The Looming Commercial Real Estate Crisis

There is nothing new in the article, but it's not everyday you come across a piece on commercial real estate at McClatchy. Is this just simply CRE lobbying groups working hard before the bank stress test results?

Two years after fissures in the residential housing market gave way to a national collapse of home prices and sales, experts warn that the commercial real-estate market is the next shoe to drop, bringing more woes to the battered economy.

Thousands of commercial mortgages valued at hundreds of billions of dollars are approaching their renewal dates, and by some estimates, two out of three no longer will meet the original loan conditions and won't be able to refinance. With prices for commercial properties expected to plunge, a vicious cycle could unfold, much as it has in the nation's housing market.

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Ken Lewis Ousted as Chairman

From Bloomberg:

Bank of America Corp., the biggest U.S. bank by assets, stripped the title of chairman from Chief Executive Officer Kenneth Lewis after investors rebelled against management’s handling of the Merrill Lynch & Co. takeover.

Walter E. Massey, 71, the president-emeritus of Morehouse College in Atlanta, was named chairman, while Lewis will be president and CEO, the bank said in a statement, expressing “unanimous support” for Lewis to continue. A shareholder resolution to split the jobs of CEO and chairman was approved at today’s annual meeting in Charlotte, North Carolina, where Bank of America is based. All 18 directors were re-elected by “comfortable margins,” the bank said.

Sam Zell Speaks at Milken Institute Global Conference

CalPERS Will Vote Against BofA Board

You probably already know my opinion of BofA CEO Ken Lewis. Looks like Lewis is losing CalPERS support:

Bank of America Corp. Chief Executive Officer Kenneth Lewis lost the support of the largest U.S. pension fund as an analyst said the bank needs as much as $70 billion of capital.

The California Public Employees’ Retirement System said it will vote against Lewis and all 18 directors at the annual meeting tomorrow in the bank’s hometown of Charlotte, North Carolina. The lender needs $60 billion to $70 billion, according to Friedman, Billings, Ramsey Group Inc. analyst Paul Miller, who cited stress tests performed by his firm.

NYT's Geithner Profile

Worth a read!

Weekend Roundup

If the Cap Rate Doesn't Fit, Bank Investors Will Have to Wear It Anyway ("WSJ")

Auctions for Troubled Loans Jump to the Web ("NYT")

Fitch: U.S. CMBS and CDO Delinquencies Continue Climb ("NREI")

RCA: Q1 Adds $23B to Distressed Asset Total ("GlobeSt.com")

Commercial-Mortgage Crunch May Reach $1 Trillion ("Bloomberg")

Shakeout Nears for Real Estate Firms ("NYT")

Fed’s Bear Losses Dominated by Commercial Real Estate ("Bloomberg")

Commercial Property Loses Four Years of Gains ("WSJ")

Investors concerned about debt in non-listed real estate funds ("properyfundsworld")

Retail Space Availability Reaches All-Time High ("CoStar")

Retail Brokerage Firms Look Beyond Sales and Leasing to Survive the Downturn ("Retail Traffic")

Industry Questions Whether GGP Can Avoid Asset Sales ("Retail Traffic")

Opus South Files Bankruptcy

I must admit, this caught me by surprise:

Florida’s condominium market has hit a local developer with Minnesota roots so hard, a Chapter 11 bankruptcy filing will eventually result in Opus South Corp.’s departure from Tampa and Atlanta.

“We are going to keep our offices open while we work through the Chapter 11, but our plans are to exit the market completely,” said Winston Hewett, a spokeswoman for Opus Corp., the parent group of five independent development companies including Opus South.

The filing, made in Delaware’s U.S. Bankruptcy Court, affects Opus South of Atlanta and some of its subsidiaries, but not the parent company itself, Hewett said. Primarily a retail developer, Opus South made a move into condominiums during the recent housing boom that included 400 Beach Drive in downtown St. Petersburg and the 25-story Water’s Edge in Clearwater.

Pimco's McCullery: The commercial securitization market is broken

True, but call me a cynic, Pimco stands to gain big time once/if all the proposed Fed bailout proposals for commercial real estate materialize.

Mark-to-Market, Country Style

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Video of The Day

This is so awesome and inspiring, I had to post it.


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New Yorkers in "short-term hate" Phase with Real Estate

They don't even want to say the words.

Back on Twitter

Ok, so I made fun of Twitter last week, I also thought Twitter had jumped the shark when I saw all the politicians and celebrities start to tweet. See as an early user, I relied on Twitter to stay in touch with friends. This past few months though, Twitter seemed to have exploded and became completely mainstream, so I stopped using it (I'm a snob, I know.). But this post from Mashable caught my eye yesterday and made me want to re-consider:

Being a Twitter user used to identify you as something not quite quantifiable - an early adopter, perhaps, someone passionate about the web and new technologies. It was the street where everybody knows their neighbors. It was the bar on Cheers, with Kevin Rose playing “Norm!”. It hasn’t been that way for a long time, of course - years, in fact - but just like the parent that laments “they grow up so fast!”, this week has been one in which those early users must learn to let go.

So here is me getting back on Twitter, learning to let go and say “Great job, Twttr, I always knew you’d make it.”

CBRE: "The Outlook for the Capital Markets"

Weekend Roundup

North America March Property Market Report ("IREI")

RE Valuation Remains Missing Link ("CPN")

Institutional Investors Pay More for Energy-Efficient Buildings, Study Finds ("CoStar")

The Good, the Bad and the Government ("GlobeSt.com")

CBRE: Property Values Down 20 Percent Since 4Q07 ("CPN")

For Architects, Less May Have to Be More ("NYT")

Opportunity abounds in battered REIT market ("Forbes")

Landlords Offer Major Perks in Uncertain Market ("CoStar")

Dynamic Duo? Apartments, Industrial Gain Favored Status ("NREI")

Retail’s ‘Perfect Storm’ Blows In Some Good ("GlobeSt.com")

CMBS Shutdown May Have Sealed General Growth's Fate ("CPN")

Bloomberg In-Depth Look - Commercial Real Estate

GGP's COO on CNBC

Tom Nolan believes credit is still the main issue.

Beige Book: CRE Conditions Continued to Deteriorate

From the Beige Book:

Nonresidential real estate conditions continued to deteriorate over the past six weeks. Demand for office, industrial and retail space continued to fall, and there were reports of increases in sublease space. Rental concessions were rising. Property values moved lower as reality “set in.” Construction activity continues to slow, and several Districts noted increased postponement of both private and public projects. Nonresidential construction is expected to decline through year-end, although there were some hopeful reports that the stimulus package may lead to some improvement.

Commercial real estate investment activity weakened further. Contacts said a decline in credit availability and markdowns on commercial property were keeping buyers and sellers on the sidelines.

Trump Is Buying Commercial Real Estate

60 Minutes: The King of Las Vegas

Charlie Rose interviews Steve Wynn.

Watch CBS Videos Online

REIT Mergers Coming

That's good. We definitely have way too may REITs. From WSJ:

The economic crisis has created a survival-of-the-fittest environment for U.S. real-estate investment trusts.

With many REITs trading at distressed levels amid a continuing credit crunch, experts say the stage is being set for merger and acquisition plays with stronger companies taking over weaker rivals.

Flutter: The New Twitter

For those of you who tweet, I know you do.

Weekend Roundup

E&Y Ranks Top 10 Business Risks for Commercial Real Estate ("NREI")

Strapped REITs Get Creative ("WSJ")

Downturn to Cull Weaker REITs from the Herd ("NREI")

Dropping bricks ("Economist")

Landlords See a Jump in Vacancy Rates Even as Rents Drop ("WSJ")

Empire State Building Plans Environmental Retrofit ("NYT")

Malls shedding stores at record pace ("CNN")

Washington Hotels Welcome the Attention ("NYT")

Buying Distressed Debt

Happy Easter!

Amazing Holy Week photos from The Big Picture.

What Will Be Different When This Is Over

If you missed Steven Roth's annual letter to investors, you can read it here. The Vornado CEO looks ahead:

The severity of this economic crisis will affect behavior for a very long time.

Government regulation and the rule of markets will force a lower leverage, lower risk business model. Real estate businesses such as ours will require a larger equity base. The corollary of this is that capital “haves” will be advantaged.

Rebuilding balance sheets by both consumers and businesses is the order of the day. The savings rate will go from minus 2% to perhaps as high as 5-7-10%. This may reduce consumption somewhat, but will generate, say, a trillion dollars per year of incremental capital into the system, a very good thing.

No new supply of any form of real estate can or will be built for the forseeable future. This will inevitably produce, after the recession’s end, equilibrium in occupancies to be followed by increases in rents. The business cycle lives.

Quote of The Day

"Opportunistic fund managers are having to downsize, delay or, in some cases, withdraw product offerings, as investors seem to be keeping their 'powder dry' to support their existing fund investments with equity if it's needed. With debt capital markets still in flux and cash flow from properties under pressure due to the difficult economic environment, everybody appears to be in wait-and-see mode. These conditions might persist until 2008 year-end mark-to-market valuations filter through portfolio balance sheets, liquidity needs are assessed, and the markets are perceived to have adjusted to the new reality." Tommy Brown, Clerestory Capital Partners.

2008 Record Year for Tall Buildings

Some very interesting finds from a recent study by the Council on Tall Buildings and Urban Habitat (CTBUH):

Although 2008 brought a financial crisis that stretched unemployment rolls and slowed production lines across the globe, it was a superlative year for skyscrapers. According to a recent study by the Council on Tall Buildings and Urban Habitat (CTBUH), more tall buildings—and taller ones—were completed in 2008 than ever before. The council expects 2009 to be another record year.

The study also found that, beyond rising heights, current and future trends in tall building include a material shift from steel to concrete, a programmatic shift from office to mixed-use and residential, and a geographic shift from North America to Asia and the Middle East.

The study predicts that we will start to see a dip in the completion of supertall towers in 2011, with the average height of the ten tallest skyscrapers finished in the following few years dropping by as much as 300 feet. “But as the world comes out of the recession,” says Oldfield, “figures suggest that height will again start to break records.”

Tishman Speyer Got Permission to Appeal

From NYT:

The landlord of Stuyvesant Town and Peter Cooper Village got judicial permission on Monday to appeal a court ruling that it must repay certain tenants millions of dollars in rent overcharges at those complexes.

The issue will now go to the state’s highest court, the Court of Appeals.

Related posts:
Court Gave Tishman Speyer a Stay
Big Stuy Town Ruling
Proposed NY Rent Control Law Change Poses Risk for Apartment Deals
The World's Biggest Real Estate Deal

S&P Says US CMBS 'Highly Susceptible' To Downgrades

According to this article in the Journal, "Standard & Poor's Ratings Services said much of its ratings on commercial mortgage-back securities "may no longer be appropriate" in light of new estimates on defaults and loan losses.". I guess my question is were these ratings ever appropriate?

Flowriders in Malls

I don't know, not sure if wave-making machines will make me want to visit malls more often. Now, if they are as glitzy as the shopping centers in U.A.E., maybe.

Some Silver Linings for DC

First of all, the residential market has held up relatively well. According to this, within the District, while sales volume slid 30 percent in 2008, the median home price rose 8 percent, to $520,000, from $480,000. Case in point, one of my friends bought a small two-bedroom row house in 2003 for around $370,000, the house was just appraised for $580,000. She re-financed.

And, who says there is no lending for commercial real estate? A project I was very close to just got re-financed. $101 million dollar deal. No small potato. The Germans still love the DC office market.

Lastly, Duke Realty just kicked off its $1 Billion, 1.7 million-square-foot office project for the Defense Department in Alexandria, a close-in suburb of Washington, D.C.

So it appears DC will be the last to fall, and first to recover.

Another Reason to Blog

Commoner Captures Princess, Blog Version.

Times Square-Themed Store To Open in Disney World