Back to Zen in 2010

www.BranchRealty.com

A Branch Realty Publication Vol. X 2010

Back to Zen in 2010Downtown's Booming

Railyard District

Cautious Optimism forSanta Fe’s Commercial

Sector

Economic Review

Back to Zen in 2010

www.BranchRealty.com

A Branch Realty Publication Vol. X 2010

SectorsFROM THE EDITOR

LABOR MARKET

RETAIL MARKET

OFFICE MARKET

LODGING MARKET

APARTMENT MARKET

HOUSING MARKET

ON THE COVERRecreation Equipment Incat the Railyards

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CONTENTS

IIt was Sunday, February 3, 1980. My dad,Michael Branch, was putting the finishingtouches on the final weekend of remodelinghis new Montezuma Ave offices. Tomorrowwas supposed to be the grand opening—thebeginning of a new venture—both scary andexciting. Little did he know that at the verysame time, New Mexico Penitentiary inmateswere also venturing on theirown. They had been plottingand planning the take-over ofthe prison. The inmates wereabout to grip the nation bymurdering and mutilating atleast 33 men in what was tobecome the bloodiest prisonriot in American history.

The grand opening of BranchRealty seemed an afterthoughtthat Monday morning and littlemattered other than a giantshadow cast over the CityDifferent. It was just a fewweeks before, that five inmates had escapedthe Penitentiary and one was captured just ahundred yards from the Branch residence.

Its hard to believe that 30 years has passedsince that fateful weekend; 30 years sinceinterest rates were at nearly 20%; 30 yearssince Iran held 53 Americans hostage; 30 yearssince the US Olympic Hockey team beat theRussians; 30 years since Esquire Magazinenamed Santa Fe the new “place to be;” 30years since Mayor Sam Pick cooked greenchile on Good Morning America.

Its hard to believe that its been 30 years sinceBranch Realty, Santa Fe’s oldest commercialadvisory, first opened.

What started as a dream of founder MichaelBranch has evolved into a firm that providesunique commercial real estate services. Theseinclude: development expertise, innovative leasingsolutions, diligent property management services,distinct commercial properties, proven assetdisposition, and bargain investment opportunities.

During the past 30 years,Branch Realty has sold, leased,managed and developed nealrya quarter billion dollars worthof commercial property—inand around the Santa Femetropolitan area.

"After five recessions, we'restill here," said Branch, whooffers the city its realestate/economic update as ithas since 1994.

“Small businesses will continueto face a difficult financing

environment which will render it more challengingto grow operations and furthermore limits businessstart-ups,” says Branch. “However, this too shallpass.”

Personal income growth in Santa Fe has remainedrobust even through recession: Over the pastmonths nominal earnings have also beenincreasing. Jobs and income growth are the mostimportant indicator of the health and predictor offuture real estate growth. Last year will go downin the record books as one of the most challengingeconomic times both nationally and locally.However, with a new decade comes renewedoptimism. This is why it must be: Back to Zen,in 2010.

Allen Branch is Associate Broker at Branch Realty since 1990and one of the developers of the Railyards.

May You Live inInteresting Times...

After bottoming out in the first quarterof 2009, the Santa Fe-area job marketis showing signs of stability.

Area employers added more jobsthan they cut for three consecutive months,including 100 more in November, accordingto data released by the State of NewMexico’s Workforce Solutions,

leading some economic observers topoint toward a better 2010. “It won'tcome back overnight,” said Allen Branch,Urban Planner and Developer. He addedthat while he has been predicting bettertimes for 2010, his outlook has brightenedconsiderably during the past six weeks.

—Signs Santa Fe Economy may be Stabilizing

Santa Felabor market

Some of the sectors seem to be turning aroundfaster due to recent job gains in leisure andhospitality and lower-than-expected job lossesin finance and government. At this rate,expect the second quarter to see some realjob gains.

“I still don't think 2010 will turn out to be astellar year but I think it will produce jobgains faster than than many might expect,”said Branch

For now, though, gains have been slow andconcentrated in seasonal jobs like retail trade.

“We've slowed down the bleeding of jobsbut I'm not necessarily sure we're puttingthem on yet,” said Geoff Wagher, labormarket analyst for Workforce Capital, whichmanages employment services and training.

Transition periodAs to the job picture, Branch—who believesoverall job losses ended in the third quarter‘09—isn't ready to say net job growth hasbegun yet, because of seasonal factors.

He views today's economy as a transitionperiod where some employees are cuttingjobs while others are adding them.

Although job growth has flattenened, wageshave slowly be increasing.

Fewer seek benefitsIn another hopeful sign for Santa Fe'seconomy, the number of people filing forunemployment benefits has flattened outfrom the highs of the 3rd quarter.

Workforce Commission reported that SantaFe's unemployment rate dipped to 5.4 percentin December, from 5.5 percent in October.

(000s)

SANTA FE

LOS ALAMOS

RIO ARRIBA

SAN MIGUELTAOS

The statewide rate stayed even at 7.8% percentin November from the previous quarter, howeverup a full point from June’s unemployment rateof 6.8%. The New Mexico unemployment rateremains well below the November U.S. joblessrate of 10 percent.

Santa Fe 2010Retail Market Statistics

2008-2010Net Space Space Available 2010 Vacancy Planned Space Net Absorption

Downtown 1,553,758 72,826 4.69% 80,000 (10,602)South Capitol District 175,266 17,428 9.94% - (9,794)Cerrillos Corridor 880,953 31,759 3.60% 112,000 (19,481)Medical District 173,450 0 0% - (0)Southside 2,316,176 179,428 7.75% 272,000 (80,503)Westside 446,809 8,750 1.96% 150,000 2,280

TOTALS 5,546,415 310,191 5.60% 614,000 (118,097)Source: Allen Branch, Branch Realty Commercial Advisors, Commercial Association of Realtors New Mexico

© 2010 Allen Branch

Santa Fe 2010Office Market Statistics

Paisano Building is one of several largecontinguous spaces that make up a bulk

of Santa Fe’s office vacancy rate.

Santa Fe 2010Retail Market Statistics

2008-2010Net Space Space Available 2010 Vacancy Planned Space Net Absorption

Downtown 1,553,758 72,826 4.69% 80,000 (10,602)South Capitol District 175,266 17,428 9.94% - (9,794)Cerrillos Corridor 880,953 31,759 3.60% 112,000 (19,481)Medical District 173,450 0 0% - (0)Southside 2,316,176 179,428 7.75% 272,000 (80,503)Westside 446,809 8,750 1.96% 150,000 2,280

TOTALS 5,546,415 310,191 5.60% 614,000 (118,097)Source: Allen Branch, Branch Realty Commercial Advisors, Commercial Association of Realtors New Mexico

© 2010 Allen Branch

Santa Fe 2010Office Market Statistics

2008-2010Net Space Space Available 2010 Vacancy Planned Space Net Absorption

DowntownSouth Capitol District 227,737 4,851 2.13% 11,000 (181)Cerrillos Corridor 98,500 5,617 5.70% 48,000 6,701Medical District 540,894 46,543 8.07% 84,000 (6,243)Southside 864,358 190,763 22.07% 62,000Westside* 459,203 28,628 6.23% 54,000 8,960

TOTALS 3,190,705 402,184 12.60% 251,000 (223,255)*Includes Office/Warehouse. Does not include government owned buildings

Source: Allen Branch, Branch Realty Commercial Advisors, Commercial Association of Realtors New Mexico

© 2010 Allen Branch

1,000,013 125,782 12.58% 25,000

(137,751)

(88,710)

Santa Fe’s Railyard is now home to more than trains. It is fast

becoming a vibrant eclectic area filled with art, dining, entertainment

and recreation. The Railyard is another central Santa Fe destination.

Not far from the Plaza and Canyon Road, the Railyard has always

been a multi-purpose site

In 1880 the first train came into Santa Fe. The Atchison, Topeka

and Santa Fe Railway Company made its journey to Santa Fe on a

spur line, built because mountain ranges prevented Santa Fe from being

Santa Fe's Railyard—A Destination forthe Arts, Dining and

Entertainment

Market Station

on the main line. With the train, came tourists. The Railyard soon developed into a social center. The Railyardbecame a gathering place for Santa Fean and travelers. “By the 1940s the Santa Fe Railyard was an activecenter for the locals in Santa Fe. In 2002, building on this history of a social center and gathering place,the Railyard Master Plan was approved by the City of Santa Fe. The Master Plan honors the history andcultural heritage of the site and encourages the presence of local businesses, particularly non-profits, witha focus on arts, culture and community. The Railyard already is moving forward with the presence of thenew Santa Fe Farmers Market, REI, Flying Star Cafe, SITE Santa Fe, Warehouse, 21 and El Museo Cultural.Soon will be the new Maya Cinema’s Railyard 13+IMAX plus many more galleries, street cafes and taverns.

According to the latest New Mexico Lodging Associationreport, Santa Fe hotels recorded an occupancy rate of 42.2percent in November, slightly below the statewide averageof 45.8 percent.

Cerrillos Road hotels had the hardest time filling rooms,experiencing just 34.3 percent occupancy compared to the49.3 percent rate of downtown hotels. The NMLA reportshows that Cerrillos Road hotels charged an average rateof $59.71 per night and generated just $20.50 of revenueper available room.

Downtown hotel rates were $125.21 per night and thosehotels made $61.79 in revenue per available room.

Penny Aley, owner of the Silver Saddle Motel at 2810Cerrillos, said business was particularly hard to come bylast month. "I would say this past November has really beenbad," she said. "I never expected it to be this slow." Thenew numbers indicate the local hotel industry is still strugglingto generate business in a weakened economy. John Rickey,general manager of La Fonda on the Plaza, said that makessense.

Rickey called the lodging industry - especially in touristlocations like Santa Fe - a "lagging indicator" of the economy.

"The stock market is a leading indicator, and it's beenshowing signs of picking up for a little while now, but thehotel industry is anywhere from six to 12 months lagging,so nothing's been a surprise as of yet (with occupancyrates)," he said.

Santa Fe occupancy rates for the 2009 calendar year throughNovember were 57.7 percent, down from 63.4 percent forthe same span in 2008. January and April saw the steepestdeclines when compared to last year's figures, but theautumn months have been comparable to the same monthsin 2008.

Rickey said La Fonda's November occupancy was similarto what it experienced during the same month in 2008 but

Santa Felodging market

By Jessica Dyer

• REVpar (revenue ÷ available rooms) shouldremain flat with growth not estimated until the third quarterof 2011.

• Average daily rates are estimated to have aslight uptick but generally flat after factoring out inflation.

• Occupancy and visitors expected for the allimportant Summer season will be contingent upon factorsbeyond the hospitality market’s control. This may includecost of fuel, the job market, and productivity/ personalincome growth.

• Several hotels are using this down time to injectcapital by constructing improvements and at the samereducing staff jobs and/or their hours while also cuttingback on non-essential spending. The hospitality markethas seen this precipitous slowdown before—in theaftermath of 9/11. However, the industry was able tocome roaring back by 2003.

highlights

SANTA FEHospitality Market

didn't compare to the record levels experienced in 2007.

Overall, Santa Fe hotel occupancy rates were 2.1 percentlower this November than in 2008 and 10.1 percent lowerthan two years ago.

Rickey said La Fonda has made some "prudent businesschanges" to account for a decline in visitors but wasn'tmore specific. Hotels that rely most heavily on businesstravelers have generally fared better than tourist-heavymarkets such as Santa Fe, he added.

"This is discretionary spending (at Santa Fe hotels), whereother spending may be looked on as required," Rickeysaid, adding that consumer confidence will have to riseconsiderably before there's any major turnaround.

"I do not see a dramatic increase until potentially 2011,"he said. Aley at the Silver Saddle isn't expecting anyimmediate run on her rooms, either. "In this business, youalways have to be optimistic, but do I expect things to pickup? I do for the summer, but right now I don't see anything,"she said. "I don't see the people coming in."

Inn at Loretto is one of SantaFe’s most picturesque hotels. It is reminiscent of theancient Taos Pueblo and

epitomizes traditionalpueblo-style architecture.

such as occupancy, RevPAR and demand, will be realized afull quarter earlier than we were thinking three months ago."

"While our forecast for ADR movement in the third quarterwas a bit pessimistic, we recognize the change in pricing trendsand have applied it to our thinking regarding the future.Accordingly, this year's annual ADR forecast has been reducedto a decline of 8.8% and our 2010 ADR forecast is now aminus 1.5%. These compare to declines of 10.4% and 3.1%that we forecast last quarter," Woodworth said.

PKF-HR is also now forecasting lodging demand to post aquarterly year-over-year increase during the first quarter of2010, thus ending eight consecutive quarters of declines. Onan annual basis, PKF-HR is now forecasting lodging demandto rise 1.9% in 2010, up from the 1.6% increase forecast backin September.

2009 World’s BestCities Award

Cities to Watchin 2010

#2 Art Marketin America

Best of U.S.Summer Travel

Canyon RoadTop 10 Streets in USA

2007 Best Townsin America

Top 10 BestPlaces to Live

#1 ArtDestination

The pace of recovery of the U.S. lodging industry hasaccelerated from previous expectations, according to PKFHospitality Research in Atlanta. Improving industry data forsuch key indicators as occupancy, RevPAR and demandsuggest that the recovery will arrive a full quarter earlier thanthe firm expected in September 2009.

"Make no mistake about it, 2010 will continue to be a toughyear for U.S. hotel owners and operators," said R. MarkWoodworth, president of PKF Hospitality Research. "We areforecasting that, on average, properties will continue to sufferyear-over-year declines in revenue and profits from an alreadydismal 2009. However, given the deceleration of room ratediscounting that we observed during the third quarter of 2009,we believe the severity of the losses incurred in 2009 and2010 will be less than previously forecast. In addition, year-over-year growth in important measurements ,

*

*Lodgers tax collection includes revenue from construction of new Convention Center.

Santa Fe Travel Accolades:

The Santa Fe apartment market appears to be stabilizing from its steep occupancy decline in early2009. Santa Fe has traditionally maintained occupancy in the mid-90% range, but has been hard hit bydeclines in construction activity plus job losses and reduced hours among service workers. Many of theseconstruction and service employees have traditionally rented apartments. It appears that many of thosesuffering employment setbacks in Santa Fe were from out of the area and simply returned home rather thanwaiting for better times.

Comments that the “'shadow market”' of unsold single family homes and condominium units has lured rentersaway from apartments is unfounded. Most Santa Fe home rental prices are well above apartment rental ratesand interviews of condominium managers indicates a minimal impact from condo rentals.

Santa Feapartment market

While Santa Fe’'D5s apartment market shows signs ofstabilizing, the signs are a mixed bag. Weighted averageoccupancy improved between May and September from83.34% to 87.87%. Offsetting gains in occupancy was adecline in weighted average monthly rent from $769 to$728. The net effect was a slight decline in effective rentfrom $641 to $640 with gains in occupancy offset bydeclines in average rent. The percentage of Santa Feproperties offering some form of concession also increasedsignificantly from 67% to 83% between May andSeptember.

As with Albuquerque, concessions are difficult toquantify,but it appears that the market average by thoseoffering concessions is currently between three and fourweeks with a bias toward four weeks.

The percentage of Santa Fe properties experiencingoccupancy of more than 90% increased modestly from47% in May to 55% in September. The occupancycategories below 90% were mixed compared to the priorsurvey. Properties operating at less than 85% improvedfrom 48% in May to 28% in September. The 85% to 89%category showed major improvement moving from 5%to 17% between May and September.

It’s important to note that the relatively small numberof larger Santa Fe properties can result in sudden shiftsin market statistics. The bottom line appears to be thatthe market is stabilizing and positioning forimprovement, although any significant improvementin occupancy, rent and concessions is dependent uponcreation of jobs in the construction and serviceindustries.

The Santa Fe September survey covers 18 apartmentproperties of more than 47 units totaling 3,002 units.The Santa Fe survey includes nine market rate and nineaffordable properties. Affordable properties average90.44% occupancy and $711 weighted average monthlyrent.

Market rate properties average 85.87% occupancy and$741 weighted average monthly rent. The disparity inoccupancy can be partly explained by the older averageage of market rate properties (1985 vs. 1996) and partlyby the lower rents at the affordable properties.

The affordable properties’ lower rents reflect incomeor rent limitations placed on the properties by the publicagencies providing financing.

By David EagleBilly Eagle, CB Richard Ellis

Household Income Capis forcing Renters outof the City

highlightsSurvey findings for the predominant or “'D2core”'D3 unittypes, which include 97.10% of total units reporting, include:

• Efficiency units represent 13.66% of total surveyedunits with 82.44% weighted average occupancy, upfrom 73.22% in May. September 2009 average rent was $505 or $1.00 per square foot, an 11.40% decreasefrom May and 17.89% lower than September 2008.

• 1 Bed/1 Bath units represent 24.48% of total surveyedunits with 85.03% weighted average occupancy, up from 84.70% in May. September 2009 average rentwas $663 or $1.02 per square foot, a 7.27% decline from May and a 10.16% decrease since September 2008.

• 2 Bed/1 Bath units represent 24.08% of total Surveyed units with 88.80% weighted average occupancy, up from

78.15% in May. September 2009 average rent was $730or $0.91 per square foot, a 5.81% decrease from Mayand a 10.65% decrease from September 2008.

• 2 Bed/2 Bath units represent 20.82% of totalsurveyed units with 91.84% weighted averageoccupancy, up from 87.20% in May. September2009 average rent was $803 or $0.85 per squarefoot, a 4.97% decrease from May and a 7.06%decrease from September 2008.

• 3 Bed/2 Bath units represent 14.06% of total surveyed units with 88.63% weighted averageoccupancy, down from 90.13% in May. September 2009 average rent was $913 or $0.83per square foot, a 1.72% decrease from May and a 2.98% decrease from September 2008.

Traveras ApartmentComplex—one of several newapartment complexes to comeon-line in the last 5 years.

Also calculated is “'D2effective rent”'D3 by unit type andfor the overall Santa Fe market. Again, effective rent isweighted average rent times weighted average occupancy.Santa Fe effective rent was stable with a negligible 0.19%decrease between May 2009 and September 2009. Twobedroom one bath unit effective rent increased 7.03% overMay, but was offset by a 6.91% decline in one bedroomone bath effective rent. Other unit types were flat.

Santa Fe market effective rent has declined by 15.11% sinceSeptember 2008 with the largest declines in the smallerefficiency and one bedroom units. In spite of having fallenon hard times, Santa Fe can be expected to rebound as thenational, state and local economies recover.

Job growth is the key to apartment demand throughout thecountry and Santa Fe is no exception. Santa Fe’'D5s cachetas a major tourist and art destination has not changed andwill hold it in good stead as the economy recovers.

On the supply side, Santa Fe’'D5s local government can be expected to continue to make new development difficult andlending for new construction is expected to be scarce for three or four years. Coupled with the current weak rental market,it is unlikely that significant new units will come on line for 3 to 5 years.

Santa Fe has historically commanded significantly higher average and effective rents than Albuquerque, but that has changedwith the September 2009 survey.

Santa Fe Apartment Occupancy & RatesSeptember 2009

Santa Fe Apartment StatsSeptember 2009

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SSanta Fe City and County sales of homesduring November 2009 was up over thesame month in 2008 by nearly 35%; thelargest increase month over month froma year before since the go-go years of2004 and 2005. This is partly due to thefirst time home buyers tax credit, whichwas thankfully extended thru mid 2010.After over 3 years of sliding home salesin our market area, [Santa Fe] seems tohave turned the corner and is now headedin the right direction.

You may already know that Santa Fe hasavoided much of the large scale priceand value drops that afflicted other citiesin the Southwest and West. We did nothave runaway appreciation earlier thisdecade so did not have as far to fallwhen the market started turning in 2006.That’s not to say we haven’t had ourdifficulties, but foreclosures and shortsales are relatively small in number inSanta Fe compared to many other markets.

Santa FeHousing Market

By Alan BallSouthwestern Title & Escrow

Experts point to stabilizationin the housing and jobmarkets as signs therecession has ended

• Santa Fe City and County sales of homes during November 2009was up over the same month in 2008 by nearly 35%

• Sales are still 55% below the levels of 5 years ago, when new homessold in 2005 at an annualized rate of 760.

• During the height of the housing boom, the median home price for2005 was approximately $425,000,or just about 6% higher than the yearending 2009.

• The construction-put-in-place numbers that came out in 2009 willshow that housing is starting to add to the GDP.

highlights

SANTA FE

The number of homessold at a $1 millionand above has dropped48% since the highsof 2005.

The number of homessold at a $1 millionand above has dropped48% since the highsof 2005.

UNITS SOLD AND MEDIAN PRICESales of single-family homes jumped nearly 7% in2009 to an annualized rate of 384 homes sold,according to a report just released.

The gain over 2008 was much greater than expected.A consensus of housing analysts had forecastseasonally adjusted sales to again be negative.

However, sales are still 55% below the levels of 5years ago, when new homes sold in 2005 at anannualized rate of 760, according to the report releasedby the Alan Ball and the Santa Fe Association ofRealtors. During the height of the housing boom, themedian home price for 2005 was approximately$425,000, or just about 6% higher than the yearending 2009.

Still, the report is very positive, especially since manyanalysts and Realtors were expecting another year-over-year drop in sales.

"This is really good news all things being equal,”says Alan Ball, Senior Officer at Southwestern Title& Escrow. “Considering what's gone on in past years,with all the foreclosure activity sending down homeprices nationally, and for home sales to jump likethis is a good indicator that Santa Fe’s economy maybe bottoming out."

However, builders are going to have to take downsome of their inventory before any real priceappreciation is going to happen. That tells you it'sstill very hard to sell a new home.

Much of that struggle is because the housing stockis concentrated in the sprawling South and Southeastand inventories are misaligned to the market. Muchof this housing stock has a capped household incomerequirement imposed by the City which inverselyprices many out of the market.

COYOTE

132 W. Water StreetSanta Fe, New Mexico 87501

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505.983.1615

Executive Chef/OwnerEric DiStefano

A Few ChoiceSpots

Still Availableat the Railyards

COMING SOON

Contact: Allen Branch • Branch Realty Commercial Advisors • 505.920.9900

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