There was a time when Local Tracy Ca Commercial Real Estate Leasing Brokerage Souza Realty and Development was picky about the tenants it chose to occupy the 130,000 square feet or so of commercial real estate space the company owns around Tracy.

They would check references. Run credit checks. Talk to past landlords. Reject some folks because they seemed too shaky.

“Now, if they have a pulse, we’ll lease it to ’em,” said Mike Souza, who runs the company with his father, Tony Souza. “You just got to go with the flow.”

Though the predicted bursting of a Tracy Ca Commercial Real Estate bubble has yet to materialize, the flow these days is running downward.

“What we’re finding is vacancies are increasing, rents are down,” said Ken Blakemore, the San Joaquin County assessor, recorder and county clerk.

And the rate of return for investors is falling.
The sagging Tracy Ca Commercial Real Estate market has barely begun to be reflected in the property taxes collected by the county, whose tax rolls show a $700 million jump in taxes collected on commercial property from Jan. 1, 2008, to the first of this year.

Still, that’s less than the billion-dollar jump from 2007 to 2008, and Blakemore and others expect that taxes on commercial property, which account for about 30 percent of what is collected countywide, will start to fall.

According to Blakemore, most of the commercial real estate property in the county has yet to be reassessed — unlike housing, which lost 10.7 percent of its value from January 2008 to January 2009.

Downward reassessments would mean less money for local governments, which have already had a tough time making cuts to balance their budgets.

For property owners, fewer people paying less in rent means a drop in income, which likely means some will fail to make their mortgage payments.

“There’s a lot of commercial loans that have big balloon payments on them,” Souza said. “You’ll probably see a lot of foreclosures.”

Souza said his company’s holdings have about a 65 percent occupancy rate, which is up from earlier in the summer, when occupancy for its commercial space fell to as low as 35 to 40 percent, a dismal figure, he said. Commercial landlords in good times shoot for and can expect an 85 percent to 90 percent occupancy rate.

The company, Souza estimates, has helped out about 90 percent of its roughly 40 tenants, either by renegotiating lower rents, by forgiving a few months’ rent or by tinkering with leases in other ways to give tenants a financial break.

Brian Peterson and Blake Rasmussen, commercial real estate brokers in the Stockton office of CB Richard Ellis, are unsure the market will be as bad as some predict.

Peterson said top-of-the-line Class A office space, which here means steel-frame construction in a prominent location, has about a 24 percent vacancy rate for cities in San Joaquin County.

“It’s definitely high,” he said, “but we haven’t seen the foreclosures that we’ve been expecting. Certainly, the risk is there.”

He said there are still tenants to be had for the best office space, though not as many as in the past.

It’s the less-sought-after office space — older buildings with more maintenance problems on less-traveled streets — that will be less likely to make up lost income due to the soft market, he said.

The retail market has also been hit hard, with prominent stores closing at The Tracy West Valley Mall and other places.

But the industrial market “has been very active, all things considered,” Rasmussen said.

A couple of warehouses in Tracy, built on the hope that tenants could be found once they were ready to be occupied, have worked out for investors, he said.

Crate and Barrel leased 1.2 million square feet of warehouse space in Tracy CA recently, and Home Depot agreed to lease space in town as well, although that company has delayed occupancy, Rasmussen said.

The change in the industrial market, the broker said, is that when tenants move into a space, it’s because they are trying to save money by consolidating, rather than because the company is growing.

“Surprisingly, there’s still a fair amount of activity,” he said. “The slide is that development activity is at a standstill.”

That lack of construction could restrict future supply, and though Rasmussen sees demand tapering off because of the recession, he sees “some sense of normalcy returning two years from now.”

When that normalcy returns to Tracy Ca Commercial Real Estate remains to be seen.

by Eric Firpo/ TP staff Sep 01, 2009