A plunge of as much as 81 percent in the sales of some types of commercial property, an increase in average overall capitalization rates for many markets, a slip in the rental market and a decrease in initial-year market rent change rates accounted for much of the downturn during the quarter, according to the quarterly survey of major institutional equity real estate investors. Investors’ uncertainty about the direction of the economy added to the woes. With job losses mounting and consumer confidence waning, prospective buyers were unwilling to meet sellers’ pricing levels, widening the pricing gap. Many investors believe that the disparity in prices is unlikely to narrow again until there are stronger signs of economic prosperity and liquidity returns to the industry.

“The pricing gap that resulted after the credit markets tightened has been further widened as a result of most real estate investors now taking a back-to-basics approach and being more conservative than sellers in their underwriting,” said Tim Conlon, partner and U.S. real estate sector leader for PricewaterhouseCoopers. “Investment opportunities still exist, and there are still buyers out there willing to take advantage of good opportunities.”

While the majority of nationwide markets are mired in an economic slowdown, investors realize that the commercial real estate fundamentals are healthier than they were during the last downturn in the mid-1990s. New construction is being restrained, supply and demand is more balanced and cash flow assumptions are more realistic, laying the groundwork for a rebound when the economy gathers steam. For the time being, the “fundamental” investor has replaced the leveraged investor.

“On the buy side, real estate investors are no longer betting that properties will experience tremendous increases in rental income and value and that is why the pricing gap between buyers and sellers took center stage in the past quarter,” said Susan M. Smith, editor-in-chief of PricewaterhouseCoopers Korpacz Real Estate Investor Survey(r) and a manager in the PricewaterhouseCoopers real estate sector services group. “We are definitely in a downturn, but investors are finding comfort from the notion that the fundamentals are still quite healthy, positioning the industry for recovery once the economy begins to turn around.”

Property types and locations are displaying different trends, the survey showed. Strong investment interest is buoying prices of high-quality assets in top-performing markets despite a drop in transactions, reflecting a “flight to quality.” In secondary and tertiary markets, price declines and cap rate expansions are most noticeable.

A large pricing gap and lack of leverage led to a massive decline in sales volume in the four major commercial property sectors on a year-over-year basis during the second quarter of 2008. Transactions involving significant office, apartment and retail properties plunged by at least 79 percent in April compared with a year earlier, while industrial sales fell the least, by 67 percent. As the industry continues to transition, it is increasingly favoring buyers. In the national suburban office market, for example, a total of 27 percent of investors said market conditions now favor buyers, a four-fold increase from 2007. Nevertheless, foreign buyers, supported by a weak dollar, remain focused on acquiring assets in the U.S. In fact, the survey reveals that Middle Eastern and Australian investment now outstrips that of Germany, and there is a steady flow of new buyers from all over Europe.

On a year-over-year comparative basis, the average overall capitalization rate for an increasing number of surveyed markets showed an uptick between the second quarter of 2007 and the second quarter of 2008, according to the poll. Individual office markets that witnessed the largest year-over-year increases in average overall capitalization rates include Phoenix, Suburban Maryland and Northern Virginia. The biggest increases in overall capitalization rates are forecast to occur in the national regional mall market, as well as the Houston and Northern Virginia office markets, according to estimates. On average, overall capitalization rates for all the markets surveyed are expected to increase about 35 basis points over the next six months.

The commercial rental market, while still a bright spot in U.S. real estate, has dimmed recently. Vacancy rates are inching up across all property sectors, and rental growth is slowing. In the second quarter, the initial-year market rent change rate declined in 14 of 18 office markets in the survey, twice as many as in the fourth quarter of 2007. The survey shows that few dominant office markets are bucking this trend. Manhattan’s initial-year market rent change rate fell for the third quarter in a row after an average quarterly gain of 161 basis points in the preceding 12 months. In San Francisco, the initial-year market rent change rate dropped 228 basis points in the second quarter. “It’s now clear that problems in the residential housing market, which is undergoing its most serious downturn in two decades, and a slowdown in U.S. economic growth have spilled over into the commercial real estate market,” said Smith.

According to the survey, the office market in cities including San Francisco, Philadelphia and Fort Lauderdale, Florida, are in contraction. Other Florida cities, including Miami, Tampa and Jacksonville, are declining, as are San Diego and Sacramento, California. Few major office markets are expanding. The exceptions include Honolulu and Hartford and Stamford, Connecticut.

In Los Angeles, which has mostly bucked industry declines, investors expect office property values to rise an average of 2.6 percent during the next 12 months, more than in the first quarter of 2008. Other markets expected to realize strong value growth, on average, over the next 12 months include Manhattan at 5.6 percent, Denver at 4.0 percent and Southeast Florida at 3.2 percent. In contrast, investors expect office property values, on average, to decline in the office markets of Charlotte (-5.0 percent), Chicago (-1.3 percent), and Northern Virginia (-0.1%).

“What is your home really worth right now? It’s worth as much as the lowest-price lender-owned comparable plus the cost of returning that home to turn-key condition plus a small convenience premium. In other words, if the lender-owned house sells for $120,000, and if it will take $10,000 to make it as nice as your home, then your home is worth $135,000 — $140,000 at most.

And if you’re not willing to sell you home for that price? Get it off the market right now. It will not sell for more, but the surplus of over-priced inventory is a false signal to buyers that the market has not found its bottom.”

I see the logic, but as I said above, houses are not fungible goods. They may have similar specifications or appear similar on paper, but every house is different from it’s neighborhood, to it’s view, to the barking dog next-door. I wonder if these factors would weigh heavily enough on buyers — meaning that buyer’s are more emotional than data-driver — and this would over-ride some of this logic.

It’s an interesting question. What do you think?

Duane Slade, Mesa Arizona

The article tells us this for example:

New retailers in Surprise, Peoria, Sun City and parts of Glendale took over more than 660,000 square feet of commercial space between January and March. The region was one of the only greater Phoenix markets to experience retail growth, up from about 265,000 square feet of absorbed space in the first quarter of 2007.

It goes on to say that the West valley should continue to see growth for the next few years.

You can read the rest of the article by clicking here.

Duane Slade, Mesa Arizona

The article starts off in part:

“Those who are waiting for the bottom of the market may be surprised to discover that it has already occurred in a few areas,” Chuck Willman, a real estate agent for Gentry Realty and founder of AZVest.com, said in an e-mail interview. “Whereas the market decline can be prolonged, the rebound can be quite quick.”

The article goes on to look at the issue at some length and it is a very good read. Take a look by clicking here to visit the article “Real-estate in Phoenix: ready for rebound?“.

I’d be interested in anyone has any comments on what they’re seeing out there in the market.

Duane Slade, Mesa Arizona

The Night Is Long

Whitney Slade

The night is long the morning is well expected

I’m tossing and turning in my bed way more anxious than I detected

The house is still dark everyone’s asleep

I’m wide awake but must not make a peep

It must be at least 6:30 I look at the clock

Its 2:00 a.m.  Wow that’s really early

I fall back asleep sugar plums are dancing in my head

I’m dreaming of the perfect Christmas suddenly my brother pulls me off my bed

Its 7:00 the sky foggy, but bright

My nerves are screaming “Time to open presents, all right?”

I see colored wrappings of presents all dolled up and pretty

Big ones and small ones now my head is dizzy

Christmas morning is so much fun

To tear open presents until everyone is done

This Christmas morning as you wake up remember the true meaning

Which is Christ’s birth and the sincerity of his giving

Duane Slade, Mesa Arizona

It brings back a lot of memories for me to watch these clips. The whole day is a bit of a blur, but seeing these snippets of time before the race reminds me so much of the feelings that I was having that morning. It was an amazing day.

I can’t wait to see the rest of the film!

Clip 1 – At the Athlete’s Village

Clip 2 – On the way to the start

Clip 3 – At the starting line

Duane Slade, Mesa Arizona

As I was sitting around in the lobby I quickly realized that I was not prepared at all. I had on a sleeveless running shirt and a pair of shorts. I looked around and everyone was dressed like they were going to Alaska. They had on jackets, sweats, hats, and gloves. They were all carrying bags with their numbers on them and I was carrying a bottle of water and a bagel. After assessing the situation I hurried upstairs and put on a couple more items, grabbed my red bag with my number, and went to the bathroom one more time. I then headed outside to catch the bus.
 
The bus ride was very cold and long. As we rode up to the starting-line we must have definitely taken a wrong turn, because we were going way too far. It felt like we were on the bus for an hour. The guys behind me didn’t make the ride any nicer with their windows down the whole time. They must of grown up in the arctic circle because the -40 wind-chill that was coming through the window and blowing on me didn’t seem to effect them the slightest bit.

As I sat there I was a little embarrassed because of the chatter that was coming from my teeth slamming together due to the cold. They were chattering so much and so hard I thought I was going to have to go get my new veneers replaced. We finally arrived at the start line and quickly emptied the bus.

There were so many people waiting it was incredible. 25,000 runners sitting, sleeping, talking, shivering, and getting ready for one of the biggest races of their lives. It was truly a sight to see. I sat there for awhile and just took it all in. That is when this experience started to change from being miserably cold to incredibly exciting.
 
The announcer called us all down to the start line so everyone started to walk to their stalls. It was about a mile or so just to get to the spot to begin the race. I did one more check of all my stuff and then it hit me, I AM RUNNING THE BOSTON MARATHON!!

I looked around and really felt outclassed. The quality of runners was intimidating to say the least. I made a decision right then that I was going to beat my bib number. I was 5498 and I needed to come in 5497 or better. Then the gun went off and we were off and running. It took about 3 minutes to get to the start line, I had 5000 people in front of me and 20,000 people behind me.
 
The first couple miles went by quickly. It was like I was running on air. The crowd was yelling and the runners were all high on adrenaline. I wanted to hit 6.2 miles (10k) in 45 minutes. I hit it in 44 minutes. I wanted to hit 20k in 1 hour and 30 minutes and that’s exactly what I did. I hit the half way point in 1:35 and I was right on target to run a 3:15, which would give me an automatic invite to Boston next year. I was feeling good and ready to continue.

Looking around I saw so many different kinds of runners. I kept telling myself that I could do it and that I just needed to keep going.

I really wanted to hit mile 19 at 2:15 and I hit it at 2:19. I had two more miles of Heartbreak Hill and I was beginning to feel some pain. I knew that in order for me to get the time I wanted it would mean a lot of pain and honestly I wasn’t up for it. I decided to have fun and enjoy the rest of the run, which I did.

I was able to see the ‘super dad’ pushing his son in a wheelchair the whole way. I ran with him for a mile and I have to say he is a neat man. I asked him if he would run without his son just to see what it would be like and he said that running a race and leaving his son at home would be like running a race and leaving his shoes at home. He is truly an inspiration.

I just want you to know that all the work, training for 8 years, 1000’s of miles logged, over a hundred pair of shoes, countless races, blisters, cramps, pulled muscles, running outfits, throwing up, back problems, losing over 40 lbs and many more things was completely worth it. I would do it all again and then some to have this experience again. I cannot say enough about how cool this was.
 
I ended up finishing the run in 3:24 and overall place of 5318.

I loved every minute of it. It was a great experience and I am honored to have been able to participate.

Congratulations to all of the other Boston finishers out there. I can’t wait to get back again!

Duane Slade, Mesa Arizona

I jotted down some notes to a friend, which I’ll share with you and then tomorrow I’ll have a little more detail to share about the race.

Boston was an awesome experience! All of the people, the runners and the fans, made the run feel like there was electricity in the air.

If I would have trained a little harder I could have really performed well. Don’t get me wrong, I was really happy with the experience and the time I got, I am just saying that with a little more work on my part I could have been down close to 3 hours.

I was doing exactly what I wanted until about mile 18 (heartbreak) then I began to get a little tired and started to feel some pain. I knew that in order for me to get the time I wanted it would mean a lot of pain and honestly I wasn’t up for it. I decided to have fun and enjoy the rest of the run, which I did.

I was able to see the ‘super dad’ pushing his son in a wheelchair the whole way. I ran with him for a mile and I have to say he is a neat man. I asked him if he would run without his son just to see what it would be like and he said that running a race and leaving his son at home would be like running a race and leaving his shoes at home. He is truly an inspiration.

I just want you to know that all the work, training for 8 years, 1000’s of miles logged, over a hundred pair of shoes, countless races, blisters, cramps, pulled muscles, running outfits, throwing up, back problems, losing over 40 lbs and many more things was completely worth it. I would do it all again and then some to have this experience again. I cannot say enough about how cool this was.

Thank you to everyone for their support and help. Without you this would not be possible for someone like me. I cannot wait to be here again next year. I would like to run a sub three hour marathon next!

Duane Slade, Mesa Arizona

Check me out! I’m feelin’ like a little celebrity. But then everyone that goes to Boston for the first time gets this treatment, right? OK maybe not, but it’s pretty cool.

Coach Joe, who is the editor over at Running Advice and News, ran with me in the Ragnar Del Sol relay a last month, so I guess that was the sting that got pulled.

Anyway, you can check it out by clicking here.

Good luck to all the other Boston Marathon runners and thanks to all of you that have been wishing me well.

Duane Slade, Mesa Arizona

I’ve heard that my friend Coach Joe English is going to be running a profile about me on Running Advice and News this week, so I’ll let you all know when it is posted and I’ll post the article here on the blog.

Anyone else out there going to Boston or that has run Boston that has something they’d like to share?

I realize that I’ve been doing a lot of talking about running since I started writing this blog. I promise, after Boston I’m going to explore some other topics, but I’m just really excited about the race coming up on Monday. Can you blame me?

Wish me luck!

Duane Slade, Mesa Arizona