Carole Smith, senior vice-president at Delta Trust and Bank, says the commercial real estate market in Arkansas has undergone a major transformation as it adjusts to a post-recession world.
Smith said that speculative real estate deals are long gone and that banking and regulatory requirements as well as tougher bank scrutiny has led to a new way of doing business.
“The pre-2007 day when you had a group of business people who just came in and put an LLC deal together and built a spec building and went on down the road and it was leased up and banks financed 100% of it, that day is over,” she said.
There is much more pre-leasing on the front end of deals, Smith says.
“We have to prove that the cash flow coming off of those leases is going to cover that debt service at least 1.2 times, and you need to prove it to me on the front end,” she notes.
There is a lot of available square footage in urban and suburban markets across the state now, in large part due to business closures. Retailers struggled when consumers pared back spending during the tough economic downturn. Those spending struggles still continue to this day.
Smith said many commercial developers are telling her that online shopping is taking a heavy toll on projects. As consumers buy more directly from manufacturers and shippers, the need for brick-and-mortar retail outlets has shrunk.
“That is now and is going to have more and more of an effect on retail development,” Smith said.
“When was the last time you went in and spent a whole day shopping in a store?” Smith quizzed. “You spend a lot more time online shopping.”
Watch Smith’s full interview below.
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