Feeling the pulse - commercial, industrial and residential analysis of New Mexico's real estate industry - New Mexico Real Estate Quarterly - Industry Overview

New Mexico Business Journal, March, 1993 by Arlene Cinelli Odenwald

The jury is out on the future of New Mexico's commercial, industrial and residential real estate as developers and Realtors try to predict the impact of the Clinton administration on the state's economy.

And it does seem that as Albuquerque real estate goes, the microcosm and barometer of the state, what happens elsewhere in the Land of Enchantment is usually reflected.

Developers, Realtors, bankers and other financial specialists are as tied together as Siamese twins, each dependent on the other and affected by the variables imposed on each industry.

Albuquerque's real estate market has been caught in a Catch 22.

The commercial, multifamily and industrial markets are extremely tight -- but financing to build is either lagging in some arenas or virtually non-existent in others.

Money simply isn't available for speculative building, contends Trudy Jones, president of Income Property Services in Albuquerque.

It would seem that real estate should be buzzing because the demand for space is there, but too few banks are willing to loan money to build, she asserts.

Banks have the money to loan and bankers are willing, but lending institutions are saddled with lending criteria causing a major bottleneck, she says.

Still, she says, it's a great market for investors with cash and a great market for owners.

Jones, however, doubts that credit will loosen this year, but she does see investors pooling their resources and forming limited partnerships to build or buy.

"I really don't think we'll see the real estate market at such a good purchase price again, at least not for a while," she says.

Albuquerque has been suffering from a lack of available industrial space for a long time -- and it is still an important market because it creates jobs that drive new retail and commercial development.

Lack of existing buildings is a critical deficit when trying to get companies to relocate to Albuquerque or elsewhere in the state. Large companies mostly want to move into existing space, which is scarce.

The business owner who wants to commit himself to a 5- to 10-year building lease is very rare, says David Scott, vice president of Albuquerque Economic Development.

That's why warehouse space in Albuquerque is at a premium.

"Most people looking at large buildings of more than 40,000 square feet want something they can move into quickly," Jones says.

Like many other cities in the United States, Albuquerque did its share of speculative building in the early 1980s, but not in industrial warehousing.

Other western cities did, Denver and Phoenix, for instance. Though they overbuilt, today they have something to offer potential companies looking to relocate.

"The bad news (for Albuquerque) is that the majority of the companies AED talks to want existing space," says Scott. "One of the first questions companies ask is do you have any industrial buildings available with 60,000, 70,000 or 100,000 square feet.

"Unfortunately, we get crossed off their list because we don't have the available buildings."

The biggest available industrial building in Albuquerque is 50,000 square feet, Scott says.

Why didn't Albuquerque build in the industrial sector like it did in the commercial sector?

"Instead of building, people were selling land, speculating that growth was going to occur," says Scott. "This buy and sell spree inflated land prices to an artificially high point.

"We ended up with no buildings and high-priced land. Some company representatives can't believe Albuquerque's prices," he says. "They're sticker shocked when they find out the cost of land in Albuquerque. They say they could buy land in Dallas or Fort Worth for the same price."

Jones says Albuquerque is not only tight in large industrial space but even in small industrial space between 5,000 and 10,000 square feet.

"We're not only losing big companies, but small companies wanting to expand or initiate a business," she said.

In the last two years, however, Albuquerque's land prices have been edging downward. "They're coming back down to where they're more reasonable," Scott says.

According to Trammell Crow Residential, a residential development and management company in Albuquerque, the multifamily housing market in the Duke City is unusually strong compared to other cities.

Albuquerque's diversified economy, stable growth rate and demand for housing has pushed vacancy rates down to 3 percent in some submarkets, says Bruce Ward, divisional partner with Trammell Crow Residential.

"With an overall occupancy rate of 95 percent, Albuquerque is an undersupplied market with plenty of pent-up demand for rental housing in the moderate-to-luxury range," he says. "Albuquerque has been absorbing 900 units annually while the construction of multifamily units has been less than 450 annually during the past four years."

Trammell Crow Residential is looking at building two multifamily housing communities this year.

Besides Trammell Crow, Ron Brown and Associates is considering building a large apartment complex near Academy and Wyoming. It is expected to be the largest apartment complex in Albuquerque, says Wally Hale, vice president of CBS Property Services-Oncor International.