THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Monday, May 6, 1996 TAG: 9605040278
SECTION: BUSINESS WEEKLY PAGE: 04 EDITION: FINAL
TYPE: Opinion
SOURCE: Ted Evanoff
LENGTH: Medium: 81 lines
Virginia Beach banker A. Leland Simmons hears the same question almost every week. Some caller looking for empty warehouse or factory space asks: Does the bank own a repossessed industrial building?
Replies Simmons, senior vice president of Princess Anne Bank: No empty buildings are in inventory. And none are expected.
Not long ago, callers faced better odds. Many banks stumbled into the '90s with a real estate hangover. Too many buildings went up in the '80s. And banks repossessed acres of property when the real estate market collapsed.
By now, though, the hangover has faded. Tidewater's industrial real estate market finally has stirred awake.
Wholesalers and manufacturers have filled most warehouses and factory buildings in Hampton Roads. Vacant industrial space almost has vanished for blocks of 5,000 to 10,000 square feet. ``We're talking 2 to 3 percent (vacancy rate) in our buildings,'' said Kevin Lefcoe, chief executive officer of Lefcoe Development Co. of Virginia Beach, which handles seven buildings covering about 300,000 square feet.
Scarcity has emboldened a handful of bankers. For the first time since the early '90s downturn, they're risking loans on speculative construction - speculative because no tenants are in sight when construction begins.
``The bankers are definitely starting to loosen up,'' said Chip Worley, an industrial broker at Harvey Lindsay Commercial Real Estate Inc. of Norfolk. ``They're coming to us now. That's different from a year ago.''
It's happening because the real estate market looks vibrant once again.
If a company squeezed to the rafters can't find more space, it'll borrow cash to put up its own building. Lenders have been booking these standard construction loans and know building crews are active, particularly in Chesapeake, Newport News and Virginia Beach. Demand for industrial land has sent prices soaring in popular industrial parks, such as Chesapeake's Greenbrier district.
``We've seen the price of land in Greenbrier go from $75,000 to $110,000 an acre in a year,'' said Chip Duff, a commercial broker for Riddle Associates Inc. of Chesapeake. ``You figure land sales, depending on where it's located, have spiked 25 to 45 percent.''
Riddle is participating in a 12,000-square-foot speculative industrial building in Chesapeake financed by the Bank of Hampton Roads.
The rising land values are reflected in the rising value of first-quarter commercial construction permits (issued in January, February and March).
The seven largest cities signed off on commercial permits worth $150 million, a 36 percent increase over first-quarter '95, said Robert W. Lyons, executive director of the Builders & Contractors Exchange Inc. in Norfolk.
While the real estate market has come to life, profit margins remain slim for many contractors. Curtis Cole Jr., president of Curtex Construction Corp. in Norfolk, said hungry construction companies still bid lean prices on projects.
But at least, he said, the market has cycled into an upturn.
The new cycle began to take shape last summer for Lefcoe. The phone would ring. Callers invariably wanted a small warehouse or light assembly site with a front office and a back dock and loading bay.
``What was really needed was front curb appeal and bay sizes in the range of 5,000 square feet,'' Lefcoe said. ``We realized this was a niche that we could fill.''
Lefcoe Development teamed with Sifen Inc., a contractor that owns land in Lynnhaven Corporate Center III. Sifen's banker, Princess Anne, arranged a loan to finance construction of a 53,000-square-foot building.
The loan didn't exactly resemble the risky speculative construction loans of the '80s.
Princess Anne well knew the principals of Sifen Inc. And the bank loaned on a certain percentage of the land's value, which was appreciating. What's more, the bank's comfort increased when the contractor agreed to lease a quarter of the new building for its own offices before construction began last January.
Even so, it was a rare deal for the constrained '90s. ``If you're speculating on 75 percent of a building, in view of speculation, that's pretty good speculation,'' Lefcoe said.
Risks aside, Lefcoe figures Sifen might not even occupy the building.
``I expect to fill it up pretty fast,'' Lefcoe said. ``I think as soon as we complete this one, we'll get moving on the next one.'' by CNB