Utah's commercial real estate market still struggling

SALT LAKE CITY — The economic meltdown has hit Utah pretty hard, particularly in the real estate realm. And while the residential market is may be on the verge of a turnaround, the commercial market has yet to hit bottom, according to a local analysts.

Speaking to an audience of real estate professionals Tuesday at the Marriott City Center, Ron Schulthies, executive vice president and chief lending officer for the Bank of Utah, said the commercial sector continues to struggle.

"There are leaders and laggers in this economy, and commercial real estate is a lagger," he said.

Schulthies added that while the industry is still in an economic funk, the stage is set for a comeback, with lenders poised to support quality development projects.

"(Banks) have excess funds. … There is a lack of demand, and we would love to put money to work," he told the audience of about 50 industry insiders.

He said banks have a "tremendous incentive to make loans" because doing so would yield a much higher rate of return on investment than the institutions are currently getting with their funds essentially sitting idle.

Despite the hardships experienced in the commercial sector over the past couple of years, John Taylor, investment specialist with Commerce Real Estate Solutions, said the Wasatch Front "is doing better than most markets."

"We're stabilizing. The fundamentals (of our real estate) are still pretty good," he told the Deseret News.

Taylor said that since the downturn, prices in the commercial real estate market have dropped significantly, which has altered the landscape in a profound way.

"There was too much money chasing real estate," he said. "Now there is a lot of money chasing real estate … but it's smart money."

Potential investors "are not going to make dumb decisions," Taylor added. "They are going to make sure the property can pay back the debt and pay them the return that they need."

He said that for the foreseeable future, the local commercial market will continue to adjust and correct itself back to a point of lower, more reasonable prices and eventually equilibrium.

He said projects like the LDS Church-owned City Creek development and the recently completed 222 South Main office building will be positive influences on the long-term viability of the downtown business district and the local commercial real estate sector, especially compared to the outlook for hard-hit neighboring states like Nevada and Idaho.

"The fundamentals of (the economy) are much stronger here," Taylor said. "If we looked at a 15- or 20-year trend, we're doing really well right now."

e-mail: jlee@desnews.com