Commercial Real Estate: First let me introduce Michael Pruett, the editor of this segment of The Hole Report.  Sotheby’s – Jackson Hole Brokerage hailed Michael Pruett as one of the top 10 agents in 2008.  His focus has been primarily commercial real estate and he is planning to head up the commercial real estate efforts of JHRE Associates.

Prior to his successful real estate career, Pruett, a graduate of Vanderbilt University, had a track record that included experience with Accenture’s Small Business Consulting division as well as co-founding a regional Internet Service Provider; OneWest.net.  OneWest.net grew to be the largest ISP in the Intermountain West with a customer base of about 20,000 subscribers.  Pruett served as CEO and Chairman of the Board until the sale of the company in 2002.  Additionally, Pruett has dedicated 6 years of service on the Town of Jackson Planning Commission, serving as the Chairman for 2008 and 2009.  Michael’s experience with the Planning Commission has provided him with a vast foundation of knowledge regarding the Teton County Land Development Regulations, zoning issues and the development entitlement process.  He offers his clients and customers sound real estate experience combined with a strong business & financial background, which provides a unique level of expertise in the commercial markets here in Jackson Hole. 

Commercial Real Estate in Jackson Hole: Historically, commercial transaction data has not been tracked to the same degree as the residential data.  Since many commercial transactions take place outside of MLS, commercial data has been difficult to find and hard to collect.  Our goal is to provide you with more detailed data within the commercial market in Teton County.

The commercial environment in Teton County operates very differently from the residential market.  While the economy and financial impacts might have similar results in slowing down the market, the criteria for buying and selling commercial property are very different.  The Town zoning and overlays play a big role in the price and value of a commercial property as does the location, size and cash flow.  Appraisers value commercial properties using several methods: the cash flow method, the development potential of a property, and historical comparables (similar to residential properties).  Since few transactions exist to gain true measurable comparables, a cash flow or development scenario may weigh more heavily in their analysis.

Crunching the Numbers: Relative to residential transactions, there are few commercial transactions.  To compare the most recent 3 years of data, the total number of residential transactions in 2007, 2008 and 2009 were 899, 424 and 223 respectively.  Compare that to the total number of commercial transactions in those same years and you have 51, 29 and 9 transactions. 

Currently, the commercial market is very slow.  Commercial sales and transactions have dropped significantly in the past 3 years.  In 2009 commercial sales volume dropped 57% from 2008 while the total number of transactions dropped 69% in the same period.  In 2007 transaction volume was $268,398,334, with a total of 51 sales.  Compared to 2009 sales volume of $22,452,000 and a total of 9 transactions, our commercial market has dropped 92% and 82% respectively, in just two years. 

According to the Comprehensive Plan Task force data, there are approximately 4,576,840 sq. ft. of commercial space currently in the Town of Jackson (TOJ).  There is an additional 3,436,980 sq. ft. of commercial space available outside of the TOJ for a total possibility of 8,013,638 sq. ft. of commercial space.  Currently the supply of commercial space exceeds the demand.  Vacancies are up to an 18-year high causing lease rates to decline & driving commercial prices lower. 

One of the main reasons the commercial market has slowed is the lending environment.  In 2006, the regulatory agencies implemented stricter guidelines for lending, which limited the amount of commercial real estate in their portfolio.  Together with the collapse in the global market place, this caused a contraction of wealth and of demand for real estate without affecting the supply.  As such, banks contracted and imposed stricter guidelines on borrowers. This is evident in Teton County as the Town of Jackson currently has 5 development properties that have been approved by the Town but remain undeveloped.  Until regulatory agencies loosen the regulations on banks, the commercial market will continue to be tight.

Looking ahead: No one can predict the market including me.  If regulations do not loosen lending guidelines to banks, expect a commercial “write down” in the banking industry.  This will only exacerbate the already tight commercial credit market.  The transactions that will close will be cash deals or those where Sellers are “real” with current market prices.  We will continue to watch and measure the commercial market data for you to give you unparalleled insight into this sector of our market.

Michael S. Pruett
Jackson Hole Real Estate Associates LLC
(307) 413-2700 – direct
(888) 733-6060 – toll-free

*All statistics are supplied by sources that have been deemed reliable, but are not guaranteed.

*All statistics quoted in this newsletter are based on sales in 2008 compared to sales in 2009.


The next update will be January 30, 2011.

The Commercial Corner: The local commercial market has still been relatively slow. MLS shows only 3 commercial closings for the first 6 months in 2010.  One of these sales was a distressed property on the Town Square listed at $5,400,000 that sold for $4,500,000 and another was a development project on Scott and Snow King listed at $11,700,000, which sold for $6,187,500.  

Lease rates have come down as business has slowed & tenants have renegotiated their terms.  Second floor office space on or near the Town Square dropped to around $25 a square foot but seems to have stabilized. 

Commercial lending is still difficult as lenders regulations are still tight for commercial loans. The result of this stricter commercial lending environment is still evident in Teton County.  

Even with this few transactions, commercial activity has picked up.  According to Wells Fargo Securities Economics Group, “the expiration of the homebuyers’ tax credit & better labor market conditions could help fuel multifamily demand.  Apartment property fundamentals have already shown signs of stabilization. Apartment net absorption rose in each of the past 3 quarters, and effective rent growth posted a mild gain in the first quarter after 5 consecutive quarters of negative rent growth.”

Locally, the Planned Mixed Use Development (PMUD) is weathering a moratorium.  At this point, there is no telling if it will be changed, go away or be modified.  There are a handful of approved development projects that have their entitlements and are waiting to be built.  They seem to be stalled in development due to financing and risk losing their density approvals. 

Town elected officials lifted the moratorium on condo conversions.  Several commercial projects have started to move forward with condominiumizing their properties.

The Joint Comprehensive Plan review process completed a year and a half review and submitted recommendations to the elected officials to cap residential and commercial development in the Town & County.  

What does all of this mean?

This is a good time for commercial buyers to get into the Jackson Market.  Buyers have a great opportunity to find good deals.  The excess supply of commercial space, together with the stringent guidelines in the lending market, has driven commercial prices lower.  Cash buyers or buyers with cash and very strong credit should be able to buy commercial property at a discount.  

Buyers are looking for income producing properties that cash flow. Buyers will value commercial property today by the income they produce as well as the price per sq. ft. of the asset.   This can make well run properties in the Lodging Overlay more valuable since they can rent short term and produce more income. Commercial buyers that have been sitting on the sidelines looking for opportunities are starting to do more than kick the tires on deals.   

Don’t wait too long.  If you are selling your commercial property, don’t wait too long.  Be realistic with today’s market values and price your property accordingly.  Consider getting a current appraisal or contact me for a free market assessment MichaelPruett@JHREAssociates.com.  

Be Creative.  Creativity in this environment can also offer new options for commercial property owners.  Consider new business markets for your space.  Executive Office Suites can offer renters “all- inclusive” fixed rent without having to dole out much needed capital expenditures on things like furniture, phones, equipment and sometimes utilities.

If your lease is coming due, it might be a good time to consider re-locating your office to a better location or to renegotiate your lease, as rates have dropped.

Creativity by sellers, such as offering owner financing, can also help close deals.

Looking Forward.  No on can predict the real estate market.  There are some key indicators to watch for in the market as we move forward.  Regulatory agencies need to loosen the regulations on banks and take some pressure off to open up available credit for the commercial sector.  This has still not happened and in fact some think there is a commercial “write down” coming in the banking industry.  

Cash-flowing properties, or properties with development rights, might have more added value.  Since few transactions exist to gain true measurable comparables, a cash flow or development scenarios may weigh more heavily in their analysis.  One thing commercial owners can do is get an appraisal on their property.  This will give you an indication of where your property values are today. You can also contact me for a free property analysis at MichaelPruett@JHREAssociates.com.

Locally the PMUD moratorium could be a good opportunity for buyers to get extra density on the approved yet not built projects as the rules may change going forward. Cap rates on residential and commercial development in the Town and County could have an impact on prices as supply may be limited.  With the condo conversion moratorium lifted, some commercial properties that “condo” their properties could also see some added value.

If you have questions about the commercial market or would like to discuss your property, please feel free to contact me directly.

Michael S. Pruett 
Associate Broker, Commercial Real Estate
Jackson Hole Real Estate Associates, LLC
Mobile ~ (307) 413-2700
Email ~ MichaelPruett@jhreassociates.com
Web ~  www.MichaelPruett.com

Copyright 1995 - 2010 by David & Devon Viehman-Wheeldon, dba Jackson Hole Real Estate Associates, LLC. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without explicit written permission from David or Devon Viehman-Wheeldon.

* This report does not go into detail on every segment of the market, but is intended to offer an overview of general market conditions, changes in number of transactions and average sales prices.
The values of individual properties will most likely vary from these graphs.

*All statistics are supplied by sources that have been deemed reliable but are not guaranteed.

*All statistics quoted in this newsletter are based on sales in the first six months of 2009 compared to the first six months of 2010.

*Median sale price is the cost of a property that has an equal number of sales above and below it on the price scale.
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*Average sale price is the total combined dollar volume divided by the number of sales.

*The term “Market Value” means; the value of a property in terms of what it can be sold for on the open market; current value.