New Haven Commercial Market Digs In
(4/9/2009) New Haven Commercial Market Digs In
Institution-dominated Elm City weathers recession better than some
By: Karen Singer
Business New Haven
The commercial real estate market in New Haven County has not fared as poorly as other places in recent months, but the recession is taking a toll.
Building sales are down. Retail is in retreat, and other areas are sluggish.
"Clearly the amount of deal activity, both leasing and sales, has slowed, but we have definitely not gone off the cliff like other markets have around the country," says Robert Motley, director of Cushman Wakefield's New Haven office.
"Overall, it's quieter," says Kristin Geenty, president of the Branford-based Geenty Group. "Biotech space is still relatively strong and medical uses are still moving, but not as much."
Service industries are becoming busier as office and light warehouse needs contract, adds Geenty.
"People have a bunker mentality," says Richard Michaud, president of the Michaud Co., a New Haven commercial real estate appraisal firm. "They're waiting for economic signs to appear a bit more positive before moving ahead with investment, whether it's a bank looking to lease or buy, or any variety of businesses looking to expand or make economic decisions. Many are contracting from the lack of business affecting the market by fewer sales, fewer leases and less financing overall, whether [in] refinancing or sales.
"It simply has slowed the level of business activity in all areas, especially in the area of retail property, where retailers have been particularly hard hit by a change in consumer confidence and spending," Michaud adds.
Financing also has become more difficult, except for redevelopment projects under $5 million, according to Geenty.
"The largest banks are lending but lending criteria have really tightened up, and smaller banks are filling the void," Motley says.
Investors hurting most are those "with short-term financing needs and a high level of debt," adds Steve Inglese of the New Haven Group.
Commercial building sales are down markedly. Data from the Conn-Comp transaction database show just four sales between January 1 and mid-March, with prices ranging from $2.4 million to $3.8 million.
Twelve deals took place during the same period in 2008, priced at $2 million to $11 million.
The New Haven office market is "continuing on its own stable path," notes John Keogh of Colliers Dow & Condon, who writes a quarterly report on the subject.
"The one thing that has been pretty remarkable is there's no sublease space in New Haven," Keogh says, adding the reason is "the local market is not dependent on Fortune 500 and financial-services companies that have been badly damaged by the recession and the financial crisis.
"The market here consists primarily of Yale, law firms, state and city agencies, non-profit groups and architects," he explains.
Two major changes "offset each other with a net positive" during 2008, Keogh says. Yale leased 165,000 square feet at 25 Science Park, while AT&T vacated around 100,000 square feet at 55 Long Wharf Drive.
During 2008, New Haven's Class A office vacancy rate increased from 8.6 percent to 14.4 percent, while the Class B office vacancy rate declined from 19.3 percent to 12.5 percent, according to Keogh.
Geenty believes 2009 will be a "year of trepidation" with "a lot" more national foreclosure and some local retail foreclosures, beginning perhaps as early as summer.
"People are expecting the current condition to continue for another quarter or two," Michaud says. "Beyond that nobody knows."
Below are some recent commercial real estate developments in and around New Haven:
59 Elm Street
The New Haven building owned by developer Bob Matthews is in receivership and could be headed for foreclosure.
According to the Connecticut judicial Web site, on October 14, 2008, US Bank National filed a foreclosure case against Matthews' partnership, Elm City, LLC et al.
On October 27, 2008, Konover Commercial Corp. became the court-appointed "receiver of rent" for the property, and also has been managing it since that time, according to Konover President Elizabeth Judd. "We're the interim placeholder," Judd says.
Various motions and exhibits have been filed since then; the latest is an objection to discovery filed on February 18 of this year. The status of a hearing scheduled for November 13, 2009 is shown as "off."
Neither Matthews nor his attorneys, nor attorneys for the US Bank National, could be reached for comment.
In late November UI purchased the 34-acre former Showcase Cinema property in Orange from Summit Development, LLC of Southport for $21.25 million.
A month later, the utility signed a long-term lease for 22 acres of nearby farmland.
Summit's sale to UI was made several weeks after Summit bought the Orange movie theater from National Amusements as part of a $45 million deal to acquire four Showcase Cinema sites in Connecticut.
UI plans to demolish the former movie theater and construct an operations site on its original footprint for 500 to 600 field and support personnel. An office building for some 500 workers will sprout on the farmland.
UI employees will relocate from North Haven, Shelton and 205 Church Street, New Haven, where the company's lease expires in June 2012.
"That is our date to have everybody in that central [operations center] facility," says UI spokeswoman Anita Steeves.
A memorandum of understanding between the city of New Haven and Northland Investment Corp. should be finalized shortly, while concerns over state funding and its own capital campaign could hinder Long Wharf Theatre's plans for its new theater on the redeveloped 4.5-acre site.
"Long term, everyone is completely committed to this project," says Peter M. Standish, Northland's senior vice president of acquisitions and development. "The Long Wharf piece is a little further behind.
"We continue to refine how this project is going to happen and who's doing what," Standish adds, "and to try to craft it into a single vision what's best for everyone."
Gateway Community College
The long-anticipated groundbreaking on the new downtown New Haven campus may happen in late August or September of this year. State officials announced last month that the construction manager for the project is Dimeo Construction Co. of Providence, R.I. and the job could be done by January 2012.
Gateway classes, however, won't start until autumn of that year, GCC spokesperson Evelyn Gard says, adding school officials are hopeful the state will shortly approve a $147 million bond for construction work.
Meanwhile, the city will soon begin replacing the tunnel under the old Macy's building site with a new floor, lighting and supports and update its ventilation and drainage systems.
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