Commercial appeal

As the recession continues in commercial real estate, space to do business in the Lowcountry is a bargain

The Packet and GazetteJuly 24, 2012 

  • Compared to agents who sell homes, commercial Realtors are faced with fewer potential buyers, fewer properties to sell and lots of complicated regulations. Each property is unique because of location, zoning, use and size. Most longtime commercial Realtors have dealt with apartments, hotels, offices, hospitals, shopping centers, retirement communities and warehouses.
    "It's more complex than selling a house," said David Bachelder of Charter I Commercial.
    In the Lowcountry, there are seven jurisdictions - the towns of Hilton Head Island, Bluffton, Port Royal, the cities of Beaufort and Ridgeland, and Beaufort and Jasper counties. Commercial Realtors must research zoning rules, acceptable uses and development agreements for each property based on which jurisdiction it is in.
    Sometimes Realtors, attorneys and potential buyers must work together to seek zoning changes from local officials before a deal can go through.

Everybody needs a place to live, but only a small percentage of people are looking for space where they can run a business.

This fact of life -- in addition to the Lowcountry's reputation as a great place to retire -- makes selling commercial real estate a small piece of the local real estate market.

But for Realtors who specialize in office buildings, warehouses, shopping plazas and apartment complexes, these are interesting times.

Just like residential real estate, commercial properties are caught in a recession. Problems started at the end of 2007; deceleration took place rapidly. The local commercial real estate market "came to a standstill in a six month period," said David Bachelder of Charter I Commercial, who has represented commercial buyers and sellers in the Lowcountry since 1974.

"Business has a need to continue; they don't withdraw their horns as quickly as residential when there's a downturn. It took job loss and significant industry shut down before commercial real estate was affected," he said, adding that because closings can take a year or more, commercial Realtors didn't immediately notice the pipe line of new deals drying up.

As in residential real estate, prices for commercial properties have fallen, inventory has swelled and many owners are in distress. Some owners of local office space and shopping plazas are working with Realtors and banks to negotiate short sales, where the property is sold for less than the amount owed. Others are in foreclosure. Bachelder said that when banks foreclose on commercial property, they often hire an out-of-town real estate firm to find a buyer for it, "instead of a local broker who knows the property."

For example, when Wells Fargo, which held a $30.4 million mortgage on the property, bought Bluffton's Berkeley Place at a foreclosure auction last year, the bank hired a Charlotte firm to find tenants and a buyer for the shopping center.

While cycles of overdevelopment and underdevelopment are normal, Hilton Head Island's vacancy rate of about 30 percent is far above the 5 percent vacancy rate that's considered healthy, Bachelder said.

Nevertheless, signs of life are starting to return in Lowcountry commercial real estate, on both sides of the Broad river.

Big projects including the redevelopment of The Mall at Shelter Cove, renovations at Hilton Head's luxury beachfront hotels and new car dealerships coming to the New River Auto Mall and surrounding area are positive signals, real estate professionals say.

Ernest Marchetti, who has been selling commercial real estate in the Lowcountry for more than 40 years, called the Shelter Cove plans an example of the kind of "creative thinking" Hilton Head became famous for.

The Town of Hilton Head's effort to rewrite its land management ordinance to allow more redevelopment also has local Realtors feeling optimistic; Bachelder is the commercial real estate industry's representative on the town's advisory committee.

It's a bargain

Prices -- and rents -- for commercial properties are down about 40 percent locally compared to the market's peak five years ago, said Marchetti, whose clients have included Walgreens, Golden Corral, Applebee's, Citizens First Bank, Tire Kingdom and Kangaroo Convenience stores. In some areas and types of commercial property, prices have probably hit bottom, he said, but others "still need to come down more."

These days, many retailers would rather rent than buy.

For entrepreneur April McCarty, who recently moved to Beaufort from Martha's Vineyard, Mass., the Lowcountry's prices were music to her ears. After considering leasing retail space in Martha's Vineyard and Charleston, she rejected these locations and chose Beaufort -- where she could afford to rent a store. Her Old Whaling Company will open next month on Charles Street and will sell nautical themed vintage items, apparel, housewares and gifts.

McCarty started her search on line before she'd even visited Beaufort.

"I knew I wanted to stay on the East Coast and I was looking for a historical space as close to downtown as my budget would allow, with drive-by and pedestrian traffic and parking," she said, adding her leasing agent advised her to ask for concessions from potential landlords, but not 'to assume that because there are a lot of properties available that they'll give you the world.'"

She signed a three-year lease for about 1,400-square feet, including several months of free rent and an agreement that she could paint and upgrade the lighting, paying for the improvements herself.

The process of leasing her store "was just like buying a house. We made an offer and they countered. We went back and forth until we met in the middle," McCarty said.

Abby Wirth of Hilton Head Island also found a landlord willing to be flexible when she recently moved her business from Coligny Plaza to the Village at Wexford. Her store, called Tail Waggers, has monthly doggy "Yappy Hours," adoption days and the near-constant presence of her basset hound, Oliver.

As manager of Moss Creek Village, Marchetti said he's had to drop prices to attract tenants; spaces there of about 1,200 to 1,500 square feet rent for $1,200 to $1,500 a month.


"Mom and pop shops" like McCarty's and Wirth's make up a lot of the commercial activity in the Lowcountry. For credit-worthy buyers looking to purchase a property to operate a business in, financing is flowing through commercial banks and loans backed by the federal government's Small Business Administration, Realtors say. But credit is tight for investors who want to buy an office building or shopping center and then find tenants to lease it. Banks require down payments of at least 30 percent for commercial properties; before the recession, 20 percent to 25 percent was the norm.

"You can no longer pick up the phone and say, 'Put a quarter million in my account because I'm about to buy something,'%7F" Marchetti said.

Most buyers of commercial real estate in the Lowcountry are individuals, not real estate investment trusts, and even if a property is a bargain many landlords can't get financing or afford to have the property sit vacant until they find tenants.

big In Bluffton

In the last ten years, Hilton Head Island has seen businesses move to the mainland, and Bluffton has exploded with new neighborhoods, gas stations, shopping centers and office buildings.

With population growth has come interest from major national companies looking to attract customers from Bluffton, Beaufort and Hilton Head -- including the island's 1.6 million annual visitors. These firms, which operate in a highly competitive, super-sized market, are a seller's dream because they can get financing or pay cash.

Bachelder recently closed a sale that will bring a Lexus dealership to a site across U.S. 278 from University of South Carolina-Beaufort's New River Campus. Charter I's sign was staked on the property.

He said that most national companies have their own real estate firms, so the role of local real estate agents is usually to represent the seller rather than buyer.

Bachelder said he considers the Lowcountry to be one of the country's top 10 markets for new development by national companies.

"We still have a lot of distressed real estate that we need to figure out how to create a market for, but nationally, people are looking here and talking about doing things. Corporate America is starting to invest again, hire contractors and create jobs. This is the essence of the recovery," he said.

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