Branson Commercial Real Estate 2012 Outlook (Commercial 1 Brokers)

8/2/2019 Branson Commercial Real Estate 2012 Outlook (Commercial 1 Brokers)

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Its hard to believe that Commercial One Brokers has begun our sixth year of business with the publishing of Edition Six of our annual commercial report. Thisyear begins the fourth year of the commercial market depression.

Although there are signs nationally of market improvement, they are small andlimited to a few geographic areas and market segments. The national multifamilymarket continues to surge and is now reaching occupancy and rental rate levelsnot seen since early 2006 when the declines began. The Office and Retail markets,although improving has shown minimal improvements. The hard hit areas of thecountry continue to suffer.

The last half of 2011 appeared to be the crescendo for foreclosures and shortsales in the local commercial market. We believe 2012 and the coming years willbegin the long slow workout for these properties. Following double digitreductions, rents have begun to stabilize and concessions offered by owners aremore limited. Occupancy rates remain nearly flat, although minimal positiveabsorption did occur this year in both the Retail and Office market segments. Theamount of inventory in the retail sector was reduced by the closing of the 245,000sq. ft. Red Roof Mall at the end of the year.

At Commercial One Brokers the fourth quarter was one of our most activeperiods in several years with three sales transactions and just over 30,000 sq. ft.of office and retail leasing. Our results seem to mirror other commercial brokersexperiences state-wide.

We asked Jerry Jeschke of Jeschke Appraisal to again provide us hisresidential analysis. It appears that some segments of the residential market hasperhaps bottomed out and are about to show some small improvements this year.

Overall, we expect this year to be as difficult as last but overall it will bedependent on the election, gasoline costs and attitudes of investors.

Sincerely,

Stephen N. Critchfield, CCIM Robert Huels, Jr. CCIMBroker/Partner Broker/Partner

H AV E W E T U R N E DT H E C O R N E R ?

P r e p a r e d B Y ; C o m m e r c i a l O n e B r o k e r s L L C5 0 0 W e s t M a i n , S u i t e 3 0 2 - A , B r a n s o n F i n a n c i a l C e n t e rB r a n s o n , M O . 6 5 6 1 6w w w C o m m e r c i a l O n e B r o k e r s . c o m 4 1 7 - 3 3 4 - 3 1 4 9

2012 C O M M E R C I A L REAL ESTATE FORECAST

Commercial One Brokers LLC

I N S I D E T H I S I S S U E

1. Have We Turned TheCorner?

2-4 Residential Market Up 2%

5 Retail Rents Hit Bottom

5-6 Office Market ContinuesTo Struggle With HighVacancies

6-7 Hospitality MarketExperiencing Major Realignments

7 Few Commercial LandSales Reported Since2010

7-8 Branson 2011 Results

8 Observations, Opinionsand Thoughts

PRE-TORNADO

ADDITION

2012 Rea l Es t a t e Repor t

Pub l i shed By Commerc ia l One Broke r s

LLC.

Februa ry 2012Ed i t ion 6


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Page 2 2012 REAL ESTATE Forecast Source:

J. Jeschke Appraisal

RESIDENTIAL MARKET UP 2% The residential market in the Tri-Lakes area that includes most of Stone and TaneyCounties produced 2011 sales numbers that were very similar to the previous year. Wehave been operating in the residential and commercial markets in Stone and TaneyCounties over the past 29 years and have been tracking certain statistics for the past 11years to keep our clients abreast of the happenings in the market.

Information summarized from area sales data indicated a minor increase in the number ofproperties that sold in 2011. The total number of sales in 2011 according to our statisticsappear to be about 2% higher than 2010 with a similar distribution of sales.

The majority of the sales in the market transpired with prices below $200,000. Sales of

properties with prices that were between $0 and $200,000 made up 85% of the sales in themarket in 2011 up 5% over 2010. However, the numbers may be skewed since local realestate agents indicate that buyers of properties over $500,000 are requesting that theinformation related to those sales be kept confidential.

Most of the categories have remained fairly similar over the past 3 years except that thenumber of sales with selling prices below $50,000 have increased each year. In 2009, therewere 136, in 2010 there were 188 and in 2011 there were 258. All of the remainingcategories in the graph below were within 15 sales of the previous year.


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Page 3 2012 REAL ESTATE REPORT

Clearly short sales and foreclosedsales are of interest in the marketsince they are presumed to be holdingprices down. Short sales andforeclosures were spread over all

price ranges with just over 33% of allsales being either foreclosure or shortsales. Sales with prices between $0and $50,000 had the highestpercentage of foreclosed/short salesat just under 45% of the annual salesvolume. The number graduallydeclines through the upper end of themarket where foreclosed and short

sales were about 17% of the total sales. The only exception are the properties that soldbetween $250,000 and $300,000 that were only 12.5% of the total sales volume. Compared

to 2010, there were a total of 32% foreclosed or short sales but most of the sales were inthe categories below $300,000. Similar statistics were only available for the last 5 monthsof 2009 and cannot be compared. The sale data is summarized on the chart below. Wewould also note that not all sales that should be considered to be short sales or foreclosedsales are being reported so the numbers may be somewhat higher.

Competition for foreclosed saleshas become fairly intense asmarket participants are beingtrained to expect foreclosed sales.Home flippers in the market are

finding margins that are slim dueto the increased competition thatis driving up the priceexpectations of financialinstitution sellers. The averagesale price of foreclosed and shortsales trended downward in 2010but upward in 2011. In anattempt to determine if thenumber of foreclosed and short

sales was declining, we plotted total residential sales and foreclosed/short sales by month

over the last 2 years. While the data does not clearly indicate a trend, it is interesting tonote that in months where sales volume increased significantly the increase was not due toforeclosed/short sales. This appears to some minor hints that the market is beginning tofunction normally, which is good news.

There are reports that additional foreclosed properties will be coming on the market in thenear future but there is no way of estimating how many will be listed for sale in the regionor how they will affect the market. We would presume that we should have observed aslow- down in foreclosures in 2011 since some banks suspended foreclosure operations butthe data doesn't appear to support that theory given the relatively similar numbers between2010 and 2011.


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Page 4 2012 REAL ESTATE Forecast

New construction continues to lag. We are observing some new construction in the marketparticularly on lake-front and lake-view property where the buyers are paying cash or havevery low loan to value ratios. There have also been a few new apartments and golden ageresidential rental property constructed in the market in the past 12 months. There isalmost no construction in the lower price ranges where the market appears to be mostactive. While there may be demand for new homes in the lower regions of the market,most find it is not possible to build a new home for less than its value when complete.That fact continues to limit builder/investors from constructing new speculative units. Inaddition, financing for speculative homes continues to be difficult to obtain.

Condominium sales continue to struggle due to financing issues. Fannie Mae and FreddieMac have not been offering financing on condominiums for several years which leavesbuyers with less attractive financing options. Financing on condominiums tends to be 5year adjustable rate mortgages amortized over 30 years with 20% down and mortgages heldby local or regional banks. Many of the sales we have observed involve terms with little orno financing. Some major lenders are relaxing qualifications for condominiums but it is nothaving a significant affect on sales to date. We are aware of sales of condominium units inthe market that have sold for as little as 30% of what they might have sold for in 2006 or2007.

Overall the improved residential market had an average year similar to 2010 with noprofound changes. Comparisons from year to year appear to be indicating continuedincreases in sales volume. At some point we would expect that the pent up demand willrealize that the market has reached its bottom which should have an increasing effect onvalues in the market. However, there is no indication that will occur in the next 12months.

RETAIL RENTS HIT BOTTOMIt appears that those waiting for lower retail rental rates and further concessions may have waitedtoo long. The year ended with net positive absorption in the retail sector of approximately 20,793sq. ft. Of course the total available retail inventory will drop in 2012 by 245,000 sq. ft. with the


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Page 5 2012 REAL ESTATE REPORT closing of the Red Roof Mall. Where those tenants will eventually go or if they will even replace

their stores are still up in the air at this time. The reduction of the Red Roof Mall square footagealong with the over sixty thousand square feet of class C retail that changed use from retail tooffice in 2010 has greatly compressed the available inventoryparticularly at the lower rates.

The small positive absorption did lower the year end vacancy rate from 13.63% in 2010 to 12.91% in2011. There continues to be a wide range of vacancy rates between those properties located onHwy 76 and those located off of The Strip. The vacancy rate on Hwy 76 dropped from a 10.28% rateat the end of 2010 to 8.68% by December 2012. Excluding Branson Landing and the other factoryoutlets, those properties off of Hwy 76 remained at 21%. We do expect the over-all vacancy rate tocontinue to drop slightly as no new inventory is expected to be added this year. An 18000 sq. ft.building has been permitted in Hollister, but no details are available if space will be available forlease or not.

2010 2011

Overall Vacancy 13.63% 12.91%On Hwy 76 10.28% 8.68%

Off Hwy 76 21.14% 21.00%Source: Commercial One Brokers LLC Data Base of Multi-Tenant Bldgs.of 5,000 sq. ft. or more.

Triple net rental rates continued to drop in 2011. Current asking rents for properties on Hwy 76 nowaverage $16.14 PSF. The average asking rates for properties off of Hwy 76 are $12.21 PSF. After anoverall 20% drop in asking rents that occurred in 2010, rates continued to soften throughout 2011,but not as much as the prior year. It is important to understand that the lower rates offered in2011 were typically only available for a yearmaybe two at the most. We anticipate that thesespecial offers will be more limited or for shorter terms in coming months as rental rates firm andavailable inventory continues to drop.

OFFICE MARKET CONTINUES TO STRUGGLEWITH HIGH VACANCIES

The areas vacancy rates for the office segment were reduced a couple of basis points withthe net positive absorption of 14,047 sq. ft. for the year. The overall rate dropped from35% to 33% but the market still remains greatly overbuilt. As each segment of the marketis analyzed it appears that the two extreme ends of the inventory have both been hardesthit. Class C space continues with a 40% vacancy rate and the Class A space representsa 41% rate. One recently foreclosed building that is totally vacant pushes the Class Aproperties to these high rates. Only the class B properties are anyway close tostabilization at an 8% vacancy rate. As was the case in 2010 another 10,300 sq. ft. ofinventory was removed from the market in 2011 with the sale of a building that will now beused by a single user. Two major office properties were taken back by lenders in 2011which together accounted for the majority of the areas vacancies. The 30,000 sq. ft.Manchester Village Five property has not been put back on the market as yetbut it isexpected to be marketed by late spring. The Castle Rock Office Park has reached nearly an80% occupancy rate during the year and is nearing the point that it will be offered for saleby the lender during the year.The area-wide average rental rates continue to fall as they have now reached an averageof $7.97PSF NNN. This average rate has dropped nearly $2.00 PSF from last years area-wide average.


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HOSPITALITY MARKET EXPERIENCINGMAJOR REALIGNMENTS

The Branson hospitality market appears to be mirroring the national market in several ways. Theforty to fifty year old, exterior corridor properties are being demolished and removed from themarket as they no longer serve the demands of todays market. The demand is for newer orrecently remodeled properties that are limited and or full-service with interior corridors.

Year end results for the Branson hospitality market as reported by Smith Travel reflect the 5% dropin visitation from the prior year. One major local operator has just filed for reorganization and webelieve several other small, single owner properties will be under severe stress. If the property

doesnt have a flag and or a solid, dedicated marketing operation that will fill their roomsit willbe a difficult year.

We believe it is important to know that the local Hotel/Motel Association has focused a greatamount of effort over the past years getting more of the smaller operators to report to SmithTravel. These owner/operators have not traditionally reported and only the larger, flag operationsreported. We believe this fact has added to some degree to Branson overall performance, plus theeffect that the Spring floods had on visitation. It is also important to understand that Branson hasnot had as big of a drop in past years as other competing markets, therefore the improvedperformance of others such as Las Vegas are able to show large increases.

Source: Smith Travel Research

It is clear that other tourist and business destinations have shown good improvement over the 2010numbers. We continue to believe that another full-service convention quality hotel in thedowntown area that is in easy walking distance to the convention center should be in the planningstages. Improved and affordable air service direct to Branson in the coming years is going toincrease national convention opportunities and thus the need for more convention hotel rooms.

CLASS OCCUPANCY RATE

A 41% $11.00B 8% $9.50C 40% $6.92

MARKET DEMAND ADR REVENUELas Vegas +9.0% +4.5% +14.0%Orlando +5.8% +3.5% +9.5%Hershey, PA +4.6% +1.5% +6.2%Wisconsin Dells +4.3% +0.0% +4.3%Lake of The Ozarks -1.1% +2.0% +0.8%Myrtle Beach -1.7% +3.9% +2.2%Gatlinburg/Pigeon Forge -1.7% +4.1% +2.4%Williamsburg -1.8% +0.0% -1.7%

BRANSON -8.9% +0.2% -8.8%


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Page 7 2012 REAL ESTATE REPORT

FEW COMMERCIAL LAND SALESREPORTED SINCE 2010

When there is little construction, there are few accompanying land sales. Since the start of 2010we are only able to verify three commercial lot sales. The difficulty in financing a land purchase in

addition to the ability to buy an existing building at less than replacement values have nearlystopped land development and land sales. At this time, we dont believe the commercial landmarket will change this year and we are recommending to our clients, unless they have to sell, torefrain from putting their properties on the market at this time. Of course, as often the case,those with patient cash will be able to buy quality land assets at 40-50 or more percent discountsfrom previous land values. Land is on sale today and those with patient capital will profit nicely inthe coming years as buyers of well-located parcels.

Developed residential lots are slowly being absorbed by builders with strong relationships withlenders who will provide spec financing for homes in their foreclosed developments. Other thanthat, only a limited number of custom home lots are being sold. Again, this will be the situation forat least the rest of 2012.

BRANSON 2011 RESULTSPROVIDED BY BRANSON CHAMBER OF COMMERCE, CVB & CITY OF BRANSON, TANEY COUNTY & STONE CO.

2011 TAX RESULTS TOURISM TAX COLLECTED BY INDUSTRY

Taney County +0.6% Packagers/Resellers $ 281,364 +9.4%City of Branson Sales Tax -0.9% Overnight/Condo $ 705,743 +2.7%TCED Tax -2.5% Amusements $1,367,769 +0.2%Stone Co. (YTD Nov.) -3.2% Restaurants $ 941,906 -1.9%City of Branson Tourism Tax -5.8% Hotel/Motel $4,562,239 -7.2%

Theaters $3,388,686 -9.6%Campground $ 90,172 -17.0%OVERALL $11,338,030 -5.8%

VISITATION

MARKET Est. Visitors % of Total Vs. 2010Core Markets (0-100) 1,539,190 20.4% +2%Primary Markets (100-300) 1,880,755 25.0% -5%Outer Markets (301-650) 2,081,538 27.6% +6%National Markets (650+) 2,033,316 27.0% -19%TOTAL VISITORS 7,529,000 100% -5.4%

VISITOR PROFILE 2011 2010 VS. 2010

Spending Per Party $917.22 $863.56 +53.66First-Time Visitors 23.1% 25.1% -1.9%Length of Stay (Nights) 3.96 4.16 -0.2Families 38.5% 42.8% -4.3%Saw Shows 80.9% 80.0% +0.9%Number of Shows Seen 3.16 3.57 -0.41Avg. Adult Age 56.6yrs 57.3yrs -0.7years


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OBSERVATIONS, OPINIONS AND THOUGHTS

SOUTHWEST AIRLINES SELECTES BRANSONOne of the biggest economic development wins in Bransons history since the Sixty-Minutes Bransonfeature occurred late in the year when it was decided to continue and expand service now beingprovided by Air Tranowned by Southwest. Over the next months, Air Tran will cease to fly andwill be replaced nationally and locally by Southwest Airline flights. Initial, daily flights to Chicago,Atlanta and Houston will begin in April of this year and weekly flights to Orlando,Baltimore/Washington MD as well as Frontier Airlines daily service to Denver and limited service toPhoenix and Milwaukee. Additional markets are expected to be added throughout the year as wellas connections to over 100 cities from the Branson Airport. Not only will the expansion of serviceto the privately owned Branson Airport help to increase visitation, but we believe over the comingyears it will serve to help draw a variety of businesses to our area who require affordable airservice for their businesses.

PUBLIC/PRIVATE AREA ECONOMIC DEVELOPMENT AGENCY ESTABLISHEDA special county-wide economic development partnership was established this year. Allcommunities in the county, The Branson Chamber and Taney County have all come together to formTaney County Business Development Partnership. Jonas Arges has been hired as the director whowill report to a board of directors made up of the public entities as well as a group of privateentities who have contributed to the partnership. Commercial One Brokers LLC. will participate onthe board.

Final thoughts.

Just as we were about to publish this report, the "leap year" tornado hit our community. We are unableto make any kind of determination as to how our market will ultimately be effected at this time....we

eventually will in a follow up report. My partner was at one of our properties within 15 minutes of thestorm hitting as he was responding to an alarm call. Within a couple of hours our team of subcontractorsand friends were on site to begin the clean-up and boarding up the shopping center that we manage thatwas hit. How often does it happen that your roofer calls you at 6:00 in the morning to see if you are ok and if so where do you what his crews to go first. That was typical of all our team....we are so proud tobe associated with them all. As the largest leasing company and commercial property manager in thearea we are thankful to have helped many of our neighbors to quickly find a new place to do businessunder difficult circumstances. We are particularly appreciative to all our landlords who made specialconcessions to help those businesses who have had their lives turned upside down.

Several other things are certain, this community is pulling together. Competing attractions andbusinesses are helping those hit with anything they can do to help to include even bring trailers to those

damaged businesses with their employees to help clean up and or load what remained. Restaurants alongthe strip who were not hit are alternately serving food to those workers helping to clean up and or thecrews working to restore electricity. Some restaurants are storing food for other competing restaurantsin their coolers until electricity returns. The damaged or demolished hotels are moving their reservationsand their employees ...if possible to other competitors properties while they rebuild and or settle theirinsurance claims. In short, we are so proud to be a part of the businesses in this community andsometimes we forget how fortunate we are to live in this country and in the Branson area in particular.We invite everyone to come to visit our beautiful community and its attractions....we are open forbusiness and we promise you a good time. The best part is you will see all the goodness that is found inthese hills and our people. The show will go on.

Documents

Branson Commercial Real Estate 2012 Outlook (Commercial 1 Brokers)