Posts Tagged ‘recovery’
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, 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 »
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 »
Monday, September 28th, 2009
The recent upward trend of the stock market has led investment experts to believe that the Dow Jones Industrial Average will soon pass the 10,000 mark for the first time in a year.
Craig Peckham, equity trading strategist at Jeffries & Co., and Michael Cuggino, president and portfolio manager at Permanent Portfolio Funds, believe it will happen sooner rather than later.
“I think we’ll see [10,000] before the end of the year,” Cuggino told CNBC. “We’re going to continue to see momentum in earnings growth in the third and fourth quarters and that’s going to propel stocks further.”
Cuggino said the markets may be in for a wild ride but they have come a long way in 2009, but he believes economic trends are “ones of growth” and will rally the markets.
Peckham believes the Dow will reach 10,000 in a few weeks.
“My bigger question is that when we will see earnings results in the third quarter — the bar has been raised pretty dramatically and the expectation is for a much more significant improvement in the topline from corporate America,” Peckham said. “So it’s imperative that we have a real good sense of where expectations lie going into the third quarter, relative to stock prices.”
The harder question is when we will see the buoyant stock market and recuperating earnings affect the labor market. This is the real indication of recovery.
Tags: Dow Jones Industrial, economic forecast, labor market, recovery, stock market
Posted in Economics | 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 »
Monday, August 24th, 2009
Container trade is entering rough waters, despite the strength of global supply chains and China’s status as the world’s factory. According to AXS Alphaliner, a container shipping information service, 15 percent of shipping capacity will be idle by October — thanks primarily to the recession.
Shipping companies that link Asian workshops with American retailers are forecast to lose about $20 billion this year after earning $5 billion in profits last year. Drewry Shipping Consultants 
reports that the reason is a $55 billion shortfall in expected revenues, only partly balanced by savings from lay-ups, slow-steaming to conserve fuel and opting for the longer but less expensive trip around the Cape of Good Hope to avoid using the costly Suez Canal. The canal is facing a 14 percent decline in revenues this year.
Container rates have fallen from last summer when it cost $1,400 to move a container from China to Europe. Today, shipping that same container costs just $400. Chang Yung Fa, head of Taiwan-based Evergreen, the world’s fourth largest container company, says there is over capacity. In addition to dropping plans to order new ships, he is getting rid of some of his 176-ship fleet.
Container shipping’s grim outlook reflects a deeper concern than the recession. Containerization encouraged globalization by cutting the cost of shipping goods so deeply that manufacturers could find the lowest-cost factories possible - no matter the location. In response, the amount of sea transport soared. The concern with over capacity is overstated, I believe. Recent economic news, heralded by Alan Greenspan, show that inventory levels have been eroded because of the cut in production. While the recovery will be slow, the rebound in the equity markets will boost consumer spending which will affect trade. While we are sure to see more efficient supply chains, distribution is poised for a comeback.
Tags: Alan Greenspan, American retailer, container company, container rates, globalization, recession, recovery, shipping goods, trade
Posted in Development, Industrial | 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 »
Wednesday, June 24th, 2009
Slowly advancing first-quarter sales may not make this the right time to pop the champagne corks-though it does represent a plateau compared with the previous quarter and suggests that the bottom may be in sight. This update comes from Real Capital Analytics (RCA), which warns that “there is no recovery in sight”.
In its June Global Capital Trends, RCA notes that property sales in the Americas totaled an estimated $8 billion during the second quarter, down just six percent from the first quarter, an 83 percent drop 
compared with last year. Second-quarter totals for EMEA markets are down 24 percent from the first quarter to just $17.3 billion, a 71 percent drop from 2008. The good news is in the Asia Pacific markets, where RCA projects an 18 percent gain over the first quarter with a total of $23.3 billion in sales, approximately half of the second-quarter worldwide numbers.
According to Robert M. White, Jr., RCA’s founder and president, “We’re probably at the bottom “in terms of transaction activity. Globally, the upturn will be sporadic. “If anything, the downturn was correlated more closely across property rates and geographic regions than the recovery will be. Activity in Europe is growing, especially in the U.K. And there is a buzz in the U.S., too. In the past few weeks, we’ve seen more and larger deals. I wouldn’t say it’s a quick rebound, but frankly I don’t think volume could sink any lower in the U.S.”
Pricing may be a different story, White cautions. “We may already be there, but none of it will be realized until these distressed deals close. We can look forward to move activity” in the fall and through year’s end.
Tags: Asia Pacific, China, Eastern Europe, EMEA markets, Europe, geographic regions, Global Capital Trends, globally, Japan, property sales, RCA, Real Capital Analytics, recovery, sales, UK, United Kingdom, US, Western Europe
Posted in Economics, Financing, Office | No Comments »
Tuesday, February 17th, 2009
The economic forecast for 2009 is bleak, although it’s possible that recovery will begin mid-year. This is the opinion of William Strauss and Rick Mattoon, senior economists with the Federal Reserve Bank of Chicago. “We are predicting that 2008 will yield real GDP of 0.2 percent and that 2009 will be 0.7 percent,” Strauss said. “This will be the slowest two-year growth period since 1981 – 1982, an 18-month recession that will be deeper than the 2000 and 1990 – 1991 recessions.”
Although some economists believe that the unemployment rate will hit double digits this year, Strauss and Mattoon optimistically predict that it will level off at approximately nine percent. Real income growth will be flat, and might even decline. The key to recovery is a thaw in the credit markets so that their performance improves.
Trade is holding its own; exports are still in positive territory. Strauss warns, however, that exports can’t be relied upon to drive to the economy, because the global recession means that foreign buyers will purchase less than they previously did.
Given their relative optimism, I wonder if Strauss and Mattoon agree with President Obama, who warned that failure to pass his $800 billion economic recovery package “could turn a crisis into a catastrophe”? Considering the bad review that Wall Street gave to Treasury Secretary Geithner’s preliminary plans for the use of the remaining $350 million of TARP money, it will be interesting to see how the markets react to the House-Senate conference committee’s compromise bill.
Tags: Chicago, credit market, economic forecast, exports, Federal Reserve Bank, foreign buyers, global recession, House-Senate conference committee, President O, recovery, TARP money, unemployment rate
Posted in Economics | No Comments »
Tuesday, December 30th, 2008
The Federal Reserve is pulling out most - if not all — of the stops to thaw credit. The central bank has cut its federal funds rate for overnight borrowing to just 0.25 percent, the lowest level ever. But the move is likely too little, too late because the problem is not the lack of capital — but a lack of confidence. Marginal rate cuts won’t help commercial real estate. Rather, the buy-back of real estate securities and extending credit are needed to fuel recovery.
The Fed’s Open Market Committee had been expected to cut the fed funds rate to 0.50 percent, so the drop was a bit of a surprise. “The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability,” the statement said. Possibilities are the ongoing purchase of agency debt and mortgage-backed securities, as well as the “potential benefits of purchasing longer-term Treasury securities.”
http://www.nytimes.com/2008/12/17/business/economy/17fed.html
Tags: central bank, commercial real estate, Fed's Open Market Committee, federal funds rate, Federal Reserve, marginal rate cuts, mortgage-backed securities, real estate securities, recovery, sustainable economic growth, Treasury securities
Posted in Economics | No Comments »