CommercialWatch

Leased Another One! Art Nadel's Office Has Gone To The Dogs!

2010-07-09T07:24:00.001-04:00

Glad to have been a part of this deal. Welcome Southeastern Guidedogs!

Nadel's Sarasota office going to a good cause

Published: Friday, July 9, 2010 at 1:00 a.m.
A building once stigmatized by a rip-off artist who steered investors down blind alleys will soon be redeemed as a training ground for seeing-eye dogs guiding the handicapped to self-sufficiency.
The building on Main Street in Sarasota, just east of Orange Avenue, has been vacant since shortly after Arthur G. Nadel fled town in January 2009 when federal officials became aware of his nearly $400 million Ponzi scheme. Nadel has since pleaded guilty and awaits sentencing.
In a nearly surreal twist, Nadel's firm, which made its profits illegally, is being replaced as the building's tenant by the nonprofit Southeastern Guide Dogs, a Palmetto charity expanding to Sarasota.
Set to open in September, the 3,700-square-foot offices will be used as a hub for training guide dogs and their legally blind masters in an urban setting. Monthly "puppy hugging" hours and a gift shop featuring a newly designed line of merchandise are part of the charity's plan to tap into the upscale Sarasota market.
The irony of putting a "kid-friendly use" in Scoop Management's former offices was not lost on Eric Massey, one of the commercial brokers on the deal.
He described the guide dog company as "a user that potentially could lift some of what I call negative energy from those offices."
That is probably a good bet. We are talking, after all, about an organization that has a "puppy cam" on its website and that collects funds to provide returning veterans with guide dogs.
The building at 1618 Main Street is owned by Westlake 407 Properties, which commercial broker Anthony Migliore described as family owned, with family members living in Sarasota and Arizona. Westlake also owns the adjacent parking lot at the corner of Orange and Main, a rare amenity for a Main Street business.
The building's karma did not affect interest from potential tenants, said Migliore, who acknowledged taking some ribbing from associates wondering if there was money hidden in the walls.
There was not, he said.
"We had multiple offers on that property," Migliore said. The owners "like the cause of the guide dogs."

LEASED ANOTHER ONE! 999 Cattlemen Road.

2010-04-11T11:13:00.001-04:00

This one was a double header: I sold this unit at 999 Cattlemen Road (Unit A) week prior to an investor and put a new tenant in the space on Friday for three years. Congratulations to Dance Artistry, Inc. on their new 2,280SF home. They look to be open on approximately July 1, so feel free to pay them a visit. The location is perfect for them - lots of glass and an endcap unit. Thank you!

Look For Interest Rate Increases

2010-04-11T11:07:00.001-04:00

Direct link at end of article.

Consumers in U.S. Face the End of an Era of Cheap Credit
By NELSON D. SCHWARTZ

Even as prospects for the American economy brighten, consumers are about to face a new financial burden: a sustained period of rising interest rates.

That, economists say, is the inevitable outcome of the nation’s ballooning debt and the renewed prospect of inflation as the economy recovers from the depths of the recent recession.

The shift is sure to come as a shock to consumers whose spending habits were shaped by a historic 30-year decline in the cost of borrowing.

“Americans have assumed the roller coaster goes one way,” said Bill Gross, whose investment firm, Pimco, has taken part in a broad sell-off of government debt, which has pushed up interest rates. “It’s been a great thrill as rates descended, but now we face an extended climb.”

The impact of higher rates is likely to be felt first in the housing market, which has only recently begun to rebound from a deep slump. The rate for a 30-year fixed rate mortgage has risen half a point since December, hitting 5.31 last week, the highest level since last summer.

Along with the sell-off in bonds, the Federal Reserve has halted its emergency $1.25 trillion program to buy mortgage debt, placing even more upward pressure on rates.

“Mortgage rates are unlikely to go lower than they are now, and if they go higher, we’re likely to see a reversal of the gains in the housing market,” said Christopher J. Mayer, a professor of finance and economics at Columbia Business School. “It’s a really big risk.”

Each increase of 1 percentage point in rates adds as much as 19 percent to the total cost of a home, according to Mr. Mayer.

The Mortgage Bankers Association expects the rise to continue, with the 30-year mortgage rate going to 5.5 percent by late summer and as high as 6 percent by the end of the year.

Another area in which higher rates are likely to affect consumers is credit card use. And last week, the Federal Reserve reported that the average interest rate on credit cards reached 14.26 percent in February, the highest since 2001. That is up from 12.03 percent when rates bottomed in the fourth quarter of 2008 — a jump that amounts to about $200 a year in additional interest payments for the typical American household.

With losses from credit card defaults rising and with capital to back credit cards harder to come by, issuers are likely to increase rates to 16 or 17 percent by the fall, according to Dennis Moroney, a research director at the TowerGroup, a financial research company.

“The banks don’t have a lot of pricing options,” Mr. Moroney said. “They’re targeting people who carry a balance from month to month.”

Similarly, many car loans have already become significantly more expensive, with rates at auto finance companies rising to 4.72 percent in February from 3.26 percent in December, according to the Federal Reserve.

Washington, too, is expecting to have to pay more to borrow the money it needs for programs. The Office of Management and Budget expects the rate on the benchmark 10-year United States Treasury note to remain close to 3.9 percent for the rest of the year, but then rise to 4.5 percent in 2011 and 5 percent in 2012.

The run-up in rates is quickening as investors steer more of their money away from bonds and as Washington unplugs the economic life support programs that kept rates low through the financial crisis. Mortgage rates and car loans are linked to the yield on long-term bonds.

Besides the inflation fears set off by the strengthening economy, Mr. Gross said he was also wary of Treasury bonds because he feared the burgeoning supply of new debt issued to finance the government’s huge budget deficits would overwhelm demand, driving interest rates higher.

Nine months ago, United States government debt accounted for half of the assets in Mr. Gross’s flagship fund, Pimco Total Return. That has shrunk to 30 percent now — the lowest ever in the fund’s 23-year history — as Mr. Gross has sold American bonds in favor of debt from Europe, particularly Germany, as well as from developing countries like Brazil.

Last week, the yield on the benchmark 10-year Treasury note briefly crossed the psychologically important threshold of 4 percent, as the Treasury auctioned off $82 billion in new debt. That is nearly twice as much as the government paid in the fall of 2008, when investors sought out ultrasafe assets like Treasury securities after the collapse of Lehman Brothers and the beginning of the credit crisis.

Though still very low by historical standards, the rise of bond yields since then is reversing a decline that began in 1981, when 10-year note yields reached nearly 16 percent.

From that peak, steadily dropping interest rates have fed a three-decade lending boom, during which American consumers borrowed more and more but managed to hold down the portion of their income devoted to paying off loans.

Indeed, total household debt is now nine times what it was in 1981 — rising twice as fast as disposable income over the same period — yet the portion of disposable income that goes toward covering that debt has budged only slightly, increasing to 12.6 percent from 10.7 percent.

Household debt has been dropping for the last two years as recession-battered consumers cut back on borrowing, but at $13.5 trillion, it still exceeds disposable income by $2.5 trillion.

The long decline in rates also helped prop up the stock market; lower rates for investments like bonds make stocks more attractive.

That tailwind, which prevented even worse economic pain during the recession, has ceased, according to interviews with economists, analysts and money managers.

“We’ve had almost a 30-year rally,” said David Wyss, chief economist for Standard & Poor’s. “That’s come to an end.”

Just as significant as the bottom-line impact will be the psychological fallout from not being able to buy more while paying less — an unusual state of affairs that made consumer spending the most important measure of economic health.

“We’ve gotten spoiled by the idea that interest rates will stay in the low single-digits forever,” said Jim Caron, an interest rate strategist with Morgan Stanley. “We’ve also had a generation of consumers and investors get used to low rates.”

For young home buyers today considering 30-year mortgages with a rate of just over 5 percent, it might be hard to conceive of a time like October 1981, when mortgage rates peaked at 18.2 percent. That meant monthly payments of $1,523 then compared with $556 now for a $100,000 loan.

No one expects rates to return to anything resembling 1981 levels. Still, for much of Wall Street, the question is not whether rates will go up, but rather by how much.

Some firms, like Morgan Stanley, are predicting that rates could rise by a percentage point and a half by the end of the year. Others, like JPMorgan Chase are forecasting a more modest half-point jump.

But the consensus is clear, according to Terrence M. Belton, global head of fixed-income strategy for J. P. Morgan Securities. “Everyone knows that rates will eventually go higher,” he said. LINK

Volume of CMBS Delinquent Loans Climbs

2010-04-02T07:12:00.000-04:00

We're not anywhere near out of the woods yet but it seems all these assets we anticipated to come to market are finally doing so (or are at least well on their way). There is a lot of money sloshing around out there, and buyers eager for aggressively priced (read: discounted) prime bank assets. Once we can get these assets on the market and into the hands of people who will capitalize upon them, I think we'll all be better off. For me this is some of the best opportunity I've seen since I started selling commercial real estate. Bring it on!

Volume of CMBS Delinquent Loans Climbs to $47.8B in February
Mar 29, 2010 - CRE News

Another $1.9 billion of CMBS loans became delinquent in February, bringing the total volume of delinquent loans to $47.8 billion, or 6% of the total universe tracked by Realpoint.

That compares with a rate of 5.76% a month earlier. If you exclude agency loans and those that are less than a year old, the delinquency rate in February was 6.32%.

Delinquencies will continue to increase. That's indicated by the $76.13 billion of loans that are in the hands of special servicers. While not all of those are delinquent, they're all at high risk of becoming late. Realpoint classifies loans as being delinquent when they're more than 30-days late.

To that end, Realpoint has updated its projection for delinquencies and now expects them to hit as high as 12% of the CMBS universe by the end of the year under a heavily stressed scenario. It expects delinquencies to be between 8% and 9% by mid-year. The $3 billion of financing on Manhattan's Stuyvesant Town/Peter Cooper Village apartment complex was not deemed delinquent as of the end of February, but did not make its March payment. So next month's delinquent-loan tally will be bolstered by at least $3 billion.

In a change from recent months, the Horsham, PA, rating agency saw a decline in the volume of loans classified as 30-days late. In February, $6.8 billion of loans were in that bucket, down from $7.7 billion a month earlier. The 60-day bucket also saw a decline, although not as pronounced, to $4.7 billion from $4.8 billion.

All other delinquency categories saw an increase in volume, with the 90-day bucket growing the most, to $25.9 billion from $23.8 billion. Many loans sit in that category for substantial periods of time as their workout or foreclosure strategies are ironed out. An example is the $4.1 billion of debt on the Extended Stay Hotels chain. It became delinquent last November, so its more than 90-days late. And it will stay that way as the hotel company gets recapitalized.

The delinquency rate for securitized hotel loans was 10.2% last month, up from 9.5% in January. Apartment loans have a 7.04% delinquency rate, up from 7%, and retail loans a 5.4% rate, unchanged from a month ago. The office delinquency rate, which has remained lower than that for the other major sectors, punched through the 4% market in February, to 4.2%, from 3.7% in January.

A total of $461.8 million of loans were liquidated during February, marking the third straight month during which more than $300 million were eliminated. Of the total, $222.2 million were resolved with little loss. Most of those were refinanced after their maturity date.

The best example of that was the $165 million of debt on 63 Madison Ave., a 797,377-square-foot office building in the midtown south area of Manhattan. The loan had matured in January.

A $105 million piece of the debt was securitized through COMM, 2005-LNP5, and the remainder through GE Commercial Mortgage Corp., 2005-C1. The loan was refinanced after its maturity date with a $150 million mortgage from Bank of China. The remaining $15 million was raised by the building's owner, George Comfort & Sons, by tapping a $15 million letter of credit that a tenant at the building used to guarantee its lease.

That resolution resulted in a loss of 1% to the deals that owned the matured debt.

Meanwhile, 44 loans with a balance of $239.6 million were resolved with losses that averaged 64.7% of their balance.

The largest of those had a $42.5 million balance and was backed by 1650 Arch St., a 553,349-sf office building in downtown Philadelphia that is owned by Behringer Harvard. The Dallas investment manager bought the loan, which was securitized through Credit Suisse First Boston Mortgage Securities Corp., 2002-CKS4, at a discount to its face value. The loan's resolution resulted in a loss of $9.5 million to the CKS4 deal.

SOLD ANOTHER ONE! FORECLOSURE AT 999 CATTLEMEN RD

2010-03-31T08:00:00.001-04:00

This bank owned asset took less than 3 weeks to sell from the time it hit the market. Deal was all cash and sold for $73.10 per square foot. Congratulations to the new buyer.

Good marketing = results!

LEASED ANOTHER ONE! 8,600SF.

2010-03-31T07:55:00.001-04:00

Many congratulations to the new tenants at 5745 and 5755 N Washington Boulevard. I leased out this 8,600SF building to two tenants within a week. Save Our Homes, LLC took the right side (approximately 3,500 sf) and Coastal Granite took the remaining space.

SOLD ANOTHER ONE! Foreclosure Goes for $51ft

2010-03-31T07:41:00.000-04:00

I sold this 3,180SF industrial condo at 752 Commerce Drive in Venice on 2/26/10. The buyer was all cash and it closed in less than two weeks. Value was approximately $51 per rentable square foot. It took me nearly 9 months to move it, too.

Latest Office Vacancy Report, Sarasota County

2010-01-19T17:42:00.000-05:00

The numbers are in for December. Downtown vacancy edged up, University Parkway vacancy is down and the rest appear stagnant. Overall vacancy is 19.15%.

Herewith the numbers:

Downtown Sarasota: 13.74% +
University Parkway Area: 18.22% -
I-75 Fruitville South to Clark: 21.27% (N/C)
Venice: 22.03% (N/C)
North Port: 37.28% (N/C)
Suburban & South Trail: 27.84% (N/C)

Source: Sarasota EDC

In 2010, Will Investors Who Hesitate Be Lost?

2010-01-18T08:56:00.000-05:00

Good question.

None of us has a crystal ball, so it's tough to really determine if this is the case. Judging by my own experience, there are some fairly nice deals out there if you have access to money and are willing to keep the property until things recover. The problem with all of this is, without a good ability to predict what's going to happen, are these deals looking good because we're looking through the glass at prices now vs. 2006, or prices now vs. 2001? As I've stated before, I don't think certain assets can get any cheaper (while some certainly can). Seems as if my phone rings more with potential buyers as of late than potential tenants - something I haven't experienced since 2007. The banks I deal with on REO properties are behaving a little more proactively now than at this same time last year. One thing's for sure: we will not know when the bottom is here. THIS GUY (link) seems to think those who "overwait" the market for markedly lower prices than we have now will be sorely disappointed and miss the boat. I tend to agree.

From National Real Estate Investor (link at bottom of article).

In 2010, Will Investors Who Hesitate Be Lost?

Nov 1, 2009 12:00 PM, Sibley Fleming

While German and Chinese investors are already buying assets at discounted prices, many domestic investors are hoping to time the market to pick up even better deals.

With some $1.5 trillion in commercial mortgage debt expected to mature over the next three years and only $300 billion in equity sitting on the sidelines, more distress is imminent, according to Jeffrey Rogers, president and chief operating officer of New York-based valuation and consulting firm Integra Realty Resources.

Integra's clients include pension funds such as the California Public Employees' Retirement System, and investment banks like Goldman Sachs and Morgan Stanley.

“Whenever you're in that type of environment, where you don't have the liquidity to take out the mortgage debt, prices come down,” he explains.

The imbalance should result in a further decline in commercial real estate valuations. Over the next six months, Rogers predicts that property values will decline another 4% to 9%, on top of the 39% drop that's already occured since the peak in December 2007.

Currently, 48% of Integra's valuation assignments involve distressed assets, defined as real estate owned (REO), short sales, assets refinanced with an equity infusion, failed bank assets, assets resulting from bankruptcy, and assets with significant deterioration in operating income.
Real-life scenario

What will bring more distress to market? Rogers offers up this example: An investor acquired an office building in New York at the peak of pricing two years ago and didn't sign a personal guarantee. The property is underwater and its loan matures at the end of the year, but the bank is willing to extend.

Here's the sticking point: Although the property is 95% leased, a single tenant occupying 15% of the space is coming up for renewal at year's end. The big tenant says he'll leave unless the owner provides $2 million in tenant improvements.

“As an owner, am I going to put that money into an asset that I am under water on and having to extend my loan? No, I'm not going to do it,” Rogers maintains. “With my $2 million I'm going to go and buy a distressed asset and just write off whatever equity I have in that property.”

At this point the bank will have to decide whether to let the asset deteriorate further, to become an equity investor and retain the tenant, or to simply take the asset back and try to sell it. “This has already started to happen,” Rogers observes, “and is really at the crux of starting to get these defaults rolling.” Read more.

2009 Retail Sales Down 6.2%, Highest Since 1992

2010-01-14T14:56:00.008-05:00

Considering this news, I would expect to see more store closings, more layoffs and more vacant retail space in the coming months. 2008 wasn't nearly as bad and we saw quite a few retailers go under in 2009, namely Waldenbooks, Circuit City and Boater's World.

WASHINGTON (AP) -- Retail sales fell in December as demand for autos, clothing and appliances all slipped, a disappointing finish to a year in which sales had the largest drop on record.

The weakness in consumer demand highlighted the formidable hurdles facing the economy as it struggles to recover from the deepest recession in seven decades.

The Commerce Department said Thursday that retail sales declined 0.3 percent in December compared with November, much weaker than the 0.5 percent rise that economists had been expecting. Excluding autos, sales dropped by 0.2 percent, also weaker than the 0.3 percent rise analyst had forecast.

For the year, sales fell 6.2 percent, the biggest decline on records that go back to 1992. The only other year that annual sales fell was in 2008, when they slipped by 0.5 percent.

The 0.3 percent decline in December was the first setback since September, when sales had fallen 2 percent. Sales posted strong gains of 1.2 percent in October and 1.8 percent in November, raising hopes that the consumer is starting to mount a comeback.

Consumer spending is considered critical to any sustained economic revival since consumer spending accounts for 70 percent of total economic activity.

The December drop in sales was a surprise given that the nation's big retailers had reported better-than-expected results last week, reflecting a surge of last-minute holiday shopping. But even with the rebound reported by the nation's biggest chains, these retailers suffered their worst annual performance in more than four decades in 2008, according to data from the International Council of Shopping Centers.

The 6.2 percent fall in the government's retail sales figure is only the second decline on records that go back to 1992. In all other years, even during previous recessions, retail sales, which are not adjusted for inflation, have managed to increase.

For December, sales of autos dropped by 0.8 percent following a 1.2 percent rise in November.

Sales at specialty clothing stores fell by 0.6 percent while sales at general merchandise stores, a category that includes big retailers such as Wal-Mart, were down by 0.8 percent while sales at department stores were flat.

Sales at electronics and appliance stores dropped by 2.6 percent and sales at hardware stores dropped by 0.4 percent.

The weakness over the year reflected the battering that consumers have taken from the worst recession since the Great Depression, a downturn that has cost 7.2 million jobs and left households trying to rebuild savings depleted by losses on Wall Street and a crash in housing prices.

Economists are worried about consumer spending in the months ahead given their forecasts that unemployment, currently at 10 percent, will keep rising until perhaps midyear.

The overall economy, as measured by the gross domestic product, grew at an annual rate of 2.2 percent in the July-September quarter and many economists believe that growth strengthened even further in the final three months of last year. However, the worry is that GDP will slow significantly in the early part of 2010 unless consumers continue to spend.

For December, a diverse group of retailers including Costco Wholesale Corp., Target Corp., Macy's Inc. and TJX all reported increases. Luxury stores like Saks Inc. and Nordstrom also saw strong December sales gains and even Sears Holdings posted a small gain on rising sales at its Kmart chain.

Also helping to support retail spending in December was a hint of better days ahead for the battered auto industry. Automakers in the United States ended their worst year in almost three decades in December with slight improvements, led by gains in sales of small cars.

READ MORE

Tough Times For Commercial Real Estate

2010-01-04T06:37:00.007-05:00

Our local newspaper is figuring out what many of us have known for a while: the local commercial real estate market is pretty bleak. But that all depends on which side of the fence you're on. Interestingly, 2009 for me was a fairly busy one, with nearly all of my deals occurring on the leasing side. Last year I saw a lot of relocation...basically people moving from one leased space to another because of more favorable rents and aggressive tenant incentives. I did not see all that many startups, though. I do agree (as I had stated in this 12/19/09 post), GDP and employment will lead the way out of the recession. For the most part, however, asking rents are still way too high in some parts of town to attract new startups in such a tough economy. One thing's for sure, landlords who don't have particularly attractive or strategic locations, and who refuse to get aggressive are going to end up getting steamrolled. Story link below (Sarasota Herald).

Tough times for commercial real estate

By KEVIN L. McQUAID

Published: Monday, January 4, 2010 at 1:00 a.m.

To borrow a biblical expression, it may be easier these days to pass a camel through the eye of a needle than it is to get a commercial real estate loan.

Despite federal bail-out money intended to stimulate lending, loans for investment in office buildings, shopping centers, industrial sites and raw land are increasingly rare, the result of falling values and other factors.

Commercial property owners and mortgage brokers say the lack of capital also stems, in part, from new federal regulations intended to staunch foreclosures and halt the aggressive lending practices of the early 2000s.

"It's ironic that the federal government put all the stimulus money into banks, while another branch of the government is over-regulating capital reserve requirements on banks," said Brett Hutchens, chief executive officer of Casto Lifestyle Properties, a Sarasota development firm that owns shopping and lifestyle centers nationwide.

"The same government is providing both the carrot and the stick to lenders," Hutchens said. "It's created gridlock and made lending and borrowing very, very difficult."

"It's a Catch-22 the government has imposed," said N.J. Olivieri, president and owner of Sarasota-based Horizon Mortgage Corp. "They tell the banks to make loans but then tell the FDIC to tighten the restrictions on new lending."

New regulations notwithstanding, lenders say the pullback in available credit is appropriate, given the shaky economy.

"Banks are simply not looking to take extended risk today," said Charlie Murphy, chief executive of the Bank of Commerce, a Sarasota lender, and a board member of the Florida Bankers Association, a trade group.

"It's not unusual for banks, in bad economic times, to tighten their lending standards," Murphy said. "And regulators are not too happy these days about allocating new money to commercial real estate."

Other forces

Banks have been hurt, as well, by other forces beyond their control.

Most notable has been the exit from the lending market by risk-averse insurers and pension funds, typically a key source for permanent mortgages.

That has crippled commercial real estate owners seeking to refinance or simply shift loans from banks, as is usually done.

That, in turn, has forced banks to keep mortgages on their books, which further limits their ability to cut new loans -- especially in the construction and real estate sectors.

The precipitous drop in commercial real estate values -- combined with falling rental rates on nearly every property segment -- represents the largest factor in the dearth of lending, however.

Retail rental rates have fallen by as much as half, and many tenants remain unable to pay rent at all, part of the fallout from the longest economic recession since the Great Depression.

Vacancies, too, from super-regional malls to neighborhood-anchored strip centers, have risen dramatically.

"In many cases, shopping centers are full, but not all of the tenants are paying rent," Olivieri said. "Landlords don't want their space to go dark, so they're letting them stay put."

Office rents have also fallen, in Southwest Florida and nationwide -- by 20 percent to 30 percent in some cases.

"In some submarkets, there is an even greater devaluation of rents," said John Harshman, president of Harshman & Co., a Sarasota commercial real estate brokerage firm.

The lack of income, and decrease in values, has forced many property owners to come up with new equity on loans to satisfy lenders' re-appraisals, investors say, even on performing mortgages.

Regulators, too, are calling on banks to beef up reserves and loan coverages by thinning loan-to-value ratios.

Restrictions

Meanwhile, the few commercial real estate loans that are available come with excessive restrictions, including onerous equity requirements and repayment schedules, which are also the result of new federal regulations.

In many cases, lenders that once required investors to put down 20 percent or 30 percent equity are demanding twice those percentages -- and borrowers' personal guarantees -- before they will consider loaning money.

"We've gone from having an unsecured line of credit, on a performing loan, to getting a commitment for just one-year from the bank, and the terms are complex," said Andy Dorr, a senior vice president with Githler Development Co., a Sarasota real estate investment and development firm.

As a result, Horizon and others have begun lining up equity partners for developers or investors, Olivieri said.

At the same time, Dorr said, the costs associated with commercial real estate borrowing -- appraisals, origination fees, legal expenses and environmental analysis -- have increased in many cases.

The hiked fees and the lack of new capital are both tied, investors and lenders say, to the fear that a commercial real estate meltdown is in the offing. Already, development giants such as mall owner General Growth Properties have defaulted on commercial real estate loans -- a signal to some analysts that another wave of foreclosures is ahead. Next year alone, hundreds of billions of commercial real estate loans, many of which were cut during the real estate boom and required interest-only payments, will mature or come due nationwide. When that occurs, many predict, defaults will spike.

"Everyone keeps saying that commercial real estate is the next shoe to drop," Hutchens said. "Well, I have to agree: It's about to drop."

The answer, industry experts say, can be summed up in a single word: Jobs.

"We have to stimulate the economy with more jobs and small business," Murphy said. "When we have jobs, then businesses expand and the economy cycles upward. The opposite is also true, and it creates a vicious, self-fulfilling prophecy."

"People have to go back to work," Olivieri said. "Specifically, in construction.

"Construction has always led the way out of recession; it's key. It starts the employment cycle, and then retailers hire and the cycle returns to supply and demand. But if you don't have a job, if you don't know where your next dollar is coming from, then you don't spend," Olivieri said.

Unfortunately, for Florida, that job growth may be a long time in coming.

Unemployment in Southwest Florida stands at 12.7 percent, slightly above the 11.5 percent statewide average, which is at the highest level since October 1975. Nationally, unemployment is just under 10 percent.

Even more dire are some economists' predictions that Florida's unemployment rate will not fall to 6 percent -- within the range of a moderately healthy economy -- until 2018.

If that proves true, experts believe commercial real estate will remain depressed well into the future.

"The 12 percent unemployment rate in Sarasota and Manatee counties, and the 10 percent rate nationally, will create more commercial real estate vacancies," Harshman said. "And more vacancies will, in turn, further drive down commercial real estate values."

LINK

5203 Cortez Road - Finally 100% Leased!

2009-12-24T12:45:00.006-05:00

Another one in the books! Leased the very last unit in Scott Paint plaza at 5203 Cortez Rd yesterday. 1,150 SF goes to Budget Signs for 6 years. Congrats, guys. Glad I was able to help. Enjoy your new home!

FYI, this center had 4,600SF+ vacant when I took over leasing duties in November. Good to end the year on such a positive note.

Great marketing = great results. :)

My Moto Droid & XMas Shopping

2009-12-23T06:35:00.007-05:00

I love gadgets and I enjoy playing around with new technology. I'm sort of in the anti-iPhone camp, too, mainly because of the network it runs on. Never really liked AT&T too much and would have at least tried the iPhone if Apple had the foresight to sever its ties with that weak network. I've been with Verizon for five years now and have no intentions of leaving. They're pretty solid as far as coverage. So when Verizon got the Google/Motorola Droid back in early November, I decided to wait a few weeks for the reviews to come in and make a decision. Everyone was pretty much fawning over the device, so I decided it was time to retire my Blackberry Curve and give it a shot.

One of the things I am most intrigued with is the phone's ability to use its built-in camera as a UPC barcode scanner. A simple app like ShopSavvy can be installed while you wait in line at the store and be up and running within 60 seconds - and it's free. What ShopSavvy and other similar apps do is scan the UPC code and then broadcast that code to the ShopSavvy servers. The servers identify the product based on the UPC code and then search both web and local sources for retailers with the same product. The end result is being able to see prices other retailers are offering.

For instance, I was in Best Buy (BB) looking for a micro USB cable. The only cable BB had was priced at $14.99. I thought that was high so I used ShopSavvy to scan the barcode and let it do its thing. Three sources came back, all but one of them were sourced from Internet sites. The best price? $4.99 with $2 express shipping. I ordered the product from my phone and walked out of BB empty-handed. In fact, I walked out of a lot of stores for exactly the same reason while Christmas shopping this season.

The operating system on this phone is developed by Google, so there's pretty tight integration between the device and things like GMail, Google Maps, Google Voice, Google Calendar, Street View, YouTube and so on. The Bluetooth in this device is a little buggy at times, but I cannot find too many faults with the phone. You might want to play around with a Droid the next time you're in a Verizon wireless store.

So Long, 2009.

2009-12-19T10:27:00.005-05:00

What a year you were.

Business was very much like a roller coaster this past year, with most my deals occurring during the summer and within the past two months (Nov-Dec). Overall I would rate 2009 as not too bad. 95% of my sales came from leasing. Nearly 100% of my leasing deals were taking people out of high rent situations and repositioning them into lower rent opportunities.

I have more bank-owned inventory than I did last year and I am only expecting that to increase. I am also expecting those waiting in the wings for distressed assets to finally start showing up, probably in the mid to latter part of 2010.

Where's the bottom? Who knows. And no one is likely to know until things start turning around. I believe (and have always believed) Florida's geography will help it emerge a little sooner than other distressed areas. If you're looking for a sign, keep an eye on GDP and employment figures.

So here's a toast to the year that was: 2009. Don't let the door hit you in the ass on the way out.

Leased! Leased! Leased! Leased!

2009-12-17T18:52:00.002-05:00

Two units leased since December 1 in this strip mall next door to Wal-Mart on Cortez Rd. I have one 1,150sf unit left and that one looks like it might be spoken for. Welcome to Allison's Dance Centre and Purple Coconut Hair Salon. Allison's took 2,250sf for 3 years and Purple Coconut took 1,200sf for 2 years. Out of my approx. 40 listings, this property has been the most active.

Latest Office Vacancy Report (November)

2009-12-10T11:26:00.002-05:00

The numbers are in for 11/09. They are as follows**:

Downtown Sarasota: 13.74% (+)
University Parkway: 18.22% (-)
I-75 Fruitville S to Clark: 21.27% (n/c)
Venice: 22.03% (n/c)
North Port: 37.28% (n/c)
Suburban & South Trail: 27.84%

** = does not include sublet space.

Leased Another One! John Deere.

2009-12-10T08:53:00.001-05:00

Moline, Ill-based JOHN DEERE, INC. (NYSE: DE) has leased 10,000SF of office and warehouse space for its landscape division at 1360 12th Street in Palmetto from HDVN, LLC. Deere, a $28-billion (worldwide sales) company, is ranked 102 in the Fortune 500, and leased the space for 3 years with options. Anthony V. Migliore of Coldwell Banker Commercial represented the tenant. The landlord was self-represented.

Orion & Century Bank Shut Down

2009-11-13T20:40:00.001-05:00

Two more local banks go down.

Regulators shut 2 Fla. banks; 122 failures in '09
Regulators close Orion Bank and Century Bank in Florida; 122 US bank failures this year

* By Marcy Gordon, AP Business Writer
* On 7:49 pm EST, Friday November 13, 2009

WASHINGTON (AP) -- Regulators on Friday shut down two Florida banks, boosting to 122 the number of U.S. bank failures this year as loan defaults rise in the worst financial climate in decades.

The Federal Deposit Insurance Corp. took over Orion Bank, based in Naples, Fla., with about $2.7 billion in assets and $2.1 billion in deposits, and Sarasota-based Century Bank, with $728 million in assets and $631 million in deposits.

IberiaBank, based in Lafayette, La., agreed to assume all of Orion Bank's deposits and $2.4 billion of its assets, as well as Century Bank's deposits and $706 million of its assets.

The FDIC will retain the rest for eventual sale.

In addition, the FDIC and IberiaBank agreed to share losses on roughly $1.9 billion of Orion Bank's loans and other assets, and on about $656 million of Century Bank's.

Orion Bank's 23 branches will reopen Saturday as offices of IberiaBank. Century Bank's 11 branches will reopen during normal business hours, starting on Saturday.

The failure of Orion Bank will cost the federal deposit insurance fund an estimated $615 million; that of Century Bank, $344 million.

With the two closings, 11 Florida banks have failed this year. Failures also have been concentrated in California, Georgia and Illinois.

As the economy has soured, with unemployment rising, home prices tumbling and loan defaults soaring, bank failures have cascaded and sapped billions out of the federal deposit insurance fund. It has fallen into the red.

To replenish the fund, the FDIC on Thursday mandated the roughly 8,100 insured banks and savings institutions pay about $45 billion in premiums in advance that would have been due over the next three years. It is the first time the agency has required prepaid insurance fees. The idea is for banks to spread the costs over three years rather than paying a one-time fee that would deplete their capital reserves.

The FDIC expects the cost of bank failures to grow to about $100 billion over the next four years.

Depositors' money -- insured up to $250,000 per account -- is not at risk, with the FDIC backed by the government. The FDIC still has about $21 billion cash in loss reserves apart from the insurance fund. It can also tap a Treasury Department credit line of up to $500 billion.

Last week brought the closure of the fourth-biggest bank to fail this year: San Francisco's United Commercial Bank, with $11.2 billion in assets. East West Bancorp Inc., parent of East West Bank of Pasadena, Calif., agreed to buy all of United Commercial's deposits and most of its assets.

Banks have been especially hurt by failed real estate loans. Banks that had lent to seemingly solid businesses are suffering losses as buildings sit vacant. As development projects collapse, builders are defaulting on their loans.

If the economic recovery falters, defaults on the high-risk loans could spike. Many regional banks hold large concentrations of these loans. Nearly $500 billion in commercial real estate loans are expected to come due annually over the next few years.

The 122 bank failures are the most in a year since 1992 at the height of the savings-and-loan crisis. They have cost the federal deposit insurance fund more than $28 billion so far this year. They compare with 25 last year and three in 2007.

The number of banks on the FDIC's confidential "problem list" jumped to 416 at the end of June from 305 in the first quarter. That's the most since June 1994. About 13 percent of banks on the list generally end up failing, according to the FDIC.

Is The Bottom Near? Forecast Says So.

2009-11-05T06:55:00.005-05:00

Tough to say.

I'm of the belief that rents in certain areas of town cannot go much lower at this point. I have a few properties where, after the pass-through expenses are stripped out of the gross rental figure, the owner is maybe taking in $0.50 a foot or even less at the end of the day. Doesn't leave much room for error. And even with these record low rents, tenants are tough to come by. In some of these cases, theoretically, the property is probably worth more vacant than with a credit tenant in place. Sad but true.

Pricing anything is very difficult due to a lack of reliable comps. I get some ridiculous "drive-by" sign calls from people offering $20/ft for halfway decent downtown property. Can't blame 'em for trying, I guess!

Emerging Trends: "The Bottom is Near!" Predict CRE Forecasters
Most Market Forecasters See a Pricing Bottom Next Year, and at Least One Prognosticator Suggests that Transaction Pricing for Institutional Investment-Quality Real Estate May Have Already Bottomed in the Third Quarter

By Randyl Drummer

November 4, 2009

Having reviewed the next round of commercial real estate surveys, forecasts and emerging trends issued this past week for 2010, about the only good news appears to be that the market has hit bottom -- or will soon. Rents and values have continued to fall across virtually every commercial real estate sector and across almost every market.

However, forecasters see the prospect for near-term opportunity once the markets bottom out, bringing a long-expected deluge of loan workouts, write downs, defaults and foreclosures -- along with the time-tested rush by patient, cash-rich investors, who, with some fortunate timing, will be able to tap some very attractive buying opportunities at bottom-of-the-cycle prices.

Also, leasing activity is expected to increase as tenants seek to take advantage of sharply lowered rents, resulting in more potential commissions for brokers, but also likely resulting in more pressure on highly leveraged building owners.

At least five major surveys and forecasts have been released since late last week by such influential industry groups as Real Estate Roundtable, the MIT Center for Real Estate, the National Multi Housing Council and NAIOP. PricewaterhouseCoopers and the Urban Land Institute released one of the industry's most widely watched surveys, the annual Emerging Trends in Real Estate, on Thursday morning.

The surveys tend to confirm the 2010 projections made last month by CoStar and its newly acquired analytics and forecasting advisory firm, Property Portfolio and Research Inc. (PPR), which were among the first forecasts to be released. The office vacancy rate stood at 13% at the end of the third quarter, and CoStar forecasts several more quarters of negative absorption and another 300-basis-point increase in the vacancy rate to 16% as the office market trails what's shaping up to be a "jobless recovery." Strong demand for office space is not expected to return until 2011-12, but when it does recovery should be robust, with the national office vacancy rate expected to fall to 10.5% by 2014 if job numbers begin to pick up as expected, according to CoStar and PPR projections.

Looking ahead, CoStar forecasts that the national industrial vacancy rate will rise from 10.2% in the third quarter to as high at 11% next year, but the amount of negative net absorption -- which approached nearly 150 million square feet year to date through the end of the third quarter -- should taper off over the next couple of quarters. The industrial market will slowly resume leasing activity starting in mid-2010, generating reasonably strong positive quarterly absorption through 2013. Rents, however, likely will remain moribund for two or three more years.

Coming off an idle 2009, the next year will likely rank as the slowest year of the modern era for new development, according to projections covering US market conditions presented by CoStar in a series of webinars last month.

A record 900 people participated in this year's Emerging Trends in Real Estate 2010 survey by PricewaterhouseCoopers and ULI. The results won't do much to either comfort the pessimists or encourage the optimists.

Across the board, investor sentiment was at or near record lows. Survey respondents predicted that vacancies will rise and rents will fall in all property types before the market hits bottom next year. Only apartments rated as a "fair" prospect, with all others sinking into the fair to poor range, with respondents especially bearish on retail and hotels. Development prospects ranged from "dead" and "abysmal" to "modestly poor."

"Not surprisingly, the overwhelming sentiment of Emerging Trends interviewees remains decidedly negative, colored by impending doom and distress over prospects for an extended period of anemic demand and costly deleveraging," the report said.

On the other hand, value declines of 40% to 50% off 2007 peaks will present once-in-a-generation opportunities, respondents said. "A sense of nervous euphoria is growing among liquid investors who can make all-cash purchases” from distressed sellers and banks, said ULI Senior Resident Fellow for Real Estate Finance Stephen Blank.

Debt markets will begin to recover, but loans will be conservative, expensive, and extended only to a lender's best customers. REITs and private equity funds will get into the action, providing loans to battered borrowers at a steep price.

The survey finds near-record lows in investment sentiment in every property type. Only apartments registered fair prospects with all other categories sinking into the fair to poor range. Hotel and retail record the most precipitous falls. Development prospects are “largely dead” and drop to new depths and practically to “abysmal” levels for office, retail and hotels. Warehouse and apartments scored only marginally better at “modestly poor.”

READ THE REST OF THE ARTICLE HERE

Leased Another One!

2009-10-23T10:46:00.005-04:00

This baby is 90% leased!

Many thanks (and congratulations) to Mr. Horras Sheffield and his wife for renting our nice little 1,000SF retail unit for his upcoming package liquor store. I still have one 1k SF unit left in this strip center at 4034 N Washington Blvd in Sarasota and then it will be 100% leased. Mission not quite accomplished...yet! Landlord is motivated, so bring me something.

Latest Office Vacancy Report (October)

2009-10-21T15:27:00.003-04:00

Numbers are in. Most areas with the exception of I-75 Fruitville (down) have edged up. No change in Venice. North Port is edging near 40% vacancy and this does not include sublet space. Herewith the numbers:

Downtown Sarasota: 13.41% +
University Parkway Area: 20.31% +
I-75 Fruitville South to Clark: 21.27% -
Venice: 22.03% (N/C)
North Port: 37.28% +
Suburban & South Trail: 27.84% -

Eh....Loopnet

2009-10-15T06:47:00.016-04:00

I think Loopnet is about to come undone pretty soon. I had been a premium member for nearly four years and I (like the majority of other brokers I know) dropped their paid memberships without a thought after Loopnet raised their fees through the roof in 2009. I started out at $59 per month back in late 2005. In 2006, membership fees went up to $69 per month. In 2007, it was $89 per month. In late 2007, I got a notice that 2008 premium membership was going to cost a whopping $129 per month. When I got my notice in October of last year that the 2009 fees were increasing nearly 80% to an astounding $230 per month for 30 listings (I currently have 30+), it was time to cut the cord and go back to lowly basic membership. In a declining market with fewer dollars for brokers to spread around, one has to wonder what these guys are thinking.

Maybe this is why, as of July, their paid membership is down nearly 20% vs 2Q 2008. I think you're going to see some significant declines in their paid membership by the time 09 3Q (due 10/26/09) and 4Q results are released. I don't know a single active broker who has agreed to pay these new fees. Loopnet's telemarketers started calling me around May of this year asking why I left. I'm not shy, so I let them know. I've stopped returning their calls since.

In retrospect, I cannot find one single lease or sale that has occurred as a result of my listings being on Loopnet. Before I terminated my premium membership, I surveyed all my previous deals over a 36 month period, and found nearly every single sale or lease came from one of two sources: the local MLS (Catylist) or a sign in front of the property. None came from Loopnet. That's why, unless they drop their fees significantly, there's little chance I'll go back to being a premium member. The review portion of Loopnet is not well policed, either. I've seen residential agents place items such as beach home and single family residental lot listings on Loopnet in the past - something I don't encounter with Catylist. Also, Loopnet severely restricts a broker's ability to send out prospect blast alerts when there are significant changes in a property's status - a feature Catylist allows. If history is any guide, being on Loopnet is strictly an academic affair, and any academic affair is certainly not worth $230 or even $130 per month to me.

The real irony about all of this is, if you're a basic member, you're only able to see 10% of Loopnet listing inventory during a search. Eventually it will get to the point where most casual searchers won't be able see much of anything at all because the majority of their users will be basic members. Because of this (and the constant nag screens advising you your search is "restricted"), I've stopped using Loopnet as a search tool entirely - it's basically impractical to me as a broker. I still enter all my listings into Loopnet, but I'm not holding my breath that I'll end up doing any business as a result of this. It's really a shame because Loopnet used to be a good listing search tool for brokers.

Leased Another One!

2009-10-15T06:40:00.004-04:00

I leased this office in Lakewood Ranch to an accountant in a short three weeks after I took the listing. The price was great and the tenant loved the space. It came fully furnished with desks, chairs and even a kitchen sink...the tenant is here for three years. Congratulations to the tenant: Cozzette Accounting Co., LLC! No outside broker was involved with the deal.

Leased Another One - 6,088SF

2009-09-21T13:04:00.004-04:00

What a great deal! Both tenant and landlord are going to make out well on this one. Tenant got great rent and landlord got a ton of capital improvements. This lease was for 6,088 SF and located at 167 Progress Circle in Venice, FL. Recession? Where?

New Foreclosure Listing

2009-09-20T11:26:00.000-04:00

This one's down in Venice near the Jacaranda / I-75 exit.

Just Listed

2009-09-16T07:59:00.003-04:00

PROPERTY IS NOW FULLY LEASED! THANK YOU FOR YOUR INQUIRIES.

Just an idea how inexpensive office space is getting out in Lakewood Ranch. This one's fully furnished.

Latest Office Vacancy Report

2009-09-14T11:03:00.004-04:00

Sarasota EDC released its latest numbers...

Downtown Sarasota: 13.21%
University Parkway Area: 18.00%
I-75 Fruitville South to Clark: 22.97%
Venice: 22.03%
North Port: 35.13%
Suburban & South Trail: 28.02%

Note: this does NOT include sublease space. Numbers are definitely higher when this is factored in.

Remembering 9/11/01

2009-09-11T20:12:00.011-04:00

Somber day today.

I remember where I was when all of this happened. Back in 2001 I was a full time professional touring musician. Because of my travel and production schedule, I used to sleep in pretty late and, that morning, I had to unexpectedly drive my girlfriend to her job because her car battery was dead. I returned home around 8:30 am and promptly went back to sleep. A short while later the house phone began ringing incessantly. When I finally answered, on the other end was my girlfriend saying an airplane crashed into the WTC. "You should turn on the TV". Didn't think much about it but felt it might be worth at least turning on the news to see how bad the damage was. A few minutes later I watched another airplane fly into the south tower on live TV. Like a lot of Americans, I was transfixed, shocked and horrified by everything I saw that day.

I traveled weekly by air back in those days and things were really eerie. I had a gig in Birmingham, AL that weekend and my flight, incidentally, was about a day or so after the FAA lifted the nationwide ban on commercial and private air travel. In light of the fear around air travel, I still thought it was very strange that there were only 4 people on the entire flight with me that day. My flight was scheduled to depart from Tampa and I had to catch a connecting flight in Atlanta to Birmingham. I made it to Atlanta just fine but then ended up stranded at Hartsfield because the flight crew flat out refused to show up out of fear of further hijackings. In the end, I had to rent a car and make the drive to Birmingham by myself. I made the gig...but just barely. The one thing I remember very clearly was how empty all my flights were in the months after 9/11. I would say passenger traffic was light for nearly a year afterward.

In late December 2001, I was on a 20 city tour for Icebreakers Mints and found myself in NYC for one of my scheduled appearances. One of the things I insisted on doing before I left New York was visiting Ground Zero. I remember that, even after three months, the WTC rubble was still smoldering from fire. That fact stuck with me over the years along with the sight of the memorial "wall" that had been erected a few blocks away (across from Au Bon Pain). Many of the handwritten signs saying things like "Brother Missing, Worked on 104th Floor at Cantor Fitzgerald. Please call XXX-XXX-XXXX if you know his whereabouts" were still there along with quite a few memorial tributes. Really sad.

While I was in college in Connecticut, I spent a lot of time in NYC on the weekends. The sight of the WTC was always a common one to me. Seeing the skyline minus the towers the first few times after 9/11 was something I never got used to.

9/11 is something I won't forget.

FDIC To Dump Nearly $5-Billion in Distressed Assets

2009-09-10T12:40:00.003-04:00

Mostly note sales...

FDIC Launching Nearly $5B of Asset Sales

Sep 4, 2009 - CRE News

The FDIC is expected to shortly bring to market a whopping $4.7 billion of mixed quality residential and commercial real estate loans that it assumed from some 20 failed banks.

The assets will be offered through what the agency and its contractors call structured offerings, in that investors will buy only an interest in each portfolio sold, while FDIC will keep the remainder. And the agency is expected to include elements of federal government's proposed public-private investment partnership, or PPIP program, in that it might offer seller financing.

The largest of the offerings will involve $2.7 billion of residential acquisition and development loans that will be marketed through Keefe, Bruyette & Woods, which has handled a number of previous FDIC loan sales.

The other portfolios will each involve roughly $1 billion. Deutsche Bank will offer a package of commercial mortgages, while a venture of Midland Loan Services and Pentalpha Capital Group will handle the sale of a portfolio of commercial acquisition and development loans.

Each of the advisers is said to be close to formally distributing sales announcements, with bid dates expected to be in mid- to late-October.

The agency has so far sold $4.9 billion of assets through six similar structured sales. But it did not offer seller financing for those. It sold stakes of 20 percent and 40 percent in each portfolio, with the interests having a face value of $1 billion. Their sale has generated total proceeds of $209.8 million, or 20.7 percent of the interest's face value.

Those proceeds compare with the 47.7 percent sales price for the $2.9 billion of loans the agency has sold through whole-loan offerings, or what it terms cash sales. Those offerins have been conducted by DebtX and First Financial Network.

Click here for a listing of FDIC's completed loan sales.

But the agency's proceeds in the structured offerings could increase over time.

It's clear that the agency is selling assets at or near the bottom of the market. And investors understand that the agency must sell, especially since banks continue to fail, swelling the FDIC's workload. So the prices at which assets from failed banks sell could be artificially deflated. By keeping a stake, it could theoretically benefit when market conditions and values improve.

Meanwhile, the agency earlier this week took offers for a stake in a $1.4 billion portfolio of residential mortgages taken from Franklin Bank of Houston. The offering, handled by RBS, was the first that adopted the government's Legacy Loan Program, through which the FDIC would provide generous financing to buyers.

Investors competing for the portfolio were asked to bid a price for a 20 percent stake, if they didn't require financing, or 50 percent, if they needed financing. Like in all of FDIC's structured offerings, the investors' stake would grow to 40 percent if certain performance thresholds were met.

The buzz is that the RBS portfolio attracted a high bid of 60 percent of face value. But that could be explained by the fact that 70 percent of the portfolio was comprised of performing mortgages.

LINK

Commercial Activity Predicted To Pick Up, Values Stagnant

2009-09-10T06:54:00.003-04:00

Latest report from The CoStar group shows we're possibly headed toward some increase in transactional activity. I'm busier than I've been in over a year and have plenty of prospects and deals in the pipeline - so many at this point that I'm able to cherry pick. The upcoming plays WILL be in distressed assets. That doesn't look too positive for the private sellers out there as they'll have to compete with the flood of foreclosed assets being unloaded.

CRE Sales Will Pick Up, But Values Expected to Stay Flat Through '12
Jones Lang LaSalle Study Finds Banks Will Eventually Be Forced to Stop Delaying REO Foreclosures and Begin Taking Back the Keys of Distressed Assets

By Randyl Drummer
September 9, 2009
Credit markets for office, industrial, retail, hotel and multifamily property should see the effects of a gradual return of liquidity during the second half of 2009, Jones Lang LaSalle predicted in its U.S. Midyear Capital Markets Bulletin released last week.

In it, and in a separate report on global market performance issued this week, JLL noted that several trends are expected to help begin to restore capital markets over the next year, including the $33 billion in equity raised and $5 billion in debt issued through the first eight months of 2009 by global REITs. Also, with the world economy starting to recover, JLL noted foreign real estate investors are again circling select U.S. markets, and real estate companies are finally tapping into government programs such as the Federal Reserve's Term Asset-Backed Securities Loan Facility (TALF). For the first time in what seems like ages, meanwhile, the gap in price expectations between buyers and sellers is starting to narrow in the third quarter, JLL executives said.

But while all that may sound great, "it is unlikely that any true debt liquidity will return to the market until mid-2010 at the earliest" with the recession and unemployment continuing to batter occupancies and drive down rents, cautioned Kenneth Rudy, president of Jones Lang LaSalle’s Capital Markets practice.

Still, that may be welcome news to investors battered by the dramatic decline in U.S. property sales and prices that occurred in the first half of 2009. According to CoStar data, the value of Class A office buildings declined by 57% in the first half of 2009 compared with prices paid at the peak of the market in 2007. Industrial and institutional-grade retail property sales declined even more sharply, falling 71% sand 86.5%, respectively, since their 2007 peaks.

By mid-2010, JLL predicts investor interest in U.S. markets will slowly begin to return. But transaction activity likely won't reach the dizzying levels of the 2005-07 market "for a generation or longer," Josh Gelormini, vice president of capital markets research, tells CoStar Advisor. And that may not be such a bad thing for players who manage to fight another day after surviving the current downturn, following an era in which cheap and easy credit and overzealous speculation led to the latest and worst commercial real estate price bubble.

"We're definitely still in early stages of the distressed asset game, working out the assets most likely to have been bought during the boom years, and it's going to take a while to work itself out," Gelormini said. "The fact that large investors around the world are starting to see attractive values and act on the opportunities will help speed the process some, but it will still take several quarters for sales activity to stabilize."

"Although we feel transaction volumes have very likely bottomed and will be turning upward the next quarter or two, values will still have some more downward pressure into next year before we see stabilization."

LINK TO REST OF ARTICLE

Leased Another One, #3 out of 3 for the Week!

2009-09-07T11:32:00.002-04:00

We would like to welcome national tenant Kumon Learning Centers to their new home at Tourist Center Drive in University Park. Kumon signed a 5 year deal last Wednesday for their new home. Kumon, based out of Teaneck, NJ is actually expanding in this market. They have over 1,500 locations in 44 countries. I appreciate the business, guys. Thank you!

Leased Another One, #2 out of 3 for the Week!

2009-09-03T20:21:00.005-04:00

We want to welcome Dish Network and DirecTV affiliates Rising Star Communications to their new home at 2436 Stickney Point Rd in Sarasota. This lease wraps up this strip center for me seeing that it's now 100% leased. I took this over from another agent in the spring where several spaces had been vacant for a very long time. I gave the landlord an analysis of what needed to be done to make the center more attractive to tenants and we were able to lease the center up with a little bit of effort and some creative marketing. Glad to be able to help. Again, motivated landlord + motivated tenant means another leased space! This is lease #3 for the week!

No recession here. No way!

Leased Another One

2009-09-01T08:35:00.003-04:00

We want to welcome Starr Title Insurance to their new home at 100 Wallace Avenue, Suite 250. Starr has signed a 3 year lease with the landlord. We wish them all the best. The location is excellent, almost directly across the street from the Sarasota courthouse.

Took a little less than six months to find a tenant. Not bad, considering the climate. Aggressive marketing + motivated landlord + motivated tenant = another deal in an ailing economy!

Old SRQ Herald Building to Become Publix

2009-09-01T08:31:00.004-04:00

We've been hearing about this possibility for months. Looks like it's a done deal. Link below.

Former location of Herald-Tribune to become Publix
GROCERY: Lakeland-based supermarket chain plans to open new site in 2010

Staff Report

Published: Tuesday, September 1, 2009 at 1:00 a.m.

Publix Super Markets has closed a $6.3 million deal for the Herald-Tribune's former offices on South Tamiami Trail.

The Lakeland-based supermarket chain plans to open a new 52,000-square-foot store at the site toward the end of 2010.

Publix will tear down the existing building and build a store with parking underneath. Customers and their shopping carts will ride on escalators up into the store.

Once the new store is complete, Publix will close its older site at the Ringling Shopping Center, transfer employees to the new larger store and hire additional employees.

Publix closed the deal with the New York Times Co., the Herald-Tribune's parent, on Monday, according to George H. Mazzarantani, the Sarasota lawyer representing Publix. The special warranty deed that Mazzarantani supplied showed $44,100 in document stamps, which equates to the $6.3 million sales price.

The building had been for sale since 2003, when the Herald-Tribune announced plans to build its downtown Sarasota office to house its multimedia operations. The media company moved to its new headquarters in February 2006.

The city had considered buying the property for a new police station, but went with another site.

LINK

Proscenium Saga Continues

2009-08-28T06:52:00.002-04:00

Just when you think you've seen it all, along comes the following:

Lien involving Proscenium targets land owners

By KEVIN L. McQUAID

Published: Friday, August 28, 2009 at 1:00 a.m.

Owed nearly $370,000 for design work on the ill-fated, 18-story Proscenium real estate project, a New York architect has filed a construction lien in circuit court for repayment.

But Perkins Eastman Architects PC is not going after the handful of limited liability corporations that are tied to the planned $1 billion project in downtown Sarasota and controlled by developer Zeb Portanova.

Nor is the firm suing Portanova, who is now liable for millions of dollars of unpaid debts to Proscenium lenders, contractors and consultants.

Instead, Perkins Eastman and law firm Shumaker Loop & Kendrick LLP are attempting to encumber the 20 property owners whose seven acres of land that had been slated for the Proscenium and its centerpiece Waldorf-Astoria Hotel -- even though the owners' involvement with the deal ended in May when their sales contracts lapsed.

The filing, in circuit court in Sarasota County, has sparked outrage among many of the property owners.

"They're just trying to play Russian roulette to see if anyone blinks," said Bob Johnson, an attorney representing one of the property owners.

Perkins Eastman, which claims it did $695,347 worth of work on its overall $12.83 million Proscenium contract, notes the property owners were "contract vendors" to a Proscenium group, 400 Tamiami of Sarasota LLC. Under Florida's lien law, vendors may be liable for debts incurred in some cases.

Attorneys for Florida Studio Theatre Inc., which owns 1245-1285 Fifth St., and property owner Cynthia Conway, do not believe the architectural firm's unpaid fee is one of those cases.

In an Aug. 24 letter sent to Shumaker Loop -- the firm that recently acquired Sarasota Abel Band law practice -- attorney John Patterson described Perkins Eastman's filing as a "fraudulent lien."

"The Claim of Lien is totally without merit," Patterson wrote to Shumaker Loop attorney Christian Van Hise. "I would like to assure you that our clients take this matter very seriously and will pursue it accordingly."

Steven Yates, a Perkins Eastman spokesman, declined comment, as did Van Hise.

Neither Portanova nor his attorney at the Williams Parker law firm, Will Schlotthauer, returned calls or e-mails for comment.

For property owners, the lien blocks any potential sale or major renovation until it is satisfied.

Victor Calderon, who owns a shopping center at 1222 Fifth St. and is planning to renovate it, said the lien put his efforts on hold.

"I had attracted a couple of tenants, and this blocked it," Calderon said, adding Thursday that his property was removed from the lien after he threatened a counter-lawsuit.

"I don't think it's unreasonable, after all that's been said and done, to be able to move on from this," he said.

Portanova, his ex-partners Gary Moyer and Karen Cook, and Proscenium partnerships had promised to pay property owners $300 per square foot for their land, bounded by U.S. 41, Fourth Street, Sixth Street and Coconut Avenue. At that price, the land would have brought at least twice the market value.

To keep the deal alive while financing could be arranged, the Proscenium partners even paid land holders roughly $5 million in purchase options.

But this spring, when it became increasingly clear that financing would not come, Portanova secretly began negotiating to acquire a 15-acre tract that had been the site of the Sarasota Quay, at 401 N. Tamiami Trail, for roughly $40 million. When the land holders discovered it, they broke off talks with Portanova. To date, Portanova has been unsuccessful in completing the Quay deal with lender Anglo-Irish Bank plc.

"To me, this is like the body that keeps coming out of the coffin," Johnson said. "It's like something out of a science-fiction horror movie. Every one of the land owners now has to pay somebody to clean up the mess that was created for no reason by Perkins Eastman."

Sarasota Industrial Activity Up This Month

2009-08-23T09:03:00.006-04:00

Finally some good news for once.

The local Catylist (commercial listing service) is showing 4 different industrial sales transactions occurring last week. The largest, a 40,000SF warehouse in Venice, went for $49PSF. Another, a 20,000SF metal warehouse with 2.3+ acres, and frontage on I-75, went for a strong $75PSF. A 14 year-old 7,500SF freestanding metal building on Porter Lake went for $80/ft. Finally, a 6,500SF building off of US301 sold for $80/ft. The final building was noted in my recent YouTube Video as being vacant. Glad to see that got sold. (Video has been noted).

I'm certainly heartened by the strong PSF numbers obtained on the last three properties, which averages just shy of $80/ft. Any week with 70,000+SF of sale absorption is a great one in my book.

Hopefully we'll see another round of these soon.

More Bad News

2009-08-18T13:00:00.004-04:00

Yeah, yeah...we know, we know.

Leased Another One - 6,400 SF to National Tenant

2009-08-18T11:04:00.004-04:00

Boulder, CO-based Camp Bow Wow (CBW) finally moved into their new digs: a 6,400 sf air-conditioned ILW-zoned property fronting 17th Street. ILW was the only favorable zoning that could accept a dog-daycare facility without a special exception.

CBW sunk nearly $150,000 worth of capital improvements into the landlord's building. We wish them and the landlord all the best! I was glad to help them.

Local Company Absorbs 50,000 Square Feet

2009-08-17T07:07:00.002-04:00

See? All's not totally dead around here. There are at least some bright spots here and there.

Firm rents more warehouse space on McIntosh Road

By Michael Braga

Published: Monday, August 17, 2009 at 1:00 a.m.

In the midst of the toughest market conditions that anyone can remember, the Meridian Development Group has pulled off a coup.

The Clearwater company, which owns and manages a giant, 910,000-square-foot warehouse complex on McIntosh road in Sarasota County, has convinced a local bandage manufacturer to sign up for 50,000 square feet.

ASO Corp., the subsidiary of a Japanese corporation that has made adhesive bandages and other wound care products in Florida for 25 years, is one of those rare companies with the ability to expand in the middle of a recession.

"This is an expansion," said Steven Kossoff, Meridian's managing director. "In Sarasota, there were only two facilities that were large enough to meet their needs."

ASO's choice came down to price and amenities, Kossoff said.

"We have a fully fenced facility with 24-hour guard service and high ceilings that allow for more stacking," Kossoff said.

When pressed for details about price, Kossoff would only say that the lease rate was lower than the $5.50 per square foot the company had been asking in the past.

"It was lower than we've historically seen, but it was not too terrible," Kossoff said, especially in market conditions in which warehouse owners are getting clobbered.

Calls to ASO's headquarters in the Sarasota International Trade Center were not returned.

LINK TO ARTICLE

Sweet! Drive-by Video Makes the GCBR

2009-08-16T11:40:00.005-04:00

The video about industrial vacancy made the Gulf Coast Business Review last week. It's been busy, so I apologize for neglecting to post this when it came out.

The article appeared in the "Coffee Talk" section and was entitled "A Depressing Drive Around Town."

Hopefully people found the video informative and useful. I know many of my clients have been appreciative of the information

In case you haven't seen it...CLICK HERE.

RIP, Colonial Bank

2009-08-14T12:11:00.002-04:00

Actually sold them quite a bit of property over the past few years. BB&T likely to take over. RIP.

SAN FRANCISCO (MarketWatch) -- Colonial BancGroup Inc. may become the largest bank failure so far this year.

Shares of Colonial /quotes/comstock/13*!cnb/quotes/nls/cnb (CNB 0.41, -0.06, -11.94%) dropped 12% to 41 cents before being halted Friday morning. News of the looming takeover was reported by Bloomberg News and The Wall Street Journal's online edition.

BB&T Corp. /quotes/comstock/13*!bbt/quotes/nls/bbt (BBT 28.01, +2.21, +8.57%) is expected to take over the Montgomery, Ala.-based bank as early as Friday in what would be the biggest bank failure of 2009, Bloomberg reported, citing an unidentified source close to the matter.

The deal will be supported by the Federal Deposit Insurance Corp., Bloomberg and the Journal reported.

In Washington, FDIC spokesman David Barr declined to comment.

Shares of BB&T rose 5% to $27.08.
Colonial Bank "is probably a manageable purchase although we expect some losses from the purchase," said Egan-Jones Ratings, a rating agency that's paid by investors rather than issuers, in a statement Friday

Leased Another One

2009-08-13T09:04:00.007-04:00

Congrats are due to Jobs, Etc for taking on 3,500sf of space at 5755 N Washington for their summer vocational and training program. The building just happened to be a perfect fit. I still have another 4,000 or so feet left in this building. Just goes to show that multifaceted marketing and having an aggressive landlord will do wonders in this kind of market. Judging by the number or properties I'm showing as of late, leasing activity is not totally dead.

Tampa Industrial Vacancy Up

2009-08-13T08:58:00.003-04:00

The latest report from Cushman Wakefield shows a noticeable gain in industrial vacancies the Tampa Bay area. Some eye-popping numbers: the area market shed almost 54,000 jobs, nine consecutive quarters of vacancy increases and six consecutive quarters of declining rents. Link to the article and FREJ is below.

TAMPA - The Tampa industrial market continued to weaken in the second quarter of 2009 primarily due to the decrease in industrial-related jobs and the sustained deficit of demand from tenants in the market looking to lease or buy space.

Since mid-year 2008, the Tampa Bay market lost a total of 53,900 positions, with the construction industry losing 13,800 positions, manufacturing employment decreasing by 6,800 jobs and trade, transportation and utilities losing 2,700 jobs. The negative job growth, coupled with the current economic slowdown has resulted in a continued lack of new and expansion leasing activity, increased vacancy and a decline in rental rates during the quarter.

Additionally, sales activity has been nearly non-existent due to the dip in prices buyers are currently willing to pay and their difficulty to obtain financing.

At the close of the second quarter, Tampa’s industrial market fundamentals continued to grow weaker, following the trend which began over a year and a half ago when the national and local economy both took negative turns.

For the ninth quarter in a row, overall vacancy throughout the market increased. The marketwide overall vacancy rate of 9.5% at the close of the second quarter of 2009 increased a full percentage point from the initial quarter of 2009 and increased an astounding 3.4% from the vacancy documented at mid-year 2008.

As can be anticipated with such a significant increase in vacancy throughout the market, overall absorption posted negative 623,026sf over the past three months, bringing the year-to-date total to negative 943,309sf. Although the current negative absorption total appears dramatic, when compared to the year-to-date total recorded this time last year, year-to-date 2009’s negative absorption increased just 107,207sf or 11.5%.

The feeble tenant demand currently being experienced in the market has resulted in a decrease in asking rents for the sixth straight quarter, bringing average asking net rental rates down to levels that haven’t been recorded in the market since the first quarter of 2006.

Marketwide, the direct net asking rental rate averaged $5.95 psf at quarter-end, a decrease of $0.41 psf since last quarter and $1.10 psf from this time last year. Warehouse/distribution space, which accounts for 70.4% of the industrial space in the Tampa market, experienced the largest decrease in asking rents, declining $0.44 psf since last quarter and a much more substantial $1.09 psf since this time last year to an average of $4.89 psf by the end of the second quarter of 2009.

Forecast

Clearly, this economic downturn has lasted much longer than originally anticipated. While much of the fallout in the industrial market can be traced to companies tied to the construction and manufacturing sectors, Cushman & Wakefield believes that the fallout from these segments is largely, if not almost completely, behind us.

Though the effects of the prolonged slump in the economy will continue to have a negative impact on the market well into 2010, current industrial market fundamentals are definitely favoring tenants in the market. Competition between landlords will continue to drive down asking rents and increase lease concessions, decreasing the tenant’s effective rental rate costs over the term of their lease.

Article Link

Two More Banks Seized

2009-08-08T09:42:00.000-04:00

Two more down.

Two Sarasota banks are seized and sold
Community National to reopen today, First State on Monday, as Stearns branches

By Michael Braga

Published: Saturday, August 8, 2009 at 1:00 a.m.

Regulators on Friday shut down First State Bank of Sarasota and Community National Bank of Sarasota County, two institutions that played in risky loans during the real estate boom and crumbled when the bubble burst.

The two banks, with a combined $560 million in assets, will reopen as branches of St. Cloud, Minn.-based Stearns Banks, which agreed to take over nearly all the failed banks' assets and property.

Community National's four branches are slated to open today under Stearns' ownership; First State's nine on Monday.

That is good news for a region already buffeted by the closings of Manatee County's First Priority and Freedom banks.

Though Community National and First State will be operating under new management, it is likely that Stearns will need some of the banks' more than 150 workers to operate in its first foray into Florida.

Finding a buyer also is easier on regulators, who have closed 71 federally insured banks so far this year. The two Friday closings bring to six the number of Florida banks that have been shuttered.

"We are very grateful that we found a buyer with the financial wherewithal to do this," said Linda Beavers, the FDIC's regional ombudsman. "It makes our job a lot easier."

Rather than sending deposit checks back to customers, regulators will simply have to account for the deposits and then transfer them to Stearns, a bank with nearly $1 billion in assets and seven branches in Minnesota and Arizona.

But shareholders for both banks were wiped out. First State's shares, which traded on the Nasdaq, was selling for 33 cents on Friday. Volume was more than three times normal the average.

Analysts fully expect more failures this year.

LINK

YouTube Video Makes The News

2009-08-06T06:36:00.003-04:00

Nice to see the YouTube video has received some positive feedback, not only from clients but also from the media.

One thing this particular reporter asked me was if I had any resistance to new listings. That's a tough question to answer. My immediate thought was "yes, I am resistant to taking on new industrial listings." Upon reflection, however, it's genuinely true that good buildings priced right will still move. I suppose it depends on the circumstances. There no real "correct answer" with respect to pricing at the moment. Tough to say what the market will bear, especially if the market is pretty much AWOL. So that leaves everyone's pricing a wild guess at best - so few recent comparables are available that we have to extrapolate from various sources (i.e., whatever comps are available, rents, construction costs, etc) to arrive at something that makes sense. Even then, we can still be off. Without any response from potential buyers, it's still tough to judge. But the fact is good buildings will move if marketed correctly.

From The Bradenton Herald this morning.

Anthony Migliore, a Realtor for Coldwell Banker Commercial, closed on a deal involving a 56,000-square-foot facility in Palmetto last year, but says for the most part his listings have been tough to move.

Migliore also fears there’s plenty more inventory to be added.

He published a video on YouTube.com that examines industrial vacancies in Manatee County. The Realtor produced the video for his blog in an effort to be more creative in marketing the properties.

“If there is any positive sign, it’s that if you’re a business looking for industrial space it’s a good time to move,” Migliore said. “The biggest challenge on the sales end is there is still disconnect between sellers and buyers. Sellers, they want to maximize their return and try to get as much as they can in fairness.”

How bad is it? Just look.

2009-07-27T19:41:00.007-04:00

I recently conducted a ride-along interview...the subject was industrial vacancy. Good commercial brokers should always know what kind of inventory is available in their market and, even though I'm still fairly young and have a pretty good memory, even I was overwhelmed by the sheer number of buildings for sale or lease. The interview below was conducted in an approximate one mile radius of the Whitfield/US301 intersection. Expand this area to the entire Manatee/Sarasota MSA and you can imagine it's nearly impossible to remember every single available building and price. A good portion of this inventory isn't even online anywhere.

Selling or leasing industrial property is truly a huge challenge for all agents and owners. This video underscores those challenges.

Leased Another One

2009-07-27T15:27:00.002-04:00

Just wanted to welcome PEN Produce to their new home at 2065 12th St in Sarasota. PEN is run by a great guy named Pete Greci and he'll be running a small farmer's market on the weekends to supplement his produce distribution business. PEN leased 4,800 square feet for 3 years. Welcome, guys and thanks for the business!

CMBS Red Shoots, RealPoint Report

2009-07-27T12:19:00.003-04:00

From RealPoint. Tell us something we don't already know.

And I quoteth:

In June 2009, the delinquent unpaid balance for CMBS increased by a substantial $9.87 billion, up to a trailing 12-month high of $28.65 billion. Overall, the delinquent unpaid balance grew for the 10th straight month, up an astounding 585% from one-year ago (when only $4.18 billion of delinquent balance was reported for June 2008), and is now almost 13 times the low point of $2.21 billion in March 2007. An increase in four of the five delinquent loan categories was noted in June, including a significant $6.82 billion increase in the 30-day delinquency bucket. Nearly one-half of this increase was driven by the reporting of $3.38 billion of GGP-sponsored but specially-serviced loans as 30-days delinquent (the ultimate resolution of such loans to be determined). In addition, the distressed 90+-day, Foreclosure and REO categories grew in aggregate for the 19th straight month – up 32% from the previous month and over 411% in the past year.

The full report is here.

June Office Vacancy Report (Sarasota County)

2009-07-24T08:50:00.006-04:00

Vacancies inched up once again. We have about another percentage point of empty office space than we did a few months ago with the I-75/Fruitville, south to Clark corridor seeing a negative 40,651SF of absorption this year. Ouch!

Down and dirty numbers:

Countywide: 18.82%
University Parkway: 18%
Downtown: 13%
I-75/Fruitville S to Clark: 23%
Venice: 22%
North Port still sucking wind at: 35%
Suburban and South Trail: 26%

Area Losing Two Dillards Stores.

2009-07-23T07:37:00.003-04:00

I'm wondering when the time will come where most large malls will either be bulldozed or turned into college campuses. No surprise DeSoto is losing tenants; you almost need a bodyguard or a gun to go shopping there. Everyone I know avoids that place.

2 Dillard's stores are said to be closing in the region

Dillard's confirmed it will close its store at Westfield Sarasota Square. Also, sales associates at the DeSoto Square Dillard's said they have been told that store will close before the end of the year.

By Toni Whitt

Published: Thursday, July 23, 2009 at 1:00 a.m.
Last Modified: Wednesday, July 22, 2009 at 10:02 p.m.

In another sign of stress on the Southwest Florida economy, giant retailer Dillard's is closing two of its four stores in the region.

The anchors at Westfield Sarasota Square and DeSoto Square Mall in Bradenton are two of the five store closings that the Little Rock, Ark.-based retailer plans nationally in 2009.

The company confirmed on Wednesday that the Westfield Sarasota Square is closing, but a corporate spokeswoman would not confirm the shuttering of the Bradenton site.

Sales associates, however, said they were told that the DeSoto Square Dillard's would close before the end of the year. Many of their co-workers have already been transferred to other stores.

Consumers have cut their spending at a nearly unprecedented level in the last year as the nation's financial crisis, recession and rising unemployment has reduced their wealth and willingness to part with cash.

Dillard's, with 306 department stores and nine clearance centers in 29 states, reported earlier this month that its same-store sales fell 15 percent for the five weeks ended July 5 -- a worse drop than analysts had expected.

The DeSoto store shows all the signs of closing. Display cases stand empty amongst the perfume and handbag displays, and nearly one-third of the department store's second floor has been roped off and filled with empty display racks and other fixtures.

The store is going to be hosting a shipment of clearance merchandise that will go on sale the week of Aug. 1.

If both stores close by the end of the year, there will be only one Dillard's department store -- at Westfield's Southgate mall in Sarasota -- between Port Charlotte and St. Petersburg.

Dillard's spokeswoman Julie Bull said the company has begun working with sales associates to move them to other stores, but that it might be impossible for some employees to stay with the company.

The pain in retail has yet to show major signs of abating after one of the worst holiday and spring seasons in decades. It is not expected to perk up in the important back-to-school season.

Even the normally optimistic National Retail Federation is projecting that consumers will spend nearly 8 percent less on back-to-school supplies than in 2008.

In Southwest Florida, plans for several malls have been put on hold, meaning that billions in new investment and thousands of new jobs are still possibly years away.

Those delayed projects include the University Town Center, a luxury mall slated for University Parkway and Interstate 75, a regional mall along I-75 in North Port and a one-million-square-foot retail center planned for Punta Gorda.

Westfield Corporation Inc., the Australian owner of Westfield Town Center, has plans to acquire the building Dillard's occupies at Sarasota Square and to develop the space, said spokeswoman Catherine C. Dickey.

"The company has a strong track record of recovering real estate and reorienting the space with other shops and restaurants," Dickey said.

That will be a challenge in this economy, and perhaps especially in Sarasota County where retailers have been closing at an unprecedented pace. Data from the county tax collector show that one in four retailers have gone out of business in the past year.

The closing of the Dillard's at DeSoto Square will be a blow to that aging mall, owned by Indianapolis-based Simon Property Group.

Starbucks, Old Navy, Lady Foot Locker and Waldenbooks all closed at the mall this year.

Across from Dillard's anchor at DeSoto Square are three empty storefronts, each bearing the sign "More Choices, More Opportunities."

DeSoto Square was built in 1973 and is showing its age. Simon, the largest shopping mall owner and operator in the U.S., bought the property in 1996 and immediately built a food court, but has done little since. The mall has three anchors besides Dillard's: J.C. Penney, Sears and Macy's.

Simon spokeswoman Les Morris declined to comment.

The company, a real estate investment trust, reported in May that its first-quarter funds from operations improved, but Simon cut its quarterly dividend 33 percent.

Commercial Real Estate: "Ticking Time Bomb"

2009-07-17T11:01:00.003-04:00

A few videos I ran across this week underscoring the current stress going on in the commercial real estate market.

Local Jobless Rate Hits New High at 11.7%

2009-07-17T10:52:00.003-04:00

In another blow to the local economy, we're teetering close to 12% unemployment. Although it seems as if jobless claims nationally have slowed, I'm wondering if that's just a temporary thing. I know quite a few people struggling or laid off - for some, this couldn't come at a worse time.

For us in commercial real estate, that means fewer people able to spend which means stores and businesses will close. This results in more vacancies and more trouble for landlords who may need to meet cashflow requirements...not a good scenario at all.

Region's jobless rate hits 11.7 percent

By Kevin McQuaid

Published: Friday, July 17, 2009 at 10:34 a.m.
Last Modified: Friday, July 17, 2009 at 10:34 a.m.

Unemployment jumped higher during June in Southwest Florida in June, with Charlotte County hitting nearly 12 percent and Manatee and Sarasota counties not far behind.

Just short of 1 million employable Floridians do not have a job.

There were 44,355 people out of work collectively in the three counties, for a regional unemployment rate of about 11.7 percent, according to data released Friday by the Florida Agency for Workforce Innovation.

Hardest hit was Charlotte County, which saw its unemployment rate climb to 11.9 percent in June from 11.4 percent in May.

Manatee County had a jobless rate of 11.8 percent, up from 11.2 percent the previous month.

Sarasota County’s unemployment rate was 11.4 percent, up 10.9 percent in May.

Meanwhile, Florida’s unemployment rate crept up to 10.6 percent in June to stay at the highest level since 1975.

The rate was 0.3 percentage points higher than the revised May unemployment rate and is 4.6 percent age points higher than June 2008.

That means about 970,000 employable Floridians don’t have jobs.

Florida’s unemployment rate is 1.1 percent higher than the national rate of 9.5 percent.

Mega-Project The Subject of Various Lawsuits

2009-07-01T08:30:00.002-04:00

From the Herald Tribune...

Partners in Proscenium project suing for millions

By KEVIN L. MCQUAID

Published: Wednesday, July 1, 2009 at 1:00 a.m.
Last Modified: Tuesday, June 30, 2009 at 7:38 p.m.

SARASOTA - Two former partners in the Proscenium are suing developer Zeb Portanova for defaulting on a deal to pay them nearly $5 million -- the largest unpaid debt to date tied to the stalled downtown real estate project.

With the default -- compounded by promised financing that Portanova and representatives now acknowledge may never occur -- husband and wife Gary Moyer and Karen Cook contend Portanova also owes them an additional $11 million. That money is supposed to be paid in monthly installments beginning in December.

"We expect him to pay us," Moyer said Tuesday. "It's not an if, an and or a maybe. He's put us in a position where we now are unable to adhere to commitments we've made."

Moyer and Cook, partners in Lion's Gate Development Group Inc., face a pair of foreclosure lawsuits totaling $1.27 million, for unpaid loans on their Lakewood Ranch Country Club home and on a commercial space at the San Marco Plaza, in Lakewood Ranch, which Lion's Gate developed.

The pair's lawsuit, filed Monday in Sarasota County circuit court, marks the latest legal action swirling around Portanova and Proscenium, a nearly $1 billion, Waldorf-Astoria-anchored real estate development that has stalled amid a lack of financing.

In April, Cadence Bank N.A. filed a $3 million foreclosure suit against Portanova and the Proscenium, and a security company is seeking roughly $35,000 for lack of payment.

The lawsuit by Moyer and Cook also represents the largest in a series of mounting bills that Portanova has failed to pay and might be personally liable for.

More than a dozen contractors, real estate consultants, attorneys and other professionals are owed an estimated $3 million related to the Proscenium, designed as an 18-story tower with offices, retail and restaurants and an 800-seat theater.

Neither Portanova nor his attorney, William Schlotthauer at Sarasota's Williams Parker law firm, returned calls or e-mails for comment.

Despite the legal woes, Portanova continues to try and line up financing with a pair of Atlanta partners -- Nancy Edwards and Kim King -- whose lack of real estate finance experience and embellished pasts were highlighted in a Herald-Tribune story in May.

At the time, Portanova maintained that both Edwards and King were credible financiers capable of generating the money needed to acquire land for Proscenium.

Portanova provided King and her Greencastle Asset Management with $1 million last year, in exchange for securing $100 million in financing, court documents show.

But with no financing in place despite numerous promises, Portanova travelled to Atlanta earlier this month to meet with King.

"Ms. King is still optimistic that funding will occur but provided no specific date," Schlotthauer wrote to Moyer's attorney last week. "We have repeatedly heard this story from Ms. King so we do not have much confidence at this point. The partners are currently reviewing their options as it relates to the Funding Agreement with" Greencastle.

Schlotthauer said Portanova is now seeking other financing sources as well.

Portanova, meanwhile, also continues to negotiate with Anglo-Irish Bank to acquire the former Sarasota Quay property at 401 N. Tamiami Trail.

Sources with knowledge of the deal said Portanova faces a Sept. 1 deadline to complete the estimated $40 million transaction to buy the 15-acre site.

Moyer and Cook's lawsuit could impinge on those plans, though. Anglo-Irish officials have declined comment on the negotiations.

At the heart of Moyer and Cook's lawsuit is a November 2008 agreement in which Portanova bought out Moyer's 45.5 percent interest in the Proscenium, which Moyer had conceived four years earlier.

The agreement calls for Portanova to pay the pair $4.92 million by March 30 of this year.

Only $80,000 of the amount has been paid, the lawsuit states.

Additionally, the agreement states the Proscenium would pay Moyer $32 million from project income "before distribution of any profits to the members of the Proscenium Development or their affiliates."

Since its signing, the agreement has remained unfulfilled and been extended twice, most recently on May 30, court records show.

Moyer is owed more than $10 million on July 22, the documents state.

"We've put three years of our life into this, it's like a child we've given birth to," Moyer said of the Proscenium. "All the progress that was made, and the tenants arranged, to see that go by the wayside is so disheartening."

LINK

Bloomberg on The Coming Pain

2009-06-28T09:03:00.002-04:00

Recent clip from Bloomberg TV and an interview with Price Waterhouse's Susan Smith regarding what the coming months will have in store.

And on a lighter note...(maybe not?)

Office Tenants in Driver's Seat

2009-06-28T08:51:00.001-04:00

Office Tenants Now in the Driver's Seat

Jun 26, 2009
By: Dees Stribling, Contributing Editor

Even before the financial meltdown last fall, most U.S. office markets were going noticeably soft. In particular, vacancies were rising as businesses downsized, reorganized or otherwise felt skittish about committing to any new use of office space. Now that the worst recession in at least a generation is under way, what was once only a worrisome trend for U.S. office landlords is full-blown reality.

Few dispute that current conditions in almost every office market could be called a “tenants' market.” Tenants have the edge now, provided they themselves aren't beaten up so badly by the economy that they can't take advantage of that fact.

Though each major metro market has its own distinct features, the overall numbers are telling. According to Reis Inc., the overall U.S. office vacancy rate climbed to 15.2 percent by the end of the first quarter of 2009, compared to 14.5 percent at year's end 2008 and 12.8 percent during 1Q08. Office-space users vacated nearly 25 million square feet during 1Q09, moving in tandem with the spike in the U.S. unemployment rate during that period. People go, then the space goes, and people are still going.

Moreover, since commercial real estate tends to be a lagging indicator, even if the economy starts to grow again later this year--something of a tall assumption--office landlords might not feel the benefit for quite a while longer than that.

In some ways, this office downturn is like previous ones, Bill Lichwala, president and CEO of Plante Moran Cresa told CPN. “Financially solid tenants are now able to negotiate with a lot of strength,” he said. “At first, landlords resisted lowering rents, and offered more concessions, because lower rents affect the building valuation a lot more.”

But now rents are going down. According to Reis, office rents were an average of 3.2 percent lower in the first quarter of 2009 than a year earlier.

“Landlords simply can't compete anymore without competing on rents,” said Lichwala, whose Southfield, Mich.-based firm specializes in tenant rep. “They can only offer so much in the way of incentives, and that's reached its limit.”

Lichwala pointed out that in one way, however, this office market isn't like previous slumps in space usage. “Previously, landlords needed to be sure that a tenant was creditworthy before a deal would be inked,” he said. “That's normal due diligence, and it hasn't changed. But now tenants need to be as sure of the solvency of the landlords as much as the other way around. It isn't any good to negotiate a sweet concession package if the landlord goes into receivership and can't afford it.”

LINK

Pricing Headed Downward...Tell Me Something I Don't Already Know

2009-06-25T11:55:00.004-04:00

One thing is 100% certain to me: in the staring contest between buyers/tenants & sellers/landlords, sellers/landlords are going to be the ones blinking first. In what is akin to a Mexican standoff, the vast rift between buyers and seller expectations continue, at least for now.

But time is such a great equalizer, isn't it?

-A

Pricing Skid Suggests Sellers Capitulating to Buyers
Jun 22, 2009 - CRE News

In a sign that sellers are capitulating to buyers' demands, commercial property pricing dropped 8.6 percent in April, according to the Moody's/Real Commercial Property Price Indices, or CPPI.

The April drop is the largest recorded this investment cycle by the all-property component of CPPI, a collaboration of Moody's Investors Service and Real Estate Analytics that tracks repeat sales of properties.

The index stood at 135.31 in April and is 29.5 percent below the peak reached in October 2007, before sales activity began feeling the brunt of the credit-markets dislocation that started in late-summer 2007.

April's drop "suggests that sellers are beginning to capitulate to the realities of commercial real estate markets," which include demands for lower prices, Moody's said in its analysis of the CCPI. The index's second steepest monthly drop this cycle was by 5.5 percent in January.

Moody's further said that financially-distressed sellers became much more prominent in April. It noted that the volume of repeat sales made at prices resulting in losses to sellers was greater than the volume made at financial gains for the first month ever in its recording history.

In a rare bit of market optimism, Moody's speculated, "Large price declines may act as a catalyst to cause the bid-ask gap (between buyers and sellers) to narrow, which in turn may lead to an increasing number of transactions." April's 67 repeat sales, as recorded by the CPPI, compares to 82 in March.

If distressed sellers continue to be more prominent, it could set the stage for future pricing declines.

For the year ended in April, the all-property CPPI component dropped 25.3 percent, with declines across all property types, led by the office sector, which saw a 28.8 percent drop. Multifamily, retail and industrial were down 18.5 percent, 16.1 percent and 12.3 percent, respectively.

Every property sector saw price declines in every geographic region tracked by the CPP. Office prices fell most - 27.2 percent - in the East, followed by a 25 percent drop in the South and 22.2 percent drop in Southern California.

Declines in retail ranged from 7.3 percent in the West to 23.3 percent in the South.

The multifamily sector saw a 21.1 percent drop in the South. That region includes Florida, which saw a 22.5 percent decline. The East was the best-performing multifamily region with an 11.8 percent decline during the year ended April.

Industrial property declines ranged from 28.8 percent in the South to 7.3 percent in the West.

Long, Hot Summer

2009-06-18T07:07:00.002-04:00

CoStar recently polled some real estate experts and their findings are less than encouraging for the COMRE market. In fact, some of this is downright scary, depressing stuff. Below is an excerpt, follow the link below to read the entire article.

Despite Promising Signs, Many Wary that Recession's Knockout Punch Could Still Come
Commercial Real Estate Industry Says Recovery is Not Around the Corner

By Mark Heschmeyer
June 17, 2009
The End Is Near (for This Recession).

So read some of the economic placards that have been trotted out in policy statements these days with catchphrases such as 'Sustainable Recovery.' 'Recession Is Coming To An End.' 'Policy Actions Having an Effect.' 'Seeing Green Shoots of Growth.' and 'The Crisis Has Stabilized.' Many pointed to the more than 2,000-point climb in the Dow Industrial Average over the last three months as proof that federal stimulus measures appeared to be having an effect in rousing the slumping economy.

Just this week, chief economists from JPMorgan Chase & Co., Wells Fargo & Co., PNC Financial Services Group, Morgan Stanley and others said they expect the economy to "recover from its deep slump by late summer." The group that makes up the Economic Advisory Committee of the American Bankers said they expect the nation's gross domestic product (GDP) to increase 0.5% in the July-September quarter -- this after falling a projected 1.8% in the April-June period.

snip...

No Consumer, No Recovery

The bottom has not been reached in retail. Vacancies in the Whittier area are increasing and rents are still headed downward.
David Johnson, Partner at Johnson, O'Neill & Associates Inc. in Downey, CA

An alternative opinion to a quick 1.5- to 2-year recovery touted by many groups is that there can be no recovery because of the decline in consumer spending due to an individual's perceived loss on their net worth based on their home value.
Brian H. Strout, Acquisition Manager at Sciens Real Estate Management in Greenville, SC

The long and short of it is that so far, this seems like a recovery without the consumer. And I just don't think that in an economy driven 70% to 80% by the consumer, that a consumer-less recovery is possible. The credit card default rates are another telltale sign of mounting problems. Americans are running out of spending power from every angle (home equity, personal credit and now, income loss from job losses). And we haven't even seen the bubble start to burst in commercial.
Tony O'Neill, Broker at Voit Commercial Brokerage in San Diego, CA

I represent Healthy Fast Food Inc. They have a new branded concept they are opening up across the country called U-Swirl Frozen Yogurt. From a tenant point of view, HFFI along with my other clients are still very concerned about consumer spending, unemployment, consumer confidence, foreclosures, and the economy as a whole. If we have hit the bottom, then it is our view that we are going to stay there and bounce for quite a long time. U Swirl is only doing screaming deals. The kind where the landlord is screaming, not the tenant.
Ron Opfer, CCIM, Broker with Coldwell Banker Premier Realty in Henderson, NV

My assessment is that the economy will pick up starting fourth quarter of 2009 but the employment situation will only start to increase during first quarter of 2010. I think the worst of the commercial real estate market is still yet to come. Commercial markets will be in recession through mid next year.
KC Sanjay, Senior Economic and Real Estate Analytics at Guaranty Bank in Dallas, TX
Property Fundamentals Weak and Getting Weaker

I don't think the end is anywhere in site for a commercial real estate bottom. The CMBS market has yet to even start clearing the defaults. when these sales really start, they will dwarf the RTC volume. What these properties will sell for in a market without leverage is anybody's guess. My feeling is that the 25% percent down of years gone by will remain the same, although in the future, that will be the whole price! Just when things may hit bottom in a year or two, we will most probably be faced with hyper inflation, which is at best a forced savings account for performing assets, but at worst an additional huge stress for non-performing real estate. What will a half empty office building be worth in a declining market when prime is 14%? It is a scary thought.
Andrew J. Segal, President of Boxer Property in Houston, TX

I do not believe the end of the recession is in sight yet. The new 90-day moratorium on residential foreclosures commencing just [this week] will only exasperate a more severe response of the residential markets' attempt for correction upon expiration of the 90-day moratorium. The commercial real estate correction has only just begun and it will be a painful and significant correction. I believe 2009 will prove to be the worst single year of the last 50 years. Keep in mind; every office job loss represents a minimum of 250 rentable square feet, which goes idle and far more in other property types. When you do the math - it's staggering. Now factor in deleveraging the CRE universe, increased cap rates likely to settle in the 9% - 11% range based on stabilized income, increased cost of capital, high vacancy/availability rates, additional unemployment each month including continued historical layoff's post-bottom with a beginning recovery and the lack of debt and equity needed to help a correction along. . . what do you have? Answer = we have the "perfect CRE storm" and much restructuring to accomplish with no end in sight soon.
Richard A. Hawthorne, Principal of Hawthorne Cos. in Santa Monica, CA

The capital and debt markets for real estate remain dysfunctional. Moreover, there remains a large gap between the expectations of sellers and buyers. This means that virtually no arm's length commercial real estate sales are taking place. The small numbers of sales transactions that are reported mostly have been distressed sellers or workouts and do not establish an "arm's length" price or even a trading market. Until properties trade freely and with frequency, investors will remain reluctant to bid on acquisitions from fear of "catching a falling knife".
Louis J. Rogers, CEO of Rogers Realty Advisors LLC in Glen Allen, VA

Read the entire article here

Get Sarasota Commercial Foreclosure Listings on Twitter

2009-06-08T09:57:00.004-04:00

Go to http://twitter.com/srqcom if you're interested in updates on Sarasota and Bradenton commercial foreclosure properties I'm taking over, new listings, price reductions, etc. I will post my foreclosure assignments on Twitter first even if I do not yet have a price from the bank. Everything is going to go here first. This is a lot easier than calling everyone who shows interest in these things, there just isn't enough time. Email is a little too formal for that. I also plan on broadcasting closed sales and leases here - something I will not do via email.

Anyway, go here to sign up and follow me.

What is Twitter?

Twitter is a free social networking and micro-blogging service that enables its users to send and read other users' updates known as tweets. Tweets are text-based posts of up to 140 characters, displayed on the user's profile page and delivered to other users who have subscribed to them (known as followers). Senders can restrict delivery to those in their circle of friends or, by default, allow anybody to access them. Users can send and receive tweets via the Twitter website, Short Message Service (SMS) or external applications. The service is free to use over the Internet, but using SMS may incur phone service provider fees.

Tenants In Control Locally

2009-06-07T14:13:00.002-04:00

Pretty accurate, I must say. I did a 7k sf industrial deal recently in the $2.xx/ft range. This was a gross lease, too. Not much under construction, either.

Tenant’s market set to continue in Sarasota

Karen Temmen, Colliers Arnold

Tenants today have the opportunity to lease space with owner concessions and rates never seen in the Sarasota market before. Landlords are doing whatever it takes to keep tenants in place to provide the flow of rental income.

While some tenants are renewing short-term, some of those signing for longer periods have made unheard-of deals that have allowed them to position their companies for future needs. Many tenants are “reaching out” to their landlords to renegotiate current terms. Incentives have included one or more of the following: lower rates, free rent, moving allowances, additional tenant improvement dollars, or buyouts of existing lease terms.

The Sarasota/Bradenton/Manatee local unemployment rate rose to 10.8% in February and will likely continue to rise, which will put additional pressure on landlords to retain and attract new tenants. Comparatively, the Tampa Bay MSA unemployment rate is 10.2%, with a 9.4% Florida rate and a national unemployment rate of 8.9%.

Colliers Arnold projects vacancy rates to continue to rise, exerting downward pressure on lease rates. New construction has slowed significantly and will continue to diminish through 2009. Some building owners are now advertising lease rates as “negotiable,” and as a result many brokers feel asking rate averages may not be a clear snapshot of true market conditions. Landlords continue to remain aggressive in terms of attracting new tenants. However, negotiations are now taking longer and deal cycles have slowed. The current tenant’s market will likely continue into 2010.

Office

The first quarter 2009 overall vacancy rate for the Sarasota/Manatee office market measured 11.9%. This was relatively unchanged from the 12% rate from Q4 2008. However, the year-ago rate of for Q1 2008 was 8.3%. Class A vacancy was 16.6% for Q1 2009.

Net absorption for the first quarter totaled 80,240sf. The overall direct asking rate average was $21.60 psf, nearly unchanged from Q4 2008. However, the year-ago rate for Q1 2008 was $22.39 psf. The Class A asking average direct rate measured $25.19 psf for Q1 2009.

Three new office buildings were completed in the first quarter that totaled 58,938sf. 91% of this new supply was pre-leased or pre-sold before completion. No office buildings are currently under construction.

Industrial

The first quarter 2009 overall vacancy rate was 8.5% for the Sarasota/Manatee industrial/flex market. This was relatively unchanged from the 8.2% rate from Q4 2008. However, the year-ago rate of for Q1 2008 was 5.6%. Net absorption for the first quarter totaled 31,033sf.

The industrial direct asking rate average was $6.43 psf, nearly unchanged from Q4 2008. The flex building direct average asking rate was $9.64, down significantly from $10.56 for Q4 2008.

Two new industrial buildings were completed in the first quarter which totaled 140,767. 100% was pre-leased or pre-sold. The largest was the 123,367sf FedEx ground facility at 3015 Buckeye Road. No industrial or flex buildings are currently under construction.

Benderson Buys Back Properties at Discount

2009-06-07T13:57:00.003-04:00

Mostly of interest because these two companies are fairly big players in the local market here. DDR has a project near my home that has managed to go empty very slowly. I mentioned the woes of this particular mall last August in this very blog. Click here for the original article.

Benderson Development Co. is buying back eight local shopping plazas, plus three more in other parts of New York, from Developers Diversified Realty Corp.
Charles Lewis/Buffalo News

Updated: 06/07/09 07:31 AM
Benderson buys back local plazas at a discount
Firm pays 30% lessfor properties it soldfive years ago
By Jonathan D. Epstein NEWS BUSINESS REPORTER

Benderson Development Co., Buffalo’s biggest homegrown retail landlord, is pulling off a major financial coup, buying back 11 shopping mall properties in upstate New York for significantly less than it sold them for just five years ago.

The commercial developer has signed contracts to buy eight malls or shopping plazas in Western New York, and three in other parts of the state, from Developers Diversified Realty Corp., a publicly traded real estate investment trust based outside Cleveland, according to sources familiar with the deal.

That will return more than 3 million square feet to Benderson’s local portfolio. Sources said the purchase price was between $160 and $175 million.

The plazas are among the same properties that Benderson had first sold to DDR in March 2004. That deal, worth $2.3 billion, involved a total of 110 properties, 52 of which were in the Buffalo Niagara region.

Since then, however, the real estate market has turned soft, slumping retail sales have driven up vacancy levels at shopping plazas as stores have closed, and the credit crunch that hit last fall has further squeezed property owners.

“It’s good that the ownership is going in the direction that it is,” said Michael C. Clark, director of retail tenant services at CB Richard Ellis in Buffalo. “There’s going to be a lot of markets in other parts of the country where they have portfolios for sale by different REITs and they don’t have someone like Benderson to step up.

“We’re pretty fortunate in terms of the market, in regard to that. How much better can you get than the folks that developed them and are intimately familiar with them and live and breathe here? They certainly know what they’re doing,” Clark said.

The average price five years ago was $21 million, versus an average of about $15 million for the current deal — a discount of almost 30 percent.

“They’re buying them back for something like 70 cents on the dollar from what they sold it,” said Greg Klauk, president of Buffalo appraisal firm KLW Group.

“Nobody ever expects the prices to drop that quickly,” said William J. Kimball, managing director and principal in the Syracuse office of Integra Realty Resources, the nation’s No. 1 commercial real estate property valuation and consulting firm.

Benderson must still complete its “due diligence” on the properties, but that’s likely to be pretty short, since Benderson is familiar with the properties.

“It’s a very positive thing that they want to continue with these assets,” Kimball said. “They’re going to be the ones to make them work.”

Benderson and DDR officials declined to comment, citing confidentiality. However, DDR spokeswoman Betsy Keck noted that the company has already announced that “we are in active negotiations to sell shopping centers.” DDR has already sold more than $67 million in assets through the first quarter, she added, and has $175 million in assets under contract.

“It is our policy not to comment on potential asset sales before they close,” Keck said in an emailed statement.

The eight Western New York properties being acquired are:

• Boulevard Consumer Square in Amherst, with 700,810 square feet.

• Eastgate Plaza in Clarence, with 520,876 square feet.

• Marshall’s Plaza in Buffalo, with 82,196 square feet.

• Sheridan/Delaware Plaza in Tonawanda, with 188,200 square feet.

• Sheridan-Harlem Plaza in Amherst, with 58,413 square feet.

• Tops Market in Hamburg, with 84,000 square feet.

• Transit Commons in Amherst, with 114,177 square feet.

• Transit Wehrle Retail Center in Lancaster, with 112,949 square feet.

“Benderson is very savvy,” Kimball said. “They’ve done similar type deals where they’ve purchased properties that have been underperforming and done wonderful things for them.”

The sale of the shopping plazas has been the subject of speculation during the past two weeks, including at an International Council of Shopping Centers conference in Las Vegas last month. Local brokers reported hearing discounts of as much as 40 percent or more on the price Benderson was paying, versus what DDR paid in 2004.

That reflects the significantly changed circumstances confronting real estate developers and owners, especially those with shopping centers, like both DDR and Benderson.

Retailers have been struggling to maintain sales and post profits, as consumers pulled back sharply on spending in the last year. Many stores have filed for bankruptcy protection, and big names like Circuit City have even gone out of business.

As a result, landlords like DDR have struggled to maintain their rental income and the values of their own properties have fallen along with the broader commercial real estate market. “There’s a lot of REITs that aren’t in the position they were 12 or even 24 months ago,” Clark said.

DDR owns and manages 720 properties with 153 million square feet of space in 45 states, Puerto Rico, Brazil, Russia and Canada, including what it got from Benderson.

The company has already been whittling down the original Benderson portfolio, selling an 85 percent interest in 14 properties in April 2004 to a joint-venture trust with Australia’s Macquarie Bank, a major real estate investor worldwide.

It also sold a 90 percent interest in 13 shopping centers — including four Tops Market plazas in Western New York — in October 2004 to Prudential Real Estate Investors. And it sold another four Western New York shopping centers anchored by Tops to New York investors in January 2007.

Finally, as the market started to turn down last year, it sought to sell two bundles of properties with 1.5 million square feet of space, including Office Depot Plaza in Tonawanda, Sheridan- Harlem Plaza in Amherst and Regal Cinemas in Niagara Falls.

But the company was hampered last fall and early this year by the freezing of the capital markets, which constrained its cash flow and ability to make payments on its debt. It lost $179.6 million in the fourth quarter before rebounding for an $87.4 million profit in the first quarter of 2009. And its cash fell by $20 million last year, raising questions about its ability to pay its debts.

In February, it agreed to sell 30 million common shares and issue warrants to buy another 10 million shares to Germany’s Otto family, which owns or controls major European and North American shopping center firms, plus the Crate & Barrel chain. That makes the family DDR’s largest shareholder.

The company also got a commitment from the family for a $60 million, five-year fixed-rate secured mortgage, and got $125 million in new debt financing.

“All of these transactions are important steps in lowering our leverage and improving our liquidity, and we continue to work diligently on additional initiatives,” DDR CEO Scott Wolstein said.

Still, its stock has been hammered in the past two years, falling 98 percent from a height of $67.07 in February 2007 to a low of $1.34 on March 3, 2009. The shares closed at $5.60 on Friday.

Hence the need for property sales, even at big discounts. “They need some liquidity and in order to sell something in today’s market, this is the price,” Kimball said. “There really is a dearth of activity. This isn’t a time when you’d want to sell.”

For its part, Benderson, founded in 1950 by Nathan Benderson, is one of the nation’s top retail developers with more than 250 properties and 25 million square feet of commercial space in 35 states, and another 4.5 million square feet under development. It also owns and develops office buildings, industrial parks, residential communities, and self-storage facilities, and owns the Delta Sonic car wash company and its Buffalo Lodging Associates hotel division.

Originally based in Buffalo, the privately owned company moved its headquarters to University Park, Fla., in early 2004, but is still a major player in Western New York, with a regional office and 52 properties.

But it also has properties throughout New England, New Jersey, Pennsylvania and Ohio, as well as one in St. Louis. And it has 21 properties in 13 cities in Florida, especially in Bradenton and University Park — areas that have seen significant drops in property values.

Commercial REITS Back On The Move

2009-06-04T06:52:00.000-04:00

Recharged REITs

Peter Slatin, 06.03.09, 06:00 PM EDT
Forbes Magazine dated June 22, 2009

Excitement has returned to the market in anticipation of the bargains to be found in distressed commercial buildings.

When it comes to investor interest, the resilience of real estate never ceases to amaze me. Despite the recent devastating downturn in demand for space, real estate investment trusts are coming back with a vengeance. There have been $10 billion in new equity offerings this year, mostly since March. According to research firm SNL Financial, the median price gain for REITs that sold equity was 35% from Mar. 31 through May 26. SNL's Equity REIT index, representing all U.S. publicly traded REITs, has gained 28%. This rebound comes after a devastating two years in which REIT shares lost 75% of their value.

What you are seeing is more than a turnaround in investor attitudes and a need by issuers to deleverage their balance sheets. Many REITs intend to finance the purchase of distressed commercial real estate at bargain prices. My firm, Real Capital Analytics, has more than $90 billion of commercial property listed as "troubled" in its database.

Among the REITs raising equity capital: mall giant Simon Properties, mall and office building owner Vornado and shopping center landlord Kimco. Joining them are smaller companies like Acadia Realty Trust ( AKR - news - people ), Digital and Kite Realty. All these companies are sending a message that they intend to be players in the newly reshaped realty market. The public entities, interestingly, are having a field day at a time when private equity partnerships are hard-pressed to raise new capital.

You are witnessing another phenomenon at work. The REIT world is beginning a Darwinian bifurcation into companies that will, and companies that won't, make the transition from an old-style business model rife with opacity, cowboy swagger and good-old-boy networks into a transparent and more efficient business platform. For real estate investors the new reality will be no less hard-knuckled or even ruthless than it has been for decades. For many years real estate has been a shadowy business. It's often been difficult to understand just where the money comes from or where and how it is spent. Public vehicles, while still capable of cloaking a lot of activity, are inherently more accessible and visible than private investment funds.

Before you charge headlong back into REITs be aware that the business is not yet out of the woods. The global recession is real and commercial; office and residential REITs will continue to feel pain. The average REIT will see a small shrinkage this year in earnings, as measured by adjusted funds from operations (net income plus depreciation, minus maintenance-level capital expenditures).

Two REITs that recently tapped capital markets that I favor are shopping center REIT Regency Centers (34, REG) and industrial property owner AMB Property (17, AMB). Both have smart management, high-quality properties and strong balance sheets. They are now clearly ahead of their peers. Regency is priced at 13 times likely adjusted FFO for 2009. AMB also goes for 13 times likely adjusted FFO.

Link

Banks Troubled CRE Assets Double to $34 Billion

2009-06-04T06:48:00.000-04:00

Rising Nonperforming CRE Loans, Foreclosures Dull Otherwise Good Quarter for Nation's Banks

By Mark Heschmeyer
June 3, 2009
The amount of troubled loans on income producing commercial real estate property is rising rapidly at the nation's bank and thrift institutions. The total is now more than double what it was a year ago with the bulk of the increase coming in the first quarter of this year.

The nation's FDIC-insured banks reported carrying $22.3 billion in nonperforming office, industrial and retail property loans on their books at the end of the first quarter and another $4.3 billion in multifamily loans. That is up from $15.7 billion and $3 billion respectively from three months ago - increases of more than 40% in both cases.

The nation's FDIC-insured thrifts reported carrying $2 billion in nonperforming office, industrial and retail property loans on their books at the end of the first quarter and another $842 million in multifamily loans. That is up from $1.5 billion and $591 million respectively from three months ago - increases of more than 33% and 42% respectively.

In addition to those nonperforming assets, U.S. banks were carrying $3.3 billion in foreclosed office, industrial and retail properties on their books and $1.3 billion in foreclosed apartment properties. Thrifts carried $327 million and $142 million respectively.

The FDIC (Federal Deposit Insurance Corp.) also noted that other asset-quality indicators continue to decline. Insured institutions charged off $37.8 billion in bad loans in the first quarter, almost twice the $19.6 billion of a year earlier. The amount of loans and leases that were noncurrent (90 days or more past due or in nonaccrual status) rose by $59.2 billion during the quarter, and are $154.3 billion higher than a year ago.

"Troubled loans continue to accumulate, and the costs associated with impaired assets are weighing heavily on the industry's performance," said FDIC Chairman Sheila C. Bair. "Nevertheless, compared to a year ago, we see some positives. Net interest income is higher, and noninterest revenue is up at larger banks, particularly trading revenues. Realized gains on securities and other assets improved, too. But these positive factors were outweighed by higher expenses for bad loans and for goodwill impairment."

The commercial real estate numbers blighted what otherwise was a positive quarter for commercial banks and savings institutions that rebounded from losing money in the fourth quarter of last year. Banks and thrifts reported net income of $7.6 billion in the first quarter of 2009, a decline of $11.7 billion (60.8%) from the $19.3 billion that the industry earned in the first quarter of 2008.

Higher loan-loss provisions, increased goodwill write-downs, and reduced income from securitization activities all contributed to the year-over-year earnings decline. Three out of five insured institutions reported lower net income in the first quarter and one in five was unprofitable.

In fact, the FDIC's list of problem institutions continued to grow during the quarter from 252 to 305 institutions, and the total assets of problem institutions increased from $159 billion to $220 billion.

The number of problem thrifts was 31, up from 26 in the previous quarter.

The number of FDIC-insured commercial banks and savings institutions reporting financial results declined from 8,305 to 8,246 in the first quarter. Mergers absorbed 50 institutions, while 21 insured institutions failed.

This is the largest number of failed institutions in a quarter since the fourth quarter of 1992. Thirteen new charters were added in the first quarter, the fewest since the first quarter of 1994.

"The first quarter results are telling us that the banking industry still faces tremendous challenges, and that going forward, asset quality remains a major concern," Chairman Bair noted. "Banks are making good efforts to deal with the challenges they're facing, but today's report says that we're not out of the woods yet."

"As I see it, we're now in the cleanup phase for the banking industry," Bair added. "It will take some more time. But in the end, we'll have a stronger banking industry that's better able to meet the demand for credit as the economy recovers."

Insured institutions set aside $60.9 billion in provisions for loan losses in the first quarter, an increase of $23.7 billion (63.6%) over the first quarter of 2008.

The U.S. thrift industry rebounded too in the first quarter of 2009, but still reported losses of $47 million. That is still their best performance since September 2007, the Office of Thrift Supervision (OTS) reported.

"We are seeing encouraging signs in the performance of the thrift industry," said Acting Director John E. Bowman. "Although it's too early to say we've hit bottom or that the industry's troubles are behind us, fundamentals such as solid capital, strong levels of loan loss reserves and improving operating income give the industry a solid platform for the future."

During the quarter, 74% of thrifts were profitable, up from 65% in the fourth quarter of 2008. The improved profitability reflected lower loan-loss provisions of $5.8 billion in the quarter, down from $9.3 billion in the previous quarter. Although loan loss provisions declined, they remained elevated and were the fifth highest on record.

Car Dealership Vacancies

2009-06-02T06:55:00.000-04:00

What's to become of all this space?

Car Dealership Closings Could Hurt Commercial Real Estate Values With Excess Space Supply (6/2)

Jun 2, 2009 12:01 PM, By Elaine Misonzhnik

As the U.S.'s auto manufacturers continue to restructure and cut costs, car dealership closings are spiking and generating a glut of excess space that might have a prolonged negative impact on the commercial real estate market, investment sales brokers say. There isn't nearly enough demand from other car brands to occupy all the dealerships about to be shed by Detroit's Big Three, and the skyrocketing vacancies in almost every sector of commercial real estate make it unlikely that most sites will be redeveloped in the near future. Rather, brokers expect that dealerships in the best locations in urban markets will be snatched up relatively quickly, while the vast majority of sites will languish and sit empty on highways around the country for several years.

"Not until the market rebounds significantly" will all of the space left by auto dealerships be absorbed, says Geoffrey Millerd, executive director in the capital markets group of global brokerage firm Cushman & Wakefield. "A very small percentage will be taken in the near future and then there will be a big bulk that will sit on the market for quite a while."

Properties on high traffic intersections in major urban markets, including New York, Chicago, Los Angeles and Seattle, might get the most interest. For example, real estate services firm Colliers International recently received five offers within three weeks for a dealership site in South Florida, all of them close to the asking price. But markets that experienced run-ups in housing values and excess commercial real estate development, such as Phoenix, Salt Lake City, Reno, Houston and Atlanta, might have a tough time, adds Mitchell.

The U.S. auto industry has been talking about dealership closures for some months, but the recent bankruptcies of Chrylser LLC and General Motors Corp. have significantly increased the number of expected closings. In February, the National Automobile Dealers Association (NADA), a trade organization representing car and truck dealers, forecasted that net closings of car dealerships would reach 900 this year. (The group expected 1,100 closings and 200 openings.) The industry began the year with 20,453 dealerships—down from 22,250 dealerships in 2000 and 30,800 in 1970—the earliest year for which data is available.

Already, 522 dealerships have closed in 2009. Now, both Chrysler and General Motors are looking to aggressively trim their dealer base even further. General Motors, which filed for bankruptcy protection earlier this week, previously planned to close 1,200 sites by 2012, but has raised that number to 2,775, opting to cut its dealership fleet down to 3,600 from the 6,375 sites it operated at the end of last year. Meanwhile, Chrysler LLC, which filed for bankruptcy protection in early May, plans to close 789 dealerships, trimming its base to 2,392 dealerships. Ford Motors Corp.—the healthiest of the Big Three—operated 3,787 dealerships at the beginning of the year. It too plans to shutter dealerships, but has not disclosed a number. That means that by the time the U.S. auto industry completes is restructuring, it will have shed anywhere from 30 percent to 40 percent of all existing dealerships, notes Owen G. Cone, senior director with the cars group of Colliers International.

Approximately 25 percent to 30 percent of the dealership sites about to hit the market will likely be taken over by other car brands, estimates James Mitchell, director of the national automotive group with Marcus & Millichap Real Estate Services, an Encino, Calif.-based real estate brokerage firm. The rest of the sites, however, face an uncertain future. In the past, car dealerships were considered attractive acquisitions by developers of strip centers, small office buildings and hotels as many boast good frontage, are in high traffic locations on major thoroughfares and sit on parcels that have already been graded and require minimal site work. (Read story here.)

However, auto dealerships also provide developers with challenges. Auto dealerships are inefficient uses of space with vast parking lots and small buildings. For other commercial real estate uses, the sites can support much larger buildings or be chopped up into smaller sites. But in the current climate, developers might be able to find other commercial sites that require less work and time to turnaround and that don't need to be rezoned. A big box retailer can take over a former Circuit City location quickly, while redeveloping a former dealership could require up to two years to secure the necessary re-zoning and then additional time to demolish the existing building and replace it with a better suited one, says Millerd.

In the retail sector in particular, a recent spate of bankruptcies involving big box tenants including Circuit City and Linens ‘n Things has left plenty of options for those wishing to expand without spending a fortune on construction. (Check the Traffic Court blog for the latest information on store closures.) In the first quarter of 2009, the national vacancy rate for retail properties reached 9.0 percent, vs. a vacancy rate of 5.4 percent for auto dealership sites, according to data from Marcus & Millichap. And it's not as if the retail sector is clamoring for more space to come online with many chains slowing on expansion plans. As it is, more than 90 million square feet of retail space will come online in 2009. That's down from the market's peak, but still represents a big chunk of development.

Aside from retail, in recent months, some trade schools and medical clinic operators have been looking at auto dealership locations, according to Cheryl Bloodworth, vice president of transaction services in the Newport Beach, Calif.-based office of brokerage firm Grubb & Ellis. But the amount of interest has been modest. "You have a classic game of musical chairs, except that this time there are too many chairs," Bloodworth says.

Read the rest here

No Movement in Commercial, Report Says

2009-05-16T09:08:00.002-04:00

Commercial real estate still frozen, upcoming report says

By Arleen Jacobius
May 15, 2009, 9:55 AM ET

The gale-force winds that have struck U.S. real estate could shake loose some bargains within the next year or two, but investors and money managers shouldn’t crawl out of the root cellar just yet.

Commercial real estate loans are tough to come by, with lenders reluctant to offer debt for transactions worth more than $50 million, according to a soon-to-be-released study by ING Clarion Real Estate. Lenders are requiring a lot more cash in the loan-to-value ratios (the comparison of the size of the mortgage to the value of the deal). The ratio has dropped to 50% to 60% in March from 70% to 90% in 2006, according to ING Clarion Research & Investment Strategy, ING Clarion’s research unit.

The cost of debt in commercial real estate loans in the U.S. also has increased, to 7.5% in March from 5.5% in 2006. This means that the return investors need to earn also has gone up, to 10% from 8%, ING Clarion’s research showed.

This combination — more cash required and a higher cost of debt — is devastating for commercial real estate investors because most investment hinges on the availability of affordable debt, the survey noted. The average transaction cap rate for all properties worth more than $5 million in the fourth quarter rose to 7.2%, according to data from Real Capital Analytics cited in the ING Clarion report. By March, the cap rate — which measures how fast an investment will return capital — was up to 8.5%, the ING Clarion study indicated.

ING Clarion anticipates that cap rates for core properties — the most stable but lower-return set of real estate investments — will stay in the range of 7.5% to 8.5% for the next 18 to 24 months.
Prices down but deals not up

“It’s a very serious crisis,” said David J. Lynn, managing director at ING Clarion Real Estate, New York. “There is a perfect storm and real estate fundamentals (such as rent and demand) will continue to decline.”

All of these factors are causing prices to decline but transactions have not yet picked up. Buyers and sellers have not had a meeting of the minds on value, mainly because the market adjustments and the exceedingly low number of transactions are making it almost impossible to price a property, Mr. Lynn explained.

Properties are producing less income because owners are cutting deals on rents to retain tenants, one of the strategies ING Clarion considers a top priority for real estate owners for the near term. The Catch-22 of this strategy is that it’s adding to the bid/ask spread standoff between potential buyers and sellers of commercial real estate.

Also adding to that standoff is that most investment managers aren’t all that eager to sell properties in their portfolios at loss.

“Many of these guys have low-cost debt” that will not have to be refinanced for another few years, Mr. Lynn said. This means the cost of keeping the properties in their portfolios is relatively low.

“They are content to hold,” he said.

Defaults on commercial loans are projected to grow to 5% to 6% during the next 18 to 24 months. Right now, mortgage defaults are 2%, Mr. Lynn said. Defaults on commercial mortgage-backed securities are growing too, but most of those securities won’t start coming due until sometime later this year. When default rates rise more, investors will be able to get equitylike returns for senior debt. Buying cheap debt on property could be a good way to end up owning the real estate.

In the coming 18 to 24 months, investors will be able to buy loans at a discount, he said. But not yet.

“It’s a different horror movie than in the early 1990s,” Mr. Lynn said. “It happened really quickly (then). There were huge opportunities and it was all for sale. Now there will be huge opportunities, but a lot of people are holding on.”

Link

22 Deals in One Month

2009-04-30T08:29:00.005-04:00

No, that is not a typo. My month has been, well, let's just say it's been pretty encouraging. The tally consists of 3 leases (in excess of 11,000SF, retail and office only) and 19 closed commercial sales. Several of these were the purchase of non-contiguous foreclosed lots, an office building, etc. I am closing out the month of April with a small retail lease that was completed yesterday morning.

As far as I can tell right now, buyers are still able to obtain financing. I personally witnessed this occur several deals. I've also seen some banks behave as if they actually want to lend but make the process so arduous that it's all but impossible to get a loan. I would just prefer if these folks fessed up and not wasted everyone's time. It's going to be a while before I'll feel comfortable recommending them again.

Most of the leasing I've been involved with consists of new start-up business taking advantage of the current rental climate and companies shuffling to similar chunks of space where the rent is cheaper. I don't blame many of them as retail and office rents are down as much as 50%-60% in many places. The Sarasota vacancy report was released earlier in the week and the numbers are not good. Lots of negative absorption out there. I expect this to continue throughout the summer and am hopeful things will turn around in the fall.\

No, that is not a typo. My month has been, well, let's just say it's been pretty encouraging. The tally consists of 3 leases (in excess of 11,000SF, retail and office only) and 19 closed commercial sales. Several of these were the purchase of non-contiguous foreclosed lots, an office building, etc. I am closing out the month of April with a small retail lease that was completed yesterday morning.

As far as I can tell right now, buyers are still able to obtain financing. I saw this on several deals. I've also seen some banks behave as if they actually want to lend but make the process so arduous that it's all but impossible to get a loan. I would just prefer if these folks fessed up and not wasted everyone's time. It's going to be a while before I'll feel comfortable recommending them again.

Most of the leasing I've been involved with consists of new start-up business taking advantage of the current rental climate and companies shuffling to similar chunks of space where the rent is cheaper. I don't blame many of them as retail and office rents are down as much as 50%-60% in many places. The Sarasota vacancy report was released earlier in the week and the numbers are not good. Lots of negative absorption out there. I expect this to continue throughout the summer and am hopeful things will turn around in the fall.

I'm often asked why some properties are moving and others are not. There are a variety of factors in play here, but the most significant is pricing. If landlords and sellers aren't eager to make deals happen, there's no real point in even listing a property for sale at all. Yes, there is a lot of pain - and sometimes anger - involved in coming to terms with what your property may be worth. The problem is, it's only worth what someone will pay. As agents, we do not set the prices, the market does. And the market is changing on a daily basis. If you're a landlord, it's best to bring some some cash in than none at all. If you have a premium location you'll certainly be able to obtain marginally better rents.

Media's Effect on Spending

2009-04-16T11:12:00.002-04:00

Not necessarily a post about commercial real estate per se, but I find it interesting how heavily the media plays into general economic fear. No doubt we are facing some strong economic headwinds, but one really needs to question how much worse the constant flow of instant information makes things. Interesting read. See link below for the rest of the article. From The Washington Post.

Frugality fuels recession's vicious cycle
Even those whose jobs are safe are spending less, which holds down growth
By Michael S. Rosenwald
The Washington Post
updated 4:57 a.m. ET, Thurs., April 16, 2009

WASHINGTON - Denise Kimberlin and her husband, Craig, of Woodbridge are government contractors who make nice livings. They recently got raises. They don't fear losing their jobs.

Yet, something is driving them to change their spending habits. They have cut back by at least $250 a week on clothes, dinners out and other discretionary spending.

So, too, has Bob Scanlon, a Brookeville executive with the Transportation Security Administration. He feels his job is secure. But recently he decided to lop $50 a month off his family's cable bill. When they dine at their favorite restaurant, they go on half-price Tuesdays.

The frugality of the Kimberlins and Scanlons and millions of other Americans who still have their good jobs feed back on the economy, holding down growth and encouraging other worried workers to trim their spending — causing the whole vicious cycle to run another lap.

"It really can become and does become a self-fulfilling prophecy," Denise Kimberlin said.

Psychological traps
Economists say many still-flush consumers are handcuffed by psychological traps that cause them to tighten their purse strings even though economic hardship is not their reality. Underscoring the crucial role that consumer psychology will play in turning around the economy, President Obama and Federal Reserve Chairman Ben S. Bernanke have both been on the hustings this week sounding notes of optimism.

"Traditional economics assumes that we are all rational, that we approach these things very rationally, take in all the information, and then weight it and make a decision," said Thomas Gilovich, a Cornell psychologist and co-director of the university's Center for Behavioral Economics and Decision Research. "To a behavioral economist that seems clearly untrue."

Denise Kimberlin said she began cutting back after the holidays, when at family gatherings and work parties she heard stories of people losing their jobs and people saving money around the edges. The stories made her wonder, "What if?"

These perceptions are reinforced by the blare of the news media. When network news anchors Brian Williams and Charlie Gibson lead their broadcasts with bleak news about the economy and consumers clamming up, people who don't necessarily need to cut back decide to anyway.

In August, the three major TV network newscasts spent a total of 85 minutes covering economic news, according to the Tyndall Report, which monitors newscast content. In September, when the banking crisis began and layoffs spiked, the coverage totaled 403 minutes. In the same month, Gallup's polling shows upper-income consumers dropped their total daily spending to about $160, from a high of $185 in May.

By last month, after what must feel like an eternity of stories about creative ways strapped people are saving money, they had cut back further — to $101 day.

Click here for the rest of the story.

Local Retail Vacancies Soar

2009-03-29T09:54:00.003-04:00

Space is tough to lease these days, no question about that. Here's an article which appeared this morning in the Sarasota Herald Tribune.

U.S. 41: DOWNTURN DRIVE
Tough times for Tamiami Trail businesses

By Lauren Mayk

Published: Sunday, March 29, 2009 at 1:00 a.m.

This is the first of four stories about how the recession is changing the way local businesses buy, sell and survive.

The economy has changed the Trail.

There are fewer dinners out, smaller staffs and weakened sales. At one beauty salon in North Port, there is even a post office.

When customers started stretching out the time between haircuts and color appointments, Stella Derby went after a contract with the U.S. Postal Service. She now takes mail and sells stamps in the front of her Modern Beauty salon on Tamiami Trail. Signs point patrons to separate entrances for the salon and post office. The idea was to increase exposure for the 30-year-old salon, and nine months later, it seems to be working.

"Every week I get a couple, two, three new clients," Derby said.

Her strategy is one among many that business owners along Tamiami Trail are cobbling together in the midst of a painful downturn that has given some of them the choice between creativity or closure. Traffic along the Trail drives the pulse of commerce and consumerism in Southwest Florida, and it has slowed to a crawl.

There are the obvious indicators: shuttered restaurants, liquidating big boxes and "out of business" signs, but there is also pain inside the businesses still open -- even some that have cars in the parking lot and sales on their books.

Owners are discounting heavily, taking double-digit sales hits and worrying about what comes after the tourist season.

"The whole idea of season is to build up a little bit of cash, and that's not going to happen," said Simon Mendez of Simon's Quality Used Furniture. "You think it's bad right now with people closing down? Wait for summer."

Last year, consumers spent $2 billion less in Southwest Florida than they did in 2007, data from the Florida Department of Revenue shows, with gross sales down 10 percent in Sarasota County, 10.2 percent in Charlotte County and 4.1 percent in Manatee.

For December, the most recent month available in detail, regional sales were down 9.9 percent. The drop-off was about 10.2 percent in Sarasota and Manatee and 7.7 percent in Charlotte County.

Figures for more recent months are not out, but Trail business owners will tell you that despite the tourist season, the (non)spending trend has continued. "This was the worst January I ever had," said Craig Cook, who has owned Amber's Jewel Box in North Port for 11 years. His January sales were off 60 percent.

The Herald-Tribune interviewed more than 50 business owners, employees, real estate professionals and business experts about life along the Trail these days.

There are bright spots and there is determination to evolve with the economy, but there is also an overwhelming feeling of tough times along Southwest Florida's commercial heart.

Vanishing customers

Kamlesh Kadiwar saw sales at his combination gas station, convenience store and deli at Tamiami Trail and River Road in south Venice start to nosedive in April 2007.

Countywide, the decline took a few more months to show up at gas stations, state data show, happening about the time gas was topping $3 in spring and summer 2007.

Sales at Myakka River Trading Co. dropped 25 percent from 2006 to 2007, then sank another 50 percent from 2007 to now.

Kadiwar's business also lost another bigger transaction. "We were under contract for sale for a while and when the recession hit, they backed out," he said.

The station and store, advertising a "1/2 lb. of our famous chicken wings" for $3.79, used to see a steady stream of construction workers, but Kadiwar figures traffic is down from 700 people a day to 300.

The staff has been halved. Kadiwar employs just three others, taking evening shifts himself.

Another challenge is looming, a requirement that stations change their tanks from stainless steel to double-walled fiberglass this year. Kadiwar says the switch would cost $275,000. "We're not going to be doing it. We're going to stop selling gas unless the situation changes," he said.

Stations like Kadiwar's in Sarasota County saw a 41.5 percent drop in sales in November compared with a year ago.

More broadly, the trend was negative that month in about 70 percent of the roughly 80 categories used by the state to break out sales for the county. Many dropped more than 20 percent, including automotive dealers at 32 percent and boat dealers at 52.8 percent.

Sales of household appliances took a 51.7 percent dive, while home furniture, furnishings and equipment -- tied closely to movement in real estate -- were down 20.15 percent. The bright spot was that some furniture retailers report a boost from customers who have just bought homes in the area. With home prices down, buyers have extra money to decorate.

On the other hand, some custom furnishings are ending up back on the sales floor after customers (who only paid for part of the total cost as a downpayment) fail to pick them up.

Traditional retail categories that depend on discretionary income continued to fall, with restaurants and bars showing pullbacks of 3.8 percent and 15.6 percent, respectively, and apparel and accessory stores down by 12.5 percent.

The numbers did spike for some areas in December, including spending on used merchandise (up 3 percent), transportation (up 42.1 percent) and utilities (up 14.8 percent).

While the state can paint a pretty vivid picture of how different industries and retail segments are faring, there are some surprises and some unknowns about what is behind the numbers.

They do not, for example, take into consideration what sales are doing to profit margins, nor do they reflect the evolution of businesses that have downsized by cutting jobs and expenses to stay healthy even while taking in less revenue.

Beauty salons, barber shops and personal appearance services come off looking quite popular in December, with a 31.7 percent year-over-year leap.

But anecdotal evidence suggests consumers are letting their hair grow a little longer, trying home perms and limiting their beauty budgets.

For Audrey's Towne Stylists salon in North Port, some customers just did not make it at all this year. "A lot of people haven't come down from the North," owner Audrey Fred said. "I've gotten a lot of calls and letters saying they can't afford it."

On a February day, Fred and an employee sat in the shop alone, no customers in the rose-colored salon chairs along the wall. Fred, who had run the operation since 1983, said that day that she would like to find a buyer who would let her stay on part-time.

Soon after, the shop closed and a "For Rent" sign showed up on the window.

Empty spaces

At Rico's, a pizza place on the North Trail near the Ringling Museum, business is down at least 20 percent and the staff has shrunk by more than half -- but those are not the only business hits Salvatore Dentici is taking these days.

In addition to a small string of Rico's restaurants, Dentici and his brothers own commercial space, with 11 units around the Rico's spot on North Trail.

"We were fully rented two years ago," Dentici said, peering out. "Now we have ... five."

That real estate once housed a mortgage company, a real estate agency and a Mexican store. "A lot of people just walked," Dentici said.

Vacancies along the Trail are striking, with clusters of leasing signs and closed-up shops punctuating large stretches of commercial space.

The Glengarry Shoppes, home to Barnes & Noble and a Best Buy, used to be flanked by two restaurants: Village Inn and Steak & Ale. Both have closed; one has been knocked down.

On a stretch of the Trail just north of Clark Road, an empty restaurant building is sandwiched between two vacant structures. Others only recently emptied, including a doomed Circuit City.

"There's probably more vacancies than I've ever seen, and it's going to take a long time to fill them," said Barry Seidel, whose name is a common sight on real estate signs along the road.

But Seidel is seeing some hope for the simple reason that his phone is ringing. It started with calls from outside the 941 area code, then from locals.

The glut of office and warehouse space tends to be the most difficult to move.

Tough as it is to lease, Seidel says sales are a bigger challenge.

Bill Clampitt has gotten a lot of interest in buying a property originally built as a Wendy's on the Trail, though a deal recently fell through. He is offering "owner financing" as an appeal to potential buyers concerned about the credit market.

Knights Inn owner Arvind Patel hoped to sell his hotel on the North Trail, but let a listing expire, figuring the market is too soft. Though he is no longer actively seeking a buyer, the listing can still be found online.

"If somebody brings in $4.4 million, they can have it," he said.

Landlords and Tenants Alike More In Favor of Short-Term Leases

2009-03-25T11:35:00.003-04:00

From the NYT. Pretty similar to what is going on locally. Link to full article below.

Both tenants and landlords seem to be growing afraid of commitment these days. With the economic outlook murky at best, fewer of them want to tie themselves to long leases.

Tina Fineberg for The New York Times

In Manhattan, where office leases often last 10 years, there has been a noticeable uptick recently of leases lasting only one to three years. Some prominent landlords have begun playing up the availability of short-term leases in their buildings.

For example, Paramount Group is advertising two-year leases at 1633 Broadway, between 50th and 51st Streets. And the Kushner Companies sent promotional materials to brokers advertising one- and two-year leases for finished offices in 666 Fifth Avenue, a prime office tower that spans the entire blockfront of Fifth Avenue between 52nd and 53rd Streets.

In all of Manhattan, 21 percent of the office leases that were signed in the fourth quarter of 2008 were for three years or less, compared with 15 percent in the corresponding quarter a year earlier, according to Cushman & Wakefield, a real estate brokerage firm that compiles data on commercial transactions. Brokers say they expect short-term leases to become even more fashionable this year.

“There’s a lot of anxiety out there, and short-term decisions are easier to rationalize,” said David L. Hoffman Jr., a principal at Colliers ABR, a real estate services company.

Mr. Hoffman is the leasing agent for some office towers in Manhattan whose landlords have recently signed short-term renewals with existing tenants. “There were tenants with one foot out the door, who were leaving spaces that required large capital improvements,” Mr. Hoffman said. “We decided it was more cost-effective to keep them in place.”

In recent months, he has negotiated five short-term lease renewals at 360 Lexington Avenue, a 24-story, 262,000-square-foot office tower on the northwest corner of 40th Street. Three of these renewals were for two years, and two were for one year.

Brokers say that smaller tenants tend to favor short-term leases now, while large office tenants still prefer the stability of long-term leases. For example, the short-term leases that Mr. Hoffman negotiated at 360 Lexington Avenue ranged in size from 2,500 square feet to 7,300 square feet. The tenants included a law firm, a technology firm, a small financial firm and two missions to the United Nations, which is nearby.

The building is owned by AEW Capital Management, a real estate company based in Boston, which bought it for $129 million in August. “We did not forecast higher rents when we bought the building, because the Bear Stearns building was nearby, and we knew there would be a shakeout in the financial sector,” said Jeff Furber, the chief executive of AEW Capital Management, which is a subsidiary of Natixis Global Asset Management, a French investment firm. Indeed, he said, “we liked the building because it didn’t have a lot of financial firms in it.”

Mr. Furber said that tenants were driving the demand for short-term contracts and that he would be happy to sign office leases for five years or more. “But business conditions are deteriorating so rapidly,” Mr. Furber said. “Tenants are saying that they’re just not sure how much space they’ll need in a year or two, so it is hard for them to commit.”

Matthew Astrachan, an executive vice president at Cushman & Wakefield, who represents both office tenants and landlords, said that the Manhattan office market had recently become a “tenants’ market,” meaning tenants now have the upper hand in negotiations with landlords.

The vacancy rate for the entire Manhattan office market as of the end of February had risen above 9 percent. But vacancy rates are even higher in the most expensive top-notch buildings, known in the industry’s jargon as Class A office space. The vacancy rate for Class A buildings in Midtown Manhattan has climbed to 10.6 percent, according to Cushman & Wakefield.

Mr. Astrachan said that in times like these, tenants can often negotiate with landlords for concessions — like long periods of free rent and capital improvement allowances — if they are signing 5- to 10-year leases.

But tenants signing leases of one or two years cannot negotiate as many perks. “They are slightly overpaying, in order to keep their flexibility,” he said.

Charlie Malet, the executive vice president in charge of national leasing for Shorenstein, a real estate company based in San Francisco, which owns several office buildings in Manhattan, said that short-term leases were attractive for both landlords and tenants now.

“Landlords don’t want to tie up space for what they perceive to be a low rent,” he said. “And if the tenants are a little uncertain about the long-term business environment, they don’t want to lock themselves into a 10-year deal.”

Mr. Malet said that Shorenstein recently signed a one-year lease renewal with Harbor View Advisors, an investment advisory firm, at 850 Third Avenue. Shorenstein bought this 39-story, 1.2 million-square-foot office tower last summer. The price tag was around $325 million, according to Real Capital Analytics, a New York research firm that tracks sales of office buildings.

Ken Perry, the chief investment officer and director of asset management for the Swig Company, a real estate concern in San Francisco, said the company had recently signed about half a dozen short-term leases at 1411 Broadway, one of several office towers it owns in Manhattan. Swig has had a 50 percent stake in this building since it was built in 1970, and is currently a co-owner with the Blackstone Group.

“This is the first time that I can remember when both landlords and tenants want to do short-term leases,” Mr. Perry said.

He said that usually one side or the other saw an advantage in this approach, depending on which direction rents were thought to be heading. “But with all of this uncertainty in the markets, neither side wants to go long term.”

LINK

Commercial Real Estate "Black Hole"

2009-03-20T13:45:00.004-04:00

Thought it was relevant. Seems the worst is yet to materialize. I'm a glass half-empty kind of guy, so this is no real surprise. From an agent perspective, I find myself pushing back on more listings these days as owners can't/won't keep up with the dramatically changing landscape with regard to property. Apollo Management owns the brand I work for (Coldwell Banker Commercial).

Banks warned on commercial property ‘black hole’

VIEW THE VIDEO HERE

By Henny Sender in New York

Published: March 19 2009 21:06 | Last updated: March 19 2009 21:06

A “black hole” in the US commercial property market is set to put further pressure on troubled banks, the head of leading private equity firm Apollo Management has warned.

Leon Black, founder of the firm, said the extra costs of cleaning up the US banking industry could total as much as $2,000bn, putting further strain on the economy. He said the woes of the commercial property had not yet been reflected fully on bank balance sheets.

“You have the black hole of commercial real estate and that hasn’t happened yet,” said Mr Black in a wide-ranging interview on FT.com.

“There you are sitting with $4 trillion of debt and you know not all of it’s bad but a lot of it is diminished and that really hasn’t yet been addressed.”

He warned it would be 12 to 18 months before there are lasting signs of US economic recovery.

Apollo, a firm established in 1990 that combines buy-out activity with investing in the debt of troubled companies, is in better shape than many of its competitors. It has at least $13bn to invest at a time when it is almost impossible to raise new money.

Largely because the banks are not providing financing and the capital markets are not open, Mr Black conceded that “conventional private equity right now doesn’t exist ... Conventional buy-outs are really not on the table right now”.

Mr Black warned in February that traditional buy-outs were “essentially dead for the time being” and claimed “the big public-to-privates are gone the way of the dodo”.

During the boom years, which ended abruptly in 2007, Mr Black took advantage of cheap and flexible debt to buy companies, pay his investors dividends and then sell these acquisitions as he did with Intelsat.

Now, as some of the companies he owns, such as Harrah’s Entertainment, have been hard hit by the recession, he is spending much of his time reducing their debt burdens.

“The name of the game is survival, it is too live to play another day,” said the veteran of now defunct Drexel Burnham Lambert, which pioneered the business of raising debt for less creditworthy firms.

While many private equity firms are looking at investing in debt of troubled firms – an area that Apollo has long been involved with – Mr Black is exploring the market for non-performing loans in Europe.

Copyright The Financial Times Limited 2009

Vacancy Report (2/1/09)

2009-03-10T15:14:00.005-04:00

The Sarasota EDC numbers are in (as of 2/1) and they are as follows:

Downtown: 11.06%
University Parkway Area (includes Lakewood Ranch): 17.96%
I-75 Fruitville S to Clark: 21.32%
Venice: 22.03%
North Port: 35.13% (!!)
Suburban & South Trail: 26.65%

Area Average: 17.82%

Download Full Report Here (58kb)

Sarasota County Office Vacancy Report (1/1/09)

2009-02-12T12:45:00.005-05:00

The Sarasota EDC numbers are in and they are as follows:

Downtown: 10.69%
University Parkway Area (includes Lakewood Ranch): 19.24%
I-75 Fruitville S to Clark: 21.32%
Venice: 22.03%
North Port: 35.13% (!!)
Suburban & South Trail: 27.06%

Area Average: 17.97%

CLICK HERE for a copy of the report (200KB PDF)

Reuters: Values of Institutionally-Bought Commercial Property Post Decline

2009-02-05T07:48:00.004-05:00

Note that this is for institutional investors only. Here we go:

By Ilaina Jonas

NEW YORK (Reuters) - U.S. commercial property prices by institutional investors posted their greatest quarterly fall in 22 years, according to an index developed by the Massachusetts Institute of Technology Center for Real Estate.

The transaction-based index, which MIT developed in 1984, fell 10.6 percent in the fourth quarter, surpassing the record fall of 9 percent seen in the fourth quarter 1987.

The index tracks the prices that institutions such as pension funds pay or receive when buying or selling commercial properties like shopping malls, apartment complexes and office towers.

"It now seems likely that this down market will be at least as severe as that of the early 1990s for commercial property," Professor David Geltner, director of research at the Center for Real Estate, said in a statement.

The index fell a record 15 percent in 2008, and easily surpassed the 9 percent decline seen in 1991 and the 10 percent drop in 1992.

That period marked one of the most severe recessions in commercial real estate recession and was the result of the savings and loan debacle and U.S. tax code changes in 1986.

The current downturn in commercial property is the result of the credit crisis, which has cut off debt financing for sales. The U.S. recession has also dealt a blow to commercial real estate returns, as business tenants cut staff and office needs, cut hotel demand, or close stores.

The index declined a total of 27 percent from 1987 through 1992, with most of the decline occurring in 1991 and 1992.

The index's performance means that prices in institutional commercial property deals that closed during the fourth quarter for properties such as office buildings, warehouses and apartment complexes are now 22 percent below their peak values attained in the second quarter of 2007. The index has fallen in five of the past six quarters, but the recent drop is by far the steepest.

The MIT Center for Real Estate also compiles indexes that gauge movements on the demand side and the supply side of the market that it tracks.

The demand-side index, which tracks prices potential buyers are willing to pay, has fallen for the past six quarters, and is down 23 percent for the year and 31 percent since its mid-2007 peak.

LINK

Demand For Industrial Virtually Non-Existent

2009-02-05T07:13:00.004-05:00

From CoStar this morning. We're seeing a dramatic slowdown in interest across all types of property, industrial in particular is one of them. There's a lot of nice space out there that is cheaper than anything I've ever seen and a lot of it is sitting there. I'm talking about lease rates specifically, some of which are dirt cheap right now. Doesn't seem like there is going to be any relief in this sector, at least for the first two quarters of the year. Direct link to article below.

Demand for Industrial Space Enters the Red Zone

CoStar’s First State of the Industrial Market Review and Outlook Finds Weakness in Virtually Every Metric with Conditions

By Randyl Drummer
February 4, 2009

A wide array of economic factors that typically boost commercial real estate growth have gone south over the last 18 months, creating a "perfect storm" scenario for industrial property fundamentals, noted Jay Spivey, senior director of analytics for CoStar Group Inc. Spivey projects demand for industrial real estate in 2009 will likely reach its lowest ebb since the last recession in 2001-02, caught in an economic maelstrom of shrinking U.S. manufacturing and consumer spending, retail store closures and diminishing global appetite for U.S. products

Spivey's findings were presented in CoStar's first-ever 2009 State of the Industrial Market review and outlook, webcast to CoStar clients across the country from the company’s Bethesda, MD, headquarters.

"Economic growth is negative. The stock market is in a free fall. The credit markets are frozen. No one wants to invest because they are scared," said Spivey. "We’re not seeing huge negative absorption yet, but given the state of the economy, we can expect things to get worse before they get better."

Spivey pointed to a now-familiar list of economic stats and facts that bode ill for commercial real estate in 2009. The S&P 500 is down 40% and initial public offerings that fund new companies and business growth have dried up. Corporate borrowing has evaporated and the commercial mortgage-backed securities (CMBS) market is shut down. The "fear index" measuring investor sentiment and market volatility has spiked to an all-time high. And most significantly, job losses this year are expected to exceed the previous downturn eight years ago, when a combination of overbuilding and the collapse of Internet-based companies, among others, caused vacancies and negative absorption to soar.

Following are highlights of CoStar’s comprehensive industrial review and outlook. To add a human dimension to the cold numbers, CoStar invited industrial brokers and other CRE professionals to offer their own analysis and anecdotes on the market just over a month into 2009. One respondent summed up sentiment this way: "It will be a tough year, but not a bloodbath."

CRE Price Bubble

Office, flex and industrial assets are following basically the same pattern as the housing run up and bubble that burst in mid-2006. Overlaying prices for flex and industrial space onto the 10-city Composite of the S&P/Case-Shiller Home Prices Index, Spivey demonstrated a similar escalation and impending collapse of commercial prices.

Virtually every factor in the larger economy affecting demand for warehouse and distribution, flex and general industrial space is pointing downward. The U.S lost 2.6 million jobs in 2008, including large losses in the manufacturing, retail and wholesale trade sectors that drive industrial demand -- 44% more than were lost in 2002 following the dot-com bust. Economy.com predicts the country could lose as many as 3.1 million jobs this year and see a national unemployment rate as high as 9.2%.

Many of those losses are in manufacturing, retail and wholesale sales, construction and other sectors that fill warehouses and factory buildings. Recently released government figures show that real GDP, which correlates closely with demand for industrial space, fell at a 3.8% annualized rate in the fourth quarter -- the steepest decline since 1982. Most economists think the first quarter will be even worse.

U.S. freight carriers that keep the supply chain moving are reporting record declines in traffic in recent months. Imports and exports, an accurate barometer of industrial space demand, are down 23% and 19%, respectively, since July.

The weak dollar helped the U.S. industrial market over the last few years by bolstering export activity as U.S. goods became cheaper around the world. But the dollar gained strength toward the end of the year, dealing another blow to already reeling U.S. manufacturers by making their goods more expensive overseas.

"While the consumer has been in retreat for the past several quarters, the export sector -- which up until recently had been a bright spot -- is now experiencing the downward trajectory that's been felt for quite some time in other areas of the economy," said Ross Moore, executive vice president and director of market and economic research at Colliers International. "That said, the promise of a significant uptick in infrastructure spending, as mandated by the Obama Administration, could provide a much-needed jolt for the warehouse market."

The Industrial Production Index, which measures real output of manufacturing, mining and utilities companies, is even more closely correlated with industrial demand than GDP, Spivey said. The index has increased steadily for more than 20 years, with the exception of the 2001-02 period and the current downturn. Since 2007, the index has dropped 8.8 points.

Dave Burback, executive vice president and national director of Grubb & Ellis’ industrial practice, found some room for optimism in his assessment. Businesses consider industrial space an integral part of their supply-chain strategy, and their constant quest for cost-savings and efficiency should prop up demand this year despite the weak economy, he said. Burback acknowledged that nationally, supply is still expected to outpace demand with absorption continuing to flow into the red and vacancies rising as much as 60 basis points as the construction pipeline empties out.

New Industrial Supply Under Control

If there’s some good news, it’s that the supply of new buildings appears to be reasonably in harmony with demand, Spivey said. Over the last seven years, the amount of new space has exceeded the 50-year average only once, by a scant 14 million square feet in 2006. Space under construction has fallen every quarter since third-quarter 2007.

By comparison, between 1984 and 1990, the amount of new space delivered was above the average every year for a total of 479 million square feet, or 4% of total inventory. In the last building boom from 1996-2001, the excess totaled 461 million square feet, also 4% of industrial stock.

"It is probably a stretch to even call the most recent cycle overbuilding," Spivey said. "As the market started turning the last couple of years, it really reacted quickly and decisively. The market was very disciplined in this latest cycle, which should bode well as the market starts to improve."

The amount of excess supply in local markets varies. For instance, the Inland Empire market in Southern California delivered 23.9 million square feet more than it absorbed last year. Los Angeles, South Florida, Chicago and Dallas/Fort Worth also posted more than 10 million square feet of excess space.

Nationwide, construction of 1,173 properties totaling 74 million square feet of space, only 0.3% of the industrial inventory, is under way. However, only 16% of that coming space is leased, and the new properties coming on line could face serious trouble.

Though relatively modest by historical standards, the emptying of the construction pipeline is likely to drive up industrial vacancy rates, which declined steadily from 2004 to 2007 but rose by an average of 20 basis points per quarter during 2008. The national rate ended the year at 8.9%, the highest since 2004, and seems poised to shoot past the decade high of 9.5% in 2003.

"The consensus is that the troubles which have plagued the second half of 2008 will persist, and possibly worsen into 2009," Burback said. "Consumers have significantly pulled back spending and the reverberations are filtering down all the way to the industrial market as retailers cut their orders for merchandise that once filled warehouse distribution centers to capacity."

Total available space, either vacant, offered for sublease or expected by its owner to become vacant -- has swollen from 1.4 billion to 2.3 billion feet over the last two years. According to Burback, one of the big stories is the growing gulf between the direct vacancy rate and the availability rate. Sublease space is usually offered at a discount to direct space, tending to depress overall asking rates.

Absorption Goes Negative

While the national office market has not yet experienced negative absorption, industrial leasing started to turn negative in 2008 for the first time since mid-2002 and appears likely to exceed the last recession. Tenants gave back a modest 6 million square feet of space in the fourth quarter, compared with the decade peak of positive 63 million square feet absorbed in third-quarter 2006.

That said, leasing would be one of the relatively safe job descriptions in the next few quarters, Spivey said. "Even in a downturn, companies need space and will have lease renewals. I am sure there will be a lot of companies this year looking to find space to lease that is cheaper than what they are currently paying."

Job losses will be a big negative for industrial absorption this year. But fortunately, deliveries of new supply will be down 40% in 2009 and even more next year. Combining the job growth projections with the new delivery projections, CoStar projects that the vacancy rate will rise from its current 8.9% to 11% over the next two years. In turn, rents will likely drop 15% over the next few years -- even worse than the 9% decline during the dot-com downturn.

Slumping Investment Sales

Researchers added 18,000 industrial sales to the CoStar COMPs database last year, down from 22,000 in 2007. Both portfolio and overall sales dropped in 2008 and volume is at its lowest level since 2003. For-sale properties are sitting on the market almost 100 days longer now than in 2007, Spivey said.

Like the office and residential markets, industrial prices spiked to historic highs before starting to fall last year. Fueled by compressed cap rates, dollar sales volume shot up 300% earlier in the decade, only to fall 67% in 2008.

"Investment sales brokers have killed it the last five to seven years," pointed out Christopher J. Skibinski, managing director of industrial/supply chain & logistics solutions for Jones Lang LaSalle’s Charlotte, NC office. "This year will not be good for them. However, not every market experienced the same build up of inventory and growth like the Inland Empire (CA) and the investment sales markets. So relatively speaking, it will be a down year across the board, but not catastrophic."

Uncertainty in cap rates will continue to undermine sales prices. In the San Diego market, for example, prices and number of transactions went up together almost at the same exact rate during the boom market. Conversely, price declines will almost certainly result in further drops in volume.

One consolation is that fewer industrial loans appear to be in trouble. Between 77% and 80% of loans in special servicing or in danger of defaulting are for multifamily, retail and office properties, while only 4% are for industrial.

Tales From the Trenches

CoStar asked more than 100 brokers whether the outlook for the industrial market in 2009 is the worst they’ve ever seen. Though answers varied based on the respondent’s market, most see rays of hope through all the bad news.

"As bad as it appears to be, the recession of 1990/1991 seemed to be worse," said JLL’s Skibinski. "The difference today is that there is more information being reported to the market via negative news, so you have a negative information loop which seems to then drive sentiment deeper and quicker. The pace of change this time has been much more severe but I also believe that the recovery will occur quicker as a result of better information flow."

"While the recession has created a lot of financial headaches for most of the companies and landlords, it has also created a lot of opportunities in the market," said Dan Dokovic industrial sales and leasing broker with Sansone Group in St. Louis, MO. "For example, lower rents and property prices have enticed numerous companies to get into the market and take advantages of these conditions. While transaction value will most likely not be up in the next year, I believe that the volume will pick up and partially make up the difference. Also the limited supply of new buildings in the market will stabilize the market despite the current turmoil."

"Every day seems to be getting worse," reported Jack Haley, principal with Lee & Associates -- Orange, Inc. in Orange County, CA. "Since Jan. 1, I have been talking to all my largest clients about how to weather the storm in their industries. I am engaged as a consultant with many of them, re-negotiating their leases with the landlords, trying to find a way to reduce rents for the next 12 to 24 months. Landlords have been pretty receptive. Who wants another vacant building right now?"

"I do not think 2009, especially with the credit market crazies, will be a great year," says Michael J. Stich of Houston-based National Realty Group, Inc. "But it certainly will not be the worst industrial market year ever in Houston. 2009 will not be the year to acquire or even determine upside returns until the national economic turbulence has been settled."

"Quite possibly, 2009 will see the greatest market correction ever. That being said, brokers will have to work three times as hard as they used to," said Tom Dunsmore, senior associate of industrial sales and leasing with the Minneapolis/St. Paul office of Colliers Turley Martin Tucker.

LINK

Circuit City ripples go beyond vacancies, layoffs

2009-02-04T22:41:00.004-05:00

Very good dissertation on the ripple effect Circuit City closings will have throughout the nation. The article is actually incorrect...the company, DJM, who is handling the subletting of the existing Circuit City sites claims over 27-million square feet of "project" encompassing over 600 locations. Click here for info on that.

Link below for the entire article. From MSNBC.

Circuit City ripples go beyond vacancies, layoffs
Pain to be felt by mall owners, suppliers, local businesses, even newspapers
The Associated Press
updated 4:57 p.m. ET, Wed., Feb. 4, 2009

Circuit City will finally flicker out when its last 567 stores close this year, but the bankruptcy of the nation's second-largest electronics retailer will ripple across the U.S. economy for years.

In its wake will be 18.71 million square feet of vacant space in a faltering real estate market. More than 40,000 workers will be jobless, including 7,000 laid off last year.

Shopping centers will lose rental income. Suppliers will lose display space. Newspapers already struggling with falling ad revenues will have one less glossy insert in their Sunday editions.

Circuit City is bigger than any other retailer that has gone under in the current recession. The job outlook for its workers is worse. The prospects for suppliers finding other customers is grim, and a larger pool of creditors are likely to go unpaid.

"The situation today is so different than" during other downturns, said Jerry Mozian, a restructuring expert at Tatum LLC. "It wasn't the whole economy. Here, we've got a worldwide recession."

Other big retail bankruptcies, like Macy's in 1992 and Kmart's in 2002, ended in reorganizations or buyouts rather than liquidation.

Circuit City initially hoped to reorganize when it filed for Chapter 11 protection in November. It was sagging under the weight of $2.32 billion in debt and dismal sales as consumers cut back. But the 60-year-old company couldn't work out a sale or secure new financing, and on Jan. 16 announced it would close for good.

The chain owes nearly $625 million to its 30 largest unsecured creditors — mostly vendors who supply the DVDs, flat-screen TVs and headphones on Circuit City shelves. They must wait to be paid until secured creditors such as bank lenders are satisfied.

That's hitting electronics makers when they can least afford it. Hewlett-Packard, which is shedding 8 percent of its work force after a big acquisition, is owed nearly $120 million. Samsung, which posted its first ever quarterly loss Friday, is owed roughly $115 million. And Sony, which saw its net profit fall 95 percent in the October to December quarter, is owed $60 million.

Smaller businesses also got burned. Freelance photographer Scott Brown had worked for Circuit City's corporate office in Richmond, Va., for two years, shooting photos of people and products for the company's advertisements. The account grew to represent a quarter of his business.

The 41-year-old delivered his last project just four days before the company filed for Chapter 11. At the time, Circuit City owed him nearly $30,000. Brown listed himself as a creditor with the courts and hired an attorney. But the lawyer advised him he would probably never get paid.

"It was huge," Brown said of the loss. "It added to the stress of the daily business like you wouldn't believe."

The vacant stores leave a huge hole for shopping center owners to plug. The 18.71 million square feet of space is like the Raymond James Stadium in Tampa, Fla., where the Super Bowl was played — multiplied by 11.

Finding new tenants is increasingly difficult, as chains like Linens 'N Things, Mervyns and Steve & Barry's also go out of business. Other companies such as Starbucks and Ann Taylor are retrenching from an era of swift expansion.

Making matters more difficult is the size of most Circuit City stores, which range from nearly 17,000 square feet in Steubenville, Ohio, to more than 66,000 square feet in El Paso, Texas. Very few retail tenants require such large spaces, said Green Street Advisors analyst Nick Vedder.

"The anchors are really one of the most important pieces of the center," Vedder said. "They bring in the traffic, they are the lifeblood that (other) tenants rely on to bring customers to the stores."

Read rest of the story...

Circuit City to Liquidate All Stores

2009-01-17T01:13:00.004-05:00

I don't think they ever recovered from the whole DIVX failure. In any event, lousy return policies, questionable "salespeople" and junk warranties pretty much did them in. Look for lots of vacant big boxes on a corner near you.

Bankrupt Circuit City Stores Inc., the nation's second-biggest consumer electronics retailer, said Friday it failed to find a buyer and will liquidate its 567 U.S. stores. The closures could send another 30,000 people into the ranks of the unemployed.
"This is the only possible path for our company," James A. Marcum, acting chief executive, said in a statement. "We are extremely disappointed by this outcome."
The company had been seeking a buyer or a deal to refinance its debt, but the hobbled credit market and consumer worries proved insurmountable.
The liquidation of Circuit City is the latest fallout from the worst holiday shopping season in four decases. People have slashed their spending since the financial meltdown in September as they worry about their job security and declining retirement funds.
Other recent casualties include KB Toys, which filed for bankruptcy in December and is liquidating stores. Department store chains Goody's Family Clothing and Gottschalks Inc. both filed for bankruptcy this week—Goody's plans to liquidate, while Gottschalks hopes to reorganize.
Industry experts expect more bad news in the coming months as spending likely will deteriorate further.
Circuit City said in court papers it has appointed Great American Group LLC, Hudson Capital Partners LLC, SB Capital Group LLC and Tiger Capital Group LLC as liquidators.
"Regrettably for the more than 30,000 employees of Circuit City and our loyal customers, we were unable to reach an agreement with our creditors and lenders," Marcum said.
Shareholders are likely to receive nothing, as is typical in bankruptcy cases. It was unclear what would happen to the company's 765 retail stores and dealer outlets in Canada.
"Very, very sad," said Alan L. Wurtzel, the son of company founder Samuel S. Wurtzel, and the chief executive from 1972 to 1986, board chairman from 1986 to 1994 and vice chairman until 2001. "I feel particularly badly for the people are employed or until recently were employed."
Wurtzel has previously said Circuit City didn't take the threat of rival Best Buy Co. seriously enough and, at some points, were too focused on making a profit in the short term instead of building long-term value.
Circuit City filed for Chapter 11 bankruptcy protection in November as vendors started to restrict the flow of merchandise ahead of the busy holiday shopping season.
It had been exploring strategic alternatives since May, when it opened its books to Blockbuster Inc. The Dallas-based movie-rental chain made a takeover bid of more than $1 billion with plans to create a 9,300-store chain to sell electronic gadgets and rent movies and games. Blockbuster withdrew the bid in July because of market conditions.
Circuit City, which said it had $3.4 billion in assets and $2.32 billion in liabilities as of Aug. 31, said in its initial filings that it planned to emerge from court protection in the first half of this year.
Under court protection, Circuit City has broken 150 leases at locations where it no longer operates stores. The company already closed 155 stores in the U.S. in November and December.
U.S. Bankruptcy Judge Kevin Huennekens had given the company permission to liquidate if a buyout was not achieved. The company still needs final approval of a liquidation from the court.
The liquidation is the latest big blow to the nation's malls, which have suffered from a rise in vacancies as a slew of chains from Mervyns LLC to Linens 'N Things have liquidated. But analysts say that the demise of Circuit City, whose stores range in size from 20,000 to 25,000 square feet, will hurt the fortunes of mall operators even more.
"It will bring to market a glut of big box spaces across the country," said John Bemis, head of Jones Lang LaSalle Inc.'s retail leasing team. "It will have one of the largest impacts on big box real estate across the country."
LINK

South Florida Condo Developer Tarragon Files Chapter 11 Bankruptcy

2009-01-15T07:41:00.004-05:00

The latest domino to fall. Tarragon was apparently caught up in the current perfect storm of bad timing, falling sales, lack of available credit and a sharp drop off in the housing sector.

Tarragon Corp. is the latest homebuilder to be hit by the housing crisis.

The company and 19 of its subsidiaries filed for Chapter 11 bankruptcy reorganization in New Jersey federal court on Monday.

Tarragon has developed four condominium projects in Jacksonville that include Bishop’s Court at Windsor Parke, Cobblestone at Eagle Harbor, Mirabella and Montreux at Deerwood Lake, none of which are sold out, according to the company’s Web site. Tarragon also owns four apartment communities, including Club at Danforth, River City Landing, Vintage at Plantation Bay and Woodcreek at Regency.

The estimated number of creditors is between 5,001 and 10,000. Assets have been estimated at about $841 million and liabilities at about $1.035 billion, court records show.

The three largest unsecured creditors are listed as New York-based Taberna Capital Management ($125.9 million), New Jersey-based AJD Construction Co. ($2.9 million) and Fort Lauderdale-based Omni Boys North Ltd. ($1.03 million).

Tarragon CEO William S. Friedman did not return a phone call for comment.

The firm has been an active developer of multifamily housing for rent and sale in Florida, Texas, Tennessee and the Northeast.

The bad news for Tarragon stockholders: The company said it does not expect there will be any distribution to equity holders in conjunction with the bankruptcy cases. Shares (NASDAQ: TARR) dropped from a dime to a nickel on the news.

The filing shouldn’t come as a surprise to anyone who has followed the recent fortunes of the firm, which included steady losses – more than $105 million for the first nine months of the year – bargain sales of assets, shareholders suits, deposit forfeiture on land deals, compliance trouble with NASDAQ, margin calls on the stock of the chairman and his wife, and the company’s inability to secure long-term financing.

Tarragon said it had a commitment for debtor-in-possession financing from an affiliate of ARKO Holdings, an Israeli public company, and said the bankruptcy filing shouldn’t have any day-to-day effect on Tarragon’s property management subsidiary, or on the operation of its rental apartment properties.

Friedman said in a release that, based on discussions with unsecured note holders and the support of ARKO, he expects to structure a consensual plan with the creditors to preserve the value of its property management and development platforms, and maximize any return to creditors.

The Tarragon board is being advised by Lazard, and Friedman said in the company news release that the board did not rule out additional asset sales and “all available alternatives.”

Story Link

CRE Loans An Increasing Worry

2009-01-15T07:27:00.006-05:00

Very good analysis from CoStar on distressed loans. Sadly, this will be the epicenter of the commercial meltdown in 2009.

CRE LOAN DISTRESS LEVELS ESCALATING RAPIDLY

The distressed loan situation in commercial real estate is taking a striking turn for the worse, according to a CoStar Group analysis of December loan information on more than 83,000 loans in commercial mortgage backed securities.

The level of distressed loans in the CMBS universe was at historically low, and unsustainable levels, in 2008 - less than 1% of outstanding loans. That compares favorably to the level of commercial real estate distress in bank and thrifts where distressed properties made up about 2.32% of their nonresidential portfolios as of Sept. 30.

However, that level of safety in the CMBS universe looks like it could be eroding rapidly.

The amount of loans placed in special servicing - generally an indication of a delinquency or failure to pay off a mature loan - rose dramatically in the fourth quarter - from about $400 million per month in September to more than $1.6 billion in November.

And that trend is likely to continue in the near term as the number of loans identified by CMBS servicers as having potential credit issues more than doubled from about $3.5 billion per month to about $7.5 billion in November.

In preparation for its first market outlook presented last week, CoStar also undertook its first-ever analysis of delinquent and distressed properties in the CMBS market, examining loans with a total value of more than $700 billion.

CoStar identified nearly 1,200 commercial real estate loans that were either delinquent in loan repayments or had reached maturity without pay off of the loan. The principal and interest outstanding on those loans as of mid December totaled nearly $8.2 billion. (Editor’s Note: We identify and detail, the 10 largest of those delinquent/specially serviced loans at the end of this story.)

CoStar also compiled a list of nearly 6,100 additional loans that servicers for those securities have flagged as having potential credit concerns. The current scheduled ending balance of those loans totaled $57.8 billion.

In addition, CoStar identified more than 160 properties that had been repossessed by various CMBS trusts. The properties had a loan value at the time they were taken over of more than $1 billion. Based on the properties most recent valuations, the bondholders were likely to take a loss of more than $300 million. (Editor’s Note: We will identify and detail, the 20 largest of those REO loans in next week’s Watch List column.)

Where CoStar was expecting the number of currently delinquent loans to be in the states with the most commercial real estate, e.g. New York, California, Illinois, Texas, New Jersey, that turned out not necessarily to be the case. The number of delinquent commercial real estate loans appears to closely parallel areas of the country that have suffered most from the crisis in the housing market. In addition, the number of delinquent commercial real estate loans was also high in the industrialized Midwest states:

State, No. of Delinquent CMBS Loans
Texas, 171
Florida, 126
Michigan, 83
California, 81
Georgia, 71
Ohio, 71
New York, 70
Nevada, 42
Arizona, 39
Illinois, 34

Moving forward, however, it appears likely that the number of delinquent loans could start to increase in the population centers. The number of loans that CMBS servicers have placed on their watch lists as having potential credit issues is highest in the following states:

State, Number of Potential Problem Loans
Texas, 890
California, 741
New York, 445
Florida, 432
Ohio, 269
Michigan, 247
Georgia, 219
Arizona, 212
Illinois, 180
Pennsylvania, 180

Looking at delinquencies by property type, it is also apparent that this is a housing-led recession. Most commercial real estate delinquencies are showing up first in multifamily loans and then loans on retail properties as falling housing values have cut into consumer spending.

Going forward, retail properties continue to show potential credit concern but trouble also appears to be brewing in the office sector as well.

CoStar Group’s analysis is in line with Wall Street’s outlook for growth in CMBS delinquencies, which is for a nearly 300% increase in the number of commercial real estate loans that will become delinquent in 2009.

Fitch Ratings' CMBS loan delinquency index rose to 0.64% in November 2008. It projects that delinquencies will continue to rise, reaching approximately 2% by year-end 2009.

Moody's Investors Service's CMBS loan delinquency index rose to 0.75% in November 2008. It projects that delinquencies will continue to rise, reaching its long-term historical average of 1.5% to 2.0% in 2009, and most likely to surpass this level as the market begins to form a bottom in 2010 and 2011.

STORY LINK (with bigger charts)

NYC Office Tenants Re-Negotiate Leases

2009-01-15T07:21:00.002-05:00

Happening here as well. I can name two or three credit tenants who've asked for - and received - significant rent reductions since Thanksgiving. Read on...

NYC office tenants re-Negotiate leases
Jan 13, 2009 - CRE News

Manhattan office tenants are increasingly opting for short-term leases, which some landlords are accommodating because of the current weak market conditions. For example, Time Equities Inc. is offering small blocks of space at 125 Maiden Lane in at leases running from six months to a one year. It plans a similar strategy for its building at 131 W. 33rd St.

Short-term tenancy can hurt building values because lenders and potential buyers like to see buildings with stable long-term rent rolls. The practice hurts tenants by preventing them from locking in current market rents for the future when rental rates may increase.

CRE Direct

Comm Markets Won't Bottom Out Until 2010

2009-01-13T08:42:00.002-05:00

ULA predicts what most of us already know: 2009 is going to be a pretty lousy year in commercial real estate. What will emerge, however, will be a much more disciplined banking and lending environment.

Read on:

Commercial Real Estate Market to Hit Bottom Next Year, Urban Land Institute
by Peter L. Mosca

No matter the market, capitalizing on industry knowledge has always been a major ingredient to overall business success. For builders looking to better understand the real estate market, they should take note of a new report by the Urban Land Institute. According to the "Emerging Trends in Real Estate® 2009" report, released by the Urban Land Institute (ULI) and PricewaterhouseCoopers LLP, real estate industry experts expect financial and real estate markets in the United States to bottom in 2009 and then flounder for much of 2010, with ongoing drops in property values, more foreclosures and delinquencies, and a limping economy that will continue to crimp property cash flows,

"Commercial real estate faces its worst year since the wrenching 1991-1992 industry depression," conclude industry experts interviewed for the report, which projects losses of 15 percent to 20 percent in real estate values from the mid-2007 peak. "Only when property financing gets restructured will pricing recorrect so we can find the floor; and this transition could wipe out companies and people," said one respondent interviewed for the report.

In general, interviewees believe that financial institutions will continue to be pressured into moving bad loans off balance sheets, using auctions to speed up the process. Investors will be discouraged until the "bloodletting' is over, states the report. When that occurs, cash and low-leverage buyers will be "king;" surviving banks will impose strict lending guidelines; commercial mortgage-backed securities will revive, but in a more regulated form; and opportunity funds will need new investment models.

"The industry is facing multiple disconnects," said ULI Senior Resident Fellow for Real Estate Finance Stephen Blank. "Many property owners are drowning in debt, lenders are not lending, and for many (industry professionals), property income flows are declining. There is an unprecedented avoidance of risk. Only when financing gets restructured will pricing reconcile, giving the industry a point from which to start digging out of this hole."

"The cyclical real estate markets always comes back, and they will this time too, but not anytime soon," said Tim Conlon, partner and U.S. real estate sector leader for PricewaterhouseCoopers. "Commercial real estate was the last to leave the party, will feel the pain in 2009, and may be the last to recover. In the meantime, smart investors are going to hunker down and manage through these tough times. We expect to see patient, disciplined, long-term investors rewarded, and return to a back to basics approach to property management, underwriting and deal structure."

Distress in the housing market is benefiting the apartment market, which the report lists as the number-one "buy." Moderate-income apartments in core urban markets near mass transit offer the best buy, a trend that carried over from the previous year.

The report acknowledges that commercial markets will recover more quickly than most housing markets, and homebuilders may have to sell land tracts for "cents on the dollar" or face foreclosure on their holdings, adding to the already high rate of mortgage defaults and foreclosures.

One silver lining: Interviewees agreed that eventually, savvy investors will be able to cash in on the inevitable recovery, which some see occurring as early as 2010. "Money will be made on riding markets back to recovery and releasing properties, not on…financing structures," finds the report.

Before a rebound, Emerging Trends says the following needs to happen:

* Private real estate markets need to correct - lenders must force distressed owners to become motivated sellers.

* Debt capital needs to flow - lenders will need to learn to deal in a more stringent regulatory landscape. The commercial mortgage-backed securities (CMBS) market must "reformulate."  Regulators need to restore confidence in the securities market. The government will insert itself into overseeing mortgage securitization markets. Systemic overhaul promises more measured debt flow.

* The economy needs to improve. Falling demand for space won't affect real estate markets severely until 2009.

The Report also offered these tips for what to do in 2009:

* Recap distressed borrowers - invest in maturity defaults, construction loans/bridge loans, or take mezzanine positions and equity stakes in properties.

* Focus on global pathway markets - 24-hour coastal cities.

* Staff up asset managers, leasing pros and workout specialists. Separate good assets from bad.

* Retrench on development and reorient to mixed-use and infill. Higher-density residential with retail will gain favor in next round of building.  Go green - cutting energy expenses is likely to be a priority.

* Buy or hold multi-family; hold office; hold hotels; buy residential building lots, but be prepared to hold.

* Purchase distressed condos in urban areas near transit.

Lastly, the Report listed a number of markets to watch in 2009. Here's a look at the Report's Top 5 Markets:

* Seattle boasts its "corporate giants," but the market braces for rising downtown office vacancies; now at 10 percent. Tepid job growth will flatten rental rates. Housing demand drops and prices will slip, but stay above national averages. Interviewees rate the market a strong "buy" for apartments, and the "number-one buy" among industrials is the Puget Sound ports.

* San Francisco offers a Pacific gateway and a high quality of life with a well-diversified economy. The city ranks first for development and homebuilding, and is a leading "buy" city for apartments and office. Even though housing prices are expected to decline, foreclosures should remain in check, the report notes.

* Washington is the "ultimate hold market when the economy struggles." Downtown office vacancies should remain below 10 percent, and apartments lease "no matter what." The above-average employment outlook offers promise for the retail sector, the report says. Still, office vacancies continue to soar in northern Virginia, and further declines in condominium and home prices can be expected.

* New York takes a beating with the Wall Street "implosion" creating job losses and office vacancies. Hotels should continue to draw tourists with the weak dollar. Retail frenzy ends, but the wealthy keep Madison Avenue boutiques alive. With the condo/coop market at a "crest," developers "should worry about flagging buyer demand," the report notes.

* Los Angeles downtown benefits from condo/apartment projects. "It's almost impossible to lose money on apartment investments if you have a five- or 10-year investment horizon," notes one respondent. Hotels benefit from global pathway location. One downside -- homebuilders in San Bernardino and Riverside continue to grapple with the housing collapse.

Rounding out the top ten markets to watch:

* Houston. Stays relatively strong as long as energy stays hot. It makes the top ten for the first time since 1995. Office vacancies drop to 10 percent, "a good buy opportunity," but apartments soften. Cheap land results in cheap housing, and prices have not gone up dramatically.

* Boston. Job outlook is more favorable than most cities, with office space "tight" in the Financial District and the Back Bay area. New "harborside hotels threaten older product."

* Denver. The state capital has a major federal government presence, which should buffer job losses. Steady population growth and broadening diversification of the industry keeps the housing market stable. Mass transit should pay future dividends.

* Dallas. Compares favorably to other "hot-growth" markets. Although office vacancies downtown are 20 percent or higher, apartments do well and developers keep building single-family homes.

* Chicago. Apartments do well, but condos weaken as speculators leave the market. Office vacancies are in the low teens, and O'Hare International Airport keeps industrial space in the "global pathway."

While most of the findings in the ULI Report were unfavorable, there were 'silver linings' mentioned. For builders looking to seek competitive advantages, possessing the best knowledge available about the industry should help the process lead to greater success.

LINK

Miami Commercial Market to Come Unglued

2009-01-11T01:48:00.002-05:00

Miami commercial has dodged the bullets...until now. Be aware this isn't just the press looking for blood, even seasoned commercial brokers are predicting a meltdown. Read on.

Real estate market in Miami finally succumbing to economy

By J.W. ELPHINSTONE
THE ASSOCIATED PRESS

Published: Sunday, January 11, 2009 at 1:00 a.m.
Last Modified: Saturday, January 10, 2009 at 11:55 p.m.

MIAMI - Despite record foreclosures, despite double-digit home price declines, and despite scary job losses, Miami's commercial real estate market has rolled with the punches -- until now.

"We're in a better place than where people thought we would be because of the collapse in the residential market," said Stephen Nostrand, an executive vice president at Colliers Abood Wood Fay. "It's true, it's horrible, but it could be a lot worse.

The fear now is that it soon will be.

Industry watchers expect the national recession, new supply of offices and shopping centers and a crippled housing market to finally hit the city's property rents and vacancies this year.

Retail shops will suffer the most. Even though the retail vacancy rate in the greater South Florida area hovered around 5 percent, which is lower than the national average of about 7.5 percent, it is expected to climb steadily this year.

The few retailers entering the market like Kohl's and Ikea will be offset by many other small and mid-size stores closing shop. Job losses this year in Miami are expected to total 15,300, according to CBRE Torto Wheaton Research. That will curb consumer spending, while the national recession will hurt tourism.

"Anecdotally, every week there are more leasing signs up and more dark store fronts," said Nostrand.

Last month, Whole Foods pulled out of its commitment at Met 2, a retail, office and a hotel complex in downtown Miami. The grocer would have been the first supermarket downtown.

"That's huge. Definitely trauma and sign of the times," said Jonathan Kingsley, managing director of Grubb & Ellis Co.'s South Florida office.

Met 2 is one of three new office projects under construction in downtown, and they are a source of concern for many office landlords. Together with the Brickell Financial Center and 1450 Brickell, the trio will add about 2 million square feet of space to the downtown market. That's about 20 percent of the total current market.

And only 10 percent of that office space has been leased, said Scott Strickland, senior vice president at Jones Lang LaSalle. If more of that space is not leased before the projects are completed it could drive the vacancy rate for top-quality downtown offices to 15 percent from 8.6 percent, he estimates.

"Even in a good market, you would be cautious of putting up that much inventory at one time," Kingsley said.

Although the three buildings are not set to be completed until 2010, tenants already are smelling the blood in the water. With years left on their leases, tenants are going in early for renewal talks to wring the best deals out of their landlords. Others are waiting until the last day to take advantage of renewal options to make landlords sweat. Tenants are getting a month's free rent, building improvements and lower rental rates.

Some are negotiating so-called "out clauses" into their contracts in case they have to downsize. An out clause allows a tenant to give back a certain amount of space during a set period of time without penalty.

Big time tenants in the market, like Merrill Lynch, Bank of America, Citigroup and Wachovia, might just need an out. They have announced layoffs nationwide that could affect Miami.

"It's a whole new world for landlords negotiating leases with tenants," Nostrand said. "Today, everything is on the table."

In the last two years, rents in the downtown market rose through the $40 per square foot rent threshold for the first time. But Kingsley said rents for top-notch offices will likely fall about 20 to 25 percent in the next two years, mostly because of the excess space from new offices.

The industrial market, meanwhile, should fare better. Rents are expected to slip some in 2009, but not drastically, according to a Grubb & Ellis report. There has been little overbuilding in the sector and vacancy rates, now at about 8 percent, will creep up to about 9 percent by year end.

Large leases over 50,000 square feet are nearly nonexistent. Landlords are seeing smaller users, those occupying 15,000 to 50,000 square feet, cut back. Many of them are housing related businesses -- flooring, roofing or plumbing suppliers -- that have left the market altogether as the housing market crashed.

Housing here is nerve-wracking. Prices have fallen more than 38 percent from the peak in December 2006. Flippers who cannot sell the 15 or so condos they bought as investments are renting them out at below-market rents.

All this bodes well for the Miami renter, but not for the landlord. Vacancy is expected to rise to over 5 percent this year from 4.4 percent at the end of last year, and rents should fall about 1.8 percent to $1,066.28 a unit, according to CBRE Torto Wheaton Research.

CoStar's First-Ever Vacancy Prediction Report: Tough Year Ahead

2009-01-08T09:38:00.004-05:00

From CoStar this morning. Courtesy of CoStar:

This Year, Pain To Replace Gain
Nary a Bright Spot in CoStar Group’s First-Ever State of the Market/Industry Outlook
The pain felt throughout the U.S. housing market over the past two years is going to catch up with commercial real estate in 2009 when the country will begin to see spikes in office vacancy rates climbing as much as 300 to 400 basis points with many markets expected to experience severe negative net absorption.

That was the assessment of Andrew Florance, founder and CEO of CoStar Group Inc., as presented in the company’s first-ever 2009 State of the Office Market review and outlook delivered this afternoon from its Bethesda, MD, headquarters and webcast to CoStar clients across the country.

Florance’s presentation laid out the economics and fundamentals detailing the impact of the financial meltdown on commercial real estate, finding little upside to report with all indicators projecting continued:
Constraint in the credit markets,

Dearth of investment and construction activity,

Corporate space contraction, and

Falling property values.

The outlook is now for the current recession to take a higher toll, for a longer time, on commercial real estate than did the dot.com bubble burst of 2001-2002.

Rather than try to reproduce the entire presentation or beat the dead horse that is the economy, here is recap of just some of the highlights.

Contraction

Unlike in previous recessions in which the commercial real estate industry participated in its own demise through gross overbuilding, the current downturn was precipitated by an unparalleled run up in housing values and the subsequent burst of that bubble. Housing values continue to fall precipitously.

Overlaying commercial office values with housing values, Florance showed that, while commercial values also experienced a rapid ascent, those values peaked at substantially lower levels than the housing peak. Also based on historical norms, it appears housing values still have a ways to fall, while commercial office space values have already returned to much closer what are their norms.

That doesn’t mean that office values could hold at the level because clearly the market dynamics are working against them. The S&P 500 Index is down 40% from its highest levels and lower than what is has been in five years. The index is important to commercial real estate because without increasing stock prices, corporations will be less likely to expand. The lack of expansion is major drag on office space absorption, Florance said.

In addition to stock price declines, initial public stock offerings that fuel the growth of newer firms have dried up completely this year.

Corporate borrowing outside of federal government-assisted bailouts also has fallen to record lows - less than $25 billion/month in the most recent quarter compared to more than $400 billion just 18 months ago.

The commercial mortgage backed securities (CMBS) markets also dried up completely in the fourth quarter and thus banks - were they even making loans - have nowhere to market or sell those loans to the secondary markets to make room to do more lending.

The employment picture is also dismal. The U.S. economy already lost more jobs (1.9 million) in 2008 than during the dot.com bubble burst in 2001-2002. Economy.com is forecasting as many as 3.1 million job losses in 2009.

Inventory Buildup

One small bright spot to current commercial real estate conditions is that there was very little surge of new supply leading up the recessionary environment starting in December 2007. Commercial office space is entering the downcycle from a position of relative strength. Nor is CoStar forecasting much additional in the way of new supply coming onto the market through 2012.

However, the office supply inventory is going to increase. In fact, the supply of available and vacant office space is beginning to increase as there is currently virtually no absorption of excess space occurring. Vacancy rates have begun to tick up as projects already under construction are being completed.

Combining the forecasts for job losses in 2009 and a dwindling supply of newly delivered space, CoStar is predicting that U.S. office vacancy rates could climb from a base of 11.1% at the start of last year to 15.1% in 2010.

Some U.S. markets will be hit harder than others but all are projected to grow to double-digit vacancy rates in 2009 and 2010. CoStar is projecting that the Phoenix and Detroit vacancy rates could exceed 20%.

Job losses are also projected to be heavy in South Florida, the New York Tri-State area and San Francisco and those markets will likely see fairly steep increases in their vacancy rates over the next two years.

There won’t be any clarity to when the markets can return to normal until the peaks in vacancies and the valleys in prices and rents hit top and bottom. In the two previous recessionary periods of early 1990s and 2001, office inventors did not return to the market until it was clear that the deterioration in conditions had stopped. And right now, the volume of investment activity is at or near its historical norms. So while the outlook for 2009 is grim, it is likely that the market for office building investments will remain flat through 2009.

"The market needs to establish a new bottom before a recovery can take hold," Florance cautioned. "The sooner we reach it, the better off we'll be. If property values need to fall to X, it's better to get there in 18 months not five years."

Faced with the grim outlook for 2009, a member of the audience asked Florance if he would advise the broker to give up his real estate practice and work on his golf game for the next 12 months. "Where do you golf?" Florance responded half jokingly before addressing the issue.

"We adjust. As we've all seen the industry do in past down cycles, we focus on leasing rather than sales and on property management rather than on new development. And we become advisors. Your clients are going to need your expert advice."

More Distressed Properties

Frequent readers of CoStar news are probably familiar with our coverage of distressed properties and delinquent loans. In preparation for its first market outlook, CoStar also undertook its first-ever complete analysis of delinquent and distressed properties in the CMBS market.

CoStar identified nearly 1,200 commercial real estate loans that were either delinquent in loan repayments or had reached maturity without pay off of the loan. The principal and interest outstanding on those loans as of mid December totaled nearly $8.2 billion.

CoStar also compiled a list of nearly 6,100 additional loans that servicers for the various securities have flagged as having potential credit concerns. The current scheduled ending balance of those loans totaled $57.8 billion.

In addition, CoStar identified more than 160 properties that had been repossessed by various CMBS trusts. The properties had a loan value at the time they were taken over of more than $1 billion. Based on the properties most recent valuations, the bondholders were likely to take a loss of more than $300 million.

Go Green

Not wishing to end on a dour note, CoStar’s Florance concluded the U.S. portion of the forecast with a look at so-called green properties, which continue to enjoy a premium in the marketplace in terms of higher occupancy levels, rental rates and sale prices compared with "non-green" peer buildings.

Currently in the U.S. only 1 in 15,000 properties are LEED or Energy Star certified. In fact, a new federal mandate that is set to go into effect in 2010 is that federal agencies will have to occupy green certified offices. According to Florance, the total federal requirement for green space outstrips the total available supply of green-certified buildings.

In analysis of 9.8 billion square feet of office inventory in CoStar’s database, CoStar found that the national occupancy rate of green-certified buildings was 300 to 588 basis points higher than non-certified buildings and commanded rents that were anywhere from $3 to $18 more per square foot per year than the average rent. Green buildings also sold at prices that were up to 64% than the average.

US Commercial In Downward Spiral

2009-01-05T08:32:00.005-05:00

From the International Herald Tribune this morning. See bottom of the post for direct link.

U.S. commercial property in a downward spiral

By Charles V. Bagli

Monday, January 5, 2009

NEW YORK: Vacancy rates in office buildings exceed 10 percent in virtually every major city across the United States and are rising rapidly, a sign of economic distress that could lead to yet another wave of problems for the beleaguered financial sector.

With job cuts rampant and businesses retrenching, more empty space is expected from New York to Chicago to Los Angeles in the coming year. Rental income would then decline and property values would slide further. The Urban Land Institute predicts 2009 will be the worst year for the U.S. commercial real estate market "since the wrenching 1991-1992 industry depression."

Banks and other financial companies have not had the problems with commercial properties in this recession that they have had with residential properties. But many building owners, while struggling with more vacancies and less rental income, will need to refinance commercial mortgages in the coming year. The persistent chill in lending from banks to the credit markets will make that difficult - even for borrowers who are current on their payments - setting the stage for loan defaults.

The prospect bodes poorly for banks, along with pension funds, insurance companies, hedge funds and others holding the loans or pieces of them that were packaged and sold as securities.

Jeffrey DeBoer, chief executive of the Real Estate Roundtable, a lobbying group in Washington, is asking for government assistance for his industry and warns of the potential impact of defaults. "Each one by itself is not significant," he said, "but the cumulative effect will put tremendous stress on the financial sector."

Stock analysts say commercial real estate is the next ticking time bomb for banks, which have already received hundreds of billions of dollars in capital and other assistance from the U.S. government. Big banks - like Bank of America, JPMorgan Chase and Morgan Stanley - each hold tens of billions of dollars in commercial real estate bonds, which were sliced and diced into securities. The banks also invested directly in properties.

Regional banks may be an even bigger concern. Over the past decade, they barreled their way into commercial real estate lending after being elbowed out of the credit card and consumer mortgage business by national players. Their weighting in commercial real estate has nearly doubled in the past six years, according to government data.

Just as home loans were pooled, then carved up and sold to investors as securities over the past two decades, commercial property loans were repackaged for the financial markets. In 2006 and 2007, nearly 60 percent of commercial property loans were turned into securities, according to Trepp, a research firm that tracks mortgage-backed securities.

Now that the market for those securities has dried up, borrowers cannot easily roll over the loans that are coming due. Many commercial property owners will face a dilemma similar to that of today's homeowners who cannot easily get mortgage relief because their loans were sliced and sold to many different parties. There often is not a single entity with whom to negotiate because investors have different interests.

By many accounts, building owners have been caught off guard by how quickly the market has deteriorated in recent weeks.

Rising vacancy rates were expected in Orange County, California, a center of the subprime mortgage crisis, and New York, where the now-shrinking financial industry dominates office space. But vacancies are also suddenly climbing in Houston and Dallas, which had been shielded from the economic downturn until recently by skyrocketing oil prices and expanding energy businesses.

"The economic recession is so widespread that we believe virtually every market in the country will see a rise in vacancy rates of between two and five percentage points by mid-2009," said Bill Goade, chief executive of CresaPartners, which advises corporations on leasing and purchasing office space.

Effective rents, which have already started to fall, are expected to decline 30 percent or more across the country from the euphoric days of the real estate boom, according to real estate brokers and analysts. That is making it all the more difficult for owners, who projected ever-rising rents when they financed their office buildings, hotels, shopping centers and other commercial property. Owners typically pay only the interest on loans of five, seven or 10 years, and refinance the big principal payments necessary when the loans come due.

Without new financing, owners will have few options other than to try to negotiate terms with their lenders or hand over the keys to banks and bondholders.

Among commercial properties, the most troubled have been hotels and shopping centers, where anemic sales and bankruptcies by retailers are leading to more vacancies and where heavily leveraged mall operators, like General Growth Properties and Centro, are under intense pressure to sell assets. But analysts are increasingly worried about the office market.

The Real Estate Roundtable sees a rising risk of default and foreclosure on an estimated $400 billion in commercial mortgages that come due this year. DeBoer, the group's leader, said building owners are by and large making their loan payments. It is the refinancing that is worrisome.

Most loans, he said, were made at 50 percent to 70 percent of property values. At the top of the market in 2006 and 2007, though, some owners took advantage of available credit and borrowed 90 percent or more of the value of a property, a strategy that works only in a rising market. Since then, property values have dropped 20 percent, DeBoer said.

Where possible, owners are trying to extend loans. A lender might agree to extend the term on a 10-year commercial mortgage, for example, if the borrower remains current on his payments and can make an equity payment to compensate for the decline in the building's value.

Already, $107 billion worth of office towers, shopping centers and hotels are in some form of distress, ranging from mortgage delinquency to foreclosure, according to Real Capital Analytics.

New York, the biggest market by far, leads the pack with 268 troubled properties valued at $12 billion. But there are 19 more cities, including Atlanta, Denver and Seattle, with more than $1 billion worth of distressed commercial properties. Analysts are especially concerned about buildings like 666 Fifth Avenue, One Park Avenue and the Riverton complex in New York, the Pacifica Tower in San Diego and the Sears Tower in Chicago, which were acquired in 2006 and 2007 with mortgage-backed financing based on future rents rather than existing income.

"Many of those buildings are basically underwater," said Goade of CresaPartners. "The price they paid was too high to begin with. There's no way anyone would lend that kind of money today."
Read Story

Finding Success In Leasing

2009-01-05T06:37:00.002-05:00

Happy new year, everyone.

In the local paper again today. 2009 will be a tepid year in my opinion. I do believe companies, even those on an expansion path, will take more of a wait and see approach this year. With rents coming way, way down, this also may present a never-before-seen opportunity to get positioned for growth once things start turning around. When will that be? I wouldn't expect much recovery until 2010 or possibly 2011.

Surviving a tough year in real estate
With commercial sales hurting, some agents found success in leases

By Michael Braga

Published: Monday, January 5, 2009 at 1:00 a.m.

There is no denying that 2008 was an extremely tough year for commercial real estate agents and that 2009 is shaping up to be even tougher.

Sales of commercial warehouses, office buildings, shopping centers and vacant land was down markedly from a year earlier and most agents were forced to turn their attention to leasing space rather than selling it in order to survive.

"We've got 17 people here and all they all do is commercial," said Joe Hembree, who owns Hembree & Associates in Sarasota. "With sales low, they're doing a lot of leasing."

But even leasing space was difficult in 2008, Hembree and others in the commercial real estate business say.

"It's been brutal," said Michael Polk, a Punta Gorda appraiser who leases space in office buildings he owns. "I've been here 20 years and this is the worst market I've ever seen."

The commercial market improves as you drive north, Polk said.

"It's not as bad in Sarasota as in Port Charlotte because there is not that much of an oversupply," he said. "But it gets much worse as you move south. Lee County is even worse than Charlotte County."

That said, there are still commercial agents in the region who have had success in getting space filled, and the kinds of companies they are attracting says a lot about which businesses are holding their own and which are falling apart.

"We did a lease for a home health agency that is expanding," said Diane Lawson, an agent with Abbey Realty in Sarasota. "Health care is one of the industries that is still looking."

Renee Richardson Kling, an agent with Richardson Kleiber Walter in Sarasota, said she has been helping several health, nutrition and fitness companies find space in easy-to-access strip malls throughout the area. One company in particular is geared toward working mothers.

"When you're in a down economy people want to better themselves," Kling said. "They might not be able to control everything around them -- the economy and world events -- but they can control themselves. When things turn around, they're in shape, they're feeling good and they're ready to go."

At the opposite end of the spectrum are companies that benefit from the misfortune of others.

Chad Maxwell, an agent with Century21 in Port Charlotte, recently found space in Punta Gorda for a real estate attorney who is now specializing in bankruptcy law. Anthony Migliore, an agent with Coldwell Banker in Sarasota, landed a pawn shop for space next to the Rumba Lounge on US 301 in Sarasota.

"Businesses like pawn shops -- and I would hazard to guess liquor stores -- are doing pretty well in this economy," Migliore said. "But there is no escaping the fact that there are more and more vacancies out there."

The really big fish

In addition to finding space for a pawn shop, Migliore also handled his share of really big leasing deals during the past few months.

He helped Peek Traffic, a Bradenton maker of traffic control devices, move out of a 50,000-square-foot building and into a slightly larger building nearby.

"Their old building was 50 percent office and they needed more manufacturing space," Migliore said. "Rather than reconfigure, they decided to move across the street."

The deal worked out well for the owner of the building that Peek moved into -- a downsizing manufacturing company that makes gripper elevators and palletizers for the printing industry.

Migliore found 10,000 square feet of space for that company and 1,100 square feet of office space for Berlin Packaging, a Chicago-based company that makes stylish glass, metal and plastic containers for everything from perfume to shampoo.

Few Realtors in the region, however, saw more success over the past few months than Roberta Kolton.

The daughter of a longtime Michael Saunders agent, Bob Kolton, Roberta leased 90,000 square feet of industrial space to three companies during the past three months. Two-thirds of that leased space was in the 500,000-square-foot manufacturing plant that Wellcraft Marine vacated earlier this year.

One of the companies that took 40,000 square feet was Windproof Homes, an Ohio housing panel manufacturer that moved its headquarters to Sarasota. The company's Web site shows that Windproof specializes in making panels that are bug-proof and can withstand winds of 150 miles per hour.

"The current demand for affordable housing with a green mindset has made these panels almost a necessity for the builder of this day and time," the company's Web site states.

Another company to move into 22,000 square feet at the old Wellcraft operation was Legend Custom Yachts, a Sarasota yacht builder that specializes in high performance sport fishing boats.

"They were in 18,000 square feet. So they upsized," Kolton said.

What attracted both companies to the site were the extremely low monthly rents -- only $3.75 per square foot with taxes and insurance included, Kolton said.

The third company that Kolton landed was Horner Xpress Manasota, a pool cleaning supply company that took 17,000 square feet off U.S. 301 in southern Manatee County.

"The need for pool cleaning in Florida is not something that will go away," Kolton said.

Futuristic growth

Jeffrey Button, an agent with the Kleiber Group in Sarasota, also landed a whopper when he found 25,000 square feet of space for Structural Preservation Systems, a Hanover, Md.-based company that builds, repairs, protects, strengthens and reinforces concrete, masonry and other building materials.

Button said that Structural Preservation should be in a good position to take advantage of the infrastructure-related spending when Barack Obama becomes president. The company already has a contract with a power plant in Crystal River.

Structural Preservation boasts on its Web site that it has "completed more than 14,000 repair projects; 26,000 post-tensioning projects; and 10,000 chimney, stack and silo projects through the efforts of more than 2,300 people working together from operating centers across the United States."

Meanwhile at the Port Manatee Commerce Center, Button's brother, Kevin Button, said that Seabridge Freight, a Jacksonville-based company that runs a barge service from Brownsville, Texas, to Port Manatee, has rented 2,800 square feet at his company's site.

"They bring containers into Port Manatee," said Button, operations manager for the warehouse complex. "Right now it's a 10-day service, but they are planning to step that up to a four-day service."

Button added that the barges will not return to Brownsville empty. They will carry concrete poles made in Bartow that will be used for a wind farm in Texas.

With the full backing of Manatee County, Port Manatee is an exciting place to be right now, Button said.

Button added that the economy may be in a down cycle now, but that will not last forever.

"You got to give Port Manatee credit," he said. "They are using this opportunity to set us up for growth in the future."

Wave of Retail Bankruptcies and Closings On The way

2008-12-30T18:24:00.001-05:00

From Bloomberg. 73,000 stores may close after the new year and before June of 2009 according to ICSC. Expect a lot more vacancy. Read on.

Holiday Sales Drop to Force Bankruptcies, Closings

By Heather Burke

Dec. 29 (Bloomberg) -- U.S. retailers face a wave of store closings, bankruptcies and takeovers starting next month as holiday sales are shaping up to be the worst in 40 years.

Retailers may close 73,000 stores in the first half of 2009, according to the International Council of Shopping Centers. Talbots Inc. and Sears Holdings Corp. are among chains shuttering underperforming locations.

More than a dozen retailers, including Circuit City Stores Inc., Linens ‘n Things Inc., Sharper Image Corp. and Steve & Barry’s LLC, have sought bankruptcy protection this year as the credit squeeze and recession drained sales. Investors will start seeing a wide variety of chains seeking bankruptcy protection in February when they file financial reports, said Burt Flickinger.

“You’ll see department stores, specialty stores, discount stores, grocery stores, drugstores, major chains either multi- regionally or nationally go out,” Flickinger, managing director of Strategic Resource Group, a retail-industry consulting firm in New York, said today in a Bloomberg Radio interview. “There are a number that are real causes for concern.”

Sales at stores open at least a year probably dropped as much as 2 percent in November and December, the ICSC said last week, more than the previously projected 1 percent decline. That would be the largest drop since at least 1969, when the New York-based trade group started tracking data. Gap Inc. and Macy’s Inc. are among retailers that will report December results on Jan. 8.

Women’s Clothing, Electronics

Consumers spent at least 20 percent less on women’s clothing, electronics and jewelry during November and December, according to data from SpendingPulse.

Retail Metrics Inc.’s December comparable-store sales index will drop an estimated 1.2 percent, or 5 percent excluding Wal- Mart Stores Inc. Retailers’ fourth-quarter earnings may fall 19 percent on average, the seventh consecutive quarterly decline, according to Ken Perkins, president of Retail Metrics, a Swampscott, Massachusetts-based consulting firm.

Probably 50,000 stores could close without any effect on consumer choice, Gregory Segall, a managing partner at buyout firm Versa Capital Management Inc., said this month during a panel discussion held at Bloomberg LP’s New York offices. Only retailers with healthy balance sheets will survive the recession, according to Matthew Katz, a managing director at consulting firm AlixPartners LLP.

Store Closings

The ICSC predicts, using U.S. Bureau of Labor Statistics data, that 148,000 stores will shut down in 2008. That would be the largest number since 151,000 closings in 2001, during the last recession, according to ICSC Chief Economist Michael Niemira. The total number of retail establishments will decline by about 3 percent this year, also taking into account locations that were opened, he said. The U.S. had 1.11 million retail locations in 2002.

Another 73,000 locations may shut their doors in the first part of 2009, Niemira said.

The U.S. economy shrank in the third quarter at a 0.5 percent annual pace, the worst since 2001, according to the Commerce Department. Economists surveyed by Bloomberg in the first week of December forecast the world’s largest economy will contract through the first half of 2009.

The Standard & Poor’s 500 Retailing Index has shed 34 percent this year, with only two of its 27 companies rising.

The index doesn’t include Wal-Mart, the world’s largest retailer, which fell 24 cents to $55.11 at 4:02 p.m. in New York Stock Exchange composite trading. Wal-Mart shares have gained 18 percent this year.

Discount Advantage

“If you’re going to be in retail right now, the discount space is where you want to be,” Patrick McKeever, a senior equity analyst at MKM Partners LLC, said today in a Bloomberg Television interview.

Discounts of 70 percent or more by Macy’s, AnnTaylor Stores Inc. and other retailers failed to prevent a spending drop of as much as 4 percent during the final two months of the year, according to data from SpendingPulse. Retailers’ pricing models are being challenged by consumers, according to Richard Hastings, consumer strategist at Global Hunter Securities LLC of Newport Beach, California.

“The whole pricing system is becoming an old-fashioned bazaar,” Hastings said today in a telephone interview. “They’re going into the stores and they’re looking at the stuff and they’re saying ‘You know what? I know that that price is way too high,’ and they have figured out that the signage doesn’t mean that much.”

Retail bankruptcies may help the industry in the long run, according to Flickinger.

“We’ll be going from a Dickens-esque worst of times this December to the best of times in future Decembers because we’ll rationalize out all the redundant retailers and retail space in shopping centers,” Flickinger said.

To contact the reporter on this story: Heather Burke in New York at hburke2@bloomberg.net.
Last Updated: December 29, 2008 16:17 EST

LINK

At Wa-Mu, EVERYTHING Was Approved

2008-12-27T10:38:00.000-05:00

The stories are just starting to trickle out. Meth-snorting loan officers approving pretty much anything. Of particular interest locally because it mentions Bay area Wa-Mu locations, including Sarasota.

In 10 years there will be plenty of books written and plenty of perspective on exactly how insane the whole thing was.

From the New York Times (registration required):

The Reckoning
By Saying Yes, WaMu Built Empire on Shaky Loans
By PETER S. GOODMAN and GRETCHEN MORGENSON

“We hope to do to this industry what Wal-Mart did to theirs, Starbucks did to theirs, Costco did to theirs and Lowe’s-Home Depot did to their industry. And I think if we’ve done our job, five years from now you’re not going to call us a bank.”

— Kerry K. Killinger, chief executive of Washington Mutual, 2003

SAN DIEGO — As a supervisor at a Washington Mutual mortgage processing center, John D. Parsons was accustomed to seeing baby sitters claiming salaries worthy of college presidents, and schoolteachers with incomes rivaling stockbrokers’. He rarely questioned them. A real estate frenzy was under way and WaMu, as his bank was known, was all about saying yes.

Yet even by WaMu’s relaxed standards, one mortgage four years ago raised eyebrows. The borrower was claiming a six-figure income and an unusual profession: mariachi singer.

Mr. Parsons could not verify the singer’s income, so he had him photographed in front of his home dressed in his mariachi outfit. The photo went into a WaMu file. Approved.

“I’d lie if I said every piece of documentation was properly signed and dated,” said Mr. Parsons, speaking through wire-reinforced glass at a California prison near here, where he is serving 16 months for theft after his fourth arrest — all involving drugs.

While Mr. Parsons, whose incarceration is not related to his work for WaMu, oversaw a team screening mortgage applications, he was snorting methamphetamine daily, he said.

“In our world, it was tolerated,” said Sherri Zaback, who worked for Mr. Parsons and recalls seeing drug paraphernalia on his desk. “Everybody said, ‘He gets the job done.’ ”

At WaMu, getting the job done meant lending money to nearly anyone who asked for it — the force behind the bank’s meteoric rise and its precipitous collapse this year in the biggest bank failure in American history.

On a financial landscape littered with wreckage, WaMu, a Seattle-based bank that opened branches at a clip worthy of a fast-food chain, stands out as a singularly brazen case of lax lending. By the first half of this year, the value of its bad loans had reached $11.5 billion, nearly tripling from $4.2 billion a year earlier.

Interviews with two dozen former employees, mortgage brokers, real estate agents and appraisers reveal the relentless pressure to churn out loans that produced such results. While that sample may not fully represent a bank with tens of thousands of people, it does reflect the views of employees in WaMu mortgage operations in California, Florida, Illinois and Texas.

Their accounts are consistent with those of 89 other former employees who are confidential witnesses in a class action filed against WaMu in federal court in Seattle by former shareholders.

According to these accounts, pressure to keep lending emanated from the top, where executives profited from the swift expansion — not least, Kerry K. Killinger, who was WaMu’s chief executive from 1990 until he was forced out in September.

Between 2001 and 2007, Mr. Killinger received compensation of $88 million, according to the Corporate Library, a research firm. He declined to respond to a list of questions, and his spokesman said he was unavailable for an interview.

During Mr. Killinger’s tenure, WaMu pressed sales agents to pump out loans while disregarding borrowers’ incomes and assets, according to former employees. The bank set up what insiders described as a system of dubious legality that enabled real estate agents to collect fees of more than $10,000 for bringing in borrowers, sometimes making the agents more beholden to WaMu than they were to their clients.

WaMu gave mortgage brokers handsome commissions for selling the riskiest loans, which carried higher fees, bolstering profits and ultimately the compensation of the bank’s executives. WaMu pressured appraisers to provide inflated property values that made loans appear less risky, enabling Wall Street to bundle them more easily for sale to investors.

“It was the Wild West,” said Steven M. Knobel, a founder of an appraisal company, Mitchell, Maxwell & Jackson, that did business with WaMu until 2007. “If you were alive, they would give you a loan. Actually, I think if you were dead, they would still give you a loan.”

Click here to read the rest of the article.

CRE Developers Looking for Bailout, Commercial Defaults to Triple

2008-12-23T08:40:00.003-05:00

Looks like we're heading toward critical mass. I hate being the bearer of bad news again, but there isn't much positive news out there to report. As the Sarasota Herald article stated, seems like we're in for a bumpy 2009. I expect to see a lot of property hit the market in the next 13 months at prices once unthinkable.

US developers seek aid from government

By Bloomberg News | December 23, 2008

NEW YORK - The biggest property developers in the United States are asking to be included in the federal government's efforts to jump-start commercial lending, said Jeff DeBoer, president of the Washington-based Real Estate Roundtable.

The help could come through a new $200 billion loan program established to aid the market for car loans, student loans, and credit-card debt, or through a separate pool that would allow property owners to refinance mortgages, DeBoer said. The group represents property owners, developers, lenders, and management companies.

About $270 billion of mortgages on shopping malls, apartment complexes, and office buildings must be refinanced in 2009, according to Barclays estimates. Commercial loan defaults will accelerate as banks and insurance companies rein in lending to manage their balance sheets and as the market for commercial mortgage-backed securities stays shut, Fitch Ratings said in a Nov. 17 report.

"They are trying to alert members of Congress and the public to a very serious problem that is coming," DeBoer said of the developers. "Until the credit markets function again, this could be a serious problem."

Commercial mortgages are usually written for a period of five to 10 years with the expectation they will then be refinanced, DeBoer said. That can't happen currently because banks are reluctant to lend.

Under the Term Asset-Backed Securities Loan Facility, or TALF, the Federal Reserve has agreed to lend to some holders of securities backed by "newly and recently originated" loans. The loans include those for education, cars, and credit cards.

The Fed intends to have TALF running by February and has said it may expand it to commercial mortgages.

Mitchell Hersh, chief executive of Mack-Cali Realty Corp., declined to comment. A spokeswoman for Richard Clark, CEO of Brookfield Properties Corp., Lower Manhattan's largest landlord, said Clark was unavailable.

Commercial property prices fell 2.4 percent in October, Moody's said in a report yesterday. The Moody's/REAL commercial property price index, which tracks prices nationwide for offices, stores, warehouses, and apartments based on repeat sales, is now 11.5 percent below its October 2007 peak, according to the report.

US commercial properties at risk of default could triple if rental income from office, retail, and apartment buildings drops even 5 percent, according to research by real estate analysts at New York-based Reis Inc.

LINK

A Not So Happy 2009? Yep.

2008-12-22T08:09:00.003-05:00

I made the local paper today with an article predicting the year ahead. For perspective, I did fairly well in 2008 but, like a lot of other folks in my business down here, many of us are concerned about the prospects for the year ahead. I don't know if I agree with a 50% drop in values over the year, but I can see some significant price cuts in BOTH lease rates and square-footage selling prices.

From the Sarasota Herald Tribune:

Unhappy new year for commercial Analysts say this real estate sector faces the biggest challenges in '09

By Michael Braga

Published: Monday, December 22, 2008 at 1:00 a.m.

The commercial real estate market has suffered this year as total sales and lease rates of everything from shopping centers to car dealerships have fallen.

But if you think things were bad this year, just wait until 2009.

"The next meltdown we are going to see is in commercial," said Gordon Hester, a Siesta hard-money lender whose customers include both commercial and residential developers. "The value of commercial real estate will probably drop 50 to 60 percent."

Investors began pouring money into commercial real estate in 2006, just after the residential real estate market peaked. Like residential investors, these commercial players abandoned the notion that properties need to kick off enough revenue to cover carrying costs, Hester said.

Instead, they banked on the bet that real estate could be purchased for one price and sold for a much higher price in a relatively short period.

"Now investors are only willing to pay based in returns," Hester said. "For that to shake out, values have to drop."

Unfortunately, the end of the "appreciation model" in commercial real estate coincides with one of the worst economic downturns since the 1930s.

Unemployment is up, consumer confidence and spending is down, and owners of shopping centers, hotels and office buildings are already feeling the pinch.

"After the Christmas season, we are going to see a ton of retailers and restaurants file for bankruptcy or go out of business," said Jack McCabe, a Deerfield Beach-based real estate consultant. "Obviously this will affect shopping centers and strip centers and the office market."

Sales dropping

The deterioration of the commercial real estate sector already is showing up in declining sales.

Only 89 properties in Sarasota County changed hands in 2008 for a total of $131.3 million, a 47.5 percent drop in sales volume from the 109 properties that sold for $250.3 million in 2007.

Office buildings saw the largest drop in dollar terms, followed by hotels and shopping centers.

"The whole thing is being driven by two things: the credit situation, which is nowhere at the moment, and investor confidence," said Stan Rutstein, a commercial agent with Re/Max in Bradenton.

Rutstein pointed to the fact that Nate Benderson, Nathan Forbes and the Taubman Cos. recently announced they were postponing construction of the new University Town Center Mall.

"If developers like Benderson, Forbes and Taubman, who are national scope, are being cautious -- if they don't want to take a risk -- then smaller players are not going to take a risk, either," Rutstein said. "Two-thousand nine is going to be a very challenging year."

Rutstein said that the only way commercial properties are going to move is if sellers come down hard on price. For example, a client who was offered $1.6 million from a bank for an acre near Wal-Mart in 2006, might only get $600,000 for that same property today.

"But there aren't any takers because banks are out of the market," Rutstein said.

The same downward trend is also affecting lease rates for both office and retail space, said Anthony Migliore, a commercial agent with Coldwell Banker in Sarasota.

"Landlords and owners are getting very reasonable," Migliore said. "There was one case in which the owners of an office building in Lakewood Ranch gave one year free rent to the Juvenile Diabetes Research Foundation in return for signing a long-term lease."

Of course, that is an extreme example, Migliore said. But it illustrates the kind of lengths landlords are willing to go to get space rented.

"They may not be able to sell the space, but at least they can get it leased and ride out the storm," Migliore said.

Vacancies on the rise

"If you are a shopping center owner and you evict someone this year, you're crazy," said George Huhn, a Venice-based commercial real estate agent. "Vacancies are going to go through the roof, and everyone will be competing for tenants."

A lot of landlords are opting to carry mom and pop retailers through the bad times with rent abatements, renegotiations of leases and forbearance agreements, Huhn said.

"They're just looking to keep the guy in business, because something is always better than nothing," Huhn said.

Retail sales in Sarasota County were down by nearly $70 million, or 11 percent, in September compared with the same month a year earlier, and that was before the financial crisis really took hold. So it is no wonder that retailers and landlords alike are struggling.

But as in the residential market where foreclosures have led to amazing deals for savvy investors, the collapse of the commercial real estate sector will provide ample opportunities for investors looking for deals.

"Banks already have commercial property available that they have foreclosed on," Rutstein said.

"A good amount of it is dirt that has plummeted in value."

For investors like Michael Averbuch, commercial land represents a once-in-a-lifetime opportunity.

"The biggest game in town is commercial land," Averbuch said. "Banks in Southwest Florida are nothing more than walking corpses. They are sitting on land and developer loans -- most of which are in default, and lot of that land will hit the market this year.

"The stuff is so distressed, that it can't get more distressed."

Anyone Care To Guess What THIS Will Do To Big Box Retail?

2008-12-17T11:09:00.010-05:00

As much as I love technology, and I really love technology, I was frozen in my tracks after seeing this little gem of an application. Information is power, that's for sure.

Consider this: you're shopping for a television in a big box store. Let's say you find a 42" LCD that you love. The price is $1,499 in the store + sales tax. You whip out your Android-powered phone (i.e., Android = Google powered, it's available now at T-Mobile), scan the barcode of the product right there in the store and, within seconds, a list of online retailers shows up with the same product for $400 or $500 less with free shipping. Next to this is a button that says "Order Now?" What do you do? If it's me, I would order it from the online retailer without thinking twice and walk out of the store I was in. This is terrific and it is here NOW.

What struck me was the specter of what this kind of thing could do to brick and mortar retail. If physical stores cannot compete with this (and they cannot in my opinion), what will become of them? There are always people who will need things immediately (computer cables, DVDs, blank CDs, etc.), but when it comes to high margin stuff like televisions, digital cameras, and computers, life is about to become even tougher for retailers. Saving 30% and sometimes 50% by shopping online is pretty significant. Yes, buying products online has pretty much always been less expensive, but now a person can just point their phone at the product and have the information in seconds.

With the Apple iPhone and Amazon.com, all you need to do is take a photo of the product. They've gotten that smart. Pay attention to the video below at 1:17. Just take a photo of something like a TV and it will figure it out for you.

Will the world end up with fewer retailers and more fulfillment centers eventually? Time will tell and I would reason to guess we are headed in that direction. Not everyone uses this technology...yet. All it takes is a modest amount of consumers to stop buying high margin items from big box stores. Most of these stores are in trouble as it stands already and this could be the tipping point. I speak from a bit of experience as I was in the music business for over a decade and watched profits erode as MP3s and file sharing cut out the need for distributors. That's another subject, but that experience is still pretty fresh.

Upsale Sarasota Mall Delayed

2008-12-07T01:56:00.002-05:00

This is not all the surprising to most of us in the business. Most retailers are reeling at the moment and the situation is expected to worsen before it gets better. From the Sarasota Herald Tribune.

Upscale mall will be late

By Toni Whitt
STAFF WRITER

Published: Sunday, December 7, 2008 at 1:00 a.m.
Last Modified: Sunday, December 7, 2008 at 12:11 a.m.

SARASOTA - Construction of the new University Town Center Mall featuring Neiman Marcus, Nordstrom and Macy's has been put on hold until the economy turns around.

The move is not surprising given that all of the anchor retailers are suffering from the downturn. Neiman Marcus saw same-store sales drop 14.5 percent in the last quarter. The retailer saw another 11.9 percent decline for the month of November.
Neiman Marcus, which is set to webcast its quarterly report on Wednesday, may have urged the developers to stall the mall project until the economy gets better.
"We're hoping it's a short delay," said Mark Chait, director of Florida leasing for Benderson Development Co., LLC, one of the three partners in the project. He said construction will begin as soon as "economic and retail conditions improve."
It will take two years to build the mall once construction begins, he said.
That means the mall probably will not open before 2012, because most analysts do not believe the economy will turn around before the end of next year.
Nathan Forbes, managing partner of The Forbes Co., would not comment on the retailers on Saturday, but said he plans to issue a formal statement on the construction delay and mall leases later this week.
The other two announced anchors for the mall have also been suffering under the country's economic crisis, with housing prices down, the jobless rate soaring and the credit market contracting. Nordstrom, Inc. saw a 12.1 percent decrease in same store sales in November. Year-to-date same-store sales have decreased 8.6 percent compared with the same period last year.
Macy's, Inc., the third anchor, saw a 13.3 percent decrease in November same-store sales and year-to-date same-store sales were down 4.8 percent. It has also experienced a precipitous drop in its stock price in the past year. It had been selling at around $30 a share a year ago and has since dropped to $8.61 as of last week.
The climate for malls is not good as retailers close stores, face bankruptcy and even shut down.
In a July report, the International Council of Shopping Centers predicted nearly 144,000 stores would close this year.
Mall developments are now facing foreclosure as occupancy rates decline and the delinquency rate on commercial-backed mortgage securities markets rise.
General Growth Properties, Inc., the country's second largest regional mall real estate investment trust, may have to sell the company under the weight of its debt.
"We're probably in the first inning of the commercial mortgage problem," said Scott Tross, a real estate lawyer with Herrick Feinstein in New Jersey.
The timing is terrible for the University Town Center project, which had finally cleared the last of several hurdles last month, when the state gave the developers permission to pull permits and begin building.
In an October conference call with investors, the chief executive of Taubman Centers Inc., whose company holds a 25 percent interest in the project, said that if the partners did not find favorable financing for the project, the development group planned to "self-fund" construction of the 900,000-square-foot luxury mall, which he promised would be complete by November 2010.
But in the ensuing weeks, the economy has declined even further and sales the day after Thanksgiving -- known as Black Friday -- did not bring in the sales retailers had been hoping for.
The Associated Press contributed to this report.

LINK

Nearly 10% of all Mortgages Not Being Paid

2008-12-05T14:17:00.001-05:00

Yep...

From Bloomberg:

By Kathleen M. Howley

Dec. 5 (Bloomberg) -- One in 10 American homeowners fell behind on mortgage payments or were in foreclosure during the third quarter as the world’s largest economy shed jobs and real estate prices tumbled.

The share of mortgages 30 days or more overdue rose to a seasonally adjusted 6.99 percent while loans already in foreclosure rose to 2.97 percent, both all-time highs in a survey that goes back 29 years, the Mortgage Bankers Association said in a report today. The gain in delinquencies was driven by an increase of loans with payments 90 days or more overdue.

“Until we see a turnaround in the job situation, we’re not going to see these numbers improve,” said Jay Brinkmann, chief economist of the Washington-based bankers group, in an interview. “We’re seeing more loans build up in the 90-days bucket as lenders work to modify loans and states put in place programs that delay foreclosures.”

The U.S. economy has shed 1.91 million jobs this year, while falling home prices have made it difficult for people who can’t pay their mortgages to sell their property. Payrolls declined in each month of 2008 through November, the Labor Department said today in Washington.

New foreclosures fell to 1.07 percent from 1.08 percent in the second quarter as some states enacted laws to temporarily stop home repossessions and lenders increased efforts to modify the terms of loans, Brinkmann said.

Home Sales Sink

“Some servicers keep a loan in a delinquent state until they see customers carrying through on their agreements, and then they’ll switch it to performing,” Brinkmann said.

U.S. home sales and prices began to tumble in 2006 after a five-year boom, dragging the economy into a recession that began in December 2007, according to the National Bureau of Economic Research.

The median home price in the fourth quarter probably will be $190,300, down 19 percent from the record $226,800 in 2006’s second quarter, according to a Nov. 24 forecast by Fannie Mae, the world’s largest mortgage buyer.

Purchases of existing homes in October slid to an annual rate of 4.98 million, lower than forecast, the National Association of Realtors said in a Nov. 24 report. The median price fell 11.3 percent from a year earlier, the most since the group began collecting data in 1968.

Federal Reserve Chairman Ben S. Bernanke yesterday urged using more taxpayer funds for new efforts to prevent home foreclosures, saying the private sector is incapable of coping with the crisis on its own.

Bernanke’s Plans

The Fed chief outlined four possible options, including buying delinquent mortgages and providing bigger incentives for refinancing loans. He called for addressing the “apparent market failure” where lenders aren’t modifying mortgages even in cases where it’s in their own economic interest to do so.

Bernanke’s proposed changes would go beyond those announced last month by Housing and Urban Development Secretary Steve Preston, who oversees the FHA. The agency will change the amount of the loan a lender must forgive and allow banks to extend the payback time of a mortgage.

There were 111.7 million occupied housing units in the U.S. in the third quarter, 68 percent used by owners and the remainder leased by renters, according to the Census Bureau. One in three U.S. homes has no mortgage, the bureau said.

The bankers’ report cites percentages without providing the number of mortgages. The U.S. had $11.3 trillion of outstanding home loans at the end of June, according to Federal Reserve data. Mortgage lending fell to $80.8 billion in the second quarter, down from $764 billion a year earlier, the Fed said.

The Mortgage Bankers report is based on a survey of 45.5 million loans by mortgage companies, commercial banks, thrifts, credit unions and other financial institutions.

To contact the reporter on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net.
Last Updated: December 5, 2008 13:58 EST