Real estate still reeling

Panel sees bright spot in industry

Matt Wrye

Created: 11/18/2009 06:44:23 PM PST

The new realities of the Inland Empire's commercial real estate market are still sinking in.

A consistent theme took shape as members of Commercial Real Estate Women Network Inland Empire questioned an expert panel on Wednesday at an Ontario meeting: The local market, while showing some positive signs, is still far from recovering.

The new tug of war between desperate-for-cash tenant borrowers and lenders who are using old-school underwriting standards won't be solved by using strategies from prior commercial real estate busts, according to one of the experts.

Rather, "it's going to take creative minds in meetings like this," Karen Racusin, senior vice president of U.S. Bank's Southern California region, said in an interview after the event.

If there's any Inland Empire bright spot, it's industrial real estate, panelists said.

This sector will probably be the first to emerge from skyrocketing vacancy rates, sometime in 2010, with retail and office space slowly following suit, panel members said.

"The economists who I talk with ... say we're in the sixth inning, and small (positive) sprouts are everywhere," Racusin said about a commercial real estate recovery. "So there's great hope moving forward, but there's still $1.5trillion in toxic (bank) assets."

She said it's "too early in the game to tell" whether or not the U.S. Treasury Department's Term Asset-Backed Securities Loan Facility (TALF) program, created to bolster commercial credit markets, has done a good job. John Renken, president of Claremont-based real estate brokerage firm Renken Co., said sale and lease transactions will probably start picking up throughout 2010 as more sidelined real estate investors become convinced that a bottom is forming in the market.

But overall, "we've got a few years to work our way through all this," he said, noting that lease rates, loan volumes and vacancy rates in certain areas are poised to return to 2002 levels.

With respect to Inland Empire office space, several experts believe there's five to 10 years worth of inventory to work through, Renken said.

Deborah Gallagher, director of Small Business Administration lending at Pasadena-based Community Bank, said several business clients are finally showing some optimism.

"We're seeing a lot of equipment (financing) activity in the last 90 days, which was nonexistent at the beginning of the year," Gallagher said.

The attractiveness of Inland Empire commercial properties will be a hot topic moving forward.

The region offered distributors and white-collar employers "cheap" rental prices during the housing market boom, until rates peaked in 2007.

Now that rates have plunged across Southern California, some tenants are finding similar office, industrial and rental space in Los Angeles or Orange County for prices they've always dreamed of.

The topic "is an (issue) that's going to be answered over the next couple years," said Erik Hernandez, a senior vice president at Lee & Associates in Ontario.