Source: Birmingham News

For most of 2010, those who work on the front lines of Birmingham’s commercial real estate industry have said it “feels like” things are getting better.

The problem is that in the real estate business, like NCAA recruitment allegations, it takes more than a feeling to convince those who have a stake in the game (just ask Auburn or Mississippi State fans).

Mike Graham, president of Graham & Co., wanted more than the feeling of his brokers before he was ready to agree that the market is, in fact, getting better. And in doing a “look back” of the deals his company handled this year, he found the evidence he needed.

“The Great Recession has ended (I am calling it as of April 2010 for Birmingham),” Graham wrote in an e-mail.

What convinced him of this?

As Donald Trump might say, it was the art of the deal, or deals in this case.

With two months left in the year, there have been 227 leases or sales of office, warehouse, industrial, retail or vacant commercial land in the Birmingham area. That’s a 33 percent bump from the 170 such deals done in 2009.

While those figures are a far cry from the 325 deals posted in 2004, Graham was looking for evidence of a recovery, not new records. This year will mark the first time since 2005 that the number of transactions are up from the previous year.

“The absolute numbers are not as important to the relative differences in them, and I would expect most real estate companies in town have had similar experiences,” Graham said.

The numbers show what his brokers were feeling — that unlike in 2009 where there were several letters of intent that never turned into sales or leases, 2010 was seeing more deals go the distance.

“There were numerous ‘practice deals’ last year, but the trend is for more and more LOI’s to convert to closed deals,” Graham said.

Still, the number of deals could be skewed if landlords are asking rock-bottom prices or if property is being sold at fire sales or through foreclosures.

So Graham took a look at the average transaction size in dollars. Again, the evidence showed 2009 was a new low with an average of $344,219. In 2010, that figure is $454,317, an increase of 32 percent.

Graham said that’s significant because it shows not only landlords and sellers are no longer willing to take what they can get, but also that tenants and buyers have come to the realization that the discounts of a year ago are gone.

“From the shock of the Wall Street meltdown in September 2008, it took about 18 months for the business community to get over it, and start moving on real estate bargains,” Graham explained.

Graham took his analysis one step further to see what the bottom line was for the landlords and sellers by calculating the average price per square foot of leases and sales. Again, 2009 was the low point at $20.40 per square foot, a 50 percent drop from the highs of 2007 and 2008. In 2010, the figure is up 23 percent to $25.06.

Graham is happy to have evidence instead of just a “feeling” of improvement. Still, he has a feeling the upswing will continue in 2011.

“While we have bounced off the bottom, there are plenty of value deals out there, primarily depending on the owners’ circumstances, and how much pressure they are receiving from their lender,” he said. “Supply still exceeds demand, so while the market still favors buyers and tenants, the demand level has finally started increasing.”

That has Graham predicting the number of deals will go up by more than 6 percent in 2011 compared to this year. He’s even more optimistic that prices will go up — by nearly 25 percent — now that much of the distressed property has worked its way through the market. When it comes to price per share foot, Graham expects an 11.2 percent jump next year to $27.87.

“While the financial markets still have a long ways to go to stability, the uptick in demand to occupy space will enhance the overall economy, making the banking system a little more secure,” Graham predicted.

Economic downturns cause cuts and short-term reactions. It’s when companies stick their heads up out of the foxholes and look around that they realize they survived and can start plotting their next strategy.

“During the freeze that started in October 2007 and lasted through April 2010, most companies hunkered down, cut costs, and fortunately many started making money again, even with greatly reduced revenues,” Graham said. “Hoarding cash was a way of life during this same period. We are now seeing businesses commit to long-term leases, and purchase properties, thereby locking in low operating costs for the future.”

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