lease rates also rise in response to higher construction costs. “Southern California rents were fairly flat for a decade, but we’ve seen a pretty steady increase recently,” he says. “We lag that, but once the guy who needs 5,000 sf and will always need 5,000 sf gets tired of rental increases, he’s going to look into buying. And we’ll be there for him.”

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