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Real Estate
Housing, commercial markets improving across region

Real Estate Market Stats 2013Isn’t it time for some good news about the economy? We think so! That’s why after six years in the economic doldrums, we are excited to see trends that show significant improvement in our Kitsap marketplace.

Collective wisdom says it was the housing market that led the downturn and that housing must lead the way back up again — and that seems to be the scenario emerging here. New home construction is experiencing a revival in Kitsap County. A look at recent MLS data in the accompanying chart shows that from Jan. 1 to mid-May, sales of new homes have increased 141 percent over the same period last year.

If all of the pending sales under contract close, the total closed will surpass the total for all of 2012 — 272 units of new construction sold in 2012 compared with 279 (137 under contract plus 142 sold and closed) thus far in 2013.

Other indications that recovery is occurring are that home prices are stabilizing and home values are beginning to appreciate. Lots are affordable, and we have seen multiple large parcels with preliminary plat approval sold in Kitsap County over the past year. Acquisitions of large plats by major single-family home developers and construction companies signify that they are moving back into the marketplace and that they believe Kitsap will be a growing market for the future. Over the past 12 months alone, we have observed at least four large plat transactions in Kitsap County, ranging from $1 million to $2 million.

A new Puerta Vallarta restaurant is under construction in Kingston.“I think that what we see today should be encouraging to everyone,” said Linda Smith, Executive Vice President/Credit Administrator at Kitsap Bank. “Housing prices are stabilizing, interest rates are low and stable — and are expected to remain so through 2013 — and there are numerous opportunities for builders in this market. We are very pleased to see the return to a more vibrant market, and we are actively reaching out to single-family developers for home construction loans.”

The economic downturn took a toll on both builders and local banks alike. Some of our local builders have struggled over the past several years, curtailing new projects during the downturn in the market; because of their conservative actions, they have survived. Likewise, those banks that made the tough call to pull back on construction financing — a necessity due to the market conditions at the time — have come through the tough times. But unfortunately, those that didn’t respond quickly are no longer in existence.

Commercial Real Estate

We are also seeing improvement in the commercial real estate market. Some of the empty storefronts that dotted the local landscape over the past several years are now being revitalized and repurposed.

“This is a wonderful environment for acquisition or new construction of commercial buildings. Commercial rates are at unprecedented low levels,” Smith said. “We anticipate rates staying low through the end of the year, and possibly into next year. This presents a great opportunity not only for new commercial construction, but also for existing commercial building owners to remodel, retrofit, refinance, or perform major improvements to their real estate holdings.

“If you have been considering ‘green’ investments, such as solar lighting or energy reduction upgrades, now is a great time to move on those.”

We have seen a number of opportunities to acquire existing commercial buildings in Kitsap County. An excellent example of a recent real estate purchase and major remodel is the facility in Silverdale that will soon become the new home of REI. Local investor group Sound West Holdings acquired the building previously occupied by Kitsap Sports. Bremerton-based FPH Construction is performing the construction work and Kitsap Bank provided a portion of the acquisition funding, as well as the landlord portion of the financing. According to FPH Construction owner Mike Brown, an extensive remodel is now underway.

“We took 32,000 square feet down to 24,000 square feet and are providing additional parking, which REI needs,” Brown said. “I think the number of people who could use that site is limited, but REI is a destination, and it works well for them. This is in their backyard; REI has exceptional name recognition on the peninsula.”

Brown said construction is nearly concluded and the building will be handed over to REI on June 1. REI is doing the tenant improvements and anticipates opening in early October.

“There has been a lot of commercial real estate activity over the past several months, and the last two to three weeks have been simply crazy,” Brown said. He thinks we are coming out of a cycle with a lot of distressed property opportunities, and he sees more ground-up construction going forward. He went on to say, “There’s not much left in Silverdale. Commercial construction will have to leapfrog the freeway; a large project with a lot of horsepower will have to make that move.”

Low commercial loan rates, coupled with low pricing and a stabilizing economy, have inspired numerous business owners to commit to business expansion or to increase their real estate holdings.

Local restaurant owner Sergio Andrade has been expanding his footprint, and now has six restaurants in Port Orchard, Kingston, Gig Harbor, Federal Way and Lacey, operating under the Puerto Vallarta and Blue Agave brands. Construction of a new building for his Puerto Vallarta restaurant in Kingston is under way, and it is expected to open the first week of July. The project, built by Port Orchard-based BJC Group and financed by Kitsap Bank, is a stand-alone building in the George’s Corner area of Kingston.

“We are experiencing a nice uptick in activity over what we saw in previous years,” said Robert Baglio of BJC Group.

He said BJC is working on several concurrent projects at this time, including new construction in Poulsbo, as well as two renovation projects.

There are numerous options to consider when financing your commercial real estate investment. For many small to medium-size businesses, a Small Business Administration (SBA) loan may be the right vehicle for your project. According to Kerry Keely, Kitsap Bank Vice President/SBA Manager, “If buying or constructing your own building is desirable, one of the SBA’s flagship programs, called the SBA-504 loan, can help you achieve your goal.” Those loans are intended to help small businesses buy, construct or improve commercial and industrial buildings, as well as buy and install heavy machinery and equipment.

“Whether you are considering a ground-up construction project or the expansion of an existing facility for owner-occupied business use, you should definitely explore the benefits of using this SBA loan program for preservation of working capital for business expansion, and for its long-term fixed interest rate,” Keely said.

Some final tips for potential borrowers:

  • Get your banker involved at the beginning of the project, to help guide you through the process.
  • Conduct your due diligence and hire respected experts. Good architects, contractors and builders will prove invaluable in bringing your project to a successful conclusion.
  • Work closely with your contractors, going through the project and analyzing costs, as well as engineering and constructability of the project. Know the numbers before you break ground.

If you are interested in learning more about the various types of commercial financing available, we encourage you to contact your local Kitsap Bank loan officers.

SBA-504 Loans

The advantages of an SBA-504 loan are:

  • A long-term fixed rate, 20 years for real estate and 10 for equipment.
  • Low interest rates — 4.15 percent in May.
  • The low down payment retains capital in the business. Conventional bank loans require a 20 percent down payment or more. The SBA-504 loan has a minimum down payment of 10 percent (15 percent for start-up businesses and special purpose properties).
  • There are no balloon payments on the 504 loan.
  • The 504 loan is government-guaranteed. Therefore, the collateral required is normally just the property being constructed or purchased.
  • Most closing costs can be included in the financing.
  • Projected income of a business can be considered in addition to historical cash flows. This is particularly advantageous for growing businesses expanding into larger facilities.

The structure of an SBA-504 loan has three participants:

  • The bank — provides a first trust deed loan for at least 50 percent of the total project cost.
  • A 504 CDC — provides an SBA-guaranteed 504 loan for up to 40 percent of the total project cost, or a maximum of $5 million ($5.5 million for manufacturing businesses and “green” buildings).
  • The small business owner — contributes a down payment of at least 10 percent.

To qualify for an SBA-504 loan, the business must be organized for-profit; as a sole-proprietorship, corporation, partnership or limited liability company (LLC); and have a tangible net worth no greater than $15 million and average net profits after tax less than $5 million in the last two fiscal years.

Owner-occupancy requirements:

  • 51 percent owner-occupancy is required within one year of closing for existing buildings
  • 60 percent owner-occupancy is required upon completion of new construction (and there must be intent to increase to 80 percent owner-occupancy by the 10th loan anniversary.)



Shannon Childs is Senior Vice President/Marketing Director of Kitsap Bank.

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