2011 is behind us, now what? Companies are now poised for capital expansion

Here we go with another prediction... To prognosticate the future real estate market conditions is always subjective at best. In any market, some tenants, landlords, buyers or sellers, will do fine, while others will have bad timing. Additionally, the performance of various sectors of the market will play a factor. In 2011, I saw companies that had been maintaining a certain sales volume begin to increase their business activity, mainly due to their competitors going out of business. With growing pains, companies still had "the jitters" relating to expansion. Why? Much of the blame goes to Congress and its procrastination to get a budget passed, which in turn, placed the United States, for the first time in our history, with a potential downgrade of our debt. Add to this the European nations' teetering on the brink of bankruptcy, along with the unrest and protests in China and related, declining product reliability. These and other factors have put the fear in companies hesitant to make that capital expansion leap. Deals were made in 2011, but only at the expense of sellers and landlords, wherein tenants and buyers knew they were getting a good deal. Those sellers, who were in precarious positions, gave in to opportunistic buyers. That said, the deals that were made were taking forever to close. Financing has been an issue during the last three years. However, if a company's cash flow is able to sustain the cost of borrowing, financing can be obtained. The lending parameters are stricter and loan approvals are also taking more time to be completed. A key factor that would help catapult our growth and expansion would be for banks to release funds for companies' credit lines. What's ahead? Barring any unforeseen disasters (e.g., Iran threatening to create a blockade in the straits of Hormuz), I believe companies are now poised for capital expansion. I believe the confidence level of companies is more positive and certainly from the brokers' side, the level of inquiries has increased. In my opinion, we are now at the bottom of the real estate market both in terms of purchasing and leasing. Those facilities that have been on the market for an extended period of time will begin to be absorbed. With all this being said, do not expect the market to improve dramatically overnight. It will be a slow and steady progression. Additionally, buyers are still going to be very prudent in their decisions to purchase. Those sellers who expect the market to turn around "quickly," do not hold your breath. Remember, the banks will lend money to qualified buyers; however, a more important aspect of qualifying for financing is the property's appraisal. Keep in mind that properties that have been sold in the last 12 to 18 months may not have the appraised value to meet the expectations of today's sellers. That, in turn, will place pressure on prices. For those sellers who have been using their buildings, keep in mind the main reason you bought the building - a location to operate your business and to pay yourself rent, rather than a landlord. So, even if you sold the building for the same price you paid for it, you are still way ahead of the game. In all those years you occupied your facility and operated your company, you produced equity rather than rent receipts. Sellers have to evaluate the reasons why they are selling their buildings. They should make a cost-conscious decision and recognize that it may be detrimental to their company's bottom lines to wait for the market to turn around, instead of moving forward and maintaining the company's fiscal health. My prediction for 2012 is optimistic. In November, I will sum up the year's market performance and see if my opinion was on target. Stay tuned... Ralph Perna is executive managing director of Newmark Knight Frank, Melville, N.Y.