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.

This report will be out no later than July 30, 2010.