Recession, road construction responsible for commercial real estate slowdown

Baton Rouge commercial real estate agents concur – the recession and road construction are the two biggest obstacles in the path of commercial leasing and sales in the Capitol Region. After years of expanding retail, more vacant storefronts are starting to appear around town, including on high-profile commercial corridors. The recession has placed commercial real estate in limbo, says Justin Langlois, a commercial real estate agent with Sealy & Falgoust. “Nobody wants to make the deal,” he says. “It’s fun to look at the space and talk about the space, but when it comes down to [signing] a lease or a letter of intent, relatively few people are willing to do it.”

Mark Hebert of Kurz & Hebert Commercial Real Estate says the recession is the main reason for a slowdown in commercial leasing, but that road construction certainly doesn’t help. When entry in and out of an area is limited, that chills the interest of the parties looking at the space, especially if the construction is slated to be ongoing. However, road construction also shows larger potential customers that Baton Rouge is putting its best foot forward, he says. “We’re correcting things that were done 20 to 40 years ago that have been needed a long time,” Hebert says. “But it is a burden on tenants, and it’s definitely a double whammy as far as the recession goes.”—Emma James

Construction-consulting firm grows, despite downturn

Baton Rouge has been one of the few outposts of growth for the construction industry, which has continued to add jobs locally even during a recession that dwindled activity across the U.S. But one company that has fared especially well is JVV Consulting-Construction Management, which has gone from two employees and $550,000 in gross sales in 2008, to six workers and $2.9 million in contracts in 2009. "We're in a unique situation as far as commercial construction goes," says Anthony R. Vigilotti, president and CEO of JVV. "We’re not just a general contractor." JVV, which set up its Baton Rouge office in 2004, operates as a full-service construction-consulting firm, handling such tasks as cost estimating, construction management and value engineering. The firm has worked on high-profile projects such as the planned Main branch for the East Baton Rouge Parish Library, the Turner Industries personnel office on Highlandia Drive, and the demolition and redesign of the Turner Plaza elderly facility on North Boulevard, a $19 million project. Vigilotti says 20% of his business comes from general contracting. Vigilotti, who has 20 years of contracting experience with firms in New York and Florida, says he moved into the additional services "as a way of getting in the side door.” "Our fallback is general contracting," he says. "I've got four or five architects that constantly call me." While Vigilotti says he's pleased with the rapid growth JVV has experienced, he's got one eye on the future. "Where do we go in 2010?" he says.—Timothy Boone

Ashley wins national remodeling award

Tom Ashley, who runs Expand in Denham Springs, has won a national award for home remodeling. Ashley was one of the winners of the Homes for Life Award at the National Association of Home Builders gala in Indianapolis. He won the award for remodeling a bathroom in Springfield, making it more accessible for a retired couple. The couple is passionate about boating, so Ashley added a porthole to improve the natural light. Ashley is the current president of the Capital Region Builders Association and was named remodeler of the year by the CRBA in 2008.

Apartment complex set for dedication

A 180-unit affordable housing apartment complex on Jefferson Highway will be dedicated at 10 a.m. Wednesday. The Reserve at Jefferson Crossing, which is near Highland Road, was financed through GO Zone tax credits and federal HOME Funds. Units in the development, which range in size from one- to four-bedrooms are leasing at between $500 to $900 a month. According to Tom Delahaye of CST Land Developers of Plaquemine, who developed the Reserve, the complex is 90% occupied.

Poll: Readers split on office space prices

Respondents to a Real Estate Weekly poll are split on what is happening with office space prices in the Capital Region. Thirty-nine percent say prices are dropping for office space, while 33% are unsure what is happening with the costs for professional space and 28% say the price is not going down. More than 50 people participated in the survey.

This week's question: What's the biggest obstacle to the local commercial real estate market?

Tom Cook: Market activity

My usual method of getting sales information for this column is to contact local brokers and ask them if they have sold anything of interest. This week's e-mail blast provided few results. Chad Ortte of Donnie Jarreau Real Estate did respond with an e-mail telling me he sold a 1998 Toyota Tacoma for $5,000 that he had purchased two years ago for $3,000. He may want to get in the used car business if things don’t pick up in real estate. Ben Stalter with Maestri-Murrell Real Estate sold an office warehouse building on Ruby Avenue in Gonzales for $270,000. The building has a total area of 4,800-square-feet and the sale price per square foot calculates to $56.25. It had been listed for $315,000; the property sold for about 15% below the listed price. Stalter said the new owner would occupy the space.

(Appraiser Tom Cook owns Cook Moore and Associates. Reach him at 293-7006 or TCook@cookmoore.com.)

Brian Andrews: Borrowers come to the table

We have been looking at the recent FDIC guidance to banks regarding commercial real estate workouts and the concern by regulators that banks have been extending loans without taking appropriate measures. We said that the regulators were on to “extend and pretend” and are criticizing banks for the practice when they find it.

So what does this mean for borrowers?

My suspicion is that borrowers are going to have to come to the table with something before banks are going to extend maturing loans. That “something” may be a principal paydown, additional collateral, additional guarantors, initiation or speeding up of principal amortization or a combination of these elements. The banks need to show regulators that something was gained in exchange for the extension of time and that the deal was not just “kicked down the road.”

And you can bet that borrowers will need to provide full documentation of all cash flows, status of all projects (not just the one being extended), and a plan for keeping the loan on a performing basis.

This is not intended to be bad news for borrowers. We just need to realize that the banks are under pressure and need to operate in a manner to will allow them to continue providing financial services to the community. Ultimately the banks want the same thing as the borrowers: financing that fits the project.

(Brian Andrews is a certified mortgage banker specializing in the financing of commercial real estate. His business is Andrews Commercial Mortgage and he can be reached at brian.andrews@acmla.com.)

Real estate recap: St. George buys land on Airline for $1.8 million ... B.R. home sales up in October ... La. continues to rank low for foreclosures

Plans to consolidate operations on site: The St. George Fire Protection District has purchased 8.1 acres of land on Airline Highway and plans to build a training-maintenance-administrative center there. The fire district paid nearly $1.8 million for the land near Barringer Foreman Road, in a deal that closed Friday. The purchase allows St. George to consolidate some of its operations at a single site and improve its training facilities.

Second-consecutive month sales topped 2008: Home sales in metro Baton Rouge were up 4.3% in October compared with the year before. There were 555 houses sold in the area, according to figures obtained today from the Greater Baton Rouge Association of Realtors Multiple Listing Service. That compares with 532 sales in October 2008. The average sale price was down slightly, from $196,542 in October 2008 to $187,185 last month, showing the continued popularity of the starter-home market. Livingston Parish saw the biggest jump, with the number of houses sold going up 21%, from 85 in October 2008 to 103 last month.

Fewer at risk of losing properties: The number of Louisiana homeowners on the brink of losing their houses dropped nearly 23% in October from the month before, the 11th-biggest plunge out of any state and the District of Columbia. RealtyTrac says that one out of every 1,459 Louisiana households got a foreclosure-related notice, compared with the national average of one per 385 homes. Louisiana ranked 38th for foreclosures out of all states and the District of Columbia.