Bloomberg Sector Focus: REITs

Canada's Largest Retail REIT Enters US

RioCan Real Estate Investment Trust, Canada's largest retail REIT with a market cap of approximately CDN$7.8 billion had wanted to enter the US market for years, and recently expressed interests in taking advantage of the current market condition:

"We are looking around down in the United States," Edward Sonshine, chief executive of RioCan, said in an interview with the Financial Post. "There are just so many opportunities down there. There will be individual opportunities that we will ask one of the investment-banking outfits to look into for us."

Looks like the wait is over. The company just announced an $180 million JV agreement with Port Washington, N.Y based Cedar Shopping Center. Under the agreement, RioCan will

• Form a joint venture for the acquisition of retail real estate in the United States to be owned 80% by RioCan and 20% by Cedar, with the first properties in the joint venture being seven grocery-anchored shopping centres in Massachusetts (MA), Pennsylvania (PA), and Connecticut (CT) currently owned by Cedar (the “Initial Portfolio”); and
• Acquire on a fully diluted basis 15% of Cedar, with the acquisition of 6.7 million shares and 1.4 million warrants (the “Equity Investment”).

What does this transaction say about the US retail market? Probably not much. And Riocan's timing? A little early, maybe? I don't know. There is definitely a currency play here. The strong Canadian dollar is giving the Canadians a lot of purchasing power these days.

I'm not familiar with Cedar Shopping Center. What happened to RioCan's JV partner in Canada Kimco Realty?

Old GMAC Files for Bankruptcy

Am I the only one who never caught on the Capmark name? The Horsham, Pa. based CRE lender was never a particularly well-run company. From WSJ:

One of the nation's largest commercial-real-estate lenders filed for bankruptcy protection in Delaware, the latest sign that problems in that market are far from over.

Capmark Financial Group Inc. has been one of the biggest lenders to U.S. investors and developers of office towers, strip malls, hotels and other commercial properties. An independent company that used to be the commercial lending unit of GMAC LLC, a financing affiliate of General Motors Co., it has been in financial straits for months and warned in September that it might have to file for Chapter 11 reorganization.

Weekend Roundup

Feds Ready To Start Pushing Banks Toward CRE Loan Workouts ("CoStar")

The Recession's End and Commercial Real Estate ("Commercial Observer")

Bondholders Face Losses After New York’s Stuyvesant Town Ruling ("Bloomberg")

A 30% nose dive for real estate money managers ("P&I")

Calpers, MacFarlane Cut Ties After Real Estate Review ("Bloomberg")

No place like home: Cross-border real estate deals down ("P&I")

Fitch: CRE Losses to Increase into Next Year ("CPN")

Architecture Firms Go East for Work ("WSJ")

A Rare Building Boom Up North ("NYT")

CoStar Shines a Light on the Best and Worst Retail Markets in Third Quarter ("CoStar")

Your New Condo Leaks? Join the Club ("NYT")

Hotels: Don't Buy Them Now, But Start Looking ("CoStar")

ProLogis CEO on CNBC

Beige Book: Commercial Real Estate Weakest Sector

From FRB:

Commercial real estate continued to weaken across the 12 Districts, although even this sector had scattered bright spots. Each District indicated that demand for private commercial real estate was weak, with New York, Philadelphia, Cleveland, Atlanta, Chicago, St. Louis, Kansas City, and San Francisco all characterizing activity as declining further since the last report. An inability to obtain credit was often cited as a problem for businesses that wanted to purchase or build space. High vacancy rates were noted as a key concern especially for landlords who were not offering concessions. And, while industrial real estate in the Richmond District was generally weak, renewed interest by retailers to revisit postponed expansion plans was also noted. Finally, public nonresidential construction activity funded by federal stimulus projects was a source of strength in the Cleveland, Chicago, Minneapolis, and Dallas Districts, but gains were often offset by state and local government cutbacks.

Bank Earnings Explained

Basically banks borrow money from the US government at 0% and then buy bonds that pay 2-3%. No wonder they are in no rush to lend on commercial real estate.

What kind of bonds are they buying? Are they investing the money in American business? “No, they are mostly buying Treasuries.” So the money is just being shuffled from one Federal bank account to another, with each Wall Street bank skimming off $1 billion per month for itself? “Pretty much.”

(via)

Skyscraper Envy

Amid the global realty crisis, some countries are rushing to build skyscrapers.

Empty Garage in DC

It's not everyday you read a story about a parking garage that's operating at only 30% capacity in Washington DC. Most people associate DC with lack of parking spaces, but when comes to this Target garage, the story is different.

For years DC has been trying to attract a big discount retailer. In 2005, the City finally signed a deal to bring Target to Columbia Heights, an up-and-coming working-class neighborhood. The agreement with Target included $42 million public financing, majority of which was used to build a 1,000-space parking garage. Target opened in March, 2008. While the Columbia Heights neighborhood was revitalized, and the Target store is performing well, the parking garage is losing about $100,000 a month. According to The Washington Post:

The garage is another story, even though its rates are relatively cheap at $1 an hour for the first four hours. According to the District, the garage's best month was November, when an average of 47 percent of spaces were filled at 6 p.m., the peak hour. But from February through July, average peak use never exceeded 30 percent. In May, the worst month, shoppers filled an average 247 of 1,000 spaces, or 25 percent.

It's hard to pinpoint exactly what went wrong with this specific garage. The demand could be impacted because people living in an urban city are relying more and more on public transit. Personally I have noticed garages for several recently opened grocery stores in the District not operating at full capacity even at peak hours. Is the situation unique in DC given the city layout? Maybe a suburban outlet mall just doesn't work the same in an urban environment. This empty garage is probably a good case study for some highly paid consultants one day. In the meantime, DC is considering new parking zoning rules:

The empty garage is part of the evidence that District officials cite as they rewrite 50-year-old regulations so they will no longer require developers to build a minimum number of parking spaces for new retail outlets, offices and apartments in areas near Metro stations. Instead, the District would like to leave it to developers to analyze market conditions and determine the appropriate parking levels.

On a side note, if you are interested in parking garages, the National Building Museum in DC is opening its new exhibit House of Cars: Innovation and the Parking Garage on October 17. Go check it out.

Video of The Day: The Social Media Guru

NSFW:


(via)

Quote of The Day

GlobeSt.com: Let me change the topic a little bit: Is the money we’ve been hearing about for two years, the money sitting on the sidelines, finally getting deployed?

Vittetoe: A lot of people think we are still in a liquidity crisis but that was never true. There has always been plenty of money available just not at the pricing and leverage that some borrowers want. Consider, for example, a $50 million property levered at 75% LTV that is coming due for refinancing. Debt was $35.7 million but now the property has decreased in value by 25%. For the borrower to get a loan at 75% LTV he will have to come in with 30% down. In this scenario we are seeing private equity coming in and working with these borrowers. The equity is there and ready to be distributed but the borrowers still aren’t willing to reciprocate on their end.

GlobeSt.com: So there is still actually a bid ask spread for lending? Even after the last 12 months?

Vittetoe: In some cases, yes. These developers love their properties and in many cases just want to work with their lender to extend to another, better day. I think they are fooling themselves and we try to educate our borrowers but in some cases a developer won’t listen when you tell him or her that the property is not valued as highly as it used to be. They have a lot of pride.

GlobeSt interviews Holiday Fenoglio Fowler's Chris Vittetoe

Weekend Roundup

Real-estate Stocks' Run May Be Near an End ("Market Watch")

Mortgage REITs Competing in IPOs Meet Tepid Reception ("Bloomberg")

'Vornado Tornado' Gets Ready to Land ("The Real Deal")

Winning Hand: A Full House Beats the Recession ("CoStar")

Apartment Know-How in NoHo? ("WSJ")

Looking to Profit From a Glut of Unsold Apartments ("NYT")

Outlet Centers Rise to the Top During Recession ("CoStar")

Lower Land Prices, Rents May Lure Big Box Retailers To Reconsider Certain Markets, Locations ("CoStar")

Timeshare Property Sales Dive in US as They Are No Longer Seen as a Good Buy ("Property Wire")

Return to The Giant Pool of Money

This American Life aired an update to The Giant Pool of Money last week. You can listen here.

We catch back up with the people we met in 2008, to see how they’ve fared over the last 18 months. We talk to Clarence Nathan, who in 2008 received a half million dollar loan that he said he wouldn't have given himself; Jim Finkel, a Wall Street finance guy, who put together and managed complicated mortgage-based financial securities; Richard Campbell, the Marine who was facing foreclosure; and Glen Pizzolorusso, the mortgage company sales manager who led the life of a b-list celebrity.

Blackrock CEO Laurence Fink Comments on Commercial Real Estate

He's not as worried about the commercial real esate problem as some people. The comments start at around 5 minutes into the interview.

Picture of The Day

Merrill Lynch's trading floor in the World Financial Center: