Real Estate Answers and Opportunities for 2003

Colorado Construction, January 2003

As we close out one of the worst economic years that many of us have lived through, it's important to look forward to trends and opportunities in the coming year.

Positive trends for 2003 include the fact that today, investors are looking at real estate differently. In the heyday of the booming stock market, returns on most real estate investments couldn't compete. Now that stocks are down and venture capital is more cautious, carefully planned real estate projects are attracting more interest from investors.

Another positive trend is that decisions are being scrutinized more carefully. Clients are more inclined to pay attention when cautioned to think about exit strategies and asset protection planning. Times like these make us more aware of the need for good planning and thoughtful decision-making.

Smaller companies are gearing up for growth in 2003 by expanding or improving their space, searching the market for better deals and renewing leases with growth in mind. Lending institutions are in a good position to lend on small real estate deals, and investors and owners are seeing real estate as a positive investment for the first time in many years.

There are also some new business strategies being implemented to deal with today's economic challenges. First, everyone is working harder to make the most of what they have. They are examining expenditures and finding places to cut back, perhaps by hiring in-house counsel, negotiating alternative billing arrangements or outsourcing services at a lower billing rate.

Also, tenants moving into spec office space today are being conservative with their tenant improvement dollars. Those tenants who purchase new spaces are willing to be patient, move in now and improve the space at a later date.

Contrary to popular belief, landlords are not giving generous concessions to attract new tenants. Rather, they are re-investing in their properties to upgrade the appearance of the property and make the site and its amenities more attractive to new users and more desirable to existing tenants who might be looking around in the market.

Investor-friendly projects will still be built - build-to-suit buildings, medical office projects and projects with tax incentives such as affordable housing, urban renewal projects and historic preservation projects. Office tenants who need more or less space than they have will continue to either move into other buildings or work with their existing landlords. This means that leases will still need to be modified, subleases need to be written, and new leases will continue being executed. The pace may continue to be slow, but deals are being done throughout the Denver metro area.

Today, clients tend to look very different from the clients of the past 20 years. Now more entrepreneurs and small-to-medium size businesses - 10,000 sq ft and under - are entering the real estate market as owners for the first time in 10 years.

The market today is such that these business owners can now finance small, stand-alone buildings as an investment, and a larger number are occupying them for their own use.

Co-author Beth O'Neill, a principal of Planning Solutions, is the 2003 President-Elect of CREW Denver.