According to a recent Bloomberg article, the renowned investor George Soros feels that commercial real estate has an additional 30% decline left in its pricing.  If he is correct, that would mean an upcoming strain on the US banking system on an unbelievable scale.  Commercial prices have already fallen +/- 30% from their 2007 highs.  An additional 30% would be devastating.  Soros also commented on the current Administrations monetary policy, fearing that we are setting ourselves up for a period of significant inflation.

It all puts the real estate investor in a tough predicament.  The impending inflation would drive you towards buying now and locking in your capital costs.  However, with the specter of additional pricing declines on the horizon, investors are reluctant to buy now for fear of overpaying.  So, again, the real estate market remains locked in indecision. 

Here in Richmond, the situation is very similar.  Richmond BizSense ran an article this week talking about the lack of sales activity in this market.  In addition to quoting some fantastic market experts (including your truly), the article does a very good job of laying out the situation that faces both buyers and sellers in today’s market.  No doubt, it’s a tough one.  The companies that can be flexible and creative will do much better than those that can’t.

Well it looks like Unicorp, the developer of West Broad Village, has reached an agreement with Henrico County on how their tap fees are to be calculated.  Under the agreement, Unicorp will pay Henrico County $983,000 for the three connections that are already in place.  They will then take the balance of the payment due (+/- $2.517 million) and amortize it out over 36 years at an interest rate of Prime + 1%.  Seems like this might be a win-win for everyone.  Henrico County gets the tap fees that they are rightfully due and Unicorp gets to spread out their payments.

West Broad Village, the west ends new mixed use project has hit another snag.  This time it is over a misunderstanding in how much the water and sewer tap fees will be.  An article, which appeared in the Henrico Citizen outlined the saga between Unicorp, the developer, and the Henrico County Board of Supervisors.  According to the article, Unicorp’s position is that the mixed-use buildings should fall under the County’s “other buildings” classification for fee calculations.  The County, however, looked at each individual use within each building to calculate the fees.  While the difference may seem semantic, the resulting fee difference is not.

Unicorp calculated their total obligation to be $589,000.  The County calculates that same obligation to be $3,500,000.  The difference is huge and Unicorp claims it is enough to shut the project down.  They just don’t have the money in their budget to pay the higher fees.  While the discrepancy is making news now, Henrico County officials notified Unicorp and their engineer, Timmons Group, about the fee via three letters between March 26 and July 3, 2007.  Unicorp claims that they never received the notification because Timmons never notified them and the letters that the County sent to Unicorp were addressed to a marketing person, not a project manager.  

I suspect that Unicorp will have an uphill battle in getting the County to reduce the fees.  Henrico’s position is consistent with how other projects have been treated and they followed the proper protocol to notify the developer.  While I am sure it is a shock to Unicporp, county fees are a part of every development project and are one of those things you need to understand upfront and early.  It’s just one fo those “boxes” you have to check.

This latest issue surrounding West Broad Village just adds to the projects difficulties.  Obviously, the retail market (and the market in general) has completely gone out from under them, with retailers more likely to file for bankruptcy than sign a new leases.  In addition, late last year nine mechanics liens, totalling approximately $3.7 million were filed against the property for failure to pay contractors and brokers.  At the time, Unicorp cited difficulties in lining up their financing as the reason for the delays.  There has also been at least one failed acquisition of the property as Unicorp tried to unload its position in the property.  There are rumors that another group has the project under contract and is doing their due diligence.  It may have been through those due diligence efforts that the tap fee discrepancy was discovered.

The Richmond Times-Dispatch reported today that Tyson Foods, Inc. will be adding 180 jobs for a new processing line at its Hanover County plant.  Almost a year ago, Tyson announced the layoff of 190 employees.  The Company said it is pleased to be able to hire back most of the affected workers.  50 of the 180 workers have already been hired and the balance will be added over the coming months.  The plant currently has approximately 625 employees.

While I don’t have any inside knowledge of the Tyson Foods operation, I think this story may portend to what we will see more of in the US.  It appears that, prior to the new hires, Tyson found a way to operate its plant with fewer employees.  Basically, they increased their productivity and became more efficient.  It was only when they added a new production line that their hiring needs increased.  I believe that in the lean times, many more companies will find ways to be more efficient with their workforce – whether through technology or other means.  When the recovery comes, we may not need as many workers to accomplish the same level of production.  That speaks well for our national productivity, but would mean a longer more protracted job recovery.

In a rare mid-year budget session of the Commonwealth Transportation Board two new daily train services received funding approval.  There are still contract issues to be worked out with CSX, NS and Amtrak, but train service could begin as early as October.  The first of two services that received the funding are a daily run from Lynchburg to Washington DC, with stops in Charlottesville and Culpeper.  The second service will connect Richmond and Washington DC with an additional daily train.  Both projects will be funded for a three year trial period.  After that, a decision on whether to keep the lines operational will depend on actual and anticipated ridership.  While not a convenient as a commuter line, the new services will enhance to connection between Lynchburg, Richmond and Washington and should help keep more cars off the roads.  

I am a big proponent of an improved (and therefore useful) rail system in the US, so this is good news for me.  Hopefully, the citizens of Richmond and Lynchburg will use the services and they can be extended beyond the three year trial period.

The Link: LINK

The Story: This is a very well written article about the far reaching effects of Circuit City filing for bankruptcy protection and announcing it will liquidate.

The Analysis: It’s difficult to fully understand the extent of the Circuit City pain.  For instance, those 40,000 workers that have lost their job will spend meaningfully less money in their communities than when they were employed.  They’ll be more cost conscious of their grocery bill (Wal-Mart over Ukrops).  They’ll wait to take a vacation, or buy a new car.  They certainly won’t be buying a new house anytime soon (I would guess).  So yes, the CC suppliers, newspapers, etc. will certainly feel a modicum of pain.  But the ancillary businesses that served their employee base will suffer just as much.  They may not be able to pin it directly to this bankruptcy or that one, but they will certainly feel the effects in their revenues.

Four Virginia companies announced further layoffs today.

Qimonda, the computer chip manufacturer, announced this morning that they will be shuttering their Richmond manufacturing facility and laying off 1,550 of the remaining 1,600 employees.  The 1,550 employees will not receive any severance.  The first batch of 500 employees will be terminated immediately, with the balance leaving over the next month or so.  Production at the facility will cease within the week.  The company, which has filed for bankruptcy protection in Germany, previously announced the loss of 1,200 jobs.  Those 1,200 received severance and will continue to do so.

LandAmerica, the venerable and now bankrupt title company, announced that it will be closing its Richmond headquarters location and eliminating all 291 remaining positions.  The cuts will come in stages, but should be complete by the end of 2009.  Additionally, the company will not be offering any severance packages to these employees.

On the other side of the state, TMD Friction Group, the automotive brake manufacturer, announced that it will be closing its Dublin Virginia (near Roanoke) manufacturing plant.  All 140 positions will be eliminated by May 31, 2009.  TMD is based in Leverkusen, Germany and is currently in bankruptcy proceedings.

Volvo Truck North America, located in the same industrial park as TMD, annouced last week that it will be laying off 650 employees.  Both TMD and Volvo cited a bad economic environment and limited capital (auto) spending as the reasons for the layoffs.   TMD and Vovlo are especially painful because they are located in the Southwest region of Virginia which is already enduring numerous layoffs and plant closures.

The Link: LINK

The Story: The German memory chip maker Qimonda filed for bankruptcy protection in a local Munich court yesterday.  The company, which is majority owned by Infineon Technologies AG, sited the precipitous fall in computer memory prices and an inability to obtain favorable credit as reasons for its demise.

The Analysis: So, isn’t this just another major international company filing for bankruptcy?  Don’t we have a few of these every day lately?  Well, yes.  However, Qimonda owns and operates a significant manufacturing facility in Eastern Henrico County.  The facility, which has been in operation since 1997, employed approximately 2,200 Virginia’s.  Qimonda had previously announced that it planned to lay off 1,200 of the 2,200.  With this new announcement, there is no indication of what will happen to the remaining 1,000 employees.

Yesterday, Richmond headquartered Circuit City Stores announced that they will be shutting their stores and liquidating their assets.  We have know for a while that CC was struggling financially, but I think everyone had held out hope that they would be able to find a buyer and turn them around.  Unfortunately, that does not appear to be the case. Over the years, CC has struggled to compete with its brick and mortar rival Best Buy as well as other online merchants.

CC demise will be felt especially hard in the Richmond economy.  CC will obviously shut its Headquarters location and terminate approximately 1,500 employees there.  No package, no severance, just out the door in 60 days.  Across the country, CC will shutter its 567 stores and release the balance of its 30,000 employees.

The closing of the CC Headquarters building will bring more office space to a submarket that is already reeling from the impending departure of MeadWestvaco and Wachovia, as well as the LandAmerica break up.  Conceivably, this 8 million SF suburban market could see a vacancy rate (actual and sublease) of close to 50% in the very near future.  That will be a ton of space for this market to work through over the coming years.

On the upside, If you are a company looking to relocate your headquarters out of an expensive location like NY, Chicago or Boston, Richmond is a very attractive alternative.  Not only does it have a lower cost of living, but it also has a very well educated workforce, a higher quality of life and plenty of (soon to be discounted) headquarters office space.

The next hurdle becomes making sure that Virginia’s General Assembly doesn’t cut the economic development budgets so much that they can’t get out there and attract these tenants.  Altria made the move and others can and will as well.

Chesterfield County in the Richmond MSA may be home to a new $100 million Olympic training facility.  Steve Burton, Chairman and CEO of SportsQuest, could begin construction of the facility as early as February 2009.  The project will be located in the Waterford Business Center located near the intersection of Route 288 and Powhite Parkway.

The 50 acre campus is designed in three phases.  At full build out, the training facility will have an ice skating rink, aquatics center, sports medicine clinic, fitness center, family entertainment center, 200-room hotel and retail plaza.

The project is awaiting approval from the Chesterfield Planning Commission.  Although the site is sufficiently zoned, the Commission still must approve the site plan.  Additionally, Burton is still working through some of the financing negotiations and it is unclear whether Chesterfield will contribute taxpayer dollars to the project.