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The Soft Sell
SMITH: We’ve been encouraging developers to get through the city with their processes and get their sites ready to build on, get their permits, utilities and grade-level improvements in place so that when these companies come, they can build it quicker.
We’re working with an 80,000-square-foot tenant down in Utah County, and they looked up and down I-15 for potential sites, and there were 15 they could select and build on, but really only about five that could realistically do it in the time frame that they had, which was about 14 months. So it’s being ready to turn that ground and build the building.
Scott, you’ve had a lot of experience working with cities in your different projects, both residential and commercial. Any observations about what’s happening in the cities?
KAUFMANN: Cities are hungry, clearly. They’re hungry because there’s so many municipalities; they don’t necessarily have that cohesion. That’s a good thing for developers. Bad thing is we get a lot of competition and maybe not the best planning unfolding across the county level, in Salt Lake anyways.
I actually think the tension between what the cities are imposing on developers today and what the banks are holding as constraints is going to yield a better result long term.
We’re seeing a lot of activity right now, but it’s a lot of activity under our new metric. The good thing about where we are today is we get to grade on a curve. Based against four or five years ago, we’re not doing so well. We shoot the curve, we look like we’re doing well. It’s a new standard.
We have slow growth historically in Salt Lake, but that’s the best thing in the world in a slowdown because we don’t have the impacts that they’re seeing in Atlanta, Phoenix, Las Vegas. We say we’re in a really healthy place. We are in an amazing place. Companies want to locate here. The governments are working together. The land is economically priced. The stuff that had troubles has cleared pretty quickly. So I’m pretty optimistic with where we are today.
BARTON: We represent about 25 banks, and the two numbers that have changed in the last three years are the pre-leasing requirements and the loan value requirements. One has gone up; the other one has gone down. And the reality is that while we’re not doing nearly as many workouts as we were even 18 months ago, we’re closing loans on the front-end. But the banks still are not giving money away. It’s a tough sale.
CHATFIELD: As you look at the banking side of it, obviously we’ve been through some pretty difficult situations over the past few years. A lot of those have been cleared up. What you’ve got today is basically the product of what a bank has had to do to continue to stay in business. Our regulators are requiring more and more each and every time they come in. Our bank has hired an in-house attorney now just to keep track of the federal side of it. The requirements have just gone way beyond anything I’ve ever been involved in, and I’ve been in this business for 30-plus years.
There is money out there ready to be lent, and banks are ready to lend it. I’m a small community bank, not a large regional bank or national bank, so it’s hard for me to speak for them. But I can tell you in the community bank sector, we’re aggressively seeking it, but I can’t do a $22 million deal. If I combined all of the community banks in Salt Lake and Utah County, I couldn’t do a $22 million deal. So we’re kind of on different side of the ballgame.But there’s money out there. If you’ll structure it so that you can meet the bank requirements, they’re going to lend on these deals.
Let’s shift to multifamily. What’s the snapshot of that sector?
SHIN: Over the past four years we’ve seen consistent rent growth and lower vacancies. Our firm projects that we’ll have just sub-5 percent vacancy in the Salt Lake City market, which is very healthy. On the sale side, there’s a lack of supply in the market right now, a very high demand. We anticipate there will be about a 25 percent increase in sales this year. I’ve also seen the reports upwards double what we’ve seen last year.
In Utah alone I’m closing on $30 million this month, so that’s significantly high. Overall we’re really excited about the multifamily. We’re seeing growth in north Utah County, a lot in Salt Lake County and also in Davis County. Overall we’ve seen positive absorption.
BURTON: We see the multifamily market continuing to be the sweetheart in the real estate industry here—heavy demand. And unlike all of our sister companies throughout the country, we have low supply and heavy demand, so a lot of dollars chasing a few properties. We sold two portfolios the fourth quarter of last year totaling about 1,800 units for $185 million. One of those portfolios from the day of contract to the day of close was 20 days. It was $102 million—all cash and then they financed after.