Long Weekend Roundup

REITs That Work ("Forbes")

Real Estate Recovery Expected in 2011 ("NREI")

If all Americans read financial magazines, we never would have had a real estate bubble ("The Curious Capitalist")

Why the credit crunch has lasted so long ("Economist")

Hotel Developer Lands in Red Ink, Despite Boldface Names ("NYT")

Medical Office Holds Up in Troubling Times ("NREI")

A Hotel in Theory, With an Image in Fact ("NYT")

Continuing Care Projects Shun Risk, Embrace Fee-for-Service Contracts ("NREI")

Sarah Palin, America's Vice President?!

What is Mccain Thinking? One Alaskans-Perspective.

Hedge Funds Crank Up Commercial Real Estate Lending

With the CMBS market almost non-existent and bond sales dropped to a 12-year low, borrowers are turning more and more to hedge funds:

As the credit crunch enters its second year, more investors seeking financing to acquire office towers, retail stores, hotels and the like are left with little choice but to turn to so-called hard-money lenders, lightly regulated businesses that charge high interest rates for short-term loans.

Right now, among the biggest players in the hard-money arena are hedge funds, which view commercial-real-estate lending as a way to diversify their traditional trading operations while still commanding double-digit returns.

Read more here....

Related post:
Non-traditional Lenders Active in Tough Lending Environment

Are Construction Costs at Peak?

While this condo project in downtown Calgary is put on hold due to high construction costs, Grubb & Ellis's chief economist believes costs may have peaked:

The soaring cost of construction, spurred in recent years especially by the rising cost of inputs into the process--the energy needed, the costs of raw materials and so forth--may be at its peak, according to Robert Bach, senior vice president & chief economist at Grubb & Ellis Co., in his most recent Weekly Market Insight.

The most recent such price-spur came early this summer as oil hit record levels, but nevertheless Bach expects that construction prices will level off or even fall in the not-too-distant future.

Canada Not Immune to Slow Down

While the Canadian real estate market has held well so far in this challenging environment, one brokerage is projecting that investment in commercial real estate investment will drop 40% in 2008. From the Toronto Star:

Commercial real estate investment in Canada is forecast to fall by as much as 40 per cent or more this year, the biggest drop since the start of the decade, says a report by a leading brokerage firm.

While residential real estate nationally has suffered a steep decline in sales, the commercial world has been taking an even worse hit, reflecting the global slump in property markets.

Economic uncertainty and hesitation by investors, a reduction in availability of financing and a smaller pool of properties mean a challenging market for commercial sales in 2008, said CB Richard Ellis Ltd. yesterday.

Take a Load off Fannie

Source: CR

The Disconnect Between CMBS Index and Fundamentals

“The majority of CMBS bonds are triple-A bonds, and the triple-A buyer has just gone home,” said Leonard Cotton, vice chairman of Centerline Capital Group, an asset manager with a core focus in real estate and more than $14 billion in assets. “They're not willing to take the risk in price if a bond bought today is worth less tomorrow, even though the fundamentals are the same.”

Delinquencies on CMBS have risen, but the increase is not nearly enough to account for the market's weakness. Moody's delinquency tracker, which follows delinquencies in excess of 60 days on loans backing U.S. CMBS transactions over the past 10 years, showed a delinquency rate in June of 0.45%, up one basis point from May and up 23 basis points from the low of 0.22% in July 2007.

At those rates, even if the delinquency rate triples, the commercial real estate market remains a solid investment and is not likely to see a collapse like the one residential real estate has experienced, Mr. Cotton said.

Read more here.....

Bad Housing Market Good For Conservations Groups

Weekend Roundup

Hotel Industry Feeling Effects of Air Service Reductions ("The Ground Floor")

U.S. Hotel Deals Down 81 Percent Mid-2008: JLL Report ("CPN")

Automated Garages Help Solve Urban Parking Needs ("NREI")

Despite Fuss, Mortgage-Backed Bonds Have Fans ("WSJ")

Earlier Vintage CMBS "Grossly" Mispriced ("REIT Wrecks")

CWCapital Plans IPO To Cherry Pick Best in Risky Debt ("CoStar")

Troubled Fannie, Freddie Still Vital to Capital Markets ("CPN")

Brokerages Anticipate Big Revenue Gains Outside U.S. ("NREIT")

Gap Among Struggling Retailers, Plans to Reduce Square Footage ("CPN")

Brokers Search the Depths ("Retail Traffic")

Recapturing and Controlling Space: A Primer for Retail Landlords on Tenant Bankruptcy ("CoStar")

Array of Niche REITs Survive, Even Thrive in Unforgiving Real Estate Market ("CoStar")

Mortgage REIT Insider: Attack of the Analysts ("Housing Wire")

Plantless Lobbies

They are becoming the norm.

CMBS Spreads Soar Again

Yields on commercial mortgage backed securities sored to near record levels again due to default concerns on a large apartment loan. According to Bloomberg:

AAA rated commercial mortgage-backed bonds widened about 37 basis points to 305.57 basis points more than 10-year swap rates during the week ended yesterday according to data from Bank of America Corp. A basis point is 0.01 percentage point.

The gap, or spread, jumped after a trustee report showed payments wouldn't be made by Rockpoint Group LLC and Stellar Management in September on a $225 million loan on the 1,230-unit Riverton. The property was refinanced in December 2006 using optimistic assumptions for anticipated income, a practice that became common as prices reached their peak, said Alan Todd, head of commercial-mortgage backed securities research at JPMorgan Chase & Co.

The good news is delinquencies on commercial mortgage bonds was 0.43 percent in July, compared to 41.7 percent for subprime home loans. And real estate investor Sam Zell still believes that opportunities are in the debt.

Related link:
Some Fear Commercial Property Loans Will Be Next Stage in Downturn ("NYT")

Tallest Skyscraper In The World

Amazing photos! Check it out!

The World's Most Expensive Streets

So far, no slowdowns here.

High-End Condo Still Surging

Even in Miami. In the meantime, condo boom might be finally coming to an end in North America's largest condo market.

Job Losses Pressure the Apartment Sector

From WSJ:

For the past year, apartment buildings have been one of the few bright spots in the real-estate industry as people forced out of the home-buying market by foreclosures or the credit crunch have turned to renting.

But now the specter of job losses is beginning to spread the gloom into that sector as well. As would-be renters are doubling up in apartments or moving in with friends and families, rents and occupancy rates are beginning to fall in many cities.

Farmland: The Diversifier Outperforms

"historically, the returns are negatively correlated with stocks but tend to track inflation. And these days, as many real estate sectors languish — nationwide, the median home price fell 7.6 percent in the second quarter, the National Association of Realtors reported last week — agricultural land is going strong. In an annual report released just this month, the United States Department of Agriculture said property values for farmland nationwide had risen 8.8 percent, on average, over 2007. "

Read more here.....

Related posts:
Are You Buying Farmland?
Farmland Prices Reach Unprecedented Heights

Real Estate Agent Hunting 2.0

If you are a real estate agent, you might want to keep your blog up-to-date..

The Fortress Sale

Source: Going Private

Weekend Roundup

The Great American Yard Sale ("Time")

Dr. Doom ("NYT")

CMBS Issuance Drops to 1996 levels ("NREI")

In Booming Dubai, Call It The Anti-'Credit Crunch ("WSJ")

The King of Central Park West ("Vanity Fair")

Own Real Estate But Not A House ("Forbes")

Industrial Market Is Soft But Not Sour ("NREI")

Challenging Months Ahead for Shopping Center Owners ("NREI")

Regional Mall REITs Hold Up Under Pressure ("Retail Traffic")

Lehman in Talks to Sell $40B Real Estate

From FT:

Lehman Brothers is in talks with potential buyers over the sale of its $40bn portfolio of commercial real estate assets and securities in an effort to replenish its balance sheet.

People who have been in the discussions say the troubled investment bank wants to sell the assets either as a whole or in pieces but added there was a gap between Lehman’s perception of the value of the portfolio and that of buyers.

In a move to lure buyers, Lehman has offered to shoulder the first $5bn of any losses suffered on the portfolio’s assets following a sale, they said.

If the sale talks fail, Lehman is believed to be considering spinning off the entire commercial property division and listing it separately, people close to the discussions said.

Related Link:
Lehman faces fight to shed real estate assets ("FT")

"the Cheesegrater" Delayed

A major skyscraper "the Cheesegrater" became the latest victim of credit crunch.

Tracking The Real Estate Downturn is Tricky

CalPERS May Increase Exposure to Emerging Markets

According to Pensions&Investments:

CalPERS’ investment policy subcommittee on Aug. 18 will consider a new global real estate policy for the $227.7 billion system that could increase its exposure to emerging markets real estate.

The new policy, if ultimately approved by the system’s investment committee, would allow investments in emerging markets up to 20% of the California Public Employees’ Retirement System’s $23.6 billion real estate portfolio, according to a draft of the policy to be presented to the subcommittee. As of March 31, about 3.7% of its real estate portfolio was in emerging markets.

The policy would also allow up to 100% of the portfolio to be invested in developed markets and up to 5% in frontier markets. The new policy is a result of a September 2007 review of the real estate portfolio that called for increased exposure to overseas real estate.

Lehman Seeking to Sell $14B Commercial Real Estate Assets

From Bloomberg:

Lehman Brothers Holdings Inc., seeking to restore investor confidence after a $2.8 billion second-quarter loss, is negotiating to sell commercial real estate assets to a group including BlackRock Inc., said three people briefed on the discussions.

Lehman is seeking to sell about $14 billion of its $40 billion in commercial property and related securities by the end of the year, according to two potential buyers approached by the New York- based firm.

Developers Seek Rezoning in Slow Market

Another sign the market is not coming back anytime soon. Rezoning is time consuming:

When the real estate market comes to a virtual halt, as it has currently, many developers cannot get development financing on favorable terms. An attractive option is to wait out the torpid market while trying to add value to their property with a rezoning.

Read more here.....

A Rare Bright Spot For Fannie and Freddie

It's not everyday that you read something positive about Fannie and Freddie. The two GSEs seem to have found a bright spot in multifamily financing.

Subprime Losses Reach $500 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 $500 billion. At the same time, Banks and brokers have raised $353 billion of capital.

Firm Writedown & Loss
Citigroup 55.1
Merrill Lynch 51.8
UBS 44.2
HSBC 27.4
Wachovia 22.5
Bank of America 21.2
IKB Deutsche 15.3
Royal Bank of Scotland 14.9
Washington Mutual 14.8
Morgan Stanley 14.4
JPMorgan Chase 14.3
Deutsche Bank 10.8
Credit Suisse 10.5
Wells Fargo 10
Barclays 9.1
Lehman Brothers 8.2
Credit Agricole 8
Fortis 7.4
HBOS 7.1
Societe Generale 6.8
Bayerische Landesbank 6.4
Canadian Imperial (CIBC) 6.3
Mizuho Financial Group 5.9
ING Groep 5.8
National City 5.4
Lloyds TSB 5
IndyMac 4.9
WestLB 4.7
Dresdner 4.1
BNP Paribas 4
LB Baden-Wuerttemberg 3.8
Goldman Sachs 3.8
E*Trade 3.6
Nomura Holdings 3.3
Natixis 3.3
Bear Stearns 3.2
HSH Nordbank 2.8
Landesbank Sachsen 2.6
UniCredit 2.6
Commerzbank 2.4
ABN Amro 2.3
DZ Bank 2
Bank of China 2
Fifth Third 1.9
Rabobank 1.7
Bank Hapoalim 1.7
Mitsubishi UFJ 1.6
Royal Bank of Canada 1.5
Marshall & Ilsley 1.4
Alliance & Leicester 1.4
U.S. Bancorp 1.3
Dexia 1.2
Caisse d'Epargne 1.2
Keycorp 1.2
Sovereign Bancorp 1
Hypo Real Estate 1
Gulf International 1
Sumitomo Mitsui 0.9
Sumitomo Trust 0.7
DBS Group 0.2
Other European banks* 7.2
Other Asian banks* 4.6
Other U.S. banks* 2.9
Other Canadian banks* 1.8
____
TOTAL** 501.1

Time To Buy REITs?

I Love a Good Satire

A reader comments on the Lines-N-Shit post:

I live in Macon, Georgia and this is the biggest bunch of crap I've ever heard of. Someone I know in North Carolina forwarded an email to me with this story on it to ask if it is true. I used to work in the main office of the Macon Mall and I can tell you with certainty that this story is the only thing that is shit. Excuse the language, but it is. There was a store in the Macon Mall called Linens 'N Things which closed just weeks ago. I it that people up north are always trying to make people from the south look so uneducated and foolish. I can honestly tell you that a store with a name like that would never exist here. For one, we do live in the Bible belt and the Christian community would be up in arms over it. The only fool this time is the person who wrote this bunch of hooey. You can check out the Macon Mall website here http://www.shopmaconmall.com/mall/index_body.aspx?navTarget=Directory
and look under "outparcel" and you'll find Linens 'N Things, NOT Linens 'N Shit!

Weekend Roundup

Commercial Real Estate Financing Becomes Needle in Haystack ("New York Sun")

Apartment Sales Volume, Availability of Equity, Debt, Capital All Decline ("CPN")

Job Losses Lead to Rising Vacancies in U.S. Property Sectors ("NREI")

Insurance, Liability Issues Sprout From Sustainable Development ("NREI")

Will Americans Accept Greener Hotel Rooms? ("NYT")

Shopping Center REITs Show Weakness ("Retail Traffic")

Retail REITs Not Overly Concerned, But Playing it Conservative ("CoStar")

CMBS Spreads Sore To The Higest Since March

From Bloomberg:

Yields on commercial real estate securities relative to benchmark rates rose to the highest since March on concern that retailers won't be able to repay debt as consumers cut spending.

Spreads on AAA rated commercial mortgage-backed bonds widened 10 basis points during the week ended yesterday to 250.5 basis points more than 10-year swap rates, according to data from Bank of America Corp. A basis point is 0.01 percentage point.

Quote of The Day

"If there is a slowdown it isn't because the hotel and luxury business is slowing, but because the banks are reluctant to lend money," Horst Schulze, former president and COO of Ritz-Carlton; he now runs hotel-management company West Paces Hotel Group.

Lenders Have Upper Hand

Time certainly has changed. As one of the hardest negotiators Bernie Freibaum, CFO of General Growth Properties, starts to refinance the company's $18.4 billion debt that comes due in the next 3.5 years, he is finding that the lenders now have the upper hand. According to WSJ:

One example of the lenders' upper hand can be seen in a $1.75 billion loan package Mr. Freibaum is piecing together. To get the deal done, General Growth had to grant lenders -- led by Germany's Eurohypo AG -- 25% recourse, a humbling requirement that lenders rarely sought from big companies such as General Growth during the real-estate boom.

Private Prisons Hold on in Hard Times

Mr. Doom and Gloom

Here's Barron's interview with world's biggest bear NYU professor Nouriel Roubini: Maybe now somebody will listen.




Related link:
Yes, That's $2 Trillion of Debt-Related Losses ("Barrion's")

Five REITs to Invest in

Alan Farley from RealMoney.com tells you why.

Good Times For Mezz Financing

Indeed, but are there enough deals out there?

In the second quarter, private equity fund managers alone raised $2.6 billion in aggregate capital for mezzanine funds, according to Private Equity Intelligence Ltd., a London-based data aggregator.

Currently, 36 private equity mezzanine funds are on the road, raising $21.3 billion. For 2008 so far, 14 mezzanine funds have raised $20.3 billion, vs. 29 funds raising $15.7 billion for all of 2007.

Read more here....

Related link:
Firms battle over realty debt ("Pension&Investments")

The Woman Who Called Wall Street's Meltdown

And she says the worst is yet to come.

2Q Transactions-Based Index (TBI)

MIT's second quarter TBI is out. Looks like a 2.7% decline in the capital return for the properties sold in the NCREIF database. While the demand-side index fell by 2.7%, the supply side of the market decreased its reservation prices by 2.8% in the first quarter. The TBI measures market movements and returns on investment based on transaction prices of properties sold from the NCREIF Index database. For detailed charts for all property types, click here.

Related link:
U.S. Commercial Property Prices Fell 2.7% in Quarter, MIT Says ("Bloomberg")