Posts Tagged ‘commercial real estate’
Wednesday, February 24th, 2010
Commercial real estate will begin its long-awaited recovery in late 2011 or 2012, according to the fourth-quarter Korpacz Real Estate Investor Survey, which questioned more than 100 real estate investors, including REITs, pension funds, private equity firms and insurance and mortgage companies. Confirmation is provided by a PricewaterhouseCoopers survey, which notes that Washington policymakers are increasingly tweaking the strings that impact pricing.
According to the Korpacz survey, “Rental rates will continue to decline until strong, consistent job growth resumes. With $1.4 trillion of commercial real estate debt maturing by the end of 2012, some property owners will not be able to survive the downturn. Problems related to refinancing that debt could further delay a recovery in the sector.”
Government and regulatory policy will have greater impact on pricing than occupancy levels or rents, according to Real Capital Analytics, Inc. “Policymakers control what happens to commercial mortgages in default,” Robert White, the president of Real Capital Analytics, wrote in a report. They “have encouraged loan modifications and extensions even in cases where loans are above a property’s current value. Tax policy, meanwhile, has made it easier for special servicers to negotiate with borrowers, a move meant to prevent a wave of maturity defaults and property fire sales. Keep rates low and easing restrictions on foreign capital will also influence industry prospects.” Real Capital Analytics notes that commercial mortgage-backed securities (CMBS) hold 42 percent of distressed loans; American banks 31 percent; and foreign banks 13 percent.
Tags: CMBS, commercial real estate, Pricewaterhousecoopers, Real Capital Analytics Inc, recession, recovery
Posted in Development, Industrial, Office | No Comments »
Wednesday, February 3rd, 2010
Washington, D.C. office leasing is on the upswing for the first time in a year. Not surprisingly for the District, the rise in leasing activity is driven primarily by expanding federal agencies. A study by CB Richard Ellis of fourth quarter leasing activity showed that the private sector is again leasing space they had subleased in late 2008 and early 2009, a sign that they might be on the verge of rehiring laid-off employees. According to the report, the amount of vacant space shrank 715,384 SF during the fourth quarter. That is a major change from the third quarter, when vacant space grew by 375,558 SF.
Vacancy rates reached a high of 11.8 percent last year, thanks to the region’s net loss of 24,000 jobs and new office buildings coming on line. Now, commercial real estate brokers are seeing new interest from law firms, associations and financial service firms wanting to lease space. Some are planning for future growth, while others are taking advantage of large discounts being offered to attract new tenants. “We have clients call and say maybe this is the time to go into the market and see what’s available,” said Ernie Jarvis, managing director of CB Richard Ellis’ Washington office.
Approximately 32 percent of commercial leases are with the federal government, an increase over the 21 percent reported in recent years. In normal years, the government has three of the top 10 transactions in the region; that rose to eight in 2009. These include 802,000 SF leased by the Department of Health and Human Services in Rockville, MD; 503,000 SF leased by the Drug Enforcement Administration in Pentagon City, VA; and 360,000 SF leased by the Nuclear Regulatory Commission in North Bethesda, MD.
Tags: Capital Riverfront, Cassidy & Pinkard Colliers, CB Richard Ellis, commercial real estate, Department of Health and Human Resources, Drug Enforcement Administration, NoMa, Nuclear Regulatory Commission, vacancy rates, Washington DC
Posted in Development, Office | No Comments »
Thursday, January 21st, 2010
A Federal Reserve official predicts that 2010 will see a continuing moderate economic recovery with
interest rates kept “exceptionally low” to encourage job creation. Elizabeth Duke, a Fed governor, said “In the current environment, the Federal Open Market Committee (FOMC) continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. Such policy accommodation is warranted to provide support for a return over time to more desirable levels of real activity and unemployment in the context of price stability.”
The Fed slashed interest rates to nearly zero in December 2008 in reaction to the worst recession in 70 years, and created other emergency lending facilities. Speaking to the Economic Forecast Forum in Raleigh, NC, Duke pointed out that recent data on production and spending indicate that economic activity increased at a “solid rate” during the 4th quarter of 2009.
Duke was quick to point out that credit remains tight for businesses; she believes that continued growth is dependent on additional progress in fixing financial markets and re-establishing the flow of credit to households and small businesses. The Fed will adjust policy if any changes occur in economic conditions. According to Duke, the Fed has “a wide range of tools for removing monetary policy accommodation when that becomes appropriate.”
Tags: commercial real estate, economic forecast, Elizabeth Duke, federal funds rate, Federal Open Market Committee, Federal Reserve, interest rates, price stability, unemployment
Posted in Economics, Financing | No Comments »
Wednesday, January 20th, 2010
Foreign banks, American private equity firms and a leading Chinese sovereign wealth fund have been investing in commercial real estate in the United States in the hope that interest rates stay low.
This increasing interest from investors could be a sign that the market is experiencing some stabilization. According to Bob Steers, co-chairman of Cohen & Steers, a real estate investment firm, “We believe the real story is that capital is ready to buy, even though it may not be so visible today.” As one example, the state-owned China Investment Corporation has enlisted several investment firms to identify commercial real estate opportunities in the United States.
Another sign of incipient recovery is the fact that Colony Capital won a Federal Deposit Insurance Corporation (FDIC) auction for $1 billion worth of commercial property loans previously held by banks that had failed. The transaction valued the loans at 44 cents on the dollar and is structured so the FDIC put up $136 million owns 60 percent of the equity. Los Angeles-based Colony put up $90 million for a 40 percent share. Colony’s founder, Tom Barrack, said the investment is “an implicit bet that rates stay low.”
In another example, JPMorgan Chase raised $625 million for Inland Western, which put $500 million into CMBS. The deal was significant because it closed without assistance from the Term Asset-Backed Loan Facility (TALF).
Tags: Bank of China, China Investment Corporation, CMBS, Colony Capital, commercial real estate, Federal Deposit Insurance Company, Inland Western, interest rates, private-equity firms, recession, recovery, SL Green, Sovereign wealth funds, TALF
Posted in Development, Economics, Office | No Comments »
Monday, January 18th, 2010
By 2015, green buildings could constitute approximately half of all commercial space, according to a study by Good Energies, Inc., a New York venture capital firm. Although sustainable initiatives were perceived as a niche market just 10 years ago, developers now realize that going green in new and renovation projects is not as expensive as previously thought.
According to Greg Kats, senior director of climate change for New York-based Green Energies and the study’s author, he applied the U.S. Green Building Council’s Leadership in Energy Environmental Design standards - which encompass such categories as energy and water use, site location, landscaping and proximity to mass transit and shopping - to define what qualifies as a green building. LEED certification was not required, though buildings had to adhere to the standards.
Similarly, a McGraw-Hill Construction study released last October found that the share of the green retrofit market could grow to 20 or 30 percent over the next five years. That translates to market opportunities for major projects totaling $10.1 to $15.1 billion. At present, green building practices are incorporated into five to nine percent of building retrofits. The market opportunity for major projects - those costing more than $1 million - could total as much as $2.1 to $3.7 billion a year.
“We now have a large enough, detailed enough body of data to say that the presumption is ‘why wouldn’t you do a green building?’” Kats noted. “It’s very cost-effective and it reduces risk in a number of areas including health, exposure to energy and water prices and obsolescence.”
Tags: Aria Resorts & Casino, commercial real estate, Good Energies, Green buildings, LEED, LEED standards, USGBC
Posted in Development, Green, Industrial, Office | No Comments »
Thursday, January 7th, 2010
Commercial real estate will begin its long-awaited recovery in late 2011 or 2012, according to the fourth-quarter Korpacz Real Estate Investor Survey, which questioned more than 100 real estate investors, including REITs, pension funds, private equity firms and insurance and mortgage companies. Confirmation is provided by a PricewaterhouseCoopers survey, which notes that Washington policymakers are increasingly tweaking the strings that impact pricing.
According to the Korpacz survey, “Rental rates will continue to decline until strong, consistent job growth resumes. With $1.4 trillion of commercial real estate debt maturing by the end of 2012, some property owners will not be able to survive the downturn. Problems related to refinancing that debt could further delay a recovery in the sector.”
Government and regulatory policy will have greater impact on pricing than occupancy levels or rents, according to Real Capital Analytics, Inc. “Policymakers control what happens to commercial mortgages in default,” Robert White, the president of Real Capital Analytics, wrote in a report. They “have encouraged loan modifications and extensions even in cases where loans are above a property’s current value. Tax policy, meanwhile, has made it easier for special servicers to negotiate with borrowers, a move meant to prevent a wave of maturity defaults and property fire sales. Keep rates low and easing restrictions on foreign capital will also influence industry prospects.” Real Capital Analytics notes that commercial mortgage-backed securities (CMBS) hold 42 percent of distressed loans; American banks 31 percent; and foreign banks 13 percent.
Tags: CMBS, commercial real estate, Price Waterhouse Coopers, Real Capital Analytics Inc, recession, recovery
Posted in Development, Industrial, Office | No Comments »
Tuesday, November 3rd, 2009
The Western European commercial real estate bright spot is the activity by German investors, according to the latest Global Capital Trends report from Real Capital Analytics (RCA). “In April, the Germans raised a half billion Euros — approximately $690 million - for their open-ended funds. That is in addition to the billion Euros raised in the first quarter,” says Robert M. White, Jr., RCA’s founder and president. Although that fund-raising mechanism is “kind of unique” to Germany, White adds that it doesn’t differ a lot from the non-traded REITs that have amassed capital from retail investors. “We’re definitely seeing more capital raised, and it’s not institutional,” he says. “It’s definitely the mom-and-pop, entrepreneurial type of investors capitalizing some of these deals.”
German investors have gravitated toward quality rather than distress. And they aren’t the only ones who have been active lately in cross-border transactions. White points out recent Saudi activity in London as a case in point of renewed sovereign wealth fund (SWF) investment. “There are a lot of foreign investors eyeing the U.S., but they tend not to be the first movers,” he says. White predicts that overseas buyers will be a major part of the recovery here, “but not the leading wave.”
SWFs are known to be extremely conservative in their investment philosophy and likely will stick with acquiring trophy and other Class A assets.
Tags: capital, Class A assets, commercial real estate, Global Capital Trends, Real Capital Analytics, REITS, sovereign wealth
Posted in Economics, Financing, Office | No Comments »
Wednesday, September 30th, 2009
The Treasury Department has issued new tax rules that make it easier for commercial real estate owners to restructure loans on distressed properties that were package by Wall Street and sold as CMBS. The real estate industry, which lobbied hard for the changed rules, were generally happy but wary that it could open a can of worms for securities servicers who might feel pressured by borrowers and competing investor classes.
This is the initial phase of “additional guidance” the Treasury is considering to prevent what could be a commercial real estate crisis as more than $150 billion of loans bundled into CMBS come due between now and 2012. With financing still limited and as the values of commercial properties decline, some owners will find it tricky to refinance maturing debt.
Tax rules previously made it difficult for borrowers who are up-to-date on their payments to talk with bond servicers about restructuring their loans. The new guidance from Treasury clearly allows discussions about reducing the interest rate or extending the loan term, stating that such talks “may occur at any time” without tax consequences. Additionally, the guidance lets servicers modify loans no matter when they mature. The servicer only has to believe that there is “a significant risk of default”, even if the loan is currently performing.
“A stalemate now exists on CMBS loans that are not currently in default but need modification,” said Jeffrey DeBoer, chief executive of the Real Estate Roundtable. “Today’s announcement should help break the stalemate.”
Tags: CMBS, commercial properties, commercial real estate, distressed property, Financing, IRS, loan, Treasury Department
Posted in Development, Financing | No Comments »
Wednesday, September 23rd, 2009
Commercial real estate investors are taking a wait-and-see attitude before jumping in and buying distressed assets, according to an Ernst & Young study. “We haven’t seen many portfolio transactions so far,” says the study’s author, Chris Seyfarth, who is national director of E&Y’s non-performing loans. “Given the size and the magnitude of the 
problem with banks, I think the expectation is that at some point we’ll start seeing sizable portfolio transactions.”
According to the E&Y study, 53 percent of respondents have purchased distressed or non-performing loans in the last 18 months. Another 45 percent believe it is too early to even think of buying non-performing loans. Distressed assets are “piling up faster than they’re being resolved,” Seyfarth says. “The broad view is that commercial real estate assets are getting worse, not better, and that’s going to impact financial institutions. The issue is that the price expectations are different between the two players, and in some cases significantly different.”
Only 35 percent of those investors claim to have return requirements above 20 percent, and an equal number actually are shooting for returns in the 10 percent to 15 percent range,” Seyfarth concludes. Once the anticipated tsunami of distressed assets his the market, it could be met with a rush of pent-up capital, all trying to get the best deals at the same time - which may, ironically, further cushion price declines, resulting in a more competitive investment market.
News about the spike in housing starts and the buoyancy of the stock market, which has recaptured $3 billion in value in just a few months, suggests that the recession has at least stabilized and economic recovery is near. This should encourage increased liquidity in the credit markets, eventually supporting the commercial real estate investment market.
Tags: banks, commercial real estate, credit market, distressed assets, economic recovery, Ernst Young, financial institutions, housing market, non-performing loans, recession, stock market
Posted in Economics, Financing | No Comments »
Wednesday, September 16th, 2009
Eleven of the 12 regional Federal Reserve banks showed signs of a stabilizing or improving economy during July and August, according to the Fed’s latest Beige Book report. The Beige Book’s anecdotal evidence found that the nation’s worst recession in 70 years is coming to an end. The Fed expects the economy to grow by three or four percent in the fourth quarter of 2009. That stands in sharp contrast to the one percent decline from April through June, and the 6.4 percent contraction during the first quarter of the year.
In the latest survey, the Dallas region reported that economic activity had “firmed”. The Fed regions of Boston, Cleveland, Philadelphia, Richmond and San Francisco reported “signs of improvement.” In Atlanta, Chicago, Kansas City, Minneapolis and New York, the Fed reported activity as “stable or showing signs of stabilization. The St. Louis region was the exception, where the contraction’s pace “appeared to be moderating.”
“We are slowly on the road to recovery,” former Fed Governor Robert Heller told Bloomberg Television. The Beige Book “confirms that we have turned the corner.”
Despite the Beige Book’s declaration that stabilization is occurring, it still found weakness in the commercial real estate market where little new construction is underway. According to the report, “Several participants noted that banks still faced a sizable risk of additional credit losses and that many small and medium-sized banks were vulnerable to deteriorating performance of commercial real estate loans.”
Tags: banks, Beige Book, commercial real estate, credit crisis, economy, Federal Reserve Bank, loans, recession, recovery, stabilization
Posted in Economics | No Comments »