Posts Tagged ‘commercial real estate’
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 »
Thursday, August 27th, 2009
We are excited to announce that Michael Alter, president of The Alter Group, is part of an investment team that has purchased The New Republic (TNR). TNR is one of the nation’s oldest political and cultural magazines. The Obama administration has chosen it as one of the magazines placed on Air Force One, and Chief of Staff Rahm Emmanuel has said “The New Republic will be required reading in the White House.”
Michael’s status as one of the nation’s most independent and visionary commercial real estate developers and philanthropists makes him an excellent fit with TNR. Since its founding, the magazine has always been fiercely independent, going beyond the rancor of the political debate to be a voice for truth, accuracy and fairness, irrespective of political affiliation. Under Editor Frank Foer’s fiercely independent leadership, TNR has become aligned with the Obama administration and its left-wing domestic policy, while retaining its fidelity to a strong national defense. We are proud to claim as our spiritual fathers Teddy Roosevelt and Louis Brandeis.
Currently, TNR is experiencing a resurgence by focusing in-depth on critical issues such as healthcare, the environment, transportation and economic stewardship. And our staff is extraordinary. Writer Jonathan Cohn, for example, has become well known on “Colbert Nation”, “Keith Olbermann” and National Public Radio as one of the most progressive voices on healthcare reform. With TNR readership up by 30 percent within the Washington Beltway, we are implementing a new masthead to freshen our look and are unveiling a new website in the fall to draw younger readers to the magazine.
TNR was founded in 1914 by legendary journalist Walter Lippmann. During the early 20th century, the publication was the voice of liberalism and a strong opponent of McCarthyism and the Vietnam War. Over its 95-year history, TNR has published articles by such eminent authors as Virginia Woolf, Phillip Roth, George Orwell, John Dewey and Thomas Mann.
“We are proud to be taking this celebrated institution into the 21st century,” according to Alter. “We will maintain its extraordinary staff of writers and editors, but give them more resources to capitalize on the success of the website and the revamped look of the magazine.”
Well said, Michael.
Mike Rancilio is publisher of The New Republic
Tags: commercial real estate, economic development, Healthcare, healthcare reform, liberal, Michael Alter, Obama administration, political, political debate, real estate developer, The New Republic, transportation costs
Posted in General | No Comments »
Tuesday, August 18th, 2009
An interesting comment in an article that some might have missed. GlobeSt.com reports that Eastern Consolidated CEO Peter Hauspurg said “part of the whole thing that’s keeping these banks glued up with the CMBS is the fact [that] no one has been able to unravel the loans they understood when they made them.” Hauspurg noted that there are thousands of loans now clogging the banks, distracting the top officials who are all trying to make sense of them. And their complications cause new problems, he explains, “the market has the specter of commercial real state players actually throwing their own properties into default, just to get the attention of special servicers who they hope will modify their loans.”
Tags: CMBS, commercial real estate, Department of the Treasury, Eastern Consolidated, Globest.com, Peter Hauspurg, TALF
Posted in Financing, General | No Comments »
Wednesday, July 15th, 2009
Economic development organizations are stepping in to help plug the credit hole. We all know what the economy is like today, and it is unlikely that the industrial and commercial real estate markets will soon turn around. As an
economic developer, I see another side of the economy where both communities and businesses are seeking opportunities and looking at alternatives ways to secure capital.
Aside from the federal stimulus incentives, municipal, state governments and educational institutions offer a variety of incentives to encourage businesses to remain in their jurisdictions. Here’s an example:
I am currently working with a printer, a cutting-edge small business with Fortune 500 customers, to preserve more than 100 good-paying jobs in a small municipality. The company’s primary obstacle: borrowing money for new equipment and other capital improvements. The deal requires $1.5 million, all of it collateralized. Because the company was in financial straits, an angel investor recently purchased the company and is investing heavily. Even with this influx of new capital, lenders consider the company a high risk. To make the deal happen, we are using state, county and municipal revolving loan funds to underwrite $750,000 of the project to add to the $750,000 conventional bank loan. The lender has virtually no exposure and has first position on all assets, including building and land that are free and clear of debt.
A key player in putting the deal together is the Illinois Department of Commerce and Economic Opportunity’s Participation Loan Program, one of the few available state incentives until Illinois adopts a capital budget. For more information about the program, contact Stanley Luboff, Capital Programs Manager at stanley.luboff@illinois.gov.
Chris Manheim is our guest blogger. He is the President of Manheim Solutions, Inc., a consulting firm specializing in community, workforce and small business economic development programs.
Tags: bank loan, capital budget, Chris Manheim, commercial real estate, credit, debt free, economic developer, economic development, educational institutions, federal stimulus, financial straits, Fortune 500, Illinois, Illinois Department of Commerce and Economic Opportunity's, Industrial, industrial real estate, Manheim Solutions, municipal, Participation Loan Program, revolving funds, secure capital, Stanley Luboff, state government, underwrite
Posted in Development, Economics, Financing, General, Green, Healthcare, Residential, Student Housing | No Comments »
Monday, July 13th, 2009
While the commercial real estate market waits to bottom out, dozens of smaller buyers who pooled their dollars to buy office buildings during the boom may be in worse shape than large institutional investors. These tenants-
in-common (TIC) funds, which allow smaller investors to own multiple office buildings together, are facing the same issues as giant retirement funds and institutional owners – higher vacancies, falling rental rates and frozen credit markets.
Lenders are skittish about refinancing loans due on properties with multiple owners who may be unwilling or unable to add equity or pay for buildings costs, such as commissions and management expenses. This places fund owners in a tricky position.
TIC funds let up to 35 investors acquire properties they couldn’t afford independently. The mechanism also lets them defer capital gains on properties they’ve sold by rolling the proceeds into another property – known as a 1031 exchange. Careless underwriting standards and overly rosy projections failed to project that lease rates would fall while vacancy rates rose. As a result, investors expected returns that were impossible to deliver – especially in an economic downturn that has turned a once over-priced office market into a soft one with increasing vacancies that reduce cash flow.
Tags: capital gain, commercial real estate, commissions, credit market, equity, institutional investors, management expenses, refinancing loans, TIC, TIC funds, vacancy rates
Posted in Development, Economics, Financing, Office | No Comments »
Monday, July 6th, 2009
Don’t look for the country’s commercial real estate market to improve any time soon. In fact, expect it to continue to get worse for the next year or so. That was the conclusion from a panel at the National Association of Real Estate Editors journalism conference in Washington, D.C., that addressed the question: “Commercial Real Estate in the Obama Era: Next Domino to Fall?”
“The (other) shoe has dropped,” NAREIT president Steve Wechsler said of commercial real estate. While the public commercial real estate market of publicly traded REITs likely hit bottom in March, the remaining 90 percent of the market that is private won’t bottom out until next year.
The $6 trillion property market is split evenly between debt and equity, thanks to the explosion of securitization that occurred in the 10 years prior to the current credit crisis, said Chip Rodgers, Jr., a senior vice president of the Real Estate Roundtable. At the end of 2008, the commercial real estate industry had $3.5 trillion of outstanding debt. Ten years ago, the industry’s outstanding debt was $1.3 trillion.
Washington-based Real Estate Roundtable has a plan to help end the crisis that’s paralyzed practically all speculative development on the commercial side.
First, Rodgers said, the Term Asset-Backed Loan Facility (TALF) program needs to be expanded to include commercial mortgage based securities. Rodgers expects this to restart the securitization market.
Second, the United States needs to repeal or change tax laws that have curtailed foreign investment. Changing the laws will attract new capital to the market.
Also, accounting rules and regulations need to be amended to ensure they do not create “a pro-cyclical impact on credit capacity,” Rodgers said. And, banks that have existing cash flow need to be encouraged to extend loans.
The panel’s third member, Jamie Woodwell, a commercial real estate researcher at the Mortgage Bankers Association, said the current real estate recession differs from the 2001 recession. In 2001, the dot-com bust results in large amounts of office vacancies while the retail market remained relatively stable. Vacancy rates in office were closely tied to the country’s unemployment numbers.
“This time around,” Woodwell said, retail is more closely following unemployment numbers and being hit harder than the office market. “More firms still have (office) leases in place,” he said.
But things will change, Woodwell said. “Real estate is a very cyclical business, especially now.”
Our guest blogger is Tony Wilbert. He is owner of Wilbert News Strategies, a public relations firm specializing in real estate. Prior to moving into PR, Wilbert covered real estate at several newspapers and served as editor of National Real Estate Investor.
Tags: cash flow, Chip Rodgers Jr, commercial real estate, credit capacity, credit crisis, debt, dot-com bust, equity, journalism, journalism conference, Mortgage Bankers Association, NAREIT, National Association of Real Estate Editors, new capital, Obama Era, office vacancies, real estate market, real estate recession, Real Estate Roundtable, REITS, retail market, securitization market, Steve Wechsler, TALF, tax laws, Term Asset-Backed Loan Facility, unemployment, Washington DC
Posted in Development, Industrial, Office | No Comments »
Monday, June 29th, 2009
Moody’s reiterated its February analysis of CMBS loans, noting that the majority of 2006 – 2008 ratings of conduit/fusion and large-loan deals are still stable. The ratings agency warns that the assumptions hold up “as long as conditions in the commercial real estate market and the general economy do not weaken.”
Since February, “property prices have continued their march downward,” the Moody’s report notes. Moody’s envisages a peak-to-trough price slide of more than 30 percent, with cap rates trending higher over the next several quarters.
“Despite the grim prognosis for property values, it is important to repeat the point made in the February report announcing our ratings sweep: that property value is primarily a concern at loan maturity.” Because most CMBS loan maturities will occur five to six years from now, “the maturity profile of the universe of CMBS loans is relatively benign.”
If the markets remain as weak in 2016 or 2017 as they are now, obviously there would be negative rating implications for CMBS.
Tags: CMBS, CMBS loans, commercial real estate, general economy, large loans, loan maturity, Moody's report, property values, ratings agency, recovery, senior investment grade bonds
Posted in Economics, Financing | No Comments »
Monday, June 15th, 2009
Toxic commercial real estate loans could create losses up to $100 billion for small and mid-size banks by the end of 2010 if the economy worsens. According to a Wall Street Journal report – which applied the same criteria used by the federal government in its stress tests of 19 big banks — these institutions stand to lose up to $200 billion. In that worst-case scenario, 600 small and mid-sized 
banks could see their capital contract to levels that federal regulators consider troubling, possibly even surpassing revenues. These losses would exceed home loan losses, which total approximately $49 billion.
The Journal, which based its analysis on data mined from banks’ filings with the Federal Reserve, are a grim reminder that the banking industry’s troubles are not confined to the 19 giants that have already completed the Treasury Department’s stress tests. More than 8,000 lenders nationwide are feeling the dual impacts of the recession and commercial real estate slowdown.
The banks analyzed by the Journal include 940 bank-holding companies that filed financial statements with the Fed for the year ending December 31. They range from large regional banks to mom-and-pop banks in small towns, as well as American-based subsidiaries of international banks.
Smaller banks are unlikely to appeal to bargain-hunting investors who are starting to recapitalize the industry’s giants. As a result, these institutions must boost their capital by selling assets and making fewer loans – which could make the recession last even longer than anticipated.
Tags: assets, bank-holding companies, banking industry, big banks, capital, capital contract, commercial real estate, economy, Fed, federal government, federal regulators, Federl Reserve, financial statements, home loan, institutions, international banks, investors, lenders, loans, mid-size banks, recapitalize, recession, regional impact, smaller banks, stress tests, Treasury Department
Posted in Development, Economics, Financing, General, Industrial, Office | No Comments »
Wednesday, May 13th, 2009
Sovereign wealth funds (SWFs) have been closely watching the credit crisis evolve, according to a Deloitte LLP report. The good news is that they haven’t entirely lost their taste for American commercial real estate. 
Consider that two of 2008′s highest profile transactions were the Abu Dhabi Investment Authority’s $800 million acquisition of the iconic Chrysler Building and the Kuwait Investment Authority’s $3.95 billion joint venture to acquire the General Motors Building and three additional office towers.
Deloitte notes that SWFs are breaking with their “traditionally conservative, passive investment practices” to pursue interests in partnerships and joint ventures with American real estate firms and investors. “This shift to broader and more active investment relationships may require that SWFs pay greater attention to increased political, media and public scrutiny, as well as their need for greater operational transparency,” according to the report.
SWFs will stick to the playbook of acquiring trophy and other Class A assets. It’s unlikely that SWFs will focus on non-performing loans since that would require extensive involvement in the American legal system of foreclosure/bankruptcy in order to protect their rights as lenders. The relative strength of the dollar — to the extent it is an indicator of future strengthening of the U.S. economy ahead of other countries — could be considered a way to protect the risk of any further currency decline in the home currencies of the SWFs.
Tags: bankruptcy, Chrysler Building, Class A assets, commercial real estate, credit crisis, Deloitte, Deloitte LLP, foreclosure, General Moters building, GM, investors, Kuwait Investment Authority, legal system, lenders, non-performing loans, political, real estate firms, Sovereign wealth funds, SWFs, U.S. economy
Posted in Economics, Financing, General, Office | No Comments »