Low interest rates warm up local commercial market

Low interest rates have created a demand for industrial real estate in the Carson City area, but not the supply.

"I have 40 clients lined up, and I'd love to have more investment properties to show them," said Kris Holt, a regional adviser with real estate firm Grubb and Ellis. "I just came back from a meeting of 20 local commercial brokers. We're all in the same boat."

He said offices with tenants and a return of 8 percent or more are at a premium. Investors are also looking for solid, long-term leases, and retail strip centers are among the hottest commodities.

"Because rates are so low, investors can get a more lucrative return," said Tom Johnson, a senior adviser with Sperry Van Ness/Gold Dust Commercial Associates in Carson City.

"Say I'm borrowing $1 million to purchase a building at 6 percent and the investment pays me 8 to 9 percent," he said. "In the past, an investor would get a 1 to 2.5 percent return, but that rate is now somewhere around 3 to 4 percent.

"Right now, it's making commercial investment a lot more attractive. A lot of money is coming out of the stock market and into real estate," he said.

The demand for goods and services is also up, and investors are borrowing now to meet future needs, Johnson said.

"The money is being used for inventory and equipment, not just to purchase real estate," he said.

Interest rates have climbed slightly over the past two weeks. Holt expects them to go up a little bit more then hold until the end of the year.

"It's still cheap money," he said.

Johnson said demand for some types of commercial space has been low the past few years with the downturn from the high-tech industry affecting it before the events of Sept. 11, 2001.

"People from the tech industry stopped spilling over the hill," he said. "Right now, San Jose and Santa Clara (Calif.) are still experiencing a 50 percent vacancy factor."

He said those figures represent the real downturn.

"That's the largest big market close to us," he said. "But lower rents, no taxes and fewer regulations all make Nevada attractive."

He said the industrial market is picking up, but the office market is weak, primarily because the state doesn't lease as much office space here as in previous years. Much of that business has migrated to Las Vegas.

The retail market, in contrast, has been strong locally for 3 to 5 years. The former Wal-Mart and Kmart stores being vacant in Carson City is not a function of that market, Johnson said.

"Those vacancies are a result of decisions those companies made," he said.

"The closing of Kmart was a management issue within that company, and we lost the Wal-Mart because an agreement couldn't be reached with Raley's."

Wal-Mart decided to relocate its Carson City store to the north end of Douglas County after the neighboring Raley's grocery outlet refused to amend a "no-competition" deed restriction.

Carson City officials offered the site of Carson City fairgrounds and Fuji Park to Wal-Mart in an attempt to retain the retail giant, but those efforts were opposed by citizens' groups.

After filing for Chapter 11 bankruptcy in January 2001, Kmart Corp. closed more that 300 stores nationwide, including in north Carson City.

BREAKOUT

In Freddie Mac's Primary Mortgage Market Survey this week, mortgage rates rose for the third week in a row. Thirty-year fixed-rate mortgages averaged 5.94 percent, up from last week's 5.67 percent. Last year at this time, the figure averaged 6.34 percent.

"This may start to apply the brakes to the frenzy of refinancing we are currently experiencing," said Frank Nothaft, Freddie Mac's chief economist. "Purchases of homes remain strong, though. The Mortgage Bankers Association purchase index last week was only four percent below its all-time record."

Freddie Mac is a stockholder-owned corporation chartered by Congress in 1970 to create a continuous flow of funds to mortgage lenders by supplying them with the money to make mortgages.

Freddie Mac surveys 125 lenders across the nation weekly to determine the average 30- year fixed-rate mortgage rate. The mix of lender types includes thrifts, commercial banks and mortgage lending companies.

The study is roughly proportional to the level of mortgage business that each type commands nationwide.