River Cities Business Journal: Construction

Now is the time to buy; Interest dates lowest in half a century, prices are down

River Cities Business Journal

BULLHEAD CITY - From Needles to Laughlin on both sides of the river the commercial real estate market is very healthy, according to a study done by Richard Biegel, owner of Colorado Place.

Biegel presented his findings in a “State of the Community” presentation in March with Richard Adams of the Bullhead Regional Economic Development Authority to a packed house at the Bullhead Chamber of Commerce.

Together the reports show a very healthy business climate along the river.

Adams' reported that there were 137 commercial construction permits issue in Bullhead City in 2007, nearly double the next highest total of 74 in 2003.

Biegel's survey showed an 8.7 percent vacancy rate for retail/office space in the region, which is well under the 15 percent needed to be considered a healthy market, he said.

Those facts combined with a lagging economy and low interest rates make this one of the best times to invest in commercial property in decades, Biegel said.

“Interest rates are tied to the 10-year Treasury yield, which is at 3.44 percent. We haven't seen that since 1958,” Biegel said. “If business owners buy space now they are going to be paying less than they are for rent in most of these places. And, they won't have any rent increases. They'll be paying the same rate 10 years from now. Rents will double in the next 10 years.”

Jim Nelson of Nelson Development is leasing and selling condominiums in his latest project, Silver Creek Professional Plaza, and would be happier if he does not sell the whole property.

“In a perfect world I would sell half and lease half,” Nelson said. “The significant thing in what I'm saying in that I prefer to keep a portion is that I believe the values are going to go up. Historical evidence shows that the real estate market goes up 100 percent every 10 years.”

Nelson is happy with his sales at Silver Creek.

“It is the highest and fastest absorption rate of any project I've ever done in 30 years,” he said.

But, he'd still rather lease.

“When I'm talking to prospective buyers I say ‘You know, I'd really rather you lease from me because I know five years from now I'm going to be happy and you are going to be unhappy. Rent is going to go up. Value is going to go up,” Nelson said. “My father was in the trucking business. He never bought real estate except for what he needed for the trucking business. When they regulated trucking his equipment was worth what he owed, but his land had tripled in value.

“People are not necessarily making the best choices for their business. When you retire, when you sell out, your real estate is worth far more than your business.”

Biegel's survey also identified a central business district in Bullhead City. It is along the Highway 95/Miracle Mile corridor between Wal-Mart and Riverview Mall.

“The central business district is the biggest employer this side of the river,” Biegel said. “You want to be there because that is where the people are. In our central business district we have 3.2 percent vacancies. That's a damn healthy market.”

“Once you fall below 5 percent economic vacancy rate you can't hope to get any lower than that. You have retirees, business closures and moves for relocation. Being below 5 percent is almost impossible.”

Yet, Biegel's Colorado Place is right in the middle of the central business district. And he laughingly admits he owns most of the 3.2 percent of the vacancies.

Both Nelson and Biegel scoff at the idea that the local economy may face insurmountable difficulties in the next few years.

“Of 577 micropolitan areas identified by the Census Bureau Mohave County ranked first,” Biegel said. “The average unemployment rate since they started tracking it is 5.6 percent. We're well below average.”

“Just two days ago CNN was making a huge deal out of the unemployment rate,” Nelson said. “The historical average is 5.6 and we're at 5.1 (nationally).”

Mohave County has hovered between 4 and 5 percent for the past five years. Usually nearer to 4. Regionally, including both sides of the river, the rate is slightly above 6.

“There is an up side to that,” Adams said. “Businesses know we have an available work force if they decide to move here. It makes the area more saleable.”

A turnaround may come soon locally and people who fail to act soon may miss their opportunity.

“All indications are we are damn close to the bottom and it is going to turn around,” Biegel said. “We have about a half-year oversupply of homes and the reality is that we're going to work through that inventory.”

“A lot of people expect that to happen by the end of this year. A lot of people are waiting and they're going to miss the buy of a lifetime.”

“History has shown that real estate and rental rates double every 10 years,” Nelson said. “Any person who goes back and looks at what they were paying 10 years ago will see their lease rate has doubled or tripled. They could have fixed that rate by buying.”