During my travels each week, I see and hear many things concerning the state of the economy and the Commercial Real Estate arena. I find listening to what others have to say about the state of the economy and specifically, the Commercial Real Estate Industry, quite intriguing, and I enjoy sharing this information with my readers, and below is what I have found to be of interest during the past month.

Everyone is familiar with April 15^th, especially accountants. It may or may not be of surprise to you to learn what has occurred from a financial standpoint for 2008 and companies receiving their financial statements can finally see what took place during 2008. According to Kevin Hansen from the Hunter Group, the retail sector has taken the biggest hit as a market segment for 2008. Companies that have been in business well over 50 years are shutting their doors because they can no longer remain in business during these trying times. One interesting fact to note since I have shared my thoughts on the Medical and Healthcare Industry in recent articles is that every doctor complained that 2008 was a rough year. But according to Hansen, they have weathered the storm quite well so far with numbers that were slightly off from the previous year and many medical and healthcare practitioners improved their bottom line for 2008. In my opinion, this “complaining” from doctors stems merely from them listening to all the negative news the media has drawn up regarding other market sectors.

Banks continue to struggle with financing new deals today and although they say they are in business, they are cherry picking deals like you would not believe. Banks have found themselves focusing their time on working out troubled loans and they are extremely conservative today when it comes to placing money in commercial transactions. Even if your credit is stellar, you will find it much more challenging to borrow money today. It is ironic that, for the most part, the only people that can borrow money don’t really need it! If you are one of the lucky ones, you can expect recourse, you can expect smaller loan to value ratios, and appraisers are proving much more conservative estimates for valuation today.

Law firms that have clients in the commercial real estate business are not busy with new deals coming in but rather focusing on renegotiations between Tenant and Landlord, more so in the retail sector than any other simply because many of the Retailers are paying top dollar in rent to be in the NJ marketplace, and they are struggling to weather the storm as sales volume has dramatically fallen. The challenge for Landlords is that the “buzz” on the street is that things are so terrible; they are seeking rental concessions from their Landlords. The challenge is determining whether or not a company really needs the concessions to stay afloat or are they simply trying to see what they can get away with from their Landlords. My suggestion to Landlords would be to thoroughly investigate the financial circumstances of each company in order to determine if the Tenant is simply crying the blues for no good reason, or if the concessions are required in order to prevent the Tenant from going out of business. Smart Landlords will work with their clients because it is much more costly and time consuming to evict a tenant with the hopes of finding a replacement tenant at the same rental rate they were receiving beforehand. It is good business practice to keep the tenants happy and in business at the same time. Therefore, law firms are finding themselves busy with helping their clients re-negotiate leases, work out troubled loans and in some instances, litigation occurs over these matters.

Architects are focusing much of their attention on work coming in from clients looking to downsize their operations. In other words, how can they trim the fat and operate much leaner and meaner than in recent years. They are positioning themselves to ride out this economic downturn and be ready for the next up-swing in the market. Recent news during my travels has unveiled that companies are beginning to see some improvements in business activity. Some that have trimmed the fat are already beginning to take advantage of this opportunity to run their operations with higher profitability; this is quite encouraging for me to hear given the last 4 to 5 months have been so desolate. Architects, like many other firms, are also seeking out new opportunities to sink their teeth into for the next wave of business activity.

Developers and construction companies that I have been speaking with are telling me that it is extremely difficult to find new projects; however, there are opportunities to seek out although the competition for the jobs is quite fierce. This phenomenon leads me to believe that creativity must be explored and now more than ever, relationships coupled with pricing will be attributed to the prevailing group for the job. The smaller companies may miss opportunities simply because larger ones cut their pricing so much (I would expect some of these jobs to operate at a loss) simply to give their people work to do during this difficult time so that way they can survive the turnaround.

Engineering firms have been watching economic activity closely and I hear that although it is quite difficult to predict with certainty, there are signs that we have turned away from the very bottom slightly and recovery is on the horizon. This does not mean we are out of the woods yet, but the gap between jobs being worked on in relationship to money earned from those jobs is getting smaller.

Lastly, I would like to point out that my discussions with title companies have been such that activity has picked up and they are looking at some deals. It appears that there are quite a few residential loans being looked at, many of which are being refinanced. Commercial activity has improved slightly; however, it may be too early to determine if they will get finalized. I am going to end on this note, but all this news is somewhat encouraging especially in light of the fact that negative news has been surrounding us day in and day out for several months now. You will have to tune in next month for the latest and most current economic news I can share with you. I may be reached at my office or via email at dlizzack@naihanson.com for any further discussion. Enjoy the upcoming Memorial Day Weekend!!