Real estate prospects hold under pressure

Loveland developer Eric Holsapple doesn’t equivocate about the state of the commercial real estate market in Northern Colorado.

“As far as our company goes, we’re bullish right now,´ said Holsapple, a partner in Loveland Commercial LLC.

As recently as last December Holsapple declared a “wait-and-see” approach development. Now he’s dispensed with caution.

“We’re planning for a couple of new projects — the long-term prospects are very good,” he said. “There’s much more on the table than in the last few years. A little interest rate raise doesn’t bother us. It means the economy is stirring.”

Holsapple’s optimism is telling for Northern Colorado, where real estate has been driving force in the local economy since the early 1990s.

Residential sales, while lagging slightly behind the flush results of recent years, remains stout — if not stellar.

“Overall, the first six months of home sales were down about 8 percent compared to last year, with last year being a record year,´ said Larry Kendall, chairman of The Group Inc., a real estate firm with offices in Fort Collins, Greeley, Loveland and Windsor. “Northern Colorado is used to never-ending, record-setting years. We had that for 10 years from 1992 to 2002, but 2003 is probably going to be the second-best year ever — which isn’t too bad.”

Commercial success

One sign of better times in the commercial market is the demand for retail space from national tenants at the Thompson Valley Town Centre, a grocery-anchored 150,000-square-foot shopping center developed by Holsapple’s firm developed in southwest Loveland.

“We have letters of intent on all the remaining pad real estate there,” Holsapple said, referring to the now-vacant development pads on the exterior of the shopping center. “I think you’ll probably see an additional five buildings in the next 24 months. We will be totally built out.”

Retail activity has been brisk throughout the region, with new grocery-anchored centers under development in Greeley and Windsor.

Furthermore, four different proposals are in the works for a new regional shopping center in Northern Colorado, although it’s uncertain if more than one regional center will actually get built.

Investment real estate also remains in demand. The biggest problem, said Greeley-based investor Ed Orr, is availability.

“It has become really tough to find the income properties which perform properly,´ said Orr, who heads Orr Land Company. ” That’s the main thing I’ve been looking for. There’s a lot of money chasing good properties right now ? In my whole investment career, this is the hardest time I’ve ever seen for finding good properties.”

As a result, sellers are getting full list price or more for their buildings, especially for retail space, Orr said.

Orr, who also brokers commercial deals and agricultural land, said opportunities for farm ground are slim.

“I don’t see a lot of inventory anywhere in the marketplace,” he said.

“Certainly there’s no ag property within 30 miles of I-25 that you can buy on ag basis (for farming) and make any kind of financial sense of it. Everything within 30 miles of I-25 has got an investment value to it. We’re not selling anything to the farmer or the rancher.”

Office space has been the softest sector in Northern Colorado’s commercial marketing recent years. According to the report by Realtec Commercial Real Estate, office vacancies are at least 12 percent in all three sub-markets in the region — Fort Collins, Greeley and Loveland.

But, the office market may also be prime for a comeback, said Kendall.

Rising interest rates could diminish the motivation for business owners to buy their own buildings or office condominiums, creating more interest in leasing again.

“There could be less incentive to buy and more incentive to lease,” he said.

Interest rate impact

Fears that rising interest rates will squash the housing market are unreasonable, Kendall insisted.

“We need keep interest rates in perspective,” he said. “Even with the turn-up we’ve had in the last six weeks, mortgage rates are still less than they were a year ago.”

Thirty-year mortgage rates, as low as 5.4 percent in mid June, hovered at 6.45 percent by mid August. That compares to 6.5 percent 12 months earlier.

“The increase we’ve had in the last six or seven weeks has actually gotten more people into the market,” he said. “People had been complacent, sitting on the fence, waiting for rates to go even lower.”

The chief economist for the National Association of Realtors has predicted rates to hit 7 percent by early next year.

“I think it will affect some buyers on the edge — it will knock some people out of the market,” Kendall said, referring to entry-level market.

“I think the bigger concern as far as the impact on the market is the jobs situation. There’s an awful lot of people out of work.”

The result, he said, is a “return to a more normal market, where there is reasonable supply

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