Huffington Post is Scaring Me

This is the headline from Huffington Post. Guess how I felt when I saw it. Do they know something I don't?


Related link:
Commercial Real Estate Lurks as Next Potential Mortgage Crisis ("WSJ")

Shout Out to Fellow CRE Bloggers

While I haven't been able to post as often as I would like to this summer, I have started reading a few new commercial real estate blogs. Well, some of the bloggers have been blogging longer than I have, I just didn't know they were out there. Sorry. It's good to see that there are more and more CRE blogs in the business blogosphere. Here you go:

Shopping Center Digest Blog: Murray Shor reports and writes on the retail industry.
On The Road with Steve Felix: Steve writes about the institutional real estate world and other fun stuff like the Jonas Brothers.
Multifamily Investor: NYC multifamily broker Neil Gronowetter writes about NYC multifamily and national deals.
Real Property Alpha: John Reeder is on a roll. He's doing a series of real estate Twitter user profiles/interviews. Looks like there are far more CRE Twitterers than Bloggers.
Commercial (& Residential) Real Estate Economics: Written by Steve, a retired commercial debt & equity analyst. You should post more often!
StreetWise: Robert Knakal's observation on NYC's investment market.
MaggiacomoBlog: President and CEO of
Sperry Van Ness, Kevin Maggiacomo's personal blog. Not sure why, but sometimes the page load is very slow. Probably should fix that. :)
Net Lease Insider, Net Lease Nation, Insider 1031: Three blogs about net lease properties and starker 1031 exchanges, things that I know very little about.

Other blogs somewhat related to CRE:
The Infrastructurist: America Under Construction. Edited by Jebediah Reed, who used to be a senior editor at Radar magazine.
Making Places: The PPS blog about all things public space. I have met PPS President Fred Kent. He's been involved in many amazing mixed-used projects around the world.

If I forgot to include you, shoot me an email or leave a comment. I'll be glad to link you.

Related post:
Seeking Commercial Real Estate Blogs

Bloomberg: Inside Look - Commercial Real Estate's Impeding Doom

Harrison LeFrak of LeFrak Organization: Commercial Real Estate is in a Slow-Motion Car Crash; No Green Shoots Ahead. I don't think he has said anything new in this piece.

Bloomberg: Sector Focus - REITs

Weekend Roundup

Experts: Cleansing Period Ahead, Bottom Near ("GlobeSt.com")

Real Estate Roundtable: CRE Challenges Far from Over ("CoStar")

REITs Are Poised to Pick Up the Pieces ("WSJ")

Economic Challenges Cause Shift in Staffing Focus for Many REITs ("REIT.com")

Investors Facing Fallout from Values, Ratios Knocked 'Out of Whack' ("CoStar")

Inland Real Estate Is The Largest Buyer of US Commercial Real Estate So Far This Year("NYT")

Capital Markets Showing Some Signs of Life ("CPN")

1,060 Delinquent CMBS Loans Have Seen Big Drops in Collateral Value ("crenews")

Distressed Real Estate Reaches $114B ("GlobesSt.com)

Market Doldrums Force Brokers to Hone Their Skills ("NREI")

US investors absent from European property market, says CBRE ("propertyfundsworld")

Chinese commercial property transactions soar as it outperforms UK and US ("Property Wire")

The House of Your Dreams ("NYT")

Retail Cap Rates Shoot ‘Through the Roof’ as Fundamentals Slide ("NREI")

The Fine Points of Finance That Are Driving This Industry ("Shopping Center Digest Blog")

Moving in on Distressed Hotel Market, $1.5B Fund Makes First Play ("CPN")

Hotel Receivers Face Long Stay -- and Rich Rewards ("WSJ")

Washington Hotels Defy U.S. Travel Slump on Government Bailouts ("Bloomberg")

For Spec Industrial Projects, Green is Key ("CPN")

Bloomberg: Rise Of Vacancies And Fall Of Rents

Bedbug City

This long story in the Times made my skin crawl. I have heard of problems with rats, cockroaches and mold in condo, co-op and apartment buildings, but I had no idea that there is a bedbug epidemic in New York City. And did you know that the law requires co-op and condo sellers to disclose a bedbug problem if asked?

According to the law, sellers and their brokers must acknowledge a problem if asked. But conflicts of interest aside, neither can be expected to know whether an infestation exists elsewhere in the building.

The problem is so pervasive that some lawyers have begun incorporating sellers’ representations about bedbugs into sales contracts, adding to now-standard ones about leaks, mold and noise issues. And buyers are having to determine if the pests are a deal-breaker or just one more headache on the road to a new home.

(via)

Quote of The Day

Q. Are we near the bottom?

A. No, we still have a lot of empty houses in America right now.

Square Feet's 30 minute interivew with Richard S. LeFrak, President and CEO of the LeFrak Organization

Bloomberg: Inside Look - Pressure in Commercial Real Estate

Here is a Bloomberg roundtable discussion with Sam Chandan of Real Estate Econometrics, Robert Sammons of Colliers ABR, and Lawrence Yun of National Association of Realtors.

Calpers Walk Away

From WSJ:

The California Public Employees' Retirement System has given up control of its stake in a trophy office tower in Portland, Ore., a sign that even the largest institutional investors are cutting their losses rather than throwing good money after some badly battered real-estate assets.

The decision by Calpers, the country's largest public pension fund by assets, to walk from its investment in the Koin Center, one of Oregon's tallest buildings at about 509 feet, nicknamed the "mechanical pencil" for its signature shape, also shows that leasing problems are cropping up in even the country's healthier markets. While it is on the rise, downtown Portland's Class A office vacancy rate was 6.1% as of June 30, below the average of 12.9% for major U.S. downtown markets, according to Colliers International.

Commercial Real Estate Needs Better Reporting

This is mind-boggling. A recent survey by Resolve Technology revealed some serious challenges the industry faces when comes to reporting:

Based on responses from over 70 industry representatives, an overwhelming majority of real estate investment managers still relies on print and static electronic formats that provide decision makers with little or no analytical capabilities.

In addition, data collection and reporting processes are heavily manual, resulting in major challenges related to the time and effort involved in creating reports as well as ensuring data accuracy, consistency, and completeness.

I know my good friends in asset management are always writing monthly and quarterly reports. But an overwhelming majority investment managers still rely on print and static electronic formats? That's disappointing, especially in today's environment, when owners and investors are putting more and more emphasis on managing assets in order to maximize returns and minimize risks.

While the survey result is alarming, I can't help but think there are opportunities here. We should be able to do better. Let's crowdsource this. Leave a comment if you have any good ideas and suggestions.

Related link:
Real Estate Investment Managers Are Challenged to Make Timely and Informed Decisions Due to Antiquated Reporting – Resolve Survey Shows

Private "Sky" Garages

This is a very cool idea. A little extreme for my taste. A developer in new york for a high-rise residential building is offering private garages attached to the apartment units:

The new residential building, designed by Selldorf Architects, takes the privacy and parking ease of a gated community from the burbs to the "urbs" and turns it on end. Called 200 Eleventh Avenue, it is said to be the first high-rise in the U.S. to provide individual parking "rooms," one outside each of the tower's duplexes.

(via)

The Biggest Buying Bonanza of Troubled Real Estate Assets

I started posting about distressed debt opportunities back in February, 2008. Since then, most investors have stayed on the sideline. So when will investors finally start to capture "the biggest buying bonanza of troubled real estate assets" since the early 90s? Based on some of the recent IPOs from private equity firms, the time might be near. From Time magazine:

A flurry of private-equity players are turning to IPOs to capture what they believe could be the biggest buying bonanza of troubled real estate assets since the early 1990s.

Since June, at least eight entities, including such high-profile names as Apollo Global Management, Colony Capital LLC and Starwood Capital, have filed with the Securities and Exchange Commission to launch initial public offerings of new real estate investment trusts (REITs). The plan is to use proceeds from the IPOs as well as government financing programs to either purchase or originate real estate loans and mortgage-related securities on the cheap.

(via)

CNBC: Sector Spotlight: REITs

Here is Paul Puryear, Director of real estate research at Raymond James discussing REITs on CNBC. Mr. Puryear, obviously, does not watch The Colbert Report. Fail!

Weekend Roundup

The US Property Cycle Monitor: Searching for the Bottom ("IREI")

Recession Is Easing, But Not Commercial Real Estate’s Woes ("NREI")

Light at the end of property's tunnel? ("propertyfundsworld")

CMBS Coming to Life With TALF-Assisted Transactions ("crenews")

US commercial real estate lending reemerging-Citi ("Reuters")

Bad Commercial Real Estate Loans Are Coming in Hot! And They're Right on Schedule ("REIT Wrecks")

Investors Still Reluctant to Buy Into Stormy Distressed Market ("CoStar")

Tanking Real Estate Values Take Toll on Pension Funds ("NREI")

Time To Exit REITs? ("Forbes")

U.S. office landlords share lawyers' pains ("Reuters")

Chase Portfolio for Sale; Who Will Buy? ("GlobeSt.com")

Are Outlet Malls a Scam? ("Counter Culture")

High-End Hotels Push Rates Down, RevPAR Suffers Most ("crenews")

Hotels Deliver Some 'Jingle Mail' ("WSJ")

Daily Show Looking for Real Estate Investors

Daily Show looking to interview wealthy real estate investor in the NYC area.

The Daily Show with Jon Stewart is looking to interview a wealthy real estate investor in the NYC area as part of a segment we're working on. We want your advice & expertise on a potential (fake) real estate investment opportunity. Looking to conduct this short interview sometime early next week at your office in the city. You won't be made to look like a fool!

If you're interested, contact me for more details. Serious inquiries only, please.

Thanks!

-Matt (mpolidoro@thedailyshow.com)

(via)

Sam Zell Bets on Brazil

Property Wire is reporting that Sam Zell plans to open a real estate specialty financing company in Brazil:

Zell, who declared a couple of months ago that Brazil is the 'number one country in the world for investments, is looking for a partner for his Equity International real estate investment company with a view to grow Brazil's 'still nascent' real estate financing market.

The company's, chief strategic officer Thomas McDonald confirmed that the move is on the cards and added that it may open its own company to provide financing to real estate developers.

The timing is interesting as one could argue that Sam Zell is a little late to get on the Brazil bandwagon. Companies like Brookfield Properties and GE Real Estate started investing in Brazil probably as early as 2007. Brookfield, in particular, through its Brascan Brasil Real Estate Partners private equity fund, has invested in 15 high quality shopping malls in Brazil including two properties under development. The $800 million fund is fully invested and some expects that Brookfield will launch a second similar fund.

So why does Zell want to bet on Brazil now? From Property Wire:

McDonald said that a 5% cut in Brazil's Selic interest rate this year to 8.75% and a $18 billion housing stimulus plan announced by the government in March have boosted demand for residential and commercial real estate investments.

'Real estate specialty financing is a sector that is still nascent in Brazil and there are opportunities here that aren't being met in a scalable way. We haven't yet found the right platform to do that. At some point we'll find the right one or we'll create it ourselves,' he declared.

Fed: Fed Funds Unchanged at 0-0.25%

From FRB:

Information received since the Federal Open Market Committee met in June suggests that economic activity is leveling out. Conditions in financial markets have improved further in recent weeks. Household spending has continued to show signs of stabilizing but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment and staffing but are making progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.

The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time.

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve is in the process of buying $300 billion of Treasury securities. To promote a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

Canada's Largest Pension Fund Manager Loses C$5.7 Billion on Real Estate

From Bloomberg:

Caisse de Depot et Placement du Quebec, Canada’s biggest pension-fund manager, said declining real estate values led to C$5.7 billion ($5.2 billion) in first- half losses, wiping out a 5 percent gain by other investments.

The Montreal-based fund manager will exit its mezzanine loans business and merge a residential-and-hotel property unit with one focused on office buildings, the Caisse said in a statement today.

The Caisse had unrealized losses of C$2.2 billion on real estate debt, C$1.8 billion on declining values on properties, C$1.3 billion related to private equity and infrastructure, and C$400 million on asset-backed commercial paper.

Deal of The Day

SL Green signed an agreement to sell 49.5% interest of 485 Lexington Ave. to a JV between Israel-based technology company Optibase and Gilmor USA LLC. The deal is valued at $504.2 million, which is $547 per square foot at a cap rate of 6.25%. Not too shabby. At $547 psf, the sale is significantly above the $330 psf fetched by Worldwide Plaza.

My question is why is a technology company specializing in "advanced video over IP solutions" buying commercial real estate. A quick scan of the company web site shows that the CEO has had some dealings with real estate in the early 90s:

Tom Wyler has served as Chairman of the Board of Directors of Optibase since September 2001. Through the Festin Group, of which he is owner, Mr Wyler has had substantial stakes in several public companies in Switzerland. His other areas of involvement include investments banking, foreign exchange and financial futures. In the early 1990s, Mr Wyler turned his efforts to real estate interests in the US. More recently, his attention has been directed toward the high-tech industry in Israel. Mr. Wyler holds a Masters degree in Business Economics from the University of Zurich.

(via)

Fitch: US CMBS Delinquencies 3.04% in July, 5% by Year End

From Fitch:

U.S. CMBS loan delinquencies gained nearly a half-point to end the month of July at 3.04%, according to the latest delinquency index results from Fitch Ratings. At this current pace, Fitch anticipates the delinquency index to rise above 5% by year end.

Contributing to the rising number of past due loans is the current volume of performing specially serviced loans; the number of loans with low coverage that are depleting their reserves; and economic factors such as rising unemployment and lack of consumer spending, which will continue to impact commercial property fundamentals going forward.

'For the past several months, delinquencies have increased at a rate of over $2 billion per month; the 30-to-60 day rollover rate has consistently exceeded 50%, and resolutions from the index have been slow due to the lack of refinancings and dispositions,' said Mary MacNeill, Managing Director of Fitch's U.S. CMBS Group. 'If current trends continue, delinquencies are likely to pass 5% by the end of 2009, though the likelihood of large recent vintage proforma loans depleting their debt service reserves by year-end could drive the percentage of delinquent loans past 6% by first-quarter 2010.'

(via)

Fed Focuses On Real Estate Recession

Commercial Real Estate Hurts Banks

Maguire Properties: Fail

From WSJ:

Maguire Properties Inc., one of the largest office-building owners in Southern California, is planning to hand over control of seven buildings with some $1.06 billion in debt to creditors, the latest sign that rising vacancies and falling rents are causing stress in the commercial real-estate sector.

Buyers Seek New Way to Get Out of Condo Hotel Deals

When I was in Las Vegas last summer, I took a tour of the 67-acre city-within-a-city project City Center . While everything in Vegas is on a grand scale, City Center is the most ambitious and extraordinary mixed-use project. One thing I've always wondered was who the buyers are for the luxury condos and condo hotel units. Can the developer really sell all of these units?

According to the Journal, 1,500 units have been sold in the 2,440-unit complex. But it appears that now some of those buyers are having second thoughts, and are either demanding price reductions or a refund of their deposits. In the meantime, many other condo hotel buyers across the country have developed a new strategy to back out of early contracts. From WSJ:

Now, some buyers are arguing in court that purchasing a unit in a condo-hotel is similar to buying a stock, where the buyer is entirely reliant on the operational skills of management for any return. Therefore, they contend, the purchases should have been regulated by the Securities and Exchange Commission, which would force companies to issue a detailed prospectus and have agents licensed to sell both real estate and securities, a rare combination.

It will be interesting to see if this new strategy actually works out for the buyers.

Related post:
Condo Hotel = Pets.com

Blog Absence

You may have noticed the lack of posting in the past few weeks. Well, I have not abandoned this blog. But since "absence of content = absence of visitors" in the blogosphere, I feel the need to drop a quick note and explain. Aside from being on vacation for over a week, one of the things that kept me from posting was that my laptop all of a sudden decided that it needed a vacation too. My hard drive was wiped out and had to be replaced. Of course, I didn't backup all the files. Oh well, you live and learn. And this week, I caught the flu. No, I don't have the swine/H1N1 flu. But, I've been feeling pretty lousy in the last few days. So hopefully things will look up for me soon and I can get back to this blog.