Lobbyists & the Bailout

Tough day for real estate lobbyists. Watch how the real estate lobbying industry, reacted to the bailout decision here.

Vulture Funds Want to Buy Commercial Real Estate Assets Ahead of Bailout

Well, first of all, it doesn't look like the bailout is coming anytime soon. A bigger question is will the vulture funds be able to get the price they want? According to WSJ:

While residential mortgages have been the primary cause of the global financial crisis, financial institutions also are burdened with about $100 billion in commercial mortgages and mortgage securities. More than 50 newly formed vulture funds are targeting these assets, which are potentially more attractive than residential mortgages because they produce income. Following the real-estate collapse of the early 1990s, investors made profits by buying commercial assets from the Resolution Trust Corp.

Details remain sketchy on what process the government will use to value and buy the distressed assets. In some ways, valuing mortgages on commercial property may be easier than for residential property, which doesn't produce income streams. But many of those streams will be tricky to value because of deteriorating economic conditions that are driving up office vacancies, increasing retailer bankruptcies and weakening hotel rates.

At the same time, the default rate on commercial debt has remained much lower than the rate on residential mortgages. Some financial institutions say they will be unwilling to sell their assets to the government or others at huge discounts for this reason.

The Bailout: What is it?

The bailout plan in plain English and bullet-point form.

Meeting of Minds

In the medium term, real estate professionals expect the credit collapse will lead to a meeting of the minds between real estate buyers and sellers on price. Over the past year, transaction volume has been way down, mostly because sellers were asking more than buyers — fearing prices were still falling — were willing to pay. Those days are coming to an end. Pensions & Investments.

All Eyes on Lehman and AIG Real Estate Sale

From Financial Week:

The financial anguish of Lehman Brothers and American International Group means some prime commercial real estate could soon hit the market. If the properties are unloaded successfully, that could help loosen up a quickly tightening market.

The companies' moves to file for bankruptcy (Lehman) and obtain a $85 billion loan from the federal government (AIG) will allow them to liquidate their real estate holdings in a deliberate manner and, perhaps, garner better sale prices.

“It's going to be a question of how much they're going to be able to spread out [the sales],” said Jon Southard, principal and director of forecasting at CBRE Torto Wheaton. “They are really trying to balance taking the assets off their books with avoiding a fire sale. The risk of a fire sale in itself has been driving down commercial real estate prices prior to this.”

Weekend Roundup: Don't Panic

Panels: 'The Sky Is Not Falling' ("GlobeSt")

Panels See Opportunity Amid Upheaval ("GlobeSt")

Banks up Their Holdings in Commercial/Multifamily Mortgages ("Financial Week")

Is Student Housing Overheated? ("NREI")

Getting Inventive to Seduce Buyers ("NYT")

Multifamily Sector Draws Buyers Back to Town ("GlobeSt")

Wall St. Woes Give Rise to Talk of 'Black September' ("New York Sun")

LEED Not Profitable for Green Building Council ("CoStar")

Commercial Real Estate Needs the Bailout?

Jeffrey Deboer, president and CEO of the Real Estate Roundtable does some lobbying for the bailout plan. He writes in the Journal today:

Today, debt on office buildings, shopping malls, hotels and apartment complexes continue to perform well. The default rate for commercial mortgage-backed securities (CMBS) loans stands at just 0.47%, while commercial mortgages in life insurance company portfolios have a default rate of just .03%.

Nevertheless, the $200 billion annual CMBS market is now dead in the water. Credit to the sector from other sources has almost completely stalled.

In short, the life line of the real estate industry, and indeed, job-creating businesses across America, has been cut. For construction workers, this means delayed projects and layoffs. For property owners, and for Main Street, this means property values are at risk of a free fall. For state and local governments, it means less revenue from commercial property taxes and an even tighter budget crunch. What happened to values in the residential market could very well happen on the commercial side -- something which we can take steps to prevent.

To head off a future crisis on the commercial real-estate market side, action must go to the heart of the problem: frozen credit markets and a fear to issue debt that may be deemed less valuable shortly after it is issued.

Even though the CMBS market is dead, other credit sources, while harder to get, have not completely stalled. A real estate banker at a large bank told me last week, "we still have money and are lending - the large syndicated deals are very tough as there are few players out there. "

I don't fully understand the bailout plan. Specifically I'm just not sure how Treasury can work out these mortgages if they are buying the securities. If you can't do work out, foreclosure will continue and the real estate values will keep on falling. Traffic Court linked this article from the ULI blog. The article offers an interesting take on the bailout plan. It's a good read.

$1,000,000,000,000 Bailout

See more funny videos at Funny or Die

The Situation on The Economy

See more funny videos at Funny or Die

JP Morgan Buys Second Bank Headquarters

Pretty good real estate deals JP Morgan has done so far during the credit crunch:

Washington Mutual Inc.'s headquarters in downtown Seattle, the 42-story WaMu Center completed in 2006, was sold to JPMorgan Chase & Co. as part of its takeover of the thrift's assets.

WaMu Center may be worth about $600 a square foot, according to Tom Craig, a commercial real estate broker in Seattle. That would value the building at $777 million, based on its net 1.3 million square feet. The building houses about 5,000 employees.

Read more here.....

Related post:
383 Madison Avenue

"A Few Good Bond Traders"

"Son, we live in a world that has bonds and those bonds need to be bought by men with balance sheets. Who's gonna do it? You? You, Lieutenant Fuld?

I have a greater responsibility than you can possibly fathom. You weep for Bear Sterns and curse the short sellers; you have that luxury. You have the luxury of not knowing what I know: that Lehman's death, while tragic, probably saved firms and that my existence, while grotesque and incomprehensible to you, saves markets.

You don't want the truth because deep down in places you don't talk about at parties you want me buying bonds, you need me buying bonds. We use words like TSLF, PDLF, Super SIV. We use them as the backbone of a life trying to defend something. You use them as a punchline.

I have neither the time nor the inclination to explain myself to a man who rises and sleeps under the blanket of the very freedom I provide and then questions the manner in which I provide it. I would rather you just said "thank you," and went on your way. Otherwise, I suggest that you pick a sub-prime option arm bond and pay par.

Either way, I don't give a damn what you think you are entitled to."

Source: The Big Picture

McCain’s Economic Plan For Nation: 'Everyone Marry A Beer Heiress'

McCain�s Economic Plan For Nation: 'Everyone Marry A Beer Heiress'

NY Developers Pick Their President

Surprising, many prefer Obama over McCain:

Among the apparent lefties are Steven Roth, the Vornado Realty Trust chief executive, who, with his wife, Daryl, has given $4,600 to the Obama campaign; SL Green chairman Stephen Green, who has donated $4,600 to the Illinois senator’s campaign; Billy and Julie Macklowe, who together gave $20,000 to the Democratic White House Victory Fund; BFC’s Donald Capoccia, who in June gave $28,500 to the Democratic White House Victory Fund; and Edward Linde, CEO of Boston Properties, the landlord of the GM Building, who gave $4,600 to the Obama Victory Fund and $4,600 to Obama for America.

AIG's Real Estate Holdings

According to Bloomberg, AIG may offload some of its $16 billion in global real estate holdings, and many of its properties are trophy assets that don't come up for sale very often. Read more here.

Quote of The Day

"We are very capital-intensive and require a lot of debt to keep our businesses running," Jeff Blau, president of Related Companies.

REQUEST FOR URGENT BUSINESS RELATIONSHIP

SUBJECT: REQUEST FOR URGENT BUSINESS RELATIONSHIP

DEAR AMERICAN:

I NEED TO ASK YOU TO SUPPORT AN URGENT SECRET BUSINESS RELATIONSHIP WITH A TRANSFER OF FUNDS OF GREAT MAGNITUDE.

I AM MINISTRY OF THE TREASURY OF THE REPUBLIC OF AMERICA. MY COUNTRY HAS HAD CRISIS THAT HAS CAUSED THE NEED FOR LARGE TRANSFER OF FUNDS OF 800 BILLION DOLLARS US. IF YOU WOULD ASSIST ME IN THIS TRANSFER, IT WOULD BE MOST PROFITABLE TO YOU.

I AM WORKING WITH MR. PHIL GRAM, LOBBYIST FOR UBS, WHO WILL BE MY REPLACEMENT AS MINISTRY OF THE TREASURY IN JANUARY. AS A SENATOR, YOU MAY KNOW HIM AS THE LEADER OF THE AMERICAN BANKING DEREGULATION MOVEMENT IN THE 1990S. THIS TRANSACTIN IS 100% SAFE.

THIS IS A MATTER OF GREAT URGENCY. WE NEED A BLANK CHECK. WE NEED THE FUNDS AS QUICKLY AS POSSIBLE. WE CANNOT DIRECTLY TRANSFER THESE FUNDS IN THE NAMES OF OUR CLOSE FRIENDS BECAUSE WE ARE CONSTANTLY UNDER SURVEILLANCE. MY FAMILY LAWYER ADVISED ME THAT I SHOULD LOOK FOR A RELIABLE AND TRUSTWORTHY PERSON WHO WILL ACT AS A NEXT OF KIN SO THE FUNDS CAN BE TRANSFERRED.

PLEASE REPLY WITH ALL OF YOUR BANK ACCOUNT, IRA AND COLLEGE FUND ACCOUNT NUMBERS AND THOSE OF YOUR CHILDREN AND GRANDCHILDREN TO WALLSTREETBAILOUT@TREASURY.GOV SO THAT WE MAY TRANSFER YOUR COMMISSION FOR THIS TRANSACTION. AFTER I RECEIVE THAT INFORMATION, I WILL RESPOND WITH DETAILED INFORMATION ABOUT SAFEGUARDS THAT WILL BE USED TO PROTECT THE FUNDS.

YOURS FAITHFULLY MINISTER OF TREASURY PAULSON

Source: The Big Picture

Lehman May Delay Sale of Commercial Real Estate Portfolio

From Bloomberg:

Lehman Brothers Holdings Inc.'s bankruptcy filing may delay the sale of about $30 billion of commercial real estate assets at a time when property values are eroding, leaving less on the table for creditors.

Lehman has ``$30 billion worth of real estate, which probably isn't worth $30 billion,'' said Jeffrey Baker, executive managing director of real estate broker Savills LLC in New York. ``Going through a bankruptcy process, the assets are going to be liquidated, and they will be liquidated at market pricing.''

The End of Wall Street

The Federal Reserve Board on Sunday approved, pending a statutory five-day antitrust waiting period, the applications of Goldman Sachs and Morgan Stanley to become bank holding companies. Federal Reserve.

"Continuous-workout Mortgages.”

Yale professor Robert J. Shiller proposes the mortgages of the future:

We need to innovate, with the creation of “continuous-workout mortgages.” Such mortgage contracts, when originally signed, would specify a program for steady adjustment of the balance and payment schedule over the life of the mortgage, enabling most homeowners to continue to afford to make payments and maintain some home equity, even in harsh economic circumstances. These contracts might become the standard, with automatic adjustments based on shifts in national housing-cost indexes and futures markets (I’ve been involved in creating both), as well as economic indexes like the unemployment rate.

Commercial Property Crunch

Banking mergers and bankruptcies could be bad news for commercial real estate. Bill Rudin, CEO of Rudin Management, shares his insight here.

Mort Zuckerman

is not worried.

Feds to Bail Out Struggling Music Industry

"If the music industry collapses, the next domino would be local FM radio. Do you know the fear and panic that would be caused by having 10,000 morning drive-time DJs out roaming the streets?"Paste.

General Growth Refinances $1.75 Billion Debt

And increases recourse provision from 25% to 50%.

Related link:
Lenders Have Upper Hand

Commercial Real Estate Deals on Hold

According to PricewaterhouseCoopers's quarterly Korpacz Real Estate Investor Survey, commercial real estate deals, for the most part, are on hold due to the credit crunch and the slow economy:

Financing problems are keeping some deals stalled, but other would-be buyers just aren't willing to take a chance on properties as the country deals with increased job losses and problems on Wall Street, according to the firm's quarterly Korpacz Real Estate Investor Survey. They're questioning tenant demand in the near term for just about every type of property, from office space to retail, as workers lose their jobs and consumers tighten their purse strings.

The problem though is expected to be short-term. The bottom line:

The problems with commercial real estate stem from financing issues and immediate concerns about the economy. But unlike residential real estate, there isn't much of an inventory problem on the commercial side.

Financal Crisis Will Slow NYC Real Estate

From Bloomberg:

New York City office rents could decline by about 7 percent over the next 12 months as Lehman Brothers Holdings Inc., Merrill Lynch & Co. and American International Group Inc. reduce their space, real estate brokerage Grubb & Ellis Co. said in a statement.

Rents averaged $69.39 per square foot annually for offices in Manhattan at the end of August, according to Santa Ana, California-based Grubb. Sublease space, or space put on the market by tenants, could drive the vacancy rate to between 8.5 percent and 9 percent, from the current 5.7 percent, Grubb said in a press release.

Newsweek:

The Wall Street crisis hitting the heart of the city's financial district should slow construction of its biggest commercial real estate projects, including the World Trade Center and Atlantic Yards in Brooklyn, real estate experts said Wednesday.

"Basically, people are afraid," said Tom Geurts, a professor at New York University's Schack Institute of Real Estate. "Although a project could be profitable, they are afraid to put their money in it because they don't know what is going to happen."

Crain's New York:

As Wall Street’s financial crisis deepened, real estate insiders on Monday predicted that Manhattan’s residential market could be dealt a severe blow.

Right now, Manhattan is the most vulnerable in the city, said Mr. Miller, whose most recent quarterly report indicated sluggish pricing and a slide in the number of apartment sales. The average apartment price hit $1.7 million during the second quarter, down 3% from the first quarter of 2008. The number of sales dropped 22% to 2,282 during the quarter, compared with the year-ago period, while inventory surged 31% to 6,194 units.

Banks May Need to Sell off More Commercial Real Estate Debt

From WSJ:

The bankruptcy of Lehman Brothers Holdings Inc. is adding pressure on banks and other financial institutions to sell off their holdings of commercial real-estate debt, as they try to stay out ahead of the Wall Street firm's expected liquidation of its $30 billion portfolio.

The likely rush to sell is driving down the already battered market, forcing financial firms to take additional losses mated $150 billion worth of commercial real-estate debt on their books as the once relatively resilient pocket of the property sector now comes under heavy fire.

Lehman: "The Real Estate ATM"

The Times looks at some of the large real estate transactions Lehman did before the credit crunch started.

Leham's Headquarters

Bloomberg is reporting that Lehman's New York City headquarters tower may Be worth $1 billion:

Lehman Brothers Holdings Inc.'s New York headquarters near Times Square may be worth more than $1 billion, making it among the company's most valuable assets.

The 32-story skyscraper at 745 Seventh Ave. has about 1 million square feet of space and was bought by Lehman from Morgan Stanley in 2001 for about $700 million. The $650 a- square-foot price was a record for Manhattan at the time.

Now ``$1,000 a foot would be a conservative estimate,'' said Dan Fasulo, market research director for Real Capital Analytics, which tracks commercial real estate pricing.

Related link:
Lehman Filing Will Affect Many Real-Estate Players ("CNNMoney.com")
Real estate market girds for Lehman fallout ("Crain's")

Lehman Real Estate Fire Sale Unlikely

From CNNMoney.com:

Lehman Brothers Holding Inc.'s (LEH) $32.6 billion commercial property fund is unlikely to be off-loaded in a fire sale, according to analysts.

It is much more sensible to keep the higher-yielding properties to generate cash or sell off the fund as a whole, said Landsbanki analyst Simon J. Brown.

U.S. investment bank Lehman Brothers Monday filed for bankruptcy protection, with PricewaterhouseCoopers LLP acting as administrator.

Brown told Dow Jones Newswires that it was not logical in this market to hold a fire sale and added "Lehman also shouldn't break up the fund and sell properties bit by bit" because it will be stuck with properties it doesn't want.

Another analyst, who preferred not to be named, said the administrator is most likely to sell the whole property portfolio at a slight discount and named Goldman Sachs and Morgan Stanley as potential interested parties.

Merrill and Lehman Will Disappear

September 14, a historic and tragic day in Wall Street history:

Lehman Expected to File for Bankruptcy.
Bank of America Reaches Deal for Merrill
AIG Scrambles to Raise Cash
Fed Announces Additional Liquidity Initiatives
Banks Roll Out $70 billion Loan Program

Rebuilding the World Trade Center

Weekend Roundup

Putting lipstick on a pig. Wall Street suffered from the illusion that it could make beautiful bonds out of piles of dubious mortgages. ("Fortune")

Shiller: Financial Infrastructure Must Improve ("TheStreet.com")

Sovereign Wealth Funds Await Distress ("NREI")

Fewer foreign clients buying. Economic worries catch up with clients that condo brokers used to count on in New York. ("The Real Deal")

Condo-Minimum. Developers Turn to Auctions to Shed Units. ("WSJ")

Sublease market swelling. Hand-me-down office space can be 20% to 30% cheaper. ("Financial Week")

Morgan Stanley's Waning Crescent. ("WSJ")

Impact of Lehman Sale Indirect: Real Capital's Fasulo ("CPN")

Lehman's CRE Spin-off, Not a New Game ("GlobeSt.com")

Commercial REIT Stocks Stage Retreat. Initial Surge Gives Way to Concerns For the Long Term. ("WSJ")

Few Problems Have Emerged Yet in Retail Real Estate Finance ("Retail Traffic")

Mort Zuckerman gets last laugh. After sitting out the recent boom, Mort Zuckerman gets out his wallet ("The Real Deal")

Meet the Other Trade Center Builder Lloyd Goldman ("WSJ")

Panel: Financial Crisis Not CRE Driven ("GlobeSt.com")

Panel Finds Slowing U.S. Economy Will Continue to Effect Commercial Real Estate ("CPN")

Lending Crisis To Worsen Before It Gets Better ("GlobeSt.com")

'Hostile' Lending Environment Weighs on Investors ("New York Sun")

Transparency in Seniors Housing Still a Work in Progress ("NREI")

Apartment REITs seen at a crossroads ("Investment News")

Freddie and Fannie

Source: The Big Picture

Economists Warn Anti-Bush Merchandise Market Close To Collapse

Economists Warn Anti-Bush Merchandise Market Close To Collapse

Macklowe May Lose Former Drake Hotel Site

From Bloomberg:

New York developer Harry Macklowe may lose a building site on Manhattan's Park Avenue about a third the size of a city block after he defaulted on a $513 million loan and Deutsche Bank AG asked a court to force a sale of the property.

Macklowe, who lost control of seven Midtown skyscrapers to Deutsche Bank earlier this year, acquired the site in March 2006 when he purchased the Drake Hotel at Park and 56th Street, and adjoining lots. He leveled the hotel to build a tower that would include retail space, condominium apartments and a new hotel.

Macklowe has repaid none of the money he borrowed for the project, according to a complaint by Deutsche Bank filed in New York State Supreme Court. The lawsuit could delay the project --in a neighborhood where retailers pay among the highest rents in the world -- for years.

Residential vs. Commercial

Nice to see CR starting to come around:

Some areas of non-residential investment have been overbuilt (especially hotels and malls, and offices somewhat). But those looking for a collapse in CRE investment of the same size as the current residential investment bust are wrong.

Lehman's Real Estate Spin Off

On Wednesday Lehman reported its biggest loss in its 158-year history, and announced that it would spin off up to $30 billion in commercial real estate loans and investments into a separate publicly traded company called Real Estate Investments Global, which is expected to be launched in the beginning of 2009. Real estate clearly is the dirty word these days on Wall Street; so exactly what does the Lehman spin off say about the current commercial real estate market? According to this AP article:

"These are difficult times, there's no way to sugarcoat that," said Dan Fasulo, managing director of research firm Real Capital Analytics, which estimates that total U.S. commercial property sales were down 70 percent in July from last year's levels.

Fasulo, however, noted that the American commercial real estate market is in far better shape than the battered housing market, which has seen a tremendous surge in defaults and foreclosures.

Building developers were more cautious this decade than in earlier real estate cycles, and U.S. cities for the most part are not replete with vacant office buildings.

The main problems are with properties financed at the top of the commercial real estate market last year, Fasulo said.

With weak demand and prices falling in major cities around the world, "the only sellers out there today are sellers that have to sell," said Lawrence Longua, a commercial real estate finance expert at New York University Schack Institute of Real Estate. "Values in commercial real estate are clearly not going up."

Still, while loan defaults for hotels, retail, office buildings and the like are rising, but they are nowhere near the levels for residential properties.

Total delinquencies on commercial mortgage-backed securities rose to 0.53 percent at the end of June, up from an all-time low of 0.31 percent at the same time a year earlier, according to the Mortgage Bankers Association.

Nevertheless, the total amount of new securities backed by commercial real estate loans plummeted to $12 billion in the first half of the year from $137 billion a year earlier, the trade group said.

"There continues to be a fundamental disconnect," between the performance of those investments and investors' willingness to buy them, said Jan Sternin, senior vice president of commercial and multifamily at the mortgage bankers' group.

Too Many Malls

A decade of overbuilding.

Out of Control

In sum, investors in some of New York's largest apartment projects face hefty losses because, while most rents in these complexes remain under control, lending standards were out of control in 2006 and 2007. Barron's

Backing Out of Condo Contracts

As the Russian financier Andrei Vavilov calls the $53.5 million penthouse apartment in New York's Plaza Hotel an "attic-like space", investors in Florida are complaining about "Olympic style" swimming pools. Getting out of condo deals through legal proceedings won't be as easy as buyers hope.

Freddie, Fannie & the Feds

Watch Treasury Secretary Hank Paulson discuss the Federal government's takeover of Fannie and Freddie here.

Related link:
In Rescue, U.S. Takes Over Mortgage Finance Titans ("NYT")

Weekend Roundup

Fannie, Freddie Pump Up the Volume of Multifamily Mortgages ("CoStar")

Property Paradox: Falling Property Values May Signal Bull Market for REITs ("REIT.com")

Time for Mortgage REITS Again? ("Rightside Advisors")

Running Down The REIT Highway ("Real Estate Portfolio.com")

Survey of Seniors Shows Demand on Rise for Fitness Facilities ("CPN")

Retail, Real Estate and Dealmaking ("TheDeal.cm")

Program Streamlines LEED Certification for Multiple Properties ("NREI")

Lehman's Bet on a California Developer Yields a Lesson on Downside of a Boom ("WSJ")

Capital Raising Continues Unabated for Distressed Assets ("CoStar")

Office Optimism. Energy and healthcare markets shine brightly through the economic gloom. ("CIRE")

Time may be right to sublet office space ("Financial Week")

Condo Builders in Toronto Face Financing Squeeze ("Globeandmail")

Experience Pays. Qualified ground lease lenders can help borrowers save time and money. ("CCIM")

Foresight Analytics: Construction Lending to Slow Sharply in Second Half ("NREI")

The Lodging Market Looks Ahead. New equity could make this sector more hospitable for investors. ("CCIM")

Lodging REITs: Riders on the Storm ("Real Estate Portfolio.com")

To Make Ends Meet, More Risk Eviction To Run 'Hotels' ("New York Sun")

Looking inside the 'Subprime Solution'

Deutsche Bank Move to Foreclose On Macklowe Development Project

From WSJ:

A group of lenders led by Deutsche Bank AG filed papers in New York Supreme Court to foreclose on a $510 million loan that Macklowe Properties Inc. took out to build on the former site of the Drake Hotel on Park Avenue between 56th Street and 57th Street.

Macklowe Properties bought the Drake Hotel in 2006 for $418 million and subsequently demolished it. Mr. Macklowe sought to acquire smaller adjacent plots to create a single property to build a major office tower atop a base of high-end stores. At one point, he was in negotiations with department-store operator Nordstrom to put its first New York location there. But Mr. Macklowe ran into trouble assembling all of the smaller buildings on the block to create an uninterrupted street frontage to appeal to retailers.

Deutsche Bank syndicated the loan on the Drake to a group of creditors, keeping about $30 million to $40 million for itself, according to a person familiar with the matter. It isn't clear why the lending group decided to foreclose now. Macklowe Properties has been in default on the Drake loan since November 2007, but the lenders have in effect given him an extension as he tried to find an equity partner to share the risk and expense of the loan. At one point, he was in talks with Related Cos., a New York developer, to join the project.

Are You %$#* Kidding Me?

This is the third time in a week that I've heard someone say Sarah Palin has foreign policy experience because Alaska is right next to Russia. Is this a joke??? The whole election is turning into the Jerry Springer Show.

Beige Book

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

Commercial real estate activity moved down or remained weak in all Districts except Dallas. Boston, New York, Philadelphia, Atlanta, and Chicago reported signs of softening demand for commercial real estate, including declining leasing activity, rising vacancies, and decreasing construction. Cleveland, Richmond, St. Louis, Minneapolis, Kansas City, and San Francisco reported that commercial real estate market conditions varied across those Districts but in general were not strong. Dallas reported an increase in office leasing but at a slower pace than in the last report. Chicago and Minneapolis noted drops in demand for retail space. Dallas and San Francisco reported that public projects were buoying construction activity.

Industrial REITs

They are taking a hit along with the economy.

Construction Costs Will Keep Rising?

Last week Grubb & Ellis's chief economist said construction costs may have peaked, this week we hear from Kenneth Simonson, chief economist of the Associated General Contractors of America. According to Simonson:

I don’t think construction costs are going to go down. We may have brief retreats -- certainly when oil prices and the price of related products like diesel fuel and asphalt drop sharply. But the longer-term trend is that construction costs will rise more rapidly than consumer prices. This is a real break from the past. In 2003, there was very little inflation at either the consumer or producer level. Now, we’re in a period of very sustained development in countries like China and India and other eastern nations that are simultaneously industrializing, building infrastructure and modern high-rise housing, and getting a consumer class for the first time. All of those things create an ongoing demand for materials like steel and copper. And yet the supplies of those materials tend to expand only erratically, so you get big price spikes.

Unlike consumer electronics which tend to get smaller and lighter, in construction, you have these heavy, dense, relatively unprocessed materials that must be delivered to job sites. There’s no getting away from the transportation and fuel costs and the spikes in heavy raw materials costs.

Doctors Are The New I-Bankers

An interesting trend in the big apple:

With Wall Street reeling from a downturn in the economy, doctors are replacing bankers as the new go-to buyers for New York City real estate. Medical professionals, who have a reputation for "recession-proof" income, are snatching up pricey penthouses intended to attract hedge funders and snagging fancy office space to house their growing practices.

As the trend continues, more developers and banks are targeting doctors in the hopes of staving off the real estate slowdown.

Related link:
Condo glut builds ("Crain's New York")

The Role of Hedge Funds in Refinancing Loans Originated Before Credit Crunch

An intriguing issue to watch in the months to come will be the role of hedge funds in refinancing loans originated several years ago before the credit squeeze, noted Fred Leffel, senior vice president for Savills. “That wave of transactions hasn’t really hit yet,” Leffel said. Nevertheless, he added, “It’s coming and we’ll see more of it.” Even owners of stabilized, well-tenanted properties could find themselves in a tight spot. A borrower today might be able to find senior financing for only 60 percent of an asset’s value, compared to 70 percent a few years ago. And if that asset’s value has also slipped, the gap for the borrower to fill is that much bigger, Leffel explained. Enter hedge funds, which could step up their activity--albeit at a premium rate.

CPN.

Related post:
Hedge Funds Crank Up Commercial Real Estate Lending