Commercial Real Estate

May 6, 2013

Another interesting thing we are seeing is we are in the middle of refinancing a number of our buildings, and there’s a lot of competition among lenders. We are looking at getting 4 percent rates on long-term money with multiple suitors.

Shelly, what are you hearing from your members, your groups?

MENEGOS: Coming from the Austin area to here, the market is just dynamic right now in this area. In talking with other people across the country, Salt Lake is not feeling the recession that some of these other places are. And it’s great to see. There’s not a lot of inventory out there and they are enjoying the wave right now.

BOUCHARD: A couple thoughts on the investment front. The Boeings and the Novell campuses and the Brickyards and those kinds of assets—what we are seeing is if we do local buy yields on the investment side, we are seeing premium opportunities. The minute we start taking a look at the institutional class buy coming to Utah, if it’s not an owner/occupier deal, if it’s a pure investment deal, what you are seeing on the institutional side are value players coming in and looking at what we are doing as an opportunity, looking at inflation. They are looking at the real estate growth and the opportunity to grow the real estate value of assets based on the fact that they believe Bernanke is right and inflation will kick in in a couple years and you will see growth in real estate.

What we are not seeing are the institutional buyers coming in and looking at it based on credit quality, because that’s one of the areas again that we lacked a little bit. The challenge in smaller markets is this building, the one that we are in, in most major cities is a B-plus midrise building. It probably isn’t an A building by definition. And so we classify A, B and C here much differently than the buyers do at a national level. We have got very, very little A product in Utah by comparison to most major cities where the institutional players actually participate.

So credit quality is going to be a big issue for us in attracting new capital into the marketplace. But the stability, again, of our economy is really cornerstone by comparison to Illinois and New York and California, where you have the big metropolises that are just kind of crumbling from an economic perspective, where we are thriving. For us to sell our stability as a marketplace and the stability of how we operate is a huge benefit to us, and there’s a lot of other capital to attract to Utah if we start to play on the bigger-picture story and just not the real estate play itself. That strategy is starting to be heard, and that’s also attracting more attention to us because we are such a stable economy.

Steve, maybe we could have you talk a little about the construction side and what you guys are seeing from your perspective.

KIEFFER: We have seen office pick up drastically in the last 12 months. We have seen that very strong here in the next little bit. Last year the thing that really kept us going was light manufacturing, warehouse distribution. We have seen a lot of that. In-state, also out West, we’ve seen several large projects for Amazon with their big push for million-square-foot distribution centers. And we are seeing more food-processing opportunities the last 12 months than we have probably seen in five years. So the food market is very strong.

FUGAL: Speaking of new construction, I encourage everyone here to take a 15-minute drive north to Farmington. If you get off the new Farmington interchange, there is 800,000 square feet being completed right now of mixed-use, very upscale product. In fact, it’s product that we have never seen in Utah, in many respects, and over 120,000 square feet of which is class A office completely built on a speculative basis. No pre-leasing. The Station Park project in Farmington is going to really change that market. You can’t drop 800,000 square feet into a small market like that of new product that is very high end—both retail, office and soon-to-be hospitality—and not have that make an impact on what will happen. Be prepared to be very shocked at what has come out of the ground in the last 12 months. It is stunning.

Any trends that you see in retail absorption or turnover or anything else?

SHIELDS: Tight, tight—supply is tight. And there are a lot of retailers coming. Rents continue to creep back up. They weren’t hit that much. It was an area that didn’t have a lot of oversupply going into the recession. And more and more people are coming on the map. Retail is changing with e-commerce and so on—a lot more entertainment or food-oriented operations. We have been doing Buffalo Wild Wings, which has had tremendous success here in Utah after going through that initial bump of how are we going to make it if we don’t sell liquor in a big way.

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