OKC commercial realty needs skittish capital to relax

By Richard Mize

Published: September 6, 2008

It always happens with a good, knowledgeable source: I asked Tim Strange, managing director of Sperry Van Ness Commercial Real Estate's Oklahoma City office, too many questions for the Executive Q&A feature last Sunday — and he had too many good answers to fit.

Here's the rest of his story:

Q. There are always challenges ahead in business. What challenges lie ahead in the commercial real estate business here? What will it take to meet them?

A. By far the greatest challenge facing our market is the difficulty in obtaining capital to finance deals.

While we have been unaffected by the national downturn, Oklahoma City has not been able to escape the effects of the crisis being seen in the financial markets. With buyers finding it more difficult to secure financing, it has caused the amount of deals closed in the Oklahoma City market in 2008 to decrease, as well as increasing the amount of time it takes to complete a deal.

There are many ways to meet this challenge. First, sellers must become more realistic in their pricing in order for buyers to secure financing. Lenders are rarely financing pro-forma deals. Second, buyers, under the guidance of commercial brokers, must consider pursuing alternative forms of financing such as seller-financed deals or ... deals that have assumable debt.

A continuing challenge is for the city and state to lure big companies to Oklahoma City. While we are blessed by the growth in the oil-and-gas sector, it is important for our economy to be as diverse as possible so that if there is a downturn in any one sector, there is enough diversity to maintain the strength of the economy.

Oklahoma City has a growing number of aging properties in all categories of space. These are the properties responsible for a bulk of the vacancy in the city. We need to explore options on what to do with these properties such as redevelopment.

Q. At the bottom of the 1980s oil bust, there was that off-color bumper sticker that said something like "God, grant us one more oil boom and we promise not to (let it get) away.” So far, so good, right? With real estate so generally tied to energy here, do you have any concerns about the way things are going — in the office sector or with commercial property in general?

A. The office sector in particular has greatly benefited from rising oil prices with expanding energy firms being largely responsible for much of the absorption we have seen in the market over the past couple of years. With oil prices not expected to see any significant declines in the near future, I feel the city's commercial real estate industry will continue to ride this wave and benefit.

With our government becoming more intent on pursuing alternative forms of energy, we must not become solely reliant on our energy sector to be the foundation of our market. It is vital we work to continue to diversify our economy so that we are never dependant on any one industry.

Q. The Devon Energy tower — 54 stories! Is that cool, or what? Seriously, some people in the office leasing business are fretting about how all ... the space Devon is expected to vacate downtown will affect the downtown office market. With Devon's occupancy of its new skyscraper a few years away at least, is there any way for anyone to really tell the effect of that space on the downtown office market?

A. It is too early to tell what the effect will be on the downtown market, however, when downtown has seen large blocks of space come on the market over the past decade, we have been able to absorb it.

Two examples that come to mind are Corporate Tower, which was able to find new tenants when Oklahoma Gas and Electric Co. vacated the building in the last 1990s, and more recently the way SandRidge Energy acquired the former Kerr McGee Tower. Furthermore, Devon's current facility in downtown is a Class A building, which will make it easier to market to potential users.

The good news is that Devon has given the market plenty of time for owners and downtown leasing agents to come up with a plan to re-tenant that space. This will not be a quick exit like we had with Kerr McGee.

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