Weekend Roundup

In Commercial-Property Market, Hope for Revival Takes Hit ("WSJ")

Commercial Real Estate Fundamentals Slip Sliding Away ("NREI")

Dead ("Trend Czar")

Liquidity, Liquidity, Liquidity, REITs Jump on Reviving Stock Markets To Raise Capital and Pay Down Debt ("CoStar")

Non-Traded REITs Are Designed to be Sold, Not Bought ("REIT Wrecks")

Banks Rush to Build Capital via Property ("FT")

Retail REITs see Light Beginning to Break through the Clouds ("CoStar")

Retail Real Estate Firms Jockeying for Spoils of Distress ("Retail Traffic")

Building It Big in Las Vegas ("NYT")

Terminating hotel management agreements when things don't work? Not easy, but not impossible either. ("Hotel Law Blog")

Is Your Home A Good Investment? ("WSJ")

Why Your Mortgage Won't Make You Rich ("WSJ")

Banks Continue to Lend to Commercial Real Estate

I did some more digging on the bank balance-sheet lending side, not the CMBS market as we all know the CMBS market is closed at the moment. The Treasury department just released results from its monthly bank lending survey for the month of March with data from the top 21 recipients of government investments through the Capital Purchase Program (CPP). While the survey doesn't cover all the banks, it does give a pretty good indication as these 21 banks account for over half of the loans outstanding in depository institutions. Treasury's summary analysis shows that while new loan demand for CRE is low, both renewals and new commitments increased in March:

In commercial real estate (CRE), new loan demand remains low due to the lack of new construction activity. Real estate developers are reluctant to begin new projects or purchase existing projects under current poor economic conditions, which include a rising supply of office space, as firms downsize and vacancies rise. Finally, nearly all respondents indicated that they actively reduced their exposure to CRE loans, as banks expect CRE loan delinquencies to increase over the coming year.

Both renewals of existing accounts and new commitments in CRE increased from February to March. The median change in renewals of existing accounts was an increase of 26 percent, and the median change in new commitments was an increase of 11 percent. Institutions reported that shorter term CRE renewals equated to more frequent renewals, which may have contributed to inflated activity in March. As in the C&I market, the increase in renewals was partially due to the lack of liquidity in the commercial mortgage backed securities (CMBS) market. The liquidity forced borrowers to utilize short term bank financing. The rally witnessed in the markets during March also contributed to an increase in CRE commitments.

Total CRE loan renewals from the 21 banks was $14.4 billion and total CRE new commitments was $6.5 billion for the month of March. The largest two lenders for CRE continued to be BofA and Wells Fargo.

Related links:
Treasury Releases March Monthly Bank Lending Survey
TREASURY MONTHLY LENDING AND INTERMEDIATION SNAPSHOT

Access to Commercial Credit is Not Frozen

This morning at a Congressional Oversight Panel Hearing, “The Impact of Economic Recovery Efforts on Corporate and Commercial Real Estate Lending” in New York, Congresswoman Carolyn Maloney said that anecdotal evidence shows "access to commercial credit is absolutely frozen." Comments like this drive me up the wall. Not only is the statement extremely general, but it is also absolutely not true. The only commercial credit market that is frozen right now is the commercial mortgage-backed securities (CMBS) market, which represents about 25% of the entire commercial real estate debt market, according to research analyst Richard Parkus at Deutsche Bank:

Banks and thrifts account for 50 percent and insurance companies comprise the remaining 25 percent of the lending, Parkus said.

So are the banks lending? Surprise, they are:

Bank lending for commercial projects in the first half of 2009 is on track to hit about $25 billion, according to Matt Anderson at research firm Foresight Analytics in Oakland, Calif.

By way of comparison, commercial loan origination was at pace of $33 billion a quarter at the peak of the market.

Yes, at $25 billion for the first half of 2009, bank lending for commercial real estate is low compared to the peak year. But we are not at the peak of the market, are we? And, according to the New York Fed, demand for commercial real estate loans is at a all-time low:

The same cannot be said for loan demand. The SLOOS reports that the net fraction of loan officers reporting weaker demand in April 2009 was 60% for C&I and 66% for CRE loans, a historical low for CRE demand. Weak demand bears emphasis, as it indicates that the observed slowdown in overall credit is partly due to firms’ reluctance to borrow, and not entirely to banks reluctance to lend.

One of those days, maybe people will realize that the CMBS market doesn't represent the entire commercial real estate debt market. I'm not counting on that though. You can review all the COP hearing testimonies here.

Chart of the Day

I would think real effective rents are even lower these days if you factor in all the free rent landlords are offering. This is a great time to relocate to the big apple!

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Sam Zell Talks About Real Estate & Economy with Bloomberg

Luxury Hotel Owners and Operators Fighting it Out

In open court. Interesting times.

Weekend Roundup

Industry Indices: Continued Decline and Some Hope ("GlobeSt.com")

Market Overview – United States First Quarter 2009 ("IREI")

Despite Economy, CRE Portfolios Performing Adequately for Banks ("CoStar")

Yes, You Can Buy Real Estate ("Forbes")

At REITs, a Debate on Debt ("WSJ")

No New Lease on Trillions in Debt ("NYPost")

Commercial Mortgage Bonds Rally on Fed’s Legacy Assets Plan ("Bloomberg")

TALF’s Expansion Fueling CMBS Restart? ("GlobeSt.com")

Charting Too Big to Fail ("Zero Hedge")

Recession Turns Malls Into Ghost Towns ("WSJ")

At $2.3 Billion, This Mall Could Be Too Big to Fail ("NYT")

"Dow Jones"

"Dow Jones" starring Common from Common

CNBC: Commercial Real Estate Concern Overblown?

CNBC's so-called reporting is laughable most of the time. So, you be the judge.

ICSC Roundup

Not in Las Vegas? No problem. You can read about ICSC here:

ICSC RECon 2009: An Insider's View ("CoStar")

Viva Las Vegas and ICSC ("Trend Czar")

RECon Report: What Is Going On??? ("Counter Culture")

Charting a Path for a Retail Real Estate Recovery ("TrafficCourt")

Panel: Urban Retail Sees Unique Challenges ("GlobeSt.com")

Good Buy or Bad Buy? Look No Further Than Rent Rolls, Says Kimco Executive ("NREI")

Clearing the Hurdle ("GlobeSt.com")

Welcome Green Shoots for Beleaguered Retail Industry ("NREI")

Video of The Day

I happen to be a Jeff Macke fan. I know what he was trying to say, I think.


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Sam Zell Says Housing Market to Stabilize This Summer

That's what he just said at ICSC. But didn't Sam Zell a year ago predicted a spring 2008 recovery for the housing market and that US would not go into a recession? Hmmm...

From Reuters:

The U.S. housing market that has badly deteriorated in the past three years will stabilize this summer and the United States will be the first economy to rebound, Real Estate mogul Sam Zell said on Monday.

"Housing market stability will appear sometime this summer," Zell said, speaking before more than 2,000 people attending a luncheon at the International Council of Shopping Centers' annual convention in Las Vegas. "I can't tell you if it's June 29 or August 1."

Fed Expanding Lending Progam for Existing CMBS

From FRB:

The Federal Reserve Board on Tuesday announced that, starting in July, certain high-quality commercial mortgage-backed securities issued before January 1, 2009 (legacy CMBS) will become eligible collateral under the Term Asset-Backed Securities Loan Facility (TALF).

The TALF is designed to increase credit availability and support economic activity in part by facilitating renewed issuance of consumer and business asset-backed securities (ABS) and CMBS. The Board authorized the TALF on November 24, 2008, under section 13(3) of the Federal Reserve Act. Under the TALF, the Federal Reserve Bank of New York (FRBNY) has extended loans secured by triple-A-rated newly issued ABS backed by certain consumer and business loans and leases. On May 1, 2009, the Board announced it would expand the range of acceptable TALF collateral to include newly issued CMBS starting with the June subscription.

On March 23, 2009, the Federal Reserve announced that it would evaluate extending the list of eligible collateral for TALF loans to include certain legacy securities. The objective of the expansion is to restart the market for legacy securities and, by doing so, stimulate the extension of new credit by helping to ease balance sheet pressures on banks and other financial institutions. Tuesday’s announcement marks the first addition of a legacy asset class to the list of eligible TALF collateral.

The CMBS market, which has financed approximately 20 percent of outstanding commercial mortgages, including mortgages on offices and multi-family residential, retail and industrial properties, came to a standstill in mid-2008. The extension of eligible TALF collateral to include legacy CMBS is intended to promote price discovery and liquidity for legacy CMBS. The resulting improvement in legacy CMBS markets should facilitate the issuance of newly issued CMBS, thereby helping borrowers finance new purchases of commercial properties or refinance existing commercial mortgages on better terms.

To be eligible as collateral for TALF loans, legacy CMBS must be senior in payment priority to all other interests in the underlying pool of commercial mortgages and, as detailed in the attached term sheet, meet certain other criteria designed to protect the Federal Reserve and the Treasury from credit risk. The FRBNY will review and reject as collateral any CMBS that does not meet the published terms or otherwise poses unacceptable risk.

Eligible newly issued and legacy CMBS must have at least two triple-A ratings from DBRS, Fitch Ratings, Moody’s Investors Service, Realpoint, or Standard Poor’s and must not have a rating below triple-A from any of these rating agencies. More broadly, the Federal Reserve is formalizing procedures for determining the set of rating agencies whose ratings will be accepted for various types of eligible collateral in the Federal Reserve’s credit programs.

The initial subscription date for TALF loans collateralized by newly issued CMBS will be June 16, 2009. The subsequent subscription dates for TALF loans collateralized by newly issued and legacy CMBS will be announced in advance. The subscription date for loans collateralized by all other ABS will remain toward the beginning of the month.

A new term sheet and a frequently-asked-questions document, specific to legacy CMBS, are attached. Also attached are a revised term sheet and frequently-asked-questions document for newly issued asset-backed securities and CMBS.

WSJ: Local Banks Face Big Losses From CRE

The Journal did an analysis on more than 900 small to midsize local banks based on Federal Reserve's stress tests for the 19 biggest banks. The findings should not be a big surprise:

Commercial real-estate loans could generate losses of $100 billion by the end of next year at more than 900 small and midsize U.S. banks if the economy's woes deepen, according to an analysis by The Wall Street Journal.

Such loans, which fund the construction of shopping malls, office buildings, apartment complexes and hotels, could account for nearly half the losses at the banks analyzed by the Journal, consuming capital that is an essential cushion against bad loans.

There's been a lot of chatters lately about how commercial real estate is the next shoe to drop and that the losses from commercial real estate loans would have a big impact on regional and local banks. If that is the case, I'm just not sure why we are letting the big banks off the hook. The large banks such as JP Morgan, Wells Fargo and BofA are the biggest lenders for commercial construction projects, and the loans they've made are far more riskier than those from the smaller local and regional banks. If the worst is yet to come for commercial real estate, why are the stocks for the big banks rallying? The 10% move for BofA today makes no sense to me.

Weekend Roundup

Commercial Real Estate Still Frozen ("P&I")

International Council of Shopping Centers conference in Las Vegas seeing fewer attendees this year ("Cleveland.com")

Vulture buyers to circle US shopping center confab ("Reuters")

My Personal Credit Crisis ("NYT")

TALF Program Expansion No Panacea for Commercial Real Estate ("NREI")

What the Bank 'Stress Tests' Tell Us About Commercial Real Estate ("CoStar")

Whitehall Cash Call Adds Insult to Losses ("WSJ")

What Tenants Should Know About Green Leases ("NREI")

Troubled hotel loans in CMBS - working with special servicers ("Hotel Law Blog")

Real Estate Ripple Effect

Times Wire

Just like the Article Skimmer, Times Wire is pretty cool. Its a stream of articles and blog posts from NYT.com in reverse chronological order.

Google Search Says Commercial Real Estate is the Next Shoe to Drop

That's according to Clusterstock's own research. I wonder if Google would start to rate commercial mortgage backed securities. Bet they can do a better job than Moody's or S&P.

Leaving philosophy aside for a moment, we wondered what other shoes people are seeing out there. So we did some very unscientific polling of the internet. Basically, we Googled the phrase "shoe to drop" along with various other calamaties to see which ones are the most popular. Our results.

"Shoe to drop" + "Commercial real estate" -- 48,000 hits

"shoe to drop" + "credit cards" -- 26,100 hits

"Shoe to drop" + "deficit spending" -- 908 hits

"Shoe to drop" + "municipal defaults" -- 30 hits

"Shoe to drop" + "Trade war" -- 402 hits

GGP Bankruptcy Watch: Judge Approves Use of Cash Collateral

From Bloomberg:

General Growth Properties Inc., which filed the biggest real-estate bankruptcy in U.S. history, won court approval of a $400 million loan from a group led by Farallon Capital Management LLC and the right to use cash on hand to fund its operations.

The company received approval to use the so-called cash collateral and borrow on the loan over objections from lenders on some properties. The lenders had argued many of General Growth’s malls shouldn’t be in bankruptcy at all and the parent company shouldn’t have access to those properties’ cash flow.

U.S. Bankruptcy Judge Allan Gropper overruled the objections, saying the lenders’ rights were protected and General Growth should have access to cash collected at its subsidiaries.

Goldman and Whitehall

The Journal looks into some of the potential conflicts of interest involving Goldman Sachs and its Whitehall family of real-estate funds. For several of the large investments the funds made, Goldman is both the investor and the lender.

With commercial real-estate values plunging, investors and their advisers have begun focusing on the conflicts. They say that Goldman is able to use its position as investor, lender and fee-collector to benefit itself at the expense of outsiders.

This is not the first time that a company is both the lender and the investor in real-estate private equity. It's just that when the market is booming and the returns are strong, nobody focuses on the potential conflicts of interest. One other issue is the poor risk management on Goldman's part. When/if the investments go sour, Goldman stands to lose more with its debt and equity positions.

Quote of The Day

"Condo-hotels were really a financing gimmick in the boom era because it was a way that developers could finance a hotel that would otherwise not get built," Jeff Davis, senior vice president at Jones Lang LaSalle Hotels. "I don't think we're going to see any more condo-hotels."

Related post:
Condo Hotel = Pets.com

MIT 1Q'09 Transactions-Based Index (TBI)

MIT's first quarter TBI results are out. Looks like a 5.8% decline in prices compared to the previous quarter for the properties sold in the NCREIF database. While the demand-side index fell by 11.9%, the supply side of the market increased its reservation prices by 0.8% 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.

CNBC: Commercial Property Crisis

Weekend Roundup

Banks Won Concessions on Tests ("WSJ")

Inside the Fall of Bear Stearns ("WSJ")

Waiting for CNBC ("CJR")

CMBS Market at Risk of Widespread Default, But Talf Change May Ease Burden ("CPN")

Trouble With TALF? ("GlobeSt.com")

Real Estate Senior Financial Execs Expect Values to Decline in 2009 ("NREI")

The Outlook for Private Equity: First Quarter 2009 ("IREI")

REITs Seize a Chance to Deleverage, at Discounted Prices ("WSJ")

Brokerage Industry Hard Hit by Losses ("CoStar")

Hotel Experts to Borrowers: ‘Help Lenders Help You’ ("GlobeSt.com")

Hotels Hit Pause on Pricey Renovations ("NYT")

Move by General Growth Rattles Malls' Investors ("WSJ")

“Don’t Put it Here!” Do Subsidized Housing Developments Cause Nearby Property Values to Decline? ("NHC")

Finance Blogger High School

Who’s Who of Financial Bloggers


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Federal Realty CEO on CNBC

I don't care for CNBC, also not a fan of Jim Cramer, but Federal Realty's Donald Wood offers some good insights on the retail sector. BTW, Federal Realty is not really a mall owner(as so claimed by Jim Cramer). As far as I know, they own mostly grocer-anchored neighborhood and community centers. FRT is no GGP.

Playing the Commercial Real-Estate Meltdown

GGP Bankruptcy Watch: CMBS Implications

A judge on the GGP bankruptcy case is expected to rule tomorrow on whether SPEs that hold the mortgage securities are indeed bankruptcy remote:

A key hearing Friday in mall operator General Growth Properties Inc.'s (GGP) bankruptcy case could prove vital to the future of the nearly $1 trillion commercial-mortgage securities market.

A bankruptcy judge is expected to rule on whether special-purpose entities that hold commercial mortgage bonds are indeed separate from the parent company and therefore bankruptcy remote as they are set up to be.

Pools of mortgage collateral that back commercial bonds are cocooned in these special-purpose entities as a way to protect and ensure steady cash flow to investors even when the parent company files for bankruptcy.

Whether that segregation will hold up in a court will be tested at the Friday hearing. General Growth has included 158 of the individual malls it operates in its bankruptcy filing, and also received interim court approval to use the cash generated from the malls owned by these entities to pay for its operations.

CMBS: The Looming Time Bomb

Information Arbitrage makes an excellent point about the legal implications in the CMBS market:

The General Growth Properties bankruptcy will be our first mega-scale test of whether these Special Purpose Entity (SPE) structures hold up. This is a clear indictment of the way these vehicles were established, and the blame lies squarely at the feet of the structurers (convoluted and conflicted, no?), the rating agencies (AAA-rated super senior? Really?) and the investors (were these documents ever read?). When all is said and done, the rule of law will show us the way. But if the courts determine that the legal underpinnings of the CMBS market were somehow flawed and that the contractual terms between the junior and senior creditors are abrogated, then what is an already complex and fractured market will only get worse with a seemingly endless stream of litigation and confusion.

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Weekend Roundup

How Lehman Got Its Real Estate Fix ("NYT")

Fed Hopes 5-Year TALF Loans Will Help Real-Estate Market ("WSJ")

Troubled commercial mortgages spiked in Q1 - Fitch ("Reuters")

Demystifying Defeasance ("CIRE")

Distressed Deals Losing Luster ("NREI")

Do It Right: The ABCs of Due Diligence for Distressed Properties ("CIRE")

When (and How) Will the Recession End? ("MIT")

Real Estate Outlook: the Good, Bad, Ugly ("The Ground Floor")

Massive REIT Stock Offerings May Signal Future Deals ("Retail Traffic")

Twitter & Real Estate ("From the Inside")

Net Lease Opportunities Are on the Horizon ("GlobeSt.com")

New York Office Landlords Go Small ("NYT")

Major U.S. Retailers Face Net Store Loss After Closing More Stores Than They Opened in 2008 ("CoStar")

Retail's New Reality ("CIRE")

Half of Upscale Hotels Face Debt Shortfalls by Year-End ("CoStar")

Hotel Lawyers: Swine Flu's legal implications ("Hotel Law Blog")

Asia Pacific Real Estate Investment Update ("IREI")

Financing Deal of The Week

Terms of the $215 million construction loan that Boston Properties just obtained on the mixed-use project Russia Wharf in Boston provide some insights to the current credit market for development projects:

The loan is roughly 40% of the total estimated $550 million cost of the office, retail and residential project overlooking Boston Harbor, falling short of Boston Properties' earlier expectations.

The five-year loan carries a floating interest rate equal to the London interbank offered rate plus 3% annually..........The loan also carries an onerous "recourse" provision, meaning the company is on the hook for repayment if the development can't generate sufficient proceeds to service the debt.

Landmines In Commercial Real Estate

Here is an excerpt of a Bloomberg interview with Barry Sternlicht, CEO of Starwood Capital.