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But most of the absorption this last year has been focused in key isolated hot spots with larger headquarter-type transactions. If you stripped all of the transactions that were 20,000 square feet or greater out of the absorption study last year, we would have been in big trouble. And as was mentioned earlier, there’s really very few blocks of large contiguous space. If you’re in north Utah County or south Salt Lake Valley looking for 20,000 square feet or greater, it’s virtually nonexistent right now, and there’s very little new construction to meet future demand.
PAUL: There’s definitely a sentiment of acceptance of what the market is. There’s been a lot of hand-wringing and wishing about what values would be. But I think on the part of buyers and sellers, there’s an acceptance and a desire to move forward and sell properties and acquire properties.
We’re also starting to see the return of multiple offers on projects. When you have a quality asset, you’ll receive multiple offers. And in several cases, we’ve had the prices exceed what the asking prices were, particularly with apartment complexes and retail. Apartments were the highest volume for the year with retail right behind it, so there’s still strong retail demand.
Approximately 60 percent of our buyers are local or in-state entities as opposed to the trend for the last 10 years of being roughly 50/50. And we also see the trend of an awful lot of cash transactions, despite the fact that financing is easy enough. A lot of buyers, to be quick and win the project, will pay cash under a quick-close scenario and then go refinance it after the fact. We think times are starting to improve and investors absolutely want to be in Salt Lake.
How does this group feel about whether we’re facing a significant shortage of supply, particularly in the industrial sector?
BOYER: We hear a lot about shortage of supply, but we’re willing and ready and able to build any building tomorrow if we have a tenant that’s got legitimate credit and is ready to go. It’s kind of this catch-22 of, you know, we don’t have enough supply, but then show me the tenant and then I’ll build the building. We’ll put spec into the market, but we’re not going to do 100 percent of the spec. So let’s get a lease for 60 percent of the building and we’ll take the risk on the rest of it.
I like what I’m hearing. It’s just translating that into signing leases. At the end of the day, that’s really what this business is about—if it’s an office business, it’s about signing leases and having credit tenants behind those leases that you can finance and bank.
FUGAL: The problem with that is very few office tenants are looking proactively 12 to 24 months in advance. If you look at companies that are driving our national economy and technology, a lot of those companies really didn’t exist in their present form four or five years ago. So you think of a typical CEO, CFO and what they’ve been through the last three years—even though we’re seeing really good activity, there are very few companies proactively looking 18 to 24 months in advance, which is necessary for a build-to-suit developer to really be able to stage that project.
It’s a challenge. Very few companies are really being proactive, and as a consequence they’re relegated to either second-generation space or ending up putting their requirements on hold or moving it out of state.
SMITH: The challenge is even though you have developers ready to build, it’s hard to do spec buildings now. You have to be very creative.
PETERSON: The climate we’re in makes it very difficult to take the total risk. I think what I hear Jake saying is we’ll take some of the risk, and that’s how we feel about it. Our lenders also require it. We’d love to put up another sizeable project, but it’s all contingent upon the leasing and credit tenants that we would take the risk. Everybody is just a little, maybe even overly, conservative because of what we’ve gone through in the past few years.
We’ve seen industrial buildings built in six months, which is very different than it was in 2008.
MOORE: We’ve built five new buildings at BDO fairly quickly. We built a Freeport building that was 500,000 square feet in about six months, and that was tenant driven, so it can happen. I wish we could affect financing and get more tenants in the door for you guys, but we do our best.
SHIELDS: As we get to this situation where we have pent-up demand, cities need to be prepared to move. I’m not saying they give up things they want in their city. But a lot of these deals get delayed when you put in your permit for conditional use and there’s no problem, but you don’t get to the meeting until three months after you submit.