Friday, March 26, 2010 | 6 a.m.
In my 33 years as a developer, I have never witnessed anything like today’s economy, which has rendered commercial development dead, essentially. And I predict development – for both Sansone and the industry as a whole – will remain at a standstill for another three to five more years.
Gloomy as that picture looks, I don’t foresee any shovels hitting the ground for years to come. There’s simply not enough demand for the current inventory to justify building more.
That said, it was time to shift my business model to adjust to this new reality. Part of what our group has done to adapt, was the addition of property management services that reduce clients’ expenses and help them achieve profitable property ownership. By offering third parties the same in-house services we’ve had for years, we are able help landlords maintain occupancy and fill vacancies to increase their income.
Also in response to market conditions, I have nearly completed winding down my development operations, in favor of acquiring distressed retail and office projects throughout the Las Vegas valley. With a team of partner investors, I have raised about $200 million worth of capital, with the intent to purchase any and all distressed properties that spell a great deal.
While developing commercial properties no longer makes sense, buying them does. I have never seen such investor opportunities in my career. With all of the distressed properties on the market and those yet to surface, investors and developers are able to purchase projects for about half the cost to build them – with the land basically thrown in for free.
Nevada has the highest ratio of distressed real estate than any other state in the Union. The Las Vegas Sun recently cited a report that indicates Las Vegas still leads the nation in its percentage of properties in financial trouble.
Another recent report said more than one-third of all retail and office centers are currently not collecting enough rent to service their debts. Some major local retail centers are still missing anchor tenants, and many others are sitting at 60 percent vacant. Others are completely empty.
Nationally, CoStar Group recently reported the amount of distressed commercial real estate assets on the books of the country’s banks nearly reached $60 billion at the end of 2009, with a 15 percent increase in the fourth quarter alone.
With all this distressed inventory coming to the market, my investor partners and I are looking at individual shopping centers and office complexes, considering all submarkets and property types that make sense. Whether we buy existing debt, purchase bank-owned properties or myriad other scenarios, all deals will be done in “cash.”
Over the past six months, we have acquired four buildings in Southern Nevada, including one from Zions Bancorporation, one from Nevada State Bank and another from U.S. Bank. We currently have another offer in on a 180,000-square-foot building with another lender.
These and the other properties we acquire are slated to remain within the Sansone portfolio over the mid to long term, with the intent to stabilize them and eventually acquire a take out loan on the properties.