Starwood's Sternlicht Sees Opportunity in Residential Land

Sam Zell Talks Real Estate on CNBC

Beige Book: CRE Conditions Remained Soft

From FRB:

Nonresidential real estate conditions remained soft in nearly all Districts. New York, Philadelphia, Kansas City, and San Francisco reported further weakening in demand for commercial and industrial space. Boston received mixed reports on sales and leasing activity from commercial real estate contacts in the District, and Minneapolis reported some increases in sales of commercial buildings. Richmond reported that sales of nonresidential properties remained slow, but that leasing of office and retail space has picked up. Vacancy rates were rising and rents were declining in most Districts. Several Districts reported that landlords were focused on tenant retention and that slack demand was allowing tenants to negotiate lease extensions at low rents and with favorable allowances. San Francisco reported that lower rents appeared to be supporting an upturn in leasing in some parts of that District, although vacancy rates continued to rise. Nonresidential construction activity was generally weak in all Districts, although St. Louis reported some gains in construction of education facilities and Cleveland reported a recent increase in nonresidential contracting.

DC The Most Expensive Office Market?

Jamie Dimon: The Commercial Real Estate Train Wreck Already Happened

Thank you, Mr. Dimon. From Market Watch:

"Commercial real estate is a train wreck, but it's already happened," Dimon said during a speech at a J.P. Morgan (JPM 44.48, -0.05, -0.11%) health-care conference in San Francisco.

With roughly $3.5 trillion in commercial real estate loans outstanding, a sizable portion of that debt needs to be refinanced each year. However, the problem is that the value of the properties backing those loans has fallen, he said.

Investors specializing in distressed debt and foreign buyers have been attracted by the lower prices, which has helped refinancing activity. Deals often take the form of a recapitalization, in which the lenders become the equity holders, Dimon added.

Such transactions have less of an economic impact, Dimon said, noting that when the owners of an office building change, that doesn't necessarily trigger layoffs

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Newmark Knight Frank CEO Calling a Bottom

Have We Reached The Bottom?

A few weeks in the Swiss Alps can definitely help you put things in perspective. Now that I fully understand why American food is so damn cheap and that Americans' obesity rate (34 perfect) is four times that of Switzerland (7.7 percent), I can turn my attention to commercial real estate, an area where I still don't fully comprehend, especially given what happened in the last 24 months.

The question for the new year is, have we reached the bottom? Notice how we are not asking "Is Commercial Real Estate The Next Shoe to Drop?", or "Why is the commercial real estate market about to melt down?", or "Is Commercial Real Estate A Slow-Motion Train Wreck?". Questions like these are from amateurs. Oh, well, actually these questions are from the MSM, specifically, CNBC, The Atlantic Monthly and Time.

So has commercial real estate hit the bottom? There's definitely some recent evidence that seem to support the notion:

• Colony Capital paid 44 cents on the dollar for $1B distressed commercial real estate loans from FDIC. The deal appears to be decent for Colony based on the FDIC press release:

The FDIC as Receiver for the failed banks conveyed to the LLC a portfolio of approximately 1200 distressed commercial real estate loans, of which seventy percent were delinquent. Collectively, the loans have an unpaid principal balance of $1.02 billion. Seventy-five percent of the collateral of the portfolio is located in Georgia, California, Nevada and Florida. The participating FDIC receiverships provided financing to the LLC by issuing approximately $233 million of corporate guaranteed notes. Colony Capital paid a total of approximately $90.5 million (net of working capital) in cash for its 40 percent equity stake in the LLC, which equals approximately 44 percent of the unpaid principal balance of the assets. As the LLC's managing equity owner, Colony Capital will provide for the management, servicing and ultimate disposition of the LLC's assets.

• Harry Macklowe is back! That was fast. WSJ reported last week:

Macklowe Properties Inc., in partnership with CIM Group of Los Angeles, has signed a deal to pay off about 10 investors who bought the $510 million loan the developer took out to build on the former site of the Drake Hotel on Park Avenue between 56th and 57th streets. Deutsche Bank AG, which made the loan, sliced it into four tranches and then syndicated it to these investors, including iStar Financial Inc. and Sorin Capital Management, which hold the senior-most slice, and Realty Finance Corp., which owns the junior-most piece.

• Blackstone Group is making a play for Highland Hospitality. From a separate WSJ piece:

Blackstone Group LP is aiming to control the restructuring of hotel owner Highland Hospitality Corp. after purchasing a key slice of Highland's debt from Wachovia Corp., according to people familiar with the matter.

Blackstone's move comes as Highland, a real estate investment trust that owns 27 hotels, is struggling to restructure its $1.7 billion debt load amid the worst downturn for the hotel industry in decades. The slice bought by Blackstone, with a face value of about $320 million, is the most senior of Highland's mezzanine debt, giving Blackstone a significant say in how any restructuring unfolds, people familiar with the matter said.

• FT is reporting that the US commercial real estate sector is attracting "bottom feeding" investors:

The beleaguered US commercial real estate sector has been attracting a new wave of money from sources including foreign banks, US private equity firms, and a leading Chinese sovereign wealth fund.

Market participants warn that the activity represents "bottom-feeding" by opportunistic investors whose strategies could be derailed by rising interest rates. Also, the deals done so far are tiny compared with the debts that need refinancing.

Nevertheless, the growing interest from investors is a sign of stabilisation, making it less likely that worsening commercial real estate conditions will sink banks and choke off a US recovery.

• And, lastly, I think there is something to the Dirt Lawyer's theory about MSM. This weekend alone, I read three different pieces about commercial real estate, all from...you guessed it, The Atlantic Monthly! It's a great magazine, but since when did The Atlantic Monthly become an expert on commercial real estate?

What do you think?

Fed's Governor Elizabeth Duke on CRE Outlook

From FRB:

Unfortunately, the outlook for commercial real estate is much less favorable. Hit hard by the loss of businesses and employment, a good deal of retail, office, and industrial space is standing vacant. In addition, many businesses have cut expenses by renegotiating existing leases. The combination of reduced cash flows and higher rates of return required by investors leads to lower valuations, and many existing buildings are selling at a loss. As a result, credit conditions in this market are particularly strained. Commercial mortgage delinquency rates have soared. According to our October survey of senior loan officers, banks continued to tighten standards on CRE loans and, presumably in light of the poor economic outlook for the sector, appear to have been reluctant to refinance maturing construction and land development loans. In addition, the CMBS market has only just recently seen its first activity in a year and a half.

In this environment, a turnaround in CRE is likely to lag the improvement in overall economic activity. However, compared with the situation in the early 1990s, the problems in this sector now appear to be due largely to poor business fundamentals rather than widespread overbuilding, suggesting that the performance of the CRE sector will gradually begin to improve as the economy continues to strengthen.

World's Tallest Building to Open in Dubai on Monday

A new year, a new "superscraper". The 2700-foot tall, 160-story tower Burj Dubai was designed by Chicago-based Skidmore, Owings and Merrill (SOM):

The £1 billion Burj Dubai is at least 2,683ft from its base to the tip of its spire — that’s more than half a mile, the equivalent of three-and-a-half Canary Wharf towers or two Empire State buildings stacked up. Its final height is being kept secret until tomorrow, but architects who have worked on the building have hinted it could break the 2,700ft mark.

The tower is more than 1,000ft higher than its nearest inhabited rival, Taiwan’s 1,671ft Taipei 101. It is also the tallest man-made structure in the world, surpassing the 2,063ft KVLY-TV mast in North Dakota, America.

Link.