.floatimg-left-hort { float:left; } .floatimg-left-caption-hort { float:left; margin-bottom:10px; width:300px; margin-right:10px; clear:left;} .floatimg-left-vert { float:left; margin-top:10px; margin-right:15px; width:200px;} .floatimg-left-caption-vert { float:left; margin-right:10px; margin-bottom:10px; font-size: 12px; width:200px;} .floatimg-right-hort { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 300px;} .floatimg-right-caption-hort { float:left; margin-right:10px; margin-bottom:10px; width: 300px; font-size: 12px; } .floatimg-right-vert { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px;} .floatimg-right-caption-vert { float:left; margin-right:10px; margin-bottom:10px; width: 200px; font-size: 12px; } .floatimgright-sidebar { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px; border-top-style: double; border-top-color: black; border-bottom-style: double; border-bottom-color: black;} .floatimgright-sidebar p { line-height: 115%; text-indent: 10px; } .floatimgright-sidebar h4 { font-variant:small-caps; } .pullquote { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 150px; background: url(http://www.dmbusinessdaily.com/DAILY/editorial/extras/closequote.gif) no-repeat bottom right !important ; line-height: 150%; font-size: 125%; border-top: 1px solid; border-bottom: 1px solid;} .floatvidleft { float:left; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} .floatvidright { float:right; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} The number of commercial property sales in Polk County valued at $100,000 or more plummeted about 39 percent in 2009 as the credit crunch contributed to the largest decline in U.S. commercial property prices since 2007.

As of Jan. 21, the Polk County assessor’s office had recorded 282 such transactions for 2009, compared with 459 the year before.

Fueled by what has been called the worst recession since the Great Depression, the commercial real estate crisis isn’t expected to wane until at least later this year.

According to Grubb & Ellis Co., a national real estate services and investment firm, most commercial property types will not bottom out until near the end of 2010.

According to a Jan. 4 report by Real Capital Analytics, a New York-based market research and commercial real estate sales and trends analyst, the annual volume of commercial property transactions in the Des Moines metropolitan area fell more than 50 percent in 2009 to $51 million from $102.5 million in 2008.

“In 22 years, there’s never been that type of a drastic slowdown of transaction flow,” in Greater Des Moines, said Mark Patterson, a Polk County deputy assessor. Patterson, who worked as a commercial real estate broker for 18 years before joining the assessor’s office in 2006, quickly added that his analysis is in light of historic-high transaction levels in the mid-2000s.

“It’s a relative thing,” he said. “You’ve got to understand the bubble that happened there. As we come back down, now we’re coming back down to a level that would have been normal in 2004.”

According to the Real Capital report, in 2004 there were $64.8 million worth of commercial property transactions in the metro area. In 2005, the volume increased on a year-over-year basis by more than 250 percent to $231.3 million.

In the heady days of 2007, a whopping $409.2 million worth of commercial property sales closed in the metro, Real Capital said. The same report indicated that in 2009, only $72.7 million worth of commercial property transactions occurred in the entire state of Iowa.

In addition to a lack of available financing, which has by and large put the brakes on new development and slowed commercial leasing activity, Patterson said sellers who owned or acquired their properties between 2004 and 2007 are in no hurry to sell for less than what they have invested.

“You’re starting to get a market gap between our sellers and our buyers,” Patterson said. “And it’s not resolving, and that results in a reduced number of transactions. The seller is not going to sell unless he has to sell, and the buyers are all standing over there waiting for the sellers that have to sell.”

Patterson said his office, which is tasked with assessing the value of Polk County’s commercial properties once every two years, is constantly tracking the markets.

But a lack of market evidence, or what Patterson refers to as “arm’s length” or market transactions, can complicate the task of evaluating Polk County’s 8,830 commercial parcels, which as of Jan. 1 had a total assessed value of nearly $9 billion.

“Anytime the numbers or data points are sparse, it’s harder to draw conclusions and really pinpoint where the market is,” Patterson said.

The assessor’s office, Patterson said, relies on a list of conditions set forth by the Iowa Department of Revenue to determine if any given sale is “a good reflection of the market.” Those transactions don’t include “abnormal” sales, such as foreclosures, quitclaim deeds and sheriff’s or tax sales, which are on the rise.

Deputy assessor Rod Hervey said Polk County recorded 112 “normal” or “quality” sales, as defined by the Iowa Department of Revenue, in 2009, compared to 170 in 2008 and 269 in 2007. “This is the worst I’ve seen it,” said Hervey, who has worked at the assessor’s office for 34 years.

The number of commercial building permits issued for new construction, additions, renovations, remodeling, updating, demolition and new signage fell to 1,052 in 2009, from 1,530 in 2008 and 1,815 in 2007.

“When we’re doing revaluation and recognizing the changes in the market, then we really need to take that and apply it to the whole inventory,” Patterson said. “Modulating is what we try to do. We look at what has happened in that two-year period and then pick a point kind of in the middle of all that – not clear at the top, not clear at the bottom – and try to go to a median.”

Patterson said that the economic performance of income-generating properties, such as rents, vacancy rates, operating expenses and capitalization rates, “will have the most impact on value” when putting together the 2010 assessment.

“Relatively, the market is better here, and we haven’t seen the values drop,” as much as in other regions, said Gene Nelsen, president of Nelsen Appraisal Associates Inc. “The East and West coasts, percentage-wise, have been hurt much worse than we have,” he said. “Not to say we haven’t had decreases in values.

“The other concern is the higher level of caution related to investing money in all types of real estate,” Nelsen said, adding that many investors are still sitting on the sidelines, waiting for the bottom.

“Because of the recent downward trend, (commercial real estate) is not something that’s really sought after unless (buyers) can get a steal,” he said.

“And even if they do get a relatively good deal, it’s hard to get financing.”

A rise in vacancy rates in income-producing properties may also cause values to decrease, Nelsen said, as properties that are losing money generally have a higher capitalization rate, which forces down the value.

“Every time you add a little bit of risk, that cap rate increases,” he said. “It all goes back to perception of the market and general concern for the real estate environment.”

“Our rents are stable, but vacancies are creeping up,” Patterson said. And though most property types in Polk County are fairly stable, he said there will likely be an issue with office vacancies in 2010.

“I know (vacancies) will affect some suburban buildings as well, but it’s going to be a more significant event downtown,” Patterson said, citing Wellmark Blue Cross and Blue Shield’s and Aviva USA’s upcoming moves to owner-occupied facilities from leased spaces downtown. He said those moves are expected to leave behind a vacuum of “competitive office space.”

Grubb & Ellis expects the national vacancy rate for office space to reach about 19 percent by year’s end.

Nelsen believes the local market will turn a corner in 2010, but “retail may continue to struggle until we see the major retailers come back and expand their development in Greater Des Moines,” boosting the confidence of local retailers, he said. And recovery in the office market will follow a rebound in job growth. “That all has to do with confidence,” he said.

Based on an index compiled by Moody’s Investors Service, the Wall Street Journal reported in December, commercial real estate prices in the United States were 37 percent lower in September 2009 from the prior year and 42.9 percent below their peak in October 2007.

In today’s marketplace, Nelsen said, a higher percentage of his business comes from work on troubled assets, such as real estate owned, or REO, properties owned by banks.

According to Foresight Analytics LLC, an Oakland, Calif.-based real estate market consulting firm, 53 percent of an approximated $1.4 trillion of commercial real estate debt scheduled to mature nationwide during the next five years is “underwater,” meaning the value of the property is less than the mortgage.

Iowa’s 3.6 percent commercial mortgage delinquency rate in the third quarter of 2009 ranked No. 33 in the nation. The national rate was 4.6 percent, Foresight reported.

“The reason for that is Iowa probably escaped most of the speculative excesses that affected some of the larger markets and more active markets during the run-up to 2007,” said Matthew Anderson, a partner with Foresight.

He said the state probably wasn’t as severely impacted by the housing downturn as “the boom and bust areas” in the southeastern and southwestern United States.

Des Moines’ third quarter 2009 nonresidential delinquency rate was 3.5 percent, up from 1.8 percent in the third quarter of 2008.

At the end of 2009, there was about $3.5 trillion in commercial real estate loans outstanding, Anderson said.

Before bottoming out, he said, commercial property values may decline 50 percent from their peak.