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Commercial Real Estate Update

noreply@blogger.com (chris gadula) — Mon, 29 Sep 2008 15:36:00 +0000

Commercial-Property Players Find Their Pressures Growing
As Crisis Spreads, Market Seizes Up; Capital Preservation
By ALEX FRANGOS
For the commercial-real-estate players that were in hot water before the capital-markets crisis of the past two weeks, the temperature is rising.

Retail giant Centro Properties Group, New York developer Macklowe Properties, office-building investor Broadway Real Estate Partners LLC and others are now facing an even rougher ride in the wake of Lehman Brothers Holdings Inc.'s bankruptcy, the collapse of American International Group Inc. and the buyout of Merrill Lynch & Co. by Bank of America Corp.

After these and other market crises, cash-flow projections for properties are being scaled back in anticipation of a greater economic slowdown. The sales market -- long considered the last hope of many distressed players -- has virtually ground to a halt.

Even creditors that were willing to make real-estate loans before the upheaval are pulling back, having witnessed the spectacle of some of the biggest names in finance and banking vanishing in a period of days.

"In this kind of environment you are not looking to put capital to work," says Lisa Pendergast, managing director of RBS Greenwich Capital. "Most banks and brokerages are in capital-preservation mode."

The demise of Lehman and other events are pushing buyers out of the market or emboldening them to demand lower prices. For example, shopping-center giant Centro Properties Group, which faces a Sept. 30 deadline to pay off $2.3 billion in debt, had a pending deal to sell 29 U.S. properties to DRA Advisors for $714 million. The deal collapsed last week after Centro refused DRA's request for a price cut.

Getty ImagesTo be sure, commercial real estate so far has fared better than residential properties. Many office buildings, shopping centers, warehouses and other income-producing properties are generating enough cash to pay their debt, and their default rates remain low.

Nevertheless, values have fallen because of the credit crisis and economic uncertainty, which is in particular creating headaches for investors who bought at the top of the market with short-term debt. Financial institutions holding mortgages backed by commercial real estate have suffered tens of billions of dollars in losses and face more.

In the long run, liquidity might be restored to the market by the government's proposed $700 billion financial-bailout plan, which partly involves buying troubled commercial-real-estate debt. But many institutions may be reluctant to accept the government's price if steep discounts are required because the underlying real estate may still be performing well.

The help also will take time to reach owners who are under stress from high debt loads. "This will absolutely help commercial real estate," says David Lichtenstein of the Lightstone Group, which accumulated billions of dollars in real estate near the top of the market. But, he says, "I don't think fixing a few Wall Street banks will fix a grass-roots issue we have here. We are going through a huge devaluation."

At the same time, the benefit from the government bailout will be partly offset by the conversions of investment banks Goldman Sachs Group Inc. and Morgan Stanley into more risk- and leverage-averse commercial banks.

"We are very capital-intensive and require a lot of debt to keep our businesses running," says Jeff Blau, president of Related Cos., a New York developer.

In the near term, commercial-real-estate markets have been particularly devastated by the bankruptcy of Lehman Brothers. The firm owned more than $32 billion of debt and equity assets -- running from land in California to apartment buildings in Boston -- that will now be liquidated, putting downward pressure on prices.

Complicating things further, Lehman pledged many of its real-estate assets as collateral on loans for desperately needed cash in the days before it collapsed. For example, Swedbank AB, a Swedish bank, was left holding 70 commercial loans valued at $1.35 billion, which were backed by properties including partially built developments. It is unclear if Swedbank will fund the balances to keep construction going.

The financial crisis of the past few weeks also has hurt the economic outlook for many properties, particularly office buildings in New York and other financial centers.

In a worst-case scenario, in the New York region, vacancy will hit 19% by 2011 and values will scale back over 13% through 2009, according to a projection scheduled to be released Wednesday by Property & Portfolio Research Inc.

Harry Macklowe
Epitomizing the current troubles: Macklowe Properties' Harry Macklowe appeared to have appeased most of his creditors and salvaged some of his empire earlier this year when he sold his prize General Motors building and other office towers. But now he is facing new troubles. His office development at 510 Madison Ave. has leased only one floor amid Manhattan's bleak leasing market. Meantime, creditors have launched a foreclosure against another one of Mr. Macklowe's projects, a mixed-use development at the site of the old Drake Hotel. Mr. Macklowe has been struggling for months to find a partner, but his prospects are even worse now.

In another closely watched situation, U.S. mall owner General Growth Properties Inc. faces the task of refinancing and paring its $27 billion debt load, of which nearly $19 billion is due by the end of 2011. The Chicago-based company said earlier this week that it has broadened its efforts to raise capital to include a big capital infusion, a merger and more property sales than it initially targeted.

Still, the company's task is "materially more difficult than it appeared previously," Green Street Investors analyst Jim Sullivan said.

Broadway Partners, a closely held real-estate fund manager, has made progress in recent months toward stabilizing its portfolio. Broadway faces a $750 million loan expiration in January that it used to acquire $7 billion of office skyscrapers at the top of the market in 2007, including Boston's signature John Hancock Tower. Broadway has sold two towers to raise money, but several more remain in contract and could run into trouble now that market turbulence has increased. The sale of One Sansome Street, a tower in San Francisco, was expected to sell over the summer to a Korean investment fund, but the deal has yet to close.

"It's the absolutely wrong time to be a seller," says Gary Mozer of George Smith Partners, a brokerage in Los Angeles.

Richard Coppola, managing director of commercial-mortgage investments for TIAA-CREF, the largest U.S. retirement system, predicts lending costs will rise. "We want to make sure that we're compensated for the risk we take on over the long term," he says.
Chris' comments: It now appears that the contagion in the residential real estate market has spread. Commercial Real Estate is now under stress and who knows how deeply the problems will run? stay tuned.

Commercial Real Estate Update

noreply@blogger.com (chris gadula) — Fri, 22 Aug 2008 14:58:00 +0000

Some Fear Commercial Property Loans Will Be Next Stage in Downturn

By LOUISE STORY
Published: August 21, 2008
As the value of home mortgages crumbles by the day, Wall Street has hoped that commercial real estate loans would stay clear of the storm.
The Riverton Apartments, a 12-building complex in Harlem, said that it might default on a $225 million mortgage payment.

A default by the complex, the rent-regulated Riverton Apartments, a 12-building residential development constructed after World War II, would be New York’s largest in the current housing crisis. For Wall Street banks, which hold about $100 billion of commercial mortgage-backed securities, the prospect has fanned new worries that a deterioration of the overall commercial property market could prompt more write-downs in the coming quarter, on top of losses already expected from their distressed mortgage securities holdings.

“The fear is the next shoe to drop may be commercial real estate,” said Jeffrey Harte, a banking analyst at Sandler O’Neil. “When consumer credit goes south, commercial will follow.”

At the end of the second quarter, Deutsche Bank held $25.1 billion worth of commercial loans. Morgan Stanley held $22.1 billion and Citigroup had $19.1 billion.

Lehman Brothers, which has the largest exposure to this type of security, is shopping about $40 billion worth of commercial real estate assets, as well as its entire commercial real estate business. A large part of its portfolio is a high-risk loan known as bridge equity made with Archstone, a metropolitan apartment developer, and most of the rest are floating-rate loans, which are riskier, according to a person who reviewed the offering.

Banks are scrambling to dispose of these loans, typically made to hotels, office developers and retail strips, before problems arrive.

Broader real estate indexes are already showing signs of trouble. Moody’s/REAL Commercial Property Price Index has dropped nearly 12 percent since its peak last October. A more conservative index by the National Council of Real Estate Investment Fiduciaries shows growth slowing to one-half of a percent in the second quarter, from upward of 4 percent a quarter.

Loans made for commercial real estate are typically among the safest, because a building can be used as collateral and big property developers generate income from the investment, raising the likelihood they will repay their loans.

But cracks began to emerge late last year, when Morgan Stanley reported write-downs of $400 million in commercial mortgage losses. In the first quarter, Wachovia, which had transformed itself into a leading lender in the nation’s commercial real estate market, said it would take write-downs of more than $1 billion for commercial loans for the second half of 2007. Investors had already begun balking at buying securities backed by these bonds, so banks like Wachovia were stuck with loans of diminished value.

Around the same time, the New York developer Harry Macklowe was forced to sell seven office buildings he had bought in Midtown Manhattan, as well as the General Motors Building, after he was unable to refinance the loan with his lender, Deutsche Bank.

Now, the prospect of an immense default on a commercial residential property in New York — which has not suffered as much as troubled markets like Florida — has lent new momentum to concerns over the stability of commercial real estate loans.

As Harlem grew into an increasingly attractive neighborhood at the height of the housing market, bankers assumed that Riverton’s owners could quickly convert many of its roughly 1,230 units from lower-priced rentals to apartments priced closer to the higher market average. That would generate a richer income stream, allowing the companies to pay off high mortgage bills.

It was the kind of optimistic assumption that ran rampant in the residential housing market, but one that remained less common for commercial real estate loans.

On Monday, Fitch Ratings issued a negative watch on part of the Riverton Apartments trust, saying developers had made only scant progress toward their goal. Rockpoint Group and Stellar Management — the developers that own Riverton — did not comment.

Before the credit squeeze, financial companies bundled commercial mortgages into securities in much the same way they packaged home loans and private equity debt. Riverton’s mortgage was one of the last ones to be wrapped into a commercial mortgage-backed security in the spring of 2007; it was then cut up and sold as bonds.

A recent report by Lehman Brothers showed that aggressive underwriting is what probably has brought Riverton to the brink of default, not a fundamental deterioration in the overall market. But that report noted that there are other commercial properties that received similar optimistic underwriting, known as a pro forma loan.

Comments: Although this is a COMMERCIAL RESIDENTIAL story, it does lead one to wonder what element of the Real Estate market will start to crumble next. Will this spill over into Commercial Office and Industrial? Stay tuned.

Commercial Property Market Update

noreply@blogger.com (chris gadula) — Wed, 13 Aug 2008 19:17:00 +0000

By JESSICA HOLZER August 13, 2008

WASHINGTON -- Real-estate executives' outlook for the commercial-real-estate market has deteriorated as hopes dim for improvement during the next year, according to a Real Estate Roundtable survey.
More than 80 out of 100 senior industry executives asked said the general market has worsened during the last 12 months.
The share of executives expecting the market to bounce back even slightly in the coming year dropped to 53% in July from 63% in April.
Respondents cited the credit squeeze and the weakening economy as the chief culprits hurting the commercial-real-estate market. Nearly 90% of respondents predicted that commercial-real-estate prices will drop or stay flat during the next 12 months.
"Even though loan delinquencies to the sector are very low, the ongoing lack of credit for real estate has led to weaker property values and has stalled transactions," Roundtable President and CEO Jeffrey D. DeBoer said.
More than 80% of the executives surveyed said the availability of credit was "much worse" than it was a year earlier, although roughly two-thirds expect the debt market to improve during the coming year.
Respondents were more optimistic about the equity market, with roughly half judging the availability of equity financing as "somewhat worse" than a year ago.
However, more than half surveyed said that overall conditions in the real-estate market would be "somewhat better" over the next year.
The survey was conducted during the third week of July.

Chris' comments: Industry insiders seem to be telling us that the market has stalled but not so severely that a major recession is in the works. Rents/revenue seem to be holding up and even though CAP Rates are increasing, this in itself is not a bad development. According to insiders, it appears that a period of sluggishness over the next 12 months is in the offing. Not great but not too bad considering the residential market environment and asset price declines.

July Commercial Real Estate Update

noreply@blogger.com (chris gadula) — Wed, 23 Jul 2008 18:33:00 +0000

Expect near-record office vacancy rates in 2009, says Grubb & Ellis Detroit has highest vacancy rate of any major U.S. city, New York the lowest
By Matthew Scott
July 21, 2008
Office vacancy rates are headed up and by the end of 2009 may be close to an all-time high. Cutbacks in key industries such as information technology, finance and professional services have led to more than a quarter-million layoffs during the first half of 2008, which has emptied an estimated 38 million square feet of office space.The result? According to a report issued today by commercial real estate advisory firm Grubb & Ellis, the percentage of U.S. offices that are empty could hit 17% by the end of next year.That’s a startling figure, and not far off the numbers seen in the prior two recessionary cycles. The vacancy rate hit 17.9% in the first quarter of 2004; during the third quarter of 1991, it topped 18.0%. As of June, the national office vacancy rate stood at 14%, marking the second consecutive quarter the rate has increased by .5%. Detroit has been hit hardest, with a whopping 22.6% office vacancy rate. Conversely, New York City had the lowest vacancy rate among major U.S. cities, at 5.6%. According to the report, office rental rates are also under pressure. While average asking rental rates for Class A and Class B office space edged higher in the second quarter—Class A up to $36.15 a square foot and Class B up to $27.89—Grubb & Ellis expects rates to remain flat over the next few quarters.Over the last year, only eight markets saw Class A rates decline, but during the second quarter, 22 of the 59 markets surveyed posted lower Class A rental rates, indicating a definite downward trend.Another sign of office market weakness: The amount of space offered for sublease increased for the fourth consecutive quarter. Sublease space has risen 18% since mid-2007, to 86 million square feet. As office vacancies increase into next year, some owners of real estate assets may experience hardships.“Rising vacancies and softening rental rates are expected to result in some forced asset sales by investors, particularly those who purchased recently with the ‘aid’ of floating-rate debt and overly optimistic pro formas,” the report warned, suggesting that institutional investors with large cash balances will scoop up bargain properties as they appear.

Chris' comments: Look out! We may now be on the verge of the "dam breaking". Commercial Real Estate has so far been able to dodge the hardship that residential real estate has encountered. BUT, this may not be the case for long!

July commercial Real Estate Update

noreply@blogger.com (chris gadula) — Wed, 09 Jul 2008 18:37:00 +0000

Commercial Real Estate Easing in Economic Slowdown
Paul Partyka, Editor , American Coin-Op
Published 07/07/2008 - 9:01 a.m. CT

Foreign buyers are focused on retail strip centers in Southern California, Chicago, the Northeast and the Southeast, according to NAR. (Photo: iStockphoto.com/sjlocke).
ABOUT THE AUTHOR
Paul Partyka, Editor
Website:http://www.americancoin...
Email:ppartyka@crain.com
WASHINGTON — Are you looking for a new laundry? Commercial real estate vacancies are trending up modestly, while investment has dropped sharply in the wake of the credit crunch, according to the National Association of Realtors (NAR). “Although the supply-demand fundamentals are broadly favorable in most commercial real estate markets, vacancy rates are rising modestly and rent gains are slowing,” says Lawrence Yun, NAR chief economist. “Slow economic growth is lowering the demand for commercial space, mostly in the office and industrial sectors.”Tight credit availability has significantly slowed the volume of commercial real estate transactions, says Patricia Nooney, chair of the Realtors commercial alliance committee.Vacancy rates in the retail sector will probably edge up to 9.3% in the fourth quarter from 9.2% in the fourth quarter of 2007. Average retail rent is expected to rise 1.3% in 2008, compared with a 2.9% gain last year. Retail transaction volume during the first four months of 2008 totaled $7.5 billion, significantly below the $27.7 billion in the same period last year. Strip center transaction volume is down 77% from a year ago.

Investment in commercial real estate during the first four months of 2008 was $48.2 billion, down 69.5% from $157.8 billion during the same period in 2007 when the credit markets were functioning normally (those totals do not include transactions valued at less than $5 million or investments in the hospitality sector), NAR reports.

Chris' comments: It looks to me like we are going to see a continuing series of reports just like this one as all types of real estate in the U.S. take their medicine from the over-leveraging that has occurred in just about every segment of the U.S. economy. The solution is one that has to evolve over time. Until bank balance sheets recover to historic levels of normalcy and the consumer begins to do the same, the psychology of the market will remain negative, reinforcing the obvious caution that has enveloped economic activity and causing this "correction" to continue it's deliberate pace.

Commercial Real Estate Update

noreply@blogger.com (chris gadula) — Wed, 11 Jun 2008 15:27:00 +0000

The thing I find so interesting in a number of these articles is the cavalier and matter-of-fact attitude towards default and the fact that default doesn't seem to affect a company's reputation as it once did. I don't know whether this is good or bad but to me it certainly represents a fundamental change in business behaviour. With credit markets in their current state and increasing volatility in all markets, I really wonder if the leverage employed in the markets and the other attributes attendant to this leverage (so what if I made the wrong bet, it's someone elses money!!) are truly good for the economy in the long run.

Quote of the Day
"Kimco has done it, and they should. There's no problem. It's part of the game.” - Lawrence Longua, director of the REIT Center at New York University's Real Estate Institute, about defaulting on non-recourse loans and giving the property in question back to the lender. Grocery-anchored neighborhood shopping centers, where a loss of the grocery store often represents a loss of at least 40% in the property's income, may do this more than any other type of property owner. Kimco Realty Corp is the largest U.S. owner of grocery-anchored shopping centers, and had in the past defaulted on individual mortgages… Since then, Kimco has had no problem attracting lenders. (Guardian UK, June 10th)

Financing Trends For Commercial Real Estate and Real Estate Investment Trusts [REITs]
CMSA Study Finds CMBS Market Turning Around. “Jun Han, author of the CMBS market study for the Commercial Mortgage Securities Association: The commercial mortgage-backed securities market has turned the corner… Investors have marked-to-market… despite the fact that the CMBX market represents only a very small and thinly traded segment of the market. Han’s extensive tests of all 19,543 loans in the four CMBX indices against the [three recent] recessions, found few risks of poor performance… The CMBS market actually turned the corner with the Fed’s rescue of Bear Stearns... CMBS spreads peaked in mid-March. [However,] spreads will need to come down for buyers to be willing to move on deals.” (Commercial Property News, June 10th)

Expert: CMBS Fears Largely Unfounded. “Jun Han, author of the study commissioned by the Commercial Mortgage Securities Association and a principal of JHP Capital: One thing the commercial real estate market has going for it, unlike other down cycles, is that there is not an overbuilding scenario. For example, 1% of commercial real estate’s total inventory is under construction right now, as opposed to the recession of 1991, when 7% was underway. “There’s really not a lot of construction activity,” he said.” (Globe St., June 10th)

What's Next For The CMBS Market? “Moody’s: "The main issue is a standoff in the CMBS industry. Issuers don't want to make new loans unless they can sell the resulting bonds to investors, but investors don't want to buy bonds until the spreads have settled down. More people are sitting on the sidelines." Even banks that have cleared out their balance sheets and are in a position to issue new CMBS have been impacted by the overhang problem. That's because new loans are priced on the basis of recent CMBS issuance, but because no CMBS are being issued, the valuation of new paper and the potential yield in which it would trade remains uncertain.” (Real Estate Portfolio, May-June)

More US Commercial Property Defaults Likely. “Commercial property investors may soon follow the residential real estate trend [to] surrender a property to lenders when its value falls below the amount owed on a mortgage… Real Capital Analytics: U.S. commercial property transactions were off nearly 70% in Q1’08 versus Q1’07… Rather than sell at a loss, some REITs and other borrowers are opting to turn their assets over to lenders when the associated mortgage is "non-recourse"… Tara Innes, managing director of AIG Global Investments: “Corporate bond holders also may view default on a non-recourse loan favorably. They would rather see the company preserve its cash to repay corporate-level debt than use it to repay a mortgage on a bad investment.” (Guardian UK, June 10th)

Commercial Real Estate Update May 2008

noreply@blogger.com (chris gadula) — Mon, 02 Jun 2008 20:39:00 +0000

Commercial real estate markets expected to ease in coming months
May 26, 2008—Although fundamentals are sound, activity in commercial real estate markets is expected to ease in the months ahead, according to a forward-looking index for the commercial real estate sectors published by the National Association of Realtors (NAR).
The Commercial Leading Indicator for Brokerage Activity edged down 0.7 percent to an index of 119.0 in the first quarter from a downwardly revised reading of 119.9 in the fourth quarter, and is 0.8 percent below the first quarter of 2007 when it stood at 120.0.
Click for more information
This is the third consecutive quarterly dip since reaching a record of 120.5 in the second quarter of 2007. Before that, the index showed generally positive expansion from the middle of 2003; NARs track of the index dates back to 1990.
Lawrence Yun, NAR chief economist, expects somewhat diminished business opportunities for commercial real estate practitioners in the months ahead. The moderate erosion in the index suggests that commercial activity, as measured by net absorption and the completion of new commercial buildings, will be positive but somewhat weaker over the next six to nine months. Private nonresidential investment in structures is likely to subtract one-third to one-half percentage point off GDP growth, he said. Along with the impact of the credit crunch, a weakening in leasing and building sales activity should come as no surprise because commercial real estate follows changes in overall economic activity.
The commercial leading indicator is a tool to assess market behavior in the major commercial real estate sectors. The index incorporates 13 variables that reflect future commercial real estate activity, weighted appropriately to produce a single indicator of future market performance, and is designed to provide early signals of turning points between expansions and slowdowns in commercial real estate.
For more information, see the NAR Web site.

Commercial Real Estate Update

noreply@blogger.com (chris gadula) — Fri, 23 May 2008 17:26:00 +0000

WASHINGTON (MarketWatch) -- Commercial real estate markets should weaken in the months ahead, according to reports released Wednesday by trade groups representing realtors and architects.
The commercial real estate leading index fell 0.7% in the first quarter, the third straight decline, the National Association of Realtors said. The index is 0.8% below the level of a year ago, the first negative year-over-year showing in five years. The index is based on 13 separate indicators, including industrial production, REIT prices and returns, job growth, income growth, business sales and durable-goods shipments.
Meanwhile, the American Institute of Architects reported its architectural billing index rose to 45.5 in April from the historic low of 39.7 in March, with scores below 50 indicating declining billings. The AIA index leads nonresidential construction spending by six to nine months.
An index tracking new inquiries rose to 53.9 from a record low 48.
"This uptick shows that the slowdown is beginning to moderate," said AIA chief economist Kermit Baker. Most regions don't have an oversupply of buildings, providing "hope that this weak patch may be relatively short-lived," he said.
'This uptick shows that the slowdown is beginning to moderate.'
— Kermit Baker, AIA
Private investment in nonresidential structures is likely to subtract between a third and a half percentage point from gross domestic product over the next two or three quarters, said Lawrence Yun, chief economist for the NAR, the real estate trade association.
In the first quarter, business investment in structures subtracted 0.2 percentage point from GDP, but that figure is likely to be revised higher in next week's updated estimate.
Yun said it's "no surprise" that the commercial sector could weaken because of tight credit and the weak economy.
Two weeks ago, the Federal Reserve said 78% of banks in its quarterly survey had tightened lending standards for commercial real estate loans, and 52% reported weaker demand for such loans.
In a separate survey of attitudes, realtors who specialize in office and industrial properties said they anticipate a much lower level of business activity in the coming quarters.
On Monday, Moody's Investors Service said commercial real estate prices fell 2.3% in March, the steepest one-month decline in at least eight years. Retail property prices were down 5.7% from their peak last year.
Rex Nutting is Washington bureau chief of MarketWatch.

US commercial property price fall most since 2000-index

noreply@blogger.com (chris gadula) — Wed, 21 May 2008 14:03:00 +0000

NEW YORK, May 19 (Reuters) - Retail properties are leading a drop in U.S. commercial real estate prices, which in March posted their steepest one-month decline since at least 2000, Moody's Investors Service said on Monday.
Moody's said prices of retail properties have dropped 5.7 percent from their peak in 2007, compared with declines of 3.4 percent for apartment buildings and 2.3 percent for industrial real estate, respectively. Office property prices are down 2 percent from their peak, according to quarterly data.
On a monthly basis, commercial property prices fell 2.3 percent in March, the most since Moody's began collecting the data in 2000. Values were 2.6 percent below their October 2007 level, but still up 0.9 percent from a year ago, Moody's said, citing its commercial property price index.
Slowing U.S. economic growth and the ailing housing market have begun to take their toll on retailers.
Lowe's Cos Inc (LOW.N: Quote, Profile, Research), the second-largest home improvement chain, said on Monday its first-quarter profit declined by 18 percent and cut its sales growth forecast for 2008. Home goods retailer Linens 'n Things earlier this month filed for bankruptcy and announced plans to shutter 120 stores.
The impact of a slowing economy and forecasts of a 20 percent drop in commercial property prices from their peak by Moody's and JPMorgan Chase & Co in the first quarter led to steep price drops on securities backed by commercial real estate. However, prices on commercial mortgage-backed securities have since climbed amid expectations the selling overstated the losses that would occur.
According to property derivatives traders, average commercial property prices are set to fall by 8 to 9 percent in the next 12 months and by double that over two years. The nascent over-the-counter market follows the appraisals-based NCREIF property index, which is calculated by the National Council of Real Estate Investment Fiduciaries and is a benchmark used by U.S. pension funds.
Fitch Ratings said delinquencies on CMBS rose slightly, to 0.35 percent in April from 0.33 percent in March. Fitch said it was most concerned with retail and hotel properties even though delinquencies in those sectors decreased marginally.
At least four gaming companies with big hotels, including MGM Mirage Inc (MGM.N: Quote, Profile, Research) and Las Vegas Sands Corp (LVS.N: Quote, Profile, Research), have recently reported eroding quarterly earnings. (Reporting by Al Yoon in New York and William Kemble-Diaz in London; Editing by Dan Grebler)

Banks Writeoffs

noreply@blogger.com (chris gadula) — Tue, 20 May 2008 14:36:00 +0000

Subprime Losses Top $379 Billion on Balance-Sheet Marks: Table
By Yalman Onaran
May 19 (Bloomberg) -- The following table shows the $379 billion in asset writedowns and credit losses since the beginning of 2007, including reserves set aside for bad loans, at more than 100 of the world's biggest banks and securities firms.
The writedown column now includes asset-value reductions that some banks list on their balance sheets rather than booking the losses against earnings. Regulatory filings show $35 billion of such balance-sheet writedowns at 20 banks.
All the charges stem from the collapse of the U.S. subprime- mortgage market. The figures, from company statements and filings, also reflect some credit losses or writedowns of mortgage assets that aren't subprime, as well as charges taken on leveraged-loan commitments.
All numbers are in billions of U.S. dollars, converted at today's exchange rate if reported in another currency. They are net of financial hedges the firms used to mitigate losses. Firm Writedown Credit Loss Total
Citigroup 37.3 5.6 42.9
UBS 38.2 38.2
Merrill Lynch 37 37
HSBC 6.9 12.6 19.5
IKB Deutsche 16 16
Royal Bank of Scotland 15.2 15.2
Bank of America 9.2 5.7 14.9
Morgan Stanley 12.6 12.6
JPMorgan Chase 5.5 4.2 9.7
Credit Suisse 9.5 9.5
Washington Mutual 1.1 8 9.1
Credit Agricole 8.3 8.3
Deutsche Bank 7.7 7.7
Wachovia 4.6 2.4 7
HBOS 6.9 6.9
Bayerische Landesbank 6.7 6.7
Fortis 6.6 6.6
Societe Generale 6.3 6.3
Mizuho Financial Group 6.2 6.2
ING Groep 6 6
Barclays 5.2 5.2
WestLB 4.8 4.8
Canadian Imperial (CIBC) 4.2 4.2
LB Baden-Wuerttemberg 4 4
E*Trade 2.5 0.9 3.4
Dresdner 3.4 3.4
Natixis 3.4 3.4
Wells Fargo 0.6 2.7 3.3
Lehman Brothers 3.3 3.3
Bear Stearns 3.2 3.2
National City 0.5 2.6 3.1
Goldman Sachs 3 3
BNP Paribas 2.1 0.6 2.7
Lloyds TSB 2.7 2.7
Nomura Holdings 2.5 2.5
HSH Nordbank 2.5 2.5
ABN Amro 2.4 2.4
Bank of China 2 2
Commerzbank 1.9 1.9
Royal Bank of Canada 1.7 1.7
UniCredit 1.6 1.6
DZ Bank 1.5 1.5
Alliance & Leicester 1.4 1.4
Dexia 1.1 0.2 1.3
Caisse d'Epargne 1.2 1.2
Hypo Real Estate 1 1
Gulf International 1 1
European banks not 9.2 9.2
listed above (a)
Asian banks not 7.5 0.3 7.8
listed above (b)
North American banks 3 1.1 4.1
not listed above (c)
____ _____ _____
TOTALS* 332.3 46.9 (d) 379.2
* Totals reflect figures before rounding. Some company names have
been abbreviated for space.
(a) European banks whose losses are less than $1 billion each are in this group: Allied Irish Banks, Bradford & Bingley, Aareal Bank, Deutsche Postbank, Standard Chartered, Northern Rock, NordLB, Rabobank, HVB Group, Sachsen LB, Intesa Sanpaolo, Landesbank Hessen-Thueringen, SEB AB, Erste Bank, DnB NOR, Anglo Irish, KBC Group, LB Berlin, NIBC Holding.
(b) Asian banks with writedowns of less than $1 billion: Mitsubishi UFJ, Shinsei, Sumitomo Trust, Aozora Bank, DBS Group, Australia & New Zealand Banking Group, Abu Dhabi Commercial, Bank Hapoalim, Arab Banking Corp., Fubon Financial, Industrial & Commercial Bank of China, Citic International, BOC Hong Kong, Bank of East Asia, China Construction Bank, Sumitomo Mitsui, ICICI Bank, State Bank of India, United Overseas, Wing Lung.
(c) North American banks included in this group: Bank of Montreal, National Bank of Canada, Bank of Nova Scotia, BB&T Corp., PNC Financial Services Group, SunTrust Banks, South Financial Group, Sovereign Bancorp, First Horizon.
(d) The difference between writedown and credit loss: Investment banks and the investment-banking units of financial conglomerates mark their assets to market values, whether they're loans, securities or collateralized debt obligations, and label that a ``writedown'' when values decline. Commercial banks take charge- offs on loans that have defaulted and increase reserves for loans they expect to go bad, which they label ``credit losses.'' Commercial banks can have writedowns on holdings of bonds or CDOs as well.

noreply@blogger.com (chris gadula) — Thu, 15 May 2008 13:33:00 +0000

CAP PATES TICK UP

By Catherine Curan
The softening commercial property market contains a small silver lining for investors: Returns on investment are on the rise. Cap rates for Manhattan office properties, the annual rental income from a building divided by its purchase price, plummeted dramatically over the last six years as the market recovered from the aftermath of Sept. 11 and the economy boomed. Investors were willing to buy commercial property with skimpy returns — such as the record 2006 Istithmar purchase of 1.2 million square feet of Class A office space at 280 Park Avenue for $1.2 billion at a 3.6 percent cap rate. That was partly done on expectations that new owners could rapidly squeeze out greater income thanks to skyrocketing office rents. The credit crunch and economic slowdown are significantly lowering purchase prices for Manhattan office properties, while rents have so far stayed mostly flat. These factors are contributing to a climate of rising cap rates. Cap rates increased by 50 basis points in the second half of 2007, according to investment sales brokers and market analysts, and rates are likely to rise another 50 to 100 basis points this year. Average cap rates for Manhattan office properties ticked up slightly to 5.52 percent in the first quarter, after falling fairly steadily from 9.33 percent in early 2003, according to PriceWaterhouseCoopers Korpacz Real Estate Investor Survey. "There is no question that cap rates are higher across the board," said Dan Fasulo, managing director at Real Capital Analytics. "The market is not discriminating by property type or market. Everybody is up." Cap rates are also becoming more important, particularly for smaller deals, where margins have an even greater role in the success of a deal. That's partly because with today's credit crunch, investors have trouble getting loans based mainly on bullish rent growth projections. A deal could have had a cap of 3.5 percent in the past and debt at 6 percent and still would have gotten done. Now, however, cap rates have become more of an upfront test of a deal's viability. "In the past, a cap rate might have been an end-of-line reality check thing: 'I've got through all of this and ended up with this cap; can I live with this? If the market hears I paid 2.5 cap, will everyone laugh at me?'" said Nat Rockett, managing director at Jones Lang LaSalle. "People today are much more cap-rate oriented, much more focused on positive leverage from the get-go." While cap rates will rise, the absence of major office sales leaves a dearth of numbers to crunch to figure out where cap rates are and how much they are increasing. In mid-April, investment sales brokers and analysts were focused on the Equity Office buildings troubled magnate Harry Macklowe had for sale and what price they would fetch, since the disposition of major assets he bought last year in a highly leveraged deal would provide a new bellwether for cap rates. "We will be able to tell as soon as the Macklowe sales happen," said Robert Von Ancken, an appraiser and executive managing director with Grubb & Ellis. Despite the uncertainty, there are a few deals analysts point to as examples of the uptick in cap rates. One is the Milk Studios building at 450 West 15th Street. That sold for $160 million late last year at a 5 percent cap. When it hit the market earlier in 2007, the property was expected to sell for $200 million, which would have been a 4 percent cap rate. Another example is SL Green's $1.575 billion buy of 390 Greenwich Street last December from Citigroup, which had a cap rate of 6.3 percent. Fasulo estimated that prior to the credit crunch, this deal would have missed a 6 percent cap rate. Rising cap rates are part of an overall climate that favors cash-rich investors such as pension funds or foreign buyers. Not only are they now able to do deals, because they don't need to take on substantial debt, but higher cap rates mean the transactions generate a higher return. Sellers, though, are resisting the upward march of cap rates. "It's a silver lining for buyers, sure, but now there's a dearth of transactions because sellers don't want to hear it yet," said Craig Evans, senior managing director at Colliers. Cap rates typically rise in a recession. How far they will rise depends on how intense and prolonged the current economic downturn proves. For now, analysts expect cap rates to plateau before hitting historical levels of 7 to 9 percent. "While cap rates are certainly a little higher than they were at the top of the market, I really don't see a future environment where cap rates return to levels of the 1990s, which is significantly higher than now," said Fasulo.

CMBS Delinquencies rise slightly

noreply@blogger.com (chris gadula) — Wed, 23 Apr 2008 20:30:00 +0000

U.S. CMBS delinquencies rise slightly
By Frank Byrt
April 21, 2008
Although delinquencies on residential mortgage loans continue to skyrocket, that’s not occurring among U.S. commercial mortgage-backed securities (CMBS). Securities backed by commercial real estate loans deteriorated only modestly last month even as the real estate industry continued to struggle.According to Fitch Ratings’ CMBS delinquency index, the delinquency rate rose by three basis points, to 0.33%, in March, the second monthly increase in a row.“At this point, there is not cause for alarm,” Susan Merrick, managing director and CMBS group head, said in an interview. Although the delinquency rate is expected to rise to about 1% over the course of this year, Ms. Merrick said it will still be “just a bit above the historic average.”

Comment: This level of delinquency is surprisingly low.

There was some bad news for the CMBS market. Fitch noted an uptick in loans underlying the CMBS that are not refinancing precisely at their maturity date, thus putting them in non-performing status. The number of non-performing matured loans—that is, loans at least a year old—increased to 11.6% of the Fitch delinquency index in March, compared with 2.9% a year ago. But Ms. Merrick said the 11.6% of non-performing matured loans at the end of March “is not substantial, given the very low base it has risen from.” She said the majority of the fixed-rate non-performing matured loans pay off in full or extend their terms within 60 days of being transferred to special servicing or delinquent status. For example, of the 26 fixed-rate non-performing matured loans, with a total value of $79.5 million, at the end of January, only eight loans, comprising $26.2 million, remained in special servicing and had not refinanced by the end of March. Although more of these loans are reaching maturity without financing in place, the loans are continuing to pay off near maturity, thus avoiding default status. “Certainly there’s a lot less capital in the markets, but the loans that have matured so far have refinanced” when necessary, with capital being provided either by regional banks or insurance companies, Ms. Merrick said. Multi-family property loans made up most of the rise in the delinquency index, followed by office, retail, hotel, manufactured housing and mixed-use properties.

Comment: The state of the CMBS market gives me confidence that we will not see deterioration like that which has occurred in the residential market migrate to the Commercial Office market in any significant way. It is worth keeping a close eye on this indicator.

U.S. Commercial Real Estate Pricing Update

noreply@blogger.com (chris gadula) — Mon, 21 Apr 2008 21:38:00 +0000

U.S. commercial real estate prices rise in February - Moody's04.21.08, 12:26 PM ET

MUMBAI (Thomson Financial) - Commercial real estate prices in the united states, as measured by Moody's/REAL Commercial Property Price Indices (CPPI), rose 2.1 percent in February, offsetting most of the losses the CPPI had posted since October.
'We interpret the CPPI's increase in February as a continuation of the process of price discovery, which is likely to continue over a protracted period, possibly a few more quarters,' Moody's (nyse: MCO - news - people ) said.
Volumes may be down because prices have not yet adjusted to market conditions. For the time being, a large gap persists between what buyers are willing to pay and what sellers are willing to accept, Moody's said.
The increase in the CPPI in February places the year-over-year increase in prices for the month at 4.2 percent. The two-year change in prices was 12.9 percent for February.
Moody's continues to expect commercial property prices to fall about 15 percent to 20 percent before bottoming out, but says several forces are at work to slow down recognition of the decline in the CPPI.

Technology Blog

noreply@blogger.com (Mikael Sandblom) — Sun, 02 Mar 2008 01:58:00 +0000

Here is a link
Mikael Sandblom,is the partner in charge of technology at Space Database. His blog covers a wide range of topics. You will find topics on technology, quality, marketing as well as strategy and other ideas. Here's the link

Technology and Strategy

noreply@blogger.com (Mikael Sandblom) — Sat, 01 Mar 2008 04:16:00 +0000

Take a look at my new re-designed blog. You will find some interesting articles about:

Two articles on the CMBX index. This is a financial index that is designed to predict the performance of commercial real estate. The forecast is not good.
Some interesting evidence of the 'Long Tail' effect in market share for media on the internet. Main stream media is losing share to blogs and wiki sites.
Some thoughts on what we have learned from running our ISO Quality Control System for three years.

http://mikaelblog.spacedatabase.com/

Commercial Real Estate Market Opinion

noreply@blogger.com (chris gadula) — Tue, 18 Dec 2007 21:44:00 +0000

Illiquidity and Insolvency in the Commercial Real Estate Market
posted on: December 18, 2007 Print Email
If you haven't read Jesse Eisinger's column on the CMBS market in the latest issue of Portfolio, do check it out – it's very good. As a special bonus for Market Movers readers, I followed up with him this morning, with a question about whether the market is insolvent or "merely" illiquid. Here's my question, followed by Jesse's reply.
Q: Clearly demand for commercial mortgage-backed securities has plunged, and there's no almost no liquidity at all in the commercial-property sector. But I'm interested: do you think this is a liquidity problem or a solvency problem? Many of the office-building purchasers were happy with debt service payments greater than cashflows, on the grounds that tenants were paying below-market rates and that cashflows would improve substantially when leases expired. Do you think that such faith was misplaced? Do you think that rents will go down rather than up? And is there any evidence of that happening yet?
A: You are certainly right that for now, the commercial market is facing a liquidity problem now and not a solvency problem. Delinquencies have risen off the lows of earlier this year, but not much.
The main difference in the commercial market is that supply didn't rise as much as it did for the housing market.
So, does that mean if the liquidity panic subsides, the commercial and CMBS markets will be fine? I doubt it.
The problems with the residential market didn't start because of oversupply, but because of bad loans -- loans made to borrowers who depended on refinancing and price appreciation to afford their loan payments. The "values' in the "loan-to-value" ratios that lenders used were falsely high, in both residential and commercial. The problems in the housing market started before prices went down; all it took was for prices to flatten and the subprime borrowers who had 2/28 mortgages couldn't refinance and couldn't afford their loans. That's pretty extraordinary.
So, I foresee similar things happening in the commercial real estate market. Borrowers depended on above-normal increases -- in rents or appreciation -- to afford their loans. Values rose to nosebleed levels and lending standards dropped. Both borrowers and lenders made assumptions about future cash flows and appreciation that were unsustainable. If rents merely fail to continue to rise, many borrowers will have problems, I suspect. The Peter Cooper Village/Stuyvesant town purchase is emblematic of this since the assumptions that went into the purchase were that they would be able to wrest rent increases that were substantially above the historical norms.
Also, it's worth noting that around 80% of commercial loans were interest only in recent periods, about double from four years ago. In the first quarter, 90% were IO. So these borrowers are going to be highly vulnerable to liquidity issues. Of course, the Fed rate cuts would help in that instance, if the lending rates follow. But if the banks and CMBS investors are being hit elsewhere, perhaps they won't be interested in commercial real estate loans and securities.
Moreover, prices in commercial real estate are already falling. Brian Fitzgerald of Wachovia (WB) estimated that prices had already fallen around 5% to 10% in major markets by late fall. That will accelerate, I am guessing.

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A Real Estate Speculator Goes From Boom to Bust

noreply@blogger.com (chris gadula) — Thu, 22 Nov 2007 21:22:00 +0000

ST. CHARLES, Mo. — The home foreclosure business was very good to Todd Haupt. He started buying and flipping foreclosed houses in 1994, when he was 20, and by 2000 he graduated to building homes.

Mark Schiefelbein for The New York Times
A vacant lot in a half-completed subdivision near Troy, Mo., a suburb of St. Louis, is now owned by a bank.
At 32, with just one semester of community college, he owned a BMW, a Corvette and a 5,000-square-foot house worth $1.2 million. He was a creation of the boom. “I was on top of the world,” Mr. Haupt said recently.
Then, last May, the real estate market stopped booming.
Now Mr. Haupt’s house is in the hands of his creditors, as are the cars, three small office buildings and 89 lots he bought in a subdivision in neighboring Lincoln County.
He owes about $6 million in personal and business debt, and as Mr. Haupt’s fortunes soured, so have those of plumbers, electricians, framers, landscapers, supply stores and others that relied on his business, which he estimated at $300,000 per month.
“And that’s just little bitty me,” he said.

http://www.nytimes.com/2007/11/09/us/09speculate.html?ref=business

Falling real estate could cost up to $4 trln-NYT

noreply@blogger.com (chris gadula) — Thu, 25 Oct 2007 13:35:00 +0000

Thu 25 Oct, 2007
Reuters
NEW YORK (Reuters) – U.S. real estate wealth is expected decline anywhere from $2 trillion to $4 trillion out of a previous valuation of roughly $21 trillion when the total costs of recent credit crunch are tallied, the New York Times reported on Thursday, citing economists.
And financial firms could face aggregate losses of some $400 billion from expanding troubles related to the subprime mortgage market fallout, the paper said.
That is higher than the roughly $240 billion in financial institution losses from the savings and loan crisis of the early 1990s, adjusted for inflation, the paper said.
The losses in real estate wealth, while large, are substantially less than what investors suffered in the stock market collapse earlier this decade, which erased more than $7 trillion, or about 40 percent of market value, the paper said.
However, the recent declines are likely to have a significant impact on consumer spending, since owners will not be able to cash out as much equity from their property, the paper said.
It said the economists’ loss estimates for both real estate and financial firms are preliminary and could get much higher.
The Joint Economic Committee of Congress, in a report to be issued today, predicts about two million foreclosures by the end of next year in homes purchased with subprime loans, the paper said.
That’s much higher than the Bush Administration forecast in September of some 500,000 foreclosures, the paper said.

Social-networking mania

noreply@blogger.com (Mikael Sandblom) — Tue, 23 Oct 2007 14:11:00 +0000

Social-networking mania
from The internet
There's less to Facebook and other social networks than meets the eye

Reuters Real Estate Weekly News

noreply@blogger.com (chris gadula) — Mon, 15 Oct 2007 18:15:00 +0000

Guys, check out this reuters website once a week for great real estate news. Chris
http://www.reutersrealestate.com/monitor

noreply@blogger.com (chris gadula) — Fri, 12 Oct 2007 19:13:00 +0000

Chad/Leilani, check out this website for moves in the Toronto market that may help you with prospecting. Regards, Chris

http://gkc3.cbre.com/Search/Search.aspx

The latest in Building Measurement Technology

noreply@blogger.com (chris gadula) — Thu, 11 Oct 2007 18:04:00 +0000

http://www.givemepower.com/about/newsdetails.cfm?ArticleID=142

Treat Your Company Like A Star, Get A Widget

noreply@blogger.com (Mikael Sandblom) — Thu, 11 Oct 2007 18:02:00 +0000

Want To Be A Star? Get A Widget

In the center of GwenStefani.com is an RSS-injected calendar of the pop star's concert tour, which fans can copy to their own Web pages. The startup behind these viral marketing widgets thinks your company can rally its own fan base in the same way.