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Metro Jackson seen avoiding major risks big markets are enduring

BRIAN ESTES

Survey finds trend of commercial real estate projects suspended or scrapped

 

By TED CARTER

Huge numbers of commercial real estate projects across the country shut down for good will be part of any tally of economic casualties of the coronavirus pandemic.

But look for the wreckage of metro Jackson’s abandoned projects to be less extensive than in larger markets, says James “Jim” Turner, a managing director in the Jackson office of national real estate valuation and advisory firm Integra Realty Resources.

“Some of the larger markets are seeing a more glum outlook than some of the tertiary markets like Jackson,” Turner said.

Beyond size, metro Jackson benefitted from a shutdown “not as dramatic” or of the magnitude of those in some larger commercial markets, he said.

JIM TURNER

“We’re completing projects,” Turner added.

And also counting on patience to provide a payoff.

Investors and developers, Turner said, appear willing to take on up to a year of additional exposure to metro Jackson market risks.

The investors who do abandon projects in all likelihood have fallen short on rent collections, see too much uncertainty ahead, and are feeling a squeeze from lenders. They want out, said Jackson commercial real estate broker Brian Estes in a recent Mississippi Business Journal column.

“For properties with non-recourse loans, at some point the investors will choose not to use personal cash reserves to fund the property,” Estes wrote. “This could possibly cause some investors to walk away from their properties.  Of course, all of this depends on the longevity of the virus and impact it makes on the property’s tenants.”

The impact is indeed showing up nationally, according to an Integra Realty Resources survey of commercial real estate professionals, developers, lenders and investors. The survey conducted by the Denver-based Integra’s more than 50 offices found that the covid-19 has brought over a quarter (28.2 percent) of new projects to a halt, perhaps permanently.

An even 25 percent of developers who stopped their projects say they are unsure they will revive them, Integra says.

The company published the findings in the Covid Real Estate Impact Survey Report from responses received between March 31 and May 1. The report noted the survey is ongoing.

The earlier the stage of the project the more likely it is to survive, according to the survey, which found that 12.9 percent of projects in the approval or planning stage are still alive.

Meanwhile, many property managers in metro Jackson and elsewhere expect to collect lower rents over the next six months. Nationally, 39.2 percent of property managers Integra surveyed said declining rates are a certainty.

Retail and hospitality properties are the most likely to see rate slippage here and elsewhere, Turner in the Jackson office said. “Power centers and strip shopping centers with a mix of local and national tenants are going to see a lot more risk,” he added.

The risk includes rents that go uncollected. “Quite frankly, there will be tenants who just will be unable to pay rent,” said Estes, Estes Group president and investment advisor, in the column for the Mississippi Business Journal.

The current quarter could be especially challenging in Mississippi, where state economists project a previously unheard-of 35 percent drop in the state’s Gross Domestic Product for the second quarter.

In an April interview, Estes said many national tenants have told metro property managers they can’t pay rent for 90 days to 120 days. While that length of forbearance could be difficult to achieve, property managers are trying to work with tenants “to keep them in place until things are more stabilized,” Estes said in his column.

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About Ted Carter