Is Commercial Real Estate Making a Comeback - Press ReleaseBy WAYNE WITKOWSKI For the Pocono Record

Although the housing market is tracked while gauging the economy, it’s the commercial real estate market that indicates the scope of the rebound from a financial downturn.

It involves the retail market as well as manufacturing/industrial. In the Poconos, it generally monitors pre-existing sites rather than open land sales as the gauge. Banks are put to the test as to how much confidence they show in their commitment to business growth.

“Land is harder to get financing; it carries it for a further period of time,” said Michael Baxter of Michael Baxter and Associates based in Stroudsburg. His company has a concentration in the West End and also said Blakeslee is “a tremendous opportunity area.”

Baxter agreed commercial growth is the biggest indicator of economic improvement.
“It’s what we need to restore consumer confidence,” Baxter said.

In the Poconos, some hotels and resorts already have started making upgrades in anticipation of an improving tourism market over the next 12 months and into 2012.

“I’m very optimistic,” said Baxter. “I think it’s going to be a quicker recovery than on the residential side, which has its own set of challenges. We’ve seen a big increase of activity in the last year and in the last six months; it’s increasing each quarter.

“We started seeing improvement in late 2009 and then 2010 was our best leasing year in four years,” Baxter said. “There was so much vacant space to absorb, but there still was healthy growth.”

Some real estate companies have seized that opportunity, among them the McKeown Agency, a presence in Monroe’s commercial market while Wilkins & Associates Commercial Brokers, based in Stroudsburg, has focused its attention on the Route 940 and Route 380 corridors.
Amid some slightly differing outlooks from local agencies is guarded optimism.

“We’ve got some movement that’s got a 12- month, 14-, 20-month turnaround, but it’s a slow recovery,” said CEO Tom Wilkins.

But Wilkins pointed out that the commercial market is divided into the local and regional “mom-and-pop stores,” which he said “still is a soft market,” and the actual commercial and corporate grade, which includes publicly traded companies, fast food stores and banks.

Wilkins President Dominick Sacci said the unemployment rate continues to dictate. He said the latest local MLS listings show roughly 300 commercial properties on the market, and only 29 have been sold over the last six months with 10 pending. The timespan for sale is 415 days and pending sales is 497 days.

“What we’re seeing now on the commercial side is what residential went through a year ago, so commercial is a year behind,” said Sacci. “We have not yet seen the stabilization in commercial. For residential, 2011 is a year of transition but for commercial — it’s easily not for another year or two in occupancies that are significant enough for landlords to notice.

“We’re in a recovery like the patient who is out of the emergency room and recovering because the bleeding has stopped,” said Sacci.

But the indicators differ from a year ago when Baxter said commercial leasing in the Poconos was “at all-time low. Things were pretty much at a standstill. The (Route) 611 corridor was always the main one through Monroe (County), so that’s where we saw a lot of commercial leasing, but for the first time in years, we saw vacancies in 2009 and fortunately we absorbed all of them last

Wilkins said his company uses Main Street in downtown Stroudsburg as “a good barometer for what’s happening in the marketplace. Vacancies are not filling up right away.” Which, for now, is not good news to Wilkins. “Mom-and-pop businesses have taken over, and we don’t know if they’re strong enough,” he said. “It’s a lot more expensive to start a business than 15 or 20 years ago.”

Also, the conservative disposition of banks, particularly larger ones, hindered hopes for progress during the recession.

“What held commercial real estate back is the financial situation because banks were reluctant, a lot more stringent on requirements with existing and with new clients,” Baxter said. “I see banks more aggressive with commercial loans in 2010 and continuing in 2011. I’ve seen a 30-year amortization with bank commercial loans, which I’ve never seen before. Their willingness to do that is a good sign they want commercial lending as a priority.”

But that investment involves leasing pre-existing buildings. “I wouldn’t think of putting up a 6,000 squarefoot office building right now,” Wilkins said.

“The biggest and best opportunity for the next couple of years is redeveloping properties, and a lot of townships in Monroe are revamping ordinances to encourage this,” Baxter said. “There are older areas in Monroe where there is a need to be rehabilitated and redeveloped, and townships are revising ordinances to encourage that development.”

And those prospective occupants already have a healthier portfolio. Baxter, who serves on the Monroe Industrial Development Authority, said there is an anticipated increase in manufacturing and industrial businesses in the area in 2011.

“Banks that absorbed bad loans take longer to be aggressive. Banks that were smarter during the downturn are very aggressive, and some of the smaller banks in our area are more aggressive,” Baxter said. “The bigger banks that took hits on the portfolios outside of the Poconos might be less aggressive.”

But it still isn’t enough to spur the slow rebound of the commercial real estate market.