Retail property sales claim top spots in ’98

Retail-property sales ranked among the top real estate deals of 1998, taking four out of the top five sales spots.

But that does not mean retail sales dominated the real estate market, experts say. Residential-land sales and other commercial sales, including office and industrial sales, also were strong.

Retail-property sales have a high value by nature, but several other factors contributed to big sales in 1998.

Steve Pfister, a broker associate at Realtec Commercial Real Estate Services Inc., said several big retail sales that were stalled in the pipeline broke through in 1998. Retail deals take longer to go through the government process, and they take more time to secure financing, he said.

They can also take longer because they are often politically controversial. Retail projects usually entail more neighborhood meetings, and when citizens become involved, politicians take more of an interest, Pfister said.

He also attributed the number of large retail-property sales to the real estate cycle. All types of real estate go through cycles, which are primarily controlled by the economy and peak at different times, he said. Typically, the first segment of real estate to peak is residential; retail is second, office third and industrial last.

While a cycle traditionally lasts three years, changes in the global economy and more-effective control over the Federal Reserve money supply have made the cycles more irregular and less pronounced, Pfister said.

Also affecting the ’98 market was a decrease in capitalization rates, said Jim Mokler, a broker/partner at Realtec.

Capitalization rates are the rates of return used to derive the capital value of the regular flow of money generated by an investment. When these rates decrease, real estate prices increase. This effect was very significant in the investment market last year, he said.

Seth Ward, commercial-sales manager at Vintage Corp., a real estate company in Greeley, said big deals last year were mostly 1031 tax exchanges 9 tax-free exchanges of similar properties.

That was the case with the largest deal of the year: the $16.5 million sale of Westlake Shopping Center in Greeley.

Ward also noted that many of the larger deals were rollovers of multiple smaller deals.

“To buy Westlake, the owner sold four or five good-sized projects,” he said. “There were 15 to 20 transactions that took place to accommodate the one big deal.”

The world economy also played a significant role in the local real estate market. Huge, public real estate and insurance companies used to drive the large-deal market, Ward said. But with the volatility of the stock market and the Asian crisis, funds for these types of companies are drying up.

“They’ve had their wings clipped and don’t have the resources they once did,” Ward said.

Despite a lack of corporate investors, the market did not slow down. The mechanism to drive a lot of deals just shifted, Ward said.

People are investing in the Northern Colorado market because they think it is strong, he said. With residential growth, the commercial market is also strong, and investors position themselves to take advantage of this.

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