Monday, October 13, 2008
Nashville Business Journal
Economy hits home
Brokerage firms seeing signs of downturn that's been slow coming.

The rocky economy that has hit hard around the country has been slow to come to Middle Tennessee, but leaders at Nashville's top four brokerage firms say the financial troubles are starting to come home.

The region's commercial real estate market may be headed for a rough patch, but brokers don't expect it to be a death toll.

"We can see the weakening now, and if it continues, obviously, all of us are going to have problems later," says Thomas Frye, managing director of CB Richard Ellis, Inc., the area's No. 1 commercial real estate firm by 2007 sales and leasing numbers, according to Business Journal research.

Frye says transactions his firm handles are often years in the making, so this year will not show a significant dip in revenue. But next year could be a different story.

"The bread-and-butter stuff that we look for to round out the program is getting weaker. There's no doubt about it," says Frye, referring to the everyday leasing and sales that make up the bulk of the real estate business.

Nationally, CB Richard Ellis has taken a hit this year, with sharp drops in the company's stock price and revenues. In the second quarter, the company earned $16.6 million, or 8 cents a share, down from earnings of $141 million, or 59 cents a share in the year-ago period.

Frye says the Nashville office is somewhat isolated from those numbers because the Middle Tennessee region is a generally stable market.

"Our balance sheet's still in great shape," Frye says. "It's just the revenue's not coming through the door like it was, but that's the cyclical nature of real estate."

Doug McDowell, managing director of ProVenture Commercial Real Estate, predicts the economic crisis will hit new development and investment properties the hardest.

"In times of uncertainty, companies will try to defer or delay decisions, especially major designs," McDowell says. "They'll try to negotiate short-term renewals so there's more clarity in the economy."

McDowell says leasing will fare better than sales because leases still have to be renewed at regular intervals and existing companies have to do business somewhere. But expansions, relocations and upgrades are likely to move at a slower pace, he says.

"Certainly the credit crisis has had a negative impact on your leverage buyers, so I think we'll see a reduced number of transactions in the near term," McDowell says. "I think it will be across the board. There are certain submarkets where you have more supply than other submarkets."

There are always opportunities in a down market, though, says Doug Brandon, managing principal with Colliers Turley Martin Tucker.

"Good brokers know how to make money in bad markets," Brandon says. "Any time there is turmoil, people want to do things, whether they want to sell the property or they want to go out and find value in a property."

He says Colliers' 2008 revenues are ahead of budget and on pace to be the Nashville office's biggest year. The uncertainty is in 2009, when the financial crisis and lack of investment funds and available debt will have a greater impact, Brandon says.

He says prices on properties eventually will fall to the level where it makes sense for investment to start again.

"I don't think things have gotten cheap enough where people want to jump back in," Brandon says. "There are going to be some months where some firms are going to lose money. Hopefully, not many."

Nate Greene, managing partner with NAI Nashville, says his company is also having a good year, with large deals on track for the end of the year or early next year.