5203 Cortez Road - Finally 100% Leased!

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. :)

So Long, 2009.

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!

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.

Leased Another One! John Deere.

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.

Is The Bottom Near? Forecast Says So.

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

YouTube Video Makes The News

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.”

Area Losing Two Dillards Stores.

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.

Benderson Buys Back Properties at Discount

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.

WaMu Going Down Next?

I heard this from a very good banking source a few weeks back. Everyone's been watching the situation unravel over the past week. WaMu claims to be very well-capitalized, but the future is very uncertain for this bank IMO.

Moody's cuts WaMu's credit rating to below investment grade
By Simon Kennedy
Last update: 3:45 a.m. EDT Sept. 12, 2008
LONDON (MarketWatch) -- Moody's Investor Service downgraded Washington Mutual Inc.'s credit rating to below investment grade late Thursday, citing WaMu's reduced financial flexibility, deteriorating asset quality and expected franchise erosion. The rating agency cut the group's senior unsecured rating to below investment grade at Ba2 from Baa3. It also reduced the long-term deposit and issuer ratings of the banking unit to Baa3 from Baa2, though this rating remains investment grade. Moody's added the outlook for the ratings is negative. In a response, Washington Mutual said it believes the decision to cut its ratings to below investment grade "is inconsistent with the company's current financial position." The firm added Moody's action appears to reflect the uncertainty in the market, rather than a thorough evaluation of its business.

Distress soon could hit U.S. commercial property

If the news hasn't been bad enough, here' some more, this time from Reuters.

By Ilaina Jonas - Analysis

NEW YORK (Reuters) - U.S. commercial real estate prices are likely to tumble over the next 12 to 18 months as more borrowers default on their loans and regulators crack down on banks, pushing even more properties onto the market.

Since the market's peak in 2007, the availability of debt -- the lifeblood of commercial real estate -- has dried up and choked off sales. Borrowers have resisted selling because of falling prices. Banks have not sold off their troubled loans, fearing a massive write-down of all commercial real estate loans. But the clock looks to be running down.

"We're going to see a whole lot more trouble going forward," Peter Steier, vice president of Inland Mortgage Capital Corp said.

Steier was speaking at the Distressed Commercial Real Estate Summit East last week, where about 200 investors, lenders and buyers gathered in hopes of finding ways to capitalize on the commercial real estate corpses that are likely to come as foreclosures, sick banks and distressed loans spread.

From their peak last year, office prices in the second quarter were down 11.2 percent; retail prices fell 4 percent; and warehouse and distribution center prices were off 6.7 percent, according to real estate research firm Reis Inc. Apartment prices were down 13.8 percent from their peak in late 2005.

Sales are expected to fall 66 percent this year from $467 billion to an estimated $159 billion because debt, especially securitized debt in the form of commercial mortgage-backed securities (CMBS), is either unavailable or prices are too high and terms too strict for borrowers, Reis said.

So far, many of the distressed commercial properties and loans have appeared in Arizona, Las Vegas and Florida, as well as in Atlanta -- and already-troubled Louisiana, Michigan and Ohio.

"One of our biggest problem areas is pretty much the state of Ohio," said Kevin Donahue, senior vice president Midland Loan Services Inc, a CMBS special servicer which steps in when a loan is showing imminent signs of trouble. "If we keep going, by the second quarter of 2009, I think the entire state of Ohio will become a subsidiary of Midland."

Many of the defaults and foreclosures have been directly related to the collapse of the housing market. Undeveloped land sells for about 10 cents on the dollar, and finished condominiums sell for up to 90 cents on the dollar, said Michael Lessor, managing director of loan sales advisor Eastdil Securities.

But many expect loans on better-quality buildings, especially shopping centers, to start running into trouble, as borrowers find they cannot refinance their maturing loans and are forced to sell or else default.

Many problems loans were issued, pooled and securitized in 2006 and the first part of 2007. The loans assumed rents and commercial real estate prices would continue to rise. Many of them were heavily leveraged 3- or 5-year interest-only, floating rate loans coming due in 2009-2010.

"Any loan made in the last couple of years that was based on an improving story is having issues," said David Iannarone, managing director with loans servicer CWCapital Asset Management LLC. "The story has not improved."

Still, many borrowers remain reluctant to sell, hoping the market will improve before their loans mature. But they may be forced to sell at lower prices or face default on balloon payments.

Lehman Brothers said about $167 billion of fixed-rate CMBS loans are expected to come due from now through the end of 2012. Although defaults will rise, Lehman said a more likely outcome will be more extensions, leaving bondholders to take the hit on their returns.

BANKS JOIN IN

A flood of performing or nonperforming commercial real estate loans may hit the market as the U.S. Federal Deposit Insurance Corp pressures institutions to sell loans and shore up capital.

"The banks want to sell; the question is, can they sell them?" asked David Dorros, managing director of CB Richard Ellis Group Inc National Loan Sales Advisory Group.

Continue Reading...

Worldwide Office Sales Hit Hard

Businessweek reporting worldwide office sales are being hit very hard. In the U.S. alone, sales are down nearly 70% as reported by Real Capital Analytics.

The Credit Squeeze Hits Global Properties
Developers of commercial properties from London to Tokyo are suffering as banks cut lending

First came the U.S. housing bust. Now comes the overseas aftershock. As the global financial system reels from the credit crunch, skyscraper projects have stalled in London, Tokyo developers have gone belly-up, and Indian office space can be had for fire-sale prices.

What do bad U.S. home loans have to do with office buildings halfway around the planet? Plenty. Global lenders, chastened by the subprime mess, are denying credit to many builders and demanding tougher terms on loans to buy or refinance commercial properties. And as those same lenders lay off thousands of workers, they need less office space—putting downward pressure on rents and spurring developers to rethink their plans. "It's impossible nowadays to keep financial crises in one area," says Minoru Mori, chief executive of Japan's Mori Building, which just cut the ribbon on the 101-story Shanghai World Financial Center, China's tallest skyscraper. He ought to know: Lehman Brothers (LEH) recently scrapped plans to move into the building, and Morgan Stanley said it would rent only four floors instead of eight.

Dealmaking has slowed sharply. The value of commercial real estate transactions worldwide in the first six months of this year was only $306 billion, about half the level of the same period in 2007, research group Real Capital Analytics estimates. "It's hard to sugarcoat what's going on," says Dan Fasulo, Real Capital's managing director of research. "The environment is the most difficult it has been in some time."
BRITISH BLIGHT

London may be suffering the most. As costs for commercial real estate financing in the British capital have soared, only 3 of 19 major office projects announced since 2004 have gone ahead as planned. Developer British Land is delaying construction of a 47-story skyscraper popularly known as the Cheese Grater (owing to its triangular profile). Overall, purchase prices for British commercial property are down 20% from mid-2007 and could fall 15% more in the coming year, says Kelvin Davidson, an economist at London consultancy Capital Economics. "The market won't pick up before 2011."

That might be too late to help Metrovacesa. The Spanish property group spent $3.7 billion in 2007 for the London headquarters of bank HSBC (HBC), Europe's biggest-ever real estate deal. HSBC agreed to remain in the building and extended Metrovacesa a $1.5 billion short-term loan, to be repaid this fall after the Spanish group lined up long-term financing. But analysts reckon the building has since lost at least 25% of its value, and Metrovacesa hasn't yet secured new funding. The company says it's confident it can work out an agreement.

Subprime isn't the only source of trouble. In Japan, banks fared relatively well in the wake of the U.S. mess. But a flagging economy and weak consumer confidence have clobbered smaller developers. Nine publicly traded real estate and construction groups have filed for bankruptcy this year, including Sohken Homes, which sought protection from creditors on Aug. 26. That, in turn, provoked profit warnings by banks that lent to the companies.

In contrast to past real estate downturns, overbuilding isn't a big problem. Vacancy rates remain low in many markets, so rents are stable. "People learned from the 1980s," when loose lending led to massive investment, says David J. Siopack, co-manager of the Schwab Global Real Estate Fund (SWAIX), which has $190 million in assets. This time, he says, "there was a little more discipline."

Overexuberant development has been confined largely to fast-growing markets, particularly China and India. In the Chinese cities of Chongqing and Zhengzhou, more than 30% of existing space is vacant after a building binge two years back, and an additional 4.8 million square feet of space is due for delivery this year in the two cities, according to Jones Lang LaSalle. In India, inflation, high interest rates, and stock market turmoil have taken a toll, with rents off by as much as 40%, says Pranay Vakil, chairman of Knight Frank India, a property consultant. The U.S. slowdown, meanwhile, has dampened demand for "cubicle developments" used by outsourcing shops. "Most IT companies said, 'No more expansion,' " Vakil says.

So far damage to lenders has been limited. But banks in Ireland and the Netherlands might be forced to take writedowns, and investment funds targeting Western European property could be in trouble. The outlook is even grimmer in Spain, where real estate prices have been in free fall. Martinsa-Fadesa, a major property company, filed for bankruptcy in July, and another big developer, Colonial, is struggling with $14 billion in distressed debt.

For all the bad news, the situation creates opportunities for those with cash. Pension funds and sovereign wealth funds "still have money to invest," says Tim Jowett, an analyst at Swiss bank UBS (UBS). But developers may have to wait awhile. Those conservative investors won't likely put money into the market now, Jowett says, if they think that "in 6 months or 12 months prices might go lower."

The Counterintuitive Commercial Real Estate Market

CFO Magazine/CFO.com is reporting that many companies are not seeing the fall in rents translate into bottom-line savings. Great story. Courtesy of CFO.com.

Falling real estate prices don't automatically produce a traditional buyer's market.
Marie Leone - CFO.com | US

Unexpectedly, the current downward drift in commercial real estate prices isn't translating directly into cheaper rents for corporations. Faced with the sudden uptick in inflation, landlords are finding ways to collect more money from lessees.

To be sure, the Moody's/REAL Commercial Property Index reported a 9.6 percent decrease in prices in June, compared with the same period last year, and a decrease of 11.8 percent from the October 2007 peak. The report, which was released in August, measures the change in transaction prices for commercial real estate assets based on the repeat sales of the same assets at different points and time.

The June index is the fourth consecutive month of negative returns, and shows a negative return over a two-year period. And while the 10 largest cities in each property type — industrial, office, and retail — are performing better than the national average, the aggregate numbers continue to drop. For instance, nationally the price of industrial space declined 9.3 percent from the previous quarter, and 7.8 percent from a year earlier. The price of office space sunk too, by 5.9 percent since the second quarter, and 7.8 since 2007. Meanwhile, retail space declined 4.6 percent from the previous quarter, and 7.7 percent over the past year.

On the leasing side, a similar trend is playing out. The commercial real-estate market is showing signs of "negative absorption," says Marisa Manley, president of Commercial Tenant Real Estate Representation, a New York City-based broker that advises corporate tenants. That means that more space is becoming available than is being leased or bought. As a result, the law of supply and demand is helping to cut rental rates and creating incentives for building owners to offer tenants additional concessions.

But that doesn't always translate into lower rents. Indeed, landlords are tightening up lease structures, and there's an escalation in the number of clauses finding their way into contracts. In fact, come renewal time, landlords will be working to extract as much as they can from tenants in terms of passing along rising operating costs. Meanwhile, CFOs and corporate real estate managers will be looking for their opportunity to lock-in better long, and short-term deals.

In the recent past, when inflation was in check, landlords became comfortable with billing tenants a simple fixed increase to cover building operating expenses. Landlords preferred to avoid billing tenants directly for operating expenses because it was costly and time consuming to itemize and disclose all the charges to the tenants, says Manley.

Now, however, as the economy moves toward an inflationary environment, tenants can expect landlords to seek more aggressive formulas to recover costs rather than a simple fixed rent increase. Corporate managers should expect to see new leases that include variable rent increases based on such external metrics, as the consumer price index which reflects the national inflation rate, or the porters' wage increase, which is a local union contract staple that raises the pay scale of building maintenance workers.

Such increases can raise rent by nearly 20 percent, posits Manley. The hikes are a mechanism for landlords to preserve their return now, and will act as a profit center in the future when inflation wanes, she adds. That's what what happened in the 1970s and early 1980s.

If they sense tenants will reject variable costs in their lease agreement, some landlords will boost the fixed cost above the standard 3.5 percent annual hike and justify it by offering a more attractive amenities package. For example, Marshall Cohen, a partner in the real estate law firm Cohen & Perfetto, notes that he and his partners are seeing proposals that offer glass walls on buildings, sheetrock ceilings that replace drop ceilings, and upgraded carpeting—all included in a higher rent.

For spaces that have to be built out, landlords will try to distinguish themselves as owners of premium properties by luring tenants with little things such as upgraded hardware and lighting packages or by extending the free-rent periods beyond the first few months, says Louis Perfetto, the managing partner at Cohen & Perfetto.

Further, tenants should ask landlords whether current property taxes of the building are being abated by a tax-incentive plan. Many tax incentives fade or disappear entirely in the later years of the program. The issue may be blurred further if a tenant signs up for a 20-year lease at the tail-end of a program. That means, says Cohen, that the additional taxes due when the tax break runs out could come as a shock — and an unbudgeted one — to a CFO. After all, contracts usually pass tax hikes through to tenants.

Still, new trends are emerging that may change the leasing dynamic. Manley identifies two significant ones: tenants are choosing real estate sites outside of traditional city or industrial centers and are exhibiting a preference for so-called green buildings. Regarding the first trend, Manley points out that many companies no longer feel compelled to do business in traditional business districts. For instance, advertisers don't believe they have to cluster on Madison Avenue in New York—or even in New York at all.

Continue Reading...

Bloomberg: Troubled Miami Condo Sale Signals Real Estate Bottom?

Private equity in the game now. Looks like banks with troubled loans have some serious thinking to do. From Bloomberg.com.

Florida Real Estate Bottom Signaled by Sale of Distressed Condo

By Bob Ivry

Sept. 4 (Bloomberg) -- Sales of distressed Miami properties have begun, signaling a bottom for south Florida's real estate market and the end of waiting for vulture funds armed with about $30 billion to spend.

The sale of 120 condominiums last month to a Philadelphia private equity firm and Related Group of Florida, a development company led by Jorge Perez, ``broke the logjam'' for investors targeting the oversupply of condos in downtown Miami, said Peter Zalewski, owner of the Condo Vultures LLC consulting firm in Bal Harbour, Florida.

Regional and community lenders are starting to market properties in Miami, where the median condo price in July fell 19 percent from a year earlier, according to the Florida Association of Realtors in Orlando. Banks that were reluctant to take real estate-related writedowns may be forced by regulators to sell homes that sit empty and mortgage notes that aren't being paid, said Jack McCabe, founder of McCabe Research & Consulting LLC in Deerfield Beach, Florida.

``There's a purging going on,'' McCabe said. ``It's my belief that the vulture buyers would form the bottom of the real estate market, and we're almost there. That bottom may last for three years as foreclosure sales go on.''

McCabe estimates that at least $30 billion has been earmarked by funds to buy distressed Florida real estate. Some investors have been waiting almost three years to buy, he said.

Non-Performing Loans

Wachovia Corp., based in Charlotte, North Carolina, and Birmingham, Alabama-based Regions Financial Corp. have sold real estate loans that were non-performing, or stopped paying, McCabe said.

At BankUnited Financial Corp., Florida's largest bank, non- performing real estate loans jumped to 8.3 percent in the second quarter from 1.5 percent in the third quarter of 2007, according to a filing with the U.S. Securities and Exchange Commission.

Regulators told the Coral Gables, Florida-based bank it may lose its ``well-capitalized'' designation unless it attracts at least $400 million, the company said last week.

``Banks may be reluctant to make a deal because they want to preserve cash,'' said Kenneth Thomas, an independent bank consultant and economist in Miami. ``If they don't make the deal they don't have to write down their capital.''

BankUnited spokeswoman Melissa Gracey declined to comment.

Fifteen percent of the real estate loans written by closely held, Miami-based Ocean Bank weren't being paid in the second quarter of 2008, compared with 2.4 percent a year earlier, according to the bank's filings with the Federal Deposit Insurance Corp.

Selling Bad Loans

Ocean Bank started selling bad loans and foreclosed properties in the last three months of 2007, according to spokesman Ray Casas.

``We took a very hard look at our portfolio and, as appropriate, sold notes and foreclosed properties,'' Casas said. ``The bank has been very aggressive in doing that.''

Bad real estate loans increased five-fold at BankAtlantic Bancorp Inc., based in Fort Lauderdale, Florida, according to the bank's FDIC filings. In the second quarter, 1.5 percent of the loans weren't paying, compared with 0.3 percent in the second quarter of 2007.

Calls seeking comment from BankAtlantic were not returned.

``Banks are at the point where they have to take a hit,'' said Michael Klinger, managing member of Saber Real Estate Advisors LLC in Aventura, Florida, a developer and opportunity fund. ``A lot of them were avoiding the problem because they don't know what to do with the real estate and they don't want to admit and deal with their problems. They figured time would make things better.''

Banks have begun circulating lists of real estate loans for sale, Klinger said.

Continue reading...

Shells Restaurants Files For Bankruptcy

Looks like yet another sign of the times. Shells has been around here as long as I have. From Tampa Bay Business Journal.

Shells Seafood Restaurants Inc. has filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court for the Middle District of Florida, Tampa Division. The company will continue to operate its business as “debtor-in-possession" during the process.

The filing Tuesday comes shortly after the company entered into a new partnership in Pembroke Pines to convert one of its stores to a new concept, Rock Beach Grill. Management was hopeful that the new concept and a new, cheaper menu would stimulate sales.

Company officials declined to comment on the filing.

PFG Florida, based in Dover, is the largest creditor at $604,007.14. PFG is a wholesale food distributor and Shells’ largest vendor.

The 20 largest creditors are a collection of trade vendors, professional services firms and energy companies. The Tampa office of law firm Fowler White is owed $79,474.44, the law firm Shutts & Bowen $19,395.89 and Kirkland Ross Murphy & Tapp, the company’s audit firm, is due $31,818.90. There are 389 creditors listed in the filing. Assets and liabilities are both listed as between $1 million and $10 million.

Shells has 23 million shares of common stock outstanding.

Shells was founded in 1986 and, at its peak, had 45 stores throughout Florida and the Midwest. Shells owns 18 restaurants and a partial interest in two additional restaurants, but closed operations at eight locations. The eight closed restaurants are located in Ocala, Winter Park, Orlando, Kissimmee, Winter Haven, St Petersburg, Holmes Beach and Fort Myers.

Four other Shells locations managed and operated by the company, as well as the partially owned and managed “Rock Beach Grill” restaurant, are not included in this petition, the company said in a release.

“The 10 remaining restaurants have the strongest historical performance or the greatest potential for the future. It is our goal to emerge from Chapter 11 as soon as we can with a capital structure and a balance sheet that will allow us to continue to operate,” chief executive officer Marc Bernstein said in a release.

On Aug. 28, Warren Nelson, president and chief financial officer, resigned his position. Nelson had been president since February 2008 and with the company since 1993.

Story Link Is Here.

Positive Signs in Real Estate Outlook

Mixed feelings about this report. Housing at bottom. OK. Commercial beginning to unravel? Now? I think they're a tad late on this one. Maybe with regard to defaults, but we've seen rents and values steadily decreasing during the past 12 months. So, the only response I have to this is: "huh?"

Positive Signs in Real Estate Outlook

A positive sign has emerged in the U.S. real estate outlook as forecasters project the nation will not fall into an overall economic depression as a result of the housing depression.

Destin, FL (PRWEB) September 2, 2008 -- Despite having few signs of stabilizing, the U.S. housing market won't trigger the national economy to fall into an overall economic depression, providing a rare positive sign in the nation's real estate crisis, according to a new report by Housing Predictor.

The positive news is provided by real estate analysts, who spent more than two months compiling data and pouring over it to determine their findings for the forecast. Housing Predictor forecast the nation's foreclosure epidemic and the housing depression long before either became a reality in the day's headlines.

In fact, the likelihood of a Great Depression occurring like that of 1929 when the stock market crashed and unemployment hit 25% is so remote that analysts aren't even providing a percentage. Signs of an improving housing market are beginning to appear, and should become apparent in 2009 in the majority of housing markets.

Housing Predictor profiles the nation's economy and its study in a new online report. As the majority of housing markets struggle through the worst real estate deflation since the Great Depression, more and more people are turning to Housing Predictor for its forecasts. More than 250 local housing markets are forecast on an annual basis on the web site in all 50 states.

Financial markets all over the world have been severely impacted by the credit crisis, which has sent stock prices to near record lows in many cases and caused the largest increase in U.S. bankruptcies since the early 1990's. The epidemic of foreclosures has topped 3-million units nationwide since the housing crisis started more than a year ago.

Record high housing inflation sent markets to all-time home prices, but many markets have already suffered from deflation as much as 60% in home values from their highs. However, despite the doldrums some rare markets are still experiencing appreciation, which are profiled in Housing Predictor's Top 25 markets.

Some housing markets are beginning to approach their bottoms from an economic point of view as the commercial real estate market begins to unwind with falling values. The crisis in the commercial real estate market is only beginning to unfold.

Read the entire report, check market forecasts and search for foreclosures at http://www.housingpredictor.com.

TRIM Notices Are Here...Fight!

Got my trim notices about 10 days ago. My property taxes actually went down across the board (as well as my insurance). Some clients of mine are not so lucky - some are reporting increases in assessed value. According to the Palm Beach Post, the tax assessor's office is preparing for a record number of challenges this year. Story below:

By ALEXANDRA CLOUGH

If you own property in Palm Beach County, chances are you recently received a notice in the mail, explaining how the property appraiser's office valued your property as of Jan. 1, 2008.

And if you're like most people, in years past you might have been in the habit of tossing the notice on top of the pile of other paperwork to be filed.

But not this year.

Owners of both residential and commercial properties are expected to scrutinize their TRIM (Truth In Millage) notices in ways they never have before. These TRIM notices are important because they include a tentative tax notice.

Lower property values mean lower taxes, and that's something of interest to everyone.

Given the precipitous decline of the real estate market, many people will be pleased to see the market and assessed values of their property decline. But others will conclude their property value should be lower than the numbers determined by the country's property appraiser. Experts predict a wave of property value changes by homeowners hoping to cut their taxes.

"The economy is so bad, everybody is counting their dollars," said Jason Sharff, a North Palm Beach entrepreneur who has started a business to help homeowners challenge their property values.

During the go-go days of the recent real estate boom, the values of residences and commercial properties shot up, pushing values to astronomical levels. Taxes based on those higher values zoomed up, too. But since the market began its decline in late 2005, values steadily have fallen.

Not enough for some people, though, especially since the market is, and feels, so much worse than it did at the beginning of the year. Therefore, many property owners are expected to file petitions challenging the values of their homes or businesses.

The property appraiser's office is ready for it. Along with TRIM notices, the appraiser this year also sent out a detailed guide explaining the notice. (Check out the guide at www.co.palm-beach.fl.us/papa/index.htm). For the first time, the county also is allowing property owners to file an on-line petition to challenge values by clicking on the county clerk's Web site, at www.pbcountyclerk.com.

But it's likely most residential property owners won't even need to go that far.

First, "take a deep breath," said Tom Barnhart, director of appraisal services for the Palm Beach County Property Appraiser's office. Then, pick up the phone and call the property appraiser's office. At that point, property appraiser representatives can explain that even though home sales have cratered during the past few months, only the comparable sales pegged by Jan. 1, 2008, count.

"It's that snapshot in time, one day," Barnhart said.

While the property appraiser will consider sales that took place later in the month, it's really the sales from 2007 that help determine a property's value, Barnhart said. Sometimes a property's value can be adjusted if the homeowner provides data that supports a change in the value. Barnhart said the vast majority of challenges are resolved without a hearing, either because the homeowner accepted the appraisal or the appraiser's office received more information about a home that did change its value.

"We're here to work with you," Barnhart said.

If both sides can't agree, however, homeowners can spend $15 and file a petition to challenge their property value and appear before the Value Adjustment Board.

Some people would rather just hand off the process to someone else, however. In that case, there are professionals who can be hired to handle appeals for property owners. Delray Beach real estate attorney Michael Weiner, who handles property tax petitions for clients, predicts a "huge cottage industry" of companies designed to help more property owners challenge their property values.

One of those is Sharff's company, Real Estate Property Tax Fighters (www.reptf.com). Sharff, a 26-year-old armed with a business degree from the University of Florida, said he recently was brain-storming ways to capture business from the real estate downturn.

He came up with the idea of a business that, for a flat fee, will handle property value challenges for residential customers. For $59, he'll handle the paperwork and assemble comparable sales culled from the Multiple Listing Service (MLS) used by real estate agents. Then he'll provide this information to homeowners who can then move forward with their challenges. But for $169, or "the package deal," his company will take the added step of representing homeowners before the Value Adjustment Board.

"It's an intimidating appeals process," Sharff said, explaining why he saw a need for his business. And he thinks many customers signing up for his service just don't want to be bothered with the process, which is why more people are signing on for the $169 service that relieves them of having to make a personal appearance to challenge their property values.

Read the full story here.

Integrity Bank Goes Down

Another one goes down for the count. From Bloomberg.com.

Integrity Bank Becomes 10th U.S. Failure This Year (Update2)

By Alison Vekshin and Ari Levy

Aug. 29 (Bloomberg) -- Integrity Bank of Alpharetta, Georgia, was closed by U.S. regulators today, the 10th bank to collapse this year amid a surge in soured real-estate loans stemming from the worst housing slump since the Great Depression.

Integrity Bank, with $1.1 billion in assets and $974 million in deposits, was shuttered by the Georgia Department of Banking and Finance and the Federal Deposit Insurance Corp. Regions Financial Corp., Alabama's biggest bank, will assume all deposits from Integrity, which was run by Integrity Bancshares Inc. The failed bank's five offices will open on Sept. 2 as branches of Regions, the FDIC said.

``Depositors will continue to be insured with Regions Bank so there is no need for customers to change their banking relationship to retain their deposit insurance,'' the FDIC said.

Banks are being closed at the fastest pace in 14 years as financial companies report more than $505 billion in writedowns and credit losses since 2007. California lender IndyMac Bancorp Inc., which had $32 billion in assets, was closed July 11 in the third-largest bank seizure, contributing to a 14 percent drop in the U.S. deposit insurance fund that had $45.2 billion at the end of the in the second quarter.

Regions will buy about $34.4 million in assets and will pay the FDIC a premium of 1.01 percent to assume the failed bank's deposits, the FDIC said. The FDIC estimates the cost of the Integrity failure to its deposit-insurance fund will be $250 million to $300 million.

Told to Raise Capital

Integrity was ordered by federal and state regulators in May to present a capital-raising plan within 60 days. At the time, the company had been trying without success for at least eight months to raise $40 million after loans to residential and commercial developers were hurt by the collapse of the real estate market.

``Banks must meet certain regulatory minimums to ensure safety and soundness,'' Georgia bank commissioner Rob Braswell said in a telephone interview. ``When those minimums are not able to be met and solvency is in jeopardy, we have no choice but to close the institution and to place it into receivership.''

Integrity Bancshares, which sold for more than $14 a share in January 2007, closed today at 4 cents in over-the-counter trading.

The FDIC insures deposits of up to $100,000 per depositor per bank, and up to $250,000 for some retirement accounts at 8,451 institutions with $13.3 trillion in assets.

`Problem' Banks

The FDIC this week said 117 banks are classified as ``problem'' in the second quarter, a 30 percent jump from the first quarter. The agency doesn't identify ``problem'' lenders.

``More banks will come on the list as credit problems worsen,'' FDIC Chairman Sheila Bair said at an Aug. 26 Washington news conference.

The credit market turmoil may topple some of the nation's biggest banks, Kenneth Rogoff, former chief economist at the International Monetary Fund, said in Singapore Aug. 19.

``Like any shrinking industries, we are going to see the exit of some major players,'' Rogoff told Bloomberg, declining to name the banks he expects to fail. ``We're really going to see a consolidation even among the major investment banks.''

Before today's action, the FDIC had closed 36 banks since October 2000, according to a list at fdic.gov. The U.S. shut 11 banks in 2002, the highest in the period. In 1994 the government had closed a dozen institutions by the end of August.

U.S. regulators this year also closed Columbian Bank and Trust of Topeka, Kansas, on Aug. 22; First Priority Bank of Bradenton, Florida, on Aug. 1; Reno-based First National Bank of Nevada and Newport Beach, California-based First Heritage Bank in July; Staples, Minnesota-based First Integrity Bank and ANB Financial in Bentonville, Arkansas, in May; Hume Bank in Hume, Missouri, in March; and Douglass National Bank in Kansas City, Missouri, in January.

Economy Has Some Businesses Facing Eviction Notice

I don't think there's a statistic for the amount of commercial evictions occurring locally, but I would bet the Sarasota/Manatee market is similar to that of Miami/Dade's. It's a tough time to start a business, and just as tough to keep the lights on when your customers are cutting back on spending. Unfortunately, I think we're going to see more of the same. It's certainly as trying of a time for landlords as it is for tenants. A lot of people I talk to are very tentative about expansion and many landlords are equally worried that even good credit tenants may leave. The domino effect this has is pronounced. The good part is there are landlords out there who will attempt to work with their tenants in this market (see story below).

From Daily Business Review, by Polyana da Costa

When the owners of Tiger Allie, a Boca Raton children’s clothing store, signed a retail lease in 1997, they likely never imagined the financial and legal woes they’d face.

More than 10 years later, they are at least five months behind on their rent, a sign advertising a liquidation sale is on the door and a lawsuit seeking the store’s eviction is pending.

When Tamarac Fortune Partnership, which owns a three-story office building on University Drive in Tamarac, leased an entire floor to a group of businesses in the medical field in late 2006, the landlord had no inkling the tenants would default on the five-year lease. In July, however, the partnership sued to evict the businesses, which it says defaulted on lease payments beginning in April.

And at Boca Raton’s tony Mizner Park, at least two stores, an art gallery and an antique shop, have fallen behind in payments, according to eviction lawsuits filed against those stores.

As the economy flirts with recession, these and hundreds of other small South Florida businesses — including medical offices, art galleries and clothing stores — are struggling to keep pace with their rents. Increasingly, they’re failing. That means a sharp uptick in evictions, a boost in work for real estate lawyers and greater strains on the legal system.

The volume of all evictions filed in Miami-Dade, Broward and Palm Beach counties is up an average of 10 percent compared to last year, according to the clerk’s offices in each jurisdiction.

For example, June was a record month for lawsuits seeking evictions in Palm Beach County — 1,076 were filed compared with 877 in the same month last year. (The figures include residential evictions since the clerk’s office does not track separate actions against commercial tenants.)

Most store owners facing eviction lawsuits don’t want to comment. Representatives of Tiger Allie, the Boca Raton clothing store facing eviction, did not return a phone call.

The suits seeking evictions represent only a small number of commercial tenants who’ve fallen behind on their rents. Many landlords are choosing to work out deals with struggling tenants, said John Scott, director of client solutions at Cushman & Wakefield.

Scott said the company, which manages about 10 million square feet of office, warehouse and retail space, has not seen a mass of evictions at its properties. It has helped its landlords work with tenants who are financially strapped. The options have included lowering tenants’ rents for a period of time and rolling over the shortfall to the end of the lease, he said.

“Landlords aren’t just looking to eliminate their tenants,” he said. “The market is not as strong as it was a couple years ago. It’s hard to replace a tenant in this market. Our brokers have been working harder than ever.”

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Copyright 2008, Daily Business Review

US Banks to see more write downs. This time, Commercial Real Estate Loans!

Courtesy Proactive Investors.

No good news is emanating from the US banking sector. This time it is commercial real estate loans. Markets were suffering from sub-prime mortgage issues as related residential mortgages turned out to be not so good loans after all. Concerns are now mounting over commercial real estate loans following suit.

Concerns were prompted by Riverton Apartments, a 12-building residential development, in Harlem New York, when it warned last week that it might not be able to honour a $225 million mortgage payment by September. Riverton’s mortgage was also wrapped into a commercial mortgage backed security which was subsequently structured and sold as bonds. According to New York Times, a default by the complex would be New York’s largest in the current housing crisis. Wall Street banks are estimated to hold approximately $100 billion of commercial mortgage-backed securities.

The news has raised concerns over the commercial real estate market and loans as its deterioration could lead to more write-downs in the already suffering banking sector. Several major banks have exposure to the sector which includes Deutsche Bank (NYSE: DB) (estimated $25.1 billion), Morgan Stanley (AMEX: AMK) (est. $22.1 billion) and Citigroup (NYSE: C) (est. $19.1 billion). Lehman Brothers (NYSE: LEH) is estimated to have the highest exposure (est. $40 billion) according to New York Times.

We discussed in a previous note Lehman’s attempts to raise capital from Asian Sovereign Funds. Lehman however is not alone here and all are on the look out to dispose of commercial real estate loans made up of hotels, retail malls and offices.

Cracks have already started to appear. Moody’s REAL Commercial Property Price Index (CPPI) has continued to fall in June with a 3.3% monthly decline, marking a 9.6% decrease from year-ago levels. June is the fourth straight month the index has declined and in total CPPI has fallen 12 percent from its dizzy heights in last October. All four property types measured in the index have posted negative returns in 2Q2008. The national industrial market has suffered most with 9.3% decline during the quarter. The national apartment market, offices and retail have also fallen 7.1%, 5.9% and 4.6% respectively.

For the savvy investor however, there were enough early warnings. Morgan Stanley and Wachovia announced large write downs related to commercial mortgage losses in late last year and 1Q2008 respectively. More similar write-downs to follow it appear making hopes of a banking sector revival bleak.

Courtesy: New York Times, Moody’s, CEP Newswires

SIOR Commercial Real Estate Index Reflects Country's Economic Woes

WASHINGTON, Aug. 20 /PRNewswire The Second Quarter 2008
SIOR Commercial Real Estate Index, compiled by the Society of Industrial
and Office Realtors (SIOR) in association with the National Association of
Realtors (NAR), indicated that commercial real estate markets have not yet
begun their rebound to market equilibrium. The national Index, which
measures 10 variables pertinent to the performance of U.S. industrial and
office markets, dropped for a sixth straight quarter to an overall total of
76.4 points. This point drop placed it 23.6 points below the 100 point
criteria that represents a balanced office and industrial marketplace and
43 points below its record high in spring 2006.

The SIOR Commercial Real Estate Index is a diffusion index (see
Methodology) where a score of 100 indicates markets in balance. A score of
76.4 reflects conditions that are significantly less favorable for
landlords and sellers, but excellent for tenants and purchasers.

SIOR commercial real estate professionals provided their views on
second quarter 2008 market conditions in their respective markets in a July
survey.

An unprecedented number of SIOR members -- 83 percent -- report that
their local markets are feeling the impact of the decline in the national
economy. This number is 59 percent higher than just one year ago. Leasing
activity is down according to 75 percent of respondents. Concessions
benefiting tenants are riding above normal and have increased 29 percent
from the same quarter one year ago. Twenty-three percent of respondents
indicated that there was virtually no new construction going on in their
marketplace and according to 67 percent of respondents construction in
general is down. Concerns about where the economy is heading are clearly
impacting commercial real estate business -- and will continue to do so as
50 percent of respondents predict a 1-15 percent decline in activity for
3rd quarter 2008.

Read the rest of the story