Assessing Nation's Office Market

On Boston Properties' first quarter earnings call today, the executives commented on market conditions in Boston, Washington DC, New York and San Francisco. The following is what the President Douglas T. Linde said about the sales market:

It is really difficult to offer any conclusions – and I know you’re going to ask where cap rates are and where they’re going since transaction volumes have been basically anaemic since the fall of 2007, especially for larger quality products – there simply are few comparables. We do know the following though: excessively priced debt is not available above a loan-to-cost of 60% unless it’s made available by the seller or can be assumed. And we know that the pre-mid-2007 sales were fuelled by low cost debt at high loan amounts.

Underwriting strong rental rate growth over the next few years is going to be a stretch and it’s hard to imagine that buyers are going to use residual cap rates of 5% or less as was customary in 2006 and 2007. Unless sellers’ expectations change or they are left with no choice but to sell into the market, we think it’s going to take some time to see meaningful volumes of sales which will allow for a market check on private valuations.

Chairman Mortimer B. Zuckerman also responded to questions about his reported GM Building bid:

I am not embarrassed to say, as I am someone who spends some amount of time in the media, that that story was totally without merit, totally without factual basis, never one which was checked out in any way, and an embarrassment to the press, but not an embarrassment to us since it was totally false.

You can read the entire transcript here.

What Does It Mean When Developers Can't Develop

Hotel Operators Better Buys Than Hotel Owners?

The hotel industry typically is one of the first industries to suffer in a slow economy. The Journal looks at whether hotel operators will perform better than hotel REITs in the downturn from investors' point of view:

"The companies that historically are less real-estate-intensive have generally performed better during a recession," says J.P. Morgan Chase & Co. analyst C. Patrick Scholes. That is partly because hotel operators have lower leverage and higher margins. Moving forward, some operators may even profit from the impending oversupply of hotel rooms by garnering management fees from the larger number of rooms. Operators also have broader exposure to international markets.

"Macklowe Stupidity"

From Bloomberg:

Harry Macklowe should raise about $6 billion from the sale of seven New York office towers that he bought for $7 billion from Blackstone Group LP last year, according to Sam Zell, the real estate investor who sold the properties to Blackstone.

Macklowe has been negotiating with creditors to repay $7 billion he borrowed to buy the buildings after lenders including Deutsche Bank served him default notices on four of the skyscrapers. Zell said the billion-dollar difference in the value and the price Macklowe paid amounted to ``Macklowe stupidity.''

Sam Zell is not the only one taking shots at Macklowe these days. Andrew Mathias, SL Green's president, said in their first quarter earnings conference call:

We intentionally avoided any Macklowe paper having seen first hand their "underwriting" when the Macklowe led team jumped blindly into the Reckson fray.

In the meantime, The Real Deal provides evidence that the "Macklowe Stupidity" extends to other developers in New York City:

When they do fall, they generally follow the Macklowe model: A developer builds or buys a trophy property, pledges it as collateral, becomes overextended and the entire empire topples. "That paradigm happens often," said Tom Shachtman, author of "Skyscraper Dreams: The Great Real Estate Dynasties of New York," adding, "The bigger you are, the more collateralized you are."

Related posts:
Macklowe Now Trying To Sell Half of His Company
Macklowe's Other Seven Buildings Are For Sale
Zuckerman, "the last man standing" For GM Building?
Macklowe On Track to Extend Deutch Bank Loan
Reckoning For A Real Estate Mogul

Hotels Test New Features

Nintendo Wii game in the hotel room? Yes!!!

How Are Big-box Retailers Coping With The Slow Economy

While some big-box retailers are slowing down the expansion pace, for others, it's business as usual. According to Market Watch:

For the most part, today's retail giants don't suffer in the same way that most retailers do when gasoline prices climb and pocketbooks get pinched. While they may make adjustments, they're big enough to absorb the shock, according to industry experts.

"They really are looking through the economic time because their stores will open after the bad economic times have passed," said Jim McComb, president of retail consultancy McComb Group based in Minneapolis, home to Best Buy and Target headquarters.

Weekend Roundup

Calpers-Linked Land Partnership Gets Default Notice. ("WSJ")

Is Real Estate Sentenced to Hard LIBOR? ("NREI")

Cash Handy For Assets Reduced To Sell. ("Retail Traffic")

CRE Prices Up; Rating Agencies Don't Expect it To Last. ("CoStar")

REITs Show Strength. Standard & Poor's has buy or strong buy recommendations on 17 names in the industry. ("Business Week")

Two REIT ETFs You May Wish You Owned. ("TheStreet.com")

REITs: An Update. ("Seeking Alpha")

LEED's Big Market Bias. Green Building's First Mainstream Push Landed it in the Nation's Biggest Cities. But What About Everywhere Else? ("CoStar')

Gold Star For Leed Platinum Museum. ("The Slatin Report")

Retail Developers Embracing Sustainable and Enduring Design Principles. ("CoStar")

The Dollars and Sense of Investing in a Brand in the Lifestyle Category ("REBusiness Online")

Miami Reach. Developers are betting they can create the biggest thing since South Beach. ("Portfolio.com")

Real World Doesn’t Give Even an Inch in Real Estate. ("NY Times")

The Astute Observer: Securititis Sets In. NYU professor Jeffrey Lacilla "examines how our metaphoric housing “patient” became so ill and what measures may be best suited to cure it without causing further damage." ("Slatin Report")

State of New York City's Housing and Neighborhoods 2007 Report ("Furman Center")

Condos With Embedded Puts. ("Market Movers")

Credit Crunch Stalls Big Projects

The latest victim is Clise family's proposed $7 billion project in downtown Seattle.

"We were hopeful that there were players who didn't need to be involved in financing. And there are groups out there like that," says Mr. Clise. "But we learned that in the real-estate world, people look to the credit markets. For a deal of this size, requiring a long period of time and many billions of dollars to build it out, you're going to be dealing in debt."

A Significant Foreign Exchange Play

One of the reasons why the US commercial real estate market will continue to attract foreign investors is the weak dollar. On the Q1 2008 earnings call, Jeffrey H. Schwartz, Chairman and CEO of ProLogis touched on this briefly in response to an analyst question about joint venture partners outside of the US:

"People see it and it looks very interesting is investors outside the US are exceptionally interested in investing in the US because not only do they see values, potential values in some markets, but more significantly they see a significant FX play. The whole country is on sale. All you have to do is go shopping in New York and just seem to see the number of non-US people filling up suitcases to take it back to London or Paris or Tokyo. And you see the same mentality quite frankly in investors that want to invest. At 160 Euro, want to buy assets in the US at today's exchange rates, they think it's a very, very good bargain."

You can read the entire call transcript here.

Related posts:
Commercial Real Estate Going Global
Nation's Capital Attracts Foreign Buyers

Demand Outpacing Supply In The Data Center Sector

Data centers are highly improved buildings that provide secure 24x7 environments for the storage of data servers and associated computer systems and components. The data center industry has undergone significant evolutions over the last decade. In the years leading to the dot-come crash, millions of square feet of data centers were built in anticipation of a surge in demand, which never materialized. Since the market bottomed in 2002-2003, excess have been wrung out of the system and demand has picked up significantly. According to this:

For two years, demand has outstripped supply in major data center markets, creating a bullish environment for data center developers and operators such as Digital Realty Trust (NYSE: DLR), DuPont Fabros Technologies Inc. (NYSE: DFT), Equinix Inc., Savvis, and tech companies such as Google and Microsoft.

Demand is driven by a variety of requirements, including disaster recovery failover, document storage for corporate compliance, and online video, gaming and social networking sites such as Facebook and MySpace. While credit markets have seized for Class A office and other products, many established data center builders report that their pipelines are fully funded and, in many cases, front-loaded with credit tenants. In contrast, inexperienced rivals face high development costs, poor prospects for financing and a steep learning curve.

Related post:
Mapping Google's Data Centers

Beyond What We Expected

CoStar examines the current state of commercial real estate finance:

Residential depression -- not CRE market conditions -- is the main force constraining "Commercial Real Estate Lending"

Meadowlands Xanadu

I don't get this project.

The International Edition

Japan's Beaten-Down REITs Don't Look to Be Bargains Yet. ("WSJ")

London increases its lead in luxury pads. ("FT")

City of London hit with 'Code Red' by Moody's. ("Telegraph")

Chance to iron out differences with cross-border REITs. European real estate industry organizations are lobbying the EU to consider plans for what they call the EU REIT, a cross-border real estate investment company structure that would have similar tax advantages to those in national jurisdictions.("The Property Column")

Swiss Poise for a Property Rush Once Limits Are Lifted. Switzerland plans to lift legal limits on foreign property ownership. ("WSJ")

Rooted in Past, Shanghai Reaches for Future. Shanghai's ambitions drive development in the property market. ("WSJ")

India Tourism Booms, But Just Try Finding a Hotel. Hotel developments in India hindered by codes and costly city land. ("WSJ")

Office market in the Thames Valley spearheads recovery after dotcom bust. ("FT Property Column")

Broadway Partners Facing Refinancing Risk

Broadway Partners, a private real estate investment firm based in New York, has been one of the most aggressive buyers of office buildings in the last two years. Since 2000, the company has bought office assets in excess of $15 billion. Just like Harry Macklowe, Broadway borrowed heavily in short-term bridge loans to finance the acquisitions, and some of these bridge loans are maturing. From WSJ:

Broadway borrowed heavily in 2006 and 2007 to make its acquisitions, including the landmark John Hancock Tower, Boston's tallest building. It took on $1.2 billion in short-term "bridge" financing, $750 million which comes due in January, from lenders including RBS Greenwich Capital and Lehman Brothers Holdings Inc. Some of that debt was packaged and resold to hedge funds and other investors as commercial mortgage-backed securities. Lehman Brothers retains some of Broadway's bridge loans on its books.

Broadway owes $1.2 billion in two bridge loans across two of its funds, Broadway Real Estate Partners II and III. Around $750 million is in fund II and came due in January 2008.

At that time, the firm exercised one of its two six-month extensions that carry it to January 2009. There also is a $440 million bridge loan in fund III that comes due in May 2009.

But Broadway's strategy for dealing with its mountain of debt will involve several pieces falling into place amid a challenging real-estate finance market. It wants to raise $200 million in equity to purchase some of its short-term debt back at a discount to its face value. That will involve both persuading equity partners to put up more cash, and getting debtholders to part with their investments at a loss. It also needs to execute property sales at a time when buyers are having trouble securing loans.

Health Care REITs Offer Solid Returns

Since medical office is projected to outperform other property types over the next 10 years, naturally, the REITs that own medical office buildings are expected to offer solid returns and high yields. One main reason that health care REITs are able to deliver consistent earnings growth is their long-term triple net leases with health care operators. At the same time, the sector seems to have no touble accessing capital in today's environment:

The REITs, which own medical office buildings, seniors residences, hospitals, nursing homes and other health-care-related facilities, have generated returns of 9.4% so far this year, ahead of equity REITs' 7.8% and the 7% decline of the Standard & Poor's 500 stock index.

They also offer a safe dividend yield, currently averaging 5.3%, which exceeds the 3.55% yield on 10-year Treasuries.

Read more here...

Related post:
Can Senior Housing Stocks Get Up?

Medical Office To Outperform

A recent research report published by Grubb and Ellis is projecting that medical office buildings are positioned to outperform other property types over the next 10 years. From Financial Week:

“The looming economic slowdown is likely to make the health-care property sector, with its non-cyclical growth profile, look relatively more attractive compared to other property sectors, all of which will be affected to differing degrees by the flattening economy,” wrote Robert Bach, the firm's economist.

You can get the entire report here.

CMBS Delinquencies Rose Just 3 bps to 0.33% In March

Unlike the delinquency rate on residential mortgage loans, the CMBS delinquency rate rose by just three basis points, to 0.33% in March. From Financial Week:

According to Fitch Ratings’ CMBS delinquency index, the delinquency rate rose by three basis points, to 0.33%, in March, the second monthly increase in a row.

“At this point, there is not cause for alarm,” Susan Merrick, managing director and CMBS group head, said in an interview. Although the delinquency rate is expected to rise to about 1% over the course of this year, Ms. Merrick said it will still be “just a bit above the historic average.”

Does anyone know what the rate is on residential mortgages? I lost track.

Commercial Real Estate Blamed For GE's Earnings Miss

With $87 billion in assets and $2.3 billion earnings in2007, GE's commercial real estate business is one of the largest commercial real estate owners and lenders in the world. As a result of the recent surprise first quarter earnings miss, investors reacted negatively and some analysts are questioning the company's ability to boost its real estate results given the state of the current commercial property market. From Financial Week:

Citigroup analyst Jeff Sprague said in a research note that GE’s first-quarter sales—56 properties netting $1.7 billion—was well off the previous quarter’s 123 properties for $2 billion, and he predicted a continued slowing in sales.

I'm more inclined to agree with this:

Why, oh why, would investors expect anything more from financial services when all signs point to this business shrinking rather than growing? GE is hardly alone here. The company delicately cited “unsettled” conditions in the credit market as the reason for its inability to complete expected asset sales in time................most of those sales had to do with commercial real estate. Given the widespread woes, how could GE's struggles there have come as a shock to anyone?

Nation's Capital Attracts Foreign Buyers

Last week's record $867 psf office sale in Washington DC is just another indication that more investors are diversify globally and the US market continues to attract international investors. From Washington Post:

International investors rank the United States as the most attractive market in the world, according to a first-quarter survey of members by the Association of Foreign Investors in Real Estate (AFIRE), a trade group whose members own about $230 billion of real estate in this country and $700 billion worldwide.

Increasingly, with private U.S. buyers hard-pressed to find money because of the credit crunch and more conservative investors waiting for prices to continue falling, offshore buyers are finding less competition for opportunities in the District's commercial real estate market. International buyers like the market because employment and job growth are relatively steady, and lobbying and law firms represent stable, high-rent tenants, according to the National Association of Realtors.

In 2007, offshore commercial real estate purchases in the District totaled more than $1.25 billion -- $561.7 million of which came from investors in Germany and $231.1 million from the Middle East, according to data from Real Capital Analytics, a New York real estate research firm. In 2006, foreign buyers spent $153.5 million on commercial real estate in the District.

Seeking Commercial Real Estate Blogs

Let's face it, there's not a lot of blogs about commercial real estate out there. Most real estate blogs are housing blogs, and many are used as marketing tools by agents. While some do touch on the commercial side every now and then, very few focus strictly on the commercial sector.

Why is that? Is it because commercial real estate people are technically challenged? Possibly. When comes to technology, the industry definitely has some catching up to do. Or could it be because commercial real estate is just not as sexy as stocks, hedge funds and private equity? There is some truth to that. In the investment and finance world, commercial real estate has always been treated like a step child; it's considered "alternative investment", "specialized financing". Only in recently years when large private equity firms like The Blackstone Group, Apollo and Carlyle became big commercial real estate owners did the sector get more attention. Unfortunately there came subprime last August, and the credit crunch is now starting to have a negative impact on commercial real estate.

One of the reasons why I started this blog in February was the lack of commercial real estate blogs in the business blogosphere. In the last couple of months, I did some digging and surfing, and discovered that while not many, commercial estate blogs do exist. The following are the ones that I came across so far. And if you write or read any commercial real estate blogs that are not listed, please leave a comment or email me at dealjunkieblog@gmail.com, I will link you!

Quite a few blogs are about the retail real estate:

• Counter Culture
• Plain Vanilla Shell
• Traffic Court

Some are written by lawyers:

• The Dirt Lawyer's Blog
• Real Estate Space

Nice to see blogs about technology for the industry:

• Realty Bytes
• Real Solutions

Jordon Crouch focuses on financing:

• Jordon Crouch's Adventure s In Mortgage Banking

I put the following in the "general" category:

• The Ground Floor, ULI's blog
• Trend Czar
• WSJ Dealbook Real Estate
• FT Property Column
• Richard's Real Estate and Urban Economics Blog, Richard Green is a professor at GW University
• Fact Matter , a new blog written by CEO of Younan Properties
• Global Viewpoints, a blog produced by ARGUS Software

Enjoy reading!

Macklowe Now Trying To Sell Half Of His Company

In addition to the GM building, and the seven office buildings that were bought last year from the Blackstone Group, Harry Macklowe now is trying to sell part of his company. New York Post reported last Thursday:

Sources close to the matter tell The Post that discussions are underway with several US and foreign backed "players" to buy as much as a 50 percent stake in Macklowe Properties.

Certainly time is slowly slipping away; Macklowe needs to get a deal done as soon as possible.

Related posts:
Macklowe's Other Seven Buildings Are For Sale
Zuckerman, "the last man standing" For GM Building?
Macklowe On Track to Extend Deutch Bank Loan
Reckoning For A Real Estate Mogul

A Positive Sign For The CMBS Market

Lehman and UBS just sold $1 billion commercial real estate bonds this past week, and apparently the bonds received enough demand that the interest rate was lowered. According to Bloomberg:

The AAA securities with a 9.44-year average life priced to yield 190 basis points over benchmark swap rates, said the person, who declined to be identified because the terms haven't been made public. The debt had been marketed at a spread of 210 basis points, the person said. A basis point is 0.01 percentage point.

This is definitely a good sign for the CMBS market. In the last 6 months, the spread at one pointed was as high as 315 basis points.

Related posts:
B-piece Buyers Gain Influence
2008's First CMBS Transaction

Weekend Roundup

Is The CMBS Market On Life Support? ("Real Estate Forum")

Does CMBX Reflect Industry Fundamentals? ("NREI")

Fitch: Commercial Real Estate Loans to Weaken as Economy Slows. ("NREI")

Scarcity of capital causes debt disconnect in the hotel sector. ("GlobeSt")

Big Land Venture Faces Loan Woes Amid Crunch. A huge California land partnership involving Calpers and home builder Lennar is negotiating a possible restructuring of $1.24 billion in loans after it didn't make a payment required by its lenders. ("WSJ")

Club Deals, Syndications Step into Conduit Gap. ("GlobeSt")

UDR Decides Smaller Is Better. Apartment owner UDR Inc. unloaded more than 25,000 apartment units -- about 40% of its portfolio -- for $1.7 billion. ('WSJ")

Canadian office rental markets tighter than Manhattan according to a study by real estate brokerage Cushman Wakefield & LePage. ("GlobeandMail")

New Ballpark in Washington Anchors an Area’s Revival. ("NYT")

Bid/Ask Gap Brings Investment Sales to a Halt In The Retail Sector. ("Retail Traffic")

Mark Down On Malls. ("Portfolio.com")

Diplomatic Standoff In South Florida. A long running standoff over a huge South Florida hotel may – or may not – be nearing an end. ("Slatin Report")

Underwiting real estate investment now is a political risk assessment. ("GLGroup")

Property supply-demand balance remains in check, according to latest Moody's report. ("CoStar")

What GE's Earnings Drop Tell Us About the Real Estate Markets. ("CoStar")

New Analysis of NYC Foreclosure Data Reveals 15,000 Renter Households Living in Buildings that Entered Foreclosure in 2007. ("NYU Furman Center")

Jones Lang LaSalle Forms First Sustainability University, Commits to Hire and Train 500 LEED and BREEAM Accredited Professionals by End of 2009. ("CNBC")

No Shortage Of Capital For Real Estate Funds

Dutch Companies Form $1B U.S. Retail Fund. United Investment Co. and SNS Property Finance International have formed a JV to establish a $1 billion fund dedicated to the U.S. retail real estate market. ("CPN")

TIAA-CREF Launches New Real Estate Fund. TIAA-CREF U.S. Real Estate Fund I, L.P, a closed-end fund primarily for high net worth investors will invest in a diversified portfolio of primarily high-quality core real estate assets in the office, retail, industrial and multifamily sectors. ("Centredaily")

Venture to Invest Up to $700M in U.S. Hotels. LaSalle Hotel Properties and LaSalle Investment Management have formed a joint venture to invest in U.S. urban and resort hotel properties. ("CPN")

Merrill, CLSA Raising Big Asian Property Funds. ("NYT")

Canyon-Johnson Closes $1B Urban Fund. Canyon Capital Realty Advisors and former L.A. Lakers basketball star Magic Johnson have closed on a $1 billion vehicle called Canyon-Johnson Urban Fund III. The fund will finance the development, redevelopment, acquisition and repositioning of real estate in “densely populated, ethnically diverse neighborhoods with strong market fundamentals for retail and housing”. ("GlobeSt")

Related posts:
TIAA Seeking To Add $5 Billion To Its $22 Billion Real Estate Portfolio
Blackstone Raises $10.9 Billion Real Estate Fund

$867 per square foot

Dublin based investor sets a record for office trade in Washington DC. The broker cites the ongoing demand for DC trophy space, a weak dollar and high foreign interest in DC real estate as contributing factors for the record price.




Related post:
Nation's Capital - A Tenant's Market?

Community Banks Slow To Act On Problem Loans

U.S. Comptroller of the Currency John Dugan urged community banks to get a better handle on their commercial real estate loans while there is still sufficient time:

Right now, too many community bankers are having too hard a time coming to grips with the problems that have emerged in their commercial real estate portfolios," said Dugan, whose office regulates national or big banks.

"Because we're still in the early stage of this cycle, we believe there is sufficient time for banks to obtain updated appraisals and use them, as appropriate, to adjust risk ratings on loans," Dugan said. He did not single out any specific banks in his remarks.

Dugan said the comptroller's office has urged banks with distressed commercial real estate loans to identify borrowers who may be able to repay loans and develop a workout strategy with them. Borrowers who cannot make good on their loans should be identified early so that a bank can pursue an exit strategy, he said.

Read more here...

Don't Count On Life Companies To Pick Up The Lending Slack

The CMBS market has basically been shut down since last August, and there is really no sign of it coming back anytime soon this year. Many in the industry speculated that life companies would step in and pick up the slack. Is it just wishful thinking?

But it's now looking more and more like life insurers, which have plodded conservatively along during the bull market and run up of real estate property values, will continue along that same path.

The buzz in the industry is life insurers have significantly more deals to choose from than they have dollars they are willing to allocate to real estate. So they are cherry picking the very best deals.

Read more here....

Time To Buy REITs?

"For the most part, not quite yet." But Peter Slatin sees opportunities in three real estate companies:

W.P. Carey & Co.
Lexington Realty Trust
National Retail Properties

Green Roof

The green roof industry is coming into its own.

Locksmiths In High Demand

A new economic indicator?

Beige Book

The Beige Book is out. Here is an excerpt on commercial real estate:

Commercial real estate markets were generally reported to be steady or softening in most areas. Weaker conditions in the rental market were reported in eight Districts: New York, Philadelphia, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, and San Francisco. On the other hand, the leasing market was found to be steady in Boston, Kansas City and Dallas. Reports on commercial development were mixed with activity having weakened in the Philadelphia, Atlanta, and San Francisco Districts, but having increased in the Cleveland, Chicago, and Kansas City Districts. St. Louis characterized commercial construction as strong. However, sales of commercial properties were generally indicated to be sluggish, while prices were said to be under downward pressure. The Boston, Philadelphia, Minneapolis, Kansas City, Dallas, and San Francisco Districts all reported weakness in commercial real estate sales and prices.

General Growth Looking For Partners

From WSJ:

General Growth Inc., the second-largest U.S. mall owner and operator by market value, is shopping its portfolio to potential joint-venture partners as it scrounges for capital to pay off $18.7 billion of debt coming due over the next four years.

In addition to seeking joint-venture partners, General Growth said it is considering other ways to whittle down its debt load -- which totals $27 billion -- including mortgaging some shopping malls and divesting itself of office buildings.

The moves come as the market for commercial mortgage-backed securities, which General Growth used to fuel its growth in recent years, has all but closed because of the credit crunch. CMBS are pools of debt sliced up by investment bankers and sold to investors as bonds.

In the current environment, however, this isn't an opportune time to find capital; many banks, for instance, are sitting on capital as the credit crisis plays out. The slowing economy has crimped consumer spending and led to rising bankruptcies of retailers. That, in turn, has reduced investor demand for retail real estate. In March, sales of U.S. shopping malls and centers totaled $1.9 billion, down 85% compared with a year earlier, according to preliminary data from market-research firm Real Capital Analytics.

General Growth's assets are considered more attractive than some others' in part because many of its properties have been improved and attract stable, popular retailers. "General Growth's portfolio is pretty good stuff. I think they would fare better than others" in luring investors, said Bernard Haddigan, a managing director for property broker Marcus & Millichap Real Estate Investment Services.

Silverstein Bidding On Other Macklowe Buildings

What do you do when you can't buy the GM building in New York? Bid on Macklowe's other seven office buildings. The bids are due on April 30:

Those readying bids for the cloud-busters include many of the same developers who circled Mr. Macklowe’s General Motors Building earlier this year, eager to snatch the choicest jewel from his fallen empire, according to a well-placed source familiar with the bidding process.

Larry Silverstein, who withdrew from bidding on the GM Building, is considering a number of the other Macklowe skyscrapers, including 1301 Avenue of the Americas, the Credit Lyonnais Building, at the corner of 52nd Street.

Read more in the Observer.

Related post:
Macklowe's Other Seven Buildings Are For Sale
Macklowe On Track to Extend Deutch Bank Loan
Reckoning For A Real Estate Mogul

Is Retail In Crisis?

The recent negative news about the retail sector is raising the question whether there is a "crisis" in the industry. CPN interviewed two industry experts Bernard J. Haddigan, managing director of national retail group of Marcus & Millichap Real Estate Investment Services Inc., and Michael Dee, senior vice president and national director of retail group of Grubb & Ellis Co. to get their take on the issue. An excerpt:

CPN: Are we merely headed into a down cycle, or something worse?

Haddigan: I don’t think this is the end of the world. The business is cyclical. Frankly, cycles are necessary. Inefficiencies in the marketplace are corrected during this part of the cycle, and in fact we’re seeing a whole host of investors taking a strong interest in the retail real estate market right now, looking for value-add opportunities and even distressed situations, though there aren’t as many of those as you might think.

Dee: Historically, what we’re seeing is fairly typical of this part of the cycle. It’s nothing new, except the names of the retailers being hit this time around. Worst case, the down cycle will go on into the first half of next year, depending on a variety of different factors such as the job market, the price of gas, the election, and so on. But it will turn eventually.

Read the entire interview here.

Retailers Struggling

A wave of bankruptcies and store closings are expected to reshape suburban malls and downtown shopping districts across the US:

The International Council of Shopping Centers, a trade group, estimates there will be 5,770 store closings in 2008, up 25 percent from 2007, when there were 4,603.

Related posts:
Malls Owners Hurting

The Largest LEED-certified Building In The World

Palazzo is in Las Vegas.

Stop The Sub-prime Bailout

Commercial Real Estate Going Global

From Financial Week:

“Real estate is the last major asset class to go through this globalization wave, and the effect of the credit crunch is just speeding up the process,” said Daniel Fasulo, a managing director at Real Capital. “Just as global investors diversified their stock portfolios globally, they’re now doing it for direct real estate holdings.”

The US market will benefit from the globalization:

Joe Valente, head of research at DTZ, an international real estate advisory firm in London, said in an interview that U.S. real estate markets are about to see an unprecedented level of foreign investment as the lack of domestic financing coupled with a recession and the weak dollar will help “usher in a new base of investors to pick over the remains.”

Japanese REITs are starting to look abroad:

With domestic acquisitions drying up and the $40 billion REIT market flagging, the government has laid out guidelines for foreign purchases and the Tokyo Stock Exchange said last month it would allow trusts to own assets abroad from May.

Ten Reasons To Invest In US Equities

Blackrock's ten reasons to buy US stocks via Reuters:

1) Investor and consumer sentiment measures are very pessimistic, which often marks the bottom of equity market falls.

2) Monetary policy in the United States is being eased earlier and more rapidly than is usual.

3) U.S. households are about to get fiscal stimulus checks from the government.

4) The current earnings recession of negative year-over-year comparisons will last four quarters. Q2 2008 will be the fourth.

5) The cheap U.S. dollar means boom conditions for U.S. exports, a significant offset to the residential real estate recession.

6) The health of the non-financial corporate sector remains strong, with healthy cash flows.

7) Credit-related downturns often include the failure of an important financial organization, followed by double-digit growth in the S&P 500 <.SPX>. The failure of Bear Stearns on March 17 has passed.

8) Credit markets have improved noticeably since Bear Stearns' failure.

9) Technical factors have also improved since March 17, including the fact that up-day volume has been heavier than down-day volume.

10) The earnings yields of equities compared with 10-year Treasuries are at their best level in 30 years.

Time To Buy REITs?

REITs are enjoying a modest rally in the first part of the year. Watch CNBC's Erin Burnett discuss whether it is time to buy REITs with Richard Anderson, BMO Capital Markets and Louis Taylor, Deutsche Bank Securities here.

What Do Institutional Investors Think of The Current Market?

National Real Estate investor recently interviewed the CEO of Jones Lang LaSalle Capital Markets to get a sense of what is happening in the land of institutional investing. An excerpt:

NREI: Are institutions taking more creative positions up and down the capital stack?

Webb: Yes. They’ve got money, and some are pursuing mezzanine debt, for example, to help meet the wave of refinancing that has to take place over the next two to three years. A lot of these owners are going to have to replace maturing mortgages at pretty high loan-to-values, and so institutional investors may not be able to buy as many properties, but they can help fund the capital stack in a refinance. The institutional investor can bridge the gap between the 60% and 80% of the capital stack with a mezzanine [loan] that has many of the same return characteristics that an equity investment might have.

We’re seeing an increasing desire on the part of institutional investors to play in other areas of the capital stack beyond pure equity. We’re also starting to see them explore buying existing debt in the market, whether they are whole loans being held on the balance sheets of financial institutions or seasoned CMBS issues. The yields on existing debt are pretty attractive, if you’re able to get to the assets and understand the underlying collateral.

Developer To Start Lending

Is this a new trend?

Financial "Terrorism" Hits Real Estate Market

From Pensions & Investments:

Real estate is in its worst slump since the 1980s, but insiders say the market could hit bottom several times over the next 12 to 36 months.

The culprit is the credit crunch, which is drying up financing and causing investors to flee. The problem: Just when things start to look better, another financial bomb explodes on Wall Street. The shock waves might keep real estate managers and investors reeling for years to come, experts say.

“It's like terrorism,” said Jack Foster, managing director and head of Franklin Templeton Real Estate Advisors, a real estate fund of funds firm in New York.

As a result, the market is in the doldrums. There are about 70% fewer transactions than a year ago and investors must pony up more cash for each deal that does get done.

Mapping Google's Data Centers

Data centers are facilities used to store computer systems and associated components, such as telecommunications and storage system. Users for data centers include banks, insurance companies, government, and big IT companies like Microsoft, Google and Yahoo. Due to the secretive nature of these facilities, many within the IT industry seem to have a fascination with the location of these data centers, especially Google's. This past week one technology blogger mapped out all the Google data centers:

While many users built their own data centers, currently two REITs, San Francisco based Digital Realty Trust and DC based DuPont Fabros Technology specialize in this particular type of real estate. If the geeks want to find out where Microsoft, Yahoo keep their data centers, I suggest they dig into the SEC filings for Digital Realty and DuPont Fabros.

Related Links:
Where are all the Google data centers?
Google Data Center FAQ
Maps of all Google data centers locations.

An 84-square-feet Hotel Room?

The latest Japanese invasion - Pod Hotels taking off in Europe and US.

Weekend Roundup

Where Have All The Grocers Gone? An analysis and respond to the "Grocery Anchored Centers Get Squeezed?". ("GLG")

Back to Basics for Apartment Values. ("REBusiness")

Britain’s property market faces its moment of truth. ("FT")

Cracks in the edifice. China's property mania comes to a juddering halt. ("Economist")

Commercial property deals disappear as CMBS funding goes dry. Large real estate deals down dramatically in January and February; CMBS issuance off 92%. ("Financial Week")

Execs living large on the corporate tab. The "apartment perk' is still common: Some of the highest-paid execs in the world have posh Manhattan digs comped. ("Financial Week")

A Black Swan In The Money Market. A research paper by John Taylor of Stanford University and John Williams of the San Francisco Fed on the US Federal Reserve’s Term Auction Facility (TAF) - the market saving plan announced in December. ("FRBSF")

The Rise of the Mega-Region. Why the real driving force of the world economy is a new and incredibly powerful economic unit: the mega-region. ("WSJ")

Subprime Losses Reach $245 Billion

Bloomberg updated its tally of subprime losses. The losses include writedowns, credit losses, and reserves set aside for bad loans. Total losses have reached $245 billion.

Firm Total
UBS 38
Merrill Lynch 25.1
Citigroup 23.9
Morgan Stanley 12.6
HSBC 12.4
IKB Deutsche 9.1
Washington Mutual 8.7
Bank of America 8.2
Deutsche Bank 7.5
Credit Agricole 6.6
Credit Suisse 6.4
JPMorgan Chase 5
Wachovia 4.9
CIBC 4.1
Societe Generale 3.9
Bayerische Landesbank 3.7
Mizuho Financial Group 3.4
Lehman Brothers 3.3
WestLB 3.3
Barclays 3.2
Royal Bank of Scotland 3.1
E*Trade 3.1
Goldman Sachs 3
Dresdner 2.8
Bear Stearns 2.6
ABN Amro 2.5
Fortis 2.4
HSH Nordbank 2.3
Natixis 1.9
Wells Fargo 1.7
BNP Paribas 1.7
DZ Bank 1.5
National City 1.4
Bank of China 1.3
Caisse d'Epargne 1.3
LB Baden-Wuerttemberg 1.3
Nomura Holdings 1
Sumitomo Mitsui 1
Gulf International 1
European banks not 7.9
listed above (a)
Asian banks not 4.7
listed above (b)
Canadian banks 2.5
excluding CIBC (c)
TOTALS 245.3

Related Post:
How Much Subprime Losses Will Financial Firms Suffer

George Soros On The Credit Crisis

George Soros spoke to Charlie Rose about the credit crisis:

Commercial Real Estate Financing Market: Worst in 20 Years

Some of these predictions are the most pessimistic predictions I've read/heard so far this year. A quote from an executive with a major life insurance company:

"Our base case is for a 20% to 30% decline in real estate values, basically taking us back to 2004–2005 levels."

The bottom line:

The general consensus is that it's extraordinarily difficult to finance projects in the current environment. Before we see capital flowing freely again, we will need to see value, and cap rates return to more "normal" levels. We'll need to see some positive economic news, restored confidence in the rating agencies, and a rebound on Wall Street and in the structured finance markets. Nevertheless, money is available for real estate projects for a select group, albeit with much more stringent terms and conditions.

Truck Stop Profits Drop

Do you know that in addition to 292 hotels, Hospitality Properties Trust also owns 185 travel centers? These so called "travel centers" are truck stops, and lately truck stops are suffering due to the downturn in economy. Westlake, OH-based TravelCenters of America LLC leases these truck stops from HPT, and contributes to 40% of HPT's annual rents:

For year-end 2007, Westlake, OH-based TravelCenters of America LLC, or TA, which owns 236 truck stop sites, reported a net loss of $123.4 million compared to net income $31 million in 2006. TA became a public company on Jan. 31, 2007.

"We believe that the weakness of the U.S. economy, the slowing in the housing market and durable goods orders, the decline in imports brought about by the depressed value of U.S. currency and the high cost of crude oil and other factors, have led to reduced demand by shippers for trucks to carry freight and in turn reduced demand by truckers for our products and services," the company reported.

"Total miles driven by trucks were down for the fourth quarter of 2007 as compared to the 2006 fourth quarter. Many U.S. trucking fleets have reported reduced ability to pass through the increased cost of fuel to their customers," the company said.

In the past year, TA has laid off 190 site managers and adjusted its hourly labor staffing. In the first quarter, it laid off additional corporate headquarters staff.

Read more here. TA went public last January, the stock went as high as $47.41 last June, and it's now at $3.53. I would stay away from the HPT stock for a while if only just for its association with TA.

Sale-leasebacks Surge

I have posted here before about how sale-leasebacks might become the star of the commercial real estate market this year. It appears now that sale-leaseback is becoming more and more popular especially due to the credit and liquidity crunch:

This week, Oak Brook, IL-based Inland Real Estate Acquisitions, Inc. closed on the final portion of the $736 million purchase and leaseback of property in nine southern states from SunTrust Bank involving 433 triple-net lease properties encompassing more than 2.2 million square feet. Atlanta-based SunTrust will lease back the property from Inland Real Estate Acquisitions, which negotiated the deal on behalf of an entity within The Inland Real Estate Group of Cos., for 10 years with an option for multiple renewals.

Retail banking is but one of a growing assortment of corporate users, private companies and institutional owners seeking to unlock the value of their assets, ranging from pharmaceutical firms and hospitals to store chains, warehousers and manufacturers. According to CoStar COMPS, the volume of sale-leaseback deals ("SLBs"), valued at greater than $5 million nationwide, doubled from $5.1 billion in 2006 to $10.2 billion last year. Activity in 2007 peaked in the fourth quarter, logging a total of $3.8 billion in transactions during the throes of the credit crunch.

Related posts:
Companies Turn To Sale-leasebacks
Sale-leasebacks - A Star In This Market?

B-piece Buyers Gain Influence

B-piece buyers take the first losses in the pools of mortgages that back CMBS. As only the third CMBS issue of the year hits the market, B-piece buyers are gaining more influence over shaping CMBS issues:

An $887 million CMBS issue priced last week by Credit Suisse Group and Morgan Stanley is one example. The deal is set to close on April 18. That sale, just the third CMBS issue of the year, started with both firms trying to do separate deals that, taken together, totaled about $2.6 billion. Instead, they teamed up to cobble together a much smaller deal partly because Mr. Hillenbrand, a key buyer, made them throw out about $400 million of mortgages from the securitized pools because he saw them as too risky.

"We're the first one to take the bullet," says Mr. Hillenbrand, who bought $64.3 million of the riskiest portions of the deal. Among the loans he forced out: a mortgage on an office building in Fort Lauderdale, Fla., that was underwritten on the assumption that the building's occupancy rate would remain higher than that of the regional market.

Year to date there have been only $3.5 billion of CMBS issues this year compared to $62.2 billion in the first quarter of last year alone.

Related post:
2008's First CMBS Transaction

Wednesday Links

Hollywood, The Sequel. As real estate markets nationwide become tear-jerkers if not horrorshows, the Tinseltown scene remains a happy-clappy inspirational. ("The Slatin Report")

Shrewd investors face a taxing question on debt. At what price would you buy debt secured on good commercial property in a bad commercial market? ("The Property Column")

Coming Soon ... Securitization with a New, Improved (and Perhaps Safer) Face. ("Knowledge@Wharton")

Five Cities That Survived the Mortgage Meltdown. ("Market Watch")

Vornado Seeks Respect by Simplifying. ("Market Watch")

Grocery Anchored Centers Get Squeezed

Grocer anchored neighbourhood and community centers have long been considered recession-proof. However, the recent high food and energy prices appear to be affecting the shopping center sector negatively:

Asking rents at shopping centers rose just 0.4 percent during this quarter, the smallest increase in seven years, according to Reis Inc. And effective rents grew just 0.1 percent. That's a marked slowdown from a year ago when asking rents grew 0.9percent and effective rents rose 0.8 percent during the first quarter. Meanwhile, the national vacancy rate continued to march upward, rising 20 basis points during the first quarter up to 7.7 percent, its highest rate in more than a decade.

Mall Owners Hurting

The last retail victim Linens 'n Things is considering filing for bankruptcy-court protection this week. From WSJ:

For shopping-mall owners, it is a rude awakening from the boom times of the past few years, when consumers borrowed money to furnish their newly purchased homes. While vacancies should remain low, the slowdown means weaker rent growth for all mall owners and serious pain for the most heavily indebted landlords.

Making matters worse, new construction will raise the total amount of retail space by 3.5% this year in the top 54 U.S. markets. But retail-sales demand, which has slowed with the economy, will justify only a third of that new space when it is completed, according to market-research firm Property & Portfolio Research Inc.

Problems with lenders are especially painful for retail landlords who bet that rising rents and falling vacancies would help them handle heavy debt loads.

Deutsche Bank Securities analyst Lou Taylor forecasts that the average vacancy rate of public retail REITs will swell by two percentage points this year. Even with that setback, many REITs still will boast vacancy rates of less than 10% because of the gains they made during the recent boom. But such a decline would sap the REITs' growth in net operating income -- which averaged a 3.5% gain last year -- to something in the range of 0% to 1%, Mr. Taylor said.

The market shift has given tenants more bargaining power. In some cases, landlords are granting less-expensive rent or forgoing increases, covering more of tenants' costs in customizing their space or allowing struggling stores to move to smaller, cheaper space, among other options.

Yet despite ALL the problems mall owners are facing, shares of retail-property owners are up 7.7% this year.

Related link:
Shopping Center Starts Dwindling Behind Major Wave of New Supply

Apartment Deal Activity Still Brisk

While the rest of the commercial real estate sector is experiencing a credit crunch, apartment deals are still getting done thanks to Fannie Mae and Freddie Mac:

Fueling the deals and buoying apartment values is the rare availability of financing, thanks to government-sponsored Fannie Mae and Freddie Mac. Prompted by their mandate to provide market liquidity and funding for affordable housing, but also driven by a fresh opportunity for profit, both firms are expanding in the multifamily market to fill a vacuum left by private lenders.

Fannie's and Freddie's plentiful, affordable capital helped make apartments the second-best REIT performers, after the self-storage market, in the first quarter. Bucking the prevailing negative or meager returns, apartment REITs had a total return of 11.48% in the quarter, according to the National Association of Real Estate Investment Trusts. Because real-estate investments are so dependent on financing, the cost and availability of that debt has a direct impact on the value of properties.

Related posts:
Apartments Benefit From Housing Woes
Apartment And Self-storage REITs Benefit From Housing Downturn

When You Are Old, You Are Just Stubborn

Don't mean to offend anyone, but I really believe that when you are old, you are stubborn! Two perfect good examples that are in the news almost everyday recently:

Alan Greenspan, 812 years old, continues to lash out at critics who accuse him of being too quick to reduce interest rates and leaving the interest rate low for too long:

Mr. Greenspan says he doesn't regret a single decision. In his view, many critics are ignoring evidence in his favor and failing to assess the process by which he made decisions.

John McCain, 711 years old, still believes that its all good in Iraq and US solders should stay in Iraq for 100 years:

Because the U.S. did not "choose to retreat," we now have a successful strategy in Iraq, the surge. And although "much more needs to be done... today it is possible to talk with real hope and optimism about the future of Iraq.... Success is within reach."

Farmland Prices Reach Unprecedented Heights

I profess I don't know much about farming, but according to this in the Journal, farmland values have been one of the shining spots in the US real estate market. The value has gone up so much so fast that some experts are warning that there might be a farmland bubble:

With corn, soybean and wheat prices soaring to record levels earlier this year, farmland prices also have been pushed to unprecedented heights. The U.S. Department of Agriculture estimated that the price of an average acre of U.S. cropland rose 13% in 2007, to $2,700, more than double the $1,340 price of 1998. It predicts another 15% rise this year.

The Great Distressed Debt Era

Distressed debt investors buy corporate bonds and other securities of trouble companies. Bruce Richards, chief executive of $12 billion hedge fund firm Marathon Asset Management said during a speech at a hedge fund conference in San Francisco: "This is the great distressed debt era. It's the single best investment opportunity in 17 years." Marathon started buying mortgage securities:

Marathon has set up a mortgage servicing company in Phoenix, Ariz. with 100 staff to buy and restructure home loans. The firm is calling regional banks, which are looking to sell troubled loans. Last week, Marathon bought a package of such loans for 32 cents on the dollar, Richards explained.

The real estate market probably has another two years to fall before all the inventory of unsold homes is sold. By the end of 2009, house prices may have fallen 15% to 25% from the peak at the end of 2005, he predicted.

Related posts:
Distressed-debt Investors Still On the Sideline
One of The Best Distressed Opportunities For Hedge Funds
BlackRock, Highfields to Buy Distressed Home Loans
Subprime Eyed by Blackstone, Goldman for Contrarian Hedge Funds
Hedge Funds Ready to Bargain Hunt Mortgage-backed Securities.

Nation's Capital - A Tenant's Market?

According to Jones Lang LaSalle report, for the first time in five years, the downtown Washington DC office market is a tenant's market:

The vacancy rate for all office space in D.C. hit 8.1 percent in the first quarter, up from 7.5 percent at the end of 2007, according to the report. It is still a healthy vacancy rate, but clearly the trend is creeping upward. The report predicts the vacancy rate for the District likely will approach 10 percent a year from now and peak in the third quarter of 2009.

Whether the softening market makes a dent in asking rents remains to be seen. While overall rents in D.C. increased 2.4 percent in the first quarter -- and 9.4 percent from the beginning of 2007 -- much of that increase is attributed to rare trophy-quality buildings and lower quality Class B and C buildings.

While most markets would kill for the 8.1% vacancy, the DC market appears to in the full midst of the slowdown, and according to JLL, DC is into it 10 months before the rest of the country because of all the new developments in the market.

Macklowe's Other Seven Buildings Are For Sale

The seven office buildings that Harry Macklowe bought last year from the Blackstone Group for $7 billion are now for sale. The portfolio is put on the market by a group of Deutsche Bank-led lenders, which made a $5.8 billion loan to the developer. From Crain's:

Now the seven midtown office buildings that Mr. Macklowe bought last year for $7 billion—using the GM tower as collateral—are being put up for sale, and they should provide an even better perspective on office building values. While iconic towers like the GM Building sell for premium prices that are often driven higher by buyers’ desire to own well-known trophies, the purchase price of these seven properties will be determined by market fundamentals.

“Everyone has been holding back [on selling] assets, because they want to see what these buildings will get,” says Dan Fasulo, managing director of Real Capital Analytics, which tracks real estate transactions. “They’ll create a new baseline for office building sales.”

Related posts:
Macklowe On Track to Extend Deutch Bank Loan
Reckoning For A Real Estate Mogul

The "Expandable" Building

If you are in Chicago, and I know the dirt lawyer is, you should sign up for this interesting presentation about the 24-story vertical expansion of the Blue Cross/Blue Shield headquarters building in downtown Chicago :

This building was designed and built from the outset (in the mid-1990s) to be “expandable” vertically while continuing in full operation. Two years ago the decision to exercise the expansion option was taken, and the expansion from 36 to 60 floors is now underway. The presentation team will be led by Directing Senior VP of Corporate Real Estate & Development for Blue-Cross/Blue-Shield Illinois, Andrew Pini, and will include those responsible for the original decision and design as well as those currently implementing the expansion (architects, engineers, project manager, & real estate developer).

You can register here.

Downturn In Commercial Real Estate?

The country's most bearish investment newsletter Safe Money Report makes an argument for an accelerated national downturn in commercial real estate:

commercial real estate developers unfortunately committed the same financial blunders as their counterparts in the housing sector. In brief, they borrowed too much money in an easy lending environment while factoring in excessively optimistic projections for rent growth, and assuming vacancy rates would forever hug their historic lows.

Condo Hotel = Pets.com?

Many of the luxury hotels built in recent years probably would never have broken ground if they were not part of a mixed-use project that included condos. The construction costs for luxury hotels have reached such a high level that the returns do not generally justify new construction. By building a mixed-use project that includes a hotel, condos or condo hotels, the developer is able to shift developer's risk to individual condo unit owners. Unfortunately many buyers of the condo hotel units are not well informed of the risks involved:

Many buyers purchased the hotel rooms from developers hoping to get paid every time the room was rented. But condo hotels, which account for as much as 10% of all hotel rooms under construction and a much greater percentage in resort markets such as Orlando, Fla., and Las Vegas, are coming back to haunt many of the people who bought the units, the developers that constructed the buildings, and the operators hired to run the hotels.

Read more in WSJ....

Mortgage Bankers Association Find It Hard To Pay Its Own Mortgage

How ironic:

The lobbying group is about to sign the final papers to buy the 12-story building on L Street NW for about $100 million. Like many of the companies it represents, the organization is facing a triple whammy of woes: Its financing costs are up, its income is down, and the leasing market is slow, leaving it, so far, without a single tenant.

Scheduled to close on the building in the coming weeks, the association will have to pay millions of dollars more than it would have a year ago when it contracted to buy the 160,000-square-foot structure -- millions of dollars it is now less able to afford.

Will Blogging Kill You?

Today's NYT article "In Web World of 24/7 Stress, Writers Blog Till They Drop" is causing a bit of a stir in the technology blogosphere. See some reactions here and here.

The Times story seems to suggest that there is some correlation between blogging and bloggers' health:

Two weeks ago in North Lauderdale, Fla., funeral services were held for Russell Shaw, a prolific blogger on technology subjects who died at 60 of a heart attack. In December, another tech blogger, Marc Orchant, died at 50 of a massive coronary. A third, Om Malik, 41, survived a heart attack in December.

Other bloggers complain of weight loss or gain, sleep disorders, exhaustion and other maladies born of the nonstop strain of producing for a news and information cycle that is as always-on as the Internet.

I don't get it. While full time blogging must be demanding, so are many other professions! Hey, working on commercial real estate transactions is stressful!

The International Edition

Foreign banks flee Spanish property debt. International banks are scrambling to sell their holdings of Spanish mortgage debt at a steep discount, fearing that the country may be sliding into the worst economic downturn in its modern history. ("Telegraph")

World's Up-And-Coming Real Estate Markets. ("Forbes")

Taiwan Property Set For Boom If Ma Improves Mainland Relations - Analysts. Market-watchers expect a rise of 20 percent or more by the end of 2008. ("CNBC")

Sri Lankan real estate holds up in tense times. 'Resilient" is the word that almost everyone is using to describe Sri Lanka's housing market - and its economy in general. ("Intl. Herald Tribune")

Navigating the storm: Asia’s real estate. Bullish on India and Vietnam, with a cautious view on China, Malaysia and Singapore. ("Malaysia Star")

Oman's market opening produces big real estate projects. Oman's decision to open its real estate market to foreign ownership appears to have been a success. ("Intl. Herald Tribune")

The Mortgage Bust Goes Global. ("NYT")

Transatlantic Differences in Real Estate Bubbles? ("RGE")

The Impact of Subprime Mortgage

Via NYT:

Weekend Roundup

Manhattan office vacancy rates rise. Wall Street job cuts may add more space in coming months. ("The Realdeal")

Office Space Glut Talk of the Industry. At least 10 million square feet of office space is in various stages of construction or planning in New York City. Can the city absorb all the space over the next 3-5 years? ("The New York Sun")

Speaker: Industrial Sector Will Get Through Downturn. CEO of AMB Property Corp. said “Fundamentals are better than any downturn I can remember.” ("GlobeSt")

Report: CFOs See Green in Green Practices. Finance executives believe companies that reduce their impact on the environment can achieve significant financial benefits ranging from reduced operating costs to improved shareholder value and better employee retention. ("NREI")

Panel: Accountability Elusive in Credit Crisis. Efforts are under way both to assign accountability in the credit crisis and to minimize the possibility of it happening again. ("GlobeSt")

New Delays Hit Mixed-Use Sector as Credit Crunch Continues. Several high-profile mixed-use projects have either been delayed or altered because of the difficulty in securing financing during the current credit crisis. ("Retail Traffic")

Shopping Center Starts Dwindling Behind Major Wave of New Supply. CoStar exhibits current construction and delivery trends across the country. ("CoStar")

Yale Money Whiz Shares Tips on Growing a Nest Egg. Over the past two decades, Yale University's endowment has grown an average of 16.8% a year, more than any university, foundation or pension fund. ("NPR")

Sinking financial and residential sectors make waves in commercial real estate. ('CIRE")

Manufactured Success. Today's manufactured housing communities provide an alternative niche for investment dollars. ("CIRE")

Foreign Wealth Funds Provide Opportunities for Partnerships. Experts say opportunity should open up for the U.S. commercial real estate industry in the form of partnerships since the funds need local expertise. ("NREI")

While Wall Street Struggles, New Financial Hubs Arise. Developers are pressing on with enormous development projects around the world, many financed partly by big financial institutions and rich foreign investors. ("Dealbook")

Arab Sovereign Wealth Fund Backs Zuckerman Bid

The New York Sun is reporting that a Middle Eastern sovereign wealth fund is the backer for the Zuckerman bid for the GM building:

The Arab sovereign wealth fund has offered to cut a check for less than $2.8 billion, but with the assurance the deal would close because it would use no leverage, according to sources familiar with the offer.

Under the deal in the works with Mr. Zuckerman and the consortium, which includes at least one sovereign wealth fund, the Macklowes would have management of the properties and be paid an incentive fee should the income generated by the properties reach a certain threshold.

The deal has not yet been finalized because of its complexities and the number of investors involved, according to sources familiar with the process.

Exciting Times For REITs

Marty Cohen, one of the most highly regarded portfolio managers is bullish on REITs:

“This is probably one of the most exciting times,” Mr. Cohen, co-chairman and co-chief executive of New York’s Cohen & Steers Inc., said today while speaking to the annual New York University REIT Symposium in New York. “I think the housing crisis and subprime catastrophe is the best thing that ever could have happened to commercial real estate.”

Bloodsucker Mortgage

Fifth Third Considering Bidding For National City

According to WSJ:

Fifth Third Bancorp is considering a bid to buy its troubled but larger rival National City Corp., according to people familiar with the situation, in the latest sign of how stresses on the banking industry are pushing institutions to consider deals long believed far-fetched.

Such a move would create a Midwestern banking giant and stick a thumb in the eye of rival KeyCorp., which is also said to be mulling a bid. Fifth Third is based in Cincinnati, while National City and KeyCorp are both in Cleveland

Fifth Third seems to be a better fit for National City. A deal could come together as early as April 22, when National City reports its earnings.

TIAA Seeking To Add $5 Billion To Its $22 Billion Real Estate Portfolio

From CoStar:

The TIAA Real Estate Account is looking to raise another $5 billion to invest in real estate properties and mortgages.

As of year-end 2007, TIAA's general account had a mortgage and real property portfolio of approximately $22.1 billion. As of year-end 2007, the account owned a total of 111 real estate property investments: 46 office properties, 27 industrial properties, 21 apartment complexes, 16 retail properties and a 75% joint venture interest in a portfolio of storage facilities located throughout the United States.

TIAA Real Estate Account seeks favorable long-term returns primarily through rental income and appreciation of real estate investments owned by the account. The account also will invest in publicly traded securities and other investments that are easily converted to cash to make redemptions, purchase or improve properties or cover other expenses.

On a smaller scale, one of the best run hotel groups Kimpton Group Holding, LLC just closed a $246 million fund:

Kimpton Group Holding, LLC, the parent company of Kimpton Hotels & Restaurants, the largest and most successful player in the boutique/lifestyle hotel segment, has closed its third institutional real estate fund and its follow up fund to Kimpton Hospitality Partners, L.P. (“KHP Fund”). With the close of this second KHP Fund (“KHP Fund II, LP”), Kimpton has raised $246 million – 50 percent more than the amount raised in the first KHP Fund three years ago – with the goal of acquiring more than $800 million worth of hotels over the next three years.

Distressed-debt Investors Still On The Sideline

The recent market turmoil has created great opportunities for distressed-debt investors. However, in the distressed-debt market, timing is everything. Some investors got in too early:

Getting in too early can produce big losses, a painful process known in the business as "premature accumulation," according to one manager of a distressed-debt hedge fund that's down more than 15% so far this year.

Many distressed-debt funds are wary of buying and do not want the mark-to-market risk:

Buying distressed debt now may produce big gains over the next two or three years. But hedge funds usually have to report the value of their assets to clients every quarter. If credit markets deteriorate further, hedge funds that waded in will have to report short-term losses. That might spook clients and encourage them to withdraw their money.

If enough investors redeem, the hedge funds might have to sell positions into a falling market, threatening their survival.

Assuming there is enough distressed debt to go around, some distressed-debt managers think the time to buy may be approaching:

Moody's Investors Service, one of the largest rating agencies, expects the default rate on high-yield bonds to jump to 5.4% by the end of 2008. Last year, that rate hit a record low of less than 1%.

"This environment is the one we've been awaiting for the past three years," said Benjamin Nickoll, co-founder of Ore Hill Partners, a $3 billion hedge fund firm that invests in highly leveraged companies and distressed debt.

"The default rate will continue to climb on corporates," he said. "We're in the bottom 20% of the range for valuations. I can't tell you when the bottom will be, but I can tell you with certainty that outsized returns will be available when you have forced selling like this."

Some already started buying mortgages:

Distressed mortgage-related securities may offer the most compelling investment opportunities, Wes Edens, chief executive of the hedge fund and private-equity firm Fortress, said.

Edens described the current crisis as "one of the great de-leveraging events of our lifetime," in which far too many assets are for sale with not enough financially strong buyers around to snap them up.

Related posts:
One of The Best Distressed Opportunities For Hedge Funds
BlackRock, Highfields to Buy Distressed Home Loans
Subprime Eyed by Blackstone, Goldman for Contrarian Hedge Funds
Hedge Funds Ready to Bargain Hunt Mortgage-backed Securities.