Loren Plaza; A test of Endurance

Achieving their goals took much longer than originally anticipated but the developers of Loren Plaza did reach them to make 2011 a year of relief at long last. The project began back in 2003 when entrusted family property that once was the home of Lyle's Boats & Motors would ultimately realize its higher potential as a retail development property. In general the property was situated fairly well for such a project, spanning the distance between Wenatchee Ave. & Mission St. just north of 9th St., in an area I like to call the North End retail (or commercial) core of Wenatchee. With enough traffic on Mission St. to attract a steady flow of customers the development process kicked off in 2003 with a built to suit "drive thru" concept for Subway, a very unique facility for them and one that ultimately has worked well.

The Subway building utilized about half of the property and with the other half remaining undeveloped for four years the decision was made to build a small, retail or professional services building to house between one & four tenants. The market gave good indications that tenants for such a building would not be hard to find and they ultimately decided on the "Field of Dreams" scenario, build it & they will come. Unfortunately at the tail end of 2007 when the building was completed the "great recession" hit our country and put most industries and businesses in to a very long holding pattern.

As the story of hard times spread, so went Loren Plaza for a couple years a beautiful, brand new, empty building sat. Then in 2009 Center Investments, Inc. (CII) was called on to help procure tenants, a challenge we accepted with reluctance and a firm understanding that the asset required proper valuation. The market had changed and Loren Plaza needed to expect, reflect & project market competitiveness. The other challenge was to devise a strategy that could remain adaptable to a variety of use categories and focus on those that best suited the building atributes and avoid those that punctuated its defects (such as limited parking & co-tenancy) as well as satisfying the economic expectations of the ownership.

Loren Plaza had a lot to offer as a 5,200 SF building with presence on N. Wenatchee Ave. it was well built and quite attractive. We fielded lots of interest initially from many small tenants only wanting a portion of the building which was ill advised unless we could assemble a group of two or three small tenants at once. Coordinating smaller users is a tricky task in any climate but through that time period there were few business owners willing to take on additional risk of improving a space, the general atmosphere was encouraging short term leases and low rents which equates to seeking out space with existing interior improvements. While Loren Plaza was completed on the exterior its interior was in a "raw shell" condition, meaning it had yet to be improved at all. To complete improvements owners generally need a long term commitment on at least half of the available space to provide a direction for its tenancy and to offset the risk of investing additional capital to finish the interior. 

In the spring of 2011 not having been able to net either a single 5,200 SF. user or appropriately coordinate enough small tenants, the ownership decided on an aggressive strategy, pursue small users. A notion that would commit them to investing more capital and take the possibility of a large single user off the table, a gamble with a significant increase to risk in an already risky project. The benefit of this strategy was an increase to the odds of landing a paying tenant & establishing the building as ready & available to small users which would create some positive momentum in leasing the remaining available spaces. We began to collectively determine the best space to separate for a small users and proceed with initiating the interior improvements but as most developers have noticed time & again once you commit to a direction a path opens in another.

It just so happened the very next tenant with whom we prospectively found a deal was a 5,000 SF. national fitness franchise, Anytime Fitness and Loren Plaza was a perfect fit for them. November we completed a lease with Anytime Fitness and early in 2012 they opened for business. I recently had the opportunity to go back and look a the finished interior buildout & I was stunned, it was absolutely gorgeous, first rate design & decor as well as state of the art equipment, well worth the wait. 

It was truly a test of endurance for the owners of Loren Plaza the project took almost a decade to complete from start to finish but today the property is a strong commercial asset which should serve its owners well for years to come and it was a great pleasure to help them realize that goal.

- Chaun

Congratulations Mt. View Fitness!

Monday December 19th Mt. View Fitness in East Wenatchee opened the doors to their new location, the culmination of 2 years of cooperation, planning & ultimately a lot of hard work as the whole "gang" labored through the weekend to get enough of the work finished to open. Today they are still finishing some odds & ends while the loyal members of the gym are working out in a new facility that is 50% larger and with lots of new state of the art equipment. The new location is in the same retail center, Eastpoint PLaza, just across the parking lot in the space formerly occupied by Support Enforcement division of DSHS. For several years Mt. View Fitness has been exploring growth concepts in order to provide a better facility for their patrons, specifically, more room, more equipment & showers. Through that time period several options were contemplated in cooperation with the property owners, Cascade Property Group, and with our (CII & Mt. View) collective efforts but when DSHS announced they would be vacating the space it soon became our primary objective. After settling on the general design elements and plans for the renovation, demolition work commenced this past September and now it is a reality to the delight of the membership & the ownership of Mt. View Fitness. Go check it out, they are offering a great facility at a very reasonable rate! 

Balancing Act - Supply & Demand in Commercial Real Estate

We are seeing continuing negative absorption in the retail market. Simply put - little demand for more and more supply. National tenants are few and far between and local tenants are considering downsizing and relocating to better real estate where they can drive better terms than they could before. Until this trend changes retail properties without co-tenancy or location will suffer.

While this trend is happening locally another interesting trend is happening nationally. The recession put the brakes on national retail expansion. Strong retailers cut store openings and weak ones stopped expanding altogether. At the same time competing returns on “safe” assets haven’t moved off low single digit returns making more investors interested in high quality real estate where they can experience a 6% - 8% return plus have some of that income sheltered by depreciation. Bottom line is that in quality assets there currently is a supply-demand imbalance favoring the seller.

Even in smaller markets like Wenatchee we recently sold such a quality asset at a cap rate that we never thought possible. It was priced higher (in relation to its income) than anything else in the market and marketed nationally. Because of this supply and demand imbalance we received 8 full price offers, from predominantly out of state buyers, within 10 days. We chose what we thought was our best buyer and the deal closed in 48 days at full price and at likely the lowest cap rate of any transaction in the Wenatchee market.

Unfortunately, these types of assets don’t come by very often and I can’t think of another one available unless the owner of the new Walgreens under construction in East Wenatchee decides he’s a seller - and if he does I expect it will demand a high price.

2011 mid term - Commercial Market Leasing Report

SMALL RETAIL POPS, LARGE OFFICE PLUGS...Yesterday marked what I am confident is a turning point in leasing retail space as we finalized the first deal for "new business" of 2011. Not to dramatize the slowness of the market, in fact overall we have been very busy. There are several exciting deals (big ones) in progress and we have worked on a dozen or more renewals, office leases and listings for sale but this is the first fully final lease on fresh retail business in 2011 for either Dan or myself.

There are indications of market momentum from specific categories of commercial space users. For instance there have been several new business openings in the restaurant category including Bella Bistro, 10 Below, & Columbia Valley Brew Pub which all opened this Spring. With other restaurant concepts looking like they are on the way it seems local proprietors in the food category are gaining confidence. This is a nice change to what was a stiflingly slow start to 2011 retail business growth and I believe it is a positive indicator of "confidence" in our market for local start up business. This should result in helping local businesses establish strong roots while national & regional competitors play catch up evaluating and locating in the market.

2011 has also enjoyed a healthy level of interest from small office leasing (less than 600 sf.) which is typical; these tenants are far more mobile, with little cost consequence for moving and dynamic business structures. Small office is also highly competitive; "value" is critical to small business owners who have a keen sense of the market thus property owners must also have good market knowledge (or a good leasing agent) to land deals.  

While the professional consensus, industry wide, indicates a plateau of vacancy & devaluation in large office assets, I judge that consensus to pertain, primarily, to large urbanized markets where general business growth originates. In my review of Wenatchee's commercial real estate market I see large office space (bigger than 1,200 sf.) as the most troubled category of commercial leasing. Office closings, downsizing and or mergers have taken an obvious toll on local commercial office buildings, showing lots of large spaces most of which have been available for over 18 months. Increased vacancy and long term vacancy create a cycle of competitive lease terms and reduced property values. I would expect this cycle to continue in our local market for the next several years due to the forecast of a slow economic recovery for general business. This can create a difficult situation for buildings that need large office & retail users to work.

There are always solutions to cure this problem but it will take some creative thinking & willingness to analyze short term vs. long term value. The most detrimental thought a commercial property owner can have is that this market will fix itself soon. Small pockets of progress in retail space & healthy small business growth are not indicators of a rebound in large office leasing. In a casual, well timed & self serving manor I would suggest seeking the help of creative & competent commercial real estate professionals (I know some you can call).

 - Chaun

Gateway Cinema; shiny, new & ready for you

What a fantastic privilege it was to attend a sneak peak of the new Gateway Cinema last night. A special thanks to the hosts of the event, Peoples Bank & Blodgett Construction Associates for the invitation. I had toured the building only 30 days before and was equally impressed with the quality and speed of the uniquely elegant interior finishes. I guarantee all will be very impressed when they enter the lobby. The awe continued as I toured the individual auditoriums and was able to experience the digital projection, superb acoustical clarity & unmatched comfort of the seats as I watched the new Hangover 2 movie trailer (which looked wicked awesome). The only disappointing aspect of the night was that the beer on tap in the VIP Lounge was not being served (boo hoo!) until they officially open. For our efforts assisting and consulting on the multitude of real estate aspects involved (see our Recent Projects page) in the culmination of this exciting project, it is great to experience the end result and witness the joy of all those who labored intensely to complete it. Now all that remains is for you, the community, to enjoy themselves and if you love movies you will, starting Thursday 5/19 at midnight.

-Chaun