The continued decline of the commercial real estate market has some looking for a bottom and most praying we find it soon. As the inventory of available spaces continues to climb, pushing vacancy rates to new highs, lease rates continue to erode as businesses either: a) need a rent reduction to survive or b) are shopping hard and finding desperation in the sublease market. This has landlords clamoring to secure tenants and cringing every time the phone rings. New and improved underwriting criteria on the part of lenders is not only eliminating access to financing for new projects but limiting the ability to refinance existing loans coming due — that is, without a substantial capital infusion. All of this fear is driving investor’s expectations on return into double-digit cap rates with a devastating effect on property values.

As one can imagine, the resulting effect of building value declines is further magnified for vacant land. The term “land is worth less than zero” has become something of a mantra for those investors snooping around the market. However, those investors are snooping around the market. In most cases it’s a tactic to push the owner, or owner’s lender (assuming it hasn’t been taken back), to ridiculously low levels. Don’t get me wrong: Land values have deteriorated tremendously since 2005, and current underwriting assumptions don’t paint a rosy picture. But all is not lost. The current market conditions have not eliminated land as a worthwhile investment. However, they have caused us to completely reevaluate the importance of location with a critical eye to highest and best use. Rather than “cheap dirt” driving the location of the next subdivision or shopping center, much more consideration is being given to reducing commuting expenses and access to services.

Residential: With foreclosures and short-sales continuing to dominate the residential market as they account for approximately 75 percent of current sales, the median home sales price is taking a beating. On a positive note, the lack of new building permits is helping the new home market to find equilibrium. Continued efforts on the part of the federal and state government, including Nevada’s new mandatory mediation law and IRS home buyer incentives, could have a positive impact on the number of homes entering foreclosure and subsequent consumption of inventory. This could create a very real need for those finished lots currently in a holding pattern; with a renewed interest in approved projects, especially those with water and RTC credits available. Rumors in the last couple weeks point to sellers, both private and banks, that are making the necessary adjustments to create activity on finished lot transactions. Look for increased activity on quality lots at amazing prices.

Multifamily: Overall vacancy rates are now rising above 11 percent with another 1,000 units under construction. Some might consider the multifamily market saturated. But there is hope. National predictions show tremendous growth in the student housing and senior living segments over the next five years. The key to a successful project in those arenas is location, location and location. Obviously student housing is very specific to the area around the university, with current and future potential north and east of campus. But downtown also is now on the radar with developers proposing the next generation of dorms integrated in a true mixed use setting. Future senior living projects will have a heavy emphasis on access to goods, services and amenities. With a critical eye, several opportunities are available for the creative investor not afraid to rethink current entitlements.

Retail: Blended vacancy rates for the retail sector are approaching 15 percent, with more pain on the way as local and national retailers hope to weather the current crisis. The Legends at Sparks Marina project is still under construction, with the long-term implications to surrounding retailers still in question. The only other retail project currently under construction, and fully pre-leased, is 6 Development’s Three Flags Center in north Reno, which is an example of today’s opportunities; smaller projects with necessary goods and services tailored to a specific sub-market, using today’s advantageous development costs. Well located retail land, at the right price, presents the opportunistic investor with great mid-term potential.

Office: Market wide office vacancy rates have now exceeded 21 percent, which is mild compared to the more-than-30-percent vacancy in South Meadows alone. The waning demand from residential construction and associated services (mortgage companies, title companies, etc.) has created tremendous opportunities for lease and purchase with downtown presenting itself as the darling of the market. With the contraction in asking prices, look for more businesses to revisit downtown with its access to local government, legal facilities and entertainment. The lack of new construction is also creating opportunities on the land front for those investors wanting to capitalize on the rebirth driven by the new Triple-A Aces ballpark. Truckee River frontage is still a premium; however, it’s never been more affordable.

Industrial: Vacancy rates have now topped 15 percent for the market with Tahoe-Reno Industrial Center contributing heavily. As industrial developers struggled to compete with residential builders for available land the sphere of influence expanded greatly to include Whites Lake (U.S 395 north near the state line), Spanish Springs (the north end beyond the residential) and Tahoe-Reno Industrial Center (15 miles east on I-80). The effects of the current economy on other commercial real estate sectors have now created opportunities for future industrial much closer to the core with access to major highways, associated services and employee housing. Investors should note that there is currently no new construction in the industrial sector and land converted to residential use during the boom is now looking quite attractive for a future play. While there is plenty of fear and skepticism within the media and markets, several years from now economists will look back to these days as the most opportunistic environment ever presented in real estate. Just remember the old adage “They aren’t making any more of it” and keep your eyes open for those smokin’ deals.

Retail activity took a hit when rooftops dropped in value, but Reno’s 6 Development is moving ahead on a trio of commercial projects.

However, says Jack Dolan, partner, “It’s a different world out there. You can’t do things on spec. We like to have 80 percent leased first.”

The small firm headed by Dolan and Brendan Egan remains in the game while others have folded because it focuses on smaller projects and relies on established relationships to recruit tenants, Dolan says.

6 Development expects to break ground this fall on Three Flags Center, a 33,000-square-foot retail plaza set on four acres off Highway 395 between Lemmon and Golden valleys.

It’s got leases in hand for a dollar retailer location and a gym. The center will accommodate six to nine tenants total. Ken Mattison at Grubb & Ellis is the leasing agent.

The dollar retailer — its exact identity remains secret for now — needed no convincing to set up shop in the underserved North Valleys region, says Dolan. The site has a traffic count of 62,000 cars a day.

A dollar retailer and a gym also are the tenants for a 6 Development project in Fernley. The 27,000-square-foot center on nearly three acres is located south of Wal-Mart off Interstate 80. With space for six to eight tenants, it will break ground early next year, says Dolan.

When seeking tenants in a down economy, Kristyn Johnson, project coordinator, says the company looks for retailers with recession-proof demographics and little need for capital.

The third project under way by 6 Development involves redevelopment of a former Blockbuster building in San Diego. The company will divide the 6,500-square-foot shell into spaces for four tenants. The Reno firm took in a partner on that project, a broker at Voit Commercial Brokerage, a Southern California company.

“That’s how we make it work,” says Dolan. “Someone’s got to be down there.”

Colonizing big boxes in San Diego isn’t the chore it seems in northern Nevada, says Johnson.

“The vacancy rate in San Diego is 3 percent, very low. It’s easy to colonize in-fill because the area is built out,” she says.

Yet another reason 6 Development remains viable in a down market, says Dolan, is reliance on a standard team of builders. As with former projects, its present work will employ Tectonics Design Group, Moody Wieske Contractors, and Ware Malcomb in Sacramento.