Nashville CRE Update

From an email I sent today to my clients:

Good afternoon!

I wanted to quickly update you on the latest information regarding commercial real estate sales for Davidson County for the 4^th Quarter and for Year-End.

In the 4^th quarter of 2009, we had 56 commercial closings in Davidson County. The good news about this number is it’s higher than both the 4^th quarter numbers for 2007 (52) and 2008 (40). The bad news is that we’re still 71% off the numbers we saw for the 4^th Quarter of 2006.

In total, we had 157 commercial closings in Davidson County for 2009.

This number represents a:

26% decrease from the 212 commercial closings in 2008;

61% decrease from the 406 commercial closings in 2007;

82% decrease from the 861 commercial closings in 2006

If you ask me what’s in store for 2010, I will give my standard answer when asked to predict the future: I don’t know.

If you ask me to use my intelligence guided by my experience to guess what’s in store for 2010, I will tell you my guess is that we will continue to see downward pressure on sale prices and lease rates due to the oversupply of buildings for sale and for lease, the current state of the credit markets and availability of capital, the current state of the job market, and the continued deleveraging of the financial sector (see chart below for an idea of the continued deleveraging we may see in the financial market).

I also believe we will see the volume of commercial sale transactions increase. The transactions will look about 30% - 40% worse than they would have looked in 2005, 2006, or 2007, but if sellers wait around for those prices to return, they could be waiting for a long time. We will not climb anywhere near the 2006 or even 2007 numbers for 2010, but I do believe we will crack 200 commercial sales this year and see a relatively steady increase in sales volume moving forward.

What goes down must come up, and I am confident that we have seen the darkest days of inactivity in the commercial market here in Nashville. There are still some very dangerous clouds looming on the macro level looking at the amount of Commercial Mortgage Backed Securities that are either in default or going to be in default, but I will leave it to the economists to try and see how those events will play out.

The great thing about 2010 is that it’s not 2009. I am seeing a lot more activity in the market and usually increased activity leads to good things.