Commercial Real Estate - Real Capital Analytics in the Press

Twitter Pushes Office Rents Up

Wed, 16 May 2012 12:47:46 GMT

Rents in San Francisco received a boost when Twitter Inc. agreed to move to a gritty neighborhood and leasing by technology companies started to accelerate.

Twitter’s relocation next month to Mid-Market, an area better known until now for drug deals, graffiti and vagrants, has sent rents up as much as 60 percent in a business district that didn’t exist a year ago. That type of growth is making San Francisco the best U.S. office market as demand from Internet and social-media companies surges.

The Dallas-based company has also purchased two office-retail buildings in the Union Square shopping district, for $51 million and $30 million, according to global commercial property research firm Real Capital Analytics Inc.

ICSC Awards Real Capital Analytics its Distinguished Research Partner Award for 2012

Wed, 09 May 2012 10:46:33 GMT

The International Council of Shopping Centers (ICSC) is pleased to announce that global commercial property research firm Real Capital Analytics, Inc. has received its Distinguished Research Partner Award for 2012. The research award was established to recognize companies or organizations which have demonstrated a significant commitment to ICSC’s research initiates and provided consistent support to the shopping-center industry.

“ICSC acknowledges the strong commitment that Real Capital Analytics has shown to the shopping center industry,” observed Michael P. Niemira, vice president of research and chief economist, ICSC. “Real Capital not only powers ICSC’s Global Shopping Center Directory, but the firm and its founder and president, Robert M. White, Jr., have been supporters of ICSC events and its research efforts,” added Niemira.

The Distinguished Research Partner Award will be presented to RCA at ICSC RECon in Las Vegas during the Fortune Tellers Gathering on Sunday, May 20, 2012. The conference will be held at the Las Vegas Convention Center May 20-23 and you can meet Real Capital at stand 214 in the Marketplace Mall.

To read the official press release, click here.

Foreign Developers Enter NYC Market

Mon, 07 May 2012 11:08:24 GMT

After a two-year stall, sales have picked up at the Tempo, a 20-story glass condominium, near the Kips Bay and Gramercy neighborhoods. The building was scheduled for completion in 2009, but a series of problems from the market downturn to legal battles with contractors put the project on hold. However, Irish developers Menolly Group never lost sight of the end goal.

Not that many foreign developers have tested the Manhattan market, said Dan Fasulo, managing director at global commercial research firm Real Capital Analytics.

“Recently, we’re seeing more international capital sources in the New York market,” Mr. Fasulo said, “but projects done by developers based abroad are rarer than you’d think.”

European Property Sales Down

Wed, 02 May 2012 09:31:57 GMT

European commercial real estate sales fell to the lowest level in 18 months in Q1'12 as reduced debt funding and concerns about slowing growth deterred investors, according to global commercial real estate research firm Real Capital Analytics Inc.

“Continued sensitivity to risk among active investors and a severely constrained debt market have hampered investment activity across almost every market,” Joseph Kelly, RCA’s director of market analysis in Europe, said in an interview.

Transactions in the U.K. and Germany, the continent’s largest investment markets, fell 23 percent and 33 percent, respectively, while France saw a 9 percent increase. Additional details about Europe's market trends can be found in the latest Europe Capital Trends.

Bank of America Sells Manhattan Office Tower

Wed, 18 Apr 2012 13:58:25 GMT

Bank of America Corp. agreed to sell a 31-story office tower at 222 Broadway to Beacon Capital Partners LLC and L&L Holding Co.

The building is selling for $230 million, or $300 per square foot, and 590,000 square feet will be leased by Bank of America after the sale.

Buildings in lower Manhattan sold for an average of $249 a square foot in the 12 months through March, said Ben Thypin, director of market analysis for global commercial property research firm Real Capital Analytics Inc. He also noted that prices in the area have been driven down amid expectations that the World Trade Center, which is under construction, will pull tenants away from other buildings.

Israeli Holding Company Sells Stake in Plaza Hotel for $1.7M Per Room

Tue, 10 Apr 2012 10:31:47 GMT

Indian conglomerate Sahara India Pariwar Ltd has made an unsolicited $600 million offer to acquire the Plaza Hotel in New York. The offer was made to joint owner, El Ad. El Ad owns the Plaza and it's retail shops with Kingdom Holding Co, controlled by Saudi Arabian Price Al-waleed bin Talal.

It is reported that Kingdom Holding is not interested in selling at this time, but that does not prevent El Ad from selling although they will need approval.

Sahara's offer values the hotel portion of the Plaza—spanning 230 rooms—at $400 million. That amounts to $1.7 million a room, a lofty sum even for Manhattan. In recent years, that potential price has been matched only by the per-room price thatNew World Development Co. paid for the Carlyle Hotel last year, according to global commercial real estate research firm Real Capital Analytics.

Multifamily Bonds Surge

Mon, 09 Apr 2012 09:53:21 GMT

Multifamily bonds surged to a record high as Fannie Mae and Freddie Mac made low-cost loans on rental properties. Landlords are seeking the loans to lower borrowing costs and fund purchases of apartment buildings. According to global commercial property research firm Real Capital Analytics sales of apartment properties totaled $3.8 billion in January, a 53 percent increase from a year ago.

Apartment Sales Rise in 2012

Thu, 05 Apr 2012 12:23:35 GMT

Real Capital Analytics (RCA) reported that apartment sales volume rose 53 percent to $3.8 billion in January in its most recent US Capital Trends report on apartment properties. The jump in volume was fueled by the sale of two trophy New York properties. The first was Two Cooper Square, a $134 million deal between seller New York-based Atlantic Development Group and buyer Wafra Investment Advisory Group (the Kuwaiti government’s social security fund). The second property was Columbus Square, a $630 million deal between sellers Chetrit Group and Stellar Management and buyers MetLife, and UDR. those two properties, sales would have risen only 21.8 percent.

“These are both newly built [deals],” says Ben Thypin, director of market analysis for global commercial property research firm Real Capital Analytics. “There are not that many newly built Class A, institutional-quality properties in New York.”

An active December is one of the reasons Thypin thinks the market is healthier today. “We’re coming off of a more active December,” he says. “Yields actually went up slightly. It’s a healthier market but still not gangbusters.”

Seniors Housing Experiencing an Accelerated Recovery

Wed, 04 Apr 2012 14:57:13 GMT

Even while attendees at the NIC MAP Senior Housing Symposium in Boca Raton were buzzing about the Supreme Court reviewing the Affordable Care Act (as well as the future of Obamacare, Medicare and Medicaid), the near-term outlook for seniors housing and care was sunny.

Robert White, Jr., founder and president of Real Capital Analytics said “no part of the market did better than the seniors housing sector last year.” White presented an analysis of investment trends across U.S. markets, including volume, pricing, cap rates, and key players in the sector. White also compared senior housing against multifamily and other commercial real estate.

Seeing a good amount of capital still on the sidelines, participants were looking for more movement from institutional investors this year and next. Many agreed that those seeking greater yields will likely seek to deploy capital into good projects and properties in the senior living property sector.

Some questioned if there are enough experienced developers and operators to keep up with the development demand. Lenders spoke of more multifamily developers looking at the senior housing sector with plenty of enthusiasm but little knowledge of how to get into the business. Lenders are clearly seeking to deploy capital, but only to developers with adequate experience (or experienced partners).

Starwood Invests in US Malls

Wed, 28 Mar 2012 10:16:36 GMT

Starwood Capital Group is preparing to purchase majority stakes in seven US malls from Westfield Group. The malls have not been identified, but the deal is worth approximately $1 billion. This could be a risky move for Starwood, but the retail market is starting to show some improvement.

According to global commercial property research firm Real Capital Analytics the mall-deal tally jumped to nearly $3.7 billion in 2011. And as reported in their latest US Capital Trends Report on retail properties $8 billion in retail CRE deals now are classified as under contract.

CRE Predictions Shared at Recent IPD Conference

Mon, 26 Mar 2012 12:43:23 GMT

Real estate capital markets present a mixed bag of promise and unresolved issues left over from the Great Recession, according to the leading economists, analysts and financiers who spoke at a conference sponsored by IPD in New York City.

Bob White, president of global commercial property research firm Real Capital Analytics, projected that transaction volume could reach $300 billion this year with much of that growth taking place in the second half of the year, as the market gradually returns from the slowdown during the second half of 2011.

Lenders Loosening the Reigns

Tue, 20 Mar 2012 14:33:08 GMT

Global commercial property research firm Real Capital Analytics lender list in a recent issue of Crain's, featured the 35 largest New York City real estate financings of the 12 months ending in February. Of the loans on this year's list, 15 were for sales. The data shows lenders are ponying up more loans for new sales, as opposed to refinancings, as well as increasing the size of their loans.

While further increases in that sales number are likely in coming months, Dan Fasulo, managing director of Real Capital Analytics says progress may still be grudging. "It's still hard to get a fresh new acquisition financing for a mega asset in Manhattan," he noted.

Investors Preferring NJ Apartments to Offices

Mon, 19 Mar 2012 12:54:08 GMT

New investors are heading to New Jersey to acquire multifamily properties instead of office buildings. The state has seen a fundamental shift from family ownership of apartments to larger institutional investors, a trend that began in the late 1990s and has increased since. New players in the NJ multifamily sector include such important firms as Prudential, JP Morgan, and Heitman (who acquired a large complex in Plainsboro at the end of 2011).

Data according to Real Capital Analytics shows 23 multifamily deals over $5m in 2011, the same number of deals as there were in the office sector during that time. This was a huge jump over 2010, which featured 27 office transactions that nearly doubled the amount of multifamily deals.

Local brokers feel that supply constraints in the state will lead to further demand for multifamily properties.

Steelworks Lofts Gets $29M Loan

Mon, 19 Mar 2012 11:26:45 GMT

Steelworks Lofts, a stalled 110,000-square-foot mixed-use condominium development at 76 North 4th Street in Brooklyn’s trendy Williamsburg neighborhood, has received a jump-start. The former steel factory is being converted into an 83-unit rental apartment complex with 20,000 square feet of retail space.

The project secured a $28.4 million acquisition and construction loan on behalf of a partnership between Cayuga Capital Management and Jacob Toll. According to global commercial property research firm Real Capital Analytics, the partnership purchased the note from the previous construction lender in an all-cash transaction, and then acquired the deed on Steelworks Lofts by executing a deed-in-lieu-of-foreclosure.

Brookfield and Hillwood Form JV

Wed, 14 Mar 2012 11:33:34 GMT

Toronto-based Brookfield Asset Management has joined forces with Dallas-based Hillwood Development Corp to acquire and develop US industrial properties. The two companies have agreed to commit $400 million in equity and take on debt as needed over the first three years of the partnership.

According to Real Capital Analytics, sales of industrial properties held steady at $1.4 billion in January 2012. Vacancy during this period dropped to 10 percent, and demand appears to be recovering.

Silicon Valley office market boosted by Apple

Mon, 12 Mar 2012 11:50:14 GMT

Silicon Valley, boosted by Apple's growth, is experiencing the biggest office-leasing boom since the dot-com era. The most valuable publically-traded company in the world is currently waiting for its 2.8 million-square-foot, flying saucer-like headquarters to touch ground on 175 acres in Cupertino.

According to brokerage Cassidy Turley, office occupancy in the region rose by 2.7 million square feet last year, the most since 2000, and rents may grow 11% to an average $36 a square foot this year. Commercial real estate investment in the valley has jumped sixfold from a record low in 2009, luring buyers from outside California and the United States, according to data from Real Capital Analytics.

Apple's Norman Foster-designed headquarters expansion (along with Facebook and Google’s growth) has attracted players such as New York's Tishman Speyer to invest in Sunnyvale, and Swedish pension manager Alecta Pensionsförsäkring, which purchased office buildings in Cupertino and Mountain View, according to Real Capital.

San Jose office sales totaled approximately $1.3 billion in each of the past two years, after a low in 2009 of just $200 million, the lowest tally in records going back a decade.

Last year, the average cap rate or yield for San Jose property deals was 6.1%, compared with an average of 7.3% nationwide, showing high investor demand, the RCA research said.

China’s Oldest Bank Expanding US Lending

Fri, 09 Mar 2012 10:26:34 GMT

Bank of China Ltd increased its loans outstanding on U.S. properties nearly fivefold since 2008. Europe's debt crisis has caused lenders including Anglo Irish Bank Corp., Commerzbank AG (CBK), and Societe Generale to slow down or stop competing making way for the Beijing-based bank to make inroads. Just last month the bank agreed to refinance the Mandarin Oriental hotel in Columbus Circle owned by Dubai’s Istithmar World PJSC.

“Right now, commercial real estate lending is offering a good risk-adjusted return for lenders,” said Dan Fasulo, managing director at global commercial property research firm Real Capital Analytics Inc. “This should be a time where lending would help your balance sheet, versus government bonds, which are not paying anything.”

Investors Lose Interest in Apartment Properties

Wed, 07 Mar 2012 12:04:20 GMT

Apartment buildings have been one of the best-performing sectors of the commercial real estate market in recent years. According to global CRE research firm Real Capital Analytics, in 2011, residential rental properties were one of the most sought-after property types, with sales totaling $54 billion. However, investor interest seems to be waning.

Shares of Camden Property Trust have gained about 1% this year, while sector giant Equity Residential is up 2.2%. In comparison, stock prices of industrial real-estate giant Prologis Inc. are up 18% year to date, while Brookfield Office Properties Inc. has gained 11%. Zelman & Associates, a real-estate research firm, expects net-operating-income growth to slow over the next year at the 10 apartment REITs it covers.

Grosvenor Plans to Raise Nearly $500 Million for Tokyo Office and Apartment Investments

Mon, 27 Feb 2012 14:29:05 GMT

Grosvenor plans to raise 40 billion yen ($492 million) for a fund to invest in Japanese real estate as the market recovers. London-based Grosvenor Group, with about $17 billion in assets, is the real estate firm owned by the family trust of Britain’s Duke of Westminster.

The firm opened its Tokyo office in 2001. Ken Nakajima, Tokyo-based managing director at Grosvenor Fund Management Japan, said the firm plans to invest in office and apartment buildings in the greater Tokyo area. The new fund will finance about 50% of the assets with loans, a ratio that will allow it to buy as much as 100 billion yen ($1.24 billion) in property, he said.

Investors have started banking on a recovery in investor appetite for commercial properties in Asia. Tokyo was ranked the first in property transactions in the past 12 months with $28 billion, followed by Shanghai and Singapore, according to investment sales data compiled from Real Capital Analytics.

Hotel REITs May See Upcoming RevPAR Growth

Thu, 23 Feb 2012 15:37:08 GMT

The hotel industry is coming off strong RevPAR growth in 2010 and even stronger growth in 2011, going from 5.6 to 8% growth year on year. RevPAR represents revenue per available room and is a key operating metric in the hotel industry. Research firms in the industry are now predicting continued growth over the next two years, largely due to an increase in room rates.

Limited service hotels are providing attractive investment opportunities. According to Real Capital Analytics, cap rates on limited service hotels in the US are approaching 9%, whereas full service hotels are closer to 7%. Two thirds of 2011 hotel investment volume was absorbed by full service properties, making limited service hotels an attractive bet in the coming year.

Capital Shopping Centres sees Earnings Rise

Thu, 23 Feb 2012 11:58:15 GMT

Capital Shopping Centres Group, the UK’s largest publicly traded shopping center owner, stated that full-year profit rose 43 percent year on year due to some well-timed acquisitions. The Trafford Centre in Manchester and a 75 percent interest in the Broadmarsh center in Nottingham were the two trophy acquisitions during this time period leading to the profit increase.

According to Real Capital Analytics, the acquisition of Trafford Centre was the largest single property transaction in Europe in 2011. The mall is among the largest in the UK with 1.9 million square feet of leasable area, and it sold for 1.6 million pounds.

San Francisco Office Building Expected to Set Record Pricing

Wed, 22 Feb 2012 11:20:02 GMT

A San Francisco office building is expected to sell for $185 million, the city’s highest per-square-foot price since the market peak in 2007. Foundry Square IV is a 10-story, 233,000 square building fully leased to Oracle Corp.

According to global commercial property research firm the peak office sale in San Francisco was Morgan Stanley’s $1.46 billion, or $1,001 per square foot, purchase of the One Market complex. The property was part of a San Francisco portfolio sale by private equity firm Blackstone Inc., following its buyout of Sam Zell’s Equity Office Properties Trust.

Owner of Empire State Building, Malkin Holdings, Files f$1B IPO

Wed, 22 Feb 2012 10:54:28 GMT

Malkin Holdings, the owner of New York’s Empire State Building, plans to raise up to $1bn in an initial public offering. They made the announcement on February 13, 2012.

“The Malkins have spent years consolidating control of the Empire State building and other assets. The IPO will allow them and their remaining partners to gain liquidity without relinquishing control,” said Ben Carlos Thypin, director of market analysis at global commercial property research firm Real Capital Analytics.

Asia Pacific Real Estate Volume Down 32%

Tue, 21 Feb 2012 12:50:10 GMT

According to quarterly data published by APREA and Real Capital Analytics, volume across the Asia Pacific region dropped by 32% from 2010 during the last quarter. Concerns regarding the Eurozone debt crisis led investors to be more cautious, with the decline seen across all property types.

Fourth quarter bright spots were Singapore and South Korea, which both saw gains of 112 and 44% respectively. Hong Kong and China both had a rough quarter, with volume down 56 and 41%. Cross-border investment into the region accounted for only 6% of total investment volume.

Major sales in the last quarter included Festival Walk in Hong Kong, Wave Mega City Centre in India, and a share in Singapore’s Ocean Financial Centre.

Recaps Surge for Office Buildings

Thu, 16 Feb 2012 12:37:33 GMT

Some of the nation’s biggest real-estate investors took stakes in major office properties in 2011, a year that registered a record amount of recapitalizations for that sector, according to Real Capital Analytics.

“There were a lot of white knights coming to help recapitalize buildings that had mortgage loans coming due last year," said Dan Fasulo, managing director at commercial property research firm Real Capital. Recapitalizations in 2011 were at the highest level since RCA started tracking them in 2001.

To read more about 2011 trends, read the US Capital Trends Year in Review.

Luxury Apartments in Demand in Manhattan

Thu, 09 Feb 2012 11:42:06 GMT

Two deals on luxury apartments recently closed in New York City. One was the 144-unit 2 Cooper Square purchased by Wafra Investment Advisory Group. The other was the Columbus Square Complex, purchased in a joint venture between MetLife and UDR.

“The rental market is so competitive in New York and newer buildings are going to be the most competitive,” said Ben Thypin, director of market analysis for global commercial property research firm Real Capital Analytics.

According to data from Real Capital, the dollar volume of Manhattan apartment-building sales more than doubled in 2011 from the previous year to $4.6 billion. Manhattan apartment investors paid an average of $456,796 per unit last year, while nationally, multifamily investors paid about $101,925 per unit.

CRE Investment Picks Up in Minnesota Despite National Trend

Wed, 08 Feb 2012 14:00:58 GMT

Property investment has picked up in Minnesota with a flurry of 4th quarter deals and the recently closed deal for the Blue Cross and Blue Shield of Minnesota campus in Eagan, the largest recent office sale in the area.

However, national commercial real estate trends point toward a slowing of investment sales despite a 57 percent year-over-year increase in 2011. The market remains bifurcated between highly sought-after trophy deals like the Blue Cross campus and highly distressed properties like Atlanta's Bank of America Tower, which was purchased in 2006 at $436 million and was only recently sold at auction.

Dan Fasulo, managing director for global commercial property research firm Real Capital Analytics, said that deal activity started to slow at the end of the year because of fresh concerns about the stability of the economy.

“We did see activity start to temper in the fourth quarter. Lenders are being more cautious,” said Dan Fasulo managing director for Real Capital Analytics.

Statistics from Real Capital Analytics tracked $2.27 billion in commercial sales in the Twin Cities last year, an increase of 70 percent compared with 2010.

“It’s a flight to quality, and it’s happening in every market nationwide right now. Investors need to see the uncertainty clear up. They need to see clear signs that the economy is improving before they put their money at risk,” Fasulo said.

Increase of Competition to buy Manhattan Luxury Apartments after Kuwaiti Fund investment

Tue, 07 Feb 2012 14:33:32 GMT

After the invetstment arem in Kuwaiti bought a luxury apartment building in Manhattan, companies like Atlantic Development Group LLC and Wafra Investment Advisory Group are jumping on the opportunity to buy luxury apartment buildings in Manhattan. Last week they completed the purchase of a 144-unit building that includes a rooftop pool, private movie-screening room, and other amenities. According to the directory of market analysis for Real Capital Anayltics, a global commercial property research firm, Ben Thypin says that the rental market is so competitive in New York, the new buildings are going to be the most competitive.
Data from New York-based Real Capital states that the dollar amount of Manhattan apartment building sales has more than doubled in 2011. This deal is the second is the past two weeks; MetLife and UDR – the third-largest publicly traded US apartment owner, bought a five-tower apartment on the Upper West Side for around $630 million, making it the fifth apartment purchase for UDR.

Shopping Centers in Turkey and other European countries expanding with no end in sight

Tue, 07 Feb 2012 13:14:41 GMT

Turkey, known for its jewels, fabrics, and spices is one of the last European countries to have a modern shopping center, also known as a mall. Istanbul, Turkey’s most popular city, surpasses all other European countries with about 30 centers in the pipeline and accounts for two-thirds of the mall space built in Turkey. According to Frank Billand, a board member in charge of shopping centers for Union Investment Real Estate GmbH, “the attraction of Turkey is the enormous power of young people wanting to go out and improve their lot and their willingness to spend.” Turkey was chosen over Russia or the Ukraine due to its emerging markets and steady returns.
Due to an increase in strength of investor demands for malls and residential development projects, real estate companies and families Kiler GYO AS and Torunlar GYO AS of Turkey, raised 600 million liras in public share offerings. According to figures compiled by Real Capital Analytics Inc., deals are heating up in the industry. Sales of large Turkish retail properties rose 35 percent last year to 336 million euros.
Although some shopping centers will grow, others will die due to economic changes or slowing or rent cuts. However, it could also be due to locations.
“There’s a need to differentiate and create variety in new types of shopping centers,” said Avi Alkas, Jones Lang’s head of Turkey. “There might be some casualties of centers which are too near to each other and cannibalize each other.”

Bank of America Tower Selling At Auction February 7

Tue, 07 Feb 2012 10:17:09 GMT

Tomorrow Atlanta’s 55-story Bank of America Plaza, the tallest tower in the Southeast, is set to be sold at an open outcry auction on the steps of the Fulton County Courthouse. Owner, Bentley Forbes purchased the property in 2006 for $436 million from Bank of America Corp and Cousins Properties Inc. in the city’s biggest property deal.

The building has since lost 54 percent of its value. Bank of America, its largest tenant, has reduced space and bond investors who helped finance the purchase are on the hook for losses.

The 1,023-foot building would be the tallest in the U.S. to be foreclosed on since the financial markets froze in 2007, according to global commercial property research firm Real Capital Analytics Inc., a New York-based property research company. Boston’s John Hancock Tower, New England’s tallest skyscraper at 790 feet, was sold at auction in 2009 after its owner defaulted on debt they used to buy it three years earlier.

Capital Markets Continuing to Recover

Wed, 01 Feb 2012 15:49:19 GMT

While the overall volume of multifamily and commercial real estate lending is nowhere near what it was during the peak in 2007, capital flows are growing and borrowers and lenders are optimistic regarding 2012. Although lenders remain conservative, low interest rates keep buyers looking for finance.

According to data from Real Capital Analytics, total volume of commercial and multifamily sales rose 29% in 2011 to $162.8 billion. At the same time, data from the Mortgage Bankers Association shows their origination index hitting its highest point since 2007.

More than half of lenders and nearly half (44%) of borrowers are predicting more widely available credit in 2012.

100 Properties Valued at $1.17B Set to Close in Spain

Wed, 01 Feb 2012 08:35:14 GMT

Two cash-strapped Spanish regions are working against the clock to close sales of more than 100 office buildings to U.K. and U.S. money managers for about €900 million ($1.17 billion), in this year's first big test of investor appetite for Spain's battered property sector.

The deals by the two regional governments are a rare sign of life in a sector hit hard by the downturn. Sales of office space in Spain collapsed in 2009, falling 75% to €1.2 billion, according to global commercial property research firm Real Capital Analytics. To view a recent list of deals in Spain, click here.

Russia Seeks Foreign Investment

Wed, 01 Feb 2012 08:17:35 GMT

It has been reported that the global housing market suffered its worst performance in more than two years in the third quarter of 2011. However, it seems Russia is bucking the trend.

The Russian government has been struggling for years to achieve low-digit inflation, in order to create a favorable investment climate and lure foreign investment. According to the Federal State Statistics Service, the country's consumer price inflation dropped to 6.1 percent in 2011, (Ross tat).

Global commercial property research firm Real Capital Analytics, , records $6.4 billion of sales in 2011. View more data about Russia's cross-border capital flows using RCA's Cross-border tracker tool and in Europe Capital Trends Year in Review.

Refinancing in an Interesting Market

Thu, 26 Jan 2012 12:13:24 GMT

With over $400 billion in commercial real estate loans maturing in 2012, borrowers are looking to refinance despite the difficult market. The CMBS market (the usual conduit for loans in years past) will probably only be good for $30-50 billion of new volume, so the question remains where these new loans will come from.

One sector that is getting a lot of notice from lenders is retail. Dan Fasulo, managing director at Real Capital Analytics, states that the interest in retail is a “global phenomenon, as people realize that the worst is over and [these properties] have tremendous intrinsic value”. The caveat that he also provided is that this only applies to the first and second tier properties, while tertiary level properties will still struggle.

Capital infusions are also another way to avoid looking for new financing while the LTV of a property is out of line. SL Green recently recapitalized a property in New York by pouring in cash and issuing shares, thus bringing down the LTV and leading to a new mortgage on the property.

Billions in Commercial Real Estate Loans Coming Due in 2012

Wed, 25 Jan 2012 16:02:17 GMT

The principals and lenders in the commercial property market are beginning to see billions of dollars in commercial mortgages come due as the boom days of 2007 hit the five-year mark. And while the number of maturing loans is likely to hit a new peak this year, there are fewer lenders to help refinance this debt. Banks in Europe are suffering from the debt crisis, the CMBS market is still relatively small, and insurance companies remain very conservative and selective with the properties they recapitalize.

Special servicers, banks and other lenders may be more willing to resolve troubled property situations now. The number of recapitalizations has already blown up over the past year. Real Capital Analytics has researched over $13.3 billion worth of recapitalizations in the U.S. in 2011, the most since RCA began tracking commercial property sales in 2001. European banks are also driving more deal activity by offloading some of their American loan portfolios.

But not all borrowers will struggle — some landlords can simply pay down the loans. In January, Vornado Realty Trust refinanced a $430 million loan at 350 Park Avenue with $300 million in debt and $132 million in cash. It is currently in the market to refinance the maturing $232 million loan on the Manhattan Mall in Herald Square.

Kushner Survives $1.8B Purchase of 666 Fifth Avenue

Wed, 18 Jan 2012 12:00:45 AM

In 2007, Kushner Companies purchased 666 Fifth Avenue for a staggering $1.8 billion. The Midtown Manhattan office building was highly leveraged and when the recession hit rents declined and leases were scarce.

In 2010 the loan was transferred to a special servicer, but the lenders agreed to reduce the principal and defer some of the interest. At the same time Kushner's new partner, Vornado Realty Trust, agreed to invest in improving the 30% vacant building resulting in a happier ending for Kushner. In exchange for putting fresh cash into 666 Fifth Avenue, Vornado and Kushner will have the right to recoup this money (with interest, in Vornado’s case) before the subordinate loan is repaid. “By all appearances, it seems like a fantastic deal for Vornado,” said Robert M. White Jr., the chief executive of global commercial property research firm Real Capital Analytics.

Of the $11.8 billion in commercial loans in Manhattan that were classified as troubled since 2008, just $3.4 billion, or 29 percent, remains in distress, said Ben Carlos Thypin, the director of market analysis. About $3.5 billion in loans — covering 14 buildings, including 666 Fifth Avenue, 3 Columbus Circle and 280 Park Avenue — have been restructured.

Morgan Stanley About to Close on Massive Russian Mall

Mon, 16 Jan 2012 12:00:45 AM

A Morgan Stanley real estate fund is in contract to acquire the largest mall in downtown Saint Petersburg for an investment of around $1.1 billion. Galeria Saint Petersburg was completed in 2010 and has over 1 million square feet of leasable area spread over five floors featuring global and local tenants.

According to Real Capital Analytics, Russian commercial sales totaled around $6.3 billion last year, down 15 percent from 2010 and 48 percent from more attractive times in 2008. Despite this, Russia’s lack of high quality mall space has fueled a recent retail boom.

Meridian Capital, and Capital Partners, a local Russian firm, are selling the center after appointing Jones Lang LaSalle to sell the property last June. The deal is scheduled to close later this month.

Charter School Investment Has Risks and Rewards for Property Investors

Wed, 11 Jan 2012 12:00:45 AM

A warehouse where workers once shaped and cut steel on Milwaukee’s north side is getting a second life. It’s being transformed into a charter school that’s scheduled to open in August.

A joint venture of Canyon Capital Realty Advisors LLC and former tennis champion Andre Agassi’s business partnerships is developing the property and will lease it to Lighthouse Academies of Wisconsin Inc. The Canyon-Agassi real estate fund has done one warehouse conversion in Philadelphia and is considering school projects in other U.S. cities, including New York and Houston.

Entertainment Properties Trust and Inland Public Properties Development Inc. also are among companies that are investing in buildings for charter schools as demand for campuses grows. More than 500 of the schools opened last year, bringing the U.S. total to about 5,600, according to the National Alliance for Public Charter Schools, a Washington-based advocacy group. The investors buy or develop properties and get income from renting to companies that operate the schools.

For Entertainment Properties, the charter-school investment yield is 9 percent to 10 percent, according to Keith Bokota, an analyst at Principal Global Investors. That compares with November’s 7 percent average capitalization rate for commercial property deals of more than $5 million, according to global commercial property research firm Real Capital Analytics Inc.

Leasing properties can entail risk because schools may be shut down for reasons including poor student achievement, low enrollment and financial troubles. About 150 U.S. charter schools didn’t reopen this academic year, according to the charter-school alliance.

New York Outperforming Other Markets

Wed, 11 Jan 2012 12:00:45 AM

Seven years after paying $215 million for Manhattan's Park Central Hotel, a venture of Goldman Sachs Group Inc. has sold the 934-room property for $396 million to LaSalle Hotel Properties.

Sounds like a happy ending, right? Well it was for the Goldman venture, but not for some of the lenders that became involved in the deal.

Riding the real-estate boom, Goldman piled $465 million of debt on the 1920s-era hotel near Carnegie Hall. That enabled Goldman to take out all its equity and at least $150 million in profit, people familiar with the deal said.

But the debt was based on what turned out to be an overexuberant valuation. The Park Central continued to generate enough cash to stay current on debt service thanks to the fact that much of its debt had a low adjustable rate. But the music ended when all the debt came due last year, and the Goldman venture wasn't able to pay off all the creditors from the sale.

Similar scenarios are expected to play out this year, especially with commercial borrowers who, like homeowners that took out huge second mortgages, used lofty valuations to overleverage their real estate.

Manhattan hotel values are clearly below the records they hit during the boom years. But the New York market is outperforming those in other parts of the country.

In the 12 months through the third quarter of 2011, the price per hotel room acquired in Manhattan rose 20% from the year-earlier period to $440,454, according to global commercial property research firm Real Capital Analytics. The peak price was $628,815 paid in the fourth quarter of 2006.

Cushman & Wakefield’s CEO Asia Pacific Believes Indian CRE will Experience Growth

Mon, 9 Jan 2012 12:00:45 AM

Sanjay Verma, Cushman & Wakefield’s CEO of the Asia Pacific region, believes that the Indian retail market has much room to grow due to the impending and continued growth of the middle class and the lack of retail infrastructure. “It is not who wants to come but why. The Indian retail market is under-developed, the density of organized retail is low and efficiency in the supply chain and distribution is missing,” Verma said in an interview with Business Standard.

Verma went on to say that the technology, banking, and finance sectors will be big drivers in Indian office space due to the global spread of large key tenants. Quoting data from Real Capital Analytics, he mentioned that Asia has been much quicker than the Americas or EMEA regions in bouncing back from recession and global capital flows showed this.

Despite Uncertainty, UK Commercial Property Still Popular with Overseas Buyers

Fri, 6 Jan 2012 12:00:45 AM

In the latest results from an industry survey by the British financial institution Lloyds Banking Group, respondents are not expecting the UK property market to improve in the next six months, suggesting that confidence is at its lowest since the index started in 2010. The severe decline comes as banks retreat from property lending amid pressure to reassess the risk of debt secured against property.

But London's commercial real estate sector has proven to be successful in sheltering from the effects of the eurozone crisis. Investors from Spain, Italy and Greece are increasingly looking toward London investments in a bid to shelter themselves from their countries' economic problems.

The FT quoted data from Real Capital Analytics, which showed that £10.21 billion was spent on London's commercial property sector by US, Middle Eastern, European and Asian institutions in 2011. A total of £13.2 billion was poured into the UK commercial property market, with London investments therefore accounting for 77% of this.

Vornado Refinances 11 Penn Plaza

Wed, 4 Jan 2012 12:00:45 AM

At the end of 2011, the REIT Vornado completed a refinancing of 11 Penn Plaza in New York City for $330 million the company stated in a press release. According to data from Real Capital Analytics, HSBC provided the financing.

The office building is located on the east side of 7th Avenue, between 31st and 32nd streets. Originally constructed in 1923, the 23-story building has 1.1 million square feet of leasable area.

Buying Spree in London

Fri, 23 Dec 2011 12:00:45 AM

Overseas appetite for London property has gathered momentum in the week before Christmas, with foreign investors hitting the capital for a £1.3 billion ($2 billion) spending spree.

In a series of big-ticket deals, buyers from across Asia, Africa and Europe have snapped up skyscrapers, upmarket clothes shops and sprawling City office developments.

London has absorbed £10.1 billion of foreign investment since the middle of the year, more than double that attracted by Paris, which, at £5 billion, is the next biggest draw for international capital, according to global commercial property research firm Real Capital Analytics.

Creative Spaces: An Emerging Trend

Tue, 20 Dec 2011 12:00:45 AM

Workers roam with laptops, meet on sofas and scribble on walls at Facebook Inc.’s new Silicon Valley headquarters, where rusted steel beams, exposed heating ducts and plywood-covered corridors are part of the decor.

The office campus in Menlo Park, California, was renovated for $250 million in a “hacker” style intended to express the culture of the world’s largest social-networking company.

While most companies don't efficiently use their offices, technology firms are leading the wave of an emerging trend-redesigned office space using nooks, kitchens and stairways as places where workers can meet on the fly.

“Creative space” is outperforming other property types, said Dan Fasulo, managing director of global property research firm Real Capital Analytics Inc., citing a Moody’s Investors Service index of prime buildings in six major cities with tech sectors. The measure gained almost 33 percent from its low two years ago, more than double the 15 percent advance for the broader commercial property index.

“They’ve seen their value skyrocket,” Fasulo said of the properties tracked in Boston, Chicago, Los Angeles, New York, San Francisco and Washington. “A new generation of corporate leaders is looking at space-planning as a core part of business to increase productivity and keep people in the office. The old guard looked at it as an expense.”

More Global Expansion Ahead for Real Estate Investment Trusts

Mon, 19 Dec 2011 12:00:45 AM

In a video interview at REITWorld 2011 in Dallas, Peter Slatin, financial columnist with Forbes and editorial director for Real Capital Analytics said that as REITs grow and expand their presence in the commercial real estate landscape, more will begin to build global portfolios.

Mr. Slatin discussed his outlook for the future of the REIT approach to real estate investment. He said he expects to see diversification in a variety of ways: "We’ll see continued expansion, but we’ll also see increased variation as some companies experiment with financial structures, development ideas and locations."

Slatin also made the prediction that more institutional investors will gravitate to the REIT approach to property investment, increasing their allocations to commercial real estate securities over direct forms of commercial real estate investment.

Adding that transparency and liquidity are the enduring legacy of the REIT model, Slatin said "Without these two things, real estate would have remained—and some of it still does remain—a secretive, private, closed investment world."

Archstone Adds $131M Apartment Asset to Portfolio

Wed, 14 Dec 2011 08:40:27 GMT

Furthering its expansion into the New York City market, Colorado-based apartment operator and investment firm Archstone has acquired Eastbridge Landing, a 209-unit, 22-story rental tower from sellers Madison International Realty and RFR Holding through an Archstone sponsored partnership, the company unveiled Tuesday morning. The site, located at 377 E. 33rd St., sold for a purchase price of $131 million.

The deal now brings Archstone’s total apartment portfolio in the New York-metropolitan area to 14 properties. It currently owns and manages 10 rental towers in Manhattan, one in Brooklyn and one on Long Island.

The property, which buffers the Murray Hill neighborhood, is located in close proximity to large employers such as the New York University Langone Medical Center and the United Nations. Rents range from $2,500 for studios and up to $5,400 for two-bedroom units. According to global commercial property research firm Real Capital Analytics, the property is 95% occupied.

Pretend and Extend coming to an end

Tue, 13 Dec 2011 11:52:26 GMT

Time is money, as the saying goes, but in some cases, biding your time is the richest strategy of all.

Throughout the downturn, the common practice of “extend and pretend,” where lenders hoped to delay the inevitable demise of troubled assets, was widely derided by distress hunters. After all, critics said, lenders were just kicking the can down the road, building a weak dam of false hope to hold back a flood of distress.

But even the staunchest critics would have to agree that extend and pretend actually worked. The swift rebound in values and continually improving capital markets gave lenders and troubled owners a way out this year, probably sooner than they could have hoped.

As a result, the 2011 Deals of the Year, a who’s who of large, distressed portfolios, signaled the endgame of extend and pretend.

At the starting line are overleveraged owners that bought at the height of the upturn and have since bought nothing but time. And waiting at the finish line is a bevy of hungry private investors, lured by the prospect of above-average returns on complicated capital restructuring deals.

“Extend and pretend allowed this to drag out, and now we’re starting to see a steady flow of distressed portfolios come to market,” says Dan Fasulo, managing director of global property research firm Real Capital Analytics. “There’s a window of opportunity now. And I think that will increase moving forward."

Distressed Las Vegas, Phoenix, & Miami making a come back

Mon, 12 Dec 2011 13:19:38 GMT

For the most part, Las Vegas, Phoenix, and Miami really have nothing in common but sand.

Just look at their histories: Vegas, the most modern of the three cities, was founded in 1905 and was mostly notable as an atomic bomb testing site for the Manhattan Project until mobsters built it into an oasis of gambling. Phoenix, so named because it was built on the ruins of a Native American civilization abandoned in 1450, was founded by a Confederate veteran who wanted to name it “Stonewall.” And Miami was the only major U.S. city conceived by a woman—Julia Tuttle, a citrus growing entrepreneur, who owned all of Miami’s land but gave nearly half of it to a railroad magnate to attract a train line to South Florida.

Yet in recent years, these three metros have all been linked in a tragic way—as the poster children for multifamily distress. All three markets reached dizzying heights in the run-up to the recession, then plunged to terrifying lows in 2008 and 2009. And market watchers and investors have been incredibly wary of whether any of the trio would ever be as strong as they were before the crash.

The forecasts are mixed: Vegas is the laggard, the only one of the three still truly distressed, though Phoenix continues to nurse a heavy hangover from overheated valuations. Miami is the healthiest of the three, confidently climbing out of a towering shadow of condos.

“This is just what happens in Phoenix and Miami every 10 to 15 years, and then it comes back to the surface. For Vegas, this is probably only their second boom/bust,” says Ben Thypin, a senior market analyst for global property research firm Real Capital Analytics (RCA). “When you’re investing in Phoenix and Miami, you can price in some rent growth or, at the least, population growth. Whereas in Vegas, the economic outlook is just so uncertain."

Hotel Renovations Expected in 2012

Mon, 12 Dec 2011 08:08:34 GMT

A steady recovery in the hotel industry has spurred a wave of renovation projects, a trend likely to pick up speed in the coming year.

Hotel owners placed planned upgrades on the backburner as bookings dwindled and room revenue dried up three years ago. Now that travelers are back in the market with a full suite of options to choose from, hoteliers are sprucing up their properties to remain competitive.

The resurgence of demand and pricing power also sparked a flurry of hotel sales since 2010. Through the nine months ending September of this year, global commercial property research firm Real Capital Analytics said hotel sales soared 122 percent to $14 billion.

$17.5B in Hotel Loans Come Due, Foreclosure Looming?

Wed, 07 Dec 2011 10:28:22 GMT

As $17.5 billion in securitized loans backed by US hotels come due in the next two years, lenders are doing more to avoid foreclosure on lodging properties than on any other type of commercial real estate.

Workout agreements have been reached on 53 percent of distressed hotel loans since the start of 2008, the highest among six commercial-property categories, according to data from Real Capital Analytics Inc. a global commercial property research firm.
Special servicers, who negotiate with landlords on behalf of investors in commercial mortgage-backed securities, typically install a receiver or hire a broker to sell an office, apartment or industrial building with multiyear leases. Hotel rooms, on the other hand, rent by the night, and contracts with such operators as Marriott International Inc. may be terminated if a property is repossessed, making it harder to run or market.

Among hotel loans being worked out is $1.44 billion in financing backed by 355 La Quinta Inns & Suites owned by a unit of New York-based Blackstone Group LP. It will mature on July 9, 2012, after three one-year extensions. The loan was transferred in September to the special servicer, Bank of America Corp., after the borrower requested modification.

Walton Street Seeks Buyer for 95 Industrial Props Purchased for $2.8B in 2007

Mon, 05 Dec 2011 10:56:33 GMT

Walton Street Capital LLC hired CBRE Group Inc to sell 95 industrial properties that it acquired for about $2.8 billion in 2007, when CRE prices peaked, as a debt payment on the buildings comes due in June.

Property owners have had difficulty refinancing debt amid the decline in US real estate values from their highs and upheaval in the commercial mortgage-backed securities market since July. Walton Street has a $2.45 billion loan repayment deadline in June. Blackstone Group LP, the world’s largest private-equity firm, has acquired almost $600 million of debt on the buildings, putting it in a position to take control if the borrower defaults.

“Walton Street would have to come up with a lot more money to hang onto this,” said Dan Fasulo, managing director at Real Capital Analytics Inc., a global commercial property research firm in New York. “The problem is they bought this portfolio very much at the height of the market, and I’m not sure these assets are worth that anymore.”

Walton Street paid about $120 per square foot for the CalWest properties, which total 23.4 million square feet (2.2 million square meters) and are mostly located in California. While it’s difficult to generalize, Fasulo estimates industrial assets are now valued at about $80 to $100 per square foot.

“They’re actually fortunate that most of the assets are in California, where there is significant demand,” Fasulo said. “They’re hoping someone will come along and see the value and help them work out of a difficult situation.”

Slow But Steady Pace in CRE Recovery

Tue, 15 Nov 2011 16:26:47 GMT

At Friday's REALTORS Commercial Real Estate Forum (NAR's Annual Convention in Anaheim, CA), analysts predicted modest but steady improvement in commercial real estate continued into 2012 and 2013.

NAR Chief Economist Lawrence Yun said that corporations are sitting on big cash reserves, the stock market is performing and job gains are slowly improving. Foreign buyers, attracted to U.S. investment opportunities are on the lookout for properties, according to Yun.

The weak housing market, with financially struggling owners transitioning to rentals or doubling up with family rather than buying, is helping to stir activity in multifamily properties, which is the strongest of the commercial property sectors by far, Yun said.

SVP Richard Peach of the Federal Reserve Board of New York offered a unique suggestion that was particularly suitable for Veteran’s Day: to improve the housing sector, help military personnel who served abroad purchase foreclosed properties.

Robert White of commercial real estate research firm Real Capital Analytics says much of the activity across sectors has been in higher-end properties in primary markets. However, the industry is now starting to see more activity in other property types and in secondary or tertiary markets. “It’s been a bifurcated market,” he said, “and that's starting to change.”

White predicts $200 billion in sales volume across sectors by the end of the year and a slight increase from that in 2013. “Lots of buyers are interested,” White said, in part because the risk premium is so attractive right now. Cap rates, at 7.9 percent, are particularly attractive in the industrial sector. The continuing difficulty in getting financing is still the biggest obstacle standing in the way of further recovery.

CRE Investment in Europe Has Risks and Rewards

Wed, 09 Nov 2011 04:57:40 GMT

When AREA Property Partners’ global chief executive officer Lee Niebart asked a small audience of CRE professionals whether they’d invest capital in Europe, only a few lowly hands went up. “That presents a challenge,” Niebart said, during a panel discussion held by Property Investor Europe magazine at DLA Piper’s Midtown Manhattan headquarters on Tuesday morning. “At the end of the day, our business is not to make stupid mistakes,” he added. “We have to be somewhat defensive when nobody raises their hand to invest in Europe that we have to be very, very careful in what we do.”

The panelists discussed the benefits--and risks--of European commercial real estate investment amid economic turbulence and sovereign debt issues. Despite those problems, Robert White, founder & president of global commercial property research firm Real Capital Analytics said property sales are performing well in Europe, showing $32.2 billion in investment during the third quarter alone.

Much of the activity, White said, is driven by Asian and Canadian capital in the UK, France, Germany and Poland. “It is probably just the tip of an iceberg,” he said, adding that one of the biggest things that separates Europe from every other market is a high proportion of institutional capital. “It is causing this risk aversion and the defensive acquisitions, the institutions still comprise about 50% of the European buyers,” he said. “We are starting to see an uptick in the cross-border activity within Europe and that capital is much more willing to explore a greater array of markets. Capital is flowing, and London is capturing the greatest portion of that, and Germany increasingly so, but it is still centric on the major markets.”

US Commercial Loan Originations Highest since 2007

Thu, 03 Nov 2011 00:00:40 GMT

Third quarter commercial loan originations have scaled to their highest level since the last quarter of 2007. The CMBS market that provided the cheap financing at that time has since been replaced by banks, insurance firms and mortgage-financiers Fannie Mae and Freddie Mac.

Despite these originations, Real Capital Analytics states that $49.8B in property transacted in the third quarter, a drop from the $58.5B transacted during the previous three months. Speculation in the market may be that prices are rising while the number of transactions may have fallen.

European Property Deals Reaching 2008 Levels

Tue, 01 Nov 2011 11:31:40 GMT

European transaction volumes are up 21 percent year on year, according to research firm Real Capital Analytics. Deals in Germany and Central Europe helped buoy the continent despite weak volume in regions of the UK and Southern Europe.

95 billion Euros in property sold through the first nine months of the year, mainly driven by large shopping center transactions. These included a half interest of Westfield Stratford City selling in London, as well as large mall deals in Frankfurt and Warsaw.

Total volume for the year will likely exceed 140 billion Euros.

Foreign Investment Rising for US Commercial Real Estate

Thu, 27 Oct 2011 15:32:25 GMT

Foreign capital has piled into big, multi-family apartment blocks and residential homes in the US in the past year as investors seek a global safe haven in increased American demand for rental property.

In absolute terms, the dollar volume of foreign purchases of multi-family property to September 2011 has exceeded 2010’s full-year total by 73 percent, according to data by global commercial property research firm Real Capital Analytics (RCA). Ben Thypin, director of market analysis at RCA, said he expected the year-on-year gain to be close to 100 per cent.

“Investors are seeking less risky assets whose value won’t be as volatile as many of the other investment opportunities available in this turbulent global economy,” said Mr Thypin.

Foreign investment represents 5.8 percent of all multi-family purchases, up from 3.7 percent in 2010, according to RCA. More statistics on the global market can be found in an article released on October 6, "Foreign Investment Continues to Grow" and more extensive data will be included in an upcoming publication "Global Capital Trends".

A weaker dollar, international market volatility and a continuing foreclosure crisis have combined to create an unlikely safe haven for international investors.

Foreign investors, who can include wealthy individuals as well as foreign pension funds, insurance companies, sovereign wealth funds and real-estate companies, have directly invested nearly $4.2bn in the US multi-family property market since the start of 2009, according to RCA data. Analysts say that the market share of such property owned by foreigners is significantly larger as the data does not include indirect investment through local intermediaries, which is difficult to track.

Kennedy Wilson Increases Assets Under Management with $1.8B Purchase in London

Tue, 25 Oct 2011 16:32:25 GMT

Kennedy Wilson, a Beverly Hills, California-based real estate investment and services firm, and its institutional partners purchased a loan portfolio from the Bank of Ireland for $1.8 billion. The loans are secured by class-A office, retail and multifamily properties located in London. Kennedy Wilson will complete the transaction in two phases. It has already closed on the first part of the acquisition valued at $1.4 billion on Oct. 21. At the end of November, it will close on an additional $400 million.

“This is a landmark deal for Kennedy Wilson,” Chairman and CEO William McMorrow said in a statement. “Under the leadership of Mary Ricks, our new team in Europe played a significant role in this success and the closing adds to our already strong base of business in Europe.”

Although recent reports have noted that NYC tops London as a favorite for commercial property investment in the first half of the year, United Kingdom saw $24.3 billion in commercial property sales, representing a 14 percent increase over the same period last year, reports global commercial property research firm Real Capital Analytics.

Blackstone Agrees to Buy Duke Realty's Suburban Office Holdings for $1.08B

Mon, 24 Oct 2011 16:32:25 GMT

Blackstone Group LP, the world’s largest private-equity firm, agreed to pay $1.08 billion to buy Duke Realty Corp.’s suburban office holdings in U.S. cities including Chicago, Dallas and Atlanta.

Blackstone Real Estate Partners VII will buy the 82 buildings with a combined 10.1 million square feet (938,000 square meters) of space, Indianapolis-based Duke Realty said in a statement. They include “substantially” all of Duke’s wholly owned suburban office properties in the Midwest and South.

Blackstone has invested more than $7 billion in real estate this year, and has raised $4 billion for its latest property fund that the New York-based firm expects to exceed $10 billion, Chairman Stephen Schwarzman said yesterday.

“Blackstone has a lot of capital to deploy so they need to deploy it in large chunks,” Ben Thypin, director of market analysis for global commercial real estate research firm Real Capital Analytics Inc., said in a telephone interview. “It seems like they got a good discount to what comparable properties have been trading for in those regions, especially considering how well-leased and relatively new the properties are.”

Hotel Development on the Rise

Mon, 24 Oct 2011 14:26:25 GMT

Building a hotel in New York City is becoming more affordable than buying as demand from publicly traded investors helps drive a surge in property prices.

Increased competition for purchases has led developers to plan the opening of about 50 new hotels this year through 2013 in New York, more than triple the number in Washington. Sixty-eight more are set for completion in 2014 and after.

Hotel developers, many of whom stopped building in Manhattan and other New York boroughs when financing dried up during the recession, are returning following a gain in commercial-property prices, which are at their highest since a record reached in 2006.
Manhattan lodging properties sold for an average of $505,157 a room this year through Sept. 30, up from $344,799 for all of last year and $413,644 in 2009, according to global commercial property research firm Real Capital Analytics Inc. At the 2006 peak, the average was $632,894. Meanwhile, companies including DiamondRock Hospitality Co. (DRH) and Hidrock Realty Inc. are building hotels for $300,000 to $450,000 per room.

2011 US YTD Volume Ahead of 2010 Numbers

Fri, 21 Oct 2011 11:34:40 GMT

Sales volume for the third quarter totaled $49.8 in the US, a 38% year-over-year increase. A noteworthy change in the data indicates that investors are moving beyond trophy markets, such as DC or Boston, and toward secondary markets such as Pittsburgh, Houston, or Minneapolis.

“You can’t have a recovery when only a handful of markets are experiencing the price appreciation and everything else is left out,” Real Capital Analytics founder and president Bob White states. “The recovery is becoming more inclusive.”

Investors are most likely looking for greater yields than what can be found with the usual trophy assets and the large amount of capital in the market is beginning to find a home.

Canadians Look to NYC for Higher Yields

Mon, 17 Oct 2011 13:12:25 GMT

Canadian investors have focused on investing in New York City the past two years, acquiring several trophy assets in large transactions either by themselves or through JVs. Buyers have included pension funds such as CPPIB or OMERS, as well as other smaller firms like RXR Realty and major REITs such as Brookfield.

Dan Fasulo, managing director at Real Capital Analytics, states that many Canadian investors are yield buyers who are interested in a five or six percent return. He goes on to state that these investors are finding the need to diversify as there are only so many large assets in Canadian markets such as Toronto.

Over US$2B in properties have been acquired in New York by Canadian investors so far this year, the highest total since at least 2001.

Private Equity Continues Investment in CRE

Thu, 13 Oct 2011 13:25:25 GMT

Well over 400 private equity funds regularly invest in commercial property, with 18 funds conducting capital raisings this year. Distressed assets are beginning to be a focus of these funds; 22% of all capital raised in 2010 was intended to target troubled properties.
According to RCA Managing Director Dan Fasulo, many investors need patience to wait for these distressed assets as negotiations take place behind the scenes. Note purchases often prove to be a convenient way to gain access to a property.

Private equity will most likely continue to invest in commercial real estate as the lure of potential double digit returns is too great to pass up when few other investments are currently offering such yields.

Cross-border Investment in the US Growing

Wed, 12 Oct 2011 00:00:40 GMT

Property investment in Europe and Asia has slowed with continued economic uncertainty. However, foreign capital continues to flow into the Americas, according to a recent report by global commercial property research firm Real Capital Analytics. Preliminary data shows cross-border acquisitions into the US will top $5 billion in the third quarter, a figure not seen since 2007.

The country isn’t created equal in drawing property dollars, however. About two-thirds of all the investment into the US has been into one of six major gateway markets, with Manhattan taking up 40%. Other cities popular for other countries have been Miami, Phoenix, Dallas and Houston.

Canada continues to be the most active investor into the US, with about one-third of all acquisitions, according to the RCA report. However, US acquisitions by investors based in China and Hong Kong increased by $1.5 billion in Q3 2011 from a year earlier, with South Korea also boosting its US investment to more than $1.1 billion for the year, the report said.

Download a free special report on cross-border acquisitions here.

Large Retail Joint Venture Finalized Between TIAA-CREF and CBL

Fri, 07 Oct 2011 17:46:25 GMT

With bargain-focused retail and mid-level brands making a comeback just before the holiday shopping rush, financial services firm TIAA-CREF and developer CBL & Associates Properties Inc. proved that the mall is still in style after closing on a $1.09 billion joint venture in four shopping malls in the Southeast. The malls include: West County Center in St. Louis; CoolSprings Galleria in Nashville; the Oak Park Mall in Kansas City, KS; and the Pearland Town Center Pearland, TX.

According to global commercial property research firm Real Capital Analytics, the 1.5-million-square-foot Oak Park Mall, anchored by Nordstrom, Dillards and AMC Theaters was purchased for $289 million; the 1.1-million-square-foot West County Center anchored by Nordstrom, Macy’s and JCPenney was bought for $395 million; the 1.1-million-square-foot CoolSprings Galleria anchored by Macy’s, Belk, Sears and Dillards was purchased for $200 million; and the 1.1-million-square-foot Pearland Town Center anchored by Macy’s, Dillards, Sports Authority and Barnes & Noble is worth $204 million.

NYC Tops London as Favorite Destination for Commercial Property Investment

Wed, 05 Oct 2011 00:00:40 GMT

For the first time since 2007, New York City beat London as the top destination for commercial property investment after better access to financing stimulated more US transactions, according to a new Cushman & Wakefield report.

Compared with a year earlier, investments grew 166% to $29.7 billion in the NYC area in past the 12 months through August. London commercial property investment increased 2.4% to $27.2 billion, according to the report based on data compiled by information service provider Real Capital Analytics.

The report added that Chicago, New York, Boston and Atlanta made up four of the five fastest growing real estate investment markets by volume. Frankfurt and Germany’s Rhine-Ruhr metro area ranked fourth, with growth of 126%.

A resurgence of the CMBS market in the US in the first half of this year spurred the increase in investment, said Joseph Kelly, director of market analysis at Real Capital Analytics. But that market is now “starting to slow down,” he added. "Distressed debt is a much greater concern in Europe than the US and that’s holding back new funding in the market, particularly for second-tier assets," Kelly said.

Kelly said there has been a “resurgence” in interest in London from US investors. Half of the money spent on property investment in London during the period came from abroad. Maintaining its spot as the number one city for cross-border property investment, London was followed by Paris, New York, Singapore and Beijing.

In a recent report, RCA's preliminary results for Q3’11 showed that transaction volumes globally should be flat to slightly ahead of Q3’10, but will fall short of reaching levels recorded in Q2’11.

Blackstone on the Retail Acquisition Path

Tue, 27 Sep 2011 15:12:25 GMT

Blackstone has contracted to acquire 36 mainly grocery anchored strip centers from publicly traded REIT Equity One for a total of $473.1M. The properties are located throughout the southeast US with a special focus on Florida and Georgia, and the transaction is scheduled to close during the fourth quarter of this year. According to commercial property research firm Real Capital Analytics, sales of US grocery anchored centers in just the first half of this year have already exceeded the total transacted for all of 2010. This is the second large retail acquisition for Blackstone this year, following up on June’s $9 billion acquisition of Centro’s US portfolio. Lazard Freres advised Equity One, while Eastdil advised Blackstone.

Real Capital Analytics and NIC Release Seniors Housing Report

Mon, 26 Sep 2011 13:27:25 GMT

Global commercial real estate research firm Real Capital Analytics (RCA) and the National Investment Center for the Seniors Housing & Care Industry (NIC), a leading industry resource for seniors housing, announce the release of their co-branded report. The RCA-NIC Seniors Housing & Care U.S. Quarterly Report 2Q2011 delivers national trend data beginning in 1Q2008 and provides details on most seniors housing and care transactions that closed in the first half of 2011. The foundation of the report is a strategic alliance between RCA and NIC and a jointly developed database aimed at increasing property valuation and pricing transparency in the seniors housing and care sector.

The report is available for purchase in the RCA Publications Shop.

"For the twelve months ending June 30, 2011 the seniors housing and care market produced its highest ever transaction volume, posting nearly $20 billion in closed deals. The spectacular amount of transaction activity continues to generate interest and accelerate the sector's advancement as a commercial real estate class in its own right," said RCA Founder and President Bob White.

Those active or considering investing in the rapidly growing seniors housing and care sector demand data at the level of detail and scope of coverage available to other commercial real estate property types. The RCA-NIC Seniors Housing & Care U.S. Quarterly Report provides unbiased and comprehensive information to monitor sales, track pricing, gather competitive information and identify market trends, including:

- investment trend activity,
- market fundamentals,
- top buyers and top sellers; pinpointing dealmakers,
- specific details for most transactions.

The firms' alliance, database and co-branded quarterly report have been nearly three years in the making and emphasize the commitment of RCA and NIC to provide quantitative data, drive transparency and facilitate investment decisions. "RCA and NIC MAP subscribers now have enhanced access to comprehensive time series data including sales transactions and market fundamentals detailing the trends within the seniors housing and care property market," said NIC's President Robert Kramer. "Our alliance with RCA is designed to keep those interested in seniors housing and care up to date with property pricing and valuation trends."

About National Investment Center for the Seniors Housing and Care Industry
For 20 years, the National Investment Center for the Seniors Housing & Care Industry (NIC) has been committed to advancing the quality of seniors housing and care by facilitating informed investment decisions for investors, lenders, owners, operators and developers through groundbreaking research, actionable data and dealmaking events. NIC is the leading provider of historical and trend data on the industry through its NIC MAP® Data and Analysis Service that tracks more than 12,000 properties on a quarterly basis in the 100 largest metropolitan markets. Proceeds from its annual conference and other events are used to fund data and research on issues of importance to lenders, investors, developers, operators, and others interested in meeting the housing and care needs of America's seniors. For more information, visit www.nic.org.

About Real Capital Analytics
Real Capital Analytics, Inc. (RCA) is a global research firm based in New York City. The firm's proprietary research is focused exclusively on the investment market for commercial real estate. Within that arena, Real Capital Analytics offers the most in-depth, comprehensive and current information of activity in the industry. In addition to collecting transactional information for property sales and financings, RCA interprets data such as capitalization rates, market trends, pricing and sales volume. RCA also quantifies the market forces and identifies the trends that affect the pricing and liquidity of commercial real estate around the world. The firm publishes a series of Capital Trend reports and offers an online service that provides current transaction and troubled asset information for all markets globally. For more information, visit www.rcanalytics.com.

London real estate market stalls, except for top-end commercial property

Mon, 26 Sep 2011 11:13:40 GMT

In the first six months of 2011, $12.3B was invested in London offices, retail, and multi-family properties, according to the mid-year Global Capital Trends report provided by Real Capital Analytics. This London total was more than any other city worldwide; according to the Global Capital Trends report, over 180 significant ($10m+) properties were sold in London, representing a 19% increase year on year. But following the August 2011 riots, it seems only the highest of high-end trophy properties are attracting investment.

A major component of this year’s growth has been the influx of capital from Asian and Middle Eastern investors, along with some German, Spanish, and American capital filling in the gaps. But these investors are looking for the safe haven that London provides, and are often partnering with a local investor to further hedge their bets.

Alternative investments may prove significant in coming months as investors seek to diversify; student housing and residential portfolios are rumored to be targets.

CBRE Forms $200 Million JV with REIT to Acquire Grocery Shopping Centers

Wed, 21 Sep 2011 09:39:40 GMT

CB Richard Ellis’s investment arm has formed a joint venture with Phillips Edison-ARC Shopping Center REIT to buy over $200 million in grocery-anchored retail centers as demand for commercial property climbs. The Cincinnati-based non-listed REIT will add $52 million to the partnership, and clients of CBRE Investors contribute $50 million.

Supermarket-focused retail centers attract buyers in a sluggish economy because of the presumed safety of properties that consumers must visit for necessities.

Through the first half of 2011, over $5.5 billion were sold, 22% more than the $4.5 billion in ALL of 2010, according commercial property research from Real Capital Analytics. The 2011 total for grocery-anchored properties is the highest since 2007 (the peak of the CRE market).

Europe Draws Mortgage REITs Seeking Distressed Property Deals

Mon, 19 Sep 2011 16:17:25 GMT

Starwood Property Trust and Colony Capital, US mortgage investors formed amid an expected surge of distressed debt, are turning to Europe as banks tighten lending and sell real estate loans.

Despite the turmoil in the debt markets, the founder of Connecticut-based Starwood, Barry Sternlicht calls Europe a “fertile field.” He has made deals including a $71.5 million loan on a group of 45 properties leased by a unit of Metro AG, Germany’s largest retailer. California-based Colony, led by Thomas Barrack, invested $30 million in July for a stake in five non-performing loans backed by buildings in Frankfurt and Berlin.

The REITs are seeking transactions overseas, expecting that delinquencies will rise, and that banks will dispose of more bad debt and make fewer loans in a weakening economy.

Dan Fasulo, managing director at Real Capital Analytics said “It’s hard to find a rock that hasn’t been overturned in the US. It doesn’t surprise me that some of the major players here would turn to Europe, where there remains a lot of skeletons in the closet.”

Over 325 Southeast REO Commercial Properties & Loans Coming to Auction

Tue, 13 Sep 2011 17:38:25 GMT

Auction.com is reportedly prepping a massive regional auction - more than 325 Southeastern US commercial notes and REO properties - to be online by October 6.

The $2 billion portfolio includes retail, mixed-use, hotel, land, industrial, office, and multifamily apartment properties in Alabama, Florida, Georgia, Kentucky, Maryland, Mississippi, North Carolina, South Carolina, Tennessee and Virginia. Bids start as high as $10.5 million.

Auction.com has focused on residential properties, but run commercial auctions since the 90s. Auctioning non-performing notes and commercial REO properties has become a bigger part of their business since the commercial real estate downturn.

At Real Capital Analytics, managing director Dan Fasulo thinks the Southeast auction could provide useful economic insights. “This year, as the primary markets got pricey, we started to see the recovery spread out to secondary markets across the country — but then this summer happened.”

Fasulo says he believes the recovery may slow down because of the recent debt ceiling crisis and the increasing potential of a double-dip recession.

“I think this portfolio of notes and properties could be a good barometer of how deep the demand is in secondary markets right now, coming out of a pretty volatile summer,” says Fasulo.

Dr. Jeffrey Fisher Strengthens ARGUS and RCA Partnership

Mon, 12 Sep 2011 00:01:40 GMT

ARGUS Software, the global leader for real estate valuation, analysis, asset and investment management solutions, has appointed Jeffrey D. Fisher, Ph.D., to the position of Senior Global Consultant. Dr. Fisher will also be serving in this capacity for commercial property research firm Real Capital Analytics (RCA), strengthening and further aligning the partnership of the two companies.

Dr. Fisher served as professor of finance and real estate at Indiana University’s Kelley School of Business, and was director of the Benecki Center for Real Estate Studies. He has been on the Board of Directors of the Pension Real Estate Association (PREA), the Homer Hoyt Institute, the National Council of Real Estate Investment Fiduciaries (NCREIF) and was a Trustee of The Appraisal Foundation. Dr. Fisher has received numerous accolades and has become a well-known expert in the industry through his extensive research and publications.

“This is a great opportunity for me to work with ARGUS Software as they integrate state-of-the art technology with market data from leading information providers like Real Capital Analytics to enhance the transparency and efficiency of commercial real estate markets,” commented Dr. Fisher.

“Having been a member of our advisory board for years, Dr. Fisher has been instrumental in guiding ARGUS to create solutions that address the needs of our clients,” said Mark P. Kingston, president of ARGUS Software and chief knowledge officer of Altus Group. “His expertise and vision have helped create methodologies and standards that have shaped the global commercial real estate community. In his expanded role, his savvy will guide the ARGUS team towards building the right solutions to improve the way our clients do business.”

“We are pleased to be strengthening our bonds with both Dr. Fisher and ARGUS,” said Bob White, founder and president of RCA. “Having worked with Jeff on a number of projects over the years, I am confident that he will help keep ARGUS and RCA at the forefront of innovation for commercial real estate information and technology.”

About ARGUS Software

For over 25 years, ARGUS Software has been the leading global provider of software and solutions for analysis and management of commercial real estate investments. ARGUS products are the industry standard and provide a complete solution for managing and growing a commercial real estate portfolio. More than 4,600 of the real estate industry's leading owners, managers, financial institutions, brokerages and REITs, in 45 countries and on five continents use ARGUS solutions to improve the visibility and flow of information throughout their critical business processes. These solutions include asset management, asset valuation, portfolio management, budgeting, forecasting, reporting and lease management. Now a part of Altus Group Limited, ARGUS continues to provide up to date and relevant solutions to our clients. For further information, visit www.argussoftware.com

About Real Capital Analytics

Real Capital Analytics, Inc. (RCA) is a global information service provider with offices in New York City, San Jose, London and The Hague. Started in 2000, the firm's proprietary research is focused exclusively on the investment market for commercial real estate. In addition to collecting transactional information for current property sales and financings, RCA analyzes and interprets the data, providing valuable insight on commercial real estate investment. Among other reports, RCA publishes Global Capital Trends, Europe Capital Trends and US Capital Trends. Covering all markets globally, RCA’s investment market data and analysis is relied upon by all segments of the real estate community: buyers, developers, brokers, lenders and regulatory agencies. Timely, complete and accurate reporting of investment activity is the hallmark of Real Capital Analytics. For further information, visit www.rcanalytics.com.

Hines Sells Chicago's 3 First National Plaza for Nearly $350 Mil.

Thu, 01 Sep 2011 13:17:25 GMT

Chinese and Korean investors have agreed to buy the 1.4 million square foot, 57-story Three First National Plaza office complex in Chicago. Although Hines declined to disclose details, the transaction price was near $350 million, according to commercial real estate research firm Real Capital Analytics.

The buyer was a partnership of Downtown Properties, which is the US associate of Hong Kong-based Gaw Capital Partners, and a South Korean consortium.

Hines originally developed the property in 1981, and restructured the ownership in 2005, with ownership changing hands between Hines affiliates Hines-Sumisay (Sumitomo) Fund. The sale price recorded at that time was $245.3 million or about $170 per square foot.

Google Expands Real Estate Strategy in Silicon Valley

Wed, 31 Aug 2011 00:00:40 GMT

By some estimates, Google has spent $115 million to acquire 16 buildings in Mountain View, CA this year. In all, the company is planning to add 3.5 million square feet to the 4.3 million square feet they already occupy in Mountain View.

Google's largest Silicon Valley outpost outside of Mountain View is a recently leased four-building Sunnyvale complex named Technology Corners. Google spent $1.8 billion last winter for a 15-story building in Manhattan, the biggest transaction of 2010 involving a single U.S. building, according to Real Capital Analytics data. Google also spent over $150 million this year to buy the tallest commercial block in Dublin, Ireland.

Google currently has 29,000 employees worldwide, but with approximately 2,000 positions available on their job site (not to mention the 19,000 Motorola additional staff that Google will add after the planned merger), these expansion plans are only the start. Many of these commercial properties are under review for possible expansion or rebuilding.

Five Mile May Take a Larger Slice As Innkeepers USA Gets Carved Up

Thu, 25 Aug 2011 12:35:25 GMT

After losing out to Cerberus Capital Management LP at an auction for Innkeepers’ USA Trust properties in May, Five Mile Capital partners may have a second chance at 64-hotel package now that Cerberus has dropped out of the deal. Bloomberg recently reported that the Stamford, CT-based investment firm is currently in negotiations with Innkeepers’ for a separate set of 140 limited-service Red Roof Inns, but may arrange to make a move for Cerberus’ additional 64 properties.

Bloomberg contacted Real Capital Analytics’ Ben Carlos Thypin for his outlook on Five Mile now that they have the potential to scoop up a significant portion of Innkeepers, which filed for bankruptcy protection this time last year. Mr Thypin told Bloomberg that, “Bidders who lost the last time may jump at the chance to re-engage with Innkeepers now that the original deal has been terminated . . . As Five Mile closes in on a potential acquisition of Red Roof, they may be more competitive now that they have a chance to significantly grow their footprint in this sector.”

Suburban Long Island Complex Flips after Successful Repositioning

Wed, 24 Aug 2011 10:23:40 GMT

When it comes to selling commercial properties in less-visible suburban markets, occupancy rates trump nearly every everything else in cutting a deal. An article in the Wall Street Journal detailed the recent sale of the Business and Research Center in Garden City, NY to illustrate this simple suburban selling rule. The brutish six-level concrete buildings, constructed in the 1960s, are an eyesore to some and uniquely attractive to others. More important, however, the complex attracted the attention of bidders due to its high occupancy level and recent renovations.

Metropolitan Realty Associates purchased the property for just $7.4 million in 2005 as the market was approaching its peak; shortly thereafter its primary tenant vacated the space and Metropolitan took the opportunity to give the desolate property a facelift and reposition it as a multi-tenant business center, rather than a laboratory industrial space. After $15 million in renovations, Metropolitan was able to lease up the space and the property sold this year for $39.3 million – a handsome profit, proving flips involving properties purchased during the boom years do occur.

In explaining the sale, Real Capital Analytics Managing Director Dan Fasulo told the Journal that, “Investors active in suburban markets are almost singularly focused on well-leased assets.”

Love of the Didgeridoo, or Higher Yields, Attracts Cross-Border Capital Back to Oz

Tue, 23 Aug 2011 09:28:40 GMT

With its relatively higher yields (averaging 8.3 percent during the second quarter) and solid economic trends, Australia has reemerged as a top cross-border capital destination for investors squeezed out of competitive first-tier markets around the world.

Investment & Pensions Europe recently cited data aggregated by Real Capital Analytics and featured in the mid-year review edition of its Global Capital Trends report to state that the Australian market has seen cross-border acquisitions spike to nearly $4.0 billion in 2011—accounting for 42% of total Australian acquisition activity during the same period—and dispositions fall as well. Australia, once a favorite of global players, saw its level of cross-border inflows plunge during the downturn as investors pulled their capital back to domestic, familiar markets.

The report also stated that Melbourne, the second-largest city in Australia, has attracted the largest share (over 50 percent) of cross-border capital, with investors’ strongest focus on retail and office properties. It also discovered that the three global zones – the Americas, Asia Pacific, and EMEA – each accounted for a similar share of cross-border sales into Australia the past 12 months.

Mountain of Retail Distress May Contain Just a Molehill of Opportunities

Tue, 23 Aug 2011 00:00:40 GMT

Could it be that the avalanche of retail properties falling into distress will not actually occur this cycle? According to Retail Traffic, which cited data aggregated by Real Capital Analytics (RCA) in a recent article, just $1.6 billion in US retail properties fell into distress during the second quarter. This was the lowest absolute amount since the third quarter of 2008. Concurrent to the trend of less new distress, resolutions of current outstanding distress have accelerated, with lenders having worked out more than half of this cycle’s retail distress as of the end of the past quarter.

Retail Traffic interviewed RCA Managing Director Dan Fasulo on these results, and his initial observation was that, “That’s good news for retail property owners looking to sell or refinance their centers, but bad news for investors looking for steep discounts on core properties.” Mr Fasulo focused on the metrics behind workouts, stating that sales of retail properties out of distress now account for around 15 percent of total retail sales in any given month. That comes as a clear sign that the lender practice of “extend and pretend” is coming to an end and that the investment opportunities this distress cycle was forecasted to yield may not come to fruition.

For more on Mr Fasulo’s thoughts on retail distress an what it means for that sector in general—including geographical trends, how a double-dip recession might play out for retail, and a comparison of this cycle to others in the past—please see the full interview on Retail Traffic’s site.

Europe's Leading Markets Still Magnetizing Investment Capital

Thu, 18 Aug 2011 16:24:25 GMT

Despite all of Europe and the UK’s recent challenges both economic and sociopolitical, commercial real estate investors are still cutting deals for once-in-a-career deals in the region’s leading global cities. Bloomberg recently cited Real Capital Analytics data to state that property sales in the Paris metro jumped by 38 percent between the first halves of 2010 and 2011, while the reliable cities of Frankfurt and Stockholm pushed Germany and the Nordic nations up by 45 percent and 61 percent, respectively, over the same year-over-year period.

Though prices for trophy properties in London, Paris, and Stockholm are sky-high compared to just two years ago, Bloomberg cited RREEF Global Chief Pierre Cherki to explain investors’ continued interest in Europe’s best properties and markets: “For investors with a 10 to 15-year horizon, deals still make sense” because of attractive cash flows and some scope for higher rents and values.”

Bloomberg also quoted RCA Managing Director Dan Fasulo as stating that he believes the primary markets of Europe still have some ways to go in their spectacular recovery. As squeamish investors watch, “The latest declines in stock prices and bond yields…The real investment momentum is in those countries viewed as a place of stability. There’s a huge pool of capital out there just focused on core real-estate markets.”

North Carolina Triangle a Favorite Alternative to Primary Markets

Thu, 18 Aug 2011 12:31:25 GMT

With activity in primary markets having reached a boiling point over the past year, many institutional-type investors are looking to expand their horizons beyond, to markets that, according to the Raleigh-based News & Observer, “have characteristics, or are home to certain institutions, that have helped them weather the recent economic storm better than others.”

One of those markets is the News & Observer's own; Raleigh, a part of North Carolina’s economically-charged “Research Triangle,” which saw second quarter retail sales rise by 186 percent year-over-year according to data aggregated by Real Capital Analytics.

The News & Observer detailed the recent sale of the large White Oak retail mega center to exemplify investor’s growing interest in cities such as Raleigh. For more on the that sale, which Inland American Real Estate Trust closed last week for $95 million, please see the full article on the News & Observer’s site.

Equity Market Turmoil May Fail to Stifle CMBS Recovery

Thu, 18 Aug 2011 00:00:40 GMT

At the start of the year, commercial real estate debt analysts indicated that CMBS activity had nowhere to go but up. And up it did, with Retail Traffic Editor-in-Chief David Bodamer describing the formerly down-and-out securitized debt vehicle as “…having a pretty good year in 2011.” With more than $20.0 billion in new issues through July, forecasts had new CMBS reaching up to $50.0 billion by year-end.

The past month’s macroeconomic turmoil has put a dent in that bullish outlook. Spreads have widened as a result of that trouble to their widest level since last Fall, leading originators astray as they attempt to price the third quarter’s issuances. If things calm down on Wall Street, however, the year may still finish off strong. Mr Bodamer cited Real Estate Analytics Managing Director Dan Fasulo’s expert opinion on the matter: “I’m pretty sure CMBS is going to take off the rest of August and come back after Labor Day…But CMBS as an asset class still remains attractive in my mind on a risk adjusted basis compared with a lot of other things out there.”

More than anything, the article in Retail Traffic emphasized that solid securitization packages are what will allow the CMBS market’s recovery to continue. Quoting David Lynn, managing director at New York-based Clarion Partners, Mr Bodamer concluded with “All things considered CMBS looks relatively good, with the caveat being it has to be simpler and well underwritten.”

Florida Investors Still Playing it Safe with Focus on Core Properties

Wed, 17 Aug 2011 16:17:25 GMT

“With the Sunshine State still carrying too much housing stock and its unemployment rate above the national average, investors have avoided risk and gravitated toward necessity-based retail in markets with established populations.”

So stated Retail Traffic Associate Editor Elaine Misonzhnik in a recent article detailing how, at least for Florida investors, core product in major cities remains at the top of commercial property buyers’ shopping lists. Ms Misonzhnik relied on data aggregated by Real Capital Analytics (RCA) to state that, while nationally, $2.1 billion in retail sales in the first six months of 2011 posted a 33 percent gain over the same period last year, “…the the vast majority of investors looking for acquisitions in Florida want core assets in primary markets…preferably grocery-anchored centers or power centers.”

This has led to some aggressive competition among investors, which has driven initial yields on primary market retail properties down by 53 basis points over the past 12 months, to 7.5 percent, and the average price for space up by 14 percent, to $144 per square foot. Many market analysts are pointing out the similarities between many recent quality Florida retail property sales and some market-peak sales of 2005 or 2006.

Private Equity Firms Grow their CRE Investment War-chests

Wed, 17 Aug 2011 13:30:25 GMT

When told that private equity giants Fortress Investment Group and Colony Capital, among others, are raising pools of funds to invest in commercial real estate, Real Capital Analytics’ (RCA) Ben Carlos Thypin explained to Bloomberg that, “Despite the turmoil of 2008, sponsors can still make a compelling pitch that there are opportunities to invest in commercial real estate either by making loans or buying properties and debt.”

Private equity shops certainly are seeing the same opportunities Mr Thypin refered to, as a recent study done by the London research firm Prequin Ltd found that there are 441 private equity companies currently raising real estate-focused funds. This is 63 more than last year and more than twice the number that were on the prowl during the market’s nadir in 2008.

RCA first recognized commercial real estate’s currently high initial returns, at least compared to other available investment vehicles, as early as last year. Private investors seem to have also recognized the opportunities now available, and are pouring money into private equity shops. At the same time, Wall Street’s largest banks have spent the past two years pulling out of the same market, licking wounds they received from bad commercial property investments during the market downturn. The article on Bloomberg suggested the two investment groups' activity were related, with private equity seeing bank’s diminished role as a way in to the lucrative investment sales and debt markets.

Pension Funds Reevaluate as Trophy Property Pool Dries Up

Wed, 17 Aug 2011 00:00:40 GMT

Just as news of investor’s affinity for primary markets and trophy properties reaches a new crescendo, the Wall Street Journal recently reported that pension funds – an important slice of the institutional-grade investment class, which targets such top-tier assets – are “starting to back away from trophy properties in the most expensive real-estate markets over concerns a new bubble is inflating.”

The Journal illustrated just how frothy pricing in the nation’s leading markets has gotten over the past two years by citing data aggregated by Real Capital Analytics: “In May, a 36-story Manhattan tower at 750 Seventh Ave. sold for $485 million with a capitalization rate of 4% . . . A similar 44-floor building nearby at 1540 Broadway, sold for $355 million with a 6% capitalization rate in 2009.

The strong demand that has caused pricing for trophy properties to bounce sky-high since the downturn, and that has not been matched by a similar increase in income produced by such properties, has caused pension fund giants California State Teachers’ Retirement System and the Texas Municipal Retirement System to begin looking for other opportunities.

Seattle Gets Back to Building (Multifamily Properties)

Mon, 15 Aug 2011 12:30:25 GMT

In agreement with a recent Real Capital Analytics (RCA) US Capital Trends Special Report, Puget Sound Business Journal's Jeanne Lang Jones described how the Seattle metro market has seen sales of development sites follow the nationwide market on a cautious, but visible, climb upwards over the past year.

According to the RCA Special Report, land sales rose to $3.2 billion in the first half of 2011 for the entire US, up by 64 percent from the same period last year. The report compared the 2009 through 2011 year-to-date period with the 2006-2009 period, and discovered that the average price per buildable unit fell in Seattle’s CBD between the two periods, from $60,941 to $39,913. Nonetheless, this drop compares favorably with many other less-visible markets across the US, as the city has many attractive “fully committed parcels in prime locations” that are commanding higher prices.

Soho Retail Trailing Meatpacking District's High Line Rent Rates

Fri, 12 Aug 2011 00:00:40 GMT

Further proving that New York’s “High-Street Retail” is no longer a single corridor along Fifth Avenue, recent reports cited by an article on Bloomberg spoke of the Big Apple’s Meatpacking District, and the large luxury retail “cachet” it has developed over the past decade. With well-heeled designers from around the globe flocking to the trendy neighborhood that the instantly-popular High Line park and other new amenities now call home, rents for retail space have spiked to levels well above nearby retail areas. Bloomberg quotes the Meatpacking District’s average retail rent to average $400 to $500 a square foot, as compared to $103 per square foot for all retail space below 14th Street in Manhattan, or $268 per square foot for Soho.

With the Meatpacking District now a real contender for retail leases, commercial property investors are now taking a harder look at opportunities in the neighborhood too. Bloomberg cited data reported by Real Capital Analytics to state that, “In a neighborhood where properties traditionally have been owned by a few families, there have been at least 12 commercial- property transactions in the past five years, with a total value of $314.3 million.” Two transactions account for nearly half of that total alone.

The one problem with all the up and up in rent rates seems to be the loss of local, small boutiques, as national and international retailers gain an edge in being able to afford space in the district. Stores such as Apple and Sephora are quickly squeezing out exclusive yet low-volume designer boutiques as well as other retailers with only a local presence.

Tampa's Multifamily Market Posts Strong First Half

Fri, 12 Aug 2011 00:00:40 GMT

According to Real Capital Analytics’ (RCA) recently-released US Capital Trends Mid-Year Review, 19 apartment properties sold during the first half of 2011 for a total of $435 million. Those sales represented nearly half of all commercial transaction volume in the Florida city during the same period, a statistic that the Gulf Coast Business Review cited as a sign of health for the market’s multifamily market.

Retail deals in Tampa totaled $286 million during the first six months of 2011, while office sales racked up another $187 million. Just two hotels sold during the first half of the year, totaling $15 million in transaction volume.

Office Tower Duo Sells in Seattle for $480M , Confirming Interest in Trophy Assets Still Strong

Thu, 11 Aug 2011 00:00:40 GMT

Up until yesterday, Real Capital Analytics data had identified the sale of the Parsons Corp complex in Pasadena, CA, which Morgan Stanley Real Estate Investing and Lincoln Property Co purchased in June for $325 million, as the largest office transaction on the West Coast in 2011. That ceiling was shattered when JPMorgan Asset Management acquired two significant office towers in downtown Seattle for a combined $480 million.

Located at 1918 Eighth Avenue (668,000 square feet over 36 stories) and 818 Stewart Street (232,000 square feet over 14 stories, the sale of the two CBD buildings is a signal that investors are still willing to pay top-dollar for quality assets.

CMBS Pipeline Narrowing after US T-Bond Downgrade

Wed, 10 Aug 2011 16:17:25 GMT

As Standard and Poor’s recent decision to downgrade the US's credit rating played out this past week, commercial real estate analysts opined on how a potential mortgage-bond selloff could affect their industry’s recovery. Three of Bloomberg's contributing writers identified that a slowdown in the CMBS pipeline could occur if more uncertainty grows around the bond ratings of European nations and the US.

“The outlook darkened in the past month amid a selloff in securities linked to debt on properties such as office buildings and retail outlets. Top-ranked commercial mortgage-backed securities yielded about 298 basis points, or 2.98 percentage points, more than Treasuries as of yesterday, according to a Barclays Plc index.” Real Capital Analytics (RCA) Managing Director Dan Fasulo described the spike in yields as “…another hiccup we didn’t need in this recovery.” RCA reported that US commercial property sales increased to $55.6 billion in the second quarter, while offerings were up by 79 percent to $76.2 billion during the same period. A reduction in the amount of available credit would stifle this momentum going into the second half of the year.

Leading CMBS issuers have subsequently revised their forecasts for the second half of this year, including JPMorgan Chase & Co as well as Goldman Sachs, Citigroup, Deutsche Bank, and UBS. The Bloomberg article also stated that a slowdown in CMBS issuance would be especially apparent in the availability of debt in secondary and tertiary markets.

Can CRE Activity Sustain Through the Macroeconomic Shocks?

Tue, 09 Aug 2011 00:00:40 GMT

Between the recent downgrade of the US's credit rating to the downward revision of first quarter US GDP to weak indicators on manufacturing and consumer spending, the US economy’s recovery has been widely called into question over the past month. Yet, what does that mean for the commercial real estate market’s own recovery?

Retail Traffic recently cited Real Capital Analytics’ (RCA) projection that commercial real estate transaction volume will reach $200.0 billion in the US this year, or comparable to 2008’s level of activity, to state that the industry may have enough wind in its sails to offset some of the turbulence in capital markets. On the other hand, Mortgage Bankers Association Vice President Jamie Woodwell reminded Retail Traffic that, “Property values and interest rates - coupled with job growth, consumer spending, household growth and other macro-economic trends that drive demand for commercial real estate - will be keys to how property owners seek and qualify for mortgage financing going forward.”

Loosening of credit markets has been a driving factor behind the commercial real estate markets recovery, and CMBS specifically is a major source of debt for transactions. RCA Managing Director Dan Fasulo told Retail Traffic that, “We’re getting close to the point where the market cannot continue to see tremendous growth without CMBS as a source of liquidity…There are a lot of deals where borrowers can engage balance-sheet lenders directly. But that can’t go on forever.”

Can't Afford a Trophy Office Tower? Single-Tenant Properties May be an Alternative

Tue, 09 Aug 2011 00:00:40 GMT

After more than a year of intense competition among investors for the upper-crust properties of New York and Washington DC, National Real Estate Investor Online (NREI) recently identified a growing trend of non-institutional investors looking to acquire single-tenant triple-leased properties. Those opportunities – typically found outside primary markets and, thus, harder to locate – come with the safety of a long-term creditworthy tenant that is responsible for the property’s upkeep and insurance.

NREI cited data aggregated by Real Capital Analytics (RCA) to point out that single-tenant office properties in the US currently have a 7.9% initial cap rate, compared to just 6.5% for multi-tenant CBD office properties. The cap rate for single-tenant industrial properties is even higher, at 8.3%. NREI also pointed out via RCA data that the supply of single-tenant properties is growing, thereby reducing the price-down effect caused by competition, and sellers of single-tenant properties are achieving a larger percentage of their asking prices.

For more on this break-out trend, please see the full article on the National Real Estate Investor’s site.

UDR Rapidly Expanding in Manhattan

Mon, 08 Aug 2011 16:17:25 GMT

Colorado-based UDR Inc, the third largest publicly traded apartment real estate investment trust in the US, recently announced that it would purchase a downtown Manhattan apartment tower to expand its presence in the nation’s largest market to 1,916 units. The acquisition will be funded with $275 million in cash from recent apartment dispositions and $50 million in operating partnership units.

Using data recorded by Real Capital Analytics, Bloomberg reported that UDR has acquired Dwell95, a 507-unit apartment complex on Wall Street that was the former headquarters of JPMorgan Chase & Co. The building was purchased in 2006 by the Moinian Group, which converted it to apartments.

UDR Chief Executive Officer Tom Toomey described the purchase as a “…unique opportunity to further our presence in the Financial District, an area of Manhattan that we believe will continue to benefit from the redevelopment of the World Trade Center…”

Latest RCA Distressed Asset Update Speaks to Health of Market

Mon, 08 Aug 2011 13:29:25 GMT

Real Capital Analytics’ (RCA) robust data set of distressed commercial properties was recently cited on GlobeSt.com to discuss the “paradox between rising distress totals and the general improvement in real estate markets…” Writer Bob Howard pointed out that, while outstanding distress in the US continues to mount, RCA data displays that inflows of troubled assets and lender real estate owned (REO) properties has slowed over the past year, and workouts of existing distress have begin in earnest.

Mr Howard stated that, "Data from RCA shows that new inflows to distress totaled $3.1 billion in May, the latest month for which figures are available. That $3.1 billion is half the average monthly inflow of $6.2 billion from the previous 12 months.”

Predictably, for market analysts at least, RCA data illustrates that the most outstanding distress still lies in the Western region of the US, with the Southeastern region a close second. The Mid-Atlantic markets have seen the least outstanding distress mount during the current cycle.

Macroeconomic Troubles May Stymie CMBS Pipeline

Mon, 08 Aug 2011 12:29:25 GMT

Though individual commercial real estate markets are recovering at their own paces, the future of an important source of acquisition and debt capital that has been fueling the entire nation’s turnaround has been put into question. A recent article in the San Francisco Business Journal stated that, “Some of the positive momentum that had been reviving the CMBS market has hit a snag…For the past six months the CMBS market was recovering nicely: spreads were tightening, new issuances were increasing, and delinquency levels were dropping. But recently this trend has reversed.”

Real Capital Analytics Managing Director Dan Fasulo expressed trepidation over the future of CMBS, stating that, “A lot of the property owners and potential buyers that own large assets in places like San Francisco are counting on a CMBS market that is continuing to improve. Any disturbance to the CMBS market would impact the ability to finance acquisitions.” He did admit, however, that it may be too early to tell what direction the capital market will take in coming months: “If we have learned anything it’s that the capital market don’t always run in synch with underlying economic factors…They just do what they want.”

EMEA Lagged Global Growth in Property Sales during Q2

Fri, 05 Aug 2011 00:00:40 GMT

Daily real estate publication Quotidiano Immobiliare cited data aggregated by Real Capital Analytics’ recently-released Global Capital Trends Mid Year-Review edition to state that global transaction volume of commercial properties rose to $165.3 billion in the second quarter of 2011. This was 36 percent higher than the same period of last year, and pushed global year-to-date volume to $350 billion.

Quotidiano acknowledged that the continued growth in property sales was owed mostly to the United States, which posted a remarkable 147 percent jump over the previous year in the second quarter. The EMEA region, which has been destabilized by debt crises in the Eurozone over the past year, posted just a 10 percent improvement over 2010. Italy has narrowly avoided the debt crisis thus far, while the solid northern economies of Germany and the Scandinavian nations posted the largest increases in property sales during the second quarter.

CommonWealth REIT Buying NOLA's Tallest Skyscraper

Wed, 03 Aug 2011 00:00:40 GMT

CommonWealth REIT of Massachusetts has agreed to buy New Orleans's tallest skyscraper, One Shell Square, from MetLife for $107 million.

The real estate investment trust has spent more than $2 billion scooping up dozens of office buildings through the downturn, making it one of the biggest buyers of US office properties in this cycle, according to Real Capital Analytics. Among its other deals: Earlier this year it paid $171 million for Office Depot Inc.'s headquarters in Boca Raton. Commonwealth's operations are managed by Reit Management & Research LLC, owned by Barry and Adam Portnoy.

In the New Orleans deal, CommonWealth is paying approximately $85 per square foot. At the market's peak, some New Orleans office properties sold at a price as high as $200 per square foot.

Multifamily Apartment Prices and Sales Volume Rising in Seattle

Tue, 02 Aug 2011 11:30:40 GMT

In the Emerald City, the multifamily market has been heating up. A rush of CRE investment activity has lifted the Seattle apartment market with about $396 million in transactions in Q2, more than double the first quarter’s $172 million, according to property market research firm Real Capital Analytics.

"Seattle is one of those markets where you’re seeing an economic recovery, some job growth, and some really positive absorption trends," says Dan Fasulo, managing director at Real Capital Analytics.

In Q2, the average price per unit jumped to more than $143,000, up from $89,000 per unit in the previous quarter. And average yields fell from 6.8% in Q1 to 5.1% in Q2, according to RCA's data. Of the 13 significant property trades closed in Seattle since the beginning of June, no less than five showed cap rates of less than 5%.

Interest from institutional investors has picked up in a big way. Last year, only 8% of all multifamily transactions were bought by large investors. But so far this year, 35% of the $568 million in transactions has been sold to firms like JP Morgan, Deutsche Bank and UBS. And foreign investment interest in Seattle is accelerating with 12% of this year’s transactions coming from cross-border investors, compared with about 3% in 2010.

Non-subscribers can get a report of RCA's latest Seattle Apartment trend data here.

Commercial Real Estate Sales Stall

Mon, 01 Aug 2011 12:30:25 GMT

A recent article in the FT examined the new RCA Europe Capital Trends report and the tempering growth of investment sales activity.

“Investment in European commercial property stalled in the second quarter of the year as interest in real estate tailed off after six consecutive quarters of strong year-on-year gains in transactions.”

Relying on data aggregated by Real Capital Analytics (RCA), the FT cited that while Europe overall was "sluggish," the macro numbers masked impressive investment growth in Germany, the Nordics, and many of the exclusive submarkets of London and Paris.

Among the countries that contributed to slower commercial property investment in Q2'11 were the UK and France, as well as Greece, Portugal, Spain, and Ireland.

The Manhattanization of Downtown L.A.

Sat, 30 Jul 2011 00:00:40 GMT

"Who wants to sit in a car for three hours every day getting to their place of employment from the Inland Empire?" Dan Fasulo, managing director at commercial real estate research firm Real Capital Analytics says "Employers are finding that to attract the best people, they need to locate in places where there's access to multiple forms of transportation. One of those places is city centers."

In this article, Time compares city centers in horizontal Los Angeles and vertical New York City, noting some new developments in the City of Angels: Anschutz Entertainment Group's "Farmers Field" football stadium proposal.

Positive Momentum of Seniors Housing & Care Sector Sparks Investors to Strategize

Tue, 26 Jul 2011 13:32:25 GMT

In response to the rising fortunes of the seniors housing & care market in the US, one of the largest owners of such properties in North America has announced its intentions to cash out on as much as 40% of its holdings. The Wall Street Journal recently reported that Canada-based “Chartwell Seniors Housing Real Estate Investment Trust, which owns or partially owns 23,826 units in Canada and the U.S., estimates that the U.S. property sales could fetch as much as US$500 million.”

Chartwell’s move comes as investors find the seniors housing & care sector on a clear, upward trajectory in terms of fundamentals and valuation. The Journal cited a recent report by the National Investment Center for the Seniors Housing & Care Industry (NIC), based on data aggregated by Real Capital Analytics (RCA), which described this trajectory, which stated that occupancy in the sector – at 88% in the first quarter of 2011 – is approaching its former high of 92% posted in 2006. Investors expect occupancy to continue rising in the next decade.

Download RCA’s recent presentation to the National Investment Center for the Seniors Housing & Care Industry, featuring data aggregated by RCA on seniors housing & nursing care property transactions.

The Journal also cited that sales volume of seniors housing & care properties tallied $16.7 billion in the first half of 2011, and RCA Founder and President Bob White added that, “The volume has just exploded…” since last year. With multiple large-scale portfolios trading and some significant M & A activity, the sector's momentum has prompted current seniors housing & care property owners to reevaluate their investment strategies, including Chartwell. The firm intends to dispose of large chunks of its portfolio to revitalize its core properties and expand in high-growth potential markets such as Florida, Texas and Colorado among others.

Bubble, Bubble, LTV, and Trouble

Mon, 25 Jul 2011 00:00:40 GMT

A recent article on The Real Deal’s site presented some facts to help determine whether there is a danger of a bubble in top-end commercial real estate. Initially, the two sides of the debate propose that, “Some say investors anxious to deploy capital are driving up prices by overpaying for questionable assets. But others argue that, so far at least, still-tight lending guidelines and other restraining factors are preventing a repeat of the mid-2000s bubble.”

The Real Deal went on to present some recent deals, recorded by Real Capital Analytics (RCA), which have rivaled even the frothiest sales done during the mid-2000s bubble. CB Richard Ellis realized a 42% return in just two years when they sold 1450 Broadway in Manhattan to Zar Property Group for $204 million last May. In the same month, RCA registered an incredible 4 percent cap rate on a $845 per square foot sale of Manhattan’s 750 Seventh Avenue, when Kuwait-based Fosterland Management paid a price that rivaled the former 2007 trade.

These competitively-priced, possibly over-valued deals are being facilitated by low borrowing rates and an increased pace of CMBS activity. The Real Deal quoted RCA Managing Director Dan Fasulo as stating that, “CMBS will likely account for 15 to 20 percent of commercial real estate transactions in the nation this year, compared to almost none during the recession.”

Mr Fasulo went on to make it clear he doubts there will be a bubble in commercial real estate any time soon, pointing out that loan-to-value ratios still remain 20-30 percentage points below where they were during the last real estate bubble. “These ratios are starting to creep up…We have seen some in the 70s during the last couple quarters…at least this time investors are using some of their own money…I don't think lenders will let it get crazy again."

For Vegas, Today's Pain Will Be Tomorrow (or Many Years from Now's) Gain

Sun, 24 Jul 2011 00:00:40 GMT

“For every loser, there’s a potential winner in commercial real estate as lenders and holders of debt start to foreclose in greater numbers and sell them to buyers in the US and abroad who’ve been waiting on the sidelines to buy at bargain prices,” stated a recent article reflecting on the Las Vegas commercial property market put out by Vegas Inc, a Las Vegas-based business publication.

The article, featuring on-the-ground information about Las Vegas’ beleaguered commercial real estate market, cited data aggregated by Real Capital Analytics (RCA) to quantify just how far the city has fallen from a few years ago, when it was riding the commercial property boom higher than most: “Las Vegas has the highest percentage of distressed commercial real estate in the country by far…[with] nearly $19 billion in distressed properties, which includes more than $4 billion in properties that have been foreclosed upon.”

The silver lining of all this distress is that it has become a huge pool of opportunity for Vegas investors to benefit from. The article identified Newport Beach-based MIG Real Estate as one of the most bullish investors in distressed Vegas property at the moment, having acquired five properties in the market over the past nine months. Of this firm’s strategy, which the article reminds readers may take years to come to fruition, RCA Managing Director Dan Fasulo stated that, “These are guys who’ve been in the industry a long time and know how to buy right and create value and execute a leasing strategy.”

For more in-depth information on the Las Vegas commercial real estate market, please see the full article on Vegas Inc’s site.

Israeli Investors Splurge on US CRE

Thu, 21 Jul 2011 00:00:40 GMT

A report recently released by Bregman Baraz Real Estate, Real Capital Analytics’ (RCA) data partner in Israel, revealed that Israeli investors purchased the second largest amount of US commercial real estate during the 12 month period though June 2011. The report, based on data aggregated by RCA, stated that Israel-based firms acquired $1.2 billion during the that period, which accounted for one-tenth of the 7.5% of all US transaction volume represented by cross-border investment. Relatively speaking, the article summarized that, “Israel is a small country with a large shadow - proportionally a very large shadow - in the US income-producing real estate market.”

Among the headline-purchases made by Israeli investors within the US over the past year, the majority occurred in Manhattan, Boston, Chicago, and, less intuitively, landlocked cities such as Houston, TX. As a recent article on Israeli-business news source Globes stated, “There is no question that Israelis have again fallen in love with Manhattan. Almost 40% of deals (in dollar terms) in the past year were in Manhattan, and 46% were in the metropolitan New York area.”

The article also reminded readers that last year’s significant investment from Israeli investors comes as activity universally rose in the US commercial real estate market. Transaction volume more than doubled between the first half of 2011 and the same period last year, with rising US investment driving a 25% increase in global commercial sales over the same time frame. Additionally, foreign investment into the US was up by 33% in the first half of 2011, as investors from Israel were joined by firms from Canada, Singapore, and Switzerland, among others in seizing US opportunities.

San Francisco Office Sub-Market All A-Twitter

Wed, 20 Jul 2011 12:32:25 GMT

After Twitter Inc decided in April to move its corporate headquarters to 1355 Market St, an office tower on a gritty six-block stretch of San Francisco’s Market Street that borders the southern line of the city’s Tenderloin district, the area’s prospects have significantly brightened. Just a few blocks away from the new hub-of-tweets, privately held TMG Partners recently entered into contract for 1275 Market Street, and may be paying up to $48 million for the 17-story office tower, according to a article in the Wall Street Journal.

The firm, which has put up about 20 million square feet of office space in the San Francisco metro in previous years, is betting large that other technology firms will “follow” Twitter in moving out of the more-pricy downtown area to places such as Market Street. The Journal relied on data collected by Real Capital Analytics to state that in May of this year, TMG also purchased a vacant building located at 500 Terry Francois Boulevard, paying $300 per-square-foot for the see-through property. The current leaseholders at 1275 Market Street plan to vacate the building as of October, freeing up more space for TMG to lure tech firms into the area.

To read the case made for and against TMG’s strategy, please see the full article on the Journal’s site.

Low-Cost Loans Help Fill Stalled Development Site in Queens, NY

Wed, 20 Jul 2011 12:25:25 GMT

Walking down 41st Avenue in Long Island City of Queens, New York, any time over the past two years would have allowed one to see a giant hole in the ground, a scar left on the throughway from the recent downturn in commercial real estate, surrounded by plywood. GlobetSt.com cited data recorded by Real Capital Analytics to identify AM Holding of NY Corp as having purchased the stalled development site in 2005. That firm subsequently sank $9.7 million into the site in preparation of a planned condo development, before the project stalled and the site was disposed of to Queensboro Development LLC in 2009.

Now, however, the site is getting a second chance. Under New York City Department of Housing Preservation & Development’s Housing Asset Renewal Program (HARP), Queenseboro has received millions in low-cost loans to erect an apartment complex with 117 units, 108 of which will be affordable to middle income families. New York City Council members took the opportunity to pat themselves on the back over the publicly-funded program’s success, with Speaker Christine C Quinn – who originally proposed the HARP program – quoted on GlobeSt.com as saying, “The Queensboro development is a perfect example of how our HARP program is really a win-win for New York City.”

Rising Demand for US Industrial Space Drives Sector's Investment Sales

Fri, 15 Jul 2011 00:00:40 GMT

Following the news that demand for office space and apartments rising, it has been reported that the industrial sector’s inventory is being leased up as well. PR Newswire recently cited a report put out by Cassidy Turley that covered the positive direction for demand in industrial space, and quoted Cassidy Chief Economist Kevin Thrope as stating that, “The current pace of net demand for industrial space is on par with activity experienced during the robust real estate years of 2005 and 2006.”

Cassidy’s report on the industrial sector’s recovery from the downturn also included statistics aggregated by Real Capital Analytics, which registered $1.8 billion in industrial investment sales during May 2011. This was up from the previous month, and 78% higher year-over-year.

'Extend & Pretend' Protecting Asset Values - Hurting Long-Term Prospects?

Thu, 14 Jul 2011 14:35:25 GMT

When Investor’s Business Daily (IBD) sought to detail what is happening with distressed commercial real estate in the US, they cited data aggregated by Real Capital Analytics (RCA) to state initially that, $320.0 billion in distress has been registered between 2007 and May of 2011, including defaults, foreclosures, and bankruptcies. More than half that total has been worked out, with banks taking back $39.0 billion in loans and restructuring another $53.0 billion, while $85.0 billion in loans have been through a full sale or refinancing.

IBD used those statistics to point out that the proportion of cumulative distress worked out would be much lower currently if banks weren’t harboring so much additional legacy trouble on their balance sheets through “extend and pretend” practices. However RCA Managing Director Dan Fasulo told IBD that as values have risen on commercial properties over the past year, “It’s pretty clear from where we’re sitting that the worst is over.”

The policy of allowing banks to maintain toxic and overleveraged assets on their books for an extended period of time is quite different from the last cycle of heavy distress in the commercial property sector of the early 1990s. During that “Resolution Trust” era, banks were encouraged to quickly purge their distressed holdings, with the result being a massive asset devaluation period. However, the current cycle’s policy may carry with it another unintended consequence: “…it could lead to the same slow growth that has afflicted Japan for years.”

Private Equity Firms Pair-Off and Line Up for Anglo Irish's US Loan Portfolio

Thu, 14 Jul 2011 13:25:25 GMT

Bids are due for the massive Anglo Irish Bank Corp portfolio of US commercial property loans on August 9, and the competition is heating up. Bloomberg recently identified the four leading bidders for the pool of loans valued at $9.7 billion, which currently includes Centerbridge Capital Partners LLC and American International Group, Blackstone Group LP and Deutsche Bank AG, as well as Paulson & Co and BlackRock Inc that are mulling standalone offers.

Of the portfolio itself, Real Capital Analytics’ Ben Carlos Thypin told Bloomberg that, “These consortia may be leading this process because they have sufficient firepower and expertise to take down the whole portfolio…A winning consortium is likely to retain some of the assets and quickly flip the rest to smaller firms that were unable to compete in the auction.”

The portfolio includes loans on US commercial and multifamily properties, and potential bidders may make an offer on the entire portfolio or for one of eight segregated pools within. Anglo Irish Bank was nationalized by Ireland’s government in 2009.

Suburban Office Prices Still Waiting for a Rebound

Thu, 14 Jul 2011 00:00:40 GMT

A recent posting on the Wall Street Journal’s site sought to explain the growing rift between repeat-sale pricing for CBD and suburban offices that was recently revealed in the June analysis by Geltner & Associates of the Moody’s/REAL Commercial Property Price Index (CPPI), which is based on sales data collected by Real Capital Analytics.

Among the reasons CBD pricing is rebounding from the downturn so rapidly include investor demand for “safe-bet” CBD assets and urban renewal – driven by new downtown amenities and cheaper rents than during the boom year – which is growing lease rolls in downtown areas. The Journal also stated that the decline in suburban prices could be blamed on the lack of economic activity in most US suburbs, with many areas carrying the stigma that comes from being filled with vacant recently-built houses.

The increasing disparity between CBD and suburban pricing could also be a product of the index itself. The custom analysis that delves into the CBD vs suburban topic includes distressed sales (disproportionately occurring in suburban areas) and the phenomenon of investors heavily targeting the nation’s most visible, expensive markets such as New York and Washington, DC.

Opportunities Seen in the Motor City

Wed, 13 Jul 2011 00:00:40 GMT

Though it sometimes feels like no one is closing deals in Detroit, at least one person has been actively pursuing properties in the beleaguered Motor City. Quickens Loans Founder Dan Gilbert has been scooping up distressed and non-distressed Detroit office buildings at a time when square footage in the market is near a 10-year low.

A recent Wall Street Journal article detailed the latest property being targeted by Mr Gilbert. The abysmally occupied 25-story First National Building is under contract to Mr Gilbert’s firm for $8 million, or just $10 per-square-foot. This unit pricing, the Journal said, would be only slightly higher than Detroit’s previous low of $9 per-square-foot, recorded in 2005 for the Labor Building on Woodward Avenue. The First National Building’s price likely reflects its distressed status, as, indeed, Mr Gilbert’s firm would be acquiring it through a debtor trustee sale after the former owners fell into trouble on its loans in 2009.

After purchasing nearly two million square feet of office space in downtown Detroit this year, Mr Gilbert’s endgame is to spur a technology hub in the city. He believes Detroit’s central business district needs some work, as do some of the properties themselves, but he describes the opportunities available as “outrageously cheap” and told the Journal that, “…there ain't no way in the world you're replicating [the buildings] for that price."

Asia-Pacific Zone Sees Rise in Cross-Border and Domestic Investment

Wed, 13 Jul 2011 00:00:40 GMT

A recent report put out by Jones Lang LaSalle’s Beijing office revealed that Beijing’s Grade A office vacancy rate fell to a 20-year low during the second quarter of 2011, to just 8.3 percent. The rise in office demand in the nation’s most visible markets is prompting both domestic and foreign investors to take a hard look at China, according to Real Capital Analytics’ (RCA) Steve Williams, who recently stated at a Royal Institution of Chartered Surveyors forum in Beijing that, “Most capital (for property investment) now is circulating within the Asia-Pacific area, and China remains number one in terms of the source of the capital and the target for property investment.”

China Daily referred to cross-border investment data aggregated by RCA to reinforce this trend toward Asia: “Cross-border acquisitions of offices, hotels and retail properties rose by 30 percent to $4.8 billion in the first quarter…Among the top 25 real estate deals by value in the Asia-Pacific region, 15 were conducted in China.”

Domestic firms have been actively buying in China’s CBDs as well; major transactions during the second quarter included Bank of China’s acquisition of Xidanhui Plaza and PICC Insurance Group’s takeover at Chaoyang Plaza, both in Beijing.

The Start of a New Cycle? Shovels Being Sunk in Miami by Foreign Developers

Tue, 12 Jul 2011 00:00:40 GMT

After several years of draught, commercial property development may begin to pick up again this year, and is likely to include a more diverse mix of players, including a number of oversees firms. In order to fill a large municipal budget deficit this year, the City of Miami has recently engaged with Asia-based developers to construct two major projects that will generate millions in permit fees and property taxes, once built. The Mayor of Miami, Tomas Regalado, courted both Hong Kong-based Swire Pacific Ltd and Genting Malaysia Berhad to spur the city’s development activity.

Bloomberg recently suggested that development might reemerge during the coming year, as existing property sales have increased over the previous 12 month period and foreign buyers’ interest in US property has rapidly returned as well. Cross-border buyers have purchased nearly $450 million in US commercial real estate during the first six months of 2011, according to data aggregated by Real Capital Analytics (RCA). This preliminary total is remarkable in comparison to the just-$48 million in cross-border sales tallied during the same period last year.

Regarding the news of a new development cycle being kicked off in Miami, RCA’s Ben Carlos Thypin told Bloomberg that foreign buyers are being lured to the US by a comparably weak local currency and commercial property prices, and added that, “The large-scale projects indicate the interest to stay in the market a significant amount of time.”

For more information on this nascent spurt of activity that may be dependent on the health of the US’ macroeconomics, please see the full article on Bloomberg’s site.

Irish Private Equity Targeting Attractive UK and German Retail Assets

Sun, 10 Jul 2011 11:34:40 GMT

Signature Capital’s acquisition of the 32,441-square-meter Neumarkt Galarie in Cologne, Germany, for €135 million out of insolvency was the third-largest trade in all of Europe during June, according to data recorded by Real Capital Analytics. Former owners – a group led by Quinlan Private, also of Ireland – paid €170 million for the property at the peak of the market in 2006.

Now, says Property Investor Europe (PIE), the private equity group based in Dublin is seeking to aggressively target retail properties in both the UK and Germany. Signature Managing Director Ciaran McNamara was quoted by PIE as stating that, “Signature Capital is looking to expand and expects to be active in the UK and Germany, subject to the availability of the right opportunities.”

Tantalizing New York Apartment Property Offered - Condo Converters Lining Up

Thu, 07 Jul 2011 00:00:40 GMT

During a period when viable apartment offerings are scant, the latest multifamily property to hit the market in Manhattan is a real gem that is likely to draw a flood of bids, according to a recent article on Crain’s New York Business. The 11-floor pre-war apartment building located steps from Central Park at 1 East 68th Street and Madison Avenue on the Upper East Side contains 44 units and 10,000 square feet of prime retail space. The property, once sold, is also ripe for a profitable condo conversion.

Of this recent offering, Real Capital Analytics Managing Director Dan Fasulo told Crain’s that, “There is a limited amount of properties on the market in general so investor interest should be through the roof for something like this.” He did remind readers, however, that deals of this nature have a history in New York of being foiled by rent-controlled apartments within the property. The one for-sure element of the sale seems to be the retail portion, which real estate experts foresee selling for between $30-60 million.

Chinese Municipalities Taking on Excessive Debt to Fund Development Frenzy

Wed, 06 Jul 2011 13:30:25 GMT

Though the breakneck pace of the Chinese economy’s expansion shows few signs of abating in the near-term, Florida-based Ocala.com has dug up a report by Moody’s Investor Service’s China desk that identifies one possible foil. As the country urbanizes and quickly develops large-scale infrastructure to support its economic prowess, localities in China are taking on massive amounts of debt to continue the construction boom.

That debt is piling up on state-owned banks, with municipal debt totaling $2.2 trillion in 2010 alone – or one-third of China’s GDP – according to Beijing’s statistics. For the real estate sector’s prospects, the connection is clear: development projects such as infrastructure and extensive office complexes are being funded heavily with debt. Should either the debt or the value of the properties (or the land they sit on) collapse, it is nearly inevitable the other will too -- a situation that would inevitably reverberate around the world’s economies.

In divulging this information, Ocala.com relied on data aggregated by Real Capital Analytics (RCA) to speak about one city currently leading the explosion of development occurring in inland China. The city of Wuhan, which according to RCA data has seen nearly $25.0 billion in land trade hands over the past five years, is one of the worst offenders when it comes to taking on risky debt. The city has promised to develop over 200,000 apartment units and a brand new subway system over the next several years as the surrounding provincial areas urbanize.

For more on this interesting topic, please see the full article on Ocala.com.

Leading US Brokerage Firms Back on Track, Expanding Abroad

Wed, 06 Jul 2011 08:09:40 GMT

“In a race to expand their geographic reach and add fresh expertise, many of the biggest brokerages have been on a buyout binge this year, with much of the activity centered in overseas markets.”

So stated Lee Murphy, contributing writing to National Real Estate Investor (NREI), in a recent article meant to detail how commercial brokerage firms have made their way successfully out of the downturn. Though they were competitive internationally before the crash, Mr Murphy evidenced Jones Lang LaSalle’s recent $319 million deal to purchase London-based King Sturge, while CB Richard Ellis Group has also acquired its share of smaller shops in Eastern Europe and Australia.

This aggressive M&A activity reflects brokerage firms’ newfound confidence, which is being garnered from the past year’s steep rise in transaction volume. Mr Murphy provided a graph of yearly US transaction volume based on data aggregated by Real Capital Analytics, stating alongside the clearly upward trend registered in 2010 that, “Commercial real estate brokerages are feeling more optimistic than they have in a while because the sale of properties and portfolios in the US soared from $54.7 billion in 2009 to $124.6 billion in 2010.”

With most observers expecting another sharp rise in sales to materialize by the end of this year, brokerage firms have regained their swagger, yet have clearly learned some valuable lessons from the downturn. For Mr Murphy’s complete take on brokerage firm’s recent M&A, please see the full article on NREI’s site.

Apartment Sector Strength Reflects Macroeconomic Trends

Wed, 06 Jul 2011 00:00:40 GMT

As American families look to contain their costs of living, or are evicted from their single-family homes through the foreclosure process, many households are turning to the rental market for a low-cost alternative. This flood of new renters seeking apartments, particularly in cities with better-than-average employment prospects, is significantly improving fundamentals and encouraging investment in the apartment sector.

As transaction volume in the apartment sector has ramped back up, lenders active in multifamily lending have cautiously reengaged as well. Real Estate Weekly recently cited Real Capital Analytics to state that, “competition among lenders has increased and that new funding is coming not only from U.S. banks but also from foreign banks, insurance companies and investment funds, as well.”

For more positive signs from the apartment sector, please see the full article on Real Estate Weekly’s site.

Investment Sales Rise as US Office Vacancy Inches Down

Wed, 06 Jul 2011 00:00:40 GMT

In a recent report put out by leading commercial real estate service provider Cassidy Turley, it was determined that demand for office space rose to 12.8 million square feet during the second quarter of 2011. This was the fifth consecutive quarterly gain in net absorption -- causing vacancy in the US office sector to fall 10 basis points during the second quarter, to 16.4% -- and the strongest absolute demand in four years.

This rise in demand, PR Newswire points out, corresponds directly with the year-long rise in CBD and suburban office sales observed through data aggregated by Real Capital Analytics. Office sales tallied $17.9 billion in the first five months of 2011, which was more than double the volume of the same period last year. PR also cited the rise in pricing for office space as a result of the increasing demand for office footage: “Average price per square foot registered at$211 in May, up 25% from a year ago.”

Outstanding US Distress Still Hovering Around $180 Billion

Tue, 05 Jul 2011 13:27:25 GMT

Recently-released data aggregated by Real Capital Analytics (RCA) and Delta Associates revealed that the volume of outstanding distressed assets in the US rose to $181.0 billion in June. That level that falls below last October’s $191.5 billion high, but May’s monthly increase was disconcerting to market observers.

GlobeSt.com cited this data to speak to a recent comment made by Delta CEO Greg Leisch, who stated that he expects the more than $300 billion in loans coming due on commercial properties to meaningfully impact the level of outstanding distress in the coming year.

The rise in outstanding distress was driven by the office sector, which remained the highest of all property types at $43.4 billion, and the hotel sector posted a surprisingly significant increase in outstanding distress this spring as well.

Chetrit Group's Holdings Fairing Surprisingly Well After Downturn

Tue, 05 Jul 2011 00:00:40 GMT

A recent story in the New York Observer told the story of New York-real estate mogul Joseph Chetrit, relying on commercial property transaction data logged by Real Capital Analytics (RCA) to describe the legend’s recent deals. As a member of a wealthy Moroccan family, Mr Chetrit came to the US in the early 1990s as a textile importer/exporter. He began purchasing outer-borough apartment buildings and then commercial buildings in Manhattan by the middle of the decade.

It was in 2004 that Mr Chetrit led a consortium to purchase Chicago’s Sears Tower (now Willis Tower), setting the stage for a mid-decade splurge on commercial properties during the peak of the market. Among his purchases included Manhattan’s Standard Oil Building and a series of mixed-use properties on Sixth Avenue. The Observer identified nearly $2.0 billion in deals to Mr Chetrit’s name during these most active years.

Of particular interest were Mr Chetrit’s acquisitions of the International Toy Center on Fifth Avenue and his more-recent deal for the Chelsea Hotel, both in Manhattan. His intention to convert the Toy Center to condos (and remove the existing toy companies in the process) earned him much bad press in the New York papers, which he likely hopes to make up for with a renovation of the historic Hotel Chelsea.

And though Mr Chetrit’s firm, the Chetrit Group, has weathered the downturn better than comparable companies, signs of distress have cropped up in recent months. The Observer cited RCA data to state that the Chetrit Group’s 123 Williams Street in Manhattan – a 27-story office property the firm purchased in 2005 – went into special servicing earlier this year, with nearly $80 million in outstanding debt. Chetrit’s Five Beekman Street has actually fallen into foreclosure.

SWF and PE Firms Compete for Japanese Industrial Portfolio

Fri, 01 Jul 2011 11:33:40 GMT

Private-equity firm Blackstone and Global Logistic Properties (owned by Singapore's sovereign-wealth fund GIC) are looking to buy a commercial real estate portfolio in Japan rumored to be worth $1.7 billion (¥140 billion).

The portfolio of more than 20 industrial properties is being sold by Chicago-based LaSalle Investment Management.

This would be the largest Japanese property transaction since real-estate fund Secured Capital bought Tokyo's Pacific Century Place building from DaVinci Advisors for $1.5 billion in 2009.

According to data provider Real Capital Analytics, Tokyo's commercial property transaction volume exceeded $10 billion in the first half of 2010, and was the most active city worldwide. Assured that prices have hit bottom, cross-border investors and REITs have been active buyers in the market.

CMBS Issues Quickly Rising, But Are Underwriting Standards Falling Just As Fast?

Tue, 28 Jun 2011 13:27:25 GMT

A recent article published by Investment News cited a special report put out by a collaboration of Real Capital Analytics, Deloitte LLP, and Real Estate Research Corp to state that 2011 CMBS issues have increased by more than ten times over 2010. This, the article stated, is both a sign of health and a cause for concern when considering the state of the CMBS market.

One the one hand, an increasingly robust CMBS sector is fueling trading activity, as buyers gain an additional source of debt to fund purchases. On the other hand, the rapid ramp-up in CMBS issuances has restarted the type of competition for business that allowed lending standards to slip drastically in the years leading up to the credit-freeze of 2007 and 2008.

Investment News quoted Joe Smith, founding partner of Glenmont Capital Management, who explained that, “Most investors complained about flaws and issues with CMBS, and most of those flaws and issues have not been resolved.” The article also noted a recent report put out by Standard & Poor’s that indicated underwriting standards are slipping faster than expected, especially in the nation's leading markets: “Lending is very competitive in these types of markets, where insurance companies, pension funds, foreign investors ... and [real estate investment trusts] could be bidding alongside CMBS issuers…The part that we believe should be most alarming to investors is that the appraisals appear to be building in upside in rents and occupancy.”

For more on this scrupulous look at the current state of CMBS, please see the full article on Investment News’ site.

Listed-REITs Funding Deals and Mergers with Uniquely Easy Access to Equity

Mon, 27 Jun 2011 13:30:25 GMT

Armed with large reservoirs of cheaply-raised equity, the world’s largest real estate investment trusts (REITs) are the best-positioned class of commercial property buyers to purchase underperforming real estate portfolios or entire companies for discounted prices. Pensions & Investments recently cited data aggregated by Real Capital Analytics (RCA) to state that six of the top 20 buyers of commercial real estate globally during the first quarter of 2011 were REITs. The full list was presented in the first quarter edition of RCA’s Global Capital Trends report.

The REIT sector’s mergers over the past year have stolen headlines, and some of the largest deals since the downturn have involved REITs on the buy-side. RCA’s top 20 list included US-based Host Hotels & Resorts Inc, which has taken down San Diego’s Manchester Grand Hyatt for $570 million and the New York Helmsley Hotel for $314 million so far this year. Additionally, listed-REIT Equity One Inc made the top 20 for teaming with London-based Capital Shopping Centres to purchase Capital and Counties USA inc wholesale, an M&A deal that included 15 California retail properties.

For more on momentum among listed-REITs and an outlook on their long-term futures, please see the full article on Pensions & Investment’s site.

Macklowe Pays $2.1M Per-Unit for Manhattan Condo Conversion Opportunity

Fri, 24 Jun 2011 12:26:25 GMT

As Macklowe Properties seeks to rebuild after a particularly rough patch served to it during the downturn, it was recently announced that the firm would purchase the 34-unit rental property at 150 East 72nd St on Manhattan’s Upper East Side and follow through with a plan to convert units to condominiums. Real Capital Analytics (RCA) has identified Strategic Resources Corp as the seller, which Macklowe paid $120 million in debt and equity for the deal to well-located apartment property. To secure financing for the acquisition, Macklowe has turned to the Brazil-based Safra Group, according to RCA data, for a $90 million loan that includes $30 million in equity.

The sale comes as Macklowe Properties has recently reengaged with the acquisition market, after a long, troubled hiatus. The firm is in contract for 737 Park Avenue for an asking price of $253 million, and has also green-lighted the long-awaited redevelopment at the former Drake Hotel site on Manhattan’s East 57th Street.

US Hotel Pricing Out-of-Whack With Fundamentals

Fri, 24 Jun 2011 11:34:40 GMT

A recent article on Bloomberg News cited data aggregated by Real Capital Analytics (RCA) to juxtapose two trends that have become evident in the US hotel sector over the past year. RCA previously reported in its US Capital Trends reports that the average price-per-room paid by US hotel investors during the first quarter was $185,000, an prodigious relative peak well above the former high of $153,000, registered in 2006 at the peak of the market.

Yet Bloomberg points out that this spike has decoupled from hotel operators’ per-room revenue, which RCA’s Ben Carlos Thypin stated remain well below peaks last reached in 2008. “Daily room rates averaged $94.05 last year, and revenue per available room, an industry measure of occupancy and rate, was $42.40…That’s ‘well below’ the 2008 peaks of $106.65 and $54.42.”

Bloomberg attributed this disparity to two confounding factors. Part of the rise in valuations is driven by buyer selection bias: “This year’s jump is the result of a surge in luxury-hotel transactions and more purchases by real estate investment trusts, particularly in large cities,” stated Bloomberg. Values have also been pushed higher due to who has been purchasing hospitality properties over the past 24 months: Bloomberg cited additional data by RCA to state that, “Values have been driven up chiefly by demand from REITs, which purchased $1.6 billion of hotels in the first quarter. That’s 44 percent of those traded and five times the total of REIT purchases in all of 2007, the peak year for hotel sales.”

For additional information on the growing rift between valuations and fundamentals in the US hotel sector, as well as details on recent high-profile hotel trades, please see the full article on Bloomberg’s site.

2006 Houston Investment Pays Off Big for Brookfield Office Properties

Fri, 24 Jun 2011 11:26:40 GMT

The latest deal to illustrate the extent of the recovery for select property types and markets is one that recently took place in Houston, TX. Just as the first half of 2011 comes to a close, Brookfield Office Properties Inc announced that it has sold Four Allen Center -- its 50-story tower at 1400 Smith Street -- to Chevron Corp for $340 million. Real Capital Analytics Managing Director Dan Fasulo described the sale as a “coup” for Brookfield, who originally paid $120 million for the office property in 2006 at the peak of the former investment cycle.

Bloomberg quotes Brookfield CEO Richard Clark as stating that, “This sale is reflective of our ongoing strategy of recycling capital from mature assets into more accretive opportunities.” The firm does not appear to be cutting bait on Houston, however, as late last year Brookfield purchased Heritage Plaza for $322 million.

Washington, DC Still Setting Pace for US Office Sector

Thu, 23 Jun 2011 12:40:25 GMT

Yet another prime office building has traded in Washington, DC, serving as a reminder that the Capitol office market’s recovery has not run out of steam. The latest deal to close was for the 12-story Liberty Place, which Beacon Capital Partners sold to Paramount Group Inc for $139 million, or $870 per-square-foot. The building is located just steps from Capitol Hill on the National Mall, at 325 Seventh St NW.

Of Beacon’s sale, Real Capital Analytics Managing Director Dan Fasulo told Reuters that, “It's been amazing how much cap rate compression we've seen for prime assets in D.C. and Manhattan…It's clear to me that the last several trades have come in at sub 5 cap rates, which is aggressive."

At $526k Per Room, Pebblebrook's Latest Trade Indicative of Hotel Market's Momentum

Wed, 22 Jun 2011 16:27:25 GMT

Boosting its total portfolio to 20 properties acquired since its 2009-debut, Pebblebrook Hotel Trust announced it has taken a 49% stake in six boutique type hotels in Midtown Manhattan. The firm paid $152 million, and assumed nearly $300 million in debt, for non-operating stakes at five Affina hospitality properties in addition to the Benhamin hotel.

The Wall Street Journal recognized the sale as additional evidence that New York’s hotel market is quickly recovering from the downturn. After occupancy rose sharply over 2009 and 2010 in Manhattan, investors have been keenly looking to acquire Big Apple hotels. The sector’s return has recently slowed as legacy development projects come online, though most of those are located away from Pebblebrook's recent activity in other parts of the city.

The price paid by Pebblebrook would put the value of the six hotels at $910 million, or an impressive $526,000 per room. This, the Journal said, was much higher than the already-high average unit pricing tracked by Real Capital Analytics. The average price per unit for a Manhattan hotel was $462,931 in the first quarter, and fell only slightly thus far in the second quarter, to $447,487.

Lehman Brothers Holdings Looking to Turn Profits as it (Finally) Exits Manhattan Market

Wed, 22 Jun 2011 13:29:25 GMT

For a bank that has been in bankruptcy for nearly three years and is viewed as being the largest catalyst for the most recent recession, Lehman Holdings is surprisingly still agile at playing the real estate game. After going belly-up in 2008, the firm’s $240.0 billion commercial real estate portfolio was parsed out to an independent caretaker, which made the decision to weather the downturn rather than hold a fire sale at the bottom of valuations. Now, Lehman is looking to sell – possibly achieving for sizable profits – some of its holdings as the market’s recovery progresses.

The zombie bank’s most valuable assets are mainly located in Manhattan, where Lehman has already announced it is looking to sell some of its properties on Manhattan’s Fifth Avenue and Broadway. In addition, Lehman holds a signigicant number of mortgages backing commercial properties around the New York City metro. The Commercial Observer cited data collected by Real Capital Analytics (RCA) to state that Lehman originated over 60 major loans on commercial properties before its demise, including “100 Wall, the Chrysler Building, Twitter’s new H.Q. at 340 Madison and the Nobu Hotel.”

The former investment bank has agreed to wind down its entire New York portfolio by September 2013.

Investors Still Cautious on Consumer-Dependent Retail Sector

Wed, 22 Jun 2011 12:28:25 GMT

A recent survey conducted by PwC indicated that investor’s outlook on the retail sector has continued to lag bullish opinions on the market as a whole. Retail Traffic quoted the survey report as stating that, “Consumers remain skittish as pessimistic reports continue to surface about the housing and labor markets. As a result, the bulk of the U.S. retail sector will be in recession through year-end 2012. Although the amount of U.S. retail stock in recession will greatly decline by year-end 2013, a significant recovery is not expected until year-end 2014.”

Retail Traffic pointed out that power centers fared worse than other types of retail properties during the downturn, though the niche has stabilized and more such assets have been trading recently. The magazine cited data aggregated by Real Capital Analytics to state that, “So far in 2011, nearly 70 power centers have sold for a combined average sale price of $180.00 per square foot...This asset total already surpasses the number of power centers sold for all of 2010 when 63 deals occurred, reflecting a combined average sale price of $135.00 per square foot.” Malls and strip centers have recovered even more strongly as the market enters a new cycle.

Retail REITs Strategically Shopping Assets to Solicitous Market

Wed, 22 Jun 2011 12:28:25 GMT

Real Capital Analytics (RCA) Managing Director Dan Fasulo was recently asked by Retail Traffic to share his opinions on a developing situation in the retail mall sector. With valuations of mall properties rising in primary -- and even secondary markets -- across the US, retail REITs such as Australia’s Westfield Group and New York-based Kimco Realty Corp have brought a significant number of assets strategically to market. These REITs are hoping to reallocate their portfolios and boost their bottom lines as they search for their own acquisition opportunities, and other retail REITs, such as Simon Property Group and General Growth Properties are engaging in similar practices.

Mr Fasulo indicated to Retail Traffic that there is sufficient appetite for the influx in offerings to the retail market, and told the magazine that, “You are seeing a situation where private equity has capital to allocate, you have pension funds that are back buying properties, you have some foreign money…Westfield is not a distressed seller so they can choose not to sell if they don’t find the pricing that’s attractive. But I do think there is enough demand in the marketplace to buy these properties right now.”

Retail trades are being fostered by current market conditions, as according to Retail Traffic, “…competition for core assets has intensified so much that investors have turned their attentions to class-B centers or to centers in secondary and tertiary markets.” Sellers, including the largest public REITs, are looking to take advantage of this so-called “sweet spot” in the investment sales market’s new cycle.

To read more on this exciting situation in the retail sector, along with more insights from RCA’s Dan Fasulo, please see the full article on Retail Traffic’s site.

REITs Bypass GSEs for Seniors Housing Debt

Tue, 21 Jun 2011 00:00:40 GMT

Much has been made over the spike in REIT-driven activity in the seniors housing sector over the past year, with Real Capital Analytics tracking $22.6 billion since just the start of 2011 – much of it attributable to REITs. Senior Housing News recently provided an explanation: REITs have access to financing outside of Freddie Mac and Fannie Mae, which have much stricter lending requirements than their private counterparts.

With many of the sector’s biggest players skirting the government-sponsored entities (GSEs) for lending, Fannie and Freddie are presented with the problem of a competitive disadvantage in a sector that is growing rapidly. Senior Housing News even interviewed one person familiar with the seniors housing market who stated that the GSEs should consider loosening their credit standards when lending to the sector.

Getting Back in the Game: Buyers of Yore Have Returned for New Cycle of CRE

Mon, 20 Jun 2011 16:43:25 GMT

A Special Report put out by Real Capital Analytics (RCA) on the US commercial real estate market found that 81 of the entities ranked in the top 100 pre-recession buyers of real estate have purchased properties again since the start of 2010. GlobeSt.com recently featured RCA’s Special Report and contacted the firm’s Managing Director Dan Fasulo for his take on this encouraging set of results.

Mr Fasulo stated that, “The fact that many of these players are buying again displays how quickly capital has returned to the commercial real estate space…The fact that many of these players--even the ones stuck with distress on their balance sheets--have been able to raise new capital for new acquisitions is a healthy sign, especially at this early part of the recovery.”

Of the 19 firms who were top performers before the recent recession but have not returned to market, several have actually gone out of business.

New Distress Bodes Poorly for Future Sacramento Office Market

Fri, 17 Jun 2011 12:22:25 GMT

As boom-era loans begin to come due, Sacramento’s previously stable office market is seeing its first properties fall into distress. In a recent Sacramento Business Journal piece, Staff Writer Michael Shaw discussed the significance of three office properties in downtown Sacramento that Real Capital Analytics has registered as having fallen into distress this year. They include the Senator Office Building, One Capitol Mall, and the Sacramento Corporate Center.

The stratum of severity covered by the blanket term “distressed” is illustrated through the three properties. In the most severe case, the Senator’s owners have recently defaulted on a $38 million loan in May, and sources indicate the building is marked for transfer to the receiver. It is likely the owners defaulted when the property's vacancy rate spiked over the past two years, to 40%.

At One Capitol Mall, the property owners simply missed a large balloon payment in May on a maturing $25 million loan balance. Though that is cause for concern, and moved this property into the distressed category, it is still a ways from foreclosure. RCA’s data indicates that after missing the payment, owner AKT Development Corp’s loan was transferred to special servicing, which could lead to a refinancing.

The third property has also avoided default, though RCA’s Ben Carlos Thypin informed Mr Shaw that the Sacramento Corporate Center’s debt was similarly transferred to a special servicer after it was determined its owners face “imminent default due to unspecified cash-flow issues.”

For more on this developing situation in Sacramento’s office market, including causes and that market’s near-term outlook, please see Mr Shaw’s full piece on Sacramento Business Journal’s site.

Minneapolis Office Market Defrosts

Thu, 16 Jun 2011 15:42:25 GMT

The Minneapolis office market has seen some marked improvement over the past year as entities on the buy- and sell-sides alike have returned. Finance & Commerce cited data aggregated by Real Capital Analytics (RCA) to state that nearly $250 million of Minneapolis office sales valued above $2.5 million traded during the first quarter of 2011. During the same period in 2010, RCA tallied zero sales above the same threshold in the market.

Finance & Commerce attributed the return of activity to buyers becoming interested again in secondary markets, such as Minneapolis, and sellers responding in kind by eagerly placing more desirable properties on the market. Minneapolis is following the national office market’s upward trend, as RCA Managing Director Dan Fasulo told Finance & Commerce that, "We’ve not only seen a significant recovery in transaction activity for office properties, we’re starting to see a wave of new listings, which is going to be the fuel for the fire in the fall.” Mr Fasulo added that investors are looking for stabilized assets in less-pricy secondary markets: “…secondary markets, that’s where the appetite is right now today.”

Among the most prominent office assets to hit the market in Minneapolis this spring are:

Marquette Plaza (LEED-Platinum Certified; 85% Leased; assessed value of $44 million)

33 South Sixth/City Center (1.1 million-square-feet of office space, 371,000 square feet of retail space; mainly leased to Minnesota-based Target Corp; City Center assessed value of $108 million)

Riverview Office Tower (235,000 square feet; last sold for $20 million in 2005)

Thor Equities Takes Down Another Fifth Avenue Trophy: Scribner Building Under Contract

Thu, 16 Jun 2011 14:29:25 GMT

Joe Sitt, CEO of Thor Equities, recently stated that “Some neighborhoods never go out of style, and you can’t get more ‘High Street’ than Fifth Avenue in Midtown.”

Mr Sitt’s statement perfectly describes his firm's recent objective to acquire trophy properties along the Fifth Avenue corridor. After purchasing the Takashimaya building at 693 Fifth Avevnue last year, taking a partnership position at 245 Fifth Avenue, and acquiring 3 East 48th Street most recently, Thor has entered into contract for the regal 12-story Scribner Building at 597 Fifth Avenue. The historic Midtown Manhattan property, located between 48th and 49th Streets, is said to have a sale price of slightly over $100 million. It contains 58,000 square feet of commercial space, 12,000 square feet of retail space currently occupied by Sephora, and, of course, rubs elbows with other Fifth Avenue landmarks such as Rockefeller Center and Saks Department Store.

If the rumored price becomes the closed sale price of the Scribner Building, it would be a boon for A&A Acquisitions, the Kuwaiti firm that GlobeSt.com cited Real Capital Analytics has as the previous buyer of the property in 2006 for just $79 million.

Macklowe Properties Has Big Plans for 737 Park Avenue

Wed, 15 Jun 2011 14:30:25 GMT

It was recently announced that Macklowe Properties entered into contract for the operating partner stake in the 108-unit apartment tower at 737 Park Avenue and 71st Street on Manhattan’s desirable Upper East Side. It is suspected that Macklowe plans to convert the now-rental property into luxury condominiums over time, as the roughly 30% of tenants currently enjoying rent-regulation leases cycle out. In the meantime, Macklowe could gradually combine units directly above or below each other to expand the average condominium size of 737 Park Avenue and boost per-square-foot sale prices.

The rumored sale price of about $255 million would be, according to data recorded by Real Capital Analytics (RCA), the highest price paid for a single apartment building purchased for conversion since the well-heeled Apthorp traded on the opposite side of Central Park for $391 million in 2007. And if Macklowe decides to go ahead with the condo conversion scheme, it would be among the first to pursue such a strategy since the downturn began three years ago.

Of this significant Manhattan-based deal, RCA’s Ben Carlos Thypin told The Real Deal that, “This is a litmus test [for whether] a condo conversion is a viable strategy for the next few years . . . This is a pretty bold move for [Macklowe].” Mr Thypin also expressed that he perceives the move as risky, since the purchase price reflects a high basis.

RCA's Steve Williams To Speak at Inaugural RICS Asia Valuation Conference 2011

Wed, 15 Jun 2011 13:30:25 GMT

In a recent report published by the Royal Institution of Chartered Surveyors (RICS), the industry-leading organization stated that, “The impact of urban climate change could be reduced by as much as 2.5°c, by increasing the amount of green space in town and cities... RICS would like to see the Government, local authorities, land owners and developers create and safeguard existing green spaces, and pay greater attention to the growing problem of urban climate change. In order to allow for this the adoption of green infrastructure strategies, that have long term environmental and economic benefits, should be factored into development plans.” And much continues to be made of an additional point made by RICS: “Properties benefitting from established or proposed green infrastructure may show increases to tangible or intangible values.”

Using that report as a basis for a larger conversation on the subject, RICS Asia will host the inaugural RICS Asia Valuation Conference 2011 on June 16, 2011 in Beijing. Former RICS President and Real Capital Analytics Global Advisor Steve Williams will be attending the event, and delivering a speech on the topic of “Tracking Cross-Border Real Estate Capital Flows into and out of Asia.”

Deluge of Trophy Office Towers Coming to Market in Chicago

Tue, 14 Jun 2011 13:24:25 GMT

As a top-tier US market, Chicago has joined the likes of New York and Washington, DC in registering some impressive improvement over the past year in property valuations. As property pricing slowly reaches for its previous 2007-high, current office owners have begun deciding to place their properties on the market for some sizeable profit returns.

Most recently it was announced that the historic Chicago Board of Trade Building has been put on the market, but other current for-sale properties in Chi-town include the Willis Tower, among more than 10 others. This has already exceeded the 11 office towers that traded in Chicago over all of 2010.

Of the Willis Tower opportunity and the ramp-up in offerings in general, Real Capital Analytics Managing Director Dan Fasulo told the Chicago Tribune that, “Prices have not fully recovered to their pre-recession levels, but if Willis Tower sells this year it would probably be sold at a profit.” Additionally, Mr Fasulo pointed out that many office towers currently on offer were purchased years before the market peak of 2006-2007, meaning that even more investors may be waiting for prices to continue rising before offering their peak-purchased product sometime in the near future.

CMBS Getting Back to its Old Tricks

Mon, 13 Jun 2011 06:30:40 GMT

Pensions & Investment Online recently stated in an article on the cautious return of the CMBS debt market that, “Following the recession, only the best properties are getting loans, and buyers are looking to the CMBS market to provide the debt for less-than-perfect real estate. Competition is already stiff, which is forcing CMBS lenders to loosen the tougher, post-crisis requirements they adopted.”

The article pointed out that, despite being one of the largest harbingers of the most recent financial crisis that saw commercial real estate sales slow to almost a standstill, CMBS markets have undergone little to no reform over the past two years. Citing the recent report put out by Real Capital Analytics in conjunction with Deloitte and Real Estate Research Group entitled "Expectations & Market Realities in Real Estate 2011: Balancing Risk and Return in an Era of Uncertainty," Pensions & Investments Online reiterated that as more CMBS players reopen their shops, “Real Estate investment managers expect CMBS requirements to get even looser.” Already, 2010 CMBS issuance increased more than ten times the amount brought to market in 2009.

Another worry expressed about the newest issues of CMBS is that they are being treated fundamentally different by investors this time around. Pensions & Investments Online quoted John Dunlevy of PineBridge Investments who stated that, “…returns in the CMBS market are becoming more volatile. Traditionally, CMBS is correlated with the stock market, which dropped recently. And this time around, CMBS performance also is moving in lockstep with high-yield bonds.”

With Rising Valuations, Trophy Office Owners in a Selling Mood

Sun, 12 Jun 2011 05:28:40 GMT

Real Capital Analytics tallied $8.7 billion of office offerings brought to market in April, which was the highest level for that sector in new for-sale properties since 2008. The International Business Times recently cited this figure to explain some of this year’s largest office offerings, which include the Willis Tower in Chicago, Manhattan’s Seagram Building, and several others in the nation’s leading cities. As prices for such trophy towers in the most desirable markets rise steadily towards their 2007 highs, current owners are looking to cash out before spurious economic factors erode their potential profit. Already in May, RCA has tracked $10 billion in new office offerings, which is the highest since the fourth quarter 2007.

The recent rise in offerings comes in contrast to just last year, when office owners were reluctant to sell their properties during the low valuation environment.

Grubb & Ellis Recommends Listed Industrial REITs Get Creative When Searching for Yield

Fri, 10 Jun 2011 07:33:40 GMT

Due to rapidly increasing competition for viable assets in the nation’s best markets, a recent report put out by commercial advisory firm Grubb & Ellis Co recommended that listed industrial REITs begin to look elsewhere when seeking to invest in their target sector. Alternatives might include investing abroad, or even resuming speculative development, which would open up new frontiers for constrained US industrial players.

Grubb & Ellis cited data aggregated by Real Capital Analytics in evaluating current market conditions and making its recommendation. In the nation’s primary and secondary industrial markets, “private non-traded REITs are paying 6.5 percent to equity investors and less than 5 percent to debt holders. At 50 to 60 percent LTV, private REITs can buy 5.75 percent yields and still cover costs of capital, including fees.” The report added that primary and secondary markets account for nearly two-thirds of all US transactions, and cap rates for assets in those markets are hovering around their 2007 record, or in some cases, even beating them.

Manhattan's Paramount Hotel Trades as Summer Tourist Season Begins

Wed, 08 Jun 2011 07:29:40 GMT

A recent hotel disposition by joint venture partners Walton Street Capital and Highgate Holdings has confirmed the strength of the Manhattan hospitality market. GlobeSt.com cited data by Real Capital Analytics to state that the 597-room Times Square Paramount Hotel, centrally located at 235 W 46th St, was purchased by the JV at the peak of the market in 2007 for $160 million. After four years and one $40 million renovation, the group has sold the hotel for an unconfirmed price of $275 million – an impressive 70% mark-up spanning the downturn.

The buyer was RFR Hotel Group.

Manhattan's Newly-Renovated Algonquin Hotel Trades Hands

Mon, 06 Jun 2011 13:25:25 GMT

It’s official. Cornerstone Real Estate Advisors of Hartford, CT has purchased the posh, 174-room Algonquin Hotel in Midtown Manhattan. HEI Hotels & Reports announced the long-rumored sale without disclosing the sale price, but purchased the hotel in 2005 from Miller Global Properties for $64 million, according to Real Capital Analytics (RCA).

In covering the closed deal, GlobeSt.com cited data aggregated by RCA to state that, “The sale adds to an ever-growing volume of hotel transactions in New York, where volume for Q1 2011 hit $643 million.”

Institutional Investors Ramp-Up Retail Spending in 2011

Mon, 06 Jun 2011 12:31:25 GMT

Using data aggregated and presented in Real Capital Analytics’ (RCA) Trends & Trades interactive digital market reports, National Real Estate Investor (NREI) recently stated that, “…institutional investors have increased their appetite for commercial real estate, overtaking publicly traded real estate investment trusts (REITs) as the leading purchasers of retail and office properties in the first quarter of 2011…Institutions pumped nearly $14 billion into the retail sector from January through April of this year.”

Specifically, institutional buyers have craved acquiring single-tenant retail properties, and have accounted for one-quarter of all single-tenant retail sales in the US so far this year. RCA Founder and President Robert White explained to NREI that, “There have been more portfolios trading…But many of the recent REIT/institutional deals have been portfolio sales where there is much more activity this year. Those [deals] were pretty tough to finance a year ago…So some of the rise in institutional and REIT investment is just because portfolios are trading again.”

NREI also discovered using RCA’s Trends & Trades that office sales of $10.2 billion in the first quarter of 2011 were more than double the level of last year’s first quarter.

With Merger Complete, Prologis Plans Aggressive Expansion in Asia Warehousing

Fri, 03 Jun 2011 13:37:25 GMT

Dynamics in the industrial commercial real estate sector have undergone significant changes over the past year. As stated in a recent Bloomberg article on the sector, "Industrial companies are the second best-performing group in the Bloomberg REIT index over the past 12 months, rising 32 percent as of yesterday. U.S. sales of warehouses and distribution centers rose 11 percent in the first quarter from a year earlier to $3.2 billion.’ Bloomberg also cited data aggregated by Real Capital Analytics’ (RCA) to stated that the sector currently has the smallest amount of distressed assets of any property type, with RCA’s Ben Carlos Thypin adding that, “Industrial is a steady performer and isn’t correlated to other sectors…It didn’t get hot during the boom, and didn’t drop much during the crash.”

Of course the largest story in the industrial sector over the past year came in early 2011 when Prologis and AMB Property Corp announced they would merge to form the world’s largest warehouse owner and the fourth largest public REIT in the US. Now Prologis, the post-merger firm approved by shareholders on June 1, is leading US REITs' charge into acquisition-mode; the firm recently announced it plans to double its holdings in Asia while pairing duplicative and underperforming properties in North America and Europe.

Hamid Moghadam, co-CEO of freshly-merged Prologis, stated to Bloomberg that, “If you think about growth rates, the emerging markets are where all the action is.” Mr Moghadam is also expecting his firm to expand in Japan, already Prologis’ largest Asian market, as the nation rebuilds after March’s natural disaster.

For more on industrial REITs and Prologis’ post-merger plans, please see the full article on Bloomberg’s site.

Willis Tower Owners Ask: Would You Like to Own Part or All of America's Tallest Building?

Thu, 02 Jun 2011 13:28:25 GMT

Though it feels like just yesterday that a group of New York investors – including the Moinian Group, the Chetrit Group, and American Landmark Properties – purchased Chicago’s infamous Sears Tower, in fact it was over six years ago during the previous investment cycle – back when “bailout” still referred strictly to boats. At that time, the partnership paid $841 million for America’s tallest building, according to Real Capital Analytics. The 110-story property’s name changes to the Willis Tower in 2009 after the space’s third largest leaseholder, Willis Group Holdings Inc.

It was recently announced that the partnership, even at this early point coming out of a downturn, is seeking either another partner to take an equity stake in the tower, or sell the property altogether. Though it is true that pricing and the pace of transactions for trophy office towers in the nation’s leading cities have improved markedly over the past year, assets such as the Willis Tower generally sit in a class of their own. Nonetheless, of the partnership’s announced intentions, RCA Managing Director Dan Fasulo told Bloomberg that, “This is a great sign of how liquidity is returning to the marketplace, that this ownership group thinks the market can digest an asset of this size…Usually you see an asset of this size come to market at the end of a cycle, not the beginning.”

Bloomberg cited the Moody’s/REAL Commercial Property Price Index to state that, “Prices for so-called trophy office buildings in six U.S. cities -- New York, Washington, Los Angeles, San Francisco, Boston and Chicago -- were up 23 percent in March from their July 2009 low.”

Retail Sector Posting Healthy Improvements as Investors Return

Wed, 01 Jun 2011 16:33:25 GMT

Last year, retail sales activity was largely constricted to high-quality properties in top markets. This year, the story has changed significantly, with Retail Traffic citing data aggregated by Real Capital Analytics (RCA) to state that, “The investment sales market for retail properties is heating up as buyers feel more confidence in the economy and financing has become easier to obtain.” In April alone, $1.6 billion in retail properties valued over $2.5 million traded, or nearly a 40% increase from last year. Year-to-date, $7.9 billion in retail deals have closed, while another $16.0 billion are currently in contract.

Further supporting Retail Traffic’s bullish outlook on its sector of focus, offerings over the first four months of 2011 reached $4.5 billion, which was up by 63% from one year ago, and, according to RCA’s historical data, the highest level of offering since the fall of 2008.

Retail Traffic identified two main reasons retail buyers are getting back into acquisition-mode: improving retail sales and record-low interest rates on loans used to acquire retail properties. The former has encouraged retailers to go from “…shutting down new opening plans in 2008 to mulling expansion in 2010 to actually signing leases this year” while the latter has “…given urgency to investors’ desire to get deals done before the Federal Reserve raises the benchmark.”

Finally, investors may be leaping back into retail acquisition before initial yields fall back to pre-recession lows. RCA has tracked a 20 basis point decline in retail cap rates since the start of 2011.

Surprising Players Pursuing Industrial Sector for Higher Yields

Wed, 01 Jun 2011 16:17:25 GMT

Though it lagged the recoveries posted by the other property types as the market exited the downturn, the industrial sector has recently shown marked improvements in sales and fundamentals. The sector’s return to life has prompted offerings in the sector to spike as current owners realize demand for warehouse and flex industrial space is rising.

After Blackstone closed on three large industrial portfolios late last year for $1.7 billion, and has made other significant moved so far this year, other industrial players are looking to resume buying in the sector. It is even attracting firms that have not previously been active in the industrial arena; Cole Real Estate – historically active in just the office and retail sectors – has announced it will use its non-traded REIT, Cole Credit Property Trust 3, to actively pursue industrial asset opportunities because they are currently offering significantly higher yields than office properties. Real Estate Alert relied on data collected by Real Capital Analytics to state that over the past year, Cole Real Estate has “…acquired $134 million of industrial properties" and "...continues to be among the most-aggressive bidders” for industrial sector product.

Asia Pacific Property Transaction Volumes up; Regional REITs Top USD100 billion

Wed, 01 Jun 2011 13:28:25 GMT

Real estate transaction volumes in Asia-Pacific have continued the upward trend that started in early 2009, although volumes declined 23% quarter-on-quarter to USD21.4 billion in the first quarter of this year, according to a report produced by the Asia Pacific Real Estate Association (APREA), which promotes and represents the real estate sector on a regional basis, and commercial property research firm Real Capital Analytics (RCA).

CEO of APREA Peter Mitchell says, “All major markets in Asia experienced this fall in transaction volumes in the last quarter, with the exception of Japan where the volume actually increased by 122%. The majority of the transactions are coming from Japan, China, Hong Kong and Singapore.”

“However, the overall clear trend over the last two years is the substantial increase in transaction volumes in Asia and the increasing activity amongst domestic players and the correspondingly diminishing level of cross-border activity”.

Global transaction volumes dropped in the first quarter of the year by 31%. However, the total transaction volume was the second highest since the third quarter of 2008. Asia-Pacific transaction volumes contributed to 22.4% of the global total, up from 15% recorded in the fourth quarter of 2010.

APREA also reports that market capitalization of the Asian REIT market (ex-Australia) has reached over $100 billion for the first time; REITs totaled USD101.1 billion as of April 29 this year.

All sectors in the region experienced a fall in transaction volume, except for residential apartments which saw an increase of 10%. According to the report, movements in Asia Pacific cap rates were mixed over the quarter with retail, office and apartment cap rates showing signs of easing. Both industrial and particularly hotel cap rates showed signs of tightening.

RLJ Lodging Trust Hungry for Food-less Limited-Service Hotels

Sun, 29 May 2011 14:37:25 GMT

Over the past decade, private Bethesda, MD-based RLJ Development had become one of the largest US hotel owners, amassing a portfolio of 20,400 rooms spanning 19 states. And according to the Washington Post, remarkably the majority of those deals were closed through limited-bid or off-market transactions, likely through hand-made deals arranged by the firm’s two well-connected principals; Robert L Johnson and Thomas J Baltimore Jr.

After going public in 2010 and using the $495 million raised in its IPO to half its debt obligations, the firm – now called RLJ Lodging Trust – intends to gorge itself on more than $400 million in hospitality properties over the next 12 months. To fill out this goal, the firm will continue to use its tried-and-true strategy of pursuing limited-service hotels that often yield higher revenue per room, and operate under a leaner structure.

According to Real Capital Analytics’ Ben Carlos Thypin, however, the firm’s plan may run up against some current market realities. RCA tracked just $372 million in limited-service hotel sales during the first quarter of 2011, down by 14% from one year ago, and Mr Thypin added that, “Pricing hasn’t dropped enough to make some of these deals attractive. . . There are some lingering risks in the niche. Supply is mostly located in second-tier markets and demand is heavily reliant on the health of the business travel market.”

Beacon Capital Takes Majority Stake in Manhattan's Historic AT&T Tower

Fri, 27 May 2011 16:24:25 GMT

It was recently announced that the ownership of the landmarked AT&T building, located near the World Trade Center site at 195 Broadway in downtown Manhattan, has sold a majority stake in the 29-story office tower to Boston-based Beacon Capital Partners. According to Crain’s New York Business, the property is valued at $285 million, which means Beacon could be taking a stake worth over $200 million.

The current owners, a partnership between L&L Acquisition Corporation and GE Pension Trust, have announced plans to refurbish the building’s lobby to include retail space, among other improvements. This, in addition to the positively changing dynamics of the downtown/Financial District submarket, has caused some to question the strategy behind the equity stake sale. Real Capital Analytics’ Managing Director Dan Fasulo told Crain’s that he was surprised to hear the property’s owners would chose to sell at this point, stating that, “Once the World Trade Center takes shape it is going to be a different ball game down there…They would get more money.”

Latest Indicator of CRE Market's Health: Moody's Pricing Index Hits New Low

Wed, 25 May 2011 00:00:40 GMT

The latest Moody’s/REAL Commercial Property Price Index, which is generated using repeat-sales data from Real Capital Analytics, displayed an important paradox emerging in the commercial real estate sector. Though property pricing fell to a new cyclical low in March (the latest reporting period of the index) and is down by 47% from its peak in October 2007, Moody’s indicated in the index’s accompanying report that this month’s results are actually a sign of the market’s improving health.

The reasoning behind that proclamation has to do with the increasing share of distressed sales counted as part of the headline index results. As National Real Estate Investor summarized, as the immense overhang of distressed assets begin to enter the market and are sold, it means that “…investors and lenders are realizing losses on their distressed assets on a massive scale. Experts say that process is painful, but those price corrections must occur in order for the nation’s commercial real estate market to regain its footing and for overstretched property owners to de-lever and bring cash flows into positive territory.” Put another way, the current volume of depressed-value troubled assets trading hands right now means that the broader pricing of non-distressed markets may not necessarily be falling as dramatically, if at all. In fact, this type of activity is an encouraging signal.

Juxtaposed to the drop in the headline index, pricing for trophy properties in the largest six US cities has been steadily increasing over the past several quarters as investors turn to those types of assets and markets for secure, albeit shrinking, yields. Moody’s/REAL also tracks pricing for individual property types, with office, apartment, retail, and industrial indices all down from the previous reporting period. Importantly, the apartment sector has remained the furthest above its third quarter of 2009-cyclical low.

Chinese Investors Cutting Deals in Toledo, OH

Tue, 24 May 2011 16:17:25 GMT

Though Chinese entities have made significant equity and debt infusions into the US’s commercial real estate sector over recent years, with particular interest in the nation’s leading metropolitan areas, their direct investment into brick-and-mortar properties has been far less pronounced. In a recent story on the topic of Chinese direct investment into the US, the New York Times quoted data provided by Real Capital Analytics to state that, “…aside from two big office building investments in New York for $900 million, the largest Chinese investment last year was the $90 million purchase of the Sheraton Universal Hotel in North Hollywood, Calif., by the Shenzhen New World Group.”

Though not topping this hospitality purchase last year, a Chinese pair of private investors have recently announced they have collaborated with the City of Toledo, OH to purchase a significant chuck of riverfront property called the Docks, for $2.2 million. The deal also included five acres of parking nearby, and the two are eyeing a large, nearby development site that was formerly the location of a power plant.

The two investors, Yuan Xiaohona and Wu Kin Hung, originally reached out to Toledo Mayor Michael P Bell to establish themselves as players within the secondary Midwest market. The property, a city-owned combination dining/entertainment complex, struggled during the recent downturn. Now Ms Yuan and Mr Wu plan to infuse up to $300 million to redevelop the property, which could also include the “Marina District” parcel directly adjacent to it, into a international business center for foreign firms looking for a Midwestern US hub.

RCA, Deloitte, RERC Collaborate on 2011 Outlook Report for Commercial Real Estate Sector

Tue, 24 May 2011 13:29:25 GMT

According to Expectations & Market Realities in Real Estate 2011, a report published collaboratively by Real Capital Analytics (RCA), Deloitte, and Real Estate Research Corporation, “Commercial real estate investors appear to remain cautious with their return expectations during these uncertain times, and are weighing the risks presented by the economy and the capital markets.”

The 2011 outlook report, released in May 2011, predicted that commercial real estate investment is likely to continue to be favored in comparison to other investment vehicles for the foreseeable future, due to its transparent and stable nature. Yet the sector also faces headwinds from a steep refinancing mountain coming in the next few years, as well as a sluggish US economy and low job growth.

Risk aversion was a main topic of the report, with contributors discussing what risks are currently present for the commercial real estate sector, and how best to avoid them.

For a more extensive summary of the collaborative report, please see the full article on PR Web. For the complete report, RCA subscribers can download the PDF here. Non-subscribers may purchase the report at www.RERC.com.

Savanna Extends Buying Tear to Include Assets Out of Foreclosure

Tue, 24 May 2011 00:00:40 GMT

The New York-based private equity firm Savanna has gone on a shopping spree in Manhattan, buying up several offices over the past few months. The firm has even executed successfully on a few bargain distressed opportunities, most recently scooping up 100 Wall Street in Manhattan’s Financial District through a debt-grab that poised them to win the tower at a Uniform Commercial Code foreclosure auction.

Savanna purchased the mezzanine loan on the office building at 100 Wall Street, previously owned by Broadway Partners, with a “loan-to-own” strategy it had employed recently on other Manhattan distressed opportunities. The firm is now working with Jones Lang LaSalle to reduce the property’s 23% vacancy rate.

When speaking of Savanna’s recent acquisition splurge, GlobeSt.com quoted data aggregated by Real Capital Analytics to stated that, “Savanna is currently in contract on another Downtown office property, 80 Broad St., which it’s acquiring for $66 million from ownership led by Swig Equities in a debtor-controlled sale.” Additionally, Savanna has acquired 386 Park Avenue, 104 West 40th Street, 5 Hanover Square, and 1375 Broadway over the past year as they comb Manhattan for deals.

Manhattan's Palace Hotel In Contract to Northwood

Wed, 18 May 2011 12:29:25 GMT

The luxury 899-room New York Palace Hotel in Manhattan is said to be under contract to Northwood Investors LLC for around $400 million, according to a recent press release by the New York-based Northwood. Since its development 30 years ago, it has traded hands just twice, and Bloomberg cited Real Capital Analytics data to state that it is currently owned by “…an entity associated with the royal family of Brunei.”

In the press release, Northwood President John Kukral stated that, “We are investing in the Palace brand and property both to grow the business and to further enhance its stature as a world-renowned luxury hotel.” At $400 million, the transaction would have a price-per-unit of $445,000, which is relatively low for a luxury hotel in Manhattan, but does reflect the property owners’ leasehold agreement with the Archdiocese of New York that owns the land it is constructed on.

Vornado and SL Green Come Together for Majority Stake at 280 Park Ave

Tue, 17 May 2011 15:14:25 GMT

Some significant changes are happening at the trophy office tower located between Manhattan’s 48th and 49th Streets, known as 280 Park Avenue. Under a recently announce recapitalization plan, SL Green Realty Group and Vornado Realty Trust have merged their equity stakes in the property to take a majority position, allowing the partnership to commence a $150 million repositioning and re-tenanting program on the building. This is the first time the two office-REIT titans have entered into a joint venture with each other.

The remaining equity stakes will continue to be held by Broadway Partners, which, according to Real Capital Analytics data, purchased the building in November 2007 for $1.3 billion, and Murray Hill Properties. Murray Hill will continue managing and leasing the property.

SL Green Realty CEO Marc Holliday stated in the release announcing the capitalization changes that, “Many great office properties were impacted adversely by the most recent market downturn, but now offer great upside potential to investors who have the resources to take advantage…We see 280 Park as one of those opportunities and we look forward to working with our partners to realize the property’s great potential.”

Undisclosed Chinese Investor Finds Murray Hill Partnership, but Many Others Abroad Looking Too

Tue, 17 May 2011 13:28:25 GMT

Real Capital Analytics’ Managing Director Dan Fasulo told the Commercial Observer, “The whole distressed cycle is not playing out as many had originally thought,” in reference to Murray Hill Properties’ recent tie-up with a Chinese investor that helped the firm save its prized 1180 Sixth Avenue office tower from near-certain foreclosure.

The property, which Murray Hill bought at the peak of the market in 2006, was almost foreclosed on by the Shorenstein Group that bought the B-note mezzanine loan. Murray Hill was able to engage an undisclosed Chinese investor willing to sink $265 million in equity and debt into the property, allowing the firm to maintain its operating partner status of the building. According to the Commercial Observer, Murray Hill and the Chinese partner are already looking for more opportunities in Manhattan.

The situation of a mainstay US real estate firm partnering with an undisclosed investor from the Middle East or Asia is becoming more common, as those foreign entities wish to get into US real estate and/or away from instability in their home markets. The cheapest route for most to take is to partner with an established local US firm and scoop up distressed properties in solid markets. Though, as Mr Fasulo pointed out, this is easier said than done this cycle. He added that, “There are not distressed assets for sale through Cushman & Wakefield. You have to be a little more creative and team up with distressed owners in some sort of recapitalization; try to pursue the loan-to-own."

Foreign Investment into US Cities Cautiously Rises

Sat, 14 May 2011 11:30:40 GMT

Crain’s New York Business recently leveraged analyses regarding cross-border investment into the US originally provided by Real Capital Analytics’ (RCA) US Capital Trends report. Citing RCA, Crain’s stated that cross-border investment has been particularly high in the New York City metro, with $3.3 billion in foreign buyer sales over the 12 months ending March 31 accounting for 18% of all transaction volume during the same period. This compared to the just 7% cross-border investors accounted for on a national basis.

Top foreign buyers into the US included Safra Group (Brazil), China Investment Corp (China), and Fosterlane Management Corp (Kuwait), according to RCA. And so far in 2011, foreign buyers have already closed on six deals in the New York City metro. RCA Managing Director Dan Fasulo told Crain’s that, “It’s definitely picking up…Many foreign investors have been bidding.”

Lack of New Development in Boston: Good for Multifamily Investors, Bad for Renters

Fri, 13 May 2011 14:36:25 GMT

With a strong increase in local jobs forecast and a very limited number of units coming online over the next year or so, a recent article in the Boston Herald stated that its hometown rental market is poised for a banner year of activity and growth. Yet for renters themselves, this confluence of trends will mean asking rents may climb to historic highs this year, especially in already pricy neighborhoods such as Back Bay, Beacon Hill, and Midtown.

The supply-side may take years to reestablish, as Real Capital Analytics’ Managing Director Dan Fasulo explained to the Herald, “This lack of supply of apartments in Boston during the past five years has been constrained by high building costs and a lack of buildable sites.” He did not see much improvement in the situation over the next couple of years.

Don't Celebrate Yet: Hundreds of Markets Beyond New York Still in Trouble

Fri, 13 May 2011 11:30:40 GMT

“Some marquee properties in major U.S. cities recently have sold at high valuations, leaving many investors celebrating the commercial real estate sector's comeback. But not everyone's been invited to the party.”

In other words, for most commercial properties in the US, which lie outside of the highly-visible, primary markets, property values remain significantly depressed after the most recent downturn. They await the type of macro-economic and employment growth currently returning to the nation’s leading metros to begin posting improvements themselves. According to the Moody’s/REAL Commercial Property Price Index, which is based on repeat—sales data from Real Capital Analytics, pricing for commercial properties in Manhattan and Washington, DC are just 17 percent and 18.5 percent off their historical highs, respectively.

What is even more concerning, Reuters pointed out, is that, “If property values in weaker markets, such as Cincinnati or Indianapolis, don't improve before the loans come due, many borrowers will be forced to default. Community banks tend to have the biggest commercial property holdings as a percentage of overall assets, so mass defaults could cause scores of those lenders to fail.”

Regarding whether these secondary and tertiary cities will be able to pull it out before its too late, Reuters quotes RCA’s Ben Carlos Thypin as stating emphatically that, “There's no chance that property values will rise enough.”

Multifamily Investors Having "Feeding Frenzy" in 90210

Fri, 13 May 2011 00:00:40 GMT

As the multifamily sector quickly becomes investors’ preferred property type, Bloomberg’s Businessweek recently detailed the growing activity being reported in one of Los Angeles’ most important submarkets: Beverly Hills. Though properties seldom come to market in Beverly Hills and other affluent Los Angeles suburbs, several owners are taking this unique period in the cycle to lure wealthy individuals to buy within the desirable market.

And investors are definitely expressing their interest, even accepting lower yields to get in to the Beverly Hills multifamily market at this early point in the new cycle. On a recent 24-unit multifamily trade, located near the Beverly Hills Four Seasons Hotel, a high net-worth investor accepted a 4.5% initial annual cap rate, while, according to data aggregated by Real Capital Analytics, the national average cap rate for multifamily properties slipped to 6.6% in the second half of 2010. With activity ramping up over the first quarter, the national cap rate has dipped even lower since.

Businessweek went on to chronicle other properties that have traded recently in Beverly Hills with cap rates below the national average, and described some of the factors that are driving demand in the exclusive Los Angeles submarket. Weaker single-family demand and a lack of new development of multifamily properties have pushed up rental occupancy over the past year, especially in desirable locations such as Beverly Hills.

Yield-Hungry Investors Scoping Secondary Markets

Thu, 12 May 2011 00:00:40 GMT

As commercial property buyers “gradually embrace risk” and look beyond primary, competitive markets for higher yield, they are finding opportunities in the US's leading secondary markets. In a story recently run on Bloomberg, it was determined through a variety of data sources that investors have turned to markets such as Dallas, Denver, and Minneapolis during the first part of 2011 as the cutthroat markets of New York City and Washington become untenable for some investment classes.

The article quotes data aggregated by Real Capital Analytics to state that yields in secondary markets have become relatively attractive over the past year as competition pushed cap rates down on the nation’s coastal markets: “Office-property cap rates were 7.8 percent in Dallas, 8.2 percent in Minneapolis and 8.4 percent in Denver as of March.”

Intuitively, the article pointed out that investors who cannot afford New York or Washington, DC are hunting for cities where job and population growth suggest property acquisitions are a smart investment. Each of Dallas, Denver, and Minneapolis display positive growth on both metrics, while cities such as Seattle and Boston show even more promise and are attracting competition as well.

For more information on this developing investment trend, please see the full article on Bloomberg.

With a New Plan and Name, Can Xanadu Become the Next Mall of America?

Wed, 11 May 2011 14:40:25 GMT

It recently came to light that the same firm that currently owns and operates both the Mall of America, in Bloomington, MN, and the West Edmonton Mall in Alberta, CAN, has divulged its plan to assume control over the beleaguered development of Xanadu, the 2.4 million square foot mixed-retail complex in Meadowlands, NJ. Triple Five, the firm started by the Ghermezian brothers, is considered “wildly successful” on the high performance of both the Mall of America and West Edmonton Mall. But can their previous accomplishments ensure a successful turnaround at Xanadu?

The New York Times outlined some of the details of the duo’s plan for Xanadu, which has been years in development and already cost nearly $2.0 billion to complete. Triple Five has proposed expanding the mall to 3.0 million square feet, adding a water park and ice rink, and changing the name of the property, which has garnered negative connotations over the course of its development, to American Dream@Meadowlands.

Whether Triple Five will be successful in their bid to turn around the troubled mall development remains to be seen. The firm has had its share of problems as well: Triple Five became over-extended in Las Vegas during the real estate boom. Now, according to data recorded by Real Capital Analytics, Triple Five has faced lenders foreclosing on five of its loans to date, with another four loans in distress. The largest loss Triple Five has incurred so far has been on the development loans taken out for 60 acres to build the “Great Mall of Las Vegas,” which fell into trouble and the site was surrendered to the lender in 2009 when that market collapsed.

NIC and RCA Join Forces to Improve Seniors Housing Property Transaction Data

Wed, 11 May 2011 12:31:25 GMT

Real Capital Analytics and National Investment Center Announce Collaborative Initiative to Track Seniors Housing Property Sales

Real Capital Analytics (RCA), a leading global research firm, and the National Investment Center for the Seniors Housing and Care Industry (NIC), a leading industry resource for seniors housing, announced during a jointly sponsored NIC Investor Briefing last week an agreement to provide the seniors housing industry with improved transaction data and analytical reports to facilitate investment decisions within this rapidly growing property sector.

“We are very pleased about our new relationship with NIC, which has the largest database on seniors housing and is the ‘go to’ organization for investors interested in the industry,” said Bob White, RCA’s Founder and President. “Senior housing properties are currently attracting tremendous amounts of capital. So far in 2011, we have recorded $15 billion of property sales with another $7.5 billion pending, a huge amount of transactions that surpasses volume in the office sector.”

As part of the agreement, NIC will provide RCA with its leading US database of seniors housing information, and RCA will enhance this transaction data to provide jointly produced industry trend reports and analytics. The transaction database and analytical reports will be offered to both NIC MAP subscribers and RCA clients later this year. In addition, a NIC-RCA quarterly transactions report will be produced and be available through each organization.

“With the unprecedented number of transactions in the seniors housing industry, it’s the perfect time to bring together RCA’s commercial real estate expertise and NIC’s industry-specific research and data,” said Bob Kramer, NIC’s President. “I’m excited about the collaboration and look forward to enhancing investor knowledge and understanding of the seniors housing industry and its potential.”

About the National Investment Center for the Seniors Housing and Care Industry
For 20 years, the National Investment Center for the Seniors Housing & Care Industry (NIC) has been committed to advancing the quality of seniors housing and care by facilitating informed investment decisions for investors, lenders, owners, operators and developers through groundbreaking research, actionable data and dealmaking events. NIC is the leading provider of historical and trend data on the industry through its NIC MAP® Data and Analysis Service that tracks more than 12,000 properties on a quarterly basis in the 100 largest metropolitan markets. Proceeds from its annual conference and other events are used to fund data and research on issues of importance to lenders, investors, developers, operators, and others interested in meeting the housing and care needs of America's seniors. For more information, visit www.NIC.org or call (410) 267-0504.

About Real Capital Analytics, Inc.
Real Capital Analytics, Inc. is a global research firm based in New York City. The firm's proprietary research is focused exclusively on the investment market for commercial real estate. Within that arena, Real Capital Analytics offers the most in-depth, comprehensive and current information of activity in the industry. In addition to collecting transactional information for property sales and financings, RCA interprets data such as capitalization rates, market trends, pricing and sales volume. RCA also quantifies the market forces and identifies the trends that affect the pricing and liquidity of commercial real estate around the world. The firm publishes a series of Capital Trend reports and offers an online service that provides current transaction and troubled asset information for all markets globally.

Multifamily Boom Pushing Some Apartment Yields Below Office Sector

Wed, 11 May 2011 00:00:40 GMT

There has been much talk of the rise of the multifamily sector over the past two quarters as fundamentals improved and activity – spurred by increased lending activity – climbed swiftly. Now it would seem that the multifamily sector, particularly mid/high-rise properties in the nation’s top-tier markets, may be challenging the office sector in terms of which is the best investment.

In a recent Wall Street Journal article, it was stated that Hartz Mountain Industries’ April disposition of two well-situated office properties in Jersey City, NJ were purchased by CB Richard Ellis Realty Trust for an initial yield of 7.0%. Hartz then went out to Chicago to purchase an 809-unit multifamily asset – One Superior Place – for an initial yield of just 5.0%. Hartz President Emanuel Stern confirmed the office cap rate was lower than his firm’s acquisition yield in the multifamily sector.

The Journal reminded readers, using data aggregated by Real Capital Analytics (RCA), that the multifamily market has improved markedly over the past year, with transaction volume more than doubling from 2009 to reach $39.0 billion during 2010. The rise in activity is attributable to growing rental demand, rising rents, and relatively easier-to-obtain debt from government-controlled Fannie Mae and Freddie Mac. RCA Managing Director Dan Fasulo chimed in to tell the Journal that, “Apartment properties are less risky and you get super-cheap debt for acquisitions, courtesy of the U.S. taxpayer.” Hartz’ deal for One Superior Place is the largest apartment sale in the US yet during 2011, according to RCA data.

Vornado Considering Sale of Long-Stalled Downtown Crossing Development

Tue, 10 May 2011 00:00:40 GMT

By now, nearly everyone in the commercial real estate sector is aware of the gaping empty hole on Franklin Street in Boston’s Downtown Crossing district. New York-based REIT Vornado Realty Trust purchased the site, then home to Filene’s Basement department store, in 2006 for $100 million at the peak of the market. The firm lined up its partners and financing to redevelop the site into a mixed-use behemoth composed of retail, multifamily, and hospitality properties. Vornado suspended the project in 2008 as the financial crisis set in, and has yet to restart construction despite the improvements posted throughout 2010 in the commercial property sector.

Yet Vornado held on to the development site for the past five years, with the knowledge that being extremely well-located, any future improvements built on the land would surely become a trophy asset. However, it was recently reported that Vornado has enlisted brokerage firm Cushman & Wakefield to sell the development site and shed the related outstanding debt on its balance sheet.

Of the sudden and unexpected move on Vornado’s part, Real Capital Analytics’ Managing Director Dan Fasulo told Retail Traffic that, “…given the economics of the deal, selling the property doesn’t quite make sense. Vornado would have trouble recouping its losses on the land today, but if it builds the project at a later date it will likely reap hefty returns...I think they’ll wind up sitting with this, or maybe they can find a cheaper source of capital to partner up with — maybe an institutional or foreign investor. Basically, what Vornado is saying is they don’t want to build now. They are going to wait until a new development on that site is a home run.”
For additional information on the development site at One Franklin Street in Boston as well as Vornado’s recent activity, please see the full article on Retail Traffic’s site.

Encouraging Q1 Numbers Signal Solid Start to 2011

Mon, 09 May 2011 16:17:25 GMT

After the release of Real Capital Analytics’ (RCA) latest Global Capital Trends First Quarter in Review, the Mortgage Bankers Association’s (MBA) NewsLink reported on global investment trends in the commercial real estate sector. Globally, investment sales increased by 23% year-over-year in the first quarter, to reach $180.6 billion. The headline increase was driven by substantial rises in the US, Brazil, Germany, and Singapore. China, which became the world’s largest commercial property investment market last year according to RCA data, accounted for $78.2 billion in first quarter volume.

The MBA, also citing RCA data, reported on cross-border capital trends. By the end of the first quarter of 2011, reflecting data over the prior 12 months, Germany, Singapore and Brazil joined the premier US, UK, and France markets as top cross-border destination targets. At the same time, Hong Kong, Australia, Canada, and Spain all fell out of favor with investors willing to traverse borders to make deals.

The MBA related the rise and fall of cross-border targets over the past year to nations’ respective debt-funding gaps, which represent the imbalance between debt and capital valuations in a certain commercial property market. Nations with the greatest debt-funding gaps currently include Japan, the UK, as well as Spain and Ireland.

Cross-Border Buyers Flocking Back to Attractive US Property Market

Mon, 09 May 2011 12:28:25 GMT

Evidence is amassing rather quickly this year that cross-border acquisition activity is heating up in the commercial real estate sector. With many predicting the return of the cross-border deal in 2011, GlobeSt.com writer Paul Bunby cites Real Capital Analytics (RCA) as unearthing the first quarter of data that actually bares that forecast out. According to RCA, cross-border acquisitions rose to $10.1 billion over the 12 months prior to March 2011, up by 138% over the previous 12 month period during the depths of the financial crisis.

The composition of sources and destinations for cross-border capital flowing around the globe have shifted slightly from where they stood during the peak in 2007. Leading metros, such as New York in the case of the Americas, have become top target destinations, after foreign buyers pulled out of secondary and tertiary markets during the downturn. At the same time, Canadian buyers have edged out formerly-aggressive German and Australian firms in the US to become the leading source of cross-border capital.

Additionally, a large number of first-time buyers from Asian countries in the US have been tracked by RCA over the past year. These include buyers in South Korea and China, though Chinese capital may be undercounted due to the difficult nature of obtaining deal information.

Gramercy Capital Facing Financial Loss as Lenders Stop Extending Troubled Debt

Sun, 08 May 2011 00:00:40 GMT

After failing to pay off nearly $800 million in outstanding loans, lenders working with New York-based Gramercy Capital Corp are threatening to take back about 195 properties in response, according to a recent article on Bloomberg’s Businessweek. Gramercy’s lenders include Citigroup, Goldman Sachs, SL Green Realty and KBS Debt Holdings.

This type of aggressive takeover of collateral is a growing trend in troubled and distressed loans, according to Real Capital Analytics (RCA). Based on data aggregated by RCA, Businessweek stated that, “Lenders that offered to extend troubled real estate debt after the 2008 financial crisis have turned increasingly to liquidating loans and selling the underlying assets…In the first quarter, 57 percent of workouts were permanently resolved, mostly through liquidations or sales, up from 49 percent a year earlier.”

According to persons interviewed by Businessweek, should Gramercy lose the portfolio of loans to creditors, the firm may sustain a substantial loss resulting in negative earnings in future quarters. Gramercy Capital Corp is formerly the financing unit of SL Green Realty Corp, a massive publicly-traded REIT and currently the largest office landlord in New York City.

Cross-Border Acquisitions Spill into Germany - UK and France Remain Top Targets

Fri, 06 May 2011 14:04:25 GMT

Speaking on the subject of first quarter sales activity in Europe, Property Investor Europe recently relied on data aggregated and presented in Real Capital Analytics’ (RCA) Europe Capital Trends to state that, “…sales of €31.8bn made for a 40% year-on-year increase and the sixth consecutive quarter of improvement.”

Additionally, RCA data revealed that Germany emerged as the leading target for cross-border buyers, both intra- and inter-continental, within Europe. Overall, cross-border acquisition volume into Europe during the 12 months ending March 31 jumped 50% year-over-year over the previous 12 month period, to €45.8bn. Disaggregating this total, German entities were the most prolific cross-border buyers within Europe,while Canadian firms were the largest net-acquirers of European property from outside the Continent.

Troubled Tampa Market Posts Solid One-Year Growth through First Quarter

Thu, 05 May 2011 13:27:25 GMT

While many had come to the conclusion that the over-built Tampa market should be left for dead, new data aggregated by Real Capital Analytics suggests just the opposite is happening in this tropical secondary market. The number of deals valued at over $10 million or more in Tampa occurring the in 12 months prior to March 31 doubled from the previous 12 month period.

Apartment properties were in high demand, with over 20 deals totaling $542 million trading during the one year period. Sales of office and hotel properties, of which the Tampa market has plenty (including many in various states of distress), were also impressive.

Germany and Secondary Markets Drive Strong Q1 Growth in European CRE Activity

Thu, 05 May 2011 12:23:25 GMT

Despite the resurfacing of significant sovereign debt issues in Europe during the first quarter of 2011, commercial real estate posted solid year-over-year growth on the Continent – in stable markets such as Germany and France – as well as in the UK, where cross-border buyers have bolstered local demand for properties. According to Real Capital Analytics’ (RCA) First Quarter in Review edition of Europe Capital Trends, transaction volume across Europe grew by 40% year-over-year in the first quarter to reach $47.3 billion.

Of the first quarter results, Joseph Kelly, director of market analysis based in RCA’s London office, remarked that, “A renewed focus of continental and global cross-border capital on German and key central European markets should continue to develop, though recent investment trends in Europe clearly identify robust core and struggling peripheral markets. The responsible economic divide is likely to act as a drag on the wider European economy for some time to come and further challenge monetary policy within the Euro zone.”

DC Office Market May Sag as Federal Government Contracts

Wed, 04 May 2011 15:31:25 GMT

Has the window of opportunity already closed for selling an office property in Washington, DC? According to a recent article in the Wall Street Journal, that may not be true yet, but momentum in the capital’s office market will likely not sustain the strong results posted in recent quarters.

One of the leading causes of Washington, DC’s pending slowdown will be increased federal government dispositions as executive agencies eliminate any unneeded properties to reduce the oversized national deficit. Additionally, congressional leaders have made clear they will be slashing the federal budget by selling real estate and reducing leased space in the capital. Government-related activity has driven momentum for Washington, DC’s office market through the downturn, but government contraction may stifle activity and depress pricing metrics in the future.

Regarding this possible reversal of fortunes for the capital's office market, Real Capital Anlaytics’ Dan Fasulo remained confident that it could weather a reduction in government-occupied space. Recently, one of Washington, DC’s largest office buildings – David Nassif Associates’ 1.4 million-square-foot Constitution Center, located in Southwest DC near L’Enfant Plaza – was placed on the market. Mr Fasulo evidenced this offering in support of Washington, DC’s strength, remarking that, “Recent sales of prime property have fetched as much as $905 a square foot…If investor appetite for Washington property stays strong…the Constitution Center could fetch as much as $640 a square foot, for a total of about $900 million” He added that he expects …”some heavy action” in terms of competition for the property’s sale.

Stars Align for Multifamily Market's Rise

Sat, 30 Apr 2011 13:23:25 GMT

Support for momentum in the multifamily/rental sector continues to build, with a recent article in the Wall Street Journal detailing the property type’s attractiveness and elevated prospects versus other property types. A confluence of expanding demographics, limited product coming on line, and a recovery in the nation’s economy have spurred the multifamily sector’s rapid turnaround. In fact, pricing and other metrics for apartment properties have become so robust over the past two quarters that sales and demand for rental properties is closing in on boom-era levels.

Of this encouraging trend, Real Capital Analytics' Managing Director Dan Fasulo warned the Journal that, “The days of buying and flipping a property for quick profit are long gone. But investors who purchase apartment buildings, perhaps as part of a retirement portfolio or estate plan, are seeing better deals now than at any time in the past decade…On the cost side, housing prices are low and falling in many areas, while mortgage rates are near historic lows. On the income side, apartment rents are near all-time highs.”

The Journal provided additional reasons for the multifamily sector’s current bull market: single-family home foreclosures have accelerated over the past two years, with five million more expected to occur by the end of 2012 according to RealtyTrac.com. Families pushed out of those homes by lenders will provide ample demand for an increasingly well-occupied multifamily market.

With so much upside for apartment owners in terms of rent and revenue, the market’s largest players – including REITs and institutional buyers – are acutely pursuing multifamily opportunities before pricing brings down initial cap rates.

The Uncoupling of Southwestern Florida's Residential and Commercial Housing Markets

Sat, 30 Apr 2011 12:23:25 GMT

In a recent localized article appearing on the Fort Myers/Southwest Florida-based Press-News.com, writer Gary Tasman spoke on the subject of Southern Florida’s two beleaguered housing markets – both commercial and residential – that have historically tracked each other through booms and busts. Mr Tasman stated that, while the residential sector has little prospect for near-term growth in pricing or construction, the commercial sector of multifamily housing faces fewer challenges and may mount a quicker recovery in the coming years.

This more optimistic forecast is manifesting in some important metrics being tracked in the multifamily market by Real Capital Analytics (RCA). Mr Tasman cites RCA in stating that “recovery rates on defaulted commercial and multifamily mortgages improved throughout the nation, rising to 67 percent in the first quarter.” In addition, “For the first quarter of 2011, commercial backed mortgage securities activity nearly surpassed all activity for 2010. Commercial back mortgage securities, when executed responsibly, function to bring more liquidity to commercial real estate.” Both figures are indicative of the multifamily sector’s momentum going into the new cycle."

There remain significant challenges from the previous cycle, however, that remain to be solved. One of those is the mountain of debt buyers took on to acquire and refinance properties during the boom, when values were near their peak. Mr Tasman stated that, “Real Capital Analytics reports that assumed debt remains to be the key source of distress financing. More than 25 percent of distressed sales in 2010 were financed through assumed debt - accounting for a larger share of that market than any other traditional lending source.”

Commercial Property Pricing Slides in February, Nears Cycle's Relative-Low

Fri, 29 Apr 2011 00:00:40 GMT

“Prices for both home and commercial real estate are falling again,” proclaimed a recent New York Times article on the subject of pricing in both sectors. Specifically, the article relied on the Moody’s/REAL Commercial Property Price index (CPPI), which is generated using repeat sales of commercial properties logged by Real Capital Analytics, to discuss the latest drop in pricing. And in fact, the CPPI has fallen by 4.9% over the 12 months, with only slight gains measured early last fall. The index now sits just 0.8% above its August 2010 low.

The Times rightly points out that the headline index results do mask important underlying trends. One of the largest drivers of the fall in the pricing metric for commercial properties was the share of sales associated with distressed assets, which are often sold for much less relative to their previous transaction amounts. Moody’s Director of Commercial Real Estate Research remarked of February’s high percentage of transactions involving distressed assets, “Only when the share of distressed sales meaningfully drops off will we be able to enter the recovery phase.” The CPPI breaks down the national trends on a regional and property type basis.

Parallel to the trend of distressed sales weighing on commercial pricing, the sales of trophy and top-tier assets have buoyed the index over the past few months as investors clamor for the best of the best. Competition in that segment has pushed up pricing on those high-quality properties to boom-era levels or higher.

SL Green Buys Out Partner's Stake at 1515 Broadway

Thu, 28 Apr 2011 13:26:25 GMT

SL Green Realty Group recently bought out the remaining stake in 1515 Broadway, which houses the Viacom Inc headquarters and sits in Manhattan’s Times Square, from SITQ (a real estate investment unit of Canada pension fund manager Caisse de Depot et Placement du Quebec) for a price that would value the entire property at $1.2 billion. The 1.75 million square-foot building was originally purchased by SITQ and SL Green for $484 million in 2002, with SITQ holding a roughly 31.5% stake. It is currently 97% occupied and recently went through an extensive renovation.

Of the sale, Real Capital Analytics’ Managing Director Dan Fasulo chimed in that the buyout represented “…another example of how the market has improved over the last 18 months. We’re within maybe 10 percent of record levels.” Bloomberg added that “SL Green, Manhattan’s biggest office landlord, has been benefiting from climbing New York office values as vacancies decline and rents rise. The real estate investment trust yesterday said first-quarter funds from operations jumped 68 percent, beating analyst estimates, as rent revenue increased and it received income from the sale of debt on 280 Park Ave.”

Silicon Valley Emerges as Significant Secondary Market

Wed, 27 Apr 2011 00:00:40 GMT

Defying expectations over the past quarter, the Wall Street Journal recently qualified how activity in the Silicon Valley office market is closing in on its boom-era levels against several different metrics. The Journal stated that rents are rising, leasing activity is up, and vacancy rates have tumbled as technology firms have gobbled up space to expand their operations and accommodate expanding global demand.

All of these improvements have resulted in a material impact on the investment transaction market for offices in the Valley as well. The Journal cited transaction data recorded by Real Capital Analytics in stating that, “A downtown Palo Alto office building, once home to engineers developing the AltaVista search engine and the Java programming language, was sold this month to RREEF, Deutsche Bank's real-estate investment division, for $65 million, or more than $900 a square foot. That deal is in a tie with a sale in downtown Washington as this year's most expensive sale of a U.S. office building over 15,000 square feet.”

As is the case with the technology sector itself, the markets that technology firms occupy en masse can fluctuate drastically over shorter periods than more diversely occupied markets. Google and Facebook’s fortunes are rising among technology firms, and so those two in particular have been eager to expand their payrolls and take more space. However, expansion in both smaller start-ups and industry leading companies has benefited landlords across the Valley over the past quarter, even tempting some to envision development plans getting underway in the near future.

MTA's Pain is Midtown Investors' Gain with Madison Avenue Trio Up For Sale

Mon, 25 Apr 2011 15:30:25 GMT

As the New York City’s Metropolitan Transit Authority looks to close an astoundingly large budget deficit, it has decided to dispose of three 20-story office buildings it currently owns and occupies in one of the hottest office markets in the world. It was recently announced that the MTA would look to market 341, 345, and 347 Madison Avenue, a move the Authority has previously passed up in favor of holding on to the space that sits adjacent to Grand Central Terminal and its Metro-North commuter rail operations.

The MTA is seeking $150 million for the three buildings, though the New York Times pointed out that the trio could easily sell for more given their location and value-add potential. “A buyer could demolish the three existing outdated buildings to erect a modern skyscraper, with even more potential if the new owners purchase air rights over Grand Central, which would allow them to build a tower much taller than might otherwise be allowed.

Of the remarkable Midtown Manhattan offering, Real Capital Analytics’ Dan Fasulo commented that the timing was right for such a sale, given that the real estate market has begun to show signs of life. He added that “Tenants today are asking for all the bells and whistles in new buildings,” suggesting that a new, modern office tower would be a profitable addition to the Midtown market.

Industry Analysts Opine on Congress' Performance

Mon, 25 Apr 2011 13:26:25 GMT

Real Capital Analytics President and Founder Bob White recently put on his politico hat to discuss the recent budget wrangle in Washington, and the impact of the resulting extended period of uncertainty on commercial real estate markets. A recent GlobeSt.com poll found blame over the recent near government shutdown spread evenly among both parties. Mr White found this to be in line with Gallup’s numbers of last week that found Congress’ approval rating has fallen to just 17%, “I think this definitely reflects that and it’s interesting that the frustration’s not really a partisan thing. There is certainly a lot concerning real estate and the real estate industry that is being discussed on Capitol Hill now but I just think this is a general commentary of overall frustration.”

In the same article, New York Building Congress President Richard T Anderson joined Mr White in stating that, “I tend to feel that there is a lot of distaste and disgust with the whole governmental process these days…You don’t tend to pay as much attention to the details when you’re just fed up with everything.”

Multifamily Market Heating Up in Charlotte, NC

Mon, 25 Apr 2011 00:00:40 GMT

The multifamily investment market seems to be stirring in Charlotte, NC, with the recent announcement that The Catalyst uptown apartment complex sold for $103 million, or $223,500 per-unit. The sale comes as Charlotte’s economy positions itself for growth, and employment rebounds on the city’s banking and education sectors. In a recent article in the local Charlotte Observer, the case for Charlotte was made.

Real Data, a firm that researches the apartment market, found that more than 7,000 units were rented in the Charlotte market between February 2009 and February 2010. Real Data President Charles Dalton stated that, "The apartment market is entering a cycle where everything is in their favor: development is minimal, demand for rentals versus for-sale is growing, and employment is improving... It is also good for Charlotte, as other investors see this kind of transaction in Charlotte, it will make them want to look at Charlotte as a potential investment area."

This comports with findings on the Charlotte market tracked by Real Capital Analytics, which recorded $207 million in apartment sales in Charlotte during 2010, more than three times the amount tracked in 2009. As vacancy rates in the market continue to fall, renters will wait for development to recommence for relief from higher rents.

US Commercial Property Sales Post YOY Growth on Strong Office, Hotel Sales

Sun, 24 Apr 2011 14:33:25 GMT

Citing data aggregated and analyzed in Real Capital Analytics’ (RCA) latest US Capital Trends reports, First Quarter in Review edition released on April 21, 2011, GlobeSt.com columnist Paul Bubny recently reviewed commercial real estate trends in the US. Commercial property sales totaled $3.1 billion in the first quarter, up by 69% year-over-year. The increase was led by significant gains for CBD office and full-service hotel sales during the quarter. Another positive trend continued into the first quarter: properties falling into distress amounted to just $14.9 billion, the lowest quarterly total since the third quarter of 2008.

Major markets disproportionately contributed to the first quarter’s rise in sales, with large year-over-year volume gains in San Francisco and Washington, DC benefiting core office sales among other property types. Other less visible markets posted slight declines, including Baltimore, MD and Tampa, FL.

The large bump in national sales paradoxically coincided with a decline in repeat sales pricing, as tracked by the Moody’s/REAL Commercial Property Price Index, which is fueled by repeat sales data from RCA’s database. The latest release by the index indicated that pricing fell by 3.3% between January and February 2011, and is now just 0.8% above its last relative low set in August 2010. Sales out of distress continued to weigh heavily on the index in February.

Underwater Owners Engage Third-Party Firms to Hold on to Properties

Sat, 23 Apr 2011 11:25:40 GMT

When owners of commercial property find themselves underwater on the financing backing their holdings, they often must negotiate directly with their lender in order to extend loan terms or reduce the outstanding balance. However, with so many owners currently in or nearing a state of distress on their loans, third-party “workout companies” have sprung up to work with lenders and owners to renegotiate terms and reduce debt loads so that both sides of an agreement can avoid legal proceedings such as bankruptcy and foreclosure.

Regarding the rise of these types of financial service companies, Real Capital Analytics’ (RCA) Ben Carlos Thypin told the San Francisco Chronicle that they can “…definitely play a useful role in the services they provide and also by being a third party…Banks have to demonstrate to shareholders and regulators that they're getting market value (for soured real estate investments). Having a third party involved lends credibility to whatever amounts they're able to recover." Demand for these firm’s services will likely continue to grow, as RCA has tracked over $180.0 billion in commercial loans classified as “in default” during the first quarter of 2011.

The article used a local Bay Area example to discuss the role these workout companies are playing in the resolution or restructuring of distressed commercial properties in the US. Loans backing Peacock Gap, a country club just north of San Francisco in San Rafael, teetered on the edge of default when the owners were unable to continue servicing their loans with existing revenue. After making no headway with their lender, they turned to Breakwater Equity to negotiate with the bank directly and workout a new agreement.

Moinian Group to Acquire 245 Fifth Avenue Through JV with Thor Equities

Thu, 21 Apr 2011 13:36:25 GMT

Thor Equities has teamed up with The Moinian Group to acquire 245 Fifth Avenue in Manhattan. Moinian actually already has a stake in the property through a joint venture with Goldman Sachs's Whitehall Real Estate Fund, which purchased the property near the height of the market for $190 million. That pair had planned to raise the property’s rents in exchange for the higher sale price, but the downturn quickly scuttled their plans.

Thor will now join Moinian in acquiring the building, located at 28th Street, for $162 million. Real Capital Analytics’ Ben Carlos Thypin helped explain Thor’s reasoning to Real Deal readers: “Thor gets a good quality property that is well leased for the decent price of a little more than $500 a square foot without having to put up much cash, since they assumed the $140 million loan as part of the deal."

Buyers Can Be Choosers As Westfield, Simon, General Growth Shed Underperforming Malls

Wed, 20 Apr 2011 13:09:25 GMT

After more than a year of improving pricing and declining initial yields, current mall owners have seemingly simultaneously determined that now is as good a time as any to place their under-performing and lower-quality properties on the market. The Wall Street Journal reported that in recent weeks, “Mall giants Westfield Group, Simon Property Group and General Growth Properties are marketing 40 malls across the country, an unusually large number for any one time.” By way of comparison, the Journal cited Real Capital Analytics (RCA) in stating that just 57 mall deals were closed for all of last year, for a total of $2.6 billion in transactions.

The Journal attributes part of the acceleration in mall offerings to the sector-wide improvement in availability of financing for trades. Particularly, the CMBS market has expanded its presence in the first quarter, allowing many sellers to feel assured that a buyer will be able to acquire their property with financing. However, pricing for malls has been poor since the downturn. Cap rates for malls averaged 8.8% in 2010, up from as low as 6.4% during the market peak. This means that it is still a buyer’s market for mall space as sellers return this spring.

Commercial Real Estate 'Looking Good' Versus Other Investment Vehicles

Wed, 20 Apr 2011 00:00:40 GMT

Among all the investment vehicles currently available in the US, commercial real estate now stands heads and shoulders above its peers when it comes to its level of risk, protection from inflation, and of course, yields. According to the latest Moody’s/REAL Commercial Property Price Index (CPPI) for January, released on March 22, commercial property pricing improved 4.2% over the five months prior to January from an eight year low last year. Values for apartment complexes, office buildings, hotels and, especially trophy properties in the nation’s leading markets, are improving very rapidly after touching bottom.

Of this movement, Dan Fasulo, managing director of Real Capital Analytics (RCA), which provides the repeat-sales data underlying the CPPI, remarked to Businessweek that “We’re well into the recovery in the prime markets in the U.S. and that recovery has started to expand into secondary markets around the country…Real estate is looking good versus other asset classes.”

The optimism in the commercial real estate sector has prompted some of the world’s leading investment shops to expand their exposure to property and commercial debt. One of these includes New York-based Blackstone Group LP, which has returned to purchasing properties and debt backing commercial space in a big way since the recession subsided. In addition to the billions of dollars the firm spent in 2010 on large portfolios of properties, Blackstone recently announced it would raise an additional $10.0 billion fund later this year to target the commercial property sector. Carlyle Property Group, a competing private-equity shop, would also raise a multi-billion dollar fund to get in on the sector before this unique window of opportunity closes.

All that being said, the commercial real estate sector continues to feel the weight of distressed properties and a tremendous amount of debt taken on by property traders during the boom years that will be difficult to refinance. Businessweek’s article acknowledges, however, that depending on which side of the equation an entity is on, distress can be an opportunity or a burden.

For a complete look at the opportunities and difficulties that currently exist in the commercial real estate sector, please see the full article on Businessweek’s site.

Pieces Fall into Place for US Steel Tower Sale

Mon, 18 Apr 2011 14:20:25 GMT

The US Steel Tower, Pittsburgh’s tallest building, has been in contract for several months, according to Real Capital Analytics (RCA, as its pending buyers line up acquisition financing. Now the buyer group, led by Mark Karasick, has secured a UBS-originated $220 million conduit loan from New York-based Meridian Capital to purchase the property. According to GlobeSt.com, the 10-year, fixed-rate loan has “favorable” terms and will cover more than three-quarters of the tower’s pending contract price, which RCA has listed at $250 million.

The property transaction, with the sellers including a partnership between AREA Property Partners and Winthrop Realty Partners, has been a bit of a saga over the past several months. The current partnership team sought to market the property after having difficulty refinancing existing debt in September 2010. Last December, Five Mile Capital, the junior lender to AREA and Winthrop, began foreclosure proceedings but suspended those plans once it became clear the owners were serious about selling the property. Mr Karasick’s group entered into contract for the 2.3 million-square office tower in February, but have held up the deal to pursue financing options.

Commercial Property Sector Defies Expectations with First Quarter Growth

Mon, 18 Apr 2011 13:29:25 GMT

Conditions in the US' commercial real estate sector have continued to improve across a variety of metrics over the first quarter of 2011, bolstered by both the broader economy’s recovery and a general lack of new space coming to market. In fact, the sector has defied analysts’ expectation that troubled loans from the boom years would inhibit a return to growth. According to a recent report by Real Capital Analytics (RCA), default rates for commercial property loans fell for the first time since 2005 in the first quarter, from 4.36% to 4.28%. The absolute total of outstanding distressed loans also fell over the course of the quarter, from $188.0 billion last September to just $181.0 billion in February.

Of this turn of events, RCA’s Global Chief Economist Dr Sam Chandan told USA Today that, “Worst-case scenarios have been avoided.” The reasons for this include stabilization in occupancy and vacancy rates, as well as a rise in pricing for properties in the nation’s leading markets and, particularly, the most sought-after trophy properties. As lenders expand and additional sources of credit, such as CMBS, come to market, one can expect the commercial real estate sector to continue its return to normalcy.

Blackstone Maneuvers to Commandeer CalWest Portfolio with $600M Debt Grab

Thu, 14 Apr 2011 15:33:25 GMT

New York-based Blackstone Group, in its quest for world domination, has recently acquired approximately $600 million of debt that currently backs 23 million-square-feet of industrial properties, commonly referred to as the CalWest portfolio. The move positions the world’s largest private equity group to take control of the properties, which are concentrated in major centers of trade, for relatively cheap prices, to build a portfolio of industrial space that would rival the size of some US public industrial REITs.

With the decline in values that has occurred for industrial space since 2007, analysts believe the CalWest portfolio’s senior debt may be difficult to refinance. According to Real Capital Analytics’ data, current owner Walton Street made the second-largest industrial sector purchase of the last decade when it acquired the CalWest portfolio in April 2007, at the very height of market valuations. Should Blackstone be able to leverage their position to take control of CalWest, they would be able to add the properties to the 180 industrial sites it recently acquired from ProLogis for $1.02 billion in a deal that also included interests in three real estate funds.

New Jersey Office Sellers Aspire to Manhattan Pricing

Wed, 13 Apr 2011 17:26:25 GMT

Although many Manhattanites would staunchly dispute any similarities their island is accused of having to neighboring New Jersey, two transactions recently closed in the Garden State with pricing metrics that rival those frequently achieved across the Hudson. The Wall Street Journal reported that, “Hartz Mountain Industries Inc. this week sold twin 12-story office buildings in Jersey City's Colgate Center in a deal that values them at about $310 million.” Citing data provided by Real Capital Analytics (RCA), this sale translated into a record-setting $375 per square foot.

The buyer, non-listed REIT CB Richard Ellis Realty Trust, purchased 70 and 90 Hudson Street for just $70 million, after agreeing to assume $240 million in existing debt. A significant sale for sure, as the property is 100% leased and supremely located with Hudson River views. However, initial yields on the properties are expected to be around 7.0%, compared to cap rates tracked by RCA in the 5.0%-range for Manhattan properties. These most recent sales demonstrate that, while commercial sales in New Jersey have clearly returned in force over the past quarter, Manhattan is maintaining its historically secure lead.

After Bumpy First Quarter, CMBS Continues Upward March

Mon, 11 Apr 2011 12:26:25 GMT

In a short summary of where the CMBS market stood at the end of a volatile first quarter, the Richmond, VA-based Times-Dispatch recently provided an analysis of statistics on CMBS issuance and pricing for the three-month period. Though global and domestic events caused much uncertainty over the market's outlook, CMBS issuance in the first quarter reached $8.7 billion, which the Times remarked was essentially on par with the pace of offerings in 2000-2002. At the current rate, market analysts are expecting $40.0 billion in new CMBS this year, which despite being more than four times as last year’s anemic volume, would be only a fraction of the $228.5 billion tracked by Commercial Mortgage Alert in 2007 at the peak of the market.

In terms of pricing, commercial mortgage rates have fallen about 25 basis points since the beginning of the year, almost in spite of the volatility in risk-free rates. Origination of loans at LTVs of 80% or higher have resumed, pricing more aggressively once bundled and securitized at their higher interest rates. Good news in the commercial real estate lending sector continued into the first quarter, as Real Capital Analytics’ (RCA) analysis of commercial and multifamily bank mortgages found that the default rate on such loans fell for the first time in 17 consecutive quarters. The drop in the default rate was not experienced by all lenders, however, with the nation’s largest banks continuing to have the highest rate.

The Times also pointed out that smaller banks, which have registered the lowest default rate so far this cycle, are probably more prone to postponing defaults as their balance sheets cannot absorb the losses. They may even be waiting for property values to rise. However, in secondary and tertiary markets–where smaller regional banks often originate a larger share of loans—the Moody’s/REAL Commercial Property Price Index, which is based on repeat sales data in RCA’s database, has displayed little upward movement over the past several months. As pricing and overall investor interest has remained low for opportunities and troubled assets in secondary and tertiary markets, the Times remarked that RCA has tracked significantly lower recovery rates on loans purchased out of distress in those less-visible markets.

Alternative Strategies for Shopping in Primary Markets

Thu, 07 Apr 2011 15:41:25 GMT

For those investors not quite ready to leave the safety of primary markets, or dip a toe in the secondary asset pool, an alternative strategy has been to pursue Class-A buildings in the nation’s leading markets that are decidedly value-add opportunities. Properties with such burdens present investors with a cheaper entry into these otherwise competitive and pricy markets, where leasing and rent trends are more likely to begin growing again. Real Capital Analytics (RCA) Global Chief Economist Dr Sam Chandan described those current market dynamics in stating that, “Tenants moving into higher-quality space have propelled leasing activity in many markets,” however, “…investors are chasing yield in a broader range of properties and wider selection of cities despite the fragile recovery, while core buyers bid up prices in major markets.”

Buyers of vacant space describe their line of reasoning as such: “They’re purchasing buildings at a low enough basis to withstand slow growth while positioning themselves for handsome profits when better times return. If need be, they’re in a financial position to absorb lower rents as existing leases roll over in order to maintain occupancy.” A recent article on National Real Estate Investor Online described several recent deals where buyers have leapt at the chance to own in primary markets, even accepting vacant space to do so.

The same article, discussing this nascent trend among investors who are refining their core strategies, cited data aggregated by RCA in stating that, “The willingness to buy risk in select assets and markets follows a robust rebound in office sales last year. Roughly $41.6 billion in office assets in the U.S. traded hands in 2010.” Of this total, about 24% of all transactions occurred in Manhattan and Washington, DC, while cap rates for office space in the latter plunged from 7.7% in 2009 to 6.3% in 2010 and the former’s touched 5.5%. Speaking to those statistics, as well as the terrific recovery in primary markets in general over the past year, RCA Managing Director Dan Fasulo commented that, “If we’re not there already, we’re rapidly approaching a situation in which there’s just too much money again and not enough assets to go around…It’s remarkable that it has happened so quickly.”

Chinese Investment Popping Up in Secondary US Markets

Thu, 07 Apr 2011 13:27:25 GMT

Though there has been much ado about Chinese investors, both big and small, making inroads into the leading US markets, they are touching down in less visible metros as well. Ignazio Messina, Staff Writer for the Toledo, Ohio-based Blade Newspaper, recently detailed the first major Chinese acquisition in his hometown to exemplify a broader trend in Toledo-sized markets across the nation. The Docks restaurant complex, a Toledo institution, has been sold for $2.2 million to Simon Guo, a Chinese broker. The success of this deal has led Mr Guo and his partners to negotiate with Toledo officials to “buy and develop the stalled Marina District project in East Toledo.”

Of the closed deal, Mr Messina stated that, “The Docks deal is part of a burgeoning trend across America in which Chinese with high net worth — and the Chinese government through the China Investment Corp, a $300 billion sovereign wealth fund — are spending billions to invest in American businesses and buy U.S. real estate.”

This statement was affirmed by Real Capital Analytics’ Ben Carlos Thypin, who told the Blade that Chinese investors, who had previously focused almost-exclusively on top markets such as New York and Chicago, are now looking beyond to secondary and tertiary destinations. Said Mr Thypin, “In the past year we saw one in Milwaukee. What’s happening in Toledo is a continuation of that trend. They can buy a lot of land and build a lot more for their money as long as they are comfortable with the place. It will serve as some kind of base for a long period rather than a financial investment… I imagine they are doing their homework and that is why they are going to Toledo, because it is so cheap and they can afford for this to take a long time.”

Despite the rise in investment from China, individual transactions such as Mr Guo’s trade for the Docks in Toldeo, are very hard to track. This is because, as Mr Thypin remarked, “There is a problem dealing with Chinese companies here or there. You do not know who is the guy behind the guy, behind the guy,” He also stated, however, that, “As their investments spread to places that are less used to foreign investments, perhaps there will be more scrutiny to these firms, who they are, and whether they are coming from the government or the private [sector].” Indeed, RCA has tracked reported Chinese investment for more than a decade, as it grew from $448 million in 2003 to more than $2.3 billion in 2009.

For more details on the happenings in Toledo, Ohio's investment market, please see the full article on the Blade's site.

AvalonBay and UDR Announce Strategic Trade of Assets

Wed, 06 Apr 2011 15:39:25 GMT

AvalonBay Communities Inc and UDR Inc, the second- and third-largest publicly traded apartment REITs in the US, recently announced a mutual exchange of $237 million in properties--a move that will result in a significant rebalancing of both firms’ portfolios, better positioning them within a shifting marketplace. The deal will see Virginia-based AvalonBay hand over two apartment complexes and a parcel of land in the Boston metro, as well as one complex in San Francisco. In return, Colorado-based UDR will transfer multiple apartment properties in southern California and a check for $26 million to Avalon, which described the move as “…reallocating capital…into a current under-allocated region…”

In posting the news to its website, Bloomberg’s Businessweek magazine pointed out that the trade comes as the apartment sector mounts a full recovery. Citing data aggregated by Real Capital Analytics, “Demand for apartments in the U.S. is rising as the economy grows and the homeownership rate slumps. Sales of multifamily buildings climbed 96 percent to $33.7 billion in 2010 from a year earlier.”

Qatar Investment Authority Eying US Commercial Property

Tue, 05 Apr 2011 20:27:25 GMT

After years of successful investing in markets nearer to home, the property unit of Qatar’s sovereign wealth fund – the Qatar Investment Authority – is looking to balance its UK-heavy portfolio with some assets in the US. Its first project: according to The National, “…Qatari Diar is financing the $700 million (Dh2.5 billion) construction of CityCenterDC in Washington, DC. The 10-acre project, which broke ground this week, is billed as the largest downtown development under construction in the US.”

Though this is a spectacular first investment, according to the Authority more deals will come. The National’s article aptly reiterated that “…US property is starting to attract more attention from international investors.” Citing data aggregated by Real Capital Analytics, cross-border investment into US property reached $9.7 billion in 2010, which was more than double the 2009 total.

RCA Data Illustrates Office Sector's Recovery in Cassidy Turley Q1 Report

Tue, 05 Apr 2011 16:17:25 GMT

Based on data sourced by Real Capital Analytics (RCA), leading commercial real estate services firm Cassidy Turley recently analyzed US office sales by market to provide an understanding of the sector’s dynamics and outlook for 2011. The resulting report stated that though the office sector's “…demand recovery in 2010 was primarily concentrated in Washington, DC, New York, and Dallas…” it is now spreading outward to secondary markets. Of 82 markets analyzed in Cassidy’s report, 52 posted increases in net absorption, or the ratio of demand and supply for space currently on offer in a market.

“This is the first report in over two years that shows all of the metrics used to measure the health of the U.S. office sector are strengthening,” stated Cassidy Chief Economist Kevin Thorpe. Also citing data aggregated by RCA, Cassidy recognized that office sales volume has nearly tripled between the first quarters of 2010 and 2011, as cap rates have fallen by 150 basis points from their 2009 peak. Though risks remain, Mr Thorpe stated he believes that, “Increasing momentum in the labor markets – and specifically the rise in permanent payroll hiring – signals that demand will continue to strengthen and vacancy will continue to erode.”

To download the full report from Cassidy Turley's website, please visit the link below.

Small Apartment Buildings Keeping Pace with Rise in Broader Multifamily Market

Mon, 04 Apr 2011 13:26:25 GMT

Helped by recovering fundamentals—such as rising occupancy rates—as well as by improved credit availability over the past year, apartment sales are being driven higher across the board, even including the smallest properties. Apartment buildings with up to four units appeal to a distinct class of buyers, often local private investors, and compete with an oddly diverse pool of asset types, such as multifamily residential homes among others.

Yet small apartment buildings may be joining other, larger and institutional-grade multifamily properties in leading the commercial real estate sector’s recovery. Market analysts interviewed by Investor’s Business Daily cited that as homeownership rates fall, rents will increase by 5-6% this year on increase rental demand. This has prompted many investors to become active in the apartment sector. Real Capital Analytics (RCA) recorded $2.0 billion in apartment portfolio sales in February 2011 alone, a total that was up by 50% year-over-year. Demand for apartment properties is strongest in the nation’s top investment markets, including Washington, DC, Boston, Orange County, and several markets in Florida.

Not coincidently, rental demand is highest in markets where job creation has resumed after the downturn. For those interested in the smallest multifamily assets, these markets have the greatest potential for a rise in value over near-term future.

666 Fifth Ave Sale Illustrates Current Retail Condo Appeal

Mon, 04 Apr 2011 12:33:25 GMT

Large-scale, up-scale, or global-scale retailers will do anything for a piece of Manhattan’s high-street retail corridors, even settling for a condo space. The most recent condo space to change hands was Spanish retailer Inditex’s record-setting acquisition of the space formerly occupied by the NBA Store at 666 Fifth Avenue. Inditex, which operates the trendy Zara brand of clothing, paid over $8,300 per-square-foot for the prime location.

Recently, Crain’s New York Business profiled other recent retail condo trades. The niche's outlook is decidedly positive, suggesting that prices in the nation’s leading cities will continue to march upwards as retailers clamor for high-quality space with supreme access to consumers. Other recent condo trades included a $4,000 per-square-foot space on Manhattan’s Union Square and two other $7,000 per-square-foot stores on Bleeker Street in Manhattan’s Greenwich Village.

The Crain’s article cited data aggregated by Real Capital Analytics (RCA) in stating that, “A dozen $2.5 million-plus deals were done through February, double the number in the year-earlier period. The total value of transactions in the first two months was $790 million, more than 11 times that of a year earlier.” It became clear late last year that momentum was building for such properties when RCA recorded 14 retail condo transactions in December alone, or about one-quarter of 2010’s total volume for the niche.

Will 2011 See the Return of Foreign Buyers into US Property?

Mon, 04 Apr 2011 12:32:25 GMT

Pension & Investment Online’s Arleen Jacobius recently provided an overview, including interviews with some of the commercial real estate industry’s best, of the prospects for foreign investment into the US during 2011. One of the article’s largest observations was that foreign buyers—particularly pension and sovereign wealth funds—have been investing heavily in US commercial real estate, but have also been doing so under the radar via equity investments. Ms Jacobius profiled a number of recent reported equity deals done by foreign entities in partnership with US funds such as TIAA-CREF and AREA Property Partners. The article also made note of the recent Association of Foreign Investors in Real Estate survey, which found that foreign investors are extremely keen to get into the US market before it recovers strongly in the next few years.

On the other hand, the article’s other main point focused on the lackluster level of direct investment by foreign buyers into the US. According to data aggregated by Real Estate Analytics, cross-border buyers have accounted for only around 10% of total transaction volume annually over the past decade. RCA Managing Director Dan Fasulo added that, “Most investments by foreign institutions are made through REITs and commingled funds, which are not tracked.” Current federal US laws have provided a barrier to foreign investors seeking to purchase US assets outright, though many Canadian and European buyers have overcome these obstacles to become the top buyers of US property in recent years. And the article pointed out that, unlike the previous two years in which foreign buyers have only sought properties in the US’ leading markets, cross-border buyers are expected to be increasingly shopping in less-visible markets this year. Including Boston, Houston, Atlanta, San Diego, and Seattle, these extra purchases should raise their share of acquisition volume.

Dr Chandan’s Lead Indicator: “The Return of the Rise of CMBS”

Thu, 31 Mar 2011 00:00:40 GMT

In his latest Commercial Observer Lead Indicator column, Real Capital Analytics Global Chief Economist Dr Sam Chandan discussed the broad-reaching and exciting implications for the return of CMBS originations. Though the primary lending market has been growing steadily for several quarters, nearly in lockstep with rapidly expanding volume of commercial real estate acquisitions, CMBS in the secondary market has been slower to resume after the downturn. Dr Chandan cautions, however, that, “While CMBS can play an important role in leveling the credit landscape, its continued growth faces challenges from cautious investors, policy makers and its own structural inertia.”

For all of Dr Chandan’s thoughts and predictions on CMBS in the coming quarters, please see his full column on the Commercial Observer’s website.

Property Sales and Fundraising Stall for Japan's REITs

Wed, 30 Mar 2011 14:34:25 GMT

Japan's REITs may halt commercial property sales and postpone fundraising plans in the short term as the nation's strongest earthquake, tsunami and nuclear crisis dampen buyers' appetite for assets.

Four days after the March 11 earthquake, Tokyo-based REIT United Urban Investment canceled a plan to raise as much as 64.9 billion yen ($783 million). Their peer Invincible Investment dropped a 4.8 billion yen share sale to a Fortress Investment Group unit on March 23.

"Deals under agreement may be scrapped because buyers may get cold feet," said Dan Fasulo, managing director at Real Capital Analytics, a New York-based research firm that reports on commercial property sales. "You will see a bunch of previously agreed-upon transactions being canceled due to the fact that confidence has fallen apart in the short term."

The delay in sales may hurt the recovery of the world's second-most active real estate market. Credit Suisse Securities (Japan) halved its 2011 estimate for investments by Japan's REITs (also known as J-REITs) from 1 trillion yen to 500 billion yen.

According to Real Capital Analytics totals, Tokyo saw $18.9 billion of property sales last year, trailing only London's $23.9 billion.

Equity Sale to Help Forest City Pay Off Debt on NYC Retail Portfolio

Wed, 30 Mar 2011 13:29:25 GMT

Real Capital Analytics’ Managing Director Dan Fasulo recent told The Real Deal that, “At certain points in the cycle bringing in more equity is more attractive than debt for a lot of reasons…They make a lot of money just off business activities not related to owning."

Mr Fasulo was responding to Madison International Realty’s recent announcement that, for $172 million in cash, it would take a 49% stake in a 15–property portfolio of New York City retail and entertainment assets. Current-owners Forest City Enterprises will retain a 51% stake, which entitles them to continue managing and controlling leasing of the properties. The holdings include a chunk of retail space on Manhattan’s 42nd Street near Times Square as well as the recently-built Atlantic Center mall in Brooklyn. A 49% stake for $172 million values the entire portfolio at $851.5 million, including nearly $500 million in debt, for a cap rate of 6.9%.

Diminished CRE Values Plaguing Fund Shops

Wed, 30 Mar 2011 00:00:40 GMT

In a recent Wall Street Journal article, columnist Eliot Brown profiled the $609 million Sterling American Property V fund – controlled by Fred Wilpon and Saul Katz, who together also own the New York Mets – to exemplify the current status of such real estate investment vehicles after the market’s precipitous drop in value over the past few years. According to the article, funds such as the Sterling American Property V fund have “…seen values decline significantly and troubled properties accumulate.”

This has slashed investments made into these funds by entities such as pension funds and wealthy private investors at the peak of the market. As commercial property pricing values have been slow to rise outside of trophy properties in major markets, investors into real estate funds have avoided selling their stakes, “holing that values will increase enough to wipe out some of all of the possible losses they are facing.”

Remarking on commercial property pricing trends and cited in the Journal’s article, Real Capital Analytics’ Dan Fasulo stated that, “Where we've seen values recover recently has been the primary markets, and certainly many of those secondary cities they invested in have not seen that type of recovery.” Unfortunately for investors of funds such as Sterling’s V fund, a drive to diversify during the market’s rise last decade meant purchasing partial or full stakes in whole buildings located in “…midsize cities and suburbs…markets that have generally been slow to see values rebound.”

Though a Sterling spokeswoman told the Journal that its V fund has sufficient funds to cover losses due to troubled loans on its balance sheet, that does not mitigate losses experienced by individual investors.

Dr Chandan's Lead Indicator : "Rising Interest Rates: The Threat Hasn’t Gone Away"

Thu, 24 Mar 2011 16:32:25 GMT

In his latest Lead Indicator column entry in the Commercial Observer, Real Capital Analytics Global Chief Economist Dr Sam Chandan speaks to the issue of a rising risk-free interest rate, and its potential effects on commercial real estate. He immediately points out that recent events have mitigated a previous rise in long-term Treasury rates. After months of turmoil in the Middle East, the largest earthquake on record devastated the world’s third-largest economy, and now a third European euro-club member on the brink of asking for a bailout, the world’s investors have taken shelter in stable US Treasuries.

This flight to safety has pushed the 10-year rate down by nearly 50 basis points since the start of February. However, Dr Chandan states that, “…investors should be careful to avoid falling into complacency. While an abrupt and unexpected confluence of globally significant events has bridled the rise in long-term treasuries, an environment of rising interest rates may quickly reassert itself once macro conditions normalize.”

For why a sudden change in risk-free rates is possible in the near-term, and what effects such an increase may precipitate on commercial real estate markets, please see Dr Chandan’s full article on the Commercial Observer's site.

Latest CPPI Displays Continuity in Pricing Trends into First Quarter

Wed, 23 Mar 2011 16:09:25 GMT

With the release of January’s Moody’s/REAL Commercial Property Price Index (CPPI), now available on Moody’s and Real Capital Analytics’ (RCA) websites, it has become clear that the bifurcation in pricing denoted clearly by the index over the course of 2010 has continued into the New Year. A recent article on GlobeSt.com regarding recent property pricing stated it plainly: “The topline result of the latest CPPI, released Tuesday, shows that the index declined by 1.2% overall in January, continuing a recent trend toward modest declines. Yet some markets, notably office in New York City and Washington, DC, have shown steady gains over the past several months, while prices for distressed properties help to pull down the average.”

Overall, the CPPI is down by 42.8% from its October 2007 peak, while the six-city trophy sub-index, based on repeat sales comparisons in New York City, Washington, DC, Los Angeles, San Francisco and Boston, is down by just 18.9% over the same period. Weighing on the index are sales out of distress, the sub-index for which is down by 53.9% from its peak back in 2007. According to RCA, there is no shortage of properties waiting to be factored into this sub-index in coming months, as the pool of outstanding distressed properties stood at $178.9 billion as of January 2010. While the flow of new distress is starting to ebb, outflows into the market are starting to rise as well.

Hotel REITs Hungry for More

Tue, 22 Mar 2011 16:17:25 GMT

Publically-listed REITs gorged themselves on hotel properties in 2010, with companies such as Host Hotels & Resorts, Pebblebrook Hotel Trust, and Sunstone Hotel Investors all scooping up high-quality trophies and distressed bargains over the course of the year. These firms’ ability to raise capital from secured and unsecured debt markets is allowing them to expand their search in 2011, according to the Wall Street Journal, to include luxury hotels. The Journal sites data aggregated by Real Capital Analytics (RCA) in stating that, “This year, public hotel REITs have accounted for 47% of U.S. hotel acquisitions by dollar volume, up from 20% last year.” Market players of all capital group types are anticipating a steady rise in hotel occupancy, and thus revenue, in the coming quarters, yet REITs remain the best positioned among all buyers to seize opportunities and make the highest bids.

Indicating the growing share of top-shelf properties in the pool of hotel acquisitions, the Journal stated that according to RCA’s data, the average price-per-room for hotel properties rose from $97,610 in 2009 to $158,570 in 2011 year-to-date. That is even above the previous per-room high of $153,463, set in 2006 as the market neared its apex. The Journal attributes this year’s spike to the large number of trophy hotel properties that have traded. These include acquisitions such as LaSalle Hotel Properties' $80 million purchase of the Viceroy Santa Monica, a posh seaside hotel outside of Los Angeles.

Recessionary Effects and the New "Normal" for CRE

Tue, 22 Mar 2011 13:36:25 GMT

Though market observers have yet to reach 20/20 hindsight regarding the most recent recession’s implications, what has already become clear is that it was not an average downturn. “This recession was a balance-sheet recession. It was a crash on an asset class – housing,” stated Bank of America Senior Economist Michelle Meyer, when speaking with GlobeSt.com. This hurt both the supply and demand sides of the economy, including banks and consumers.

Regarding the commercial sector of the asset of real estate, Real Capital Analytics’ Dan Fasulo remarked that the largest result of the most recent recession has been a bifurcation of the market. Some segments of the market, such as the multifamily sector, have been quick to return to “normal,” while others have lagged the broader market or bounced around from month to month at the bottom. He also emphasized the geographic disparities of the recovery, stating that, “In Phoenix, institutional investors are buying class A apartments…There’s still a significant number of people moving to the Sunbelt every year, and nothing has been built in these markets since 2007. The supply side will tighten up.”

Treasury Set to Dump Billions in Agency Bonds

Mon, 21 Mar 2011 00:00:40 GMT

Among the significant liabilities taken on by the US Government at the onset of the financial crisis in September 2008, the Treasury Department’s GSE-guaranteed mortgage bond portfolio contains $142.0 billion of securities bought with taxpayer dollars. This past week, the Treasury announced it would begin to sell off these assets at a pace of approximately $10.0 billion per month, depending on market demand, with the goal of complete liquidation in about 12 months.

Responding to the Treasury’s announcement, Real Capital Analytics Global Chief Economist Dr Sam Chandan stated to GlobeSt.com that the move may lead to “…an even more uncertain housing finance market…while conditions have improved, it remains unclear if the market can absorb the full extent of Treasury’s dispositions absent moderately higher returns.” One result of billions in mortgage-backed securities being flooded into a fragile market could be a sharp rise in residential mortgage rates, however Dr Chandan is confident the Treasury will recognize this effect in time and alter its course of action.

Currency Conversions Boost Holding Period's Return in Shanghai

Thu, 17 Mar 2011 00:01:40 GMT

According to sources familiar with the matter, Hong Kong-based private real estate investment firm Asia Pacific Land will sell The Center, a 40-story high-quality office building in Shanghai, CHN, for ?4.4 billion yuan ($670 million) – the largest sale in mainland China yet this year. After having trouble refinancing a portion of the debt, Asia Pacific has been forced to market the building. However, while this sale price would represent a ?500 million yuan loss on an absolute basis from the ?4.9 billion yuan Asia Pacific paid for the property it paid in 2008, the firm will still realize a profit on the sale. The transaction will be completed offshore in Hong Kong in dollars, and thus the Chinese currency’s modest appreciation against the dollar over the past three years will allow for Asia Pacific to turn a small profit. The Wall Street Journal stated that, “…the yuan's appreciation certainly is good news for foreign investors who need to cash out their investments in China.”

The buyer is China Pacific Insurance Group, the largest insurance firm in the China. According to the Journal, “The deal also marks one of the first property purchases by a Chinese insurer since Beijing granted greater leeway last year for the country's insurance companies to invest in real estate.” The rise of insurance investors is in stark contrast with the rest of the Chinese market, which regulators have tried to suppress over the past year to preempt a pricing bubble. Citing data aggregated by Real Capital Analytics, the Journal stated that, “Total sales volume in Shanghai...totaled $3.9 billion last year, a 22% drop from 2009.”

'Quake May Reduce Japanese Cross-Border Activity

Wed, 16 Mar 2011 12:28:25 GMT

A recent article on Bloomberg proposed that, once Japan has realized the extent of the damage done by the strongest earthquake on record, the country’s cross-border commercial real estate investors may choose – or be forced to – reduce their international holdings to focus on plans to rebuild domestically.

This will be particularly problematic for the UK market, where Japan-based investors have purchased nearly $1.0 billion in property since 2000 according to data aggregated by Real Capital Analytics (RCA) and quoted by Bloomberg. At that level of volume, Japan ranked as the 19th-largest direct foreign investor in the UK over the past decade. Japanese investors also have significant equity and debt holdings in the UK’s two largest REITs, Land Securities Group Plc and British Land Co, as well as insurance firms based both in the UK and Japan that lend to UK players.

Japanese investors have made direct property acquisitions outside their country totaling $11.8 billion since 2007, according to RCA data. Since that year, the UK has ranked as the fourth-most popular national destination for Japanese capital. Spain was the fifth-most targeted, capturing $5.0 billion in Japanese cross-border capital.

Rising Capital Tide Boosting CRE Yields into 2011

Tue, 15 Mar 2011 13:27:25 GMT

According to a recently released Investment Property Databank (IPD) annual index, the investment vehicle of US commercial real estate returned 14.2% in 2010. This was the third largest return for that asset class in the past decade, driven by the trumpeting return of capital markets over the course of last year. Speaking on his firm’s index, IPD Managing Director Simon Fairchild recently stated that mid-teen returns on commercial real estate may be a feature of the market in the next several years.

Remarking on the recent return of capital that is fueling these yields, Real Capital Analytics Founder and President Robert M White Jr stated that rising capital is occurring in “…pockets of strength…” for the office sector and more uniformly for multifamily investors. Mr White also drove home the importance of listed and non-listed REITs over the past year, and remarked he thought they would be chasing yields into secondary markets in 2011.

For more responses to this yearly IPD index, please see the full article on GlobeSt.com.

RCA Commercial Property Trend Data Available on Bloomberg

Tue, 15 Mar 2011 11:29:40 GMT

Commercial real estate trend data from Real Capital Analytics, Inc. is now on the Bloomberg Professional® service, available to more than 300,000 of the world's leading financial and business professionals.

Bloomberg Professional users can gain access to RCA’s global commercial property market information. RCA’s proprietary property database is unique to the industry and offers the most current and comprehensive information available for commercial real estate investors.

“Real Capital Analytics was established to bring to commercial property the transparency and analytics available in other financial markets,” said Robert M. White, Jr., RCA’s founder and president. “It is especially gratifying that with this agreement with Bloomberg, RCA’s trend information will be made available to the entire financial community.”

RCA is the first and only independent property research firm to comprehensively track commercial property investment transactions, and analyze capital flows, investment trends, and real estate prices in more than 120 countries. RCA’s subscribers access a proprietary property transaction database with details on each deal and the parties involved for the office, retail, industrial, multifamily, hotel and developable land sectors.

Bloomberg users can access RCA’s database of current market-level pricing, cap rates and volume for all commercial property types, by searching for RCA [Go].

Despite Interest, UAE Property Sales Stuck in Neutral

Mon, 14 Mar 2011 07:26:40 GMT

According to international property consultancy Jones Lang LaSalle (JLL), interest among commercial property investors in markets of the United Arab Emirates is rising again, after several years of heightened uncertainty kept activity subdued. To illustrate the severity of the contraction in UAE activity, the National cited data aggregated by Real Capital Analytics: ‘In 2008 when the market was still booming, there were 680 property sales in the UAE… Last year, there were 67 sales, of which 63 were for developable land sites, not buildings.”

“Investors are ready and willing to buy property in the UAE...There is cash available and investor interest but transactions are not happening,” stated Jesse Downs, director of JLL's Middle East hub. The reason for this continued stagnation, says JLL, is the “shortage of investment-grade stock offered to the market at realistic prices.” In other words, sellers’ and buyers’ pricing expectations remain out of sync after several years of turbulent market conditions. Making this disparity all the more remarkable, JLL estimates that the UAE office vacancy rate will surpass 45% in 2011.

Dr Chandan on Japan's Economy After the Disaster

Fri, 11 Mar 2011 10:30:40 GMT

Speaking with Ryan Clark, managing director of GlobeSt.com, just hours after a powerful earthquake rocked Japan on Friday, March 11, 2011, Real Capital Analytics’ Global Chief Economist Dr Sam Chandan discussed how the natural disaster may affect the world’s third largest economy.

"Japan is clearly mobilizing politically and on the public level to address this crisis, the greater concern from a real estate investor perspective is there may be calls for the government to support a new round of spending to support the economy and to ensure the unexpected shock to the economy does not push Japan back into a recession," stated Dr Chandan. Japan’s economy has faced weak growth and several recessionary periods over the past two decades. And while recently, Japan’s government has been seeking solutions to the nation’s tremendous pool of public debt and struggling economy, Dr Chandan indicated that its likely “…those sensibilities for the time being will be lost in an understandable desire to support local economic activity and assure that the Japanese economy doesn't fall back into a recession."

Sovereign Wealth to Return to Commercial Property (Video)

Fri, 11 Mar 2011 07:23:40 GMT

At this year’s annual Marché International des Professionnels d'Immobilier (MIPIM) conference in Cannes, France, a panel including Richard Yorke of Real Capital Analytics’ (RCA) London office discussed the future of sovereign wealth funds as buyers of commercial real estate. The consensus, according to Globe St Founding Editor John Salustri, was decidedly positive. “Sovereign Wealth Funds (SWFs) are tracking the path of all other global investors--and they're coming back.”

Though SWFs universally recoiled back to their home markets over the course of the downturn, they still continued to make sizable purchases totaling €17.0 billion since 2008, according to data aggregated by RCA. The panel expected the pace of SWF acquisitions to increase in coming quarters, as all buyers seek to gain access to secure, relatively high yields and bargain-basement priced deals offered currently by commercial property.

For a complete summary of the panel’s discussion on SWFs at this year’s MIPIM, please see the full article on GlobeSt’s site.

Wealthy Individuals Using Under-Mattress Cash to Invest in Commercial Property

Thu, 10 Mar 2011 11:23:40 GMT

Looking for safety from turbulent equity investments and heightened inflation potential, some wealthy individuals are reallocating their portfolios to commercial real estate. In an article on Bloomberg, several recent examples were provided of wealthy investors backing ventures to acquire commercial properties. The article cited Real Capital Analytics (RCA) data in stating that, “High-net-worth individuals invested $2.1 billion in commercial real estate last year, up from $579 million in 2009.” Demand has been particularly high for apartment properties, which can be smaller and less expensive than retail or office assets.

Explaining this trend is not difficult as, while according to the Moody’s/REAL Commercial Property Price Index “Prices for commercial properties have dropped 42 percent since their peak in October 2007 through December,” commercial property yields have rarely been higher relative to other investment vehicles. Remarking on the current investment climate, RCA Managing Director Dan Fasulo confirmed to Bloomberg that wealthy investors are running to commercial property in a number of ways because “Everyone’s looking for some form of inflation protection. They’re buying gold, they’re buying oil, or you can buy property. It has inflation protection characteristics, plus it gives you a check every month.”

Using data aggregated by RCA, Bloomberg stated that the average cap rate on commercial properties (including office, retail, and industrial assets) was 7.2 percent in the fourth quarter of 2010, while yields on many other more traditional investments have been tracking closer to the historically-low US Treasury rates.

To read more on this exciting trends and see if owning commercial property may be for you, please read the complete article on Bloomberg’s site.

Turkey Shines for Cross-Border Commercial Property Investors

Thu, 10 Mar 2011 05:21:40 GMT

Speaking recently with Istanbul-based Hürriyet Daily News & Economic Review, Real Capital Analytics (RCA) President Robert M White discussed the emergence of Turkey as a powerful commercial real estate market in Europe. Though the acronym “BRICs” has become popular in economics, for commercial property the attention of investors and market analysts has turned more specifically on what Mr White termed the “...CBTPs, namely China, Brazil, Turkey and Poland.”

Russia and India both have internal issues that have deterred outside investment, he said to the Daily News. On the other hand, the recent aggressive investment of REITs in Turkey has pushed transaction volume for the country up to $12.0 billion since the start of 2007. Mr White added that Turkey was among the most frequently queried destinations on RCA’s website, with the retail sector being the most targeted property type.

Increasingly, global investor are citing Turkey as one of their top destinations for acquiring commercial property, as yields have compressed in many of the traditional cross-border targets. “…as London and Paris are ‘priced to perfection,’ investors will have to broaden their horizons. When London is so expensive and one can double the yield elsewhere, emerging markets will be compelling.”

Dr Chandan's Lead Indicator: "Why the Rosier Employment Report Still Falls Short"

Thu, 10 Mar 2011 04:24:40 GMT

If you have been waiting for a detailed look at the Census Bureau’s latest jobs report (February 2011), then Real Capital Analytics’ Global Chief Economist Dr Sam Chandan has you covered.

In his most recent Lead Indicator column for the Commercial Observer, Dr Chandan covers in which sectors of the economy jobs were added (192,000 in February), and why, though that figure is the highest in several months, the report has mixed implications for commercial real estate. Job creation in sectors that utilize large amounts of commercial real estate, such as financial and retail services, have lagged other sectors such as health care and education.

For Dr Chandan’s full analysis on the most recent jobs report, including where the most jobs are being created, please see his full column this week on the Commercial Observer’s site.

AREA Property Sells 35% Stake to National Australia Bank

Wed, 09 Mar 2011 05:19:40 GMT

National Australia Bank (NAB) bought a 35% stake in real estate fund manager AREA Property Partners as the US firm pursues funding to increase its global property investments. National Australia, the country’s fourth-largest lender, had been seeking “a top-tier global real estate investment manager,” according to their CEO, Garry Mulcahy.

AREA, a real estate fund manager which has invested in New York’s Time Warner Center, the Pascal Tower in Paris, and the St Katherine Dock complex in London, is seeking to increase its real estate holdings in the early stages of an improving market. A recovery is “...well under way in most dominant global real estate markets” and global direct investment in commercial real estate may surge up by 20 to 25% this year according to broker Jones Lang LaSalle (JLL). “We think that there will be opportunities to acquire some smaller REITs,” AREA’s CEO Lee Neibart said. “There’ll be an opportunity to acquire larger distressed assets.”

According to Peter Slatin, editorial director at Real Capital Analytics, the deal is a sign that non-US investors are seeing recovery in the US commercial property market. It may also be the start of a spate of international partnerships, he said. “You have a company that now has global capital seeking global opportunities. That’s what’s most exciting,” Slatin said. “We will see more cross-border capital partnerships along with cross-border acquisitions.”

Build It, Put Food in It, and They Will Come

Tue, 08 Mar 2011 13:25:25 GMT

In what is being described as “A no brainer” and “…the next frontier” in retail mall shopping, mall owners and operators are turning to grocery chains and other food selling companies to fill their vacant square footage and lure customers into spending more at non-food stores.

Exemplifying this trend, Bloomberg cites that Westfield Group will be opening an Aldi supermarket in one of its Chicago-area shopping malls, and Macerich Co and General Growth Properties Inc also have plans to add food stores to their malls. This, some believe, is like solving two problems at once, as grocery stores bring customers to the location nine times per month on average, while traditional non-food mall stores only are visited three times in the same period. Grocery stores also require large amounts of space, and therefore will go a long way towards filling vacant stores left by other retailers who have recently gone out of business.

Of this strategy, Real Capital Analytics’ Managing Director Dan Fasulo stated, “The idea is that if people come to the mall to buy food they’ll buy other merchandise, as well.” He agreed that food “…definitely has the ability to drive more traffic and make a mall more profitable.”

Juxtaposing Five European CRE Markets: Which One's For You?

Tue, 08 Mar 2011 12:24:25 GMT

In a recent Real Estate-section Wall Street Journal by-line column, Javier Espinoza produced a primer to “…the opportunities and pitfalls of investing and living” in Europe’s most desirable locations. His prior for the article was that although many market-watchers predict a fairly lackluster year for European commercial real estate in 2011, there is still tremendous demand for top-end assets in leading markets. The article provided a profile of five top destinations, including Barcelona, Berlin, London, Paris, and Rome.

Of Barcelona, Mr Espinoza stated that the city retained its top ranking in quality-of-life surveys and has several characteristics such as good infrastructure and weather on its side. Quoting data aggregated by Real Capital Analytics (RCA), “…there were £1.7 billion worth of retail transactions in Barcelona between 2007 and 2010…an indicator of a highly active market.”

Berlin has pushed to the head of the line in terms of doing business globally, ranking highly in terms of qualified, available staff and ease of access to markets. The city also has a vibrant, fashionable social environment, which encouraged RCA Managing Director Dan Fasulo to proclaim, “All the stars are aligned for Berlin to see some tremendous retail growth.” This is especially because Berlin’s commercial real estate prices remain lower than its European equivalents.

Mr Fasulo also had an opinion on Rome, where good weather is in contrast with the poor growth potential for its commercial real estate market. “Rome has the same supply constrain characteristics of other mature European markets: It’s impossible to build anything in it and there are not many willing sellers.”

Record-Setting Price Lands Spanish Retailer a Fifth Avenue Flagship

Tue, 08 Mar 2011 04:23:40 GMT

It was recently announced that Inditex SA, the Spain-based clothing retailer that operates the popular Zara chain, will purchase an open storefront on Manhattan’s Fifth Avenue for $324 million. Located between 52nd and 53rd Streets, 666 Fifth Avenue most recently housed the National Basketball Association shop.

More significantly, the transaction set a new record for the price paid for retail space in the US. With 39,00-square-feet, Inditex paid $8,300 per-square-foot according to data collected by Real Capital Analytics (RCA). This was higher than the last record unit-price, which was set by the $8,000 per-square-foot sale of 713 Madison Avenue, also in Manhattan during 2008.

Of the most recent record-setting sale, RCA Managing Director Dan Fasulo explained that, “Demand from global retailers is pushing values for irreplaceable locations to new heights in city centers all around the world.” Another example of this neighbors the new Zara space in the same building: Last year, Japan-based Uniqlo leased space in 666 Fifth Avenue for $300 million – the most expensive lease ever for a New York retail store.

Multifamily Investors Venturing Beyond Core Assets, Primary Markets

Fri, 04 Mar 2011 00:00:40 GMT

A recent article by Bloomberg columnist Oshrat Carmiel detailed the current state of the booming multifamily sector. Citing data aggregated by Real Capital Analytics (RCA), apartment sales spiked in 2010 by 96 percent, to $33.7 billion, as competition among investors has grown very heated. And as confidence in the apartment sector's fundamentals and future grows, investors are seeking yields and branching out from the nation’s leading markets, where most of the activity remained in 2010.

As last year unfolded, smaller investors and those looking for riskier but higher-yielding opportunities began to seek lower-quality properties outside of primary markets. Stated RCA’s Global Chief Economist Dr Sam Chandan, “Value-add” apartments -- class B properties, distressed acquisitions, real estate that requires renovation and buildings where cash flow can be increased -- accounted for 33 percent of sales in the fourth quarter, compared with 25 percent a year earlier. Those improving fundamentals are driving the willingness of investors to explore value-add opportunities as opposed to paying premium prices for core properties…That is a feature of the multifamily market that we do not see to the same degree in other sectors.”

Still, investors have by no means abandoned core properties and quality, visible markets. Well-leased properties and trophy assets have been a huge draw for investors over the past year to markets such as New York, where cap rates have fallen as low as 5.1 percent in the fourth quarter, and Washington, DC, where cap rates averaged 4.8 percent during the same period. This compared with a 6.6 percent national cap rate average and 7.7 percent in the secondary market of Atlanta.

Hong Kong-Based Chinese Estates Has Insatiable Appetite for London Office

Fri, 04 Mar 2011 00:00:40 GMT

After taking down River Court, the larger of the two buildings constituting Goldman Sachs’ European headquarters, in January, Hong Kong-based Chinese Estates Holdings Ltd is expressing strong interest in acquiring two additional Goldman buildings in the City of London that were put on the market earlier in the year. Both on the City’s Fleet Street, the two office towers are being marketed for at least £300 million. They include Peterborough Court and Daniel House.

The recent moves by Chinese Estates are the latest examples of a cross-border investor trading in the UK. Bloomberg quotes Real Capital Analytics in stating, “London was one of the first real estate markets to see a pickup in deals and prices after the financial crisis. Sales of existing commercial property in the UK capital generated more money than any other city last year.”

Dr Chandan's Lead Indicator: "Banks' Commercial Mortgage Default Rates Fell--Now What?"

Thu, 03 Mar 2011 12:28:25 GMT

In his latest Lead Indicator column, Dr Sam Chandan broke some very encouraging news for commercial real estate investors and lenders: the default rate for commercial real estate mortgages fell in the past quarter for the first time this cycle. “The default rate for commercial real estate mortgages held by the nation's depository institutions-including mortgages at least 90-days delinquent and mortgages in non-accrual status-fell to 4.28 percent in the fourth quarter 2010 (Q410), down from 4.36 percent in the third quarter,” stated Dr Chandan.

The default rate for multifamily loans also fell. However, while the balance of defaulted commercial loans fell by nearly $1.0 billion in Q4’10, it still stands at $45.8 billion. Therefore, Dr Chandan made it clear that “while the new results can be greeted with cautious optimism, it is clear that legacy challenges have yet to abate for many institutions.”

For his full review of defaulted commercial and multifamily mortgage trends through the fourth quarter of 2010, as well as continued implications for credit availability, please see Dr Chandan’s full article on the Commercial Observer’s site.

Megadeals Early to the Recovery Party This Cycle

Thu, 03 Mar 2011 00:00:40 GMT

In a recent interview with Globe St reporter Paul Bubny, Real Capital Analytics Managing Director Dan Fasulo spoke of the deluge of recent commercial real estate megadeals that have occurred in the past few months. These include both mergers, including Ventas’ $7.4 billion takeover of Nationwide Health Properties and AMB Property Corp’s merger with Prologis, as well as property megadeals such as Blackstone Group’s recent $9.4 billion offer for 588 of Centro Properties Group’s US malls.

Of these aggressive deals, Mr Fasulo stated that, “It’s pretty rare to see these types of deals this early in the cycle. We’re only at the beginning of a recovery. Usually, you see the $10-billion deals at the end of an up cycle.” He made clear that they are “…a great signal of how much liquidity exists on both the equity and debt sides to allow these transactions to take place.”

For more on Mr Fasulo’s thoughts regarding the importance and future of these market-changing megadeals, please see his full interview on Globe St’s site.

After Shedding CEO, Sunstone Moves Swiftly in Acquiring Hotels

Wed, 02 Mar 2011 13:29:25 GMT

Following the departure of internally-unpopular Arthur Buser as Sunstone Hotel Investors Inc’s chief executive officer late last year, the firm has moved quickly to acquire two more hotel assets for its 30-property portfolio. Completing what Real Capital Analytics determined was the highest price paid for a hotel in New Orleans since 2003, Sunstone acquired the 494-unit JW Marriott New Orleans in February for $52 million, in addition to assuming $42 million in existing debt. This closely followed the firm’s January move to buy out its partners at the Doubletree Guest Suites Times Square in Manhattan.

Sunstone President Kenneth Cruse suggested to the Wall Street Journal that the two recent trades were evidence of the hospitality REIT’s new approach to acquisitions since Mr Buser left the company. While Sunstone’s new approach includes moving more quickly on opportunities, it remains unclear whether its most recent acquisitions will pay off. For the JW Marriott New Orleans, Sunstone paid $26 million more than was last paid when the property traded in 2008. With hotel occupancy across the nation rising, however, Sunstone could also make out pretty well in the long-term.

Are CRE Markets Growing 'Too Much, Too Soon?'

Wed, 02 Mar 2011 12:31:25 GMT

While seemingly everyone is talking with optimism over the past year's growth in sales of, and rise in debt available to, commercial real estate, NREI Contributing Columnist Joe Caton recently offered some words of caution on the problems associated with markets that grow “too much, too soon.” Mr Caton listed some of the most recent deals and mergers, which have been a source of confidence to investors after several years of uncertainty, as evidence that the market for commercial real estate may be set to take off in the coming quarters, but at an irresponsible pace.

These include AMB Property Corp’s merger with Prologis, Blackstone’s recent megadeals, and even the return of multi-loan CMBS issuances. Mr Caton stated, “For its part, the commercial mortgage-backed securities (CMBS) marketplace also is attracting investors as optimism grow.” He relied on a forecast issued by Real Capital Analytics to predict that, “…global CMBS issuance in 2011 likely will reach the $40 billion level.” As debt becomes easier to obtain, investor competition will only grow more heated.

RCA's Robert White Speaks on Where Core Assets Fit in CRE Marketplace

Wed, 02 Mar 2011 00:00:40 GMT

Recently interviewed by Mariwyn Evans, editor of the National Association of Realtors’ REALTOR Magazine, Real Capital Analytics (RCA) President and Founder Robert White addressed the continuing trend of investors' voracious appetite for core commercial real estate assets. With pricing increasing rapidly and cap rates approaching 2007-lows for these prime assets, particularly in the nation’s leading markets, market hawks have begun to wonder if a bubble is beginning to emerge as too much capital chases too few assets.

Leveraging RCA data aggregation and analysis, Mr White spoke to the drivers of this trend over the past year, and what can be expected as 2011 unfolds. Over the past several quarters, capital has been looking for yields, “and real estate is offering pretty attractive returns compared with money market funds or the stock market…There’s definitely a concentration of capital looking for core office.” Now two months into 2011, however, Mr White stated that RCA is already seeing “…the gap in the market in core pricing between first- and second-tier cities is already beginning to close…The loosening of the credit crunch and the revival of the CMBS market should also support investment in smaller cities.”

For more on Mr White’s thoughts regarding the role core assets are playing in commercial real estate markets, please see his full interview on REALTOR Magazine’s site.

(March 2011 REALTOR® Magazine article written by Mariwyn Evans, commercial real estate editor.)

Divestment Strategies Supply NYC Hotel Market as Others Maintain Holding Pattern

Tue, 01 Mar 2011 16:28:25 GMT

New offerings of hotel properties in Manhattan have slowed to a trickle in recent months, as current owners have been convinced a rebound in their industry is afoot. According to data aggregated by Real Capital Analytics, just two hotels have sold in the Big Apple so far this year, after 15 hotels totaling $1.6 billion were traded in 2010. As one interviewee recently told the Wall Street Journal, “If your objective is absolute dollar return, and it’s not part of a bigger strategy [to divest], then you’re probably not a seller today.”

One company with a larger restructuring strategy is France-based Accor SA. The firm recently announced it would divest itself of the 480-unit Hotel Novotel, located at 226 W 52nd St in Manhattan just above Times Square, in pursuing its strategy to focus the firm on managing and branding hotels instead.

UDR Unseats LaSalle for Largest Manhattan Multifamily Trade in 2011

Tue, 01 Mar 2011 13:29:25 GMT

Topping LaSalle Investment Management’s recent $140 million acquisition of the Sagamore as the largest Manhattan multifamily trade of the year, Denver-based UDR Inc has announced it will purchase 10 Hanover Square in the Financial District for $261 million. That would be $484,000 for each of the property's 493 units. UDR will be assuming a $192 million loan from current owner Witkoff Group to make its first entry into the New York City market. The property was originally built as an office tower, and at one time housed Goldman Sachs' headquarters.

The two recent oversized apartment trades by LaSalle and UDR come nearly one year after a bout of similar-priced trades occurred in Manhattan involving Equity Residential. According to Real Capital Analytics, Equity went on a buying spree early in 2010, taking RiverTower on East 54th Street for $182 million, 777 Sixth Avenue for $151 million, and the Longacre House on West 50th Street for $143 million. With the Manhattan market – and the apartment sector – being on seemingly every investor’s shopping list, more activity is likely in the wake of these two deals.

Flurry of Early M & A Deals Points to Formidable Year for CRE

Tue, 01 Mar 2011 09:25:40 GMT

Optimism has crept back into the commercial real estate market over the past few quarters, but several recent announcements of megadeals and M&A activity have boosted market confidence and solidified sentiment regarding the sector’s momentum. Today, on March 1, 2011, Blackstone Group’s rumored $9.4 billion purchase of Centro Properties Group’s US mall portfolio was formally announced. This came just one day after two multi-billion-dollar healthcare REIT mergers were announced. Ventas Inc will acquire Nationwide Health Properties Inc for $5.7 billion to create the world’s largest healthcare REIT, while Health Care REIT nearly-simultaneously agreed to purchase Genesis HealthCare’s property assets for $2.4 billion. Both deals are pending.

Of all three deals, Real Capital Analytics’ (RCA) managing director Dan Fasulo remarked that they were “…a great signal that liquidity has returned to the commercial real estate space…It will certainly have ripple effects on the entire industry.” Earlier in the year, public warehouse-REITs Prologis and AMB Property Corp announced a mutual merger, which will create a firm worth approximately $46.0 billion in managed or owned assets. Of these recent megadeals, Mr Fasulo admitted he would not be surprised to see 2011 US property acquisitions double the $140.0 billion totaled in 2010.

Deals of the size announced recently, including others such as Google Inc’s acquisition of its Manhattan headquarters for nearly $2.0 billion, are the result of increased confidence among investors and the long-prevailing low interest rate environment. With both elements in place, RCA data indicated that sales of significant office properties more than doubled in 2010, to $42.8 billion.

Centro to Sell US Portfolio to Blackstone for $9.4 Billion

Mon, 28 Feb 2011 16:35:25 GMT

In the days before debt was hard to come by, when real estate values were nearing historic highs, Australia-based Centro Properties Group was on a buying spree in the US, purchasing hundreds of shopping malls across the country, as the firm was betting that values would continue to rise. By the winter of 2009, the firm found itself with billions in outstanding loans on properties that were under-performing, as US consumers recoiled from discretionary spending. It was at that point Centro decided to put a significant portion of its US portfolio on the market, and nearly two years later, it seems they found a buyer.

Blackstone Group, who most recently led a consortium of firms in purchasing the troubled Extended Stay portfolio of hotels for $3.9 billion, will reportedly purchase a 588-pproperty portfolio of Centro’s mall holdings for $9.4 billion. It would be Blackstone’s largest purchase since it acquired Hilton Hotels in 2007. The deal comes just as commercial real estate values have begun to rise off their cyclical lows, and defaults on commercial real estate-backed mortgages reaches a relative plateau. According to Real Capital Analytics, “defaults on U.S. commercial real estate mortgages held by U.S. banks fell in the fourth quarter from the previous three months, the first decline in almost five years.”

Bloomberg reported in the same article that Centro had A$16.0 billion of debt on its balance sheet as of December 31, 2010. The firm projected at that time that A$3.1 billion of its debt would be coming due over the course of 2011. The sale to Blackstone will likely be announced before the end of this week, February 28, 2011.

Related Investing in Multifamily Market's Momentum

Fri, 25 Feb 2011 13:31:25 GMT

Illustrating that the market for commercial real estate, and apartment properties specifically, is continuing to improve markedly into the first quarter of 2011, Bloomberg recently reported that Related Cos has found a buyer for its Sagamore luxury property on Manhattan’s Upper West Side. Reportedly, the sale of the 265-unit property received a number of bids and was highly pursued by a diverse group of bidders, demonstrating that investors of many stripes agree that the multifamily sector has a solid future.

Ultimately, the winning bidder – which according to Bloomberg sources, is a unit of LaSalle Investment Management, a private-equity firm based in Chicago – paid $140 million for Sagamore. That is the highest price paid for a multifamily property in Manhattan in nearly one year, according to Real Capital Analytics (RCA), since Equity Residential purchased the Longacre House in Midtown West for $143 million.

On rising demand for rentals across the nation, especially in the largest 24-hour cities, investors are turning to the multifamily market for solid, performing properties for their portfolios. Bloomberg quotes data aggregated by RCA in stating that, “The dollar volume of Manhattan apartment sales more than doubled in 2010 from a year earlier to $2.13 billion.”

Prices Recover for US Commercial Property as Mortgage Defaults Fall

Thu, 24 Feb 2011 13:26:25 GMT

Defaults on commercial property mortgages held by US banks fell in the fourth quarter from the previous three months, the first decline in almost five years, as prices began to recover, Real Capital Analytics said.

The default rate on loans for US office buildings, malls and other commercial properties dropped to 4.28% of loan balances from 4.36% in the third quarter, according to the real estate research firm. It was the first such decline since the first quarter of 2006.

According to Dr. Sam Chandan, Real Capital’s global chief economist, the drop “suggests that the sector’s contribution to bank distress may have reached a plateau. As market conditions improve, particularly in larger metros, banks are slowly working to charge off more bad loans.”

The rate of defaults is declining as commercial property values start to rise. US commercial real estate prices gained 5.5% in the four months ending December 2010 from an eight-year low in August 2010, according to the Moody's/REAL Commercial Property Price Indices. New York, Washington and other big metropolitan areas are leading the recovery as well-leased properties attract investors.

A Tempered View of CRE as Recovery Gains Traction

Thu, 24 Feb 2011 04:23:40 GMT

Taking a less exuberant view of the current commercial real estate market, Vance Cariaga of Investors Business Daily recently recapped 2010, the year the recovery began, and suggested that 2011 will surely be better. Citing data aggregated by Real Capital Analytics, Mr Cariaga stated that, “Sales of commercial properties more than doubled last year to $134.1 billion…Sales topped $27.4 billion in December, the most active month since 2007.” Additionally, “Property portfolio sales rose nearly threefold from 2009…Average deal size increased to $18 million vs. $11 million in 2009…Strong gains in deal counts and sizes were seen in the office, hotel and apartment sectors.”

Of these noteworthy improvements, RCA Director of Research Ben Carlos Thypin stated that, “Things are getting better. Pricing has not really increased on the same scale. And a lot of the deals we see now are taking place in primary markets, with high quality properties.”

Firm Rescues Value-Add Apartment Complex in Houston

Wed, 23 Feb 2011 16:03:25 GMT

ST Residential, a Chicago-based real estate company that is a collaboration between investors TPG and Starwood Capital, continued to build their firm's momentum with the purchase of the Mosaic on Hermann Park in Houston, TX. The high-rise, 790-unit apartment property fell into distress over one year ago and was purchased by ST out of foreclosure.

Since then, the firm has brought on Dallas-based Premier Communities Management Co to manage the property, and poured $3 million into renovating the interior, which now includes a 24-hour gym and a renovated pool area, among other amenities. On the ground floor, ST has also had greater luck in leasing the retail space to help build confidence in the property among renters and buyers. Their efforts are paying off, as since taking over the property, occupancy for the rental units has increased from 30% to 71%.

Of the property’s turnaround, Real Capital Analytics’ managing director Dan Fasulo commented that, “A company such as ST Residential can take over a foreclosed project for a discounted price, recover as much value as possible for the lender, sell the units at market price and make a nice return…The Mosaic is a gorgeous property…This one looks like it could turn out to be a home run.”

As pricing firms and demand rises for multifamily units around the country, more rescue projects such as ST’s Mosaic will appear. Please see the full article on this story at the Houston Chronicle’s site.

Second Time's the Charm: Archstone Eyeing IPO as Market Improves

Wed, 23 Feb 2011 15:25:25 GMT

The rising values of commercial real estate, particularly in the multifamily sector, are being manifest in different ways all across the industry. The latest effect was observed by the Wall Street Journal, which announced recently that Archstone, a company that came to epitomize the downturn in commercial real estate, may be taken public again by its current owners (including Lehman Brothers Holdings, Bank of America, and Barclays).

In fact, the Journal stated the rehabilitated real estate giant’s initial public offering may reach as high as $5.0 billion, which would put the value of the company at approximately $18.0 billion with debt included. With Archstone having sold a significant portion of its portfolio (more than $2.0 billion, according to Real Capital Analytics) since being taken private in 2007, and markedly improved pricing on its remaining holdings, would mean all told, the company has lost just around $2.0 billion of its value since being bought-out at the height of the market.

Some market analysts, however, are skeptical of the decidedly bullish valuation of the company. The Journal quoted Craid Leupold of Green Street Advisors as stating that, “You still have what would be a pretty substantial IPO to get down to a reasonably sound balance sheet…A deal beyond that size isn’t impossible, but it would be a tall order.”

As the pendulum swings back for a second time at Archstone, please see the full article on the Wall Street Journal’s site.

Off the Bench: Insurance Firm Looking to Get Back into CRE Game

Wed, 23 Feb 2011 13:32:25 GMT

Gregory McGreevey, chief investment officer at Hartford Financial Services Group, stated recently that he would like to get his insurance firm back into funding commercial real estate, as the asset class becomes more attractive to both equity and debt investors. This comes as an about-face, after Mr McGreevey cut his company’s commercial property portfolio by 36% over the past two years. Today, he believes that, “The real estate market in total has likely bottomed in terms of its price declines…Properties, we think, are in better shape today than they were.”

Indeed, Bloomberg reiterated after quoting the Hartford chief that the Moody’s/REAL Commercial Property Price Index, based on repeat-sales data from Real Capital Analytics, rose in three of the last four months of 2010. For the entire year through December 31, the index fell by just 2.1%, as compared to 29% in 2008 and 15% in 2009.

As Hartford Financial Services Group prepares to launch itself back into debt markets related to commercial real estate, please see the full article related to the move on Bloomberg’s site.

Sellers Testing Waters in Dallas with Two Major Office Offerings

Wed, 23 Feb 2011 00:00:40 GMT

The past three years have seen the near-stagnation of commercial real estate sales in Dallas’ central business district (CBD). According to data aggregated by Real Capital Analytics (RCA), Real Estate Alert recently stated that, “While trades in [CBDs] nationwide have soared by 239% last year, they plunged by 75% in Dallas, to a paltry $9 million.” That office market has posted lackluster fundamentals and been slow to return to growth, despite being a culturally-vibrant and demographically-growing Texas city. Importantly, the entire Dallas metropolitan area placed 13th in RCA's annual 2010 ranking of markets by sales volume.

As 2011 begins, however, Dallas’ CBD may be showing signs of life as two major office deals come to market with heavily-competitive pricing. The first is the 1.2 millon-square-foot Plaza of Americas, currently owned by a Blackstone-led partnership, which is marketing the property for more than $120 million. That would be $97 per-square-foot, at a 7.5% cap rate. The second is the 509,000-square-foot One Arts Plaza, which developer Lucy Billingsley is hoping to sell for as much as $150 million. That would mean nearly $300 per-square-foot and a cap rate of 6.5%. Both sales would be significant outliers in comparison to the average Dallas office trade along multiple dimensions.

Though there are plenty of naysayers doubting the achievability of those sales prices, both sellers are optimistic given the market’s recent momentum, improvement in pricing, and competition in the nation’s most popular metros that many believe will soon force buyers to secondary markets. In addition to being well located, both complexes are also standouts within the Dallas CBD, each featuring unique amenities and appealing long-term tenants. Whether the sellers chose the right time to sell these showcase properties will be told in time.

Developers Ramping Up Multifamily Projects

Tue, 22 Feb 2011 16:25:25 GMT

With its educated workforce and being relatively untouched by the recession, the City of Boston’s economy is returning faster than in other areas. As the New York Times reported recently, these have been driving factors behind a surge in new multifamily development in and around Beantown. The demand for quality rentals in the area has risen so much, in fact, that developers are reverting planned condominium projects – which typically yield higher returns, but have been unmarketable during the downturn – into monthly and long-term rental units.

For developers, the strategy and location have combined to make financial sense. The Times indicated that analysts expect asking rents to rise 3.5% in 2011, with the potential for even higher returns in the better-off City of Boston, which ranked as the third-strongest rental market in the Institutional Property Advisors’ most recent National Apartment Index. Additionally, the index predicts that Boston’s multifamily vacancy rate will fall to just 4.5%.

Though multifamily projects have been restarting all over the country at some fortitude over the past year, the pipeline of new developments has remained severely constrained after the downturn. Real Capital Analytics managing director Dan Fasulo remarked to the Times that, “That’s almost unheard of in the post-World War II economy.” He was also not surprised to hear that given the barren playing field, “there’s a race among developers to deliver more product.”

For more on the state of the multifamily development market, please see the full article on the New York Times’ website.

Optimism Persists for Asia-Pacific CRE Despite Lackluster Q4

Tue, 22 Feb 2011 16:02:25 GMT

Citing data aggregated and presented by Real Capital Analytics in its latest Global Capital Trends report, The Asset magazine recently reiterated that the pace of commercial real estate sales in the Asia-Pacific region continued to march upwards in the fourth quarter, furthering a trend that began at the start of 2009. “Despite the decline in transaction volumes for the region in the fourth quarter, the general upward trend, which started in the first quarter of 2009 has remained intact,” stated Asia Pacific Real Estate Association (APREA) chief executive officer Peter Mitchell.

The APREA report also detailed that cross-border investment into the Asia-Pacific region was up in the fourth quarter, as the composition of active buyers shifted away from public entities. Institutional investors also took a larger slice of the acquisition pie. Among the largest transactions in the Asia-Pacific region during 2010 included Center One in Seoul, the DBS Towers in Singapore, and the PCCW Tower in Hong Kong.

For more on Asia-Pacific commercial real estate trends, please see the full report on APREA’s site.

Dr Chandan at IPD Briefing: CRE Recovery Depends on Jobs

Wed, 16 Feb 2011 16:17:25 GMT

Speaking at the recent IPD Fourth Quarter US Real Estate Results Seminar in Chicago, Real Capital Analytics’ (RCA) global chief economist Dr Sam Chandan provided his outlook for the commercial real estate market in coming months. His main take-way was that, “For the US economy, the recovery has been stronger than expected…But the question now is whether it can be sustained. A lot now depends on the pace of the labor market recovery, both for the broader economy, and the prospects for commercial real estate.”

On current real estate trends, Dr Chandan referred to findings in RCA’s latest US Capital Trends report that revealed lenders were among the largest buyers of commercial properties in 2010 on account of taking back distressed assets. On the other hand, workouts of distressed inventory exceeded new additions to distress during the fourth quarter of 2010, signaling an inflexion point in the distress cycle. He also commented on the apartment sector’s durable recovery, where improved pricing and demand have encouraged heavy investment activity over the past two quarters.

For more of Dr Chandan’s comments on the commercial real estate markets and broader economy from the IPD Seminar, please see the full recap article on Commercial Property Executive’s site.

Buyer-Seller Divide Bridged in Pittsburgh with Financing, Improved Pricing

Wed, 16 Feb 2011 13:31:25 GMT

Signaling that the buyer-seller standoff over pricing that has impeded commercial real estate investment activity since the downturn may be gradually receding, the Wall Street Journal recently revealed that a group of New York-based investors has reached a deal to buy Pittsburgh’s US Steel Building. The building’s current owners, a joint venture between AREA Property Partners and Winthrop Realty Partners, have agreed to sell the 64-story tower to the Mark Karasick-led group for $250 million. The sale was partially spurred by the property’s debt load; AREA used the property to back $225 million in loans in 2005 that came due last September.

The Journal postulated that AREA had postponed selling its debt-laden asset until the market's pricing had improved to the point where a sale made sense. It also added that Mr Karasick’s consortium had held off on the purchase until it was able to secure 70 percent or more of the property’s sale price in financing. Said the Journal of these stipulations, “The tentative deal speaks to the availability of capital in the commercial-real-estate sector, as owners are finding it far easier to sell at palatable prices than just six months ago. With lending markets loosening, commercial-property sales nationally rose to about $50 billion in the last three months of 2010, up 60% from the prior quarter, according to research firm Real Capital Analytics.”

CB Richard Ellis Acquires ING's Real Estate Investment Management Unit

Tue, 15 Feb 2011 14:21:25 GMT

In a statement released on February 15, 2011, CB Richard Ellis Group Inc announced that it would purchase a majority share of ING Groep NV’s global Real Estate Investment Management unit for $940 million. The Netherlands-based bank and insurance firm is spinning that business off to reduce its commercial property exposure.

According to a statement issued by ING as reported by Bloomberg, “CB Richard Ellis will purchase businesses from ING Real Estate Investment Management, or REIM, with 44.7 billion euros ($60.5 billion) in assets…ING also agreed to sell $100 million in equity stakes in REIM funds and the real estate investment management firm Clarion Partners.”

In response to the news, Real Capital Analytics’ Ben Carlos Thypin remarked that the acquisition gives CB Richard Ellis “a much more consistent stream of income…They become the largest property fund manager in the world.”

Disparate Trends for Recovery Rates Persist into Fourth Quarter

Mon, 14 Feb 2011 16:17:25 GMT

A recent article on GlobeSt.com was able to both summarize Real Capital Analytics’ (RCA) latest analysis on Recovery Rates for the fourth quarter of 2010, but also obtain additional insight from the firm’s global chief economist Dr Sam Chandan. The quarterly report revealed the final three-month period of 2010 furthered several unique trends regarding lenders' recovery rates of original first loan amounts originated on a properties that had subsequently been defaulted on. The article paraphrased RCA’s report in stating, “Despite the fact that special servicers are liquidating bad loans at much greater volume these days, recovery rates have held the line, averaging 65% in the fourth quarter of 2010 compared to 64% in Q3.”

Dr Chandan remarked that the volume of very poor-quality loans have been offset by a large share of loans being recovered at- or above-origination value, especially those backing properties in the nation’s leading markets such as New York, Los Angeles, Chicago, and San Francisco. He also commented on the variation in relationships between lender types and recovery rates. For instance, insurance companies have been most successful in recovering original loan amounts, at 82%, while domestic banks have posted an average recovery rate of 63%.

For more on recovery rate trends as reported by RCA, please see the full article on GlobeSt.com.

Improved Pricing Knocks Distressed Owners Off Top 2010 Sellers List

Fri, 11 Feb 2011 13:29:25 GMT

Using the top sellers list of commercial real estate in 2010 presented in the Year in Review edition of Real Capital Analytics’ (RCA) US Capital Trends, the Wall Street Journal recently reported that RCA’s top three sellers had something in common. Taconic Investment Partners, Jamestown, and New York State Common Retirement Fund (NYSCRF) each held a portion of 111 Eighth Avenue, which Google recently purchased in December as its east coast headquarters for $1.8 billion. Amazingly, Jamestown and the NYSCRF placed second and third on the list of top sellers with only the Google sale under their belts in 2010, while Taconic ranked number one with two dispositions during the year.

The Journal also acknowledged that this year’s top sellers were in contrast to RCA’s 2009 list, which was populated mainly by companies disposing of distressed, underwater assets. RCA managing director Dan Fasulo clarified that, “Owners have recovered so much value especially on some of these troubled assets” that landlords, owners, and lenders “have much more wiggle room to negotiate out of…difficult positions.”

The following are the top 10 commercial real estate sellers in 2010, as ranked by RCA in US Capital Trends:

Taconic Investment Partners
Jamestown
New York State Common Retirement Fund
JP Morgan
Hines Interests LP
Normandy Real Estate Partners
Five Mile Capital
Shorenstein Properties
Prudential RE Investors
Beacon Capital Partners

Improvements in CRE Markets Driving Banks to Work Out Legacy Distress

Thu, 10 Feb 2011 15:39:25 GMT

In a recent article in Bloomberg’s Businessweek magazine, columnists Brian Louis and David M Levitt reiterated an increasingly common thesis about commercial real estate as the market heads into 2011: the worst is behind us. “Prices of commercial properties sold by institutional investors surged 19 percent in 2010” while “Near-record-low interest rates mean buyers can get cheap financing, which improved their returns. At the same time, rising earnings give banks a cushion to absorb losses, enabling them to sell distressed properties rather than hang on to them. Investors, convinced the worst is over, have pushed prices on bonds backed by commercial mortgages to the highest level in two years.”

On this last point, Real Capital Analytics managing director Dan Fasulo remarked to Businessweek that, “Now that values are on the upswing, it’s given owners and lenders more wiggle room to work out these troubled situations.”

The distressed properties banks are spinning off their books have not been marketed at the rock-bottom prices that investors have spent the past two years hoping for. However, bargains relative to the unrealistic pricing of the market-peak are easier to find. Citing a recent transaction recorded by RCA, Businessweek mentioned USAA Real Estate’s recent acquisition of Las Olas Centre in Fort Lauderdale, FL, which the firm recently purchased out of distress for $170 million. That was $61 million less than the former owner paid for it in 2007.

Additionally, distressed workouts being tracked in the commercial real estate market have been reflected to different degrees by individual property sectors. For instance, Businessweek points out, “Of the $52 billion of retail properties to fall into default [this cycle], just over half have completed workouts, ‘giving the retail sector the distinction as the first property type to pass the halfway point in resolving its distress.”

The Return of CMBS – A CRE Bond Market Revival

Wed, 09 Feb 2011 15:31:25 GMT

Banks and other firms that bundle mortgages into bonds are lending more money as demand for securitized debt increases from investors seeking higher yields. That’s making refinancing easier for commercial property owners that have been passed over by institutions that usually hold real estate debt on their books, aiding a recovery in commercial property values.

This rebound in CMBS is benefiting borrowers with smaller properties and in tertiary markets. CMBS issuers fare better in these markets outside the biggest cities because they can get the higher rates they need to cover the costs of packaging and selling loans. Institutions that keep mortgages on their balance sheets, like non-US banks and insurance companies, focus on top-tier buildings in large metropolitan areas.

“Loans from CMBS lenders are more often on smaller assets or Class B office properties,” said Ben Thypin, Director of Market Analysis at global commercial property research firm Real Capital Analytics. “They haven’t been able to compete that well with insurance companies and international lenders in the office market on the highest-quality buildings.”

According to Real Capital Analytics, about 71% of commercial-property lending by insurance companies was done in primary markets in 2010, compared with 67% for foreign banks and 47% for CMBS lenders. Their investment data shows that about one-third of loans from CMBS firms were in tertiary markets, compared with 6.6 percent for insurance companies and 12 percent for non-U.S. banks.

Land Sales in This Environment? WSJ Says Believe It

Wed, 09 Feb 2011 13:26:25 GMT

With clear, upward momentum established in the commercial real estate sector by the end of last year, anecdotal evidence is emerging to support that the most optimistic players have begun to expand their sights beyond even secondary and tertiary markets, to pure development projects instead. In a recent Wall Street Journal article, several recent deals involving the sale of undeveloped land were documented in areas across the US.

These sales were among those behind the $5.5 billion in land and development site transaction volume aggregated by Real Capital Analytics in the US during 2010. In citing this statistic, the Journal acknowledged that though this was nearly double 2009’s volume of $2.8 billion, it was a whisper compared to the $40.8 billion of development and land sales tallied at the height of the market in 2007.

For more information on this exciting new activity in commercial real estate, please see the full article on the Wall Street Journal’s site.

Investment Capital Fanning Out Across Europe's Secondary Markets

Tue, 08 Feb 2011 13:04:25 GMT

After the world’s most-visible, primary markets topped the lists ranking capital-destinations for commercial real estate investors over the downturn, competition and desire for higher yields are beginning to drive activity outwards to secondary markets. In a recent Wall Street Journal article, this emerging trend was documented in the European arena, where investors have begun to branch out from reliable top-tier markets such as London, Paris, and Berlin to less-obvious locations.

The article in the Journal relied on data aggregated by Real Capital Analytics and presented in its latest European Capital Trends report. “Still, there is a clear trend toward investment in secondary markets. In its annual ranking of the top 25 European property markets…It’s no surprise that London and Paris top the list. But then it gets interesting: Stockholm jumped to third place last year from No. 8 in 2009, overtaking Moscow, which slipped to fourth place. Glasgow rose to the No. 10 spot from 19, while investment in commercial property in Manchester increased 136% to €1.3 billion euros, boosting the city’s position in the rankings to 12th from 21st.”

For more on this emerging trend that is unfolding with investor preferences in both Europe and the rest of the globe, please see the full article on the Wall Street Journal’s site.

Do Wells Fargo's Recent DC Loans Mark the Return of National Banks to the Commercial Lending Scene?

Sun, 06 Feb 2011 00:00:40 GMT

Earlier in the year, nationally-operating Wells Fargo bank provided a joint venture between the Rockpoint Group, Jefferson Apartment Group, and Perseus Realty with a $53 million construction loan to build a mixed-use development called 14W, which will be located on the former-YMCA site on 14th Street in Washington, DC. Erika Morphy of GlobeSt.com stated of the origination that, “The financing, of course, is yet another indication of the growing confidence lenders have in the DC area construction market. It also highlights, at least anecdotally, a growing role that Wells Fargo has been taking in local deals.”

Ms Morphy was quick to acknowledge, however, that according to Ari Firoozabadi, director of Marcus & Millichap’s National Multi-Housing Group, “…national banks only accounted for approximately 8% of total multifamily originations in 2010, one of which is Wells Fargo.” Mr Firoozabadi was citing data aggregated by Real Capital Analytics, and also reiterated that government-backed Fannie Mae and Freddie Mac together dominated multifamily lending in 2010, with a 70% market share.

CRE Recovery Reassures of Stability in Broader Economy

Fri, 04 Feb 2011 19:27:25 GMT

A recent article in Bloomberg’s Businessweek publication synthesized the plethora of good news emerging from the commercial real estate sector in recent weeks, and placed it in the context of the broader economy. “From Manhattan office towers to apartments in Florida to retail properties in Washington, commercial real estate values are rising, defying predictions of a collapse that would drag the U.S. economy back into recession,” read the opening paragraph.

Relying on data aggregated by Real Capital Analytics (RCA), Businessweek cited that office property sales in the US more than doubled between 2009 and 2010, to $41.6 billion. In its most recent US Capital Trends 2010 Year in Review edition, RCA reported sizable year-over-year increased for each of the main commercial property types in the US. RCA’s Dan Fasulo remarked that these large increases are partially attributable to “…the strategy put forward by the government: keeping interest rates low and giving lenders some flexibility to hold these troubled assets on their books for a while…Now that values are on the upswing, it’s given owners and lenders more wiggle room to work out these troubled situations.”

Among other contributors to the commercial property sector’s recovery include “a resurgent debt-securitization market” and “an expanding economy” although both remain well below peak-year levels. Businessweek also stipulated that the nation’s leading metros have seen the largest advances in sales and fundamentals over the past year, while other markets have lagged, just as the office and apartment sectors have seen the biggest improvements so far this cycle, while retail and industrial properties are still finding their strides.

For a complete and in-depth analysis of the commercial property recovery thus far, please see the full article on Businessweek’s site.

Two US REITs Cash-In on Profitable Multifamily Trends

Thu, 03 Feb 2011 18:40:25 GMT

For good news from the commercial real estate sector, look no further than earnings reports from the US’ leading REITs. Apartment REITs Equity Residential and AvalonBay Communities reported Wednesday that their funds from operations climbed significantly during 2010 on higher rents and rental demand.

The article on Reuters quotes Real Capital Analytics as stating that, along with a falling vacancy rates in multifamily properties across the nation, “Rising occupancy and rent and financing available from Fannie Mae and Freddie Mac has fueled a surge in prices for apartment buildings by units, to new pre-downturn levels.”

Litigation Pending on Silverstein's 575 Lex in Manhattan

Thu, 03 Feb 2011 13:29:25 GMT

After a restructuring deal with its lenders fell through on 575 Lexington Avenue, Larry Silverstein’s Silverstein Properties is now facing significant foreclosure litigation on the high-quality Manhattan asset. The inability of the firm to service the property's debt comes as no surprise to Dan Fasulo, managing director at Real Capital Analytics, who remarked of the news that, “They paid a lot for this asset at the top of the market.”

To be exact, Silverstein paid $400 million for the property in 2006, with the help of two $162 million loans from Bank of America. The Real Deal reported that, “By April 2010, he informed lenders that he has $1.9 million in unpaid bills and began talks to restructure.” Silverstein officially defaulted on the loan in November 2010 and was filed suit against by LNR Property of Miami Beach in January.

Dr Chandan's Lead Indicator: "Dangers of Decoupling: Don’t Call It a Bubble, But Investment Outpacing Cash Flow"

Thu, 03 Feb 2011 12:28:25 GMT

In the latest article of his weekly Lead Indicator column in the Commercial Observer, Real Capital Analytics’ global chief economist Dr Sam Chandan discusses the concerns presented by the possible decoupling of commercial real estate and the broader economy, which is particularly apparent in New York City and other major markets.

In this week’s article, Dr Chandan states that on one hand, “New York City's commercial real estate investment market has rebounded strongly over the course of the past year. Sales volumes and pricing metrics have both climbed from their lows, outpacing improvements in other major markets.” On the other hand, however, he reminds that, “the observable improvements in investment activity have not yet been matched by gains in jobs or in the broadest measures of property fundamentals.” This divergence in trends could lead to some short-term gains, as well as some long-term troubles.

For his full analysis, please read Dr Chandan’s article on the Commercial Observer’s site.

Special Servicer Moves to Clean Up Distress in New York

Thu, 03 Feb 2011 11:23:40 GMT

Miami Beach-based special servicer LNR Partners has added yet another property to its list of foreclosure targets; this time its 246 Fifth Avenue in Manhattan’s Flatiron District. Ronald and Hanna Goldberg, current-owners of the “L-shaped property on the southwest corner of 28th Street brought it in July 2007 for $20 million, financed with a $14.5 million loan,” according to the Real Deal online. That loan, however, went into default nearly one year ago after vacant space and lack of interest dried up revenue flows.

According to Real Capital Analytics’ data, LNR has taken back ten properties over the past two months, totaling $65 million or more. Other properties placed under LNR’s special serving include two properties in the Bronx as well as Silverstein Properties’ 575 Lexington Avenue, also in Manhattan.

Missed Dr Chandan on CNBC? Watch Him Describe the Rebound in CRE Here

Thu, 03 Feb 2011 00:00:40 GMT

Watch RCA's Global Chief Economist, Dr Sam Chandan, commenting on the rebound in commercial real estate investment activity during his interview with CNBC on February 2, 2011.

Istanbul Ranks Highly in PwC's Capital-Destination Survey

Thu, 03 Feb 2011 00:00:40 GMT

In the latest issue of its Global Capital Trends, the 2010 Year in Review edition, Real Capital Analytics provided a global ranking by market for investment into existing commercial real estate. London topped the list with $23.9 billion in sales during 2010, followed by Tokyo and New York City as distant runners-up. London’s position reflected the UK’s declining currency and encouraging fundamentals outlook, which encouraged both domestic and cross-border investors to target the market.

Acknowledging this ranking, a recent article on Bloomberg aired findings from another year-end ranking by market done by PricewaterhouseCoopers (PwC) in cooperation with the Urban Land Institute. In that report, PwC found that Istanbul has become the “best place in Europe to buy of develop property as Turkey’s economic growth contrasts with declines across much of the region,” according to the survey’s 600 respondents.

In the PwC report, London and Munich were also highly rated by the respondent real estate professionals, while Athens and Dublin fell at the bottom of the list on account of their respective nations’ poor economies and prospects for growth.

Hawaiian Hotels Languish in Distress

Wed, 02 Feb 2011 19:26:25 GMT

Using data aggregated by Real Capital Analytics (RCA), Hawaii Business recently detailed the state of distress in the island state’s hotel market. Hawaii has one of the highest totals in the nation, with 12 properties representing over $2.0 billion in outstanding hotel distress. This is behind only Nevada, which has $8.4 billion in hotel distress, and ahead of both New York and New Jersey. RCA’s Ben Carlos Thypin remarked of this remarkable load of distress that, “Hawaii’s status is a function of the value and size hotels here, not because of the number of properties involved.” He added that he believes, “It will take years for the situation to resolve as owners, lenders, special servicing agents, receivers and lawyers huddle.”

A unique feature of Hawaiian hotels, of course, is that the majority of those in distress are luxurious resorts purchased at high loan-to-value ratios when pricing was at its peak in 2007. Hawaii Business stated that those buying these sprawling locations were anticipating high occupancy and being able to charge $300 per night for a rooms for the foreseeable future, thereby maintaining a steady operating revenue to service their debt load. When the recession hit in 2008 and unemployment rose, luxurious vacations to Hawaii fell off most people’s list of priorities. After a few months of reduced revenues, owners became delinquent on their debts.

The following is a list of significant hotel properties currently tagged as distressed in RCA’s record.

Grand Wailea Resort & Spa
Ritz Carlton Kapalua
Four Seasons Resort Maui
Fairmont Orchid
Turtle Bay Resort
Sheraton Keauhou Bay Resort
Ilikai Hotel
Aloha Beach Resort Kauai
Diamond Hawaii Resort & Spa
Hawaiiana Hotel
Queen Kapiolani Hotel
Kapalua Bay Renaissance Resort

For more information on distress in Hawaii, please see the full article on Hawaii Business’ site.

Current Multifamily Owners Encouraged to Hold Assets on Future Rental Demand

Wed, 02 Feb 2011 13:24:25 GMT

It was recently announced that JP Morgan Chase & Co has acquired the Liberty Towers luxury rental complex in Jersey City, NJ for $300 million. Originally completed in 2004 for around $100 million, the recent sale represents a near-tripling in value despite the falloff in broader property pricing. The 650-unit complex has Hudson River views and is well-located for Manhattan access.

Of the sale, Real Capital Analytics’ managing director Dan Fasulo commented that he was surprised that co-owner/developers Fisher Development Associates and Northwestern Mutual Life chose to sell the property. With few new multifamily projects coming online in recent years, current owners of apartment properties in the nation’s leading markets are set to several strong years of rental demand, and thus, income as well.

Ten Leading REITs To Invest In Now

Tue, 01 Feb 2011 16:32:25 GMT

With knowledge provided by Real Capital Analytics that real estate investment trusts (REITs) accounted for one-quarter of all investment into US commercial real estate in 2010, The Real Deal recently took a close look at this capital group’s biggest players. With access to capital through their stockholders and less legacy distress on their books than other capital groups, these companies have broken away from the pack to take advantage of some of the current market’s significant opportunities.

For a detailed look at any of the 10 REIT firms below, RCA subscribers can click through to our commercial property investor profiles for each, including complete transaction histories. See the full article on The Real Deal’s site.

Boston Properties
SL Green Realty Corp
Vornado Realty Trust
AvalonBay Communities
Equity Residential
Brookfield Office Properties
General Growth Properties
iStar Financial
Apollo Commercial Real Estate Finance
Gramercy Capital Corp

After the Downturn: New Realities and Opportunities for Commercial Property Tenants

Tue, 01 Feb 2011 13:37:25 GMT

With vacancy rates for commercial real estate approaching historically-high levels and lease expirations marching on as ever, Russ Banham of Chief Financial Officer (CFO) Magazine recently described the implications – both benefits and downsides – for both owners and occupiers of commercial space. The largest take away was that, “the weak commercial real estate market presents opportunities for significant savings” for occupants who are looking either for a cheaper lease on their current space or to upgrade to a better or more visible space. However, to dispel some uncertainty around their revenues, commercial space owners and operators have begun asking tenants to sign longer leases in exchange for the lower price-per-pound they offer.

In that same vein, another growing trend that Mr Banham detailed in his article was a surge in sale-leaseback, or triple-net sale-leaseback arrangements. These occur when “a company sells the building it owns and occupies to an investor, then leases it back on a long-term basis,” thereby freeing up the structural capital to for reinvestment or payment of existing debts. With debt capital tight and a potential shift in applicative accounting rules pending, this is a smart move for many companies that currently own their brick-and-mortar spaces. According to Real Capital Analytics’ founder and president Bob White, “Generally, the yield on triple-net properties is 50 basis points or more above the equivalent unsecured debt of a company. This makes the scenario an effective form of financing. As for sellers, the can often get more proceeds via a sale-leaseback as opposed to issuing other debt.”

The potential accounting changes proposed by the Financial Accounting Standards Board and the International Accounting Standards Board would affect how companies report their lease expenses: both professional entities recommend that tenants “be required to place the obligation to pay rent over the entire lease term on their balance sheets as a liability.” Of this shift, Mr White stated that, “…the longer the lease, the greater the liability, so companies may want shorter leases than the typical 10-to-20-year term that makes sale-leasebacks work. It comes down to a financial decision: if you can borrow unsecured debt cheaper than what a real estate investor is offering, you may pass."

Multifamily Sector Carries Momentum into New Year

Mon, 31 Jan 2011 15:41:25 GMT

Driven by several of the unique consequences of the current economic environment, the multifamily property sales investment market is heating up and has nearly reached its previous 2007-peak along many parameters. This is good news for sellers and current owners of multifamily properties, according to the Wall Street Journal, as well as developers of such properties. However, it is less so for those hoping to take advantage of the sector as investors.

The Journal indicated that due to the elevated number of foreclosures pushing former-homeowners into the rental market, and a depressed number of new units coming online from development, renter demand is approaching a record high. Investors have taken notice of the potential secure revenue offered by the multifamily sector, and paired with record-low interest rates “that have made borrowing less expensive,” competition for purchasing multifamily properties is intensifying and branching out beyond the US’ primary markets.

The Journal provided one stark example of just how far pricing has rebounded for multifamily properties in numerous markets. According to Real Capital Analytics’ transaction data, “TIAA-CREF paid $62 million for the 261-unit Newbury Commons in Stamford, Conn. The purchase price was 65% above what Seaboard Properties paid in February 2009,” the previous owner's purchase price.

For more on this exciting trend in the multifamily sector, please see the full article on the Wall Street Journal’s site.

Job Creation Hampers Outright Optimism for Commercial Property Market

Mon, 31 Jan 2011 07:21:40 GMT

In a recent synopsis article of Columbia Business School and Goodwin Proctor’s Real Estate Capital Markets Conference in New York City on January 28th, GlobeSt.com columnist Paul Bubny described the remarks by keynote and panelist speakers on commercial real estate trends as decidedly positive. Reasons for “cheer” include “debt and equity becoming more available from a variety of sources, low interest rates, an uptick in the GDP.”

However, job creation remains a major drag on not only commercial real estate, but the broader economy that drives trends in that sector. Panelists has suggestions for policy-makers on how to spur job growth, including important reforms to tax law. However, Real Capital Analytics’ global chief economist Dr Sam Chandan expressed as a panelist speaker that those efforts may be hard to achieve in a timely manner. Dr Chandan described the conference keynote speaker Alice Rivlin’s bipartisan plan for tax reform as “extraordinarily far-reaching” and instead opined for other ways to boost job creation in the near-term.

For more on the panelists’ thoughts on tax reform, policy direction in Washington, DC, and how it may affect the job creation necessary to ensure solid positive trends in the commercial property sector, please see the entire article on GlobeSt’s site.

Commercial Property Sales Triple in Twin Cities Metro during 2010

Mon, 31 Jan 2011 00:01:40 GMT

Commerce stated with confidence that $989 million of significant commercial property sales occurred in the Twin Cities during 2010. This was a 201% spike from 2009, outpacing the national increase of 192%. Despite this surge in volume, the Twin Cities Metro fell below the top 25 commercial real estate markets in the Americas zone, which included North, South, and Latin America.

The findings cited in the Finance & Commerce’s article were originally published in RCA’s Global Capital Trends 2010 in Review, published on January 26, 2011.

Expect Lender Tussles Over Distressed Assets to Rise with Number of Workouts

Mon, 31 Jan 2011 00:01:40 GMT

When an investor utilizes more than one loan by multiple shops to fund a pricy property acquisition, then defaults on the debt, which lender gains control over the property in question?

The answer varies on a case-by-case basis, but a particularly hairy dispute is unfolding in Reston, VA, a Washington, DC suburb over four office buildings originally purchased by Penzance Cos in 2007 for $203 million. The firm defaulted on its loan obligations last year, and now New York-based Garrison Investment Group, one of Penzance’s original lenders, is challenging other firms with debt tied to those properties for control of the 750,000 square feet of distressed space.

Real Capital Analytics’ (RCA) Ben Carlos Thypin remarked of the legal arguments currently being heard in the New York State Supreme Court that Garrison “took over the properties with the intention of holding them,” despite not being one of the asset’s main lender.

With RCA tracking $191.5 billion of distressed properties still outstanding in the US by year-end in 2010, the Washington Post indicated in conclusion that the “Battles between lenders over distressed properties are likely to continue.”

Single-Tenant Office Trades Push Seattle Metro onto the Global Stage in 2010

Mon, 31 Jan 2011 00:00:40 GMT

In its weekly Sunday Buzz column, the Seattle Times reiterated as local news findings in Real Capital Analytics’ (RCA) recent Global Capital Trends 2010 in Review publication. In that year-end synopsis of commercial real estate, RCA ranked the world’s largest office sales in 2010. Based on this report, the Times stated that the eighth largest deal in the Western Hemisphere (what RCA terms “the Americas”) and the 24th largest in the entire world during 2010 was no other than Bellevue, WA’s Bravern Towers One & Two.

The two towers, along with the underground parking garage they share as a part of the Bravern mixed-use development project, sold for $410 million. The Times rightfully indicated that, “They fetched top dollar because both towers are leased long term to Microsoft.” The Bravern sale joined Cole Real Estate Investors’ $310 million trade for City Center Plaza, also located in Bellevue, on the Americas’ top deal list of 2010.

Including these two oversized transactions, Seattle ranked as the 26th-most active market in the world during 2010.

China Introduces Additional Curbs on Domestic Property Market

Fri, 28 Jan 2011 00:00:40 GMT

According to Real Capital Analytics’ (RCA) latest Global Capital Trends, total commercial property and land sales totaled $197.1 billion in 2010. This was up by 23% from 2009 and was by far the highest transaction volume of any country. In a recent article on Bloomberg, it was acknowledged that these numbers were despite the Chinese government’s repeated attempts over the course of last year to cool property markets through restrictions on acquisitions and development.

With these seemingly untamable growth trends in mind, Chinese Premier Wen Jiabao released a statement on January 18th that, “…the government will ‘resolutely’ implement controls on the real-estate market in the first quarter, including curbing speculation and increasing supplies of affordable housing.”

For a complete outline of the new restrictions on commercial and residential real estate that the Chinese government is planning to institute in the coming weeks, please see the full article on Bloomberg.

Retail Sector's Year-End Momentum Indicative of Boffo 2011

Fri, 28 Jan 2011 00:00:40 GMT

Starting with the now-common prior that, “Investors across the board, from public and non-traded REITs to private buyers, pension funds, life insurance companies and foreign investors, have amassed significant war chests since the market crashed in late 2008,” Retail Traffic recently outlined in detail how retail commercial property investors would place their cash in the New Year. According to Real Capital Analytics’ (RCA) US Capital Trends 2010 Year in Review, these well-capitalized players had already begun their investment show-of-force that Retail Traffic anticipated by the end of last year.

In his article, Ben Mattson-Teig stated that according to RCA data, “In 2009, investment sales volume ground to a halt, but volume slowly build up throughout 2010. In the fourth quarter, nearly $8 billion in retail properties changed hands – the highest level recorded since the market crashed. Overall, retail sales during 2010 totaled $22.6 billion.”

For more evidence of the pending retail investment deluge, as well as retail pricing trends and investor preferences revealed, please see the full Retail Traffic article.

China Property Sales Top US for Second Year in 2010 Global Recap

Thu, 27 Jan 2011 16:28:25 GMT

Referencing data recently released as part of Real Capital Analytics’ (RCA) Global Capital Trends 2010 Year in Review, Bloomberg’s BusinessWeek stated that sales of commercial property and development sites in China totaled $197.1 billion during 2010. This was the largest yearly volume of any country and accounted for a remarkable 44% of the $582.0 billion total in global commercial real estate sales last year.

Year-over-year, Chinese sales were up by 23% from 2009 despite the Chinese government’s attempts to cool domestic property markets. According to the latest Global Capital Trends report, investment into Chinese commercial property during the fourth quarter reached its highest level in over four years.

The US came in second by volume on a global basis, with $112.5 billion in sales. Nearly $24.0 billion of sales in London during 2010 pushed that market above all others, including New York and Hong Kong, to the number one position for individual markets.

Strong Year-End Sales Set Stage for Commercial Property Markets in 2011

Thu, 27 Jan 2011 15:41:25 GMT

Trends in US commercial real estate observed by Real Capital Analytics’ (RCA) surfaced in the Everett, WA-based Snohomish County Business Journal when the publication stated that, “…a surprising year-end rush by buyers and sellers of income properties brought a wave of deals to closing before the end of 2010.” As was recently reported in RCA’s US Capital Trends 2010 Year in Review, the fourth-quarter surge in commercial properties helped push total US sales to over $110.0 billion for the year. This was more than double 2009’s total, and with momentum building late in the year, the year-end results point toward an interesting year for commercial real estate in 2011.

SL Green Trades In to Trade Up

Thu, 27 Jan 2011 13:31:25 GMT

Marking its second listing on Manhattan’s W 44th Street in recent months, SL Green Realty Corp has hung a for sale sign on its 400,000-square-foot office tower at 28 W 44th St between Fifth and Sixth Avenues. This offering comes after the recent closing of 19 W 44th St. The decision to sell both properties is part of Sl Green’s latest strategy to focus the firm’s capital on quality assets in highly-visible locations of the US’ major markets.

On the flip side of this restructuring, SL Green has recently purchased 600 Lexington Ave and 125 Park Ave in Manhattan, as both are well-tenanted, top-shelf properties. Real Capital Analytics’ managing director Dan Fasulo remarked of the firm’s latest offering that, “SL Green has been a prolific recycler of capital-selling ‘B’ buildings and buying ‘A’ buildings.”

For other buildings SL Green is considering for “recycling,” please see the full article on Crain’s New York’s website.

Former-Hilton Headquarters Sells in Beverly Hills

Thu, 27 Jan 2011 08:41:40 GMT

New York-based Tishman Speyer recently completed their purchase of the trio of 25-year old buildings that formerly held the Hilton Hotel Corp’s headquarters until that company was purchased by Blackstone Group and moved to McLean, VA. In addition to the purchase price, which was upwards of $55 million according to real estate experts familiar with the sale, Tishman Speyer will spend $23 million to upgrade the supremely-located Beverly Hills property. The buildings themselves have posh amenities and well-fitted interiors already, however, and were certainly attractive features to Tishman Speyer and its competitors for the contract of sale.

Real Capital Analytics’ Peter Slatin remarked of the sale that, as US commercial property sales have doubled between 2009 and 2010, “The two property categories trading more are ‘trophies and trash.’” By trophies, he was clearly referring to the Hilton campus sale.

Year-End Reporting Confirms Resurgent US Property Market

Thu, 27 Jan 2011 00:00:40 GMT

In his column on GlobeSt.com, Paul Bubny recently summarized the numerous positive trends in commercial real estate currently being tracked by Real Capital Analytics (RCA). In recent weeks, RCA has released its latest Moody’s/REAL Commercial Property Pricing Index (CPPI) for the November 2010 period, as well its US and Global Capital Trends 2010 Year in Review reports. Positive indicators for US commercial property markets are embedded in each of these releases.

Mr Bubny reiterated that, according to November’s CPPI, pricing for commercial property in the US increased by 0.6% - the third consecutive monthly increase in that index. There are some reservations, however. The recent rises in the series is in contrast with the sharp drops over the summer months, which led Moody’s managing director Nick Levidy to remark of the index that, “We expect the choppiness of the CPPI to continue in the months ahead…A fragile recovery, uncertainty about the forward-looking interest rate environment and pressure from developments in the European sovereign bond market all conspired to depress index returns.”

Even more positive are the trends displayed in RCA’s US Capital Trends, which revealed that, “the fourth quarter of ’10 represented the strongest three-month period for US commercial property sales since ’07, with $55.3 billion worth of transactions.” Whether this momentum will continue into 2011 is dependent on growth in the US’ broader economy and availability of credit, among other conditions unforeseen.

Property Funds Pick Germany Over UK as Top European Investment Choice

Mon, 24 Jan 2011 15:41:25 GMT

According to an annual report by the European Association for Investors in Non-Listed Real Estate Vehicles (INREV), Germany has overtaken the United Kingdom as the most-favored investment location in Europe for unlisted real estate funds. Surveying investors and fund managers overseeing 981 billion euros ($1.3 trillion) of assets, INREV's research shows the recovery of Germany's economy, Europe’s largest, made office and retail properties more attractive.

For the past two years, the UK was the top choice in Europe for commercial property investors as the weaker pound brought in overseas buyers. The market that attracted the most investment globally in 2010 was London. Property sales totaled 13.3 billion pounds ($21 billion), 16% more than in 2009, Cushman & Wakefield Inc. estimated, citing Real Capital Analytics Inc. data. The city beat Tokyo and Paris.

West Coast Firm Picking Up Distressed Manhattan Assets

Thu, 20 Jan 2011 14:18:25 GMT

Since entering New York City’s high barrier-to-entry commercial real estate market last year, Los Angeles-based CIM Group has been scooping up Manhattan bargains left and right. Its latest New York acquisition – and sixth to-date – was a large debt acquisition backing property at 140 Sixth Avenue.

The firm has employed a strategy many other players are having limited success with: purchasing troubled assets or underwater debt backing property in Manhattan. By buying in at a discount, the firm stands to make a handsome profit at a future date when property pricing returns to growth. Real Capital Analytics’ managing director Dan Fasulo remarked of CIM’s latest trade that, “They are savvy investors making a big bet on Manhattan…They’ve acquired stakes in premiere assets.”

CB Richard Ellis Leads 2010's Surge in CRE Activity

Wed, 19 Jan 2011 14:28:25 GMT

According to Real Capital Analytics’ (RCA) recently released US Capital Trends 2010 Year-in-Review, the value of the 25 largest commercial property deals last year totaled $9.8 billion. This was nearly four times the volume totaled by equivalent deals in 2009, signaling that “…commercial real estate sales in New York City snapped back with a vengeance from the disastrous depths plumbed in the recession,” according to Crain’s reporter Marine Cole.

Remarkably, Ms Cole points out that commercial broker CB Richard Ellis Inc was involved with either the buyer or the seller of nine of the top 10 deals listed in RCA’s ranking. RCA managing director Dan Fasulo commented that, “[CBRE’s] growth in the marketplace has been amazing,” especially considering the firm was only a minor player in the New York City metro as recently as ten years ago.

Using RCA data, Crain’s identified some of the major deals CBRE was involved with during 2010. Their largest deal came when they helped Google Inc purchase their New York headquarters at 111 Eighth Avenue for $1.8 billion. CBRE also represented Fisher Brothers in their disposition of 55 E 52nd Street to Rockpoint Group for $700 million and UBS Bank in selling their minority share of 299 Park Ave.

iStar Looks to Dig Out as CRE Values Increase

Wed, 19 Jan 2011 12:51:25 GMT

For the past two years, Jay Sugarman, CEO of iStar Financial, has been struggling to steer the commercial real estate owner and lender clear of bankruptcy. Wall Street bet against the company as a number of its borrowers defaulted and iStar grappled with its own debt obligations. (See earlier iStar reports.)

But as commercial property values rise in many parts of the country, there are signs Mr Sugarman might pull it off. The company's success at selling assets at higher-than-expected prices has helped it reduce its debt level in the past 12 months by $3.7 billion, to an estimated $7.0 billion. Now the company's shares have hit a 52-week intraday high of $8.30, and iStar was the second-best-performing REIT in 2010 behind Glimcher Realty Trust.

With interest rates at historical lows, investors have bid up the prices of office buildings, hotels, multifamily apartments and other property, particularly in top markets like Washington, DC and New York City. Most values still are well below their boom-year highs. But the value recovery "has given owners and lenders a whole plethora of exit options they didn't necessarily have last year," said Dan Fasulo, managing director at real-estate data firm Real Capital Analytics.

RLJ Development Buys NYC Doubletree Metropolitan Hotel

Wed, 19 Jan 2011 10:32:40 GMT

The upscale Doubletree Metropolitan Hotel is the third hotel Robert L Johnson's RLJ Development has bought in Manhattan since 2008. He also purchased the Hilton Garden Inn at 63 W. 35th St. and the Fashion 26 Hotel at 152 W 26th St for more than $100 million each. Mr Johnson is founder of the BET network.

The transaction closed in late December, and amounts to a sizable gain for the hotel's sellers, Highgate Holdings, Goldman Sachs Group's Whitehall Real Estate Funds and Rockwood Capital. The Whitehall-led group bought the 755-room hotel in 2003 for $110.5 million, according to Real Capital Analytics (RCA), and spent $35 million renovating it.

The hotel, established in 1961, drew widespread attention for architect Morris Lapidus' design with its undulating glass facade evoking a vertical wave. New York's Tisch family of Loews Hotels renamed the building in 1991 as the Loews New York Hotel.

The price that RLJ paid fits within the range of recent hotel deals in Manhattan. The per-room-price of $443,700 tops Manhattan's average price - $424,150 - for the 12 months ended in September, according to RCA.

NYTimes Interview with Dr Sam Chandan at RCA

Sat, 15 Jan 2011 15:33:25 GMT

Dr Sam Chandan is Global Chief Economist for Real Capital Analytics (RCA), a Manhattan-based firm that tracks commercial property sales and trends worldwide. He joined the market research firm one year ago, after his company, Real Estate Econometrics was acquired by RCA. In the New York Times' Square Feet column, Vivian Marino interviews Dr Chandan about his first year at RCA, the largest property transaction of the year, and the outlook for commercial real estate.

Dr Chandan's Lead Indicator: "Investors and Lenders Should Expect More Historically Low Interest Rates—But for How Long?"

Fri, 14 Jan 2011 12:32:25 GMT

According to Real Capital Analytics global chief economist Dr Sam Chandan, one of the largest reasons for the US commercial property market’s recent rise off its 2009 low is the historically-low interest rates available to willing investors. But riding a wave of positive economic indicators and growth in commercial real estate sales into the New Year, many are rightfully questioning how long these enticing rates may last?

In his latest Lead Indicator column in the Commercial Observer, Dr Chandan discusses the possibilities for short- and long-term rates, policy biases at the Federal Reserve, and the potential for shifts in interest rates to affect commercial real estate.

Chinese Investors Join Cross-Border Buyers to Rush London Property Market

Fri, 14 Jan 2011 10:32:40 GMT

According to data aggregated by Real Capital Analytics (RCA), Bloomberg stated in a recent article that “London’s commercial property market probably received the most [foreign] investment for the second straight year in 2010 as prospects of rising rental income attracted cash from as far afield as Hong Kong, Qatar and Canada.” RCA has tracked massive volumes of cross-border over the past two years targeting destination cities such as Paris, London, and New York City as commercial property investors look for solidly-performing assets to hedge against uncertainty and risk.

The latest example of this came with the $444 million (£280 million) sale of a portion of River Court, the large complex of office space currently housing Goldman Sachs’ London headquarters, to Chinese Estates Holdings Ltd. The space is supremely located on the City of London’s Fleet Street, and was most recently purchased by Warren & Partners in 2001 for £247 million.

Brazilian Billionaire Splurges on NYC Office Space, Signals Rising Demand from Abroad

Thu, 13 Jan 2011 13:25:25 GMT

According to Real Capital Analytics (RCA) data, the recently-leaked sale of Manhattan’s 660 Madison Ave for $285 million was the city’s priciest per-unit office sale of 2010, and the second-largest acquisition by a foreign buyer during the year. According to Bloomberg News sources, an affiliate of Brazilian-billionaire Joseph Safra purchased the property in a private deal late in the year from 660 Madison Owner Realty Corp, which is actually an affiliate Safra entity as well.

Milan-based Risanamento SpA previously had shelled out $375 million to acquire the trophy property in 2007. The sale included just the 255,000 square-foot office portion of the building. Barneys New York, the storied top-end department store, occupies the balance of the property’s space that is owned separately.

RCA managing director Dan Fasulo remarked of the oversized purchase, “The price is nothing to sneeze at…The Italians had the unfortunate timing to buy at the very tippy top of the market, at almost $1,500 a foot.” In comparison, Mr Safra’s acquisition price worked out to about $1,100 per-square-foot, which despite being a significant discount after the downturn, was still the the highest pricing for office space of the year.

Bloomberg stated of the sale that, “The deal is the latest example of international demand amid a rebound in values for centrally located Manhattan real estate.” According to RCA data quoted in the article, cross-border buyers more than doubled their acquisitions in the US in 2010, to $1.7 billion, from $695 million in 2009.

Once Bitten: Investors Tepidly Shopping in Secondary Property Markets

Thu, 13 Jan 2011 13:25:25 GMT

Entering the New Year on a wave of purchasing activity, buyers of commercial property are beginning to look beyond the handful of major US markets they had their sights on almost exclusively in 2010. One such “spillover” market, as Wall Street Journal reporter Maura Webber Sadovi stated, has been Atlanta. Most recently, a fund managed by CB Richard Ellis Investors picked up a bargain from battered American International Group Inc (AIG).

According to Real Capital Analytics (RCA) data, AIG sold over one million-square-feet of office and retail space in Atlanta, along with a parking garage and additional developable land, for just $165 million. The property was all part of a significant decade-long, still-unfinished mixed-use redevelopment known as Atlantic Station, of which AIG was originally the master developer.

Along with other fourth quarter sales in Atlanta, some of which sold for more–palatable prices, the AIG disposition signals investors’ gradual return to secondary markets. However, according to RCA’s Ben Carlos Thypin, the pace of recent sales in Atlanta may not indicate a clear, upward trajectory for that market. “That someone is willing to shell out this kind of money is certainly not bad news, but I’m not sure it implies any blessing on the Atlantic market…There’s still a lot of pain.”

Importantly, sales of significant commercial properties in Atlanta increased by just 6% between 2009 and 2010 according to data aggregated by RCA. By way of comparison, sales of retail and office properties in Manhattan more than tripled over the same year-over-year period.

Kent Swig Faces Uphill Battle for Control of NYC's 80 Broad St

Tue, 11 Jan 2011 15:28:25 GMT

In his “Realty Check” column for the New York Post, Steve Cuozzo recently detailed the status of several properties in Manhattan. Among his picks included 80 Broad St in the city’s Battery City.

Kent Swig, who Dana Rubinstein of the New York Observer described as “the New York developer whose fortunes this recession have dropped as fast as a boulder off a cliff,” originally purchased 80 Broad St in 2004 for $70 million. The Post today revealed that JE Robert Company – the special servicer for the property's $75 million senior mortgage loan – will be selling the debt through a team at Cushman & Wakefield.

Real Capital Analytics managing director Dan Fasulo remarked tot the Post that Mr Swig, “…is going to have to work magic to keep this one…” as it will be very appealing to the sector’s debt investors who purchase defaulted loans such as the one backing 80 Broad St to take control of the property.

Dr Chandan's Lead Indicator: "Integrated Mortgage Markets for 2011"

Mon, 10 Jan 2011 15:38:25 GMT

In his latest Commercial Observer column, Real Capital Analytics’ global chief economist Dr Sam Chandan chronicled the thawing that took place in commercial lending markets over the course of 2010 to project what could evolve during 2011. Though commercial debt has displayed some positive trends over the past year, the improvements have been uneven, favoring properties with the most secure income flows and stable fundamentals. Dr Chandan stated, “Just as the uptick in investor activity has favored major markets like New York City, the amelioration in the lending environment has been largely isolated to markets exhibiting the most robust investment trends and the clearest pricing signals.”

Using RCA data, Dr Chandan also parsed out how the mix of lenders currently active is growing more diverse as credit markets resume activity. Life insurance companies and foreign lenders, in particular, have taken larger shares of lending volume as other players have remained on the sidelines. However, Dr Chandan highlighted the reemergence of CMBS conduits as the feature of debt markets to watch going into the New Year.

For more of Dr Chandan’s thoughts on credit conditions in US commercial real estate, please see his full article on the Commercial Observer’s site.

Cross-Border Buyers: Nous Aimons Paris

Thu, 06 Jan 2011 15:25:25 GMT

Using data aggregated by Real Capital Analytics (RCA), Bloomberg recently reported that the Paris metropolitan area’s commercial property market attracted the third-most foreign (cross-border) capital in 2010.

Paris trailed only London and Tokyo for volume of cross-border capital, with an especially high number of German players seeking high-quality office space pushing sales in that property sector and Paris’ commercial property market up significantly over 2009.

China-Based Shenzhen Takes Second Troubled LA Hotel

Thu, 06 Jan 2011 11:48:40 GMT

Following up trade for the troubled Marriott Los Angeles Downtown, which Real Capital Analytics’ (RCA) tracked in March 2010, Shenzhen New World Group Co, Ltd recently closed on the Sheraton Universal hotel in Los Angeles’ Universal City. As aptly stated by the Los Angeles Times, the sale of the Sheraton to Chinese investors shows, “…a growing trust in a recovery of the hospitality industry and the rising interest of Asian investors in U.S. commercial property.”

Shenzhen spokesman Ming Yu told the Times that the firm's recent acquisition was in “…a great location” and added that, “…we see the hotel business getting better in the next year or two.” The Chinese firm is currently pursuing more commercial real estate opportunities in the US, though is joined by only a limited number of other players from the mainland. RCA’s Peter Slatin remarked to the Times that investors from China are “still less common than real estate buyers from Hong Kong and Taiwan.”

The 451-story Sheraton became another casualty of the drastic property correction and recession over 2008-09. The hotel’s former owner, Lowe Enterprises, purchased the property at the height of the market in 2007 for $122 million and invested $25 million in renovations. However, RCA tagged the property as delinquent on its payments in July 2009, when Lowe fell into trouble with its creditors.

Starwood's ST Residential Still Prowling for Troubled Condos

Wed, 05 Jan 2011 14:17:25 GMT

Early in the fall of 2009, then-recently formed Starwood Capital Group worked in partnership with the FDIC to lead a group of firms in purchasing the 101 loans backing 18 troubled assets formerly owned by failed Chicago-based Corus Bank. The deal was one of the first done by ST Residential, led by Starwood, and also includes TPG Capital, Perry Capital LLC, and LFR LeFrak. ST paid 60 cents on the dollar for Corus’ assets, which was more than 20 percent more than the next-highest bidder, to became one of the largest distressed asset sales of the downturn, according to the Wall Street Journal.

More than one year later, with some serious progress made in the apartment and condominium sector towards firmer pricing and stabilization, ST is eager for more bargain-basement deals on residential space. However, as one would expect when playing with troubled assets, the occupancy of which depends on the broader economic recovery, ST faces potential adversity as well. So far, “They definitely rode a general recovery, which made their lives a lot easier,” remarked Dan Fasulo, managing director at Real Capital Analytics.

ST CEO Wade Hundley told the Journal, “…the firm was exceeding expectations, particularly in southern Florida.” He also added that, “We’re certainly not afraid to own…we think we have a good understanding of what it takes to get these properties repositioned into the market.” That is a good thing, because ST Residential currently owns around 6,700 residential units in the US, according to the Journal.

CIC's Refinancing of NYC Tower Illustrates Growing Magnitude of Chinese Players

Tue, 04 Jan 2011 15:30:25 GMT

It was recently announced that China’s largest sovereign wealth fund, China Investment Corporation (CIC), has partnered with AREA Real Estate Finance Corp to provide the Carlyle Group with a refinancing loan on its office property at 650 Madison Avenue in Manhattan. Carlyle had originally used a first mortgage loan from state-controlled Industrial & Commercial Bank of China to purchase the well-tenanted trophy.

Together with a host of other deals involving cross-border players from China, the Carlyle deal illustrates that country’s growing presence on the global commercial property stage. This ramp-up in activity is reflected in data aggregated by Real Capital Analytics (RCA), which identified China purchasing more than $125 million in US commercial properties during 2010. This is up from $18 million in 2009. And as RCA senior analyst Ben Carlos Thypin acknowledged to Bloomberg, those numbers do not capture “purchases through property funds, a route that Chinese buyers prefer.”

Funds such as CIC and China’s state-controlled banks have invested heavily into equity over the past three years, taking stakes in General Growth Properties, Morgan Stanley’s global real estate funds, and partial interest equity deals in various markets. Other Bloomberg interviewees echoed Mr Thypin’s statements, and many held a bullish outlook for Chinese real estate buyers, lenders, and investors acting in the US.

BoA Settles with Fannie, Freddie on Legacy Mortgage Buy-Back

Tue, 04 Jan 2011 14:31:25 GMT

Bank of America (BoA) recently settled a dispute with government-sponsored entities (GSEs) Fannie Mae and Freddie Mac, that will result in the bank buying-back $2.8 billion of mortgage loans that the GSEs claimed were “sold and repackaged based on faulty data.” While this solved just a portion of the $12.9 billion in buy-back claims against BoA, according to Real Capital Analytics’ global chief economist Dr Sam Chandan, the settlement will nonetheless “…lead to other institutions reaching similar agreements with the GSEs.”

If this trend takes hold it will be good news for the GSEs, who will recoup taxpayer losses from the nation’s leading banks that received bailouts. However, Dr Chandan stated that, “the greater impact of the settlements may be in emboldening other parties, including bond insurers, money managers, and other private investors, whose claims against banks could dwarf the GSE settlements.”

For more on how the recent BoA settlement could affect banks’ residential and commercial lending, please see the full article on GlobeSt.com.

Pebblebrook REIT Preparing for More Action in Hot Hotel Market

Tue, 04 Jan 2011 14:27:25 GMT

Recent actions by the newly-formed Pebblebrook Hotel Trust, a public REIT headquartered in Bethesda, MD, comport with data aggregated by Real Capital Analytics (RCA) that illustrate rapidly improving hotel property sales in the US. As cited by the Washington Post, RCA recently stated in its US Capital Trends publication that US hotel acquisitions have exceeded $12.0 billion year-to-date through November, which is more than quadruple the volume over the same period in 2009.

Pebblebrook, in hot pursuit of hotel assets before competition erases today’s bargain pricing, has been “one of the most active lodging REITs in the country,” purchasing eight significant hotels over 2010. While the company has plenty of cash on hand – more than $200 million according to the Post – Pebblebrook is padding its hotel purchasing power by recently revealing it would consider the sale of common shares and debt securities in the near future. Registration with the Securities and Exchange Commission would allow the company to issue up to $500 million in securities at a time. That amount of equity could buy the REIT a lot of hotels.

The hotel sector’s recovery has been fostered over 2010 by improving property fundamentals and room revenue. The allure of yield in the hotel sector has provided incentives for buyers to pursue investment opportunities there, particularly in the most-visible markets such as New York, Los Angeles, and San Francisco.

Dr Chandan's Lead Indicator: "The Year in Commercial Real Estate Investment – and the Year Ahead"

Thu, 30 Dec 2010 15:29:25 GMT

Using figures from Real Capital Analytics’ latest US Capital Trends publication, global chief economist Dr Sam Chandan was able to provide a preliminary wrap-up of commercial real estate trends in 2010 as well as speak to where the market may head in 2011.

Dr Chandan stated that, “Despite disconcertingly weak economic and labor market outcomes, investor optimism about the sector's asset price trajectory has supported more intense bidding for properties, giving traction to the process of price discovery and driving cap rates lower for well-tenanted properties in every sector. Absent a derailment of investor sentiment or a sharp downside deviation from the baseline economic and capital markets outlook, the stage is set for further gains in investment activity across a broader range of the nation's markets in the New Year.”

Counterbalancing these notes of optimism, Dr Chandan qualified his market outlook by remarking that there is the potential for “a decoupling of prices from fundamentals” going into 2011. Macroeconomic challenges will also persist in adding uncertainly to investor decisions, including lackluster job growth, rising interest rates, and lagging consumer and business confidence.

For more on Dr Chandan’s thoughts on the state of the commercial property market as the New Year begins, please see his weekly column in the Commercial Observer.

London Leads Commercial Real Estate sales for Second Year in a Row

Wed, 29 Dec 2010 13:26:25 GMT

Here was some festive cheer for NAMA and other Irish owners of London property yesterday following the publication of a report about the world's commercial property market.

It suggests that the English capital has drawn the most investment worldwide for the second consecutive year as prospects of rising rents attract cash from as far afield as Hong Kong, Qatar and Canada.

Sales of existing commercial property in London totaled $13.9bn (€10.6bn) in the first nine months, more than in any other city, according to global commercial property research firm Real Capital Analytics (RCA).

Some of the biggest deals of the year were announced in the final quarter.

"There's a massive surplus of investment capital looking for a home, and the one thing in common is a desire for yield," said RCA Managing Director Dan Fasulo.

"A core London office property at a 5pc or 6pc yield looks fantastic against the alternatives."

Cash-rich pension funds, sovereign wealth funds, insurers and wealthy individuals bought shops, offices and even luxury homes in central London as low interest rates and concern that the global economy will deteriorate made other investments riskier and less appealing.

The city also ranked first in 2009 with sales of $16.8bn, New York-based RCA said.

Despite Increase in Sales, Weak Outlook for US Housing Market (Video)

Thu, 23 Dec 2010 13:28:25 GMT

While there’s been some encouraging news with rising new home sales, the numbers are just barely higher than all-time lows. According to Dr. Sam Chandan, Chief Economist with Real Capital Analytics, the U.S. government’s programs to help residential transaction activity have met with little success so far.

With a 5.5% increase in the sale of new residential properties, the U.S. Department of Commerce projected a seasonally adjusted annual rate of 290,000 units sold. Given the size of the U.S. economy, economists generally consider an annual rate of 600,000 new home sales to be desirable.

“We know that low mortgage rates are not a sufficient condition… we need real, meaningful and sustained job growth” said Chandan.
He saw Internet businesses deriving greater benefit than "brick and mortar" retailers from the modest increases in consumer spending. He noted that the rise in spending is part of the impact of tax cuts: “some of those income-constrained families really being able to take advantage of a few extra dollars in their pocket to buy more necessity goods in 2011," Chandan said. "Whether or not that is going to really spur the kind of job growth that will lead to long-term and sustained improvements in the trajectory of the economy, I think that is an area where we have to be a little bit more reserved in our expectations."

Dan Fasulo to Weigh in on Commercial Real Estate Show

Wed, 22 Dec 2010 15:28:25 GMT

Real Capital Analytic' own Dan Fasulo will provide commentary in this week's Commercial Real Estate Show, which tapes out of bix1190 WAFS in Atlanta. Tune in Christmas Day at 10AM EST for the latest on commercial property trends.

NEWS RELEASE
FOR IMMEDIATE RELEASE

Commercial Real Estate Show
This Week’s Show Topic & Guests

For More Information, Contact
Tony Wilbert
Wilbert News
404.888.3236
twilbert@wilbertnewsstrategies.com

Commercial Real Estate Training and Investment Market Update

United States (For immediate release) – The ‘Commercial Real Estate Show’ topic this week - “Commercial Real Estate Training and Investment Market Update”. Listeners can tune in worldwide at www.CREshow.com, or on air at biz1190 WAFS in Atlanta. The show airs Saturday, December 25th at 10 AM EST.

This week’s news / data provider is:
Dan Fasulo, Managing Director at Real Capital Analytics.

This week’s guest panel members are:
Bob McComb, President of Top Dogs Commercial Real Estate Training,
Richard Juge, Immediate Past President and Senior Instructor of CCIM, and
Rod Santomassimo, Founder and President of Massimo Group Commercial Real Estate Coaching.
The show starts with a national investment property market update from Dan Fasulo with RC Analytics. Mr. Fasulo will cover the year end review, which property types are the best performers, and share expectations for 2011 for both stable core investment sales and distressed assets.

Then show host, commercial real estate veteran broker Michael Bull, interviews some of the top commercial real estate trainers in the country. Lead trainers from CCIM International, Massimo Group Commercial Real Estate Coaching and Top Dogs Commercial Real Estate Training share their recommendations and top success strategies for practitioners in 2011. The guests will share lease vs. purchase analysis, the effects of leverage on a typical investment property, top prospecting methods and the hot areas in the market, both geographically as well as property types and services.
For more information about the show, the host, the guests, and the topics covered on this week’s show, visit www.CREshow.com and chose “Show Topics & Schedule” then chose “Commercial Real Estate Training”.
________________________________________________________________________________________________
The “Commercial Real Estate Show” is America’s commercial real estate talk radio show. The show is known as an entertaining and enlightening resource about commercial real estate. The show airs every Saturday morning at 10AM EST online at the show website, www.CREshow.com and on air on biz 1190 WAFS in Atlanta. Show podcasts are available worldwide on iTunes and on the show website.
The “Commercial Real Estate Show” has quickly gained a national and international audience estimated to have millions of listeners worldwide. To truly understand why the show has become so popular, listen to past show podcast and check out the high caliber of the shows guests at the show website.
Each show starts with a commercial real estate market update related to the show topic by well known national providers. Then the show host and a panel of 3 to 4 industry expert guests share information, insight and best practices related to each shows main topic. The show host is 30 year commercial real estate veteran Michael Bull, CCIM, the president and founder of commercial brokerage firm Bull Realty, Incorporated.

Sunstone Head Ousted for Missing Out on Hotel Opportunities

Tue, 21 Dec 2010 13:28:25 GMT

With historic low pricing, distressed opportunities, and firming fundamentals, the hotel sector is certainly presenting those with equity capital a unique buying opportunity. But it would seem not everyone is convinced. The Wall Street Journal recently shed some light on the recent departure of Art Buser from his position as chief executive and president at Sunstone Hotel Investors Inc: “…Sunstone finalized few of the many acquisitions it examined during Mr. Buser’s two-year run as CEO…That lack of acquisitions at a time when hotel transactions were on the rise was a contributing factor in Mr. Buser resigning under pressure…”

According to Real Capital Analytics data, the Journal stated that, “961 U.S. hotels have sold so far this year for a cumulative $12.1 billion, or an average of nearly $160,000 per room…That is a huge increase from 2009, when only 161 hotels traded hands for $2.8 billion, or nearly $98,000 per room.” This rise in activity is in stark contrast to Sunstone’s individual acquisition record, as in the nearly two-year tenure of Mr Buser, the firm only closed on one major property in Miami for $117 million last August.

Sunstone’s board, feeling as though the firm was missing out on the current unique buying environment, offered Mr Buser incentives to exit the company. Robert Alter, Sunstone founder and current executive chairman, is quoted in the Journal as stating Mr Buser had, “…a lack of making decisions quickly and staying with those decisions.”

Google Set to Close on Manhattan Headquarters by Year-End

Mon, 20 Dec 2010 14:28:25 GMT

After announcing its intent to buy its current New York headquarters in November, Google recently made known that it would purchase 111 Eighth Avenue for $1.8 billion in cash on Wednesday, December 22, after the existing mortgage on the property is cancelled. Google currently leases roughly one-quarter of the block-long office building in Manhattan’s Chelsea neighborhood, which is 98% leased all together. The formidable price is a rarity in the current market, even for a company of Google's size. Real Capital Analytics' managing director Dan Fasulo chimed in on the sale, stating that, "There were a bunch of global investors salivating over the building, but at the end of the day, a corporate user can always pay more than an investor."

The last obstacle to the official sale closing is an existing $500 million mortgage from Greenwich Capital that must be defeased from a larger pool of mortgages that was compiled in 2004. The cost of doing this may add $75 million to Google’s purchase price, which in addition to other taxes and fees may bring Google’s final cost for the building to $1.9 billion.

Second Monthly Rise in Commercial Property Pricing Index (CPPI)

Mon, 20 Dec 2010 14:26:25 GMT

The October Moody’s/REAL Commercial Property Price Index (CPPI) was released on December 20, 2010. According to the report, US commercial property pricing jumped by 1.3 percent between September and October. This came after the 4.3 percent spike in the previous month’s index, which was the largest monthly rise in the series’ history. The October increase reflected growing demand for the best office buildings in the nation’s major markets, including New York, Washington, DC, and San Francisco.

The CPPI’s October rise was tempered by the market’s large volume of distressed assets, which typically trade at much lower pricing levels than core/stabilized properties and assets in major markets. As investors are boxed out of those types of opportunities from growing competition, the report suggested that might turn to alternative investment properties, such as those in distress or those in less visible markets.

Though it was the second consecutive monthly rise, the CPPI remains 42 percent below the cyclical peak registered in October 2007.

Hotel Investors Turning to Distressed Assets

Mon, 20 Dec 2010 12:34:25 GMT

As fundamentals improve and buyers’ access to credit improves, the prospect for troubled assets – particularly distressed hotel assets – is brightening. With their shorter-term tenants, hospitality properties are typically faster to respond to ups and downs in the broader market. According to Dan Fasulo, managing director of Real Capital Analytics (RCA), “There’s a general consensus that the worst is over…the fundamentals are starting to improve. We’ve definitely seen it in some of the major cities.”

Reflecting improved business and leisure travel rates over the past two quarters, hotel owners and operators have seen revenues rise, prompting investors both inside and outside the hotel market to consider further investments. The Press Democrat relied on RCA data to state, “So far this year, 77 U.S. hotel deals have been made worth $8.5 billion, compared to 30 deals for $1.2 billion during the same period in 2009.”

As for the distressed hotel properties, Mr Fasulo stated that “there are signs of a thaw in the hotel investment market…A lot of the over-leveraged properties are finally starting to work their way through the system.” Another reason hotel investors are beginning to consider distressed assets in earnest is because, according to Mr Fasulo, “At this point, most of the really great assets have already been picked off.” Now, with few options in the core sector and major markets, investors must turn to secondary markets and distressed opportunities.

Slow Economic Growth and Volatility – The New Normal?

Fri, 17 Dec 2010 17:30:25 GMT

What does the "New Normal" look like for the commercial property world? Slow economic growth and volatility - which is actually a return to the "old normal" before the unrealistic refinancing and bubbles of the 2000s.

"Investors are yield-starved, and the combination of safety and yield spreads over 10-year Treasuries makes core commercial real estate very attractive," says Robert M. White, CRE, founder and CEO of Real Capital Analytics, a global property research firm. With the volatility and no clear trend in the economy, "occupancy is worth a lot and vacancy is worth little," White says.

Dr Chandan's Lead Indicator: "The Tax Compromise and the Erosion of Public Accountability"

Wed, 15 Dec 2010 13:36:25 GMT

Just short of opining, in his latest column in the Commercial Observer Real Capital Analytics’ global chief economist Dr Sam Chandan provides his outlook for the recently-passed Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. As the year-end deadline to extend the Bush-era tax cuts neared, and Congress prepared for a changing-of-the-guard in January, the legislative and executive branches eased into a compromise that would allow an extension of the tax cuts for Americans earning at all income levels, while also extending unemployment benefits for another 13 months.

Dr Chandan points out that, given the US’ less-than-robust economic recovery, the bill is more like “extend and pretend” for the public sector. The passage of this bill also marks the first informal debate in preparation for the 2012 presidential election, and indeed, every presidential-hopeful and their moms weighed in on the discussion.

More importantly, he remarked, are the actual effects the bill will have on the nation’s economy. Dr Chandan plainly stated, “By putting money back into earners' pockets, and by doing so in a manner that is more impactful for income-constrained households, overall consumption activity will trend higher. The multiplier effect of the unemployment benefits extension should prove very high since this income will be spent on necessities and will not drive higher gross savings. The payroll tax holiday will have a stronger multiplier for lower-income households than their higher-income peers.” However, with there still being significant slack in the US economy – both on the supply and demand side – Dr Chandan posits that, “By design, the income and payroll tax adjustments do not lower directly the cost of hiring new employees. Wages are sticky, and these lower taxes will not mean a fully compensating adjustment in prevailing wages. As a result, the impact on overall employment will be indirect and on the margins.”

For all of Dr Chandan’s thoughts on the recently-derived Congressional Act on taxes and unemployment benefits, please see the full original article on the Commercial Observer’s site.

Shifting Demographics Premonish a Healthier Multifamily Sector

Tue, 14 Dec 2010 15:26:25 GMT

In the recent November/December issue of Apartment Finance Today, Real Capital Analytics’ global chief economist Dr Sam Chandan supported columnist Jerry Ascierto’s thesis that shifting demographics are bolstering the multifamily sector’s robust recovery. Mr Ascierto asserted in his article that a combination of factors - including the growth in the 18- to 34-year-old cohort that is increasingly populated by the larger-than-average Generation Y, societal trends, and stagnant employment - are expanding the pool of renters. The baby boom parents of the Gen-Yers are also entering the renting population, as they look to downsize their taxable living space and/or are evicted from their underwater homes as a result of the recession.

Typically, Mr Ascierto stated, one would expect the multifamily sector occupancy rate to increase during strong economic times with rising employment. With the current high, long-term unemployment and negative jobs outlook, the latest improvements in apartment occupancy is counterintuitive. Rather, it is a result of the poor economy that has reduced home ownership, driven young adults to move back in with parents or room together in a rental, or even pushed senior citizens out of their homes. The majority of newly-arriving immigrants rent regardless of the economy. As a result, “A hefty 77,000 apartment units were absorbed in the first half of 2010, the strongest demand in a decade.”

The most overlooked group of those potential renters are aging baby boomers. Mr Ascierto stated frankly that, “Three-quarters of retiring boomers said they want to live in mixedage and mix-use communities…The impact of the baby boom generation on seniors housing is only just beginning to be felt.” On whether incoming senior citizens will chose traditional multifamily situations, Dr Chandan was quoted as stating, “The readiness and willingness of a senior household to make this transition depends upon the salability of their home…An improvement in overall housing outcomes should support a larger number of people making the transition to independent living.”

For more on the demographic-driven future of multifamily commercial real estate, please see the full article on the Apartment Finance Today’s site.

Experts Debate the Future of Pricing for Commercial Real Estate

Fri, 10 Dec 2010 18:37:25 GMT

While there is no debate that pricing for commercial real estate has fallen dramatically from its peak in 2007, National Real Estate Investor contributing writer Matt Hudgins remarked that experts are still trying to figure out the future of property values in the current uncertain environment. He article followed the Moody’s/REAL Commercial Property Price Index (CPPI), which indicated that, after several months of decline, September’s index jumped 4.3%. That was the largest one-month increase in the nine-year history of the CPPI Index, but “experts debate whether the gains will last, or will instead prove to be one in a series of severe fluctuation.”

Mr Hudgins went on to quote Dan Fasulo, managing director of Real Capital Analytics, which provides the CPPI’s underlying data, as stating that “There are lower-quality assets now in the data set and it is causing these pretty violent changes month to month.” As more distressed assets, which typically have lower prices than their non-distressed counterparts, come to market they will tend to act as a drag on the overall pricing index. Buyers are also opting to purchase some lower-quality assets in secondary markets at this point in the cycle, stated Mr Fasulo, so the share those properties take in any particular month may have some influence on the index as well.

Mr Fasulo is one of the less optimistic opinions on the subject, as he stated that, “Until underlying fundamentals recover in a really strong way, with rents and occupancy levels showing a clear upward trend nationwide, you’ll continue to see the index bounce along the bottom.” David Geltner, who led the team at MIT that created the CPPI, stated in his analysis accompanying the index’s release that, “This type of extreme volatility probably largely reflects what is actually going on in the U.S. commercial property market, as asset markets typically display greater volatility during periods of fundamental uncertainty, rapid economic and institutional or political change, and transition in the markets.”

Dr Chandan's Lead Indicator : "The Retail Numbers Going Forward"

Fri, 10 Dec 2010 16:19:25 GMT

Though the recession is long over, Real Capital Analytics’ global chief economist Dr Sam Chandan used recent data to describe how consumers, who remain “once bitten, twice shy” from the severe downturn in personal wealth, are driving current lackluster trends for retailers and commercial property fundamentals.

For a retail spending outlook, and how the retail drought may not be as severe in New York City – which has an international draw and better-than-average employment figure – please see Dr Chandan’s article in full on the Commercial Observer’s site.

Dr Chandan's Lead Indicator: "The Rise and Fall of Default"

Fri, 10 Dec 2010 13:33:25 GMT

Using quarterly bank filing data sourced from the FDIC, Real Capital Analytics global chief economic Dr Sam Chandan provided a detailed analysis of third quarter default rates on commercial and multifamily mortgages in his latest Commercial Observer column.

According to the data, the default rate for commercial mortgages currently outstanding at the nation’s depository institutions – including mortgages at least 90 days delinquent and mortgages in non-accrual status – increased to 4.36 percent in the third quarter. However, the third quarter’s rise was the second-smallest quarterly increase in three years, providing reason to believe that the national default rate may be reaching its cyclical peak. Dr Chandan explained that, “As property prices and rent measures stabilize in many markets, the increase in strain on bank health related to commercial real estate is also becoming more measured.”

For more detail on commercial and multifamily default rates, as well as some reasons for caution, disaggregated trends by bank institution size, implications of defaults on credit availability, and legacy issues surrounding currently defaulted and delinquent mortgages, please see Dr Chandan’s article in full on the Commercial Observer’s site.

E-Commercial China Announces CRE Data-License Agreement with Real Capital Analytics

Wed, 08 Dec 2010 16:37:25 GMT

E-Commercial China, China’s leading provider of integrated commercial real estate services, and Real Capital Analytics, Inc.(RCA)announced today that they have entered into a license agreement, which will see E-Commercial China become one of RCA’s data partners in their provision of research services on the Chinese commercial real estate market.

As China’s leading provider of integrated commercial real estate services, E-Commercial China is able to leverage its deep-understanding of the local market and international outlook to provide dedicated professional advice and executable solutions to meet the demands of its clients in China.

Regarded as the industry’s leading provider of commercial property data, RCA is able to provide its customers accurate and timely market intelligence on the capital environment for commercial real estate. Taking advantage of RCA’s worldwide network, E-Commercial China will be able to provide current and reliable information on market dynamics for international customers who follow the Chinese commercial real estate market. The partnership will serve to enhance RCA’s data provision capabilities in China, the world’s fastest developing market, and further strengthen its reputation as the world’s leading provider of commercial property information.

Andrew Zhu, President at E-Commercial China said “Our focus is the commercial real estate sector; we rely on China’s most complete real estate database and our in-depth understanding of the Chinese market in order to provide customers with the most innovative solutions to suit the local conditions and add value to their investment. We believe together with RCA we will be able to provide investors with more current, accurate and comprehensive information regarding China’s commercial real estate market.” He went on to say, “We are honored to be able to work with such an acclaimed research firm as RCA and with them enhance the development of commercial real estate as a whole.”

Joseph Mannina, Chief Operating Officer for Real Capital Analytics, said “We are very pleased to be working with E-Commercial China to improve our transaction coverage for 65 cities within China”. He went on to say, “Our institutional clients continue to have an appetite for placing capital into China and this agreement will allow us to better position them for these opportunities. We are hopeful that this new partnership will also enhance our ability to sell our global products to Chinese investors who are interested in purchasing commercial properties outside of China.”

About E-Commercial China:

E-Commercial China was founded by a group of seasoned real estate professionals and E-House China (NYSE:EY), China’s largest provider of integrated commercial real estate services. Leveraging the powerful information and service network of both E-House China and China Real Estate Information Group (NASDAQ:CRIC), E-Commercial China will be able to provide the most innovative solutions to meet clients strategic goals and so become their most trusted partner in China. For more information, visit http://www.ecommchina.com.cn.

About Real Capital Analytics, Inc.

Real Capital Analytics, Inc. is a global research firm based in New York City. The firm's proprietary research is focused exclusively on the investment market for commercial real estate. Within that arena, Real Capital Analytics offers the most in-depth, comprehensive and current information of property investment activity. In addition to collecting transactional information for property sales and financings, RCA interprets data such as yields, pricing and sales volume, and quantifies the market forces that affect the liquidity of commercial real estate around the world. The firm publishes a series of Capital Trend reports and offers an online service that provides current transactional information for all markets globally. For more information, visit http://www.rcanalytics.com.

SL Green Positions For Takeover of 3 Prime Manhattan Assets

Wed, 08 Dec 2010 16:29:25 GMT

On Monday, SL Green Realty Corp announced that it would acquire the land and lease fee rights associated with the Lipstick Building at 885 Third Avenue, 2 Herald Square, and 292 Madison Avenue in Manhattan. The firm will pay just $391 million for the three currently distressed office and retail properties, plus the assumption of $266 million currently backing the assets. All three properties have spectacular locations in a market that offers a large potential profit. Real Capital Analytics’ managing director Dan Fasulo responded to the announcement by remarking that, “All these transactions put SL Green in the enviable position to takeover these assets…Also, now all these troubled owners have to pay millions of dollars of income to SL Green as part of their lease agreement for the building.”

Beyond SL Green’s immediate and future gains, these transactions are also significant because they help resolve large troubled situations weighing on the market. Roger Cozzi, chief executive at Gramercy Capital Corp, which is the current owner of the Lipstick Building, stated that, “These transactions enable us to monetize several non-controlling co-investment positions, produce a substantial increase in our corporate liquidity, and further deleverage Gramercy’s balance sheet.” SL Green will be assuming the $39 million mezzanine loan currently backing Gramercy’s equity interests in the Starrett-Lehigh Building at 601 W 26th St.

Chinese Investors, Lenders, Quietly Penetrate Foreign Markets

Tue, 07 Dec 2010 14:36:25 GMT

In an apt summary of a recent piece Real Capital Analytics (RCA) published in it’s Global Currents publication, Investment & Pension Funds Real Estate (IPE) reviewed Chinese commercial real estate investment trends. IPE stated, “Chinese investors are targeting real estate funds as they switch their attention from domestic residential investments to strategic assets in advanced economies.” As the Chinese government tightens it’s regulations in their domestic market, Chinese investors are turning to foreign markets to place their capital. This logic also applies to China's lenders, who have begun to make their presence known overseas as well.

The original article from RCA affirmed that Chinese investors have, so far, preferred equity investments over direct property acquisitions in foreign markets, as those can sometimes be made public and insight local demur. Private Chinese investors have limited their direct acquisitions to historically safe markets close to China, such as Australia and Hong Kong, while State-controlled entities have ventured further abroad to London and the US.

Chinese investors, particularly State-controlled entities, have had a strong affinity for equity purchases when it comes to investing in commercial real estate. China Investment Corporation – the most visible Chinese sovereign wealth fund with over $300 billion at its disposal – has not been shy over the past two years in investing millions with companies such as Brookfield Asset Management, Morgan Stanley’s property groups in the US and UK, as well as General Growth Properties, a US REIT currently exiting bankruptcy. Through these equity investments, Chinese investors have avoided the anti-foreign publicity that can come from direct property acquisition, while still making solid returns off of commercial real estate in foreign markets where yields are relatively higher than those currently available their traditional Eastern markets.

Ten Well-Positioned Commercial Real Estate Lenders

Mon, 06 Dec 2010 16:29:25 GMT

Despite the continued decline of commercial real estate credit quality, with mortgage defaults in the third quarter nearing their historical highs, The Street reports that indications have begun to emerge that the sector’s debt markets are stabilizing. According to statements made on the The Street’s site by Peter Winter, an analyst for BMO Capital Markets, “Banks haven’t really made a loan in over two years in [commercial real estate]. They’ve aggressively written down the loans in that area.” As banks have cleared out bad legacy loans, the broader economy has started to recover, allowing for some improvements in commercial real estate prices. The secondary debt market for real estate has also been slowly opening back up, allowing for more liquidity.

Accompanying The Street’s article was their list of the Top Ten Strongest Commercial Real Estate Lenders. The site based it’s list on a list of specific criteria, and provided insight into each of the ten banks in the ranking. According to the article, many of the banks that made the list were "relationship-oriented" banks, which means that during the escalation of CRE lending in the middle of the past decade, the institution did not write a large number of loans outside of "their natural footprint..."

The list included the following companies:

1. Valley National Bancorp
2. International Bancshares
3. Wintrust Financial
4. M&T Bank Corp
5. Umpqua Holdings
6. New York Community Bancorp
7. Fulton Financial
8. Susquehanna Bancshares
9. FirstMerit Corporation
10. Cathay General Bancorp

Please see The Street's full article for details on each of the companies above.

Google Said to be in $1.8B Contract for 111 Eighth Avenue

Mon, 06 Dec 2010 15:33:25 GMT

According to a recent article on Bloomberg, 111 Eighth Avenue in Manhattan recently went into contract for $1.8 billion. The report cited an anonymous source as stating Google would be purchasing the building currently housing it’s New York headquarters, where it would expand it’s own space and leaseback the remaining space to tenants already occupying the space, which include Nike, Barnes & Noble, and Lifetime Networks.

The article quotes data from Real Capital Analytics (RCA) on the building, which covers the entire block between 15th and 16th Streets in Manhattan’s Chelsea neighborhood. Were the deal to close by December 31, the transaction would be the largest single-asset sale of the year by sale price, and though the property has 2.94 million square-feet – more than the Empire State Building – the price per-square-foot would equate to an exorbitant $600. The sale would certainly be a positive signal of the investment market, and “You can’t get a stronger vote of confidence for the strength of the New York office market,” stated to RCA managing director Dan Fasulo.

Ben Thypin, senior market analyst for RCA, joined Mr Fasulo in stating that Google “…can afford to pay more for this building because they’re already the occupant…A third party that wasn’t already a tenant might not have been able, actually definitely wasn’t able, to bid as high as they were.”

The building has an interesting history, as it was originally built for the Port Authority of New York before that government entity moved to the former-World Trade Center downtown. It was redeveloped in 1998, and in 2004 a joint venture between German investors, Taconic Investment Partners, and the New York State Common Retirement Fund purchased the building in a deal that RCA valued at $1.1 billion.

Vacant NYC Verizon Tower Tests the Limits of Buyer Appetite

Fri, 03 Dec 2010 16:29:25 GMT

Looking for a unique downtown Manhattan investment opportunity? Crain’s reported that M&T Bank recently listed the 1.1 million-square-foot 357 Pearl St for $125 million. The property, once owned by Verizon to house telephone switching equipment, has 32 floors that are capable of holding triple the average weight per-square-foot a typical office building can handle, and has 15 foot ceilings throughout.

M&T Bank was the original lender when Taconic Investment Partners acquired the property for $172.5 million in 2006. Taconic planned to convert the well-located property into a Class A office tower to capitalize on the property’s potential. However, a renovation never took place and Taconic stopped paying their mortgage, prompting the lender to reclaim the property as real estate owned.

Despite the property’s potential for renovation into office or residential space, M&T may have a listed it at an unrealistically high price. Crain’s quotes Real Capital Analytics’ managing director Dan Fasulo as stating, “The building has a lot of fleas.” By this, he clarifies that any potential redevelopment would run the new buyers at least $200 million, and a more obtainable sale price would be around $100 million. A test of buyer confidence in the Manhattan office market could be held if any deep-pocketed institutional buyers or REITs come forward for the very value-add opportunity.

Firms Scoping Value-Add Opportunities as Recovery Advances

Fri, 03 Dec 2010 15:29:25 GMT

After his company purchased 1330 Sixth Avenue - a property that is just two-thirds leased and anticipates large lease expirations in the next two years – for $400 million, Crain’s New York recently quoted RXR Realty head Scott Rechler as stating “Trophy buildings [like 1330] are where you will see the rents pop first…It is the type of building that is going to do very well.”

Dan Fasulo, managing director at research firm Real Capital Analytics, described the sales as aggressively priced and remarked that “It shows there is a lot of bullishness about the New York office market – especially in midtown.” Mr Rechler is betting that Manhattan rents will steadily increase as the recovery reaches critical mass. The new addition to his portfolio currently has rents ranging between $75 to $85 per-square-foot, but Mr Rechler hopes to ratchet that up to $100 per-square-foot in the coming years.

Other companies are begging to purchase so-called value-add buildings as well. Crain’s mentioned Boston Properties’ $1,000-per-square-foot purchase of 510 Madison Avenue in Manhattan, which was entirely vacant at the time of sale, and two other deals by SL Green. With treasury bonds at historic lows and other equity investments returning yields equally as low, Mr Fasulo suggested that commercial real estate’s cap rate returns could be the best an investor can currently hope for.

Growth in India Spawns Property Funds Focused on the Subcontinent

Fri, 03 Dec 2010 15:28:25 GMT

In a vote of confidence for India’s commercial property market, investors have begun setting up equity funds to raise investment capital for the rapidly-growing subcontinent. In a recent article on Bloomberg, Kathleen Chu referenced data from Real Capital Analytics’ Global Capital Trends report to state that, “Total real-estate transactions in India rose 17 percent in the nine months ended Sept. 30 from a year earlier."

She went on to profile one such equity fund opened by former-Citi Property Investors manager Ravi Hansoty, who is extremely bullish on property opportunities for equity buyers in India. Mr Hansoty aims to raise $350 million over the next year to invest in apartment and hotels, as well as land to build such properties on in India’s major markets. He is also looking to use the funds to acquire other underperforming funds that focus on Indian property investment. “Home ownership is extremely low in India” he stated in a telephone interview with Bloomberg, and as for hotel opportunities, Mr Hansoty added, “In that segment, there are very few hotels which have branded, meaning you have a recognized brand which one can relate to…Given the size of the country, there is plenty of opportunity to do that in multiple cities.”

Ms Chu went on to detail the potential for growth in the Indian hotel market, as well as some of the challenges faced by those hoping to see spectacular returns right away on their investment. Nonetheless, with consistently remarkable GDP figures and a stable governmental structure, the opportunities in India are luring investors in from around the world.

Retail Sales Show Signs of Recovery

Thu, 02 Dec 2010 14:30:25 GMT

For what seems like an interminable stretch of time, we’ve been waiting for things to get better.

The industry peaked in early 2007, but the floor didn’t drop out entirely until a year later—after the Lehman Brothers bankruptcy made it feel like the whole world was free falling. The stretch from late 2008 into 2009 was a dark period, marked by rapidly eroding fundamentals, mass store closures, retailer liquidations and retail real estate firms on the brink.

But things have been improving for a while. Since the second half of 2009 the industry has plodded along. Conditions did not get a whole lot worse in most areas, but they showed no real signs of improvement either.

Now, suddenly, it feels like the recovery is here. The numbers are bearing that out.

Numbers from global commercial property research firm Real Capital Analytics’ show that investment sales volumes on retail properties jumped in the third quarter and offers were up for the fourth quarter. The bid/ask gap between buyers and sellers has narrowed. Banks are increasingly dealing with dud loans and bad assets. Lenders are loosening up a bit. As a result, deal activity could double next year, bringing us back to a level of activity on par with 2004—before things got out of hand.

Commercial Mortgage Default's Rise in Third Quarter

Mon, 29 Nov 2010 16:32:25 GMT

Defaults on bank-held commercial property-backed mortgages rose in the third quarter to 4.36 percent, up from 3.41 percent one year ago and 4.27 percent by the end of last quarter. Though the default rate encouragingly fell between the first and second quarters of this year, it resumed its climb towards the all-time record rate of 4.55 percent, set in 1992. The one-quarter rise included mortgages totaling $604.1 million. Apartment defaults are tallied separately, but also rose between the second and third quarters, to a record high of 4.67 percent.

Bloomberg quotes Dr Sam Chandan, Real Capital Analytics’ global chief economic and author of the firm’s third quarter mortgage default report, as stating “While the default rate continues to trend higher, the most recent increase is the smallest in three years…Even though new defaults are moderating, banks have considerable challenges in drawing down the pool of unresolved distress.”

As the default rate appears to near its cyclical peak, banks are shedding legacy debt through the “renewed sales of commercial mortgage-backed securities…” They are also reducing their holdings of commercial-mortgages, with banks dropping $18.5 billion from their books in 2010 year-to-date.

For more information on bank-held mortgage default trends, please see the article on Bloomberg’s site, or the full article on Real Capital’s site.

Volatility Undermines Commercial Property Market Recovery

Mon, 29 Nov 2010 16:31:25 GMT

Before market observers get too wrapped up in the rapid return of commercial real estate sales, it should be recognized that the recent recovery over the past two quarters is qualified and fairly volatile for the time being. Paul Bubny, writing for Globe St, cited the recent Moody’s/REAL Commercial Property Price Indices (CPPI) as evidence of this volatility. The CPPI “increased 4.3% in September, the largest gain in the history of the CPPI. However, the previous month’s report, which said that commercial property prices slipped to their lowest level in 10 months, underscores the market’s continuing volatility.”

The article quotes the commentary that typically accompanies the monthly CPPI’s release by David Geltner, who headed the indices' develop in 2006: “This type of extreme volatility probably largely reflects what is actually going on in the US commercial property market, as asset markets typically display greater volatility during periods of fundamental uncertainty, rapid economic and institutional or political change, and transition in the markets.” The vacillation between rapid gains in pricing, such as September’s historically large rise, and even greater drops over time. Because the number of repeat transactions is so low, pricing and activity can be easily distorted by outlying deals such as October’s sale of the Extended Stay hotel portfolio.

While Mr Bubny offers no opinion on when the current volatility in the market may subside, it is implied that outside forces need to settle and more sales activity in general will precede such a period of normality.

Unique Market Conditions Fueling Multifamily Investor Interest

Mon, 29 Nov 2010 14:30:25 GMT

The multifamily sector has become the preferred destination for investment capital into commercial real estate as of late. Sales of significant apartment properties rose by 63 percent between the second and third quarters of this year, to reach $8.5 billion. In a recent article, the New York Times recognized that “low interest rates, a lack of new construction and falling vacancy rates have swelled the ranks of buyers…” and chronicled the purchases of public-REIT Equity Residential to illustrate the return of the apartment buyer. “Equity Residential, the top apartment buyer this year, according to the research firm Real Capital Analytics, joins a list of institutional, public and private investors that are plowing money into apartments at a time when the market for most commercial real estate is flat,” said the Times. The article also noted that Equity intended to invest $1.0 billion in the multifamily sector during 2010, but wound up purchasing 15 properties for a total of $1.4 billion, because of the value and unique investment opportunities currently present in apartment sales.

The Times acknowledged that these opportunities may not be available for every investor. “Competition is strong for the few properties that reach the market…Class A properties, or properties in good locations, selling for more than $20 million in cities with little development and strong demand are the most wanted.” And investors themselves must have their houses in order before being able – or desiring – to purchase: “Real estate companies with new multifamily investment funds that do not have any properties underwater or carrying heavy debt loads have moved the swiftest.” These include some of the largest REITs and institutional players at the moment.

For more on the state of the multifamily sector, please see the entire article on the New York Times’ website, or read in depth analysis on apartment property trends in Real Capital Analytic’s weekly US Capital Trends.

Real Capital Analytics and BulwienGesa Expand Data Relationship

Tue, 23 Nov 2010 15:30:25 GMT

Commercial property research firm Real Capital Analytics announced today that it has expanded its relationship with BulwienGesa to include transactional data in 17 Central and Eastern European countries in addition to Germany. As part of the new agreement, BulwienGesa will license its data and collaborate with RCA regarding property sales transactions for Poland, Czech Republic, Hungary, Bulgaria, Romania, Slovakia, Switzerland, Austria, Slovenia, Croatia, Serbia, Estonia, Latvia, Lithuania, Russia, Ukraine and Turkey.

“We are delighted to broaden our relationship with BulwienGesa which enables us to more accurately track commercial property sales activity in Europe,” said Joseph Mannina, RCA’s Chief Operating Officer. “It would be very difficult to replicate the access to local commercial property information that BulwienGesa provides us with for these countries.”

Thomas Vosskamp, Managing Director of BulwienGesa, said “We are glad to have entered into a preferred partnership with RCA. The goal of both companies is to provide the highest-quality information services for the real estate industry, so we are proud to contribute our expertise in Central and Eastern Europe, and of course Germany.”

RCA has 17 data partnerships around the world and has recently formed agreements with RP Data (Australia and New Zealand), JLR Real Estate Builders (Canada), Bregman-Baraz Real Estate (Israel) and VidaImobiliaria (Brazil) to improve its coverage of commercial transactions internationally.

About BulwienGesa

BulwienGesa offers quality and objective advice to major property investors in Germany and has developed a database of market information that enables its clients to effectively compare investment opportunities. BulwienGesa was started in 1983 and has offices in Berlin, Munich, Hamburg, and Frankfurt Germany. For more information, visit http://www.bulwiengesa.de.

About Real Capital Analytics, Inc.

Real Capital Analytics, Inc. is a global research firm based in New York City. The firm's proprietary research is focused exclusively on the investment market for commercial real estate. Within that arena, Real Capital Analytics offers the most in-depth, comprehensive and current information of activity in the industry. In addition to collecting transactional information for property sales and financings, RCA interprets data such as capitalization rates, market trends, pricing and sales volume. RCA also quantifies the market forces and identifies the trends that affect the pricing and liquidity of commercial real estate around the world. The firm publishes a series of Capital Trend reports and offers an online service that provides current transactional and troubled asset information for all markets globally.

RCA’s global investment property sales database is the first transparent database to track global capital flows in more than 100 countries. Subscribers use RCA’s commercial real estate search tools to get details on recent transactions such as sales price, sale date, buyer name, seller name, yield/cap rate and building specs for the office, retail, industrial, apartment and hotel sectors. For more information, visit: http://www.rcanalytics.com.

Core Assets, Leading Metros Drive Rise in September Moody's/REAL Pricing Index

Mon, 22 Nov 2010 14:14:25 GMT

The September Moody’s/REAL Commercial Property Price Index (CPPI) was released on November 22, 2010. According to the report, US commercial property pricing jumped by 4.3 percent between August and September, the largest one-month increase in the decade-long history of the index. The spike reflected a handful of extremely high-priced deals, which outweighed the volume of distressed asset sales that have been a significant drag on the headline index. Previously, the index had fallen to a multi-year low in August. It is up by 0.3 percent year-over-year.

In its article on pricing trends for commercial property, Bloomberg interviewed Moody’s managing director Nick Levidy, who confirmed that “The relatively large swings in the index recently are due in part to the uncertain macroeconomic environment and the effects of a thin market with low transaction volumes.” It was also pointed out that the strongest improvements in pricing have occurred for core properties, where investors can feel secure in achieving solid profit returns. Nonetheless, Bloomberg reiterates that the index has fallen by 43% from its October 2007 peak.

The report disaggregates the headline index by property type and metropolitan areas. As of the September report, pricing for the apartment sector rose the most year-over-year, by 16 percent, while the retail sector fell by 12 percent over the same period. The industrial and office sectors rose 1 percent and 4 percent, respectively. The report confirmed that the nation’s leading metros have experienced the largest rise in pricing over the past year. Of the top ten metros by dollar volume, New York, Los Angeles, Washington, DC, San Francisco, Atlanta, and Chicago have recorded the greatest year-over-year improvements in pricing for all property types.

Phoenix Market Update: More Deals Occurring, but at Lower Pricing

Fri, 19 Nov 2010 12:31:25 GMT

Relying on data from Real Capital Analytics and LoopNet, the Phoenix Business Journal recently provided an update on commercial real estate activity in the Phoenix metro. According to the article, “Commercial real estate investment activity in the Phoenix area remains fairly anemic in office and retail, but is booming in the multifamily category, while the industrial market is showing signs of improvement.” Activity in Phoenix’s beleaguered apartment sector has more than doubled year-over-year by volume, while volume fell slightly for both office and retail sales.

Likely reflecting the sheer size of Phoenix’s outstanding distress pool, pricing is down, in some cases sharply, for all property types from one year ago. The article states that prices fell by 19% for the average apartment in Phoenix, by 39% for industrial space, by 16% for office space, and an abysmal 52% for retail space. The comparison periods were September 2010 vs September 2009.

Pending Ralph Lauren Sale Verifies Tokyo's Number One Spot

Thu, 18 Nov 2010 12:32:25 GMT

The Wall Street Journal recently published a story detailing the return of Tokyo’s commercial property market. To quantify the Japanese capital’s upswing, the Journal relied on data from Real Capital Analytics’ second quarter Global Capital Trends. “With prices still near 36-year lows, Tokyo led all cities world-wide during the first half of 2010 with real estate transaction volume exceeding $10 billion, according to Real Capital Analytics, maintaining a big lead over London and Hong Kong, the Nos. 2 and 3 cities, respectively.”

To exemplify the recent rebound in Tokyo’s property market, the Journal broke the news that “…a Japanese-led consortium is set to snap up the iconic Ralph Lauren building in central Tokyo for $350 million, in one of the largest real estate transactions this year.” Real estate investment fund Secured Capital Japan is set to close on the property as soon as next week, with an acquisition loan provided by Germany-based Deka Bank.

The Journal went on to detail some of the differences between the markets in Japan and those in Europe and the US. The largest is that the “Japanese market is still an attractive destination for real-este investment given the stable economy and relatively high yields.” Lending and secondary mortgage markets have also resumed much faster in Japan, as commercial mortgage-backed securities typically have a three-year cycle in Japan as compared to five or more years in Europe and the US. In a similar way, however, to the US and Europe, investors and lenders have continued to concentrate their activity on high-quality property and locations.

Is Ownership in the Future for Stuy Town Residents?

Wed, 17 Nov 2010 16:26:25 GMT

The tenants at the 11,000-unit complex known as Stuyvesant Town and Peter Cooper Village — which was bought for $5.4 billion before collapsing to an estimated value of less than $2 billion — all want something different as they navigate out of what's known as the largest failed residential real estate deal of all time.

The talks between tenant representatives and CW Capital, the company representing the senior investors, are still at an early stage, says City Councilman Dan Garodnick, a longtime resident who represents the complex and says he's been involved in the talks. Both sides are interested in developing an affordable option allowing tenants to buy in, he said.

In order for any deal to work, a sizable number of tenants would likely have to agree to buy in, says Ben Thypin, a senior market analyst at global commercial property research firm Real Capital Analytics.

The conversion is in the investors' interests because "the tenants are in the position where they would probably value the property at the highest price," Thypin said. Investors "might not lose as much as we thought they would a year ago — but they're certainly not going to make the money back," he said.

CW Capital, which struck a deal with other investors last month that allowed it to take full control of the property while avoiding tens of millions of dollars in transfer taxes, did not return a call seeking comment.

Retail Sales Climb in Q3

Tue, 16 Nov 2010 11:27:40 GMT

According to global commercial property research firm Real Capital Analytics’ (RCA) Retail Quarter in Review, the investment market for commercial real estate as a whole entered the fourth quarter in its strongest position since late 2007. Sales of significant assets(transactions greater than $5 million) surged to $5.5 billion in the third quarter of 2010, up 131 percent from the third quarter of 2009 and nearly double the figure in the second quarter. It was the second most active quarter since the downturn began, only outpaced by the fourth quarter of 2009.

Overall, RCA said that 43 U.S. markets recorded sales gains, signifying a recovery in transaction activity.

Traded and nontraded REITs and institutional investors remained the most active buyers. The most active sellers include a greater variety of capital sectors, with institutional investors, foreign investors and banks. RCA said that more distressed sales are also occurring. Overall, about 16 percent of retail transactions by count involved distressed assets during the second and third quarters.

Tracking the Rapid Return of Commercial Property Lending

Fri, 12 Nov 2010 08:22:40 GMT

As evidenced by a recent article in the Dallas Morning News, the commercial property debt market is well on its way towards a big comeback. The article cited a recent Mortgage Bankers Association report that indicated commercial and apartment lending in the US was up considerably in the third quarter, while CMBS debt is “up more than 900 percent from a year ago, when basically nothing was going on.”

Robert White, president and founder of Real Capital Analytics, confirmed the resurgence of commercial property lending: “There have been rapid improvements in the debt markets…The commercial mortgage-backed securities market has roared back to life…And some community banks have also stepped up.”

The article points out the Mr White’s comments and the MBA report were further supported by the Federal Reserve’s most recent Senior Loan Officer Opinion Survey, which indicated that just 4 percent of bankers report they are still tightening their lending standards. With historically low interest rates and pricing on commercial properties, the article made it clear that well-qualified developers and investors should be making deals happen now, during this unique window of opportunity.

Dr Chandan's Lead Indicator: "Economic Policy as New Congress Takes Over"

Thu, 11 Nov 2010 14:29:25 GMT

Joining the election’s post-mortem salon, Dr Sam Chandan used his column in this week’s Commercial Observer to discuss the possible implications of the shift in Washington on commercial real estate and the broader economy. He touched on what could be in store for the Federal Reserve’s monetary policy, as well as the possibility of more business-friendly legislation in the upcoming Congressional session. For more on Dr Chandan’s thoughts, please see his full article on the Commercial Observer.

APREA-RCA Report Shows Asia-Pacific Commercial Property Rebound

Wed, 10 Nov 2010 15:31:25 GMT

After a notable drop in Q2, transaction volumes in the Asia-Pacific region jumped 44% in the Q3 against a 15% rise globally. This upward movement is expected to continue given the amount of investible property in the region, according to a report by the Asia-Pacific Real Estate Association (APREA) and Real Capital Analytics (RCA). Members of APREA can download the full report here.

The third-quarter data on real estate transaction volumes worldwide reaffirms the view that Asia-Pacific is a global hot-spot. Transaction volumes increased to $20.8B there, following a second-quarter blip blamed on domestic cooling measures brought in by Beijing.

Global transaction activity also returned, rising 15% quarter-on-quarter to total $303B for the past 12 months – a 47% increase year-on-year. In the third quarter, Asia-Pacific accounted for 26% of global volume, up from 21% in Q2 but down on 29% in the first three months.

Lok So, APREA’s operations director based in Singapore asks “Do we see transactions in Asia continuing to rise? You would expect so. In terms of investible real estate in the world, it is almost a no-brainer that Asia will get the lion’s share of that, driven by China.” Australia commercial real estate investment has been significant in the last 12 months and the $3.8B recorded there in Q3 was the highest level since 2007.

The office property sector continued to lead transaction volumes in the third quarter with $9.9B, or 48% of the Asia-Pacific total. While the retail sector led the Q2 plunge, it helped drive the Q3 rebound in transactions with a 158% jump.

Notably, REITs and publicly-listed property firms continued to assert themselves as the top buyer group in the region in the third quarter, accounting for 37% of all known property transactions. By contrast, institutional buyers saw their share of transactions average only 11% over the last three quarters, compared to 28% over the previous twelve.

RCA Partners with RP Data to Expand Property Database in Australia and New Zealand

Wed, 10 Nov 2010 14:35:25 GMT

Real Capital Analytics has entered into a license agreement with RP Data to improve New Zealand and Australian commercial property transaction coverage.

“Collaboration with best-of-country information providers like RP Data continues to be a key part of our strategy to provide our clients with timely and comprehensive information regarding global investment capital flows,” said Joseph Mannina, RCA’s Chief Operating Officer. “We are very pleased to be working with RP Data to more accurately gauge commercial property sales activity in both Australia and New Zealand.”

RCA’s global investment property sales database is the first transparent database to track global capital flows in over 100 countries. Subscribers use RCA’s commercial real estate search tools to get details on recent transactions such as acquisition date and price, cap rate or yield, buyer and seller name, and property details for the office, retail, industrial, multifamily and hotel sectors.

“RP Data’s commercial property division is a clear and long-standing leader of data and information services in Australia and New Zealand,” said Graham Mirabito, CEO for RP Data. For more than three decades our teams have been cataloging, cleansing and matching data for all major commercial buildings in Australia and New Zealand’s major cities. Although not immune to the global financial crisis, Australian and New Zealand properties have performed better than most other regions and we are delighted to be partnering with RCA to bring increased transparency and confidence to global property investors.”

Outside of the Asia-Pacific region, RCA also recently formed agreements with JLR Real Estate Builders (Canada), Bregman-Baraz Real Estate (Israel) and Vida Imobiliaria (Brazil) to improve its coverage of commercial transactions in Canada, Israel and Brazil. Learn more about our commercial real estate database partners here.

CB Richard Ellis Sells Stake in Manhattan Office Tower

Tue, 09 Nov 2010 16:28:25 GMT

A fund sponsored by CB Richard Ellis Group Inc. sold a stake in 1540 Broadway, an office tower in Manhattan’s Times Square, to HSBC Alternative Investments Ltd. and Edge Fund Advisers as New York property demand increases.

The interest was based on a building value of $520 million, or about $575 a square foot, Los Angeles-based CB Richard Ellis Investors said in a statement today. The company bought the office portion of the skyscraper in March 2009 for $355 million, according to global commercial property research firm Real Capital Analytics Inc.

“The value of this asset has gone up 50 percent in less than 18 months,” said Dan Fasulo, managing director of Real Capital. “This displays how much values have recovered in Manhattan, especially for well- located, class A office buildings.”

Trading volume of Manhattan office properties rose 23 percent to $3.18 billion in the third quarter from a year earlier, according to Real Capital. The average price per square foot was $383, compared with a U.S. average of $196.

Distress Sales Set to Grow, but Continue Weighing Down Broader Pricing

Mon, 08 Nov 2010 15:26:25 GMT

Despite the positive signs that have been emerging for the commercial property market, Bloomberg News columnist Venessa Wong portrayed the sector’s rebound as uneven due to the outstanding pool of distressed assets. The article pointed out, using the Moody’s/REAL Commercial Property Price Index, that prices for US commercial property sales “fell to their lowest level since June 2002.” Part of this decline can be attributed to sales out of distress, which accounted for one in four sales during August.

Ms Wong described October’s sale of the Extended Stay hotel portfolio, which the Lightstone Group traded to a group of equity funds that included the Blackstone Group, Paulson & Co, and Centerbridge Partners, as a “reflection of the current U.S. commercial property market.” After the Lightstone Group discovered it had overleveraged its 2007 purchase at the peak of the market in 2007 and could no longer service the loans, the 680-property Extended Stay portfolio fell into distress to become one of the largest outstanding commercial assets in the US. Though it has now been resolved, the article indicated that billions of distress is still outstanding, both weighing down property pricing and inhibiting lenders from issuing new debt.

The article quotes Brian Glanville, Integra Realty Resources managing director and chairman of the RICS (Royal Institute of Chartered Surveyors) Americas property board, as stating that “What you’re seeing is an opportunity to buy properties for less than what you can build them for today.” He also stated that the practice of “extend and pretend” is about to come to an end, as lender generosity for borrowers delinquency on loan payment runs out. “…the banks are no longer willing to carry them.” Glanville stated, Owners “…have to face reality now and see what they can get.”

For Manhattan Apartment Investors: Go Long to Go Big

Fri, 05 Nov 2010 16:28:25 GMT

According to industry leaders interviewed by Bloomberg’s BusinessWeek publication, the days of investors doubling their initial investment over the course of five years in Manhattan real estate are over. David Levinson, the chairman and CEO of L&L Holding Co that primarily operates in Manhattan developing real estate, stated “ When you’re buying property in Manhattan, you should really be thinking long term – financing its intelligently and planning on holding it as long as possible.” He also added that building new properties may be a good investment in a city with so many dated buildings.

The article in BusinessWeek stated that the long-term strategy particularly applies to apartment investors. In support of the article’s content, BusinessWeek quoted Real Capital Analytics’ data on Manhattan’s multifamily sector. “Trading volume of Manhattan apartment properties totaled $1.63 billion in the third quarter, up 231 percent from the prior year…the average price per unit in Manhattan was $273,833.” Supporting the theory that a long-term investment is best, that average per-unit price was only up by 9 percent from the third quarter of 2009, while cap rates on Manhattan apartment properties are up by 53 basis points from last year.

Vornado Chairman has Bullish Outlook on US Commercial Property Market

Fri, 05 Nov 2010 15:26:25 GMT

In a recent article on Bloomberg News, Steven Roth, chairman of Vornado Realty Trust, stating that, “The recovery has been more rapid than everybody expected…” and that values are “substantially” off the bottom after more than a year of decline. The article indicated Roth’s statement accords with data from Real Capital Analytics: “U.S. property deals probably will double next year and may account for almost one quarter of global transactions.”

The article pointed out that the recovery Mr Roth was referring to began in earnest in what he referred to as “world cities,” including New York, Washington, DC, and San Francisco. Now it may begin to spill over into other primary and secondary markets as smaller investors get pushed out of the competition by large institutional players. For now, however, investors both foreign and domestic feel most comfortable with buying in these perennial markets. In these cities are already beginning to see declines in vacancy rates and small increases in office rents, according to the article.

The Ten Largest US Commercial Property Transactions of All Time

Fri, 05 Nov 2010 13:35:25 GMT

In his 24/7 Wall St column on AOL’s Daily Finance, Douglas McIntyre leveraged transaction data from Real Capital Analytics to compile a list of the ten largest commercial real estate transactions of all time. The list is timely, McIntyre states, “as Google reportedly ponders its New York City headquarters for a cool $2 billion...” Were Google’s property at 111 Eighth Avenue in Manhattan to sell for that price, it would still only place at third on the all-time list, behind 2007’s sale of Stuyvesant Town/Peter-Cooper Village and the GM Building in 2008. Interestingly, McIntyre discovered that Manhattan completely dominated the list of most expensive US sales to-date. “Land Barons Take Note” advised McIntyre, who pointed out that location, location, location really is what it’s all about in commercial real estate.

Mr McIntyre's List as published on 11/03/10:

1 Stuyvesant Town - $5.3 billion
2 GM Building - $2.8 billion
3 Rockefeller Center - $1.85 billion
4 666 Fifth Ave - $1.8 billion
5 Worldwide Plaza - $1.74 billion
6 MetLife Building - $1.72 billion
7 Travelers Complex - $1.58 billion
8 News Corp Building - $1.52 billion
9 1301 Avenue of the Americas - $1.46 billion
10 Five Times Square (Ernst & Young Tower) - $1.28 billion

Global Commercial Property Recovery

Wed, 03 Nov 2010 15:27:25 GMT

There are a growing number of commercial real estate transactions taking place around the world, it has been claimed. However, global commercial property research firm Real Capital Analytics (RCA) added that not all regions have enjoyed similar improvements.

For example, while activity was growing in the Pacific and Americas during the third quarter of 2010, sales in Europe, the Middle East and Africa were in decline, RCA reported in their recent Global Capital Trends report.

"Europe's economic woes have taken a toll on investor interest, undercutting investment in the period since the onset of the sovereign debt crises," RCA said.

Clouds Part for Commercial Real Estate as Distress Declines in Third Quarter

Wed, 03 Nov 2010 13:33:25 GMT

In a recent Wall Street Journal article, writer Anton Troianovski states that, “things are still bad,” but “new data points are painting a picture of slowly moderating pain in commercial real estate.”

The Journal sites Real Capital Analytics’ latest distress update in its US Capital Trends publication as part of its argument that bad times for property investors may be waning: “…the amount of new distress in commercial real estate in the third quarter was the lowest in two years. Some $13.7 billion of distressed situations – such as foreclosure notices, bankruptcies and loan defaults – hit the U.S. commercial real estate market in the third quarter, a roughly 60% decrease from levels seen both in the second quarter of 2010 and the third quarter of last year” stated the Journal in a synopsis of RCA’s monthly distress report, published this month on October 28.

The article also cites other reports from data frim Trepp LLC, on their analysis of delinquency rates, as further evidence that the worst for commercial real estate may have passed.

Four Global Markets Converge in a Competition for Cross-Border Capital

Tue, 02 Nov 2010 12:29:25 GMT

Aptly summarizing Real Capital Analytics’ (RCA) third-quarter Global Capital Trends, Crain’s New York Business stated in a recent article that, “The gap between the performance of the real estate market in New York and that of three other major markets is narrowing, even as it widens with the nation as a whole.”

Crain’s was referring to findings presented by RCA in an article entitled “The Fabulous Four: London, Paris, New York, Washington, DC. In this piece, RCA described the growing similarity of four of the largest global markets for commercial real estate investors. Though they have always shared a common group of investors, the recent convergence of cap rates and pricing that buyers and sellers can expect on properties in these four markets has extended as these markets have gained momentum. In fact, these markets have become more similar to each other than they have individually with other top markets in their respective domestic markets. In other words, cap rates on properties in New York are more akin to those being posted in Paris than to comparable properties in other US cities, such as Chicago or Los Angeles.

As the world emerges piecemeal from the global property downturn, this trend is becoming the new norm. Global investors, including a rising community of cross-border investors, are increasingly able to shop around for the highest yields. Yet investors in this class are also looking for security, and these four markets are currently offering a viable compromise.

For more on these Fabulous Four markets, as well as additional global analysis, please see the full article on Crain’s New York Business’ site and RCA’s most recent Global Capital Trends.

NAREIT on Real Capital's latest Global Capital Trends

Thu, 28 Oct 2010 15:31:25 GMT

In a recent synopsis of Real Capital Analytics’ (RCA) Global Capital Trends for the third quarter, Allen Kenney of the National Association of Real Estate Investment Trusts (NAREIT) pulled some of the most salient points regarding activity trends for commercial real estate around the world. Global commercial real estate volume grew in the third quarter year-over-year, led by large gains in the Americas and Asia/Pacific regions. Meanwhile, transaction volume in Europe, the Middle East, and Africa has fallen back from levels reported earlier in the year.

For RCA’s complete analysis, please see the latest Global Capital Trends report.

Dr Chandan's Lead Indicator: "A Mirror Up to the FHFA: Holding Washington Accountable for Fannie and Freddie's Stress Tests"

Thu, 28 Oct 2010 14:27:25 GMT

Two years into their experiment, and $148.0 billion of public investment later, the Federal Housing Finance Agency and the Treasury Department sure have a mess on their hands with the conservatorship of Fannie Mae and Freddie Mac. However, the “unprecedented and protracted weakness of the national housing market has, instead, entrenched the government’s role in buttressing residential mortgage finance.” Will the GSEs (government-sponsored enterprises) be weaned off their federal funding with a shift in the composition of Congress? Or is the current situation actually more pragmatic for homeowners and the residential market? Read the entire article at the Commercial Observer’s site for all of Dr Sam Chandan’s thoughts.

Rising Activity Reflected in Profit Gains at Commercial Property Firms

Tue, 26 Oct 2010 14:32:25 GMT

Providing yet another signal of the improving investment market for commercial property, Reuters recently reported that CB Richard Ellis and Jones Lang LaSalle, two of the world’s largest commercial real estate services companies, registered stronger-than-expected earnings growth over the third quarter. According to the report, the firms benefited from rising US building sales and leasing, as well as “the slow rebirth of the U.S. commercial mortgage backed securities market (CMBS) and loosening of lending by banks…”

This growth in sales has been recorded and forecasted by Real Capital Analytics (RCA), which the article quotes as expecting US “…sales to top $100 billion in 2010, nearly double the $54.4 billion in 2009.” RCA also recently reported that the third quarter of 2010 was the strongest quarterly period in two years, with expectations that the fourth quarter will post significant gains as companies look to close deals before the end of the year.

For more information on commercial property firms’ quarterly results, please see the full article on Reuters’ site.

A Tighter Domestic Market Sending Chinese Buyers Overseas

Fri, 22 Oct 2010 13:29:25 GMT

According to a recent report by Colliers International, "Due to China's continuous tightening real estate policies, we are expecting many more mainland investors to buy properties overseas in the future." This comports, stated a recent article on International Property Investment Network, with analysis by Real Capital Analytics that identified $62.6 million in Chinese capital invested in the US so far this year. It also coincides with a report by the National Association of Realtors (NAR) that indicated Chinese investors are "the most likely foreign buyers purchasing the top US properties."

Improving Fundamentals Bringing Multifamily Investment Market Back to Life

Thu, 21 Oct 2010 14:28:25 GMT

In a recent article in the National Real Estate Investor, writer Matt Hudgins reviewed the current dynamics of the multifamily property sector. According to Real Capital Analytics (RCA), the largest US multifamily property sale in September was for the 1,520-unit Resort at Pembroke Pines. Hudgins’ article quotes the property’s buyer as citing his impetus to purchase the property was due to, “the lack of apartment construction in the [Broward County] area and improving fundamentals.” Using that as an example, Hudgkins details how lack of supply and greatly improving fundamentals in rent and occupancy are driving rising multifamily property sales. According to the Moody’s/REAL Commercial Property Price Index, apartment prices reached bottom last year and have been climbing since the fourth quarter of 2009.

Despite rising off its lowest level, multifamily pricing is increasingly lagging behind investor demand. This will not last for long, however. As competition heats up for the highest-quality cash-generating properties, more and more investors are “seeking a stake in the market while asset values still have room to appreciate,” according to Dan Fasulo, managing director of RCA. With historically low mortgage rates and the recovery in fundamentals, along with a lack of new supply coming to market, Mr Fasulo sees apartment sales and pricing to continue improving into 2011.

To read the complete article, including additional reasons why multifamily sales may continue their ascent in the near-term future, please the National Real Estate Investor’s site.

Barclays Reclaims DC's Distressed St Regis from Unlucky Irish Investors

Mon, 18 Oct 2010 14:27:25 GMT

The five-star St Regis Hotel in Washington, DC – an architectural landmark of the Capitol City – has been repossessed by Barclays Capital and is to be held at auction on October 22.

In doing so, Barclays is attempting to recover the two loans originally made on the property back in 2007, at the height of asset valuation, when the Irish private-equity firms Claret Capital and First Friends purchased it for $170 million. According to Real Capital Analytics data, the original acquisition loans totaled $135 million. At the time of purchase, though it had previously sold for just $45 million less than two years prior, Claret heralded the hotel as a “unique investment opportunity.”

Distress, Stubborn Banks, are Global 'Phenomena'

Mon, 18 Oct 2010 13:31:25 GMT

Distressed commercial property is present in markets around the globe, though it seems banks are equally uniform in preferring to “extend and pretend” the current troubled assets on their books. According to a recent article on National Real Estate Investor (NREI), which relied on Real Capital Analytics’ most recent troubled asset data, distressed assets in the US currently total at about $290.0 billion. This compares to about $150.0 billion Euros of distress in Europe, and $170.0 billion in commercial real estate debt coming due in Japan over the next couple years. In fact, global distress as a share of total property sales has become such a large and popular topic, that it was recently one of the headline discussions held at the Urban Land Institute’s recent fall meeting in Washington, DC.

For investors, however, these opportunities may never come to pass. Banks have sought to minimize losses by refinancing or rolling over troubled loans into future quarters. The wholesale liquidation investors were hoping for, where distressed bargains would come to market en mass, looks less likely at this point.

Pause in Residential Foreclosures Threaten Already-Weak Market

Thu, 14 Oct 2010 14:34:25 GMT

In a recent article regarding a possible scandal involving residential bank foreclosures, Toronto’s Globe and Mail newspaper stated, “All 50 U.S. states are launching probes into whether banks used shoddy paperwork to force people out of their homes, the latest sign of a burgeoning scandal that threatens to bring parts of the country’s housing market to a standstill.”

Even as Bank of America and JP Morgan Chase – the largest mortgage servicers in the US – suspend their current foreclosures in favor of investigating allegations of malpractice and fraud before proceeding, there may be some risk in doing so. According to Dr Sam Chandan, Real Capital Analytics global chief economist, these largest-scale foreclosure freezes could be “very disruptive to the proper functioning of an already weak housing market.” This is because foreclosures currently account for a large portion of overall sales in the US, between 25% and 50% in most states, according to the Globe and Mail’s sources. Should foreclosures be shut down, residential sales activity would decline significantly.

Dr Chandan's Lead Indicator: Currency Conflicts and Commercial Real Estate

Thu, 14 Oct 2010 12:30:25 GMT

With all the recent chatter about a potential “currency war” among the developed and emerging economies, and after the chaotic IMF/World Bank annual meeting over the past weekend (October 8-10), there has been little clarity on the subject for globally active commercial real estate investors. In his latest “Lead Indicator” column in the Commercial Observer, Dr Sam Chandan discusses the potential impacts of further easing of monetary policy and “the threat of competitive devaluation” on commercial real estate buyers. While Dr Chandan’s article may be essential reading for both domestic buyers of foreign real estate and foreign buyers of US properties alike, he also has words of caution for policy makers as they face critical decisions that will affect those operating in commercial property markets.

Global Property Investors Ready to Shop in 'Most Attractive' US Market

Wed, 13 Oct 2010 15:28:25 GMT

DTZ Group Plc, a London-based real estate brokerage firm, recently released a report forecasting that commercial property investors will become more active in the US throughout 2010 and 2011. This supports the US market’s growing momentum already observed by Real Capital Analytics (RCA), which recently reported in its US Capital Trends report that US commercial property sales reached their highest level in over two years during the third quarter. Also similar to the DTZ report, RCA expects the US’ share of global property sales during 2010 to grow significantly over 2009.

According to DTZ’s report, after two years of hording capital and waiting for prices to touch bottom – equity funds and investment firms have increased their capital available for deals by 54% since December 2009, to $97.0 billion – global property investors are ready to go shopping. Several attributes make the US an attractive location for property buyers, including relatively higher yields. The firm is expecting already growing activity to continue and expand in the US over the near-term future, driven by real estate investment trusts (REITs) and equity funds capital groups.

Risk-Averse Investors Driving Up Prices on "Trophy" Assets in Top Six US Markets

Wed, 13 Oct 2010 13:33:25 GMT

Over the past year, while prices for commercial real estate have hovered near their seven-year low, reached in October 2009, a smaller subset of “trophy” properties in the highest-quality US markets have rebounded significantly. According to Professor David Geltner director of research at the MIT Center in Cambridge, MA, and creator of the Moody’s/REAL Commercial Property Price Index (CPPI), the current trend towards these “trophy” properties reflects current investor demand. “There’s a lot of money out there that wants to invest in good, solid, safe, cash-yielding inflation-protecting investments, and there are not that many properties on the market…Demand is really focused because it’s so risk-averse. They really want just these blue-ribbon cities and these blue-ribbon properties,” stated Mr Geltner in a recent interview with Bloomberg News.

Mr Geltner has developed a timeline index for just the top six US markets, including Washington, DC, Boston, Los Angeles, Manhattan, San Francisco, and Chicago. Juxtaposed with the broader CPPI, the two show a clear divergence in pricing between “trophy” assets in those six markets with properties in all other markets. Average prices for those top six markets have risen by 19 percent since reaching bottom, while average prices for all other properties have increased by just 1 percent. Both indices are based on repeat-sales transaction data from Real Capital Analytics.

To see more information and graphs on these indices, please visit the full article on Bloomberg’s site, or visit the Moody’s/REAL CPPI page on Real Capital’s site.

The Many Ways Chinese Capital Is Entering US Property Markets

Tue, 12 Oct 2010 16:33:25 GMT

Unlike Japanese investors, who entered the US property market en masse during the 1980s through high-profile acquisitions such as Rockefeller Center, Chinese invests are making forays into US commercial real estate though alternative, less-observable routes. According to Real Capital Analytics data, which the Wall Street Journal recently used in support of an article on Chinese investment into US property, just $62.6 billion of Chinese investment has occurred in US commercial real estate during 2010. In comparison, Canada accounted for $1.8 billion over the same period.

However, as the Journal points out, Chinese capital is finding alternative ways to enter the US property markets. For example, China’s largest sovereign wealth fund, China Investment Corp, is currently looking to invest in real estate-oriented equity funds. Ben Thypin, senior market analyst with Real Capital, observed that these types of private investments into US property will be hard to track, and thus not appear in many data sets.

Other brick-and-mortar buyers are those Chinese firms with operations in both the US and China. These buyers are considered domestic buyers, as they are actually US-based companies, only with access to capital from other ventures in China. California-based Standard Properties is an example of this type of scenario, where a firm with capital from its profitable operations in China is investing in US apartment properties.

Wealthy investors, sovereign wealth funds, and companies with access to equity and debt markets in both the US and China are among those seeking to bring in large amounts of investment capital available from China. The current US property market is offering competitive pricing and potential bargains with a large number of troubled assets winding their way through resolution channels. Companies such as Standard Properties are looking to place a significant portion of the reservoir of Chinese capital into US property.

To read more of this topical and fascinating article on Chinese investment into US commercial real estate, please visit the Wall Street Journal’s site.

Inside, Cityscape Global - Outside, Dubai's 'Sagging Property Market'

Tue, 12 Oct 2010 16:28:25 GMT

Dr Sam Chandan, Real Capital Analytics global chief economist, recently reflected on Dubai’s unique supply challenges in the near term: “In Dubai in particular, there is an imbalance with the relatively low market demand and the very large and growing number of real estate projects.”

Dr Chandan recently spoke at the Cityscape Global conference in Dubai, where analyst colleagues developed a consensus: “Dubai’s sagging property market is still at least two years away from recovery…” Yet supply in Dubai, which has consistently outpaced demand, is set to continue expanding into 2011. According to Jones Lang LaSalle, between “25,000 and 30,000 homes are expected to come online in the UAE in the next year.” And incredibly, this excess reflects just half of the level originally planned, as “the government acknowledged cancelling half of the registered projects.”

The sluggish state of Dubai’s real estate market did not reflect on the annual Cityscape Global conference, which, now in its ninth year, changed its name from Cityscape Dubai in response to the growing influence of other international buyers. “Although the number of exhibitors was down from peak years, the conference opened in the wake of a round of positive news for Dubai's development industry, including the restructuring of Dubai World's $25 billion in debt and confirmation that Nakheel is restarting projects.”

Relatively High Yields on Commercial Property Prompting Firms to Buy in Chicago

Tue, 12 Oct 2010 15:27:25 GMT

James A. McShane, Staff Writer at the Midwest-focused REJournals, recently posted his evaluation of the Chicago commercial real estate market, and his opinion of where it is going in the near future. He states in general, “While the market experienced a slight boost in early 2010, it was short-lived for many…the Great Recession actually ended in June 2009, although signs of that milestone are fairly invisible to those in the commercial real estate markets.”

Mr McShane uses macroeconomic and national market conditions as a benchmark for his Chicago comparisons. For instance, “The strength of retail sales and the direction of the Consumer Price Index are also strong gauges for the return of the Chicago industrial market.” This index has increased by 1.2 percent from July 2009 to July 2010. While industrial sales are likely to post a slow recovery over the next year or two, Mr McShane states that cap rates across the US are still at historically low levels, according to Real Capital Analytics. This is prompting some companies to take advantage of “cap rate stabilization” that indicates a “secure market.”

The article also clearly supports the notion that Chicago will fare better than other less visible cities as the recovery picks up steam in the upcoming quarters. As an international city, with the ability to attract large amounts of both domestic and foreign capital, Chicago was ranked among Real Capital’s “major” markets in a recent analysis of major/primary vs. secondary and tertiary markets in the company's weekly online interactive US Capital Trends report. Mr McShane cites Chicago’s transportation advantages and its local industrial market – the third largest in the nation – among the city’s other advantages. For the future, he sees the market continuing on a positive upward trend, with financially stable companies gaining market share and positioning themselves for the “eventual return to prosperity.”

Dr Chandan's Notes From Abroad: India

Fri, 08 Oct 2010 15:27:25 GMT

In his weekly Lead Indicator column for the Commercial Observer, Dr. Sam Chandan leveraged his recent experiences traveling in India to discuss the nation’s prospects in commercial real estate. India’s government has recently come under fire for being unprepared to host the October 2010 Commonwealth Games. As it has been just two years since the successful Beijing Olympics and only a few months after Canada’s tremendously well-received hosting of the Winter Olympics, comparisons cannot help but be made. “If hosting global games are a measure of global stature, India has risked seeming hapless and dangerously ill-prepared for a global role when compared with the Middle Kingdom…while loath to admit it, many Indians make a pastime of benchmarking the country's economic and social progress against China's. The comparison is rarely easy,” stated Dr Chandan.

India, the “I” in the oft-mentioned “BRIC” nation cohort, is currently plagued by inefficiencies in government and the private sector, as well as a lagging infrastructure. “Despite these complications, the Indian outlook is bright nonetheless,” stated Dr Chandan. He believes that the country’s strong foundations in democracy, free thinking, and “entrepreneurial zeal” will eventually shine through, as corruption, bureaucracy, and the nation’s complex legal structure subside. He also added, “As the long-term outlook for the world's advanced economies moderates and the balance of capital formation and real economic activity becomes more globally balanced, capital from India will inevitably fuel property investment in the United States.”

New York Knicks Pricing at Los Angeles Lakers' Doorstep

Fri, 08 Oct 2010 14:29:25 GMT

In an article on Bloomberg, writer Nadja Brandt discussed an unusual property listing, recently put on the market in downtown Los Angeles.

With an offer-price of $30 million, a 2.73-acre (1.1 hectare) parking lot on 12th Street in downtown Los Angeles has suddenly become prime real estate due to the renaissance of the metropolis’ downtown area. Located between Figueroa and Flower Streets, and zoned for redevelopment, the patch of land is situated directly across from the Staples Center and in close proximity to the brand-new LA Live entertainment complex. According to Real Capital Analytics data, “An undeveloped plot downtown hasn’t sold for more since at least 2008…the most expensive development site to sell downtown since January 2008 was a 914,760-square-foot (84,984-square-meter) property on Alameda Street, which went for $25 million…”

As a representative offering in a local market, the 12th Street development site reflects the positive momentum of the downtown Los Angeles property market. According to the article, the recent development of LA Live, as well as several luxury hotels of the likes of JW Marriott and Ritz-Carlton, have driven up property values and generated broader investor interest.

Investors Nab (Relatively) High-Yield Commercial Property in Bellevue

Mon, 04 Oct 2010 16:28:25 GMT

The Puget Sound Business Journal recently chronicled the sale of the Bravern Office Commons to exemplify “a national trend where Class A office buildings fully leased to blue chip tenants continue to fetch handsome prices despite the recession.” Des Moines-based Principal Real Estate Investors recently closed on the Bravern transaction, which included the complex’s two high-rise office towers and parking garage, for $410 million. The two office towers are currently fully leased by Microsoft.

Single-tenant assets, with high-quality tenants such as Microsoft, have allowed some buildings to sell “for annual capitalization rates not seen since the boom – some recent cap rates have been equivalent to a return of 6 percent a year.” Though that is below average historical yields, Real Capital Analytics’ managing director, Dan Fasulo, explained buyer’s logic behind acquiring property such as Bravern: “Where else can you get 6 percent a year for a safe investment? The stock market has been volatile, corporate bonds have gotten very expensive and gold is at an all-time high.”

For more information on the Bravern transaction, please see the full article on the Puget Sound Business Journal site.

The World Meets in Dubai: Cityscape 2010

Mon, 04 Oct 2010 16:25:25 GMT

In his most recent column, the Telegraph’s Richard Spencer – writing from his post in Dubai for the UK-based newspaper – described his experience at Dubai Cityscape, the annual conference for the desert-turned-global city’s property developers. In his account of the gathering, Mr Spencer attempts to explain what he describes as the “disjunct between the growth of new economies like China and India and the amount of western investers there.”

Mr Spencer found an answer to this apparent disconnect from Cityscape’s key-note speaker, and Real Capital Analytics’ global chief economist, Dr Sam Chandan. Mr Spencer summarized Dr Chandan’s speech on international investment trends with the following: “The answer is, he said, that in the boom years people got used to making high returns without the risk of investing in places like China and India (and Dubai, I might add) with low transparency and uncertain rule of law. Now they are risk averse, they want low transparency and uncertain rule of law even less. Now I’m no expert on India: China has very high investment rates, but that’s coming from the state banking system.”

For more of Mr Spencer’s thoughts on the Dubai Cityscape Conference, and global investment trends involving emerging markets, please see his full column from October 4, 2010 on the Telegraph’s site.

If you missed Dr Chandan in Dubai, please plan to attend one of the numerous events below where he will also be speaking.

October 14, 2010: Urban Land Institute Fall Meeting – Washington, DC
October 19, 2010: Zell-Lurie Fall Member’s Meeting – Philadelphia, PA
October 21, 2010: The Trigild Lender Conference – San Diego, CA
October 26, 2010: The Private Equity Real Estate Magazine Forum – New York, NY

W at Union Square Sale Affirms Demand for Luxury Lodging

Mon, 04 Oct 2010 14:31:25 GMT

Relying on Real Capital Analytics’ (RCA) data and analysis in the hotel sector, Real Estate Finance & Investment (REFI) stated that the recent sale of the financially ailing W Hotel at Union Square “is being taken as a pointer to significant liquidity in the New York hotel market for luxury products with strong name recognition.” With few trophy, top-shelf hotel sales occurring even during a prosperous economic period, when these properties come to market, they are often good indicators of investor demand for other potential sales and the health of the market overall.

On such hotel that generated a wave of investor interest was the W Hotel at Union Square, which, according to RCA, Host Hotels & Resorts recently purchased for $185.2 million. RCA managing director Dan Fasulo pointed out that, although it was the largest single hotel transaction this year, the luxury property actually traded for about $100 million less than its previous sale in 2006. “At that time, it traded for $1 million per key, so it has lost significant value from the height of the market. But this is arguably an irreplaceable asset and it’s the type that is very much in demand by investors now,” stated Mr. Fasulo.

As another recent indicator of the current demand for well-located luxury lodging, REFI referenced the Helmsley Carlton House in Manhattan - a deal that closed in March for $1 million per-unit, according to RCA.

Both Big and Small, REITs Among Top Buyers of Commercial Property in 2010

Mon, 04 Oct 2010 14:28:25 GMT

Flush with cash and responsible to investors for quarterly dividends, real estate investment trusts (REITs) have been among the most active buyers of commercial real estate in 2010. In a recent article on the Multifamily Executive, Les Shaver illustrates this capital group’s aggressive buying agenda with an outline of recent REIT trades in the apartment sector. The recovering apartment sector has become a relative success story for commercial property as a whole; as Shaver points out, the apartment sector “has increased for the fifth consecutive month” as of August, according to the most recent Month in Review in Real Capital Analytics’ US Capital Trends, a weekly interactive online publication.

The Multifamily Executive cites large, national public REITs, such as Equity Residential and UDR, Inc., among the most recent buyers of significant apartment assets. However, “even the mid-sized and smaller REITs have been buyers. In fact, in some cases, they have been more aggressive than their larger brethren.” Regional and local players, including Mid-America Apartment Communities of Memphis and BRE Properties of San Francisco, have been behind some impressive apartment transactions over the past quarter as well.

The apartment sector is also home to a large number of distressed assets, with many being failed or in-process condo-conversion projects, and public REITs are taking advantage of these unique buying opportunities. Whether distressed or non-distressed, however, Multifamily Executive quotes RCA managing director Dan Fasulo as expecting, “transaction volumes to increase significantly through the year and into 2011…a lot of investors are ready to go again.” This could present REITs with competition that has been mostly absent over the recent past.

New Par for the Course? Two Sixth Avenue Properties Could Fetch Impressive Pricing

Wed, 29 Sep 2010 14:30:25 GMT

In a recent article that appeared on Crain’s, Real Capital Analytics’ managing director, Dan Fasulo, weighed in on the recently-offered 636 Sixth Avenue in Manhattan. According to Mr Fasulo, “the estimated Flatiron District building could get anywhere from $400 a square foot to $500 a square foot, for a price of around $32 million to $41 million.”

The article, which was reproduced on the Real Deal Online, was actually a feature on CB Richard Ellis-vice chairman Darcy Stacom, who is coordinating the sale of 636 Sixth Avenue as well as a pricy asset a few doors up at 1330 Sixth Avenue. According to Mr Fasulo, this asset could be sold by its current owners – a Canadian-government owned pension fund – for between $500-600 per-square-foot. Ms Stacom, who beat out other brokers to market the properties, has facilitated several of the largest transactions in 2010 – including 600 Lexington Avenue and 125 Park Avenue.

Commercial Real Estate Buyers Bumped from "Major" Markets Looking to North Carolina

Wed, 29 Sep 2010 14:28:25 GMT

North Carolina’s commercial property market is beginning to show signs of life, reports the Wall Street Journal (WSJ), after nearly two years of anxiety over lack of activity and the state’s dependence on the down-and-out banking sector. According to Real Capital Analytics, “the total value of office deals valued at $5 million and more that were under contract or completed in North Carolina rose to about $321 million through September of this year, compared with about $175 million for all of 2009.”

This activity corresponds to Real Capital’s latest analysis that revealed, with yields on high-quality properties in top-tier markets such as New York and Washington, DC falling to as low as 5.0% in the third quarter, buyers seeking core/stabilized assets have begun to look to other cities. “It likely helps that the expected return on many office sales in New York has fallen into the 5.0% range, while anticipated returned can be in the 8.0% range and above in smaller markets,” stated Real Capital’s managing director, Dan Fasulo. The WSJ stated that, “Until the recession hit, North Carolina was a growth machine,” with cities such as Charlotte, Raleigh, and Durham each posting several healthy years of economic diversification and growth. Now, North Carolina is back on buyers’ radar.

The WSJ also relies on Real Capital’s property transaction-level data in citing the presence of recent large deals in North Carolina’s markets: “…a fund sponsored by Hines of Houston also completed its acquisition of a 12-story Durham office building known as Hock Plaza for about $97.9 million. At about $299 a square foot, the Hines deal markets the highest price-per-square foot price fetched by a single large office building in the state since the end of 2008, according to Real Capital…”

Notable Apartment Deals Portray a Sector in Recovery

Mon, 27 Sep 2010 14:26:25 GMT

In the latest US Capital Trends, Real Capital Analytics’ analysis of the apartment sector identified $2.6 billion of multifamily properties transacting during the month of August, which was the highest one-month total since 2008. This report, however, was the latest in a series of analyses run by Real Capital over the past three months that yielded positive and optimistic trends in the apartment sector; the first indication of an uptick in apartment sales was detected earlier in the summer.

More recently, a broader consensus has formed on the building momentum currently being observed in the multifamily sector. On September 23, Multifamily Executive stated in agreement with Real Capital that, “The recession is officially over, and happy days are here again. Nowhere is that perhaps more true than in the multifamily space…” The article cited several recent reports released by credible firms of the commercial real estate industry on the subject; each report took a generally positive tone on the apartment sector’s prospects for the upcoming quarter.

The article conveys that multifamily’s momentum has been building for the past two quarters by relying on data originally provided by Real Capital in the firm’s “Mid-Year Review,” which ran in US Capital Trends during the month of July. “Through the second quarter, sales of apartment properties rose to $9.6 billion, up 69.9 percent from the first half of 2009,” quoted the article.

In 2010, REITs Hit Stock Market Cash-Machine Before Heading to CRE Marketplace

Fri, 24 Sep 2010 15:26:25 GMT

According to data from Real Capital Analytics, sales of commercial real estate in the US rose to $36.2 billion over the first half of 2010, a total that was 67 percent higher from one year earlier. A significant and growing share of that total belongs to purchases made by public real estate investment trusts (REITs), according to a recent article on Bloomberg.

Public REITs, which spent most of 2009 lying low and spending the capital they would ordinarily use on acquisitions instead on reducing their debt and issuing dividends, have returned to the marketplace to become some of the most active traders of commercial property in 2010. This, Bloomberg states, is because public REITs have the unique liquidity advantage of being able to turn to the stock exchange when they wish to raise capital – a source that former heavy-hitters such as equity funds and private investment firms are wishing now they could tap. Several public REITs, which according to Bloomberg include UDR, Inc., Duke Realty Corp., and BioMed Realty Trust Inc., have raised billions through stock sales. SNL Financial records show that, “This year’s secondary offerings by property REITs are the third-highest in SNL data going back to 2000.”

The article also demonstrated why those currently flush with capital, as REITs are, would be wise to invest now in commercial real estate assets. Among the reasons provided was the growth in property offerings, as well as the general pickup in the investment market as a whole, which is demonstrated in the provided Real Capital-sourced data.

Commercial Property Firms: Barometers of the Market Recovery

Fri, 24 Sep 2010 14:31:25 GMT

“Revenue grew 18% at Jones Lang [LaSalle] and 23% at CB Richard [Ellis] in the second quarter vs. a year ago. That was better than the first quarter and far stronger than late ’09, when early signs of a revenue uptick appeared.”

According to the logic of Marilyn Alva at Investor’s Business Daily, these increases in revenue are actually meaningful in that they signal, “commercial real estate is starting to get its pulse back – in stronger leasing volume, more property-management work and increased investment sales.” In other words, when the brokers are making money, it must be the case that market activity is beginning to recover.

CB Richard Ellis CEO Brett White modestly responded by stating that, “We’re in an early recovery…after the recovery gets going and the economy gets its steam you move into a long-term expansion.” Rents remain low after a year of extremely low demand, and those with commercial leases are looking to take advantage now that its clear the market has passed its low-point. Mr White’s firm has reported over 30 financial services firms in New York that have increased the amount of space they occupy through leases.

The rise in revenues at the largest brokerage firms also reflects the recent rise in pricing of commercial real estate that has come from confidence in the sector’s recovery. Dan Fasulo, Real Capital Analytics’ managing director, states in the article that he has “seen values skyrocket the last six months, especially in the major international cities.” All-in-all, positive signs for commercial real estate owners and investors.

New York Borrowers Wait for Ailing iStar to Make Next Move

Fri, 24 Sep 2010 14:27:25 GMT

Were iStar Financial to file for bankruptcy protection in the next 12 months, the proceedings could become a real headache for several projects currently underway in New York City, according to Crain's. The ailing firm's legacy loans are currently funding the Trump SoHo Condominiums and One Madison Park. Data from Real Capital Analytics, the article states, indicates that iStar also has some loans on properties currently going through foreclosure proceedings. These include properties on Sixth Avenue, 23rd Street, and in Midtown Manhattan among others.

According to Crain’s, iStar “had 11.7% of its loans concentrated in New York, as of the end of December 2009…it also has more than 10% of its loans in the troubled California and Florida real estate markets.” Though the firm is currently trying to restructure some or all of its $8.6 billion in debt, the article cites Bloomberg News as stating iStar may eventually need to seek bankruptcy protection.

For now, those with loans and financing from iStar will just have to wait, as “Any decision would need to be approved by a bankruptcy court…it delays the resolution,” according to Ben Thypin, an analyst at Real Capital.

Multifamily Sector Pulls Ahead of the Pack

Fri, 24 Sep 2010 13:29:25 GMT

The multifamily property sector is heating up, according to Real Capital Analytics’. Closed apartment property sales totaled $2.6 billion for the month ending August 31, which was the largest one-month volume reported in 2010 and “the most active month since August 2008.” Responding to these figures, in a recent Wall Street Journal article Real Capital’s managing director Dan Fasulo stated on behalf of the firm that, “We see prices rising rapidly for apartment communities all around the country, even in some of those secondary markets…”

There were several reasons provided, that made Real Capital’s robust multifamily forecast appropriate and timely. In addition to sales hitting a two-year high in August, new apartments coming to market totaled $3.3 billion – this was after $3.5 billion more in July. Mortgage rates for multifamily properties are at their lowest rates in over 50 years, prompting many to favor the apartment sector over less certain yields with higher lending rates for other property types. The multifamily sector’s pricing has been rising as well, reflecting higher demand, falling vacancy rates, and increasing rents - especially in the highest-quality markets.

Mr Fasulo was able to cite several examples that illustrated the recent and pending success of the multifamily sector. While Real Capital has stated the average apartment cap rate to be 6.7% in August, there have been plenty of properties transacting with yields below that mean. All of this will be “…more fuel, basically, for a fire that’s going to continue into the fall,” according to Mr Fasulo.

Retail Property Sector Set for Banner Q4

Fri, 24 Sep 2010 13:26:25 GMT

Though sales of significant retail properties have risen over the course of the summer, activity may be set to grow even further in the fourth quarter. Several current conditions allow industry professionals to believe this may be the case. “First, after waiting for more than a year to start dealing with the distressed assets on their books, lenders are feeling healthy enough to begin disposing of some of their troubled assets…institutional and private investors that have amassed war chests are ready to pounce on the deals that may come to light.”

Industry experts admit that the “long-predicted tsunami of distress will likely never materialize,” but rather there will continue to be a “continuous trickle of distress assets being put on the market.” This “trickle” of distressed assets is tracked monthly in Real Capital Analytics’ Troubled Asset Radar by market and analyzed frequently in the firm’s weekly US Capital Trends publication.

Dan Fasulo, managing director at Real Capital Analytics, cites several large portfolios sales that may be closed in the coming months as additional evidence of the retail sector’s improving position. After all, the summer rise in sales culminated with Simon Property Group’s long-delayed $2.3 billion acquisition of the Prime Outlets portfolio. “Portfolio deals serve as a sign of health because they show that buyers are finally able to secure the large loans necessary to complete portfolio acquisitions…Fasulo expects retail sales activity to accelerate throughout the fall.”

DC's Mayflower Hotel 'Underwater' in Growing Pool of Distressed Assets

Mon, 20 Sep 2010 17:29:25 GMT

According to a recent article on the Fiscal Times’ website, “$1.4 trillion of commercial real estate loans will come due nationwide in the next four years…” This is bad news for owners of commercial property, who have watched the value of their assets fall below their original loan amounts during the slide in property pricing over the past three years. Exemplifying this growing pool of “underwater assets,” the Fiscal Times goes in depth on Washington, DC’s historic Renaissance Mayflower Hotel. Owner Rockwood Capital took on around $200 million in debt in 2007 to buy the property for $260 million. The value of the property halved over the intervening years and today, Rockwood must find alternative financing to keep their investment afloat until property values regain lost ground. Otherwise the group faces defaulting on the property and the ensuing consequences. Many banks and other lenders have preferred to help owners avoid this situation, however, by offering “pretend and extend” short-term financing. Thereby, both lender and owner can hope to avoid foreclosing on the asset by waiting until property pricing comes off its lows.

On these underwater situations, the Fiscal Times quotes Anthony Westreich, chief executive of Monday Properties, who stated that, “While ‘lending and extending’ is keeping some properties out of foreclosure…other borrowers are surviving on savings or loans that are still locked into low interest rates. All that could change if interest rates rise, making loan payments pricier…which could push more properties onto the market and create opportunities for buyers.’

Ben Thypin, senior market analyst at Real Capital Analytics, agreed with Mr Westreich when he stated that, “The real flood of these maturing loans hasn’t happened, yet…if the economy doesn’t get better or gets worse, it’s not very good news.” On Mr Thypin’s point, the Fiscal Times concludes that “Unlike the residential mortgage market collapse, malaise in the commercial real estate sector is more a symptom of a sluggish economy than a looming threat to recovery…Trouble in commercial real estate merely reflects the health of the economy, whether slower retail sales, decreased tourism or corporate downsizings. While the sector affects state and local tax revenues and economic growth — thereby touching every taxpayer and resident in the country — it’s unlikely to single-handedly trigger a repeat of the 2008 financial crisis.”

Paramount Pays $800+ PSF for DC Trophy

Thu, 16 Sep 2010 14:28:25 GMT

After putting 1899 Pennsylvania Ave on the market in July, seller KanAm Grund Kapitalanlagegesellschaft has found a buyer for its 186,462-square-foot trophy asset. According to Real Capital Analytics, Paramount Group Inc has gone into contract for the Washington, DC property at a price just below $150 million. Depending on the final price, the property looks set to sell for over $800 per-square-foot and with a cap rate in the low 5.0%-range.

The office property involved in the sale was built in 1925 and was once occupied by the World Bank. It was extensively renovated in 2001 and is currently 100% leased. The Frankfurt-based seller of 1899 Pennsylvania Ave also recently sold the Evening Star Building, also in Washington, DC, for about $180 million.

Return of the Billion-Dollar Asset in NYC Tests Buyer Confidence, Capital

Fri, 10 Sep 2010 14:31:25 GMT

The fourth largest office building by gross leaseable area in New York City has been recently placed on the market – its price: about $2.0 billion. Owners of 111 Eighth Avenue, a 15-story pre-war building that covers an entire city block between 15th and 16th Streets in Manhattan, is testing the commercial real estate market’s recovery by asking over $600 for each of the well-located office tower’s three million square feet. The New York Times recently referenced the office offering a “verdict on the vitality of the New York market, or at least the appetite for big deals.” But is this too much, too soon, with the lessons of the real estate bubble still fresh in investors’ minds?

Dan Fasulo, managing director of Real Capital Analytics, is quoted in the Times’ article on the property offering as saying, “There haven’t been any sales of this size post-financial crisis… it's (111 Eighth Ave) a unique, mixed-use property in one of the best submarkets in Manhattan.” Regarding what types of buyers this outlier may appeal to in the current buying environment, Mr Fasulo suggests that “…real estate investment trusts will be all over it,” as those companies have amassed large quantities of capital over the past several quarters. Foreign buyers and large private-equity firms will also be interested as the asset is located in Manhattan, one of the most stable and active markets in the US, according to Mr. Fasulo.

For more on why 111 Eighth may prove to be the latest litmus test for the commercial real estate market’s return to robust activity, in Manhattan at least, see the full article on the New York Times website. For more recent transactions in Manhattan or the office sector, please see the Real Capital Analytics website.

Hotel Sales Outperform as Travel Picks Up

Thu, 09 Sep 2010 10:32:40 GMT

Sales of hotels spiked in the first half of 2010, according to Real Capital Analytics, rising by 136% compared to the same period one year earlier. Sales of hotels totaled $3.2 billion in the first half of 2010, up from just $1.4 reached over the same period in 2009. Though in absolute dollar volume sales of hotel properties remain relatively low compared to other property types – including office and apartment assets – and to the sector’s own historical volume, hotel’s one-year rise has clearly outpaced comparative increases for any other sector. In comparison, office and apartment sales rose by 82 percent and 51 percent, respectively over the same one-year period.

Using Real Capital’s data trends as a starting point, Bloomberg contributing author Nadja Brandt identified potential reasons for the remarkable rise in hotel sales over the past two quarters. These include a “rebound in business and leisure travel” underway in the US, and the ability of hotel owners to instantly boost rates and “take advantage of economic growth” – a feature unique to hotel properties, as other sectors dependent on long-term leases can be slower to react to an economic recovery.

Bloomberg’s Brandt also provided some insight into recent hotel sales, hotel operator and owner profits (which have been beating economists’ estimates), and the growing trend of real estate investment trusts buying hotel assets. For the latest on the hotel sector’s trends and analysis, please see the full article on Bloomberg and Real Capital Analytic’s weekly online publication, US Capital Trends.

Colleges Resume Buying Ahead of Expected Rise in Pricing

Tue, 07 Sep 2010 13:27:25 GMT

According to the Arizona Daily Star, colleges across the country are taking advantage of the buyers’ market in commercial real estate property and land. Dan Fasulo, managing director of Real Capital Analytics, supports the Daily Star’s findings, stating that, “universities were very much shut out of the market at its top…you really couldn’t compete with private investors who were scooping up properties in their neighborhoods.” Now, colleges appear to be buying up property and land at bargain basement prices while private and other public buyers remain on the sidelines. Their purchases may even remain vacant or leased to outside parties for years to come, as enrollment growth dictates their use of the space.

For recent deals involving university buyers and other comments on this topic, please see the full article on the Daily Star’s website.

Hawaii Foreclosure Wave Crashes Over Lehman's Ritz-Carlton

Tue, 07 Sep 2010 10:50:40 GMT

On Tuesday, September 07, Lehman Brothers Holdings Inc.’s estate filed for foreclosure on the Ritz-Carlton Kapalua Resort in Hawaii. The hotel property has been in default for over one year on its $255.0 million mortgage and JV owners Gencom Group and Goldman Sach’s Whitehall Street Global Real Estate LP are not expected to fight the proceedings in court. The Ritz-Carlton venture fell into trouble mainly due to the failure of the owners to follow through on a renovation plan, which included converting 107 of the hotel’s units into luxury condominiums.

This foreclosure is but one in a long line of assets that have become troubled or distressed in Hawaii over the past year. The Wall Street Journal quotes Real Capital Analytics’ data on Hawaii’s beleaguered hotel sector: “Real Capital Analytics counts roughly $2.1 billion in troubled mortgages attached to 11 properties in the state that have defaulted since the start of the recession in 2008.”

Buy Commercial Property as US Bonds Reach Record Lows

Wed, 01 Sep 2010 13:29:25 GMT

According to Real Capital, $20.7 billion of significant commercial, apartment, and hotel properties sold in the first half of 2010. This was up from just $11.1 billion over the same period in 2009. At the same time, cap rates have declined from their relative highs posted late last year, but remain elevated in comparison to their historical averages.

In a recent article on Bloomberg.com, author Hui-yong Yu indicated that the rise in sales might be a result of a shift in investors’ strategies. Based on data from the National Council of Real Estate Investment Fiduciaries (NCREIF), Yu illustrated that, with high-demand pushing US Treasury yields to near-record lows, investors may be reconsidering commercial real estate for its return potential. As US Treasury Bond yields hover near 2.7%, the relatively safe commercial and multifamily properties are still trading with cap rates (yields) well above 7.0% on average. According to the NCREIF, the gap between the two yields has been as wide as 475 basis points in the month of August, which can translate into millions of dollars to the large-scale investor.

With this sizable gap between yields, and no assurances bond demand will fall in the second half of the year, investors just may continue escaping to commercial property markets. Should they do so, yields on commercial properties may fall as a result. Already in 2010, Real Capital has reported cap rates below 6.0% on office buildings in prime markets. For lesser quality buildings in secondary or tertiary markets, cap rates go up from there, well into the 9.0%-range.

Stuy Town/PCV Battle Heads to New York Supreme Court

Wed, 01 Sep 2010 13:27:25 GMT

The battle for control of the massive 56-building Stuyvesant Town/Peter Cooper Village complex in Manhattan will continue in the New York Supreme Court on Thursday, September 2, 2010. Justice Richard Lowe is set to hear arguments from both the property’s current debt holder trustees (Bank of American and US Bancorp) and PSW NYC LLC (a joint venture between William Ackman’s Pershing Square Capital Management LP and Winthrop Realty Trust, which has purchased a defaulted $300.0 million mezzanine loan that was underlying the property in an attempt to capture the entire asset).

Bank of American and US Bancorp are expected to argue that the JV must pay the principal due on the property plus interest and penalties in full, which could amount to $3.66 billion, before taking control of the complex. Otherwise, a bankruptcy filing could cause these entities to endure heavy losses on their boom-year loans. According to Real Capital’s senior market analyst Ben Thypin, “senior lenders have every legal right to foreclose, but in practice they don’t want to because they have to pay millions of dollars of transfer taxes, and still need someone to buy and manage the property…it will take months, if not quarters, to resolve this.” He also believe that, “The most likely scenario is an equity foreclosure by the mezzanine lenders, after they agree with senior lenders to modify terms of the senior loan. No one could buy the property with the $3 billion loan at the current terms.”

Commercial Mortgage Defaults Slow in Second Quarter

Wed, 01 Sep 2010 10:26:40 GMT

According to FDIC data from the second quarter, as well as quarterly bank filings, the second quarter default rate for commercial, non-multifamily mortgages increased by 9 basis points, from 4.19% in the first quarter to 4.28%. This was the smallest quarterly increase since the third quarter of 2007, noted Dr. Sam Chandan, Global Chief Economist of Real Capital Analytics and an adjunct professor at the Wharton School of the University of Pennsylvania. Quarterly rises in the default rate have been steadily decelerating over the past year, though the absolute rate of 4.28% remains at its highest level in over 18 years.

Dr. Chandan confirmed that while a slowing pace of new defaults is encouraging for banks, any “…further easing will likely depend upon economic and labor market conditions supporting an improvement in credit and stabilization of property fundamentals.” These immediate challenges, along with “…difficulties in meeting recurring principal and interest obligations during the life…”of loans stand in the way of long-term stabilization.

The default rate for multifamily mortgages fell in the second quarter to 4.16%, but remains 103 basis points higher than one year ago. The recent decline in multifamily defaults is the result of improving fundamentals, according to Chandan – the broader commercial market is lagging behind in these parameters. The headline decline in multifamily mortgage defaults was not felt equally by banks of various size, with the largest banks seeing the steepest decrease in new defaults. Smaller banks remain under the stress of more new defaults in the multifamily sector.

For the full report, containing Dr. Chandan’s outlook for the mortgage market, continue to the GlobeSt.com article.

European Lenders Still Cleaning Up Boom Year Mess in US

Thu, 26 Aug 2010 15:30:25 GMT

Exemplifying foreign lenders’ hubris in the US during the boom years is the case of Snowmass Village near Aspen, Colorado. In 2007, Germany-based Hypo Real Estate Holding AG provided $520.0 million in construction financing to the developers of the property, which has become the second largest ski resort in America. Since that time, the global economic crisis has burned foreign lenders who charged into the US during the property bubble; Hype has since collapsed under its outstanding obligations and was seized in 2009 by the German government. Construction at Snowmass Village remains incomplete to this day, with some planned condos half built and wrapped in plastic awaiting their fate.

Overall, Hypo lent over $8.0 billion to US developers over the past decade, while all foreign lending to US commercial real estate reached $35.0 billion as of July 2010. According to Real Capital, more than $15.0 billion of these loans, including Hypo’s significant portion of US holdings, have become “troubled” – or classified as delinquent, defaulted, foreclosed, or in bankruptcy.

Real Capital analyst Ben Thypin iterated to Bloomberg that similar to the Snowmass/Hypo tie-up, “European banks enthusiastically increased their US commercial real estate lending during the boom…many of these banks are now being forced to dispose of non-core assets…” Lending firms such as Hypo or Bayerische Landesbank, Germany’s second-largest state-owned lender, have been provided with a multi-billion dollar bailout by the German government. This, according to Bloomberg however, has provided these dependent lenders with three main options: “The can keep overseeing the loans and manage workouts on their own; sell them for cash, probably at a substantial discount; or partner with private managers, as the US Federal Deposit Insurance Corp. has done…” Lenders seem keen to avoid a fire sale, though that remains one of the ultimate options.

Buyer's Appetite Outpaces Sales Pipeline, in Manhattan at Least

Thu, 26 Aug 2010 00:00:40 GMT

Waterman Interests, in a joint venture with other institutional investors, purchased a 21-story office tower at 400 Park Ave and 54th Street in Manhattan for an undisclosed price on Wednesday, August 26. According to Philip Waterman, a managing member of the company, the property at 400 Park “is located on a corner that is among the best in the country, if not the world, for business and retail.” Making the sale even more remarkable, the property could be classified as value-add as it is currently 30% vacant, with the lease on its 70,000 square feet of retail space, occupied by Syms, set to expire in 2011.

Regarding the sale of 400 Park, Dan Fasulo, Real Capital’s managing director, chimed in on the spate of large one-off sales that have been occurring in Manhattan over the past few months. Fasulo states that “the market has definitely opened up again…” and that the renewed avidness of buyers has not been matched by an increase in opportunities to purchase. Buyers have also been more willing to take “more risk”, according to Mr. Fasulo, similar to the value-add situation at 400 Park. Investors willing to pay prices well above estimates, even for lesser-quality properties, have pushed up pricing for property, particularly in primary markets as of late (see Real Capital’s US Capital Trends article for more info on market tier disparities).

Edens & Avant Buy More Retail Assets in Washington, DC

Tue, 24 Aug 2010 14:30:25 GMT

Edens & Avant, a national retail developer and operator, said Monday it has purchased the Hunters Woods Village Center in Reston, VA for an undisclosed price, an acquisition that brings to 30 the number of Washington area shopping centers owned by the company.

Anchored by a Safeway grocery store, the 120,195-square-foot Hunters Woods is typical of the more than 129 retail centers in Edens & Avant's national portfolio. The company, based in Columbia, S.C., specializes in the acquisition and development of neighborhood shopping centers or mixed-use, open-air properties.

This latest deal comes on the heels of a string of recent buildouts and renovations for Edens & Avant in the Washington region. In late June, Edens & Avant broke ground on the Mosaic, a 31-acre town center in Merrifield scheduled to open in fall 2012. The development, which is more than 60 percent leased, features 400,000 square feet of retail space, a 150-key hotel room, 60,000 square feet of office space, an eight-screen movie theater and 114 townhouses.

Work is also underway for the redevelopment of two additional properties in Northern Virginia. At the Shops at West Falls Church, just off Lee Highway, the company is remodeling the Safeway and adding a pancake house. Edens & Avant bought the 85,097-square-foot shopping mall in 2005 for $18.6 million as a part of the purchase of several properties, according to global commercial property research firm Real Capital Analytics.

European Hotels Maintain Their Value with Slow Development

Tue, 17 Aug 2010 14:33:25 GMT

European hotels have managed to hold their value reasonably well during the downturn, catching the eyes of investors, according to a Bloomberg report.

In 2009, hotel values fell further in the US than in Europe as new buildings added to the number of properties on the market (and in distress), according to Real Capital Analytics, publishers of Global Capital Trends. At the same time, occupancy and room rates in Europe increased at a faster pace than in the US, fueled by hotels in France and Germany.

Prices per room dropped by 24% in Europe last year to $223,475, while the US saw a larger decline of 35% to $105,151, Real Capital Analytics said. In 2008, European values increased 29%, compared with only 20% in the U.S.

Many US hotels acquired during the peak years of 2006 and 2007 were financed with a high percentage of debt, putting additional pressure on values. Over the first half of 2010, US hotel assets falling into distress totaled $8.0 billion, including $1.9 billion taken back as REO.

Is it Time to Buy Commercial Real Estate? (Video)

Fri, 13 Aug 2010 14:31:25 GMT

The commercial real estate market is recovering from an awful recession, but may not be suited to all types of investors, Richard Yorke from Real Capital Analytics told CNBC on Friday.

RCA's mid-year Global Capital Trends report shows that in the first half of 2010, commercial property transaction volume reached €47.3 billion in EMEA (Europe, the Middle East and Africa), which is a 41 percent increase compared to the same period in 2009.

Low yields in primary markets (London, Berlin, Paris) have prompted frustrated investors to look to secondary cities and emerging markets. Eastern Europe, particularly Poland, saw the greatest surge in transactions over the first half of the year. Western Europe was weighed down by declining transactions and rising cap rates in Spain and Italy.

"Some investors are looking for long-term gains, so we're seeing people like the National Pension Service (NPS) of Korea buying the Sony Center in Berlin for over 500 million Euros at a very skinny yield" says Yorke. "Clearly some investors are more opportunistic, more speculative, and tend to look at second tier locations like Eastern Europe - Hungary and Ukraine are particularly popular at the moment."

MidEast Investors Eye US Commercial Property

Wed, 11 Aug 2010 14:31:25 GMT

Middle East investors were the largest cross-border buyers in US commercial property before the financial crisis hit but have largely stayed out of the market for two years.

International investors spent USD 2.2 billion (Dh 8.08 billion) in the US commercial property market in Q2, a 76% increase from Q1, according to Real Capital Analytics, which tracks commercial property transactions globally. Analysts said this growth would accelerate in the second half of 2010; however, transaction activity would be determined by sellers who had been reluctant to offer choice properties so far.

Major UAE investors such as the Abu Dhabi Investment Council (ADIC) put USD 5.9 billion into the US commercial property market in 2008, more than Europe, Asia and the Americas combined, according to Real Capital Analytics (RCA). This included the 2008 acquisition of the Chrysler Building in New York City by ADIC.

But the region’s investments dropped last year to just $100 million. Dubai’s financial troubles led its investors to stop stay out of the market for “trophy” properties and instead put money into REITs (real estate investment trusts) or private equity funds, according to observers.

Lately, commercial real estate buyers became more aggressive. One property of interest for Middle East investors could be the John Hancock Tower in Boston. The 95% stake in the tower on offer (which could be worth USD 1 billion) could be acquired by MidEast companies, according to Stephen Collins, a managing director at Jones Lang LaSalle.

High US taxes on foreign property investors have impeded investment. Only 5% of aggregate US commercial property purchases involve foreign capital compared with 50% in the UK, said Dan Fasulo, managing director at RCA in New York City.

Dr. Sam Chandan Presenting "State of the Commercial Real Estate Market" at Trigild Lender Conference

Tue, 10 Aug 2010 14:31:25 GMT

As commercial foreclosures and loan defaults continue to sweep the country, top financial and legal experts -- among them noted economist Sam Chandan, Ph.D., and best selling author Todd Buchholz -- will convene in San Diego Oct. 20-22 to discuss the state of the economy and the very latest options for maximizing loan recovery.

Headlining the tenth annual Trigild Lender Conference -- themed “Lighting the Tunnel to Recovery” -- are two erudite and compelling speakers: Buchholz, a successful hedge fund manager, author of “New Ideas from Dead Economists” and former director of economic policy at the White House, and Sam Chandan, Ph.D., global chief economist and executive vice president of global commercial property research firm Real Capital Analytics and professor at the Wharton School at the University of Pennsylvania. Buchholz will present “Competing in a Chaotic Economy,” while Chandan will address the “State of the Commercial Real Estate Market.”

Other presenters and panelists include many of the nation's most respected executives within the loan servicing industry.

Barcelone Retail Center in Las Vegas Troubled

Tue, 10 Aug 2010 12:54:25 GMT

Global commercial property research firm Real Capital Analytics listed the 10,000-square-foot Las Vegas salon and spa Barcelone as a "troubled" property in October 2009 and reported that the retail center at 8751 W. Charleston Blvd. had gone into receivership, a form of bankruptcy in which a company can reorganize under a court-appointed trustee.

The center, consisting of 51,000 square feet in four buildings, is owned by SRT Barcelone LLC, and the lender is J.E. Robert Cos. The property last sold for $12 million in May 2007 and has a $5.4 million first mortgage, Real Capital Analytics reported. The default rate for commercial mortgages stood at 4.17 percent at the end of the first quarter, or $45.5 billion, second only to the 4.55 percent in 1992, according to an analysis of bank and FDIC data by Real Capital Analytics. It's expected to surpass that mark by year's end and peak at 5.4 percent in 2011.

Facing Widespread Foreclosures, Banks Allowing Some Debtors a Free Pass

Mon, 09 Aug 2010 14:35:25 GMT

According to Dan Fasulo, Managing Director of Real Capital Analytics, debtors who took excessive risks in the cheap debt environment of years past have overwhelmed banks' abilities to hold every borrower fully accountable for their liabilities. "A lot of investors who lost money in this cycle are going to be given a pass...," said Fasulo, due to the unique nature of the most recent downturn, which is causing foreclosures to stack up on lenders' balance sheets both in number and in volume. Given the fallout in pricing and sheer number of troubled assets witnessed over the past two years, lenders that have distressed properties on their books have been more willing than during previous cycles to restructure or extend loans.

The practice of playing massive boom-year outstanding liabilities against banks' tolerance for recouping losses was exemplified in a recent profile on Joe Moinian by the Wall Street Journal. Mr. Moinian, a major commercial real estate developer with 20 million square feet of US holdings, has been able to restructure several hundred million dollars of debt backing high-profile properties such as the W Hotel in downtown Manhattan, and assets in Los Angeles.

NY Mets Owner 90 Days Delinquent on Long Island Office Assets

Mon, 09 Aug 2010 14:25:25 GMT

New York Mets owner Fred Wilpon appears to be striking out on a bet on the Long Island office market.

An affiliate of Sterling American Property Inc., a company owned by Mr. Wilpon and others that invests in commercial real estate, is more than 90 days delinquent on a securitized loan on the Woodlands Office Park, a 128,000-square-foot, three-building complex on Veterans Memorial Highway in Hauppauge.

Gregory Nero, general counsel for Sterling American said he couldn't confirm or deny the delinquency. Phil Wachtler, Mr. Wilpon's son-in-law and principal of the office park's manager Wachtler Knopf Equities LLC, said he wasn't aware of any delinquent payments. "I'm focused on getting tenants in buildings," he said. "The issue with the banks and the lenders is not something I'm involved in."

The problems at Woodlands Office Park are a sign that in the current commercial real estate downturn even well capitalized owners are clashing with lenders over troubled properties. Besides owning the Mets, Mr. Wilpon's main company, Sterling Equities, has purchased or developed over 23 million square feet of apartments, stores, office buildings and four major sports complexes.

But owners large and small have tried to restructure mortgages with creditors when the value of individual properties fall below the amount of their debts.

Long Island saw a lot of properties trade hands near the peak of the market. In 2007 alone, 62 Long Island office buildings traded for $1.8 billion, according to global commercial property research firm Real Capital Analytics. But sales slowed with the downturn: Last year, eight Island buildings went for just $39 million.

Commercial Property Developer Colony May Quit on Xanadu

Mon, 09 Aug 2010 13:54:25 GMT

Meadowlands Xanadu, a massive $2 billion entertainment and shopping complex in New Jersey that has been under development for more than four years, is facing another setback according to Bloomberg News. Colony Capital LLC, backed by billionaire Thomas J. Barrack Jr., may be forced to relinquish control over the project, after investing several hundred million dollars into the center to-date.

According to Real Capital Analytics' Ben Thypin, "If Colony hands over the keys, that would indicate the firm doesn't think Xanadu is [the] most productive use of their resources despite the significant amount of capital they've already committed...that shows it's uncertain as to when Xanadu will produce income, much less become profitable."

Originally scheduled for completion in 2007, Xanadu has been plagued by problems since construction began. Colony, along with a group of partners, took over the project in 2006 from Mills Corp. after the company ran out of funds. Lehman Brothers was forced to abandon the project as a source of credit after filing for bankruptcy in 2008.

Foreclosure Proceedings Not Deterring Stuy Town's Newest Suitors

Mon, 09 Aug 2010 13:29:25 GMT

Although its 2006 sale exemplified the sum total of hubris during the commercial property boom years, Stuyvesant Town and Peter Cooper Village has seemingly maintained its allure for investors since owners Tishman Speyer and BlackRock Realty foreclosed on the property in January 2010.

The New York Times reports that several partnerships have been preparing to make an offer to the current bondholders for control of the property. Winthrop Realty Trust and Pershing Square Capital entered talks with bondholders on Monday, August 9, 2010, proposing to convert Stuy Town's rental apartments into an "affordable cooperative" under their plan for ownership. Other entities, such as Colony Capital, Westwood Capital, and high-net-worth investors have also informally showed interest in the property.

To explain the sudden investor interest in the massively indebted property, Real Capital Analytics' Ben Thypin stated, "Despite the turbulence surrounding this property in recent years...Stuyvesant Town remains an irreplaceable asset that many deep-pocketed players will be interested in.” With 110 buildings containing 11,226 units and 25,000 tenants, Stuy Town would be both a cash cow and a flagship asset to any entity that could maintain control.

Despite these attractive possibilities, any future owner would have to anticipate owning a property worth far less than the debt it currently backs and a tenant organization that is coherent and fatigued from the uncertain circumstances faced under the previous owners. “No entity can be successful without the cooperation and support of the tenants,” stated the Times.

Second Quarter Surge in CRE Market

Mon, 09 Aug 2010 12:30:25 GMT

A new report on global commercial property transactions shows that sales of major properties valued at $10 million or more surged in the first half by 75% compared with the same period in 2009.

Through the end of the second quarter, 2010 sales reached $231 billion, according to the report issued today by New York-based research firm Real Capital Analytics (RCA). That figure is 75% higher than a year earlier and includes the apartment, retail, office, industrial and hotel sectors.

Commercial property sales in top U.S. markets such as Washington, D.C., New York and San Francisco helped drive the global momentum and a 21% increase in transactions within the Americas from the first quarter to the second, according to RCA.

“Activity in the Americas really exploded,” says Dan Fasulo, managing director at RCA. “It makes sense in that the U.S. has been two to four quarters behind Europe and Asia with recovery.”

Sales of commercial properties in the Americas totaled $22.1 billion, the highest since the third quarter of 2008, the company reports. Total volume in the first half reached $39.7 billion in the Americas, an 83% gain over the first half of 2009. Of that total, the largest share, $33.2 billion in property sales, took place in the U.S.

Las Vegas CRE Market Slowly Improving

Mon, 09 Aug 2010 12:29:25 GMT

The fortunes of Las Vegas’ commercial real estate industry have taken a turn for the better.

Sales of commercial properties in Las Vegas jumped 16% in the first half of 2010 compared with the same period last year, according to global commercial property research firm Real Capital Analytics (RCA) in a new report. Across the five commercial property sectors, sales totaled $158 million.

However, the number of deals shrank by 36% in the first half of 2010 compared with the same period of 2009, to a total of seven. That indicates that individual sales are larger by dollar volume — a healthy sign, according to RCA.

The largest share of the spending so far this year occurred in the retail sector, where investors spent $105 million in two deals. Investors also spent $18 million for industrial properties, in a single deal. Meanwhile, three multifamily sales in Las Vegas totaled $11 million in the first half.

The further the global economy moves from the recent recession, the stronger the commercial real estate recovery will be, says Dan Fasulo, managing director at RCA. “The first half of 2009 is going to wind up being the low point with regard to transactions.”

Barring another nationwide or global economic slowdown, the commercial real estate market and other financial markets are expected to continue on a path to recovery, says Fasulo. The number of transactions is expected to rise in 2011 and 2012, he adds.

New Owners for Three High-End Apartment Buildings

Mon, 09 Aug 2010 00:00:40 GMT

Three recently built apartment properties in affluent areas of Houston have changed hands.

Invesco Real Estate has purchased Alexan Upper Kirby, a 230-unit property at 2300 Richmond, from Trammell Crow Residential. The property was completed in 2008 and is 99 percent leased.

JRK Property Holdings has purchased The Retreat at Cinco Ranch at 3306 South Fry Road from Allied Realty Services and GE Capital Real Estate.

Behringer Harvard Multifamily REIT I has acquired Uptown Post Oak, consisting of 392 units at 1111 Post Oak, from Trammell Crow Residential. The mid-rise project was completed in 2008 and contains units from 638 to 1,573 square feet. The deal follows Behringer Harvard's recent purchase of Briar Forest Lofts in the Westchase area.

Craig LaFollette, Todd Stewart and Todd Marix, Tre Banks and Chris Curry of HFF marketed the Alexan Upper Kirby and The Retreat at Cinco Ranch on behalf of the sellers. Apartment Realty Advisors handled the Alexan deal. Tucker Knight of HFF arranged financing for JFK Property Holdings.

Each of the three deals drew more than 20 offers, said LaFollette of HFF.

"The activity is indicative of the lack of good new product on the market," LaFollette said. "We've got a dumbbell market right now. We've either got Class A suburban and in fill or Class C assets. There's very little trades going on in the middle market."

In the first half of the year, apartment transactions in the Houston area totaled $451 million in 28 deals, according to global commercial property research firm Real Capital Analytics. That compares with a total of $306 million in 18 deals in the first half of 2009. The deals include transactions of $5 million or more.

Banks Cut Prices to Dump Troubled Commercial Real Estate Assets

Fri, 06 Aug 2010 14:48:25 GMT

According to the Orlando Business Journal, banks are "slashing prices" to exit distressed assets in the beleaguered central Florida market from their balance sheets. This is in contrast to the persistent holding pattern observed over the past two years, when banks were willing to hold onto foreclosed assets until market momentum returned.

Real Capital Analytics, which reports regularly on distressed assets in Orlando and around the US, stated in its July 2010 Troubled Assets Report that the Orlando metro area was home to $2.7 billion of distressed commercial properties. This was down from $3.0-4.0 billion that prevailed one year prior.

With this decline in distress, workouts have been on the rise. This news is encouraging for bullish investors that have been patiently waiting on the sidelines for troubled and foreclosed-upon bargains. With distressed sales taking a larger share of total commercial sales, however, property pricing may remain suppressed for the foreseeable future as banks continue to clear out their foreclosed inventory.

Top-Tier Commercial Property Markets Lead Hotel Sales Rebound

Fri, 06 Aug 2010 14:38:25 GMT

In a recent in-depth article on the hotel sector, Bloomberg News stated that while a lodging recovery is underway in leading metros such as New York and Los Angeles, less visible markets are still stagnant and full of distressed assets.

As occupancy rates in major cities have come off their lows on account of business and international travelers, hotels outside of these metros have struggled to fill rooms as macroeconomic troubles have forced many to cut back on discretionary spending. This has also allowed hotel operators to raise nightly rates at popular destinations, but forced others to maintain discounts and incentives at secondary locations.

This coverage of the hotel sector was supported by Real Capital Analytics' Ben Thypin, who stated that, “Secondary and tertiary markets are much more linked to consumer spending and business travel, whereas primary ones get international, leisure and business travel.” The bifurcation between leading and secondary markets, first brought to light by Real Capital Analytics' US Capital Trends publication in December 2009, has only become more apparent over 2010.

Sovereign Wealth Fund CIC Bids for Harvard's Property Portfolio

Wed, 04 Aug 2010 15:29:25 GMT

China Investment Corp, the world's richest sovereign wealth fund, aims to acquire stakes in six real estate funds held by Harvard University.

CIC reportedly plans to offer about $500 mil. for the holdings in a major step into the troubled U.S. commercial property market.

The deal would follow commitments that CIC, China's $300 bil. fund, has purportedly made to invest $1 bil. each in funds managed by Brookfield Asset Management and Cornerstone Real Estate Advisers.

The deals reflect a broader advance by CIC to deploy capital after largely staying on the sidelines amid the global financial crisis. Holding more capital than any other investor globally, China Investment Corp has increased the proportion of assets allocated to higher-risk assets.

The move also contrasts with the general retreat from commercial real estate. American institutional investors, like Harvard, are struggling with large investments made in the sector during the boom years.

Terms of the Harvard deal weren't available, but over the past 12 months, real estate funds have been offered for as much as 80 percent below net asset value, according to industry experts.

CIC is looking to boost exposure to U.S. real estate in a way that avoids the political and public-relations backlash that often accompanies foreign investment in high-profile U.S. assets.

Commercial property today is particularly appealing to foreign investors because values are low and more than $1 tril. of property debt is set to mature in the next five years. That is causing huge headaches for U.S. creditors and landlords, but it means opportunities for cash-rich investors looking to fill funding needs and rack up handsome returns.

Other foreign investors are also looking to take advantage of declined values in U.S. property. In the second quarter, investors from South Korea, Canada, Kuwait, the Netherlands and other countries acquired about $2.2 bil. of skyscrapers and other properties in the U.S., more than five times the amount seen a year earlier, according to research firm Real Capital Analytics.

The inflow of foreign investment still pales in comparison to the levels seen from 2003 to early 2008. For example, overseas investments totalled about $8.7 bil. in the third quarter of 2007 alone, the peak of the property market.

Chicago Office Tower Deal Sets Pricing Record

Tue, 03 Aug 2010 14:32:25 GMT

Last week, 300 North LaSalle St. in Chicago sold for a record price of $655 mil. Some commercial property players are stunned. But in the current real estate environment, there is a widening gap in commercial property valuation where office buildings with a lot of vacancy get little interest, while bidding wars erupt for those that are fully leased with strong tenants. Landlords with high vacancy buildings are seeing the value of their buildings fall with the growing difficulty in filling available space.

KBS, a real estate company based in Newport Beach, CA purchased the 1.3 million sq.ft. office building overlooking the Chicago River via a private real-estate investment trust for about $500 per sq.ft. That's the most expensive price ever paid for a office building in Chicago on a sq.ft. basis, according to Real Capital Analytics. Compared to this, the tallest building in the United States, the Willis Tower (formerly the Sears Tower), was an unbelievable bargain at $244 a sq.ft. when it sold in 2004 for about $840 million.

"I can't remember in modern history the pricing spread being so high between core Class A and more lower-quality assets," said Dan Fasulo, managing director at Real Capital Analytics. "Some of the pricing being achieved by the top buildings in the global cities in the U.S. are really shocking a lot of industry observers."

The tower at 300 N. LaSalle generates an annual net income of about $43 mil., which means a yield of about 6.5% on the $655 mil. that KBS has committed. That yield, or "cap rate" as it is known in commercial real estate speak, is within the range seen in Chicago during the height of the market in 2006 and 2007, according to Real Capital.

See the recent RCA article Property Portfolios of REITs and Lenders Balloon.

Retail Sales Down in the first half of 2010

Mon, 02 Aug 2010 15:30:25 GMT

Sales of significant retail properties (transactions greater than $5 million) slipped to $2.9 billion in the second quarter of 2010, down 9 percent from $3.2 billion in the first quarter. Overall it is the seventh time in the last eight quarters that the volume of investment sales on retail properties has been below $5.0 billion, according to global commercial property research firm Real Capital Analytics, indicating that the overall investment sales climate remains cool.

For the first six months of 2010, the total volume of significant retail properties that changed hands amounted to $6.1 billion. That is a 43 percent gain over the first half of last year, which increasingly is looking like the market’s nadir. Yet even with the total dollar volume up, the number of properties that changed hands was actually down 12 percent compared with last year. In the first half of 2009 462 assets changed hands in comparison with 346 in the first half of 2010.

The investment sales market is dominated by transactions on top properties. As a result, the average cap rates on retail property sales have begun to decline after rising for six straight quarters. Cap rates on closed transactions peaked at 8.25 percent in the fourth quarter of 2009 before dropping to 8.21 percent in the first quarter of 2010 and then to 8.03 percent in the second quarter.

According to the report, “The retail sector exhibited significant variation in cap rates on closed sales over the first part of this year. Some of the highest quality retail assets commanded rates below 7.0 percent, while some distressed assets sold with cap rates close to 10.0 percent.”

Mixed Signals in the Apartment Sector

Mon, 02 Aug 2010 14:32:25 GMT

The apartment market is beginning to edge out of the worst recession since the Great Depression. The market’s current conditions warrant neither a “clear the decks” nor an “all clear.” Instead, it comes down to knowing individual assets and markets, and how they fit into the broader economic and real estate cycle.

Here are several trends key to understanding where the multifamily market is today—and where it may be headed.

Apartments have typically commanded the lowest capitalization rates (and therefore the highest prices per dollar of net income) of the major income property types. When condo conversions peaked in the fourth quarter of 2005, investment grade apartment buildings were selling at average cap rates of 5.8 percent—a 17 percent premium to the average cap rate for office properties and a 21 percent premium to caps for retail, based on data from global commercial property research firm Real Capital Analytics.

However, the same data shows that with the recession and subsequent investor reticence, the volume of multifamily property sales fell to a relative trickle—just $14 billion in 2009. Prices for the properties that did change hands—often distressed transactions—fell too, and cap rates rose. According to the Moody’s/ REAL Commercial Property Price Index, peak-to-trough prices fell by 40 percent for apartment buildings, compared to a decline of 36 percent for office properties and a 32 percent decline for retail.

Investment Sales Nationally—Where To?

Thu, 29 Jul 2010 15:31:25 GMT

Real Capital Analytics reported last week that national multifamily and commercial real estate sales spiked in June, rising to $9.7 billion in the month. This was the highest volume of significant commercial property sales since September 2008. The latest closings pushed sales for the first half of 2010 to $36.2 billion, up 67 percent from the cyclical low during the same period one year earlier.

The increase in activity-over the year, from the first to the second quarter and over the second quarter itself-suggests that investors remain largely undeterred by downward revisions to the economic outlook and shots across stability's bow from Europe's debt markets. The current tally of properties in contract suggests that prevailing levels of activity will be sustained into the third quarter.

The rise in sales coincides with tentative improvements in national pricing trends as well. The Moody's/REAL Commercial Property Price Index, based on repeat sales data from Real Capital, shows a 3.6 percent increase in its all-property-types index for May. Like headline measures of transaction volume, prices have come off their lows, rising by 8.6 percent since their nadir in October 2009. Across the sectors and for all transactions, cap rates were consistently lower at midyear as compared to late-2009 highs. In the office sector, in particular, average cap rates for closed sales in June were just below 8 percent, almost 100 basis points lower than in January.

Dodd-Frank on the Books, will Commercial Real Estate come out Unscathed?

Mon, 26 Jul 2010 14:23:25 GMT

Real Capital’s Executive Vice President and Global Chief Economist, Dr. Sam Chandan, describes the immediately apparent implications of the recently-passed Dodd-Frank Act on capital sectors in this article for the Commercial Observer.

On the passing of the controversial financial reform act, Dr. Chandan states that, “Ongoing disagreements over how to preclude another crisis will persist, as do disagreements over what triggered the crisis. There is the potential for reform and improvement in every aspect of the financial system. The characterization of the crisis, however, still suggests an unwillingness to acknowledge systemic failures, indicating shortsightedness on the part of policy makers and consumers in addition to the nation's financial engineers.”

Dr. Chandan points out that the government feels as though it has identified what precipitated the most recent economic crisis and, in the Dodd-Frank Act, created a law that will prevent these problems in the future. He also states, however, that to the extent that world economies are more integrated than ever, so too must be the response to financial reform. For more on Dr. Chandan’s opinions of the Bank of International Settlements’ Basel Committee on Banking Supervision and how he sees the Dodd-Frank Act effecting the US, please see the original article on the Commercial Observer’s website.

CALSTRS to Sell Stake in Downtown NYC Office 120 Broadway

Thu, 22 Jul 2010 14:33:25 GMT

The California State Teachers’ Retirement System (Calstrs) plans to sell its majority stake in a lower Manhattan 40-story skyscraper co-owned by developer Larry Silverstein.

Calstrs, the second-biggest U.S. public pension fund, is seeking to profit from its 2004 investment in the national historic landmark office tower at 120 Broadway, according to a statement from its adviser, CB Richard Ellis Investors. Silverstein will hold on to his interest, according to two people with knowledge of his plan who asked not to be named.

In the emailed statement, Ryan Gill, a CBRE Investors spokesman, said the tower “has proven to be an excellent investment. Calstrs has a continuing good relationship with the Silverstein organization, but has decided to harvest some of the gains through the disposition of its interest in 120 Broadway.”

The offering may test the market for properties in downtown New York City, where only five office buildings have traded since the credit crisis deepened in the third quarter of 2008, according to Real Capital Analytics. Those deals include American International Group Inc.’s headquarters at 70 Pine Street and 72 Wall Street, and JPMorgan Chase's tower at 4 New York Plaza, data from the real estate research firm show.

At 120 Broadway, “a lot of the tenants there are pretty high quality, and the state has a lot of space,” said Ben Thypin, an analyst with commercial property research firm Real Capital Analytics. That will help it fetch a premium to deals such as 70 Pine Street, which traded at a discounted price of $103 per square foot because AIG was planning to vacate the property, he said.

The NY state attorney general has seven floors in the building. Other tenants include Bank of New York Mellon Corp., New York Life Insurance Co. and the Alliance for Downtown New York.

The tower, also known as the Equitable Building, was valued at about $300 million, or $173 per rentable square foot, when Calstrs bought its stake through CBRE Investors in 2004, according to Real Capital data.

Aussie I-Bank Taking Offers over $3.5 bn for Commercial-REIT Spirit Finance

Thu, 22 Jul 2010 14:24:25 GMT

According to recent report on Bloomberg.com, a buyout deal is unfolding that, if completed, would be the largest sale of a U.S. real estate investment trust (REIT) since Tishman Speyer took over Archstone-Smith Trust in 2007. Australian Investment Bank Macquarie Group Ltd. is taking offers starting at $3.5 billion to sell Scottsdale, AZ-based Spirit Finance Corp. Spirit is a publicly traded REIT, with $3.5 billion in assets and $2.9 billion of debt as of year-end 2009.

Asked to weigh in on the potential sale, Real Capital's analyst Ben Thypin stated that, “REITs and private-equity firms would have a lot of interest in a company like Spirit because their tenant quality makes cash flows predictable in an uncertain market.” Spirit’s current portfolio holdings include 1,200 retail assets across 45 states, with concentrations of sale-leaseback and single-tenant properties.

Thypin added that the sale of Spirit to a potential buyer has broader implications for other major REIT and commercial real estate investors. A successful sale would give property traders the “…confidence that they can unload their boom-era investments.”

Fortress Buys CWCapital

Mon, 19 Jul 2010 14:32:25 GMT

CWCapital has been acquired by New York-based Fortress Investment Group in the third major acquisition of a special servicer in the past year.

While CWCapital’s mortgage origination business has been steadily growing, it’s the company’s special servicing division, the nation’s second largest, that primarily attracted Fortress. And as the amount of distressed CMBS loans continues to grow, it’s a business that should continue to expand.

“This is a once in a generational opportunity for these servicers to sell their businesses at valuations they could only dream of 10 years ago,” says Dan Fasulo, managing director of global commercial property research firm Real Capital Analytics. “It makes sense that a player like [Fortress] would be interested, not only in the income generated, but also by having the first crack at any opportunities that may arise on the real estate side.”

The acquisition brings to Fortress a wealth of data that will inform the company’s strategy for capitalizing on distress, according to a source close the transaction (Fortress executives were not available for interview at press time). Fortress was also attracted by the breadth of CWCapital—the mortgage origination, prime servicing and investment advisory businesses give CWCapital pro-cyclical growth opportunities as well.

Much like the Centerline and Capmark acquisitions, CWCapital’s growth aspirations had been hampered by its parent company’s financial problems. CWCapital’s former owner, Canadian pension fund Caisse de Depot et Placement du Quebec, has been saddled with losses and announced earlier this year that it would be slashing its investments in real estate. So, CWCapital asked Caisse if it could be sold: If the company couldn’t get the support it needed, it hoped to find a more supportive parent, according to a source within CWCapital that spoke on the condition of anonymity.

Will Commercial Property Lending Survive as Federal Stimulus is Rolled Back?

Thu, 15 Jul 2010 15:19:25 GMT

In a recent article titled "On Our Own", Newsweek's interactive online edition explored what will become of the US economy's nascent recovery as stimulus funds provided by the US Federal Government dry up. A primary thesis stated, “If American businesses and consumers want to avoid a slowdown, they’re going to have to do it themselves…expansion can continue if the U.S. economy taps into…a capacity for innovation, resilience, and, most of all, an ability to ride the continuing wave of global growth.”

The field of commercial real estate was one of the largest beneficiaries of stimulus dollars, as the Treasury bolstered lenders and credit markets, which investors depend on, during the recession. As stimulus programs begin winding down, investors have less to fear than they think, believes Real Capital’s Global Chief Economic Dr. Sam Chandan. In the article, he stated as proof of the author’s thesis that several other major players are currently waiting on the sidelines, ready to pick up wherever the Feds leave off.

As American banks become more conservative lenders without the Treasury behind their checks, foreign banks are becoming more active. “Many of the largest loans, the large property financings that we’ve observed over the last few quarters, have depended on the extension of credit by international lenders that are active in the U.S.,” says Dr. Chandan. He went on to provide select information from Real Capital’s recent publications on Top US Lenders, including the share of loans currently being underwritten by foreign banks from Asia, Latin America, and Europe.

Commercial Property Sales Fall to One-Quarter of Prevailing Six-Year Average

Thu, 15 Jul 2010 14:25:25 GMT

According to Real Capital Analytics, the volume of commercial property sales for the first six months of 2010 totaled $34.2 billion. This represented 26 percent of the average first-half total for the past six years (since 2004), and just 12 percent of 2007’s first-half total. Compared to the inertia of 2009, however, this year’s $34.2 billion was 58 percent higher than the total volume for the same period last year.

Contrary to intuition, the slow recovery in commercial sales is not due to a lack of capital or demand on part of investors. In particular, private equity funds and REITs amassed large pools of equity over the second half of 2009 in preparation for foreclosure fire sales that were predicted to come en masse in 2010. Real Capital’s Global Chief Economist, Dr. Sam Chandan, provided the following explanation for the disconnect between capital, demand, and the slow pace of commercial sales: “…owners who owe more than their properties are worth are instead finding new sources of equity and lenders are willing to restructure their loans…In less attractive markets, banks have been extending loans, waiting for higher prices so they don’t record losses.”

He also added that distressed assets have played a much smaller role in recent sales than was originally forecast during the darkest hours of 2009. However, sales are not down uniformly. Using specific property transactions from the first half of 2010, Dr. Chandan pointed out which of the US markets are actually seeing acceleration in sales and stability in asset pricing.

Mixed Signals in CRE Market (Video)

Wed, 14 Jul 2010 14:24:25 GMT

Despite tentative signs of recovery in the US and global real-estate markets, enormous challenges remain that will test both the housing market and the banks according to Richard Yorke, the UK Managing Director at global commercial property research firm Real Capital Analytics.

"There are something like 180 billion dollars worth of loans which are secured against troubled assets," Yorke told CNBC Tuesday. "Clearly those banks need to try to work out those loans over the next few years, something like two thirds of all loans that are due to mature over the next three years are currently underwater, so clearly that’s a huge tasks for banks."

That is going to affect lending practices and will have a significant impact on general economic growth, Yorke said.

"Yes there may be some green shoots of recovery but they are very specific to certain types of property and certain types of location," he said. "Many properties are still underwater. I think commercial property in general is about 42 percent below it s October '07 high."

The property market, like the bond and stock markets has seen a flight to quality, he said.

"Investors are being very selective about what types of property their looking at," he added. "It has to be institutional grade, grade-A prime location. Anything that’s secondary, anything that isn’t quite as good as an institutional grade property is going to struggle in this environment."

The market is giving mixed signals, but there are opportunities for those with cash, he said.

“Clearly there are contradictory signals and messages," he said. "In terms of the residential markets in the US it's not in a healthy sate. Something like $10 billion worth of mortgages defaulted in this year which indicates that there are still significant problems."

“There are potential bargains to be had for cash-rich investors, but the market is generally still pretty moribund," he said. "With other types of assets you will naturally see a flight to quality so better quality assets in a better location where supply and demand dynamics are better, clearly you’ll see a better performance there."

Dr. Sam Chandan Delivering Keynote Presentation at Cityscape Global Real Estate Investment Conference

Mon, 12 Jul 2010 14:43:25 GMT

Global opportunities, investment security and regional growth provide the theme for this year's three-day Cityscape Global Real Estate Investment Conference, which takes place at the Dubai International Convention and Exhibition Centre on 4-6 October 2010.

The keynote address will be given by Thomas J Barrack Jr, Founder, Chairman and CEO of Colony Capital a private equity real estate company headquartered in Los Angeles, California. During his time as chairman, Barrack has invested approximately $45 billion in assets. He will be speaking about 'Driving international investment in challenging times'.

Following Barrack, delivering the keynote presentation will be Sam Chandan, Global Chief Economist, Real Capital Analytics and Adjunct Professor of Real Estate from the US-based Wharton School, who will assess the prospects for sustainable global economic recovery and forecast economic trends for 2011 and beyond.

"In real estate markets, in particular, constraints on the availability of credit, certain government policies, and finite opportunities for liquid investors to acquire high quality, performing assets have delayed the process of price discovery that is a necessary condition for the global real estate market's return to its full measure of health," he said.

Florida Bulk Condo Sales Accelerate

Wed, 07 Jul 2010 13:26:25 GMT

Commercial real estate research firm Real Capital Analytics, which follows condo sales nationwide, tracked 27 bulk condo deals valued at $850 million, or $250,000 per unit, in 2007. Transaction volume dipped the following year, then rose to 82 deals valued at $839 million in 2009.

Dan Fasulo, managing director at Real Capital Analytics says "I would think we're on pace to have a record year for these types of transactions."

It isn't just Florida. Brokers say bulk-sale transactions are becoming more widespread in San Diego, Phoenix, Las Vegas and other markets in which condo projects mushroomed during the housing boom.

Tishman Speyer Renegotiates Debt on Seattle Office Property

Fri, 02 Jul 2010 12:25:25 GMT

New York real estate firm Tishman Speyer has renegotiated its debt on the Second & Seneca office building in downtown Seattle, the company announced Thursday.

Financial details were not disclosed, but in its release Tishman Speyer said, “Under the restructuring agreement, ownership will invest fresh capital, which will put the property on firm financial footing into 2017 when the current debt matures.”

According to global commercial property research firm Real Capital Analytics, Tishman Speyer purchased the property for $234 million in April of 2007 with a first mortgage of $175 million.

The debt restructuring follows successful restructuring of debt on properties owned by Tishman Speyer in Chicago and Washington, D.C. In mid-June, a partnership led by Tishman Speyer repaid $600 million owed on a group of 28 Washington, D.C., area office buildings a week ahead of a foreclosure auction. Another $100 million will be spent on capital improvements to the properties. Investors include Montreal-based SITQ, an affiliate of Canadian pension fund manager Caisse de Depot et Placement du Quebec.

Co-CEOs Jerry and Rob Speyer said the restructuring of the debt on Second & Seneca in Seattle would give Tishman Speyer sufficient capital to lease the property. They said it demonstrates the firm’s confidence in the “long-term strength of the Seattle office market.”

The New York-based real estate firm purchased Second & Seneca in 2007 as the last in a series of property sales sparked by Blackstone Group’s $39 billion acquisition of Equity Office Properties Trust. Blackstone sold 17 Seattle area properties, along with 36 properties in Washington D.C. and Portland, to Beacon Capital Inc. for $7.55 billion. Beacon then sold 15 of those buildings to Archon Group LP of Irving, Texas, which resold a portion of its acquisition to Tishman Speyer, including the Second & Seneca building.

Built in 1991, Second & Seneca is a 22-story, 436,752-square-foot Class A office tower with a companion four-story, 74,712-square-foot building and data center. The property is located at 1191 Second Ave.; approximately 16 percent of the space is vacant. Tishman Speyer also owns the 29-story 520 Pike Tower in downtown Seattle.

Private equity firm Fortress raising its bets

Thu, 01 Jul 2010 16:32:25 GMT

The New York private-equity firm Fortress Investment Group is raising its commercial property bets while that market remains down. On Thursday, Fortress said its funds have acquired CW Financial Services, one of the largest servicers of souring commercial mortgages packaged into bonds.

In recent days, Fortress also closed on a roughly $250 million investment in DaVinci Holdings, a high-profile and struggling Japanese property firm.

Though the two Fortress deals are relatively small (the firm is paying about $300 mil. for CW, according to people familiar with the acquisition) they highlight the opportunities distressed investors see in sagging commercial-property markets around the globe.

In both the U.S. and Japan, the values of hotels, office buildings and other commercial property are at or near multiyear lows, attracting bargain hunters. There are now $230 billion of troubled real-estate assets globally, according to Real Capital Analytics.

ARGUS Software to Partner with Real Capital Analytics to Provide Global Data in Solutions

Wed, 30 Jun 2010 12:30:25 GMT

ARGUS Software (“ARGUS”), the global leader for real estate valuation, analysis, asset and investment management solutions, and Real Capital Analytics (“RCA”), the global leader in commercial property investment research, announced today their intent to provide access to key RCA market pricing statistics within the ARGUS Software suite.

“Initially this partnership will provide access to data points including a quartile distribution of capitalization rates and prices per unit within our market leading analysis and asset management solutions,” says Mark P. Kingston, president and CEO of ARGUS Software. “More importantly, however, this partnership marks the first step in the convergence of real market data with our solutions that will facilitate the next generation of efficiency and value at the desktop.”

“This venture between RCA and ARGUS is a natural. To value a commercial property anywhere in the world, ARGUS has the leading software and RCA has the leading data,” said Robert M. White, Jr., RCA’s founder and president. “The cooperative efforts between the two firms will yield great value for our clients.”

About Real Capital Analytics
Founded in 2000, Real Capital Analytics, Inc. is a global research firm based in New York City. The firm's proprietary research is focused exclusively on the investment market for commercial real estate. Within that arena, Real Capital Analytics offers the most in-depth, comprehensive and current information of activity in the industry. In addition to collecting transactional information for property sales and financings, RCA interprets data such as capitalization rates, market trends, pricing and sales volume. RCA also quantifies the market forces and identifies the trends that affect the pricing and liquidity of commercial real estate around the world. The firm publishes a series of Capital Trend reports and offers an online service that provides current transactional and troubled asset information on all markets globally.

About ARGUS Software
ARGUS Software is the leading provider of software and solutions for analyzing and managing the value of real estate investments worldwide. ARGUS Software has a world-class user base consisting of over 90,000 users and has been focused solely on the commercial real estate segment for over 20 years. The ARGUS Software portfolio includes industry-standard products such as ARGUS Valuation - DCF, ARGUS Developer, ARGUS Asset Management and ARGUS Lease CRM, as well as the recently released flagship product, ARGUS Enterprise.

Distressed CMBS Loans Up

Tue, 22 Jun 2010 12:32:25 GMT

The amount of distressed real estate backing commercial mortgage-backed securities (CMBS) spiked 41% in April, adding $12.8bn of troubled loans to the more than $184bn total, according to a report from global commercial property research firm Real Capital Analytics.

The April increase is the highest in 2010, and the rate is increasing. The amount of new, distressed commercial loans being measured by the firm for May is already approaching $10bn. Office and hotel sectors drove the increase in April, particularly the Morgan Stanley default on its $2bn Revel casino and hotel development in Atlantic City.

The April numbers also reflect the “emerging effects” of changes put in place by the IRS in September 2009, which allowed special servicers more flexibility when restructuring loans in imminent default.

“Since borrowers and special servicers can restructure assets that are not yet troubled, more borrowers have been moving to secure modifications before losing control of an asset,” according to the report. “The restructuring pipeline is almost certain to increase across almost all property types going forward.”

CB Richard Ellis Preparing for Sale of Kingsmill Resort & Spa

Tue, 22 Jun 2010 00:00:40 GMT

Real estate experts say it’s still too early to tell who might be positioned to buy Kingsmill Resort & Spa.

Since Anheuser-Busch InBev’s announcement in September that it would sell the resort, commercial real estate firm CB Richard Ellis has been putting together an “offering memorandum,” executive vice president Doug Henkel said this week.

CB Richard Ellis is poised to sell Kingsmill’s conference center, three 18-hole golf courses, a 9-hole executive course, six restaurants, spa, fitness center, marina, tennis center, condos and management facilities.

Henkel said he expects the prospectus to be complete in the next couple of weeks and the resort to be officially announced shortly after.

The resort and hotel market has improved recently, according to global commercial property research firm Real Capital Analytics, although it is still off from previous years. A quarterly report notes that in the third quarter, sales of larger hotel properties increased by 25% over the second quarter.

The deals are getting bigger as well.

Dollar volume across the real estate spectrum is up, although the actual number of properties sold is down. In short, when properties do sell, they are selling for more money.

But sales volumes in the hotel industry is still off 65% from last year, and 93% from 2007, according to the report.

Real Capital Analytics hints at the same. “Despite these positive signals indicating the start of a rebound in investment activity, a significant recovery is still well into the future,” the October report states.

A Drop in CRE Distress

Mon, 21 Jun 2010 13:29:25 GMT

Delta Associates will be releasing figures this week that show the current total value of distressed commercial real estate nationwide at $166.8 billion. This number, compiled with data from global commercial real estate research firm Real Capital Analytics--which includes properties in distress, foreclosure and lender REO--represents an 11% decrease from the last report in March. At that time, the total value of distressed commercial real estate was $187.4 billion--an increase of 10% or $17.3 billion--since the January report and 33%, or $46.9 billion, from the November 2009 report.

The report also illustrated the changing fortunes of some markets as the industry downturn continues. The Manhattan market continues to have the highest distressed real estate volume, followed by Los Angeles/Orange County. South Florida, with $1,191 in distressed property per capita, has the highest ratio per capita besides Manhattan. And perhaps most surprisingly, the Washington, DC-area market has the next highest at $813 per capita--a trend that began in January.

These trends may solidify or shift again as refinancing continues to be difficult for borrowers and banks continue to fail. The report says that "the real test of velocity of distress" will be this year and next with some $600 billion in loans coming due and up to 350 banks expected to fail.

REIT Vornado Bidding for Loan Servicer CW Financial

Fri, 18 Jun 2010 16:25:25 GMT

According to reports, REIT Vornado Realty Trust submitted a bid to buy CW Financial Services, the parent of the second-largest manager of delinquent U.S. commercial property loans.

A winner for New York-based CW Financial may be chosen in the next week, said a person familiar with the offer who asked not to be named. Buyout firms Apollo Global Management and Centerbridge Capital Partners had made competing bids, but are no longer seeking to buy the company, according to two people familiar with the auction.

CWCapital Asset Management, a unit of CW Financial, is the special servicer of $144 billion of securitized real estate loans, including more than $18 billion that are delinquent, according to data compiled by Bloomberg. It has access to valuable pricing and payment information, according to Ben Thypin, an analyst at global commercial real estate firm Real Capital Analytics.

“The competitive landscape for special servicing is being reset and CW is one of the last large platforms available,” said Mohsin Meghji, a principal at New York-based restructuring firm Loughlin Meghji & Co. and chief restructuring officer of Capmark Financial Group Inc. “This would be a very strategic move by Vornado.”

“Owning a firm like CW gives access to information on a lot of troubled loans as well as an established platform for originating new ones,” Thypin said. “That puts the owner in the driver’s seat and in control of distressed real estate that they may want for themselves.”

Turkish Real Estate Fund Buying Distressed Assets

Mon, 14 Jun 2010 15:18:25 GMT

Another day, another Polidev acquisition.

Polidev International Friday bought Edgewater Park Plaza in Oakland for $12 million, the second day in a row the Turkish real estate fund acquired a Bay Area office property.

The a four-building 204,000 square foot property is located at 7700 Edgewater Blvd., just off Hegenberger Road near Oakland Airport. The previous owner was Tiburon Capital, although Polidev negotiated directly with Chase JP Morgan, which had a loan on the property. The property was in default and the previous owner held a $13.3 million first mortgage on the asset, according to global commercial property research firm Real Capital Analytics.

On May 10th, Polidev bought 351 California St. at auction for $35 million. The San Francisco-based company, backed by Instanbul-based investors, is looking to acquire other Class B properties in West Coast cities.

Polidev picked up Edgewater Park Plaza at a price that was about half of what properties in the Hegenberger Road sub-district were trading at. Polidev bought the complex for $60 a square foot; properties in the area were selling for between $110 and $125 a square foot in 2007 and the first half of 2008.

Global Real Estate Woes And Economic Bail-outs

Mon, 14 Jun 2010 13:26:25 GMT

After three years of freefalling values, 2010 recovery hopes for the recession-scarred commercial property sector are hanging in the balance as global economic woes and refinancing troubles threaten to re-open old wounds.

Fresh from staving off a global banking sector meltdown, governments are now mustering bail-out funds for entire economies, forcing investors to swap growth plans for survival strategies until panic over the global economy subsides.

At the Thomson Reuters Global Real Estate and Infrastructure Summit this June 14-17, leading industry figures will be asked how far such concerns could throw the market comeback off pace and what investments might provide respite from the storm.

Research by ING Real Estate Investment Management shows the global property market recovery unfolded faster than expected, but has now reached "a crucial inflection point" in terms of sustaining momentum.

In infrastructure, divergence in economic growth and the strength of public finances between developed and developing countries are creating as many opportunities as challenges for investors.

Strained budgets mean governments want to attract private investment to the sector, but the downturn has diminished appetite for assets exposed to GDP growth, notwithstanding the allure of steady inflation-linked cashflows.

As confidence in the global economy founders, many property analysts have stopped mulling how quickly the market will get better and started pondering how rapidly it could deteriorate.

Future transaction activity remains uncertain as sovereign debt worries swirl and banks show few signs of returning to the sector the financial system brought close to collapse in 2007.

Even though returns on cash are mired at record low levels, global property investor appetite remains fickle, leaving prices for lower quality or distressed assets well behind those for prime offices, upmarket malls and luxury housing.

Data from Real Capital Analytics (RCA) showed $124 billion of global property sales in the first-quarter 2010, more than double the volume seen in the corresponding quarter of 2009, but 62 percent down on the fourth-quarter 2007 peak.

Much of the slowdown in sales can be pinned to a lack of clarity in pricing and concerns that sluggish economies and possible bank fire sales could shunt values back into reverse.

Stellar Planning to Move Forward with Parkmerced Expansion Project

Fri, 11 Jun 2010 13:31:25 GMT

The owners of San Francisco's massive Parkmerced apartment complex recently made what sounded like a surprising statement. They were in danger of defaulting on a $500 million mortgage, but planned to move forward with a $1.2 billion, multi-decade expansion project on the property.

A company verging on default could imagine restructuring its debt and then spending billions in the future, the owners said, due to the terms of their debt agreement, which provides for an intermediary to renegotiate the loan so that it can be paid off over time.

But according to real estate finance experts, the middleman, which is called a special servicer, is required to protect investors who are owed mortgage payouts - not the owners of the complex, its tenants or the city - leaving the fate of the 3,221-unit Parkmerced very much in question.

But records show that Stellar currently is delinquent on loan payments for several of its CRE assets, including apartment complexes in Maryland, New York and Los Angeles, according to global commercial property research firm Real Capital Analytics.

Despite the seemingly bleak picture, there is hope for Stellar to hold on to Parkmerced and to proceed with the proposed development project, said Andrew Florio, an analyst with Real Capital. In comparison to Riverton, Florio said Stellar has less outstanding debt on Parkmerced.

"This is not a 'here we go again' situation," Florio said. "This is a little different ... succeeding might not be the right word, but surviving probably is. They feel confident they can work something out with the special servicer and will retain the property."

Tide Starts to Turn with Uptick in Hotel Deals

Wed, 09 Jun 2010 13:37:25 GMT

Hotel-industry veteran Jon Bortz of Pebblebrook Hotel Trust raised $405 million in December to buy hotels at distressed prices. Pebblebrook committed to spending most of those funds last month, promising $372 million to buy five high-end hotels, including the Sir Francis Drake in San Francisco and the Doubletree Bethesda Hotel in Maryland.

Their acquisitions help show that hotel sales are beginning to revive after a dismal two years. According to Real Capital Analytics, the first four months of 2010 saw no less than 78 hotels traded hands for a total of $2.2 billion, compared with 52 deals for $888 million during the same period last year.

Part of this is due to the fact that distressed hotel properties are working their way through the process of workout and foreclosure. Real Capital says that to date, 42% of this year’s hotel deals involved properties with distressed debt (they were delinquent, foreclosed or otherwise under pressure from their lender). That compares with 11% last year and 1% in 2008.

As Apartment Cap Rates Fall, Market Heats Up

Wed, 09 Jun 2010 12:31:25 GMT

The multifamily acquisition market has been building momentum in the second quarter, with cap rates declining on a national level and the gap between buyers and sellers narrowing. Frenzied bidding has some long-term holders debating their strategy.

Typical sellers in the past two years seemed to be only those who had to sell. Many owners who bought at the height of the market have remained on the sidelines, not listing their properties due to the perception that rents and values will escalate two years from now.

But among longer-term holders, there’s been a shift in attitudes in the past 90 days. The bidding on high-quality multifamily assets has become so fevered that owners are beginning to ask themselves if now really is such a bad time to sell.

"For quality assets, there’s intense competition, and cap rates are declining because of these assets," says Ben Thypin, senior market analyst at global market research firm Real Capital Analytics. "Owners see this cap rate environment, and the financing environment with Fannie and Freddie, and think that maybe this is a good time to get out and capture some of this unique pricing environment."

ICSC and Real Capital Analytics Launch Global Shopping Center Directory

Wed, 09 Jun 2010 12:27:25 GMT

New York — The International Council of Shopping Centers, Inc. (ICSC), the world’s largest shopping center trade association, announced today that ICSC members now have access to the most comprehensive global database of shopping centers greater than 30,000 SF or 2,800 SM.

The new ICSC Shopping Center Directory, powered by commercial real estate research firm Real Capital Analytics, organizes the shopping center universe with relevant information on more than 25,000 shopping centers. This is the first continuously-updated resource of its kind providing mission critical details such as owner contact info, tenant names, shopping center websites, center characteristics and aerial imagery.

With a robust search engine powered by global commercial property research leader Real Capital Analytics, ICSC members can search for shopping centers by center name, radius, region, market, country, owner name, tenant name, year opened or center size.

ICSC members can also contribute or update information for the centers they represent. Members can login and begin using this tool at http://directory.icsc.org.

About Real Capital Analytics, Inc
Founded in 2000, Real Capital Analytics, Inc. is a global research firm based in New York City. The firm's proprietary research is focused exclusively on the investment market for commercial real estate. Within that arena, Real Capital Analytics offers the most in-depth, comprehensive and current information of activity in the industry. In addition to collecting transactional information for property sales and financings, RCA interprets data such as capitalization rates, market trends, pricing and sales volume. RCA also quantifies the market forces and identifies the trends that affect the pricing and liquidity of commercial real estate around the world. The firm publishes a series of Capital Trend reports and offers an online service that provides current transactional and troubled asset information for all markets globally. For more information, visit http://www.rcanalytics.com.

About International Council of Shopping Center
Founded in 1957, the International Council of Shopping Centers (ICSC) is the global trade association of the shopping center industry. Its 60,000 members in the U.S., Canada and more than 80 other countries include shopping center owners, developers, managers, marketing specialists, investors, lenders, retailers and other professionals as well as academics and public officials. As the global industry trade association, ICSC links with more than 25 national and regional shopping center councils throughout the world. For more information, visit http://www.icsc.org.

Looking For Lending

Thu, 03 Jun 2010 13:33:25 GMT

Commercial real estate mortgages have really hurt community banks, which are key lenders to small businesses. They hold roughly half of bank-issued commercial mortgages and their portfolios are likely to hurt for some time. The default trend is expected to continue through 2011, when it may hit 5.4%, before abating, according to Real Capital Analytics.

Although the commercial property market has shown some tentative signs of life in the early months of 2010, there is little transparency about the value of many properties, says Sam Chandan, chief economist at Real Capital Analytics. Appraisals help determine price, he explains, but commercial property values are supported by other transactions in the area.

To overcome the credit challenge, experts say entrepreneurs can make themselves more attractive by submitting sound financial plans that back up their income projections and intent to repay the loan. Borrowers with solid credit histories and established bank relationships are more likely to get a loan.

Mr. Chandan says new business owners can still land financing if they can bring equity to the table, especially if the borrower wants to purchase a vacant property that the bank is holding. But, he cautions, "lending standards have tightened considerably, so it will be challenging."

FINRA Investigating Nonlisted REITs After Flurry of Complaints

Tue, 01 Jun 2010 13:32:25 GMT

The broker’s pitch was appealing: Inland Western Retail Real Estate Trust Inc. would pay steady dividends and the stock price wouldn’t fluctuate with the market. In 2004, Robert and Davida Wendorf invested $100,000.

Last year, the real estate investment trust, which isn’t listed on an exchange, slashed its payout by 70 percent. It had earlier suspended a program under which the Wendorfs could have sold back shares at the same $10 apiece they paid, a key draw for the couple. By the end of 2009, the company had reset the stock price to $6.85.

Regulators are examining brokers who sell unlisted REITs, which have raised $59 billion since 2000, as investors such as the Wendorfs complain they weren’t properly informed of the risks. The Financial Industry Regulatory Authority has stepped up its scrutiny by opening formal investigations into “marketing, advertising, disclosure, suitability analyses and more,” according to an e-mailed statement.

Finra started the probes after sending letters in March 2009 seeking information from the 10 to 20 most-active brokers in the market, a person with knowledge of the matter said at the time. The initial inquiry was meant to determine whether the firms weighed and disclosed risks to clients, the person said. Herb Perone, a Finra spokesman in Washington, declined to identify the brokerages.

Nontraded REITs were among the most active buyers in the commercial real estate market last year. Five of the top 10 REIT operators ranked by acquisitions were unlisted, including Inland Real Estate Group, which was second at $863 million, according to global commercial property research firm Real Capital Analytics Inc. Kimco Realty Corp., a public REIT based in New Hyde Park, New York, topped the list with $910 million of purchases.

New Biomedical Sciences Building for University of Florida

Tue, 01 Jun 2010 13:30:25 GMT

The University of Florida has dedicated its $90 million biomedical-sciences building, which was designed by HuntonBrady Architects of Orlando and Ellenzweig Associates of Cambridge, Mass.

Built in Gainesville, the 160,000-square- foot building will house researchers with UF's College of Medicine, College of Public Health and Health Professions, the Howard Hughes Medical Institute, and the College of Engineering's department of biomedical engineering and is one in a series of new UF health facilities to open along Archer Road in Gainesville.

However, retail lease rates and multi-family sale prices in Orlando continue to lag those in other markets, according to a first-quarter report by global commercial property research firm Real Capital Analytics.

The CRE research firm found that the average lease rate for mall space in Orlando was $118 a square foot in the first three months of the year, compared with $194 a year ago. Nationally, mall space fetched $166 a square foot, down from $202 a year earlier.

The average strip-center lease rate in Orlando was $100 a square foot, down from $230 in the first quarter of 2009. In comparison, the national lease rate for strip centers was $122 a square foot in the first quarter versus $165 a year earlier.

Garden-style apartment complexes in Orlando fetched $57,656 per unit in the first quarter compared with $68,115 a unit in the same period a year ago. Nationally, complexes sold in the first quarter for $67,779 a unit, versus $78,861 a year prior.

More Apartments Fall Into Distress

Tue, 01 Jun 2010 13:28:25 GMT

The first signs of financial turmoil came at Riverton Houses in Harlem.

Then came Stuyvesant Town and Peter Cooper Village on Manhattan’s East Side.

Now a third complex built by Metropolitan Life in the 1940s for veterans and middle-class families has run into financial distress after being purchased by speculators during the recent real estate boom. The owners of the sprawling Parkmerced apartment complex in San Francisco announced this week that they would default on their $550 million mortgage, which comes due in October.

The owners in all three cases invested substantial sums in upgrading the aging buildings and renovating some apartments. But ultimately they failed to increase revenue enough to cover the debt payments on the properties, which were heavily leveraged. The recession did not help.

“It’s pretty interesting that they have all ended up in the same place,” said Andrew Florio, an analyst at Real Capital Analytics, a global commercial property research firm. “People assumed they could boost revenues by kicking people out and raising rents.”

MetLife built Parkmerced, Stuyvesant Town, Riverton and a handful of other large complexes in the 1940s amid a national housing crisis in a remarkable effort to provide homes for returning veterans. At Stuyvesant Town, for instance, the company received special property tax exemptions in return for agreeing to build the complex, maintaining relatively low rents and limiting its annual profit to 6 percent.

Large Apartment Complex in San Francisco in Default

Thu, 27 May 2010 16:37:25 GMT

The commercial real estate meltdown has caught up with one of the largest apartment complexes in the country - San Francisco's Parkmerced.

The loan on the property is headed for default, according to the development's owner.

The 116-acre complex, purchased in 2005 by Stellar Management and another real estate investment firm, Rockpoint Group, has 1,683 rental units contained in 11 residential towers. Blocks of two-story garden townhouses account for an additional 1,538 apartments.

Earlier this month, the owners presented a $1.3 billion plan to triple the number of homes at Parkmerced, replacing the townhouses with more than 7,000 new units, including some available to buy.

Stellar Management says the expansion plan is in the environmental impact report stage.

"At this point, we're not anticipating any effect on our future plans for Parkmerced," said P.J. Johnston, a spokesman for Stellar Management,

Observers have praised Parkmerced's owners for making major improvements to the complex since they bought it for $700 million.

But some real estate analysts have raised financial concerns, given the state of the real estate market. "The asset has fallen to the point that makes refinancing very difficult without a massive equity infusion," said an analyst with Real Capital Analytics, a global commercial real estate research firm.

New RICS-RCA Commercial Real Estate Report

Thu, 27 May 2010 15:37:25 GMT

RICS Americas, a division of the Royal Institution of Chartered Surveyors, the world’s leading membership organization for professionals in property, land, construction and related environmental issues, and Real Capital Analytics today issued the first Commercial Real Estate Report, with news that the first quarter of 2010 saw a significant increase in transaction volume in North and South America, approximately $17 billion, up an impressive 68 percent from a year earlier.

“The United States, Canada, Mexico and Brazil all posted increases in sales volume in Q1’10 compared to a year earlier,” said Bob White, FRICS, founder and president of Real Capital Analytics. “Sales in Mexico tripled while sales in Canada doubled. Brazil also saw sales nearly double in Q1’10 after posting a strong increase in activity in Q4’09, as well. In the United States, property sales increased by a healthy but more modest 63 percent. Easing of the credit crunch has started to help improve the investment climate in the United States with the office and apartment sectors leading the recovery.”

RICS Americas and RCA will make the quarterly Commercial Real Estate report available to every RICS member in the region.

“The new members-only quarterly Commercial Real Estate Report from RICS Americas and RCA provides excellent insight into the state of the market across the entire region,” said Steve Wolfe, director of operations, RICS Americas. “RICS members will benefit from the report’s high level look into the industrial, retail, office and hotel sectors in the Americas region, with a special focus on US, Canada, Mexico and Brazil. RICS Americas full suite of global and regional reports, analyses, surveys and guidance notes give property professionals a vital toolkit as they look for opportunities in an increasingly challenging marketplace.”

The RICS Americas/RCA Commercial Real Estate Report will be issued quarterly and is available to all RICS members by request. To learn more about RICS Americas and membership please go to www.ricsamericas.org.

The first issue of the report is available to the public here.

Wells Fargo and LNR Selling Distressed Assets

Fri, 21 May 2010 18:32:25 GMT

Wells Fargo & Co. and LNR Property Corp. are each seeking to sell about $1 billion of distressed U.S. commercial real estate loans and assets, according to people briefed on the offerings.

Wells Fargo of San Francisco, the biggest U.S. commercial real estate lender, is taking bids on $500 million to $1 billion of office and hotel mortgages and properties, said four people, who asked not to be identified because the sale is private. LNR, the largest special servicer of commercial mortgage-backed securities, is trying to sell about $1 billion of defaulted loans, two people said.

A sale would reflect an improved market for the most troubled real estate assets, said Ben Thypin, a senior analyst at global commercial property research firm Real Capital Analytics Inc. Private-equity real estate funds, which have $80 billion to invest, are optimistic that transactions will pick up, London-based researcher Preqin Ltd. said in an April 30 report.

“Until now the major banks haven’t had an incentive to sell off loans they absorbed during the crisis,” Thypin said.

Retail Center Sells for $50 Million in Cash

Fri, 21 May 2010 16:31:25 GMT

Cash buyers such as Newport Beach-based Stoneridge Capital Partners are leading the charge among investors returning to the commercial real estate arena. The private investment firm recently acquired the 180,300-square-foot Mililani Shopping Center in central Oahu for $50.25 million.

The firm’s all-cash offer was key to beating out nine other bidders for the community shopping center. The property sold in the first quarter at an 8.2 percent cap rate.

Mililani Shopping Center represents a hefty sale in a market where property sales have been lackluster due to financing constraints and a limited supply of quality investment properties. In fact, it is the largest sale to close in Hawaii yet this year.

Nationally, commercial real estate transactions across all major property sectors reached $15.6 billion in the first quarter. Although that is an improvement over the $10.5 billion in sales recorded during the same period a year earlier, it is still just a fraction of the frothy $48.1 billion that occurred during the first quarter of 2008, according to global commercial property research firm Real Capital Analytics. The research firm tracks sales in excess of $5 million.

Bids Made for CW Financial Services

Fri, 14 May 2010 15:36:25 GMT

Two buy-out firms have made bids for CW Financial Services, one of the biggest servicers of troubled US commercial mortgage loans, people familiar with the matter said.

Apollo Global Management and Centerbridge Capital Partners made separate offers for CW Financial, parent of the second biggest manager of delinquent commercial mortgages in the US. The bids are valued at about $200m, the people close to the situation said.

"There is a lot of sophisticated capital looking to own this business, and the timing is important," according to one person involved in the bidding.

Mortgage servicers profit when defaults rise on commercial property loans, so the bids are being seen as bets of more problems in the sector.

CW Financial is considered a "full service" special servicer and would be able to provide pricing information to potential investors in the sector.

CW Capital, which is a subsidiary of CW Financial, services a portfolio of $11.6bn in loans in 48 US states.

"The volume of loans under management has grown tremendously because of the deterioration of the commercial real estate market, so this has been a major growth area in terms of activity," said Sam Chandan, global chief economist of commercial real estate research firm Real Capital Analytics.

Is the Apartment Sector Headed for a Rebound?

Fri, 14 May 2010 13:32:25 GMT

Over the last 12 months, the South Florida multifamily market has seen a notable increase in sales activity and this trend is likely to continue through 2010, according to Calum Weaver, director of operations for the CBRE Multi-Housing Private Client Group in Miami. He points to global commercial real estate research firm Real Capital Analytics’ data that shows that in 2009, there were 45 trades totaling $550 million in the region. Sales transactions were up 48% and dollar volume was up 22% compared to 2008.

But not all sales that Weaver alludes to were traditional apartment sales. With multifamily units going back and forth between their incarnations as rentals and for-sale product, the lines between these two categories have become blurred in recent years.

There were two types of multi-housing sales in 2009 in South Florida, traditional Class B assets and fractured condominium conversions. About 60% of the deals were traditional and 40% were in the latter category.

Canadian Pension Plan Investment Board Buying Manhattan Office Space

Thu, 13 May 2010 16:27:25 GMT

The CPPIB may have entered the New York office market at just the right time, according to leading commercial real estate watchers.

Monday, the investment arm of the Canada Pension Plan purchased a 45% stake in two prime midtown Manhattan office towers for a combined cost of US$663-million. The two buildings, together valued at more than US$1.45-billion, represent the first ever New York properties to join the pension plan's $7.1-billion real estate investment portfolio.

North America's commercial real estate market is still in pretty bad shape overall. Chicago-based commercial real estate services firm Jones LaSalle expects office vacancies will keep rising and rents will keep falling across Canada and the United States through to the end of the year. But market experts are predicting that the office market for midtown Manhattan is already on the road to recovery.

"New York is a unique case," said Dan Fasulo, managing director of global commercial property research firm Real Capital Analytics. "It is easy to say that rates are still falling when you're looking at nation-wide averages, but it is clear in many of the major global cities that rents and occupancy levels have stabilized if not improved in the last three months."

California Steaming

Wed, 12 May 2010 13:31:25 GMT

Earlier this year, the loan on the 2006 purchase of the office building at 575 Lexington Ave. was turned over to special servicing for a potential restructuring. Mortgage documents filed with the S.E.C. indicate that the assumptions underlying the Bank of America loan for $325 million were highly ambitious. Though the income for the tower was only $9.8 million in 2005, the year before it traded hands, Larry Silverstein and CalSTRS expected it to grow to $21.6 million by the loan's maturity, in October 2013, if not before. According to research firm Real Capital Analytics, "The building is in danger of imminent default."

The development site at 99 Church St., once an office building with rent coming in, is now rent-less, as Larry Silverstein searches for financing in a very rough market for hotels.

In a statement, Silverstein spokesman Dara McQuillan defended the venture with CalSTRS, noting that the fund has signed a number of new leases and suggesting that it is looking to stay for the long term.

SL Green Selling Stakes in 1221 Avenue of the Americas and Buying 125 Park Ave

Mon, 10 May 2010 13:30:25 GMT

SL Green Realty Corp., New York’s biggest landlord, agreed to sell its minority stake in McGraw-Hill Cos. headquarters building in Midtown for $576 million to help pay for the purchase of two other Manhattan office towers.

The company will sell the 45 percent non-managing ownership interest in the building at 1221 Avenue of the Americas to the Canada Pension Plan Investment Board, according to a statement today. The pension board also said it formed a joint venture with SL Green to acquire a 45 percent stake for 600 Lexington Ave.

SL Green agreed to buy 125 Park Ave., which occupies the block between 41st and 42nd streets across from Grand Central Station, for $330 million. The resurgent demand for office space indicates landlords such as SL Green expect to be able to raise rents, said Dan Fasulo, managing director of global commercial property research firm Real Capital Analytics Inc.

“They’re really shocking a lot of investors who didn’t realize the market had come back this violently for Class-A office,” Fasulo said. “You don’t buy an asset at this type of yield unless you think you can raise the income over time. The pricing wouldn’t make sense if you were expecting rents to fall from here.”

SL Green acquired its ownership interest in McGraw-Hill’s headquarters in 2003. The building is one block from Rockefeller Center and across the street from Radio City Music Hall.

With the McGraw-Hill building fully leased through 2020, “it doesn’t seem like there’s anything left to do” for SL Green to find income at the property, Fasulo said.

“They have a history of maximizing the value of their real estate assets and they also have a history of selling when they think there’s nothing else they can do to continue to maximize value."

At the McGraw-Hill property, “You have a dedicated income stream and that’s it. It’s a bond yield at that point.”

Istithmar World Seeking Recovery for Mandarin

Fri, 07 May 2010 13:29:25 GMT

Istithmar World has no shortage of issues: It lost a Times Square office building to foreclosure and is trying to regain the foreclosed W Union Square hotel. Its embattled chief executive departed in January. And its parent, Dubai investment arm Dubai World, is trying to restructure $22 billion of debt.

Amid that upheaval, there's one trophy property that Istithmar refuses to part with despite the hefty costs of keeping it: the ritzy, 248-room Mandarin Oriental hotel in Manhattan's Time Warner Center.

The Mandarin, a favored venue for wealthy international vacationers, is among the most expensive hotels in the city, with nightly room rates that range between $600 for a standard room and $2,500 for some of the larger suites. But after occupancy sank last year, the revenue from paying guests wasn't enough to fully cover the cost of running the hotel, including payments on the hotel's $238 million mortgage.

Such factors contributed to Istithmar targeting the Mandarin in 2007 as part of its strategy to buy luxury hotels in major cities. The deal is among the most expensive on a cost-per-room basis for a large, New York City hotel in recent years. "I'm pretty sure it was the high-water mark," said Dan Fasulo, managing director of Real Capital Analytics, a global commercial real estate research firm.

Retail Investment Sales Make Progress

Tue, 04 May 2010 14:31:25 GMT

Data from commercial real estate research firm Real Capital Analytics (RCA) reveals that the climate for investment sales continues to improve for all property types.

Quarterly sales volume reached $15.4 billion, representing a 50% year-over-year increase from the first quarter of 2009, which marked the bottom of the sales downturn. All property types registered higher volume, and core sales (rather than distressed sales) were the primary factor behind the volume gains. However, RCA did point out an important caveat: in spite of the gains, the first quarter posted the fourth lowest volume of sales of any quarter in the past decade.

Moreover, some assets even experienced drops in yields as buyers began to get more aggressive and debt has become more available. Average cap rates for retail assets were relatively unchanged for the first quarter, but certain strip centers saw some compression. Significant retail property sales reached $3.1 billion in the first quarter — a 40% increase from a year ago.

States Use Commercial Real Estate to Fund Deficits

Tue, 04 May 2010 13:23:25 GMT

Is it better to rent or to own?

The default answer for a long time — when real estate’s horizon seemed limitless — was to own. Lately some individuals and businesses have decided that maybe owning isn’t always better, especially when you have other pressing needs for cash, like paying off your creditors.

Now the idea has spread to some states with serious debt problems. In January the state of Arizona concluded a deal to sell to investors ownership stakes worth a total of $735 million in several state-owned office buildings, arenas and other properties — including the buildings housing both chambers of the State Legislature. Arizona will lease back the property from its new landlords, among them the mutual fund giants Fidelity and Vanguard, for 20 years, after which ownership will revert to the state. Arizona is planning another, smaller round of real estate sales in June. For fiscal 2011, which begins in July, the state is estimated to have a deficit of $3 billion.

Last month California received sale-leaseback bids on a portfolio of 7.3 million square feet of office space in 11 state-owned buildings. The Golden State Portfolio includes buildings in Los Angeles and Sacramento, as well as the San Francisco Civic Center, where the state Supreme Court sits. The deal had been expected to yield about $660 million in revenue for the state, after $1.1 billion in expected proceeds were used to pay off construction bonds. California’s deficit for 2010-11 is about $20 billion.

The risk of drawing unwanted headlines by selling state property may be one reason the idea has yet to take hold in other states that are short on money. A few years ago a spurt in the sale of state- and city-owned infrastructure, like highways and bridges, ended amid outrage that some of these properties were being sold to foreign investors.

Another reason for the absence so far of a rush to such deals may be relatively modest proceeds for states. Dan Fasulo, head of research at Real Capital Analytics, which tracks commercial real estate markets, said in an e-mail message: “There are many states that look at things like this during a crisis, but at the end of day the amount of money raised from such activities is a laughable amount when viewed from the context of the overall budget shortfalls.”

Lenders Slow to Analyze Distressed CRE Loans

Fri, 30 Apr 2010 14:28:25 GMT

Only 10 percent of the $41 billion of distressed commercial property from a year ago has been resolved and is no longer held by the lender, according to data released this week by the global commercial property research firm Real Capital Analytics.

The company’s analysis includes only seasoned distress for which sufficient time has passed for lenders and borrowers to facilitate workouts.

The findings show that the majority of distressed commercial real estate loans held by commercial-mortgage backed securities (CMBS) trusts and domestic lenders this time last year are still classified as distressed.

Both CMBS trusts and U.S. banks have resolved a comparably small portion of their distress from a year ago. For securities trusts, this resolution most often takes the form of a loan restructuring, Real Capital said. Distressed loans held by domestic lenders are more likely to have been foreclosed.

World's Richest Man, Carlos Slim, Agrees to Buy 417 Fifth Ave

Mon, 26 Apr 2010 14:30:25 GMT

Mexican billionaire Carlos Slim agreed to pay $140 million for 417 Fifth Ave., a midtown Manhattan office tower, from a partnership that includes Goldman Sachs Group Inc., a person familiar with the transaction said.

Slim, ranked by Forbes magazine as the world’s richest man, is paying $343 a square foot for the building, said the person, who asked not to be named because the deal is private. The 11- story tower is at the corner of East 38th Street.

The seller is a joint venture of Moinian Group, an investment company headed by developer Joseph Moinian, and Goldman Sachs’s Whitehall Street Real Estate Funds. The venture paid $250 million for the building in 2007, city records show.

“Typically we see high-profile new foreign buyers come in and make a trophy acquisition at a huge price,” Peter Slatin, editorial director at Real Capital Analytics Inc., a New York-based research firm that tracks property sales, said in an interview. “He’s not doing that. He’s not hanging a big sign on himself saying, ‘Price is no object.’”

The price is about half the $636 a square foot that SL Green Realty Corp. agreed last week to pay for another Midtown office building, 600 Lexington Ave. Sales are increasing in Manhattan after the credit crisis sent transactions down 87 percent last year from the average during 2004 to 2008, brokerage Cushman & Wakefield Inc. said in a report this week.

“The price really tells you the market is on a two-tier track,” Slatin said. The building at 600 Lexington is a block south of Citigroup Inc.’s headquarters at 399 Park Ave., where office rents are higher than south of 42nd Street.

US Seeking More Foreign Investors

Mon, 26 Apr 2010 14:29:25 GMT

Tax breaks may not be enough of a sweetener to bring foreign buyers back into the flailing U.S. commercial real estate market, where falling rents, rising vacancies, a scarcity of debt financing and lack of property for sale have acted as deterrents.

Congress is considering a move to lower or eliminate U.S. taxes currently imposed on foreign investors of U.S. CRE, where the number of sales has fallen off a cliff over the past two years.

The Real Estate Revitalization Act of 2010 is designed to stir demand by foreigners and in turn lift prices and encourage even more buying by alleviating the U.S. tax burden imposed upon foreign sellers. The number of commercial property deals fell by 55 percent in 2009 after diving 62 percent the previous year.

The Real Estate Revitalization Act of 2010 seeks to unwind some of the provisions under the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA), which imposes U.S. capital gains taxes on foreign sellers of U.S. real estate. Such taxes are not imposed on foreigners who sell U.S. stocks and bonds.

Supporters of the bill say it would put commercial real estate on par with investment in stocks and bonds

"The United States is not playing fair on this issue," said Dan Fasulo, managing director of global real estate research firm Real Capital Analytics. "It has the ability to flush public REITs with billions of additional dollars of capital that will eventually filter down to the direct property market."

San Jose Ranked in the Top 10 for Q1 CRE Sales

Fri, 23 Apr 2010 13:27:25 GMT

San Jose ranked No. 10 in the nation for commercial real estate sales during the first quarter, according to a report issued by Real Capital Analytics Inc, a global commercial property research firm.

San Jose had 14 sales during the quarter, for a combined volume of $431.2 million.

One of those sales was the $9.97 million purchase by On Semiconductor Corp. of 3001 Stender Way in Santa Clara, a 61,824 square-foot property.

The buyer was Panattoni Development and the sale was handled by Colliers International. The property, built in 1978, sold for $161 per square foot.

On the ranking provided by Real Capital Analytics, San Francisco came in at No. 18, with 15 transactions and a combined total of $259.7 million.

No. 1 on the list was Manhattan, with 35 properties sold for a combined total of $1.36 billion.

Apartments in Decay and Distress - Where's the Fix?

Fri, 23 Apr 2010 13:23:25 GMT

Step into Charlene Barton's apartment, and the first thing you smell is mold.

The air by the door is thick with a vile steam. In the bathroom, a broken tap never stops running. The holes in the walls are covered with plastic. By the sink, the soap holder is coated in black scum. A toothbrush rests in a cup an inch from the moldy wall.

Barton wants it fixed. The city housing inspector who gave her apartment a failing grade wants it fixed.

But in the chaos of the national housing collapse, in thousands of buildings like this one that have fallen into default and where tenants have watched the owners walk away, the answer to one simple question is not always clear: Who is responsible for fixing it?

Is it the company that packaged the building's mortgage with others and then offered pieces of them as investments? The bank that represents those investors? The company charged with overseeing the properties after the landlord defaulted?

On Wednesday, Barton and other tenants at 10 Bronx buildings once managed by Milbank Real Estate filed court papers to demand that those connected to their landlord's failed mortgage step in to repair more than 4,400 housing violations in 548 apartment units.

The tenants are in a limbo that is becoming increasingly common across the country as landlords skimp on repairs, declare bankruptcies and walk away from outsized mortgages.

Multifamily mortgages covering 340,000 U.S. apartment units and worth an estimated $28.8 billion were delinquent or in foreclosure at the end of 2009, according to global commercial property research firm Real Capital Analytics.

Distress Trouble Continues As Large Office Landlord Seeks Loan Modification

Thu, 22 Apr 2010 15:32:25 GMT

Here's more evidence of the Seattle office market's troubled state:

The region's biggest office landlord, which already defaulted on its loan on the Columbia Center, is playing a high-stakes game of chicken over another mammoth loan it took out three years ago to buy nine more office towers or complexes in Seattle and Bellevue.

Boston-based Beacon Capital Partners borrowed $2.7 billion to buy the Seattle-area properties and 11 others in the Washington, D.C., area in 2007, at the height of the real-estate boom. The package included the 47-story Wells Fargo Center in downtown Seattle and the 27-story City Center Bellevue in downtown Bellevue.

Now, according to a recent report by credit-rating agency Standard & Poor's, Beacon says that in 2010, after subtracting expenses of operating the 20 buildings, its rents from the properties will cover just 20 percent of its debt payments.

And Beacon says it isn't willing to pump any more of its own money into leasing, improving or paying debt on the buildings without a "meaningful loan modification," according to the rating agency.

Global commercial property research firm Real Capital Analytics' Ben Thypin said Beacon's bid to modify the loan stands a good chance of succeeding.

Pittsburgh Tower Challenges Blackstone

Wed, 21 Apr 2010 15:31:25 GMT

Blackstone Group LP became admired and envied in the commercial real-estate world for its success in selling billions of dollars of property at the market's top, before the financial world collapsed. Now it has also won kudos for how it has handled some of its troubled assets.

The best example of this was its restructuring of the balance sheet of Hilton Worldwide, Blackstone's biggest private-equity investment. Earlier this month, Hilton's lenders and Blackstone finalized a deal that cut its $20 billion debt load by about $4 billion in exchange for Blackstone putting in $800 million of new equity.

Now, Blackstone is hoping to work its magic on another property. Built in the 1980s, the building is located in Pittsburgh's cultural district and designed by the architectural firm of Kohn Pedersen Fox Associates. Despite the tower's pedigree, it hasn't been easy for Blackstone to get it filled amid the financial downturn. It took a state incentive package—as well as the customized improvements—to help lure Pittsburgh's EQT to lease more than 250,000 square feet. The lease helped push the occupancy rate up to 96%.

Blackstone tried to sell the building earlier this year. But it faced several obstacles besides the lousy commercial real-estate-sales market. For one, Blackstone doesn't own the land below the building but instead has a long-term ground lease on it. Most investors prefer the security of owning buildings and the associated land. In addition, sales of trophy buildings in smaller cities like Pittsburgh have been hit harder by the financial downturn.

Many buyers have focused on larger cities such as New York and Washington, D.C., which are viewed as safer investments and more liquid markets. In 2009, the dollar volume of office transactions completed in the Pittsburgh area totaled about $136 million, down from a total of $149.6 million in 2008 and well below the peak volume in 2005 when about $413 million in office properties traded hands, according to Real Capital Analytics,a global commercial property research firm. Real Capital's data covers transactions valued at more than $5 million.

Dan Fasulo Discusses CRE Recovery at MIPIM 2010

Tue, 20 Apr 2010 14:33:25 GMT

Dan Fasulo, Managing Director at Real Capital Analytics is interviewed at MIPIM 2010 in Cannes on how the US commercial property market compares with other areas of the world in 2010. Dan discusses transparency in emerging markets, which are coming back into play after a two-year hiatus. He also touches on Italy, and what will drive recovery in CRE investment globally.

Click here to watch full interview.

Commercial Real Estate Market Showing Signs of Life

Tue, 20 Apr 2010 14:29:25 GMT

The darkest cloud over the economic recovery — the troubled commercial real estate market — may be clearing a bit.

Prices of commercial property are up slightly compared with last fall. Loan modifications have risen sharply the past six months. Commercial mortgage-backed securities (CMBS), a big funding source that was comatose for two years, has come to life recently.

The developments won't alleviate the sector's biggest problem: the rising pace of defaults. But they should contain the damage and provide a lifeline to better-performing properties, analysts say.

Developers put up too many commercial buildings earlier this decade and paid the price when the economy wilted as vacancies rose and rents fell. Default rates jumped to 3.8% from 1.6% in 2009 and will hit 5.1% this year, said global commercial property research firm Real Capital Analytics.

Other good signs:

Commercial real estate values have edged up 6% in recent months, Real Capital Analytics says. They fell 45% from 2007 to 2009.

Distress Remains High in the Southwest

Mon, 19 Apr 2010 15:23:25 GMT

While residential foreclosures have slowed for next month, there's no letup in the volume of commercial properties set for foreclosure in May.

More than 300 Dallas-Fort Worth area commercial properties, including offices, shopping centers, apartments and warehouses, are set for forced sale by lenders next month. That's similar to levels seen for the last several months and analysts expect commercial foreclosures in North Texas to remain high this year.

As of the latest estimate, there is more than $5.4 billion in distressed CRE in the Dallas area, according to data from Real Capital Analytics. The largest share of those troubled Dallas-area commercial properties – more than $3.4 billion worth – is offices and retail, the new report shows.

Community Banks See Opportunity Amid Slide

Sun, 18 Apr 2010 15:28:25 GMT

There are currently 105 troubled commercial properties worth $1.8 billion in Connecticut, up from 36 struggling properties worth $463 million at the end of 2008, according to Real Capital Analytics. Greater Hartford accounts for 52 of those struggling properties worth $627 million compared to 18 properties worth $182 million in December 2008, according to the research firm.

There are 46 troubled commercial properties in Stamford worth $1.1 billion, up from 14 properties worth $197 million in 2008. The other seven struggling properties — worth $132 million — are located throughout the state. In December 2008, that figure was a mere four properties valued at $84 million.

The national figures are even more frightening.

An estimated $1.4 trillion in U.S. commercial mortgages will mature between 2010 and 2014, half of which are “under water,” meaning the borrower owes more on the loan than the property is worth, according to a recent report by the federal Congressional Oversight Panel.

Economic 'Fogginess' Explored and 2010 Predictions Offered

Fri, 16 Apr 2010 14:30:25 GMT

If you feel like you're in a fog about the economy, you're in good company. Uncertainty about the economy is so widespread that USC law professor George Lefcoe declared, "We are about to clear up the uncertainty" when he introduced opening speaker Christopher Thornberg, principal and founder of Beacon Economics, at the opening session of Wednesday’s USC Real Estate Law and Business Forum. Lefcoe said that the conference -- where Thornberg shared the opening session's comments on economics with Robert White, founder and president of New York City-based Real Capital Analytics -- would explore the ‘fogginess’ shrouding the economy and offer predictions on where the recovery is headed.

White, who presented an overview of the property markets, said that he sees mixed messages in the economy, although overall, “There are some positives, at least for now.” He cited a slow uptick in transactions, pointing to Q1 2010 sales numbers, which increased approximately 40% to 50% on a year-over-year basis. And while that sounds hefty, he noted, “You have to remember where we actually are” because those are increases over a 2009 in which sales were extremely low.

For the most part, White said that the outlook for fundamentals remains poor and is expected to stay that way in 2010, but most buyers have already priced that into their thinking about prices. He explained that he is beginning to see property prices bounce a little bit, and is starting to see cap rates come down rapidly. For the most part, however that is for an elite tier of assets. “Investors still place very little value on vacant space or on anything where the value is well into the future,” he said.

White pointed out that equity capital is not the problem. “There is plenty of it out there and some might say there is too much of it," he said. He noted that public capital and foreign investors are very interested in the US right now, that “REITs could end up ruling the world over the next two years.” Equity funds, although they haven’t been active yet, by all reports, have tremendous buying power,” White pointed out.

One factor that is causing a sense of urgency among investors, White said, “is that they have seen the rest of the globe turn very quickly.” He pointed out that Europe and Asia have jumped ahead with the rebound and the US has lagged, “which has scared a lot of our international investors.” White ended his overview with the point that the future is uncertain, “but it depends on what happens with all that distress and the debt markets.”

The Fed and MBS: An End in Sight

Fri, 16 Apr 2010 13:27:25 GMT

Residential mortgage rates are inching up. Freddie Mac reported on Thursday that rates for 30-year fixed-rate conforming mortgages had climbed to an eight-month high of 5.21 percent, up from 5.08 percent a week earlier and a low of 4.71 percent last December. Because conditions in the housing market remain fragile, the rise in borrowing costs is of serious concern for policy makers and for a range of market participants, who have come to expect low financing costs to offset the prevailing woes of the housing sector.

The current rate increases coincide with the Federal Reserve's anticipated winding down of its purchases of residential mortgage-backed securities (MBS). The Fed's purchases of MBS issued by Fannie Mae and Freddie Mac have been a keystone of the government's program to support the housing market. The program was first announced in November 2008, a few months after the Federal Housing Finance Administration placed the government-sponsored enterprises into conservatorship under the authority of the Housing and Economic Recovery Act. The first purchases of agency MBS followed two months later, in January 2009, and reached just under $1.25 trillion as of last week.

The Fed's investments have been financed through the creation of new bank reserves and have fueled the swelling of the Fed's balance sheet. As of last week, agency MBS represented 46.7 percent of the Fed's $2.3 trillion in assets. In a relatively short time, the Fed has grown from a neophyte investor to the market's dominant player and the owner of more than one in five agency MBS dollars outstanding.

The importance of the MBS market follows from the dependence of the domestic housing finance system on the participation of the government-sponsored enterprises. It was not always so.

High Level of Distress Forces Some Real Estate Firms to Throw Lifelines

Thu, 15 Apr 2010 14:30:25 GMT

Banks are not in the property management business, but waves of foreclosures increasingly are forcing them to become landlords. Some Roanoke commercial real estate companies say they are coming to the rescue.

In the midst of a tough economic environment, some companies are throwing a lifeline to a rising segment of their business and one that they expect will escalate through next year -- properties in financial trouble.

The number of troubled commercial assets in the United States has jumped 145 percent this month, from the same time last April, according to Real Capital Analytics, a global research and consulting firm. That is 9,659 troubled properties, compared with 3,929 in 2009. The total volume is $200 billion, from $72.8 billion last year, the firm reported. Comparatively, there were only 158 troubled commercial properties in Virginia, with a total volume of $3.2 billion in April.

In the Roanoke Valley, retail and industrial businesses have been dealt the hardest financial blows, putting their properties at higher risk for default, real estate agents said. This is a domino effect sparked by economic pressures, bankruptcies and empty storefronts and buildings.

Still, compared with larger cities, the Roanoke Valley's commercial market is not in as dire shape. Office spaces largely are filled and occupancy remains stable.

Health Care Reform May Help Distressed Commercial Real Estate

Wed, 14 Apr 2010 14:29:25 GMT

A real estate analytical firm says that if the commercial real estate collapses, Palm Beach County would be the site of one of the worst disasters or would it? Two factors could prevent such a disaster.

In a report on troubled assets New York-based research firm Real Capital Analytics ranked Palm Beach County as seventh nationally for distressed CRE with $2.3 billion in troubled commercial properties.

But, that was then. Now, health care reform is going to boost demand for medical services, says Kearney of Kearney Commercial Realty. Health care is already big business because one in five Palm Beach County residents is 65 years or older. Doctors stay busy treating maladies associated with aging in their office properties, many of them clustered around hospitals.

Physicians will get much busier, if government figures are correct. The U.S. Census Bureau said that nearly 28 percent of the Palm Beach County population under 65 did not have health insurance in 2007.

JPMorgan, UBS Property Funds May Get $100 Million Investments

Wed, 14 Apr 2010 14:28:25 GMT

JPMorgan Chase & Co. and UBS AG property funds may receive investments of as much as $100 million each from the Tennessee Consolidated Retirement System as the pension plan seeks to boost real estate holdings.

The Tennessee system, with $29 billion in assets, is considering putting money in the open-ended JPMorgan Strategic Property Fund and the UBS Trumbull Property Fund, according to a report prepared for pension board trustees. Townsend Group, the system’s real estate consultant, recommends the funds to clients, according to the report.

The Tennessee retirement system plans to invest $1 billion in real estate over the next five years. U.S. property purchases have plunged since 2007 as values fell and financing dried up. This year, commercial real estate sales likely will be double the $52 billion recorded in 2009, while still below their $500 billion peak, according to Real Capital Analytics Inc., a New York-based research company.

Retail Distress - Chicago Strip Mall Vacancies Climb

Mon, 12 Apr 2010 14:31:25 GMT

Vacancy rates are climbing as lenders take back properties from owners who can't pay or refinance their mortgages. In the Chicago area, 65 retail properties worth around $1.1 billion are showing signs of financial distress or are already in trouble, according to commercial real estate research firm Real Capital Analytics.

Lenders so far have been reticent to seize properties and sell them at today's discounted values. "Most lenders are still kicking the can down the road," says Sherwood Blitstein, a principal at Northbrook-based Mosaic Properties & Development LLC.

But there are indications of some movement, which could enable new owners to make more aggressive deals to lease up their retail centers. Late last month, Blitstein's firm bought a three-year-old shopping center in South Elgin anchored by a Home Depot for about $24 million after a bank took the property back when the developers couldn't pay off $37 million in debt.

Over $187 billion in Distressed Property Nationally

Mon, 12 Apr 2010 13:30:25 GMT

Nationally, the total value of distressed commercial real estate has reached $187.4 billion, including properties in distress, foreclosure and lender REO, reports Delta Associates in its latest report on distressed CRE, which is expected to be released this week.

The numbers, which have been compiled from New York-based real estate research firm Real Capital Analytics, represent an increase of 10%, or $17.3 billion, since Delta’s January report and 33%, or $46.9 billion, since November 2009.

Retail properties continue to be the largest segment of the distressed market, with $41.7 billion, compared to $38.5 billion in January. Also, distressed apartment properties grew the most since January--by $4.9 billion to $35.8 billion, or a 14% increase.

The good news is that the rate of growth continues to slow and has, in fact, come down from its peak during the first half of 2009, when the total value was doubling every three months, the report concludes. This slowdown is due in large part to the willingness of lenders to pretend and extend.

Private Equity Preparing for Property Boom

Mon, 12 Apr 2010 12:25:25 GMT

Although the value of private equity real estate fundraisings fell 65% to $40.6bn (€30.5bn) last year – a larger percentage decline than in the wider private equity industry, Preqin data shows – the tide appears to be turning. At the beginning of this year the industry was seeking to raise $173.6bn in property funds.

Growing confidence stems from a belief that dealmaking will take off this year. Direct property acquisitions by private equity funds fell 55% to $22.6bn last year, according to data from New York-based real estate research firm Real Capital Analytics. At the property boom’s peak in 2007, real estate deals accounted for a quarter of all private equity deals. At the low point in the crisis they made up only 6% of all property deals, but this has since risen.

Chad Pike, co-head of real estate at Blackstone Group, said property loans on banks’ balance sheets had not yet begun to be unwound. He said: “In Europe we are just now starting to see deals that private equity real estate will be involved in.

We have taken the stance of being patient and waiting for banks to formulate disposal strategy and timing. We are starting to see reasonably good deal activity in the US and think Europe is six to 12 months behind. For the higher return-seeking capital this is really only just beginning.”

Mezzanine Debt Used to Acquire Cheap Office Property

Thu, 08 Apr 2010 13:33:25 GMT

Scott Rechler sold his real-estate company—which grew from his family business to include New York office buildings—at the top of the market in 2007 for $4.1 billion. Now Mr. Rechler is positioning his new company to start buying again, the latest sign that some investors believe prices are at or near a bottom.

Mr. Rechler's RXR Realty as early as this week will take control of 32 suburban office properties from CLK/Houlihan-Parnes, a partnership that late last year defaulted on nearly $30 million in mezzanine debt held by RXR. Mezzanine debt was often used by real-estate buyers during the boom to fill the gap between equity and the first mortgage. Now, during the bust, some investors are buying delinquent mezzanine debt as a maneuver to take control of the underlying properties in the event the property owner defaults. Often, they can take control of properties on the cheap.

"A lot of these owners are faced with the choice of double down and put more equity in the property or just basically hand back the keys to the lender," said Dan Fasulo, a managing director with Real Capital Analytics. "Their equity's wiped out, they have near-term refinancing issues with the loan. There's just no way to make it work in a new paradigm."

Manhattan Commercial Real Estate Sales Triple in Q1

Tue, 06 Apr 2010 15:28:25 GMT

Manhattan commercial property sales tripled in value in the first quarter from a year earlier as sellers begin to take advantage of rising demand, according to brokerage firm Cushman & Wakefield.

About $3.3 billion of transactions priced at $10 million or more were closed or went under contract, almost matching the $3.5 billion sold during the whole of last year, the New York- based property broker said today. Deals included UBS AG’s sale of a 49 percent stake in an office tower at 299 Park Ave. and the sale of the former Drake Hotel site at 440 Park Ave.

Buyers included Rockpoint Group LLC, a Boston-based global investment management firm, which purchased the stake in 299 Park, and Los Angeles-based CIM Group, which acquired the former Drake Hotel site for $305 million, according to Real Capital Analytics, a New York-based research company that tracks sales in the industry. Sam Zell’s Chicago-based Equity Residential paid $181 million for River Tower, a 38-story apartment house on Manhattan’s East Side, Real Capital data show.

The Manhattan office vacancy rate climbed to 11.6 percent from 9.6 percent a year earlier as new construction added supply to the market, Cushman said. The biggest addition was 11 Times Square, a building at Eighth Avenue and West 42nd Street, which has 1.1 million square feet of space, according to the broker.

Asking rents slipped to a three-year low of $55.38 a square foot, compared with $65.01 a year earlier.

Canadian Buyers on US Real Estate Shopping Spree

Tue, 06 Apr 2010 14:30:25 GMT

Lawrence Yun, chief economist at the National Association of Realtors (NAR), says about 27,000 Canadians bought vacation homes in the U.S. last year, and that it looks like the Canadian influx is slated to continue through 2010.

Experts expect the currency known as the loonie to continue to appreciate over the next several months, sending Canadian buyers on a shopping spree in Florida, California and Arizona.

While Canadians may be dominating the American residential scene, they remain minor players in the commercial market. Dan Fasulo, managing director at New York-based research firm Real Capital Analytics, said changes in currency rates overtime have less of an impact on decision making in institutional commercial property.

"For most major international investors, real estate is just one arm of a larger operation that usually includes investments in stocks and bonds. All of the currency risk usually gets hedged at the more macro company level for the different investment targets," said Fasulo. "It's not as big an issue in the commercial sector as it is in the residential sector, where it does have a significant psychological impact."

Still the Canadian dollar's rise has made some waves in commercial real estate. Toronto-based Brookfield Asset Management said in a note earlier this week it will invest $2.625 billion in equity to fund recapitalization of bankrupt General Growth Properties Inc. While retail property developer RioCan said earlier this month it plans to spend at least C$500 million on acquisitions this year, with a particular focus on the U.S. market.

While Fasulo keeps his eye on Brookfield, RioCan, and other property managers like Dundee, he said the loonie's race toward parity has little impact on commercial transactions.

Lack of Distress-Related Activity for Hotels

Mon, 05 Apr 2010 15:30:25 GMT

The Noble Organization, a hotel real estate fund, management and development group, should be perfectly situated in today's distressed commercial property environment. The number of hotel-related defaults has exploded in the past year or so and now reaches $32.3 billion, according to real estate research firm Real Capital Analytics Inc.

Of all CRE asset classes, hotels constitute the smallest number of deals, both in quantity and dollar value. In 2007, U.S. hotel property sales totaled more than $40 billion, according to Real Capital. Last year, that figure barely eclipsed $2.5 billion.

The reason for a lack of distress-related activity is simple. Most owners have tried whatever means possible to avoid selling hotels because values have fallen so far that their investment would be wiped out.

Most lenders have been doing everything possible to accommodate them. "Lenders don't want any properties," says Ben Thypin, senior market analyst at Real Capital. "They definitely don't want hotels."

New York City Loses Top Ranking

Mon, 05 Apr 2010 13:32:25 GMT

In yet another sign of the devastation wrought by New York's real estate recession, the city failed to place in the top 10 metropolitan markets in the world ranked by the volume of property sales last year.

That absence contrasts sharply with the city's status in 2007, when New York led the list, compiled by New York-based research firm Real Capital Analytics, with a whopping $55.8 billion in sales. The list contains all types of sales, including land.

In 2008, New York slipped to second place behind Tokyo before vanishing totally in 2009, a year in which no less than six of the top 10 spots were cities in China. That country's sudden dominance was fueled by favorable lending policies at the country's government-controlled banks, says Dan Fasulo, managing director at Real Capital. He believes New York is likely to climb back as lending conditions improve this year.

And the city fared better when only commercial properties were ranked, racking up $4 billion in sales to earn the seventh spot on the list. London was first with $16 billion. Back in 2007, New York claimed the top spot with $56 billion in sales.

Owners Seek Refinancing of BofA Tower . . . again

Fri, 02 Apr 2010 13:30:25 GMT

A mere nine months after refinancing the Bank of America Tower at One Bryant Park, the owners are looking to do it all over again in what is being viewed as a sign of strength in the capital markets.

“This is evidence that the financing situation is improving,” said Dan Fasulo, managing director of Real Capital Analytics.

The building's owners, The Durst Organization and Bank of America Corp., refinanced the 51-story, 2.1 million-square-foot tower in June with a $1.28 billion loan. It was believed to be one of the biggest, if not the biggest, single, private financing deals since the credit markets froze shut in 2007.

But sources say the owners believe they can get even better terms now then they could nine months ago. Additionally, the loan they secured was only for three years, and they are hoping to get an even longer one now.

The owners are not alone in their belief that the real estate environment is improving. Others are testing the market too, including the owners of 340 Madison Ave., 125 Park Ave. and 600 Lexington Ave. They have all put their buildings up for sale. Experts say those owners believe there is enough financing available and investor interest to make handsome profits on their properties.

PE Firm Starwood Raises $2.8 Bil. for Distressed Real Estate

Thu, 01 Apr 2010 13:24:25 GMT

Private equity firm Starwood Capital Group LLC has reportedly finished raising capital for two funds totaling about $2.8 bil. that will invest in US commercial real estate.

The Starwood Global Opportunity Fund VIII, which will target distressed debt and property, took in more than $1.8 bil., according to a person familiar with the effort. The Hospitality Fund II, which will invest in hotels, attracted almost $1 bil., said the person, who declined to be identified because the deal is private.

Starwood, founded by Barry Sternlicht, had previously raised around $10 bil. of equity for 11 funds and other investments, according to JPMorgan Chase, which helped the firm find investors. Starwood is leading a plan to bring Extended Stay Hotels Inc. out of bankruptcy and purchased loans in October from failed Chicago-based lender Corus Bankshares Inc. as the property market reels from a 40% drop in commercial real estate values from its 2007 peak.

“Raising new capital in this environment speaks to the team at Starwood and the deals they’ve been able to get done,” said Dan Fasulo, managing director of commercial property research firm Real Capital Analytics Inc. “Barry and his team are one of the few that have been able to put money to work in the past few months.”

Paramount Prepares for Increase in Hotel Transaction Volume

Tue, 30 Mar 2010 12:30:25 GMT

Paramount Lodging Advisors has hired four new staffers as the company stays busy handling servicing work and expects the hospitality transaction market to heat up in the beginning of the third quarter. Dan Beider, chairman and senior managing director of the company, tells GlobeSt.com that hotel consultants are needed now more than ever, as lenders and special servicers struggle to evaluate properties. His firm has increased from 10 to 25 team members since it was formed in summer 2007.

“The majority of these people looking at distressed hotel value, they don’t come from the hotel industry, but from other parts of the investment world,” Beider says. “A hotel is by far the most management-driven asset in the commercial real estate class. Part of our problem is at the peak of the market, people were jumping into the industry as operators who don’t know the industry well, and that put a lot of assets upside-down.”

He tells GlobeSt.com that more hotel experts are needed to be involved in evaluating these distressed assets, “filling the gap between asset manager and broker. It’s a good time to bring on people, the demand for knowledge is significant, even though there’s not a lot of brokerage.” Fewer than 10% of the hotel offerings closed in 2009, according to a report by Real Capital Analytics. However, Beider says the next 18-to-24 months should bring significant transaction volume, depending on what is held by lenders. “It’s definitely going to be exciting,” he says.

Manhattan Office Sector Headed for a Rebound

Fri, 26 Mar 2010 13:30:25 GMT

Commercial property in Manhattan could see a revival this year after activity staggered to a halt in 2009, offering hope that the struggling sector might not be as severe a threat to the economy as feared.

According to a report by CB Richard Ellis, the real estate services company, investment in Manhattan’s office sector is poised for a rebound, with prices and vacancy rates stabilizing as the US economy recovers.

Last year office sales volume plunged to the lowest level since the early 1990s, with only eight properties worth more than $30m changing hands, while prices per square foot fell by 59 per cent from 2008. CBRE noted that the rate of price declines has slowed significantly and predicted that office rents in New York will rise by 2.2 per cent in 2010.

Meanwhile, vacancy rates, which doubled from 2008 to nearly 10 per cent in 2010, are expected to fall back as the labour market improves. It has been predicted that the threat of a wave of distressed assets creating a complete collapse in the market might have been overstated, as lenders have shown an increasing willingness to offer loan extensions and workouts.

Sam Chandan, Chief Economist at Real Capital Analytics, said that the uptick in leasing activity does not yet suggest a sharp increase in businesses requiring more space but is actually a result of companies taking advantage of a trough in rents.

Manhattan’s office sector recovery comes as the US commercial real estate market is showing signs of life. Earlier this week the Moody’s/REAL commercial property price index showed prices rising by 1 per cent in January. That was the third consecutive month that prices rose and they have climbed by 6.3 per cent since reaching a bottom last October.

REITs - Blind Pool Party

Thu, 25 Mar 2010 13:28:25 GMT

It was just over a year ago that the NAREIT index of REIT shares hit bottom after dropping 75% from its peak in February 2007. It has since rebounded 94%. A nice start, but prices would have to better than double from today's level to get back to where they were.

With hindsight, the bubble in commercial real estate looks pretty absurd. Purchasers of commercial property were so convinced that rents would go up forever that half-empty buildings changed hands at higher prices than those filled with solid rent-paying tenants.
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Now those same investors (pension funds, insurance companies and private equity groups) are returning to the market with a little more attention to the rent rolls. REIT shares, meanwhile, have gotten a bit ahead of building values. As REIT shares were climbing, property prices were falling 43%, according to the Moody's Real Commercial Property Price Index. While I still like real estate investment trusts, I can't describe the sector as a whole as any great bargain.

My four columns in 2009 benefited from the REIT rebound. Had you bought all 24 recommended stocks, including 8 holdovers from the previous year, you would have enjoyed a 37% return (including dividends and after a 1% haircut for transaction costs on new positions). Had you put the same money on the same dates into the S&P 500 (without a transaction cost) you would have been up only 23%.

One of the reasons that REITs have outperformed other owners of real estate is that they use less debt and manage their properties more carefully. So REITs can now be buying. Real Capital Analytics estimates that there are more than $160 billion of troubled properties out there. Potential buyers have been drooling in anticipation of getting nice discounts on assets that fall into bankruptcy or other distress.

With Healthcare Now Law, Financial Reform Tops the Agenda

Thu, 25 Mar 2010 13:25:25 GMT

In the shadows of the divisive House debate on healthcare reform, members of the Senate have continued their work on a range of proposals addressing the need for reform in the financial system. Differences of opinion, sometimes partisan and sometimes reasoned, have precluded consensus on how best to proceed. Failing to reach a compromise proposal, the Senate Banking Committee's chairman, Chris Dodd, unveiled his own legislative proposal earlier this month.

The Senate Banking Committee took up Mr. Dodd's proposal this week. The key provisions of the bill are far-reaching in their implications. If enacted as originally conceived, the legislation will create an independent consumer protection agency within the Federal Reserve; task a new Financial Stability Oversight Council with identifying firms and financial products that might threaten stability; discourage growth in the size and scope of financial services firms so as to limit taxpayer liability; and establish a more transparent, consistent and rigorous regulatory environment.

RCA Global Chief Economist Sam Chandan explains that industry groups across the full range of financial services are taking issue with the bill's provisions. Concerning the CMBS market, the Mortgage Bankers Association has called for deliberation with respect to the proposal's risk retention provisions. Even if it survives the gauntlet of the committee process, it is unclear if Senate Democrats will be able to manage easy passage of legislation once it reaches the floor. Republicans will reportedly oppose the liquidation fund and bifurcation of regulatory authority that are the cornerstones of Mr. Dodd's proposal.

A Double Flop For The Fontainebleau

Thu, 25 Mar 2010 13:25:25 GMT

Like many of the men who built South Florida, Donald Soffer is a transplant, a native of Pennsylvania steel country who began making his fortune putting up shopping centers in and around Pittsburgh. Turning to Miami in the late '60s he plunked down more malls and branched into condo towers and planned communities. His son Jeffrey helped steer Turnberry Associates, the family business, toward more upscale projects—then overreached. In 2005, Jeffrey formed Fontainebleau Resorts and spent $3 billion of mostly borrowed money renovating the iconic Fontainebleau hotel in Miami Beach and starting work on a lavish casino resort in Las Vegas.

His timing could hardly have been worse. The unfinished Vegas project has already been lost to bankruptcy—billionaire investor Carl Icahn scavenged it in February—and Jeffrey Soffer is now fending off lawsuits and scrambling to hold on to the Miami resort.

"Soffer made a big bet on the Fontainebleau that went very wrong, twice," says Dan Fasulo, managing director of New York research firm Real Capital Analytics. "It's a mess."

Columbia Center Misses Loan Payment

Wed, 24 Mar 2010 13:28:25 GMT

When Beacon Capital Partners bought Columbia Center, it had net operating income of $31.8 million, according to Clancy, of Trepp. With the recession, rents in the building have declined from $30.20 per square foot in 2008 to $24.90 per square foot last fall. Net operating income for the first three quarters of 2009 was $15 million, which was less than needed to service its debt, according to Clancy.

Dan Fasulo, managing director of New York real estate research firm Real Capital Analytics, expects that the loan servicer will likely try to restructure the loan.

“We have not seen many liquidations. We’ve seen many lenders, even commercial mortgage-backed securities servicers very much willing to work out a restructuring of the loan terms,” Fasulo said. He said he’s seen early signs of recovering property values in select markets.

“It’s only a matter of time until it hits Seattle,” Fasulo said.

Global Office Sales Down 50%

Tue, 23 Mar 2010 13:28:25 GMT

Sales of office properties worldwide were at just under $100 billion (Dh367bn) in 2009, falling 50 per cent year-over-year, according to a report.

"The fall off was less significant than the near doubling in volume from the first to the fourth quarter, as sales activity exploded in London, capping a year of steady growth," said New York-based research firm Real Capital Analytics (RCA) in a report.

Surging fourth-quarter volume in EMEA, which at $21bn was four times greater than in the struggling Americas and more than double Asia-Pacific levels.

The poor position of the Americas was also underscored by its skyrocketing cap rates, up nearly 300 basis points from 2007, including a stunning 150 basis points in 2009 alone.

By contrast, cap rates in EMEA and especially Asia-Pacific turned decisively south in the second half of 2009, ending the year roughly 100 bps above the 2007 mark in EMEA and dropping back to those levels in AsiaPacific after spiking at mid-year in investor buying power, as pricing declined and investors were able to grow deal size.

EMEA buyers also gained scale even though prices fell less steeply, while buyers in the Americas recoiled at frozen values.

List of Lender-Owned Office Properties Growing

Tue, 23 Mar 2010 12:30:25 GMT

Lakewood Center North, the tallest rental office building in the Cleveland suburbs, is the latest structure to join the growing list of lender-owned suburban office properties.

The Tomorrow Fund, a German investment fund that buys U.S. properties and owned the 15-floor tower through Lakewood Tomorrow VIII Fund LP, on March 2 surrendered the building to CWCapital Asset Management of Washington, D.C., according to a “deed in lieu of foreclosure” filed in Cuyahoga County.

Lakewood Tomorrow VIII acquired the building, 14600 Detroit Ave. in Lakewood, for a healthy $14.45 million in January 2007 from BGK Group of Santa Fe, N.M. The original loan that Lakewood Tomorrow used to buy the building was for $8.5 million, according to county land records.

The transfer to the lender occurs as the outlook darkens for the 258,000-square-foot Lakewood Center North.

Real Capital Analytics a New York-based research firm, which tracks investment sales and troubled real estate globally, lists nine Northeast Ohio office properties with a total market value of $80 million as distressed as of March 8, compared with eight buildings with a market value of $73 million in its Dec. 3, 2009, report.

RCA's distressed property data is not limited to public court or land-record filings, but also incorporates information on souring loans it obtains from lenders and other sources.

More Sellers Than Buyers in Fort Wayne

Mon, 22 Mar 2010 13:32:25 GMT

Bankers nationwide are bracing for a new flood of foreclosures.

But this time commercial borrowers – not homeowners – are dancing with default.

The Congressional Oversight Panel last month issued a report that said it “is deeply concerned that commercial loan losses could jeopardize the stability of many banks, particularly the nation’s mid-size and smaller banks.” It went on to express concern “that as the damage spreads beyond individual banks … it will contribute to prolonged weakness throughout the economy.”

Bob Hall, Fort Wayne market president for Old National Bank, confirmed this area’s CRE market is soft.

“You can drive around Fort Wayne and see a lot of for-lease, vacant office spaces,” he said.

Real Capital Analytics, a New York-based research firm, has counted eight distressed commercial assets worth a combined $229 million in Fort Wayne. Toledo, which has a population similar to Fort Wayne’s, has 17 distressed commercial properties valued at $112 million.

Real Capital Analytics defines distressed properties as those that are in foreclosure, bankruptcy or have restructured or modified loan terms. The firm uses assessor records, public records, news sources and other sources to compile its lists, research services director Jessica Ruderman told The Journal Gazette last week.

What Will Recovery in Commercial Real Estate Look Like?

Thu, 18 Mar 2010 13:36:25 GMT

Recovery will come; that much is clear. But what that recovery will look like is another question altogether—one even Real Capital Analytics' Global Chief Economist, Sam Chandan, declined to answer during his keynote presentation at the Hunter Hotel Investment Conference Wednesday.

“No longer is it ‘Will we have a recovery?’ We’ve moved past that,” said the economist. “… The critical question is what type of recovery will we have?”

That lack of clarity is in part a result of government intervention, according to Chandan. The economic recovery experienced to date depends heavily on federal programs designed to stimulate consumer spending. But what happens when that stimulus ends? “Cash for clunkers,” a program that incentivized consumers to purchase automobiles, saw demand skyrocket for a few months—but demand for new automobiles fell off when the program ended. “What kind of momentum can we sustain when the government pulls support?” Chandan asked. “The answer to that question remains unclear.”

What is more certain is how the recession in the commercial real estate sector will be viewed in hindsight.

“This downturn for us in our sector is not as much about overbuilding as it has been about the way in which we’ve financed our properties,” Chandan said.

As capital and credit began to flow into CRE during the more bountiful years of 2005, 2006 and 2007, demand from investors increased. But because there was only a limited number of assets at that time, prices skyrocketed.

The long-hold players who wanted to acquire and operate the asset for a number of years couldn’t justify paying such high prices in the short-run given projected performance fundamentals, Chandan explained, but that wasn’t an issue for opportunistic investors looking to realize a significant gain on a quick sale.

Unfortunately for many of those investors, prices could only go so high, and many of them were stuck having paid too much money for an asset that wasn’t worth the terms of their loans.

Experts: What a Difference a Year Makes

Wed, 17 Mar 2010 13:31:25 GMT

LOS ANGELES-"What a difference a year makes." So said moderator Jay Leupp, managing principal of Grubb & Ellis-Alesco Global Advisors, as he opened the discussion of the Market & Economic Update panel at the annual Real Estate 2010 conference. "Things have gotten a lot better. We are back. You are back. And commercial real estate is back. Doesn’t it feel better?" The conference is produced by the RealShare Conference Series, part of ALM's Real Estate Media Group.

Leupp addressed a crowd of more than 1,000 in Downtown Los Angeles on Tuesday morning, where he and a group of panelists provided some realistic insight for 2010. The bad news is that there are still some significant headwinds due to consumer debt and a tremendous amount of government debt, said Hessam Nadji, managing director of research services at Marcus & Millichap. "But there is a lot of positive news," he added. "The evidence of the actual recovery keeps piling up…This will be a staging and a transitional year."

Dr. Sam Chandan, global chief economist and executive vice president of Real Capital Analytics, explained that one of his major concerns looking forward is government intervention. "It is unclear if there is enough consumer confidence without government intervention to sustain the kind of growth that will drive new employment," he said. But the more immediate concern, he said, "is the way that we balance or do not balance budgets in the US."

Double The Trouble: Level Of Distressed Local Property Jumps

Mon, 15 Mar 2010 13:30:25 GMT

The volume of troubled commercial real estate in the Chicago area has nearly doubled over the past five months, to $7.5 billion, fueled by the mushrooming turmoil in the office sector, a new report says.

The dollar value of local distressed real estate has shot up more than 70% since Oct. 1, when the total was about $4.4 billion, according to Real Capital Analytics Inc. Office properties now account for nearly half of the local woes, up from just 11% five months ago.
As startling as the rise in the Chicago area may be, the national picture is even worse.

The volume of distressed property nationwide expanded by 149% since October, to nearly $140 billion.

The report uses a broad definition of distress, including properties with loans that are delinquent, in default, modified, near maturity or facing foreclosure. Real Capital also includes properties where the tenant or the owner is bankrupt or under financial pressure.

But the rate at which properties are falling into distress has slowed in the past couple months.

Moreover, “as lenders gain both perspective on their holdings and guidance from federal regulators on handling workouts, the pace of restructurings and especially resolutions has picked up markedly,” the New York-based real estate research firm says in its “Troubled Assets Radar report” issued March 8.

Australia REITs Have Funds, Hunger; Eye Overseas Assets

Fri, 12 Mar 2010 13:31:25 GMT

Australian property firms and pension funds, armed with a multi-billion dollar warchest, are poised to go on a shopping spree, eyeing distressed real estate targets from the United States to across Asia.
Money is plentiful and credit is cheap and there is no shortage of potential targets following the seizure in U.S. real estate markets in recent years.

Australian real estate companies were among the first to tap stock markets for fresh capital after their heavy borrowing and currency hedging strategy backfired in late 2007, triggering a massive retreat of property firms like Centro Properties Group from overseas.

Now, the country's top 12 real estate investment trusts (REITs) such as Goodman Group have a total AUD$19 billion (USD$17.3 billion) in spare liquidity plus the cash retained from having trimmed dividend payouts.

REITS are funds which invest in property and pay most of the rent to shareholders as dividends. They appeal to investors who want regular dividends, but higher than yields on safer government bonds, and offer capital gains if property prices rise.

"I think the major wave of restructuring and asset sales is over," said Dan Fasulo, managing director at Real Capital Analytics. "We're about to turn a corner and you could see some Australian investors being in more of a position to acquire some of the assets over the next 12 months."

California Public Pension Funds Take New Hits On Real Estate Investments

Fri, 12 Mar 2010 13:23:25 GMT

Troubles in real estate and other sectors are straining the state and local government entities that rely on CalPERS and CalSTRS pensions. The California Public Employees' Retirement System is imposing rate hikes on state and local governments to help it recover from its investment losses. CalSTRS, which needs permission from the Legislature to raise rates, is preparing to introduce a bill next year.

Additionally, both funds are considering lowering their official forecasts of future investment returns, which could increase the funding pressure on state and local governments.

Real estate could be the biggest trouble spot for the foreseeable future. Ben Thypin, senior market analyst with New York consultant Real Capital Analytics, said all big real estate investors are continuing to struggle with post-bubble economics.

"I don't think it's going to get much worse," he said, referring to the market in general and not the California pension funds' investments. "That doesn't necessarily mean there won't be other bombshells."

Atlanta Retail Interests Out-of-State Investors

Wed, 10 Mar 2010 10:30:40 GMT

The local retail sector presents opportunities for investors, especially those from outside Georgia and, for that matter, the US. Continued declines in job and population growth, along with weak consumer sentiment, will likely mean minimal development of new centers plus the possibility of more distressed properties coming to market.

Once a beacon of the booming national economy, Atlanta is now expected to lag many of the nation’s major metropolitan markets in the expected recovery. However, in the retail sector Atlanta shopping centers are drawing attention from out-of-state investors and activity is predicted to rise in 2010.

Real Capital Analytics recorded 20 retail deals in the Atlanta market throughout 2009, totaling $305 million.

Leona Helmsley Estate Signs Deal to Sell Manhattan Hotel

Tue, 09 Mar 2010 18:00:25 GMT

The estate of real-estate baroness Leona Helmsley has signed a deal to sell one of its prime Manhattan hotels for about $170 million.

The Helmsley Carlton House on Manhattan's Upper East Side, a luxury hotel with 161 apartment-style rooms, was sold to a partnership between private-equity firm Angelo, Gordon & Co. and Extell Development Co. led by developer Gary Barnett. The sale marks the first deal the estate—whose mandate is to liquidate all the holdings—has brought to the market since Mrs. Helmsley died more than two years ago.

The transaction comes as the market for commercial property, which virtually ground to a standstill during the recession, is showing initial signs of life. According to the people with knowledge of the matter, the list of investors eyeing the Carlton House was a Who's Who in real estate. Among them: New York developer Harry Macklowe, who teamed up with private-equity firm Fortress Investment Group LLC; Barry Sternlicht's Starwood Capital; Arthur and William Zeckendorf; a venture of Stanley Chera and Jacob Safra; and developer Daniel Brodsky. Mr. Chera confirmed his interest in the property. The other investors declined to comment or couldn't be reached.

Howard Rubenstein, the spokesman for the Helmsley estate, declined to comment on the sale. The deal is expected to close in July. The new owner likely will convert the upper floors of the property into apartments.

To be sure, pressure continues to build in the commercial real-estate market, with landlords struggling with rising vacancies, falling rents and heavy debt loads. Federal Reserve Chairman Ben Bernanke said recently that CRE loans at small and regional banks are "the biggest credit issue that we still have." More than $160 billion of commercial properties in the U.S. are now in default, foreclosure or bankruptcy estimates New York-based research firm Real Capital Analytics.

The Helmsley deal, on the other hand, shows that demand for quality properties is increasing as investors who have raised billions of dollars to take advantage of the current downturn are eager to put their money into work. Located in the middle of the fashionable Madison Avenue shopping district, the Carlton House has some of the most valuable retail space in the world. Apartments in the area also sell for top dollar, although Manhattan residential prices have suffered along with those in the rest of the U.S.

According to Real Capital Analytics, the amount of investment sales increased to $18.8 billion in the fourth quarter from only $10.4 billion in the first quarter of 2009. Still, that figure remains only a fraction of the $145 billion seen in the first quarter of 2007, the market peak. The firm estimates that about $20.9 billion of property is on the block this quarter.

A Plan to Save Commerical Real Estate

Mon, 08 Mar 2010 18:00:25 GMT

Economists have long been predicting commercial real estate could be the next day of reckoning for the financial markets, with a wave of defaults looming as billions of dollars in troubled loans come due in the coming months.

But a little-noticed bill introduced in January could help bring a new source of desperately-needed liquidity to the sector: foreign investment.

Introduced by Joseph Crowley, a six-term Democratic congressman representing parts of New York City's Queens and Bronx boroughs, the Real Estate Revitalization Act of 2010 would eliminate certain taxes that were part of the Foreign Investment Real Estate Property Tax of 1980, or FIRPTA -- which requires foreign investors to pay as much as a 55% tax on capital gains from the sale of U.S. real estate or shares in real estate investment trusts and real estate operating companies.

Repealing the tax, Crowley and the bill's supporters say, would get rid of a major impediment to foreign investment in the sector -- and could open the floodgates to new liquidity at a time when CRE loan defaults pose a serious risk to the nation's fragile economic recovery.

Currently, foreign investors make up only about 10% of the acquisitions of U.S. commercial real estate, says Dan Fasulo, managing director of Real Capital Analytics. In the UK, it represents over half of overall capital flows. "Could [removing the tax] double the amount of investment activity in the U.S.?" he says. "Sure."

REITs See Gains in February

Mon, 08 Mar 2010 17:08:25 GMT

I was surprised to see a report from the National Association of Real Estate Investment Trusts that "U.S. REITs gained more than 5 percent in February...driven by gains in the retail and apartment sectors."

Sudden disconnect.

Retail is flailing under job losses and consequent weak consumer spending, and rock-bottom priced housing is forcing rental rates down and vacancies up in the apartment sector.

How could REITs in these sectors be performing so well?

A few answers:

From Real Capital Analytics' Dr. Sam Chandan:

The best-positioned REITs are facing the same general set of challenges in managing lower occupancy and rents as the rest of the marketplace.

But these REITs have also been very successful in raising capital in the public markets over the last few quarters.

This has allowed them to retire pending debt maturities, reduce their overall leverage, and build a store of cash that they will now use to purchase real estate assets at a discount. Taking a long view, buying assets at a discount now, when the market is generally undercapitalized, may be highly accretive to the REITs’ balance sheets once property fundamentals stabilize. This combination of reduced debt-related risks and REITs’ “dry powder” to fuel acquisitions is the primary driver of returns right now.

Optimism Growing in Commercial Real Estate

Mon, 08 Mar 2010 12:25:25 GMT

Virtually everyone in commercial real estate these days will say things are better than they have been in some time.
Nothing compares well with CRE activity in the good old days of 2007, but "off the bottom" is not a bad place to be when the industry's prospects over the next few years "could threaten America's already-weakened financial system," according to a recently released government report.

The 183-page report was completed by the Congressional Oversight Panel, whose task was to assess CRE loan loss risk to the country's financial stability.

Other observations in the report include that $1.4 trillion of loans come due between now and 2014, and 50 percent are underwater; and that there are nearly 3,000 banks with problematic exposure to commercial property.

The panel's bleak assessment of the industry is probably close to accurate if all banks with more than 30 percent of their assets tied up in CRE loans closed shop tomorrow and liquidated.

However, the reality is much different. So, what's making commercial real estate people more optimistic?

Special servicers are so overwhelmed with problem loans it's forcing them to take action and dispose of what they can. The market has been waiting for this and views it as vital to commercial real estate's recovery.

Another disturbing problem for many institutions was lack of clarity and direction from the government. While this problem still haunts many lenders, those that have good controls in place and are not overexposed to real estate are back in the game.

The FDIC has not provided explicit direction on new lending activity, but its lack of ability to shut down banks with problematic loan exposure allows relatively healthy banks to move forward and go about their business.

The other positive factor is a pickup in transaction activity, particularly in larger cities.

The latest data from New York-based research firm Real Capital Analytics indicate that December 2009 transaction volume for commercial real estate deals larger than $5 million was up 75 percent from the same period a year earlier.

Activity is a telling sign that we are moving away from the bottom.

General Growth Gets an Extension

Fri, 05 Mar 2010 18:56:25 GMT

After a hotly contested hearing at the U.S. Bankruptcy Court in New York, Judge Allan Gropper granted Chicago-based REIT General Growth Properties a four-month extension on its exclusivity period to file a reorganization plan, with the right to request another extension if needed.

In handing out his decision, Gropper cited the need for the REIT to create the highest value for all stakeholders—including both shareholders and unsecured creditors—and expressed his belief that the debtor would be the only party to keep everyone’s interest in mind as it proceeds with the reorganization. The extension to July 15 fell short of the six-month period General Growth initially requested, but was also longer than the 45-day period proposed by the unsecured creditors’ committee, which favors rival Simon Property Group’s $10 billion bid to acquire the company.

The court also approved investment bank UBS as an additional financial advisor to General Growth. The REIT, which has already been using the restructuring services of Miller Buckfire & Co., argued that UBS’ extensive experience as a book manager in REIT equity offerings would help it effectively run a capital raising campaign.

Going forward, General Growth will pursue two tracks simultaneously. It will seek to find ways to recapitalize the company as well as field acquisition bids from suitors.

In spite of obvious disagreements between the parties involved, Judge Gropper expressed a high degree of satisfaction with the progress in the REIT’s bankruptcy case, including the nearly completed restructuring of up to $12 billion in secured debt and the increase in equity value to $4 billion.

Even before General Growth President and COO Tom Nolan revealed the firm had signed up to five non-disclosure agreements with potential investors, the judge noted that the high level of interest the REIT was attracting was a positive sign for its long-term prospects.

Simon and Westfield Group have confirmed that they've signed agreements. Vornado Realty Trust is rumored as another potential bidder. In order to create a level playing field for all interested parties, General Growth has created a virtual data room for potential suitors that gives them access to the REIT’s books.

"We do have to be mindful of the fact that both in terms of general economic trends and in terms of credit markets for real estate specifically, conditions remain fragile," says Sam Chandan, global chief economist and executive vice president with Real Capital Analytics. "The recovery in the economy and in the capital markets is still in its nascence and there is still some degree of uncertainty about the nature, the degree, and the pace of this recovery.”

Kushner's 666 Fifth Goes To Special Servicer

Fri, 05 Mar 2010 17:59:25 GMT

The $1.215 billion securitized loan secured by the Kushner Companies iconic Midtown office building at 666 Fifth Avenue was transferred to special servicing yesterday as part of an effort to restructure the loan, a company spokesperson told The Real Deal in a statement.

Kushner bought the building, located between 52nd and 53rd streets, for $1.8 billion from Tishman Speyer Properties in January 2007, at the time the highest price ever paid for an office building.

"The transfer of the 666 Fifth Avenue loan was done at the request of Kushner Companies, so that it could more easily engage in productive discussions with the lender. The loan is not currently in default," the statement said.

Peter Slatin, editorial director of New York-based research firm Real Capital Analytics said the move was part of a trend in owners seeking to reduce their debt.

"They are clearly hoping to take advantage of the increasing willingness of lenders to restructure to avoid what could be a challenging situation since they not only bought at the top of the market, they defined the top of the market," Slatin said.

No Clarity on Fannie Mae and Freddie Mac's Future

Thu, 04 Mar 2010 14:28:25 GMT

The administration's plan for overhauling Fannie Mae and Freddie Mac was widely anticipated as part of or alongside this February's budget proposal for the upcoming fiscal year. On account of myriad other issues, including a robust healthcare debate, a formal strategy has been delayed until next year. Given the continuing fragility of the housing market, it is not unreasonable that the administration wants to proceed deliberately in charting the enterprises' futures.

Dr. Sam Chandan, RCA’s Global Chief Economist, explains that any changes to the agencies’ structure, or a decision to maintain the status quo over the long term, will have fundamental implications for the nation's economy and housing markets, as well as for apartment investors’ access to financing.

Banks Failing to Come Clean on Commercial Real Estate Losses

Thu, 04 Mar 2010 13:25:25 GMT

Over the next four years approximately $1.4 trillion in commercial property loans will come due, with nearly half the properties expected to be "underwater" - meaning they're worth less than the amount owed. That's according to "Commercial Real Estate Losses and the Risk to Financial Stability," a report released last month by the Congressional Oversight Panel for the Treasury Asset Relief Program.

As of last December, $203 billion worth of US commercial mortgage assets were "troubled" (defined as properties that are still operating normally but facing financial distress, in the process of being restructured or extended, already real estate owned or in "resolved" status), according to Real Capital Analytics.

The risk that these commercial assets pose to the financial sector is very real. Commercial real estate loans are typically larger than others and are generally viewed as posing greater default risk. In this article, Forbes provides an abbreviated list of financial institutions that exhibit alarming levels of risk.

Europe Property Deals Start Strong

Tue, 02 Mar 2010 15:26:25 GMT

Fueled by a surge in property deals in the fourth quarter of 2009, European commercial-property investment got off to a strong start this year.

Yet, despite the increase in deal announcements, transactions remain well below the peak in 2007, as concerns persist about the economy. Many of the deals done in Europe over the past year looked good as property markets began to recover. But the scenario could change if the economy stalls.

The biggest single deal this year is the €316 million ($428.5 million) purchase by Union Investment Real Estate GmbH, the German property fund manager, of the Alexa shopping center in Berlin, according to data provided by Real Capital Analytics. Alexa opened in September 2007, just as the financial crisis was beginning. It has 180 shops spread over five floors and 43,000 square meters of shopping area. Union bought a 91% stake from Sonae Sierra, the Portuguese developer, and French property group Fonciere Euris/Rallye. Sonae Sierra retains a 9% stake and manages the property.

Credit Squeeze Claims Commercial Developments in Kansas City

Tue, 02 Mar 2010 14:28:25 GMT

The aftershock of the national financial crisis is rocking the commercial real estate world, leading to a spike in distressed loans and bankruptcies.

While developers and owners of Kansas City shopping centers, office buildings and other commercial properties haven’t been hit as hard as those elsewhere, the credit squeeze has forced some prominent projects into bankruptcy, including the Corbin Park and Lenexa City Center developments in Johnson County and the West Edge project near the Country Club Plaza.

And better days may not be ahead.

A recent report by a Congressional Oversight Panel looking into CRE losses warns that over the next few years, a “wave of commercial real estate loan failures could threaten America’s already weakened financial system.”

The panel estimated that half of the $1.4 trillion in CRE loans that will need to be refinanced nationwide between now and 2014 are underwater — meaning the borrower owes more than the property is currently worth.

In Kansas City, the number of troubled commercial loans jumped substantially over the past year.

Real Capital Analytics, a New York-based research firm, reported last month that there were almost a half billion dollars of troubled assets in Kansas City, a category that includes commercial properties in foreclosure, bankruptcy or other distress.

Hotels are a particularly troubled property type. Out of the $497.4 million in distressed assets in Kansas City reported by Real Capital Analytics, more than half, $259.1 million, are hotels.

Istithmar World Capital Defaults on Property in Times Square

Tue, 02 Mar 2010 14:28:25 GMT

The former Knickerbocker Hotel site near the heart of Times Square has become the latest Dubai World investment to go belly up, as well as the target of investors wanting to pick up the property at a discount price.

Istithmar World Capital, the private-equity arm of the Dubai government's investment fund, recently handed back the keys to the 300,000-square-foot building at 42nd and Broadway to its lender, Danske Bank A/S, after defaulting on its $300 million mortgage. The beaux-arts-style office building was purchased in 2006 near the height of the CRE boom as a part of the Dubai firm's ill-fated strategy of running "upmarket hotels in gateway cities," said a person familiar with the matter.

Istithmar had hoped to convert the office building back to a five-star hotel, with up to 300 rooms, but last fall abandoned those plans when it became squeezed for cash.

While there are plenty of struggling properties on the market, the building is attracting interest because it represents one of the best development sites in the Times Square area for a new hotel. Its appeal is enhanced because, besides paying $300 million for the building, Istithmar also spent $76 million to buy an adjoining vacant lot.

"The highest and best use for this property is a hotel," says Dan Fasulo, managing director for real-estate research firm Real Capital Analytics.

The firm's turnover of the Times Square building marks the latest setback for Istithmar. In December, it lost the W Hotel Union Square in New York City in a foreclosure auction. The following month, its chief executive officer, David Jackson, resigned.

Zell's Recent NYC Purchases May Boost Confidence

Mon, 01 Mar 2010 14:26:25 GMT

It's hard to find a real estate figure with a better reputation for timing the markets than Sam Zell. The blunt, motorcycle-riding, Chicago-based mogul is known for snapping up distressed assets when prices hit bottom.

"Does it get any better than when Sam Zell starts buying property in your market?" said Dan Fasulo, managing director at New York-based research firm Real Capital Analytics. "I don't know how much more confidence investors need to start making decisions. Everybody has got to realize that the world is not over."

Zell's very publicized New York City buying spree began in January, when Equity Residential reportedly shelled out about $12 million for a distressed lot on the corner of 10th Avenue and West 23rd Street owned by developer Shaya Boymelgreen. The purchase was the company's first deal in the city in more than three years, and on a recent earnings call, Equity Residential disclosed that it plans 111 market-rate apartments and about 10,000 square feet of retail space on the site.

However, it was Zell's recent deal to purchase Harry Macklowe's last three Manhattan apartment buildings -- the 323-unit River Tower at 420 East 54th Street, along with Longacre House at 305 West 50th Street and 777 Sixth Avenue, each with 293 units -- for $475 million that has really gotten attention.

Most observers estimate Equity Residential acquired the properties at an average cost of $500 to $550 per square foot, well below replacement costs of about $800-plus per square foot. One veteran industry source described the price as "exceedingly low," noting that the apartments are all market rate and would have been sold at between $800 and $1,000 a square foot at the market peak, assuming they would have been converted to condos.

Fasulo noted that "it's going to be several years until we see a full recovery in rents and occupancy markets." But he added: "I think it's fair to say that the mass layoffs are over; that we are starting to see some spot hiring, which at the end of the day does bode well for the rental market."

A full recovery, he said, "is going to get priced into the market much faster than many believe."

NYC Service Cuts and the Bigger Picture

Fri, 26 Feb 2010 16:10:25 GMT

Constrained by sharply lower revenues from income, property, and sales taxes, state and local governments across the country are facing another round of spending cuts.

As Dr. Sam Chandan, Global Chief Economist at RCA explains, New York City is no exception to the nationwide strains on public finances. According to Mayor Michael Bloomberg's preliminary budget proposal, released just last month, the city's fiscal imbalance will foment deficits running into the billions of dollars. And yet, while the city's budgetary challenges will undoubtedly require difficult decisions (including the extension and expansion of various real estate taxes), these choices will be made in the context of a local economy that has shown remarkable resilience. Overall, the city has managed its way through a shallower contraction than most other large markets.

Atlantic City casinos need overhaul to survive

Fri, 26 Feb 2010 15:23:25 GMT

Just four years ago, Atlantic City was on top. It had record revenue, a packed boardwalk and was the undisputed gaming capital of the Eastern Seaboard.

But since then, the city has been dealt a bad hand by the economy and the growing number of slot parlors popping up in places like Pennsylvania and Connecticut. Crowds are thinner and the casino floor buzz has waned. The city's casinos pulled in $3.2 billion in revenue last year, a 25 percent drop since 2006.

Now Atlantic City's survival hinges on a complete overhaul of the seaside city's offerings, two casino executives said during the Reuters Travel and Leisure Summit this week.

The latest threat is a planned partnership involving casino magnate Steve Wynn to open a three-story casino in Philadelphia -- a market from which Atlantic City has traditionally drawn lots of business.

Sands sold its Atlantic City casino to Pinnacle Entertainment (PNK.N) in 2006. Sands has since opened a casino in Bethlehem, Pennsylvania, which competes directly with Atlantic City casinos.

If Wynn Resorts Ltd (WYNN.O) builds a Philadelphia casino, it could lure even more tourists away from the city, said Michael Leven, chief operating officer of Las Vegas Sands Corp. Another source of concern: the legalization of table games in Pennsylvania.

Loveman said he did not believe any of the hotel-casinos would close, but said some could change hands or "limp along."

But other analysts and Atlantic City executives have said some of the weakest casinos could go belly-up as the market weakens. Four of the 11 hotel-casinos there are in some state of distress, according to Real Capital Analytics, which does not account for halted projects or those in construction.

Commercial Lenders Delaying Liquidation

Fri, 26 Feb 2010 13:24:25 GMT

The amount of distressed commercial real estate in Las Vegas is steady and high.

In its latest report, New York-based research firm Real Capital Analytics, which tracks commercial property across the country, said Las Vegas still holds the No. 1 spot in the nation in terms of percentage of its properties in financial trouble as of Feb. 3. The $18.8 billion in local troubled assets have held fairly steady for several months.

Of the $18.8 billion, 58 properties worth $2.7 billion have been foreclosed upon. Another 15 properties worth $1.8 billion have had their loans restructured and another 214 valued at $14.2 million remain in financial distress, said Dan Fasulo, managing director of Real Capital Analytics.

Many have predicted a “flood of distressed assets coming to the market” across the country, and investors raised hundreds of billions of dollars to buy them, but that hasn’t been the case, Fasulo said.

Lenders no longer feel pressure to liquidate and as a result an increasing number of these distressed properties are being restructured, he said.

The most common restructuring is to extend the maturity date, although the interest rate, loan balance and other terms can be modified, Fasulo said.

General Growth Properties to split into two companies

Thu, 25 Feb 2010 16:36:25 GMT

General Growth, the second largest mall operator in the United States, said Wednesday that in a move that would allow it to emerge from bankruptcy, it had agreed to take $2.6 billion of capital from Brookfield Asset Management and split itself into two companies.

If approved, the deal would give Brookfield, a Canadian property manager, a 30% stake in General Growth and offers its stockholders $15 a share. It could also thwart the $10 billion bid made last week by Simon Property, General Growth's bigger rival.

Thomas Nolan, General Growth's president and COO said "By creating two separate companies, we enable both companies to manage their core strengths, take advantage of different market opportunities and appeal to distinct groups of investors with their own investment criteria."

As part of the arrangement, General Growth would spin off a new company called General Growth Opportunities, which would hold "non-core" assets which produce little or no income such as the South Street Seaport development in lower Manhattan. These developments are considered to have long-term value or need restructuring.

Dr. Sam Chandan, chief economist at Real Capital Analytics, was optimistic about the value of the Brookfield deal, explaining that the split would allow General Growth to be more effectively valued for the strength of its underlying property fundamentals by splitting high-quality performing assets away from the riskier pool. "The opportunity assets are freed to target investors with a greater risk tolerance."

Default Rates Reach 16-Year High

Wed, 24 Feb 2010 16:25:25 GMT

With a $4.5 billion rise in volume during the fourth quarter, the default rate on commercial mortgages reached 3.82% at the end of 2009, the highest since the 4.1% default rate last seen in 1993, said Real Capital Analytics in a report released February 16th. Given that the Federal Deposit Insurance Corp. has said that banks’ losses are largely driven by commercial real estate loans, it stands to reason that the agency said on Tuesday that its list of “problem” lenders similarly reached a 16-year high of 702 institutions.

However, neither commercial mortgage defaults nor the number of institutions on the FDIC’s so-called “Problem List” have peaked. According to published reports, FDIC chairman Sheila Bair said she expects more bank failures this year than there were in ’09, which itself saw the highest number since 1992. Bair says increased losses on CRE exposure will be largely to blame.

And Sam Chandan, global chief economist at RCA, tells GlobeSt.com, “We project that default rates for commercial mortgages will rise to 5.1% by year-end 2010 and will peak at 5.4% by year-end 2011.” He adds that these projections assume “limited additional policy intervention in support of bank lenders with concentrations in commercial real estate.”

RCA’s projections for commercial mortgages are separate from those for multifamily loans, and the company’s definition of “commercial real estate loans” is narrower than the FDIC’s, which also includes land and development borrowings. Currently, the default rate for apartment properties is higher than it is for the commercial sector at 4.44%. The year-over-year increase in the default rate was greater: up 250% from 1.77%, compared to a 234% rise from the Q4 2008 rate of 1.63% for commercial loans.

Commercial Mortgage Default Rate More Than Doubles in Q4'09

Wed, 24 Feb 2010 14:34:25 GMT

The default rate for commercial property mortgages held by US banks more than doubled in Q4'09 and may peak at 5.4% at the end of 2011, according New York-based research firm Real Capital Analytics, Inc.

The firm reported the default rate for loans on office, retail, hotel and industrial properties jumped to 3.8% from 1.6% a year earlier. The default rate for loans on apartment buildings rose to 4.4% from 1.8%.

“The level of distress continues to rise irrespective of improving economic trends,” Dr. Sam Chandan, Real Capital’s global chief economist, said in an interview.

The US jobless rate fell to 9.7% in January from 10% in December, after hitting a 26-year high of 10.1% in October. Unemployment and tighter credit are hurting CRE values, which fell 29% in December from a year earlier and are down 41% from the October 2007 peak, according to the Moody’s/REAL Commercial Property Price Index released yesterday.

Real Capital's data show US banks with $100 million to $1 billion in assets hold 25% of commercial property loans outstanding and 15% of apartment loans. The biggest banks, those with more than $10 billion in assets, hold about half of commercial loans and two-thirds of apartment loans.

“With the concentration of commercial mortgages in small and community banks, there is a potential spillover that will impinge on their ability to make loans to small businesses and families,” Chandan said.

Commercial Real Estate Sales Increase

Wed, 24 Feb 2010 12:33:25 GMT

The number of commercial real estate sales rose sharply in December, triggering fresh debate about whether the sector has reached bottom.

Property sales, a gauge of market health, rose 75% in December from the prior month, according to Real Capital Analytics. The end of the year traditionally sees an increase in volume. But the recent increase is significant even after adjusting for that, says Neal Elkin, president of REAL, a research firm that analyzed the data.

The Moody's/REAL All Commercial Property Price Indices, or CPPI, which track values, measured a 4.1% increase in December. This followed an increase of 1% in November, which was the first time since 2007 that there were two consecutive months of rising values.

There were 716 transactions in December, according to the CPPI. That compares with more than 1,600 deals in December 2007. Yet, sales activity has been in the doldrums for months because of a dearth of financings and sellers' unwillingness to put property on the block when prices are down sharply from a few years ago. That means competition can be fierce when prime buildings are put up for sale.

The conflicting market signals come at a time when the CRE sector faces significant challenges. The economic fundamentals, such as anemic hiring, mean that office rents are likely to continue falling while vacancies continue to rise. Meanwhile, apartment rents also are low, driven down by record low home prices and increased supply from investors stuck with unsold properties who have put them on the rental market.

Market bulls agree that the sector continues to perform badly. But they argue it is doing better than people thought it would. Therefore, real estate assets are undervalued and prices are going up.

"No one believed me that values were going to go up so soon," says Dan Fasulo, head of research for Real Capital Analytics. "But there's enough anecdotal evidence now that we've come well up off the bottom already."

Pricing, Credit Woes Plagued 2009 Sales

Mon, 22 Feb 2010 14:32:25 GMT

While leasing activity was above average in the Triangle last year, commercial real estate sales fell off by 75 percent to 80 percent in 2009 as a result of lack of available credit and the pricing chasm between buyers and sellers.

For the 12 months ending Dec. 31, commercial property sales in the area declined by 80 percent, reported LoopNet, an online commercial real estate listing service. Total commercial property sales in the Triangle for 2009 was a little more than $522 million according to the report's data, which is provided by research firm Real Capital Analytics.

Experts pointed to the increase in activity in fourth quarter 2009 as a sign of significantly more activity in 2010.

LoopNet shows that nationally, the fourth quarter showed double the activity from the first quarter in many metropolitan areas.

"The farther we move away from earlier '09, it's becoming clear that that time period is going to wind up the low end of the cycle for transaction activity," said Dan Fasulo, managing director of Research at Real Capital Analytics, the global consulting firm that provides data and analysis for LoopNet's report.

Austin's Chase Tower Sells for Estimated $72M

Mon, 22 Feb 2010 14:31:25 GMT

Although it didn't sell for a record price, the recent sale of the 35-year-old, 21-story, 390,000-square-foot Chase Tower gave Austin, TX commercial real estate market watchers new hope that the Downtown office segment may be recovering.

Spire Realty Group of Dallas, TX bought the 96-percent-leased building at 221 W. Sixth St. for an estimated $72 million -- about the same price the sellers paid for the asset in 2006. The property was listed in November 2009 for $73.7 million or about $189 per square foot.

By comparison, Equity Office Properties Trust of Chicago paid $188 million or $354 per square foot in 2006 for the 33-story, 560,674-square-foot, 515-foot-tall Frost Bank Tower, also downtown.

Thomas Properties Group Inc. bought the tower from Equity in 2007, along with nine other Austin office buildings, for a total $1.2 billion.

Jessica Ruderman, a senior analyst at New York City-based Real Capital Analytics Inc., says the Chase Tower deal is "a great sign" of downtown Austin's recovery mode.

Commercial Real Estate Getting Better and Worse

Mon, 22 Feb 2010 14:30:25 GMT

Unlike residential real estate, which anyone with a pulse would agree took a rather desperate tumble over the last several years, the existence of a commercial real estate crash continues to be a subject of debate. Put a panel of "experts" up in the Brady Bunch boxes, and there will be a few who will argue that CRE is on the upswing, and, in fact, a great investment.

I found myself walking the lines of those very boxes today, as I read two different reports: One, from Moody's, decried a 4.1 percent increase in CRE prices in December of 2009. "This marks two consecutive months of price gains, and is the largest monthly increase in the history of the Commercial Property Price Indices (CPPI). Of course it notes that prices are still down 29.2 percent year over year and 40 percent from the peak. But there was also a significant spike in transaction volume in December, and, in the top ten cities, the office sector saw the most significant increase.

Good news right?

The all-important, jobs-reliant office sector seeing a rebound! And overall, the numbers are "offering a tantalizing hint that markets may be approaching bottom," say the Moody's experts.

But wait, there's more. It's not all about prices, now is it? A few hours later I read a report from Credit Suisse claiming the number of distressed loans in commercial mortgage-backed securities may more than double to $60 billion by year end, causing problems for the overall economic recovery. Investors are still being tight with credit, and banks are reportedly being overwhelmed by the bad loans.

So is commercial real estate in trouble or isn't it? If it's in trouble, why are prices going up? I asked my guru, Dr. Sam Chandan, Global Chief Economist at Real Capital Analytics:

"There is ample capital waiting on the sidelines of the commercial real estate market, waiting for opportunities to invest. This capital has grown increasingly frustrated over the last year, constrained by a bid-ask gap between buyers and sellers. Healthy bidding on available assets – even those coming to market in distress - may be exerting upward pressure on prices."

Decaying Apartments Symptom of Housing Crisis

Mon, 22 Feb 2010 14:27:25 GMT

There was no heat or hot water, so for weeks Mary Fountain would fill a bowl and put it in the microwave, then strip off her extra layers to sponge herself clean.

Upstairs, her longtime neighbor, 70-year-old Gearaldine Davis, peers skeptically out at her balcony, hesitant to step onto the cracked concrete. The last time the city inspector came by, he told her he was afraid to walk out there.

This Bronx apartment building, where city housing violations have increased from 82 to nearly 600 in 16 months, is among thousands of rental properties from Los Angeles to Harlem showing a creeping decay as housing values collapse and funds for repairs dry up.

As landlords find themselves owing more than their properties are worth, some have simply walked away, leaving garbage to pile up. Others have disappeared into bankruptcy, with unpaid utility bills. Some have tried to reduce their losses by neglecting basic maintenance.

Across the country, multifamily mortgages covering 340,000 apartment units and worth an estimated $28.8 billion were delinquent or in foreclosure at the end of 2009 - more than 18 times the sum from two years earlier - according to Real Capital Analytics.

Earlier this month, a Congressional report warned that the deterioration of these properties could drag down the value of the surrounding neighborhoods. In New York, where these troubled investments centered on gentrifying areas of the Bronx and Harlem, advocates worry the problems could deliver lasting blows to neighborhoods that have long struggled.

D.C. Provides More Evidence That Commercial Real Estate Headed for Foreclosure Crisis

Mon, 22 Feb 2010 13:28:25 GMT

A mortgage crisis like the one that has devastated homeowners is enveloping the nation's office and retail buildings, and few places are likely to be hit as hard as Washington.

The foreclosure wave is likely to swamp many smaller community banks across the country, and many well-known properties, including Washington's Mayflower Hotel and the Boulevard at the Capital Centre in Largo, are at risk, industry analysts say.

The new round of financial pain, which some had anticipated but hoped to avoid, now seems all but certain. "There's been an enormous bubble in commercial real estate, and it has to come down," said Elizabeth Warren, chairman of the Congressional Oversight Panel, the watchdog created by Congress to monitor the financial bailout. "There will be significant bankruptcies among developers and significant failures among community banks."

In Washington, the number of troubled properties has multiplied at a phenomenal rate. The region trails only South Florida and metropolitan New York in the per capita value of commercial real estate assets in foreclosure, default or delinquency, according to the research group Real Capital Analytics.

The threat is especially acute in the District, the firm said, where the catalogue of troubled commercial properties has grown tenfold since April.

Blackstone Considers Joining Simon Property's Bid for GGP

Fri, 19 Feb 2010 14:31:25 GMT

Blackstone Group LP, the world’s largest private-equity firm, may join Simon Property Group Inc.'s bid to buy bankrupt General Growth Properties Inc., according to two people with knowledge of the discussions.

Blackstone is in talks with Simon, the biggest U.S. mall owner, said the people, who declined to be identified because the negotiations are private.

Simon offered more than $10 billion to buy General Growth out of bankruptcy in a bid it made public February 16, 2010. General Growth Properties Chief Executive Officer Adam Metz said the offer was too low and that Simon’s goals are “not aligned” with those of his Chicago-based company.

“Blackstone has a lot of capital to put to work and large investors feel there may be more opportunity at the entity-level as opposed to competing for individual properties,’’ Dan Fasulo, managing director of research firm Real Capital Analytics Inc. in New York, said in an interview. “This is a unique portfolio and there will be other interested parties.’’

Tight Credit Conditions Persist As Commercial Mortgage Defaults Rise

Thu, 18 Feb 2010 14:27:25 GMT

With the default rate on commercial mortgages held by U.S. depository institutions projected to reach 5% this year and not peak until 2011, the extremely tight credit conditions imposed by banks on borrowers are not likely to loosen anytime soon. So says Dr. Sam Chandan, global chief economist and executive vice president with Real Capital Analytics (RCA).

“If you believe that not only are we at a 15-year high in terms of the default rate of commercial mortgages being held by banks — but that there is the potential for that default rate to continue to climb over the next couple of years — then history tells us we must concede that credit conditions at least on the part of community and regional banks will remain unusually constrained over the next couple of years,” says Chandan.

Real Estate Econometrics, recently acquired by New York-based RCA, forecasts that the default rate for commercial real estate mortgages held by depository institutions will reach 5.2% by the end of 2010 and peak at 5.3% in 2011. At the beginning of 2009, the national default rate stood at 2.25%.

The root of the problem is that the U.S. economy has shed about 8.4 million jobs since December 2007. Such massive job losses have led to rising vacancy rates, falling rents and a sharp drop in net operating income for many owners of commercial and multifamily properties.

“We have millions of jobs that we need to replace before we experience aggregate new demand for commercial space in a way that can allow for sustainable increases and improvements in the underlying performance of the properties,” emphasizes Chandan. “That’s problematic for us.”

Downtown's Downturn

Wed, 17 Feb 2010 13:32:25 GMT

Two trophy-office-building sales in the St. Louis region have highlighted a sad truth for its downtown area: St. Louis is still losing its struggle with the suburbs when it comes to attracting office tenants.

In downtown St. Louis, Positive Investments Inc. paid $47.9 million late last year for Bank of America Plaza, a 30-story office tower with views of the city's signature Gateway Arch. At $64 a square foot, that is a mere half what KBS Realty Advisors' KBS REIT II paid earlier this month for the two-building Pierre Laclede complex in the city's wealthy Clayton, Mo., suburb, west of downtown St. Louis.

Just as troubling for downtown, the Bank of America building showed a sharper decline in value in the wake of the economic downturn. The Bank of America building traded at $82 million in 2003, according to Real Capital Analytics. The $47.9 million price tag in the most recent transaction, meanwhile, was less than the roughly $51 million mortgage on the property, according to Trepp, a firm that tracks the commercial-property debt market. The seller, Gramercy Capital Corp., of New York, declined to comment. The seller of Pierre Laclede, BPG Properties Ltd., of Philadelphia, took a bit of a hit when selling that property, named after the French fur trader who founded St. Louis. But the hit was smaller. BPG purchased the building in 2006 for $75 million and just sold it for about $74.3 million.

Oversight Panel Report Forecasts More Commercial Distress

Wed, 17 Feb 2010 13:30:25 GMT

A Congressional Oversight Panel points to additional stress in commercial property markets. However, several analysts said the report "stops short" of providing a full assessment of current conditions.

Their report "Commercial Real Estate Losses and the Risk to Financial Stability" said it is "deeply concerned that commercial loan losses could jeopardize the stability of many banks, particularly the nation's mid-size and smaller banks, and that as the damage spreads beyond individual banks that it will contribute to prolonged weakness throughout the economy."

Dr. Sam Chandan, global chief economist and executive vice president at Real Capital Analytics, New York, said the report provides "an effective summary" of critical issues the industry faces in the next few years, including lagging property fundamentals and a potential sharp rise in default rates and bank stress, but "regrettably, the report stops short of offering a rigorous, analytical assessment of the likelihood that each link in the causal chain will reach a crisis point that triggers the threatened cascade."

In January, RCA reported $174 billion of commercial real estate mortgages in distress--80 percent or $136 billion "troubled assets"--properties that are either appointed to a special servicer, administrator or receiver; delinquent; in default; have liens filed on them or in the process of foreclosure. Another $14 billion in restructured and modified loans or lender real estate-owned properties and $17 billion resolved.

Chandan said the COP report falls short in "fully addressing the causal path that links commercial mortgage performance to the broader economy, principally through the channel of small business lending by regional and community banks."

"Some well-informed policy makers and real estate market participants doubt the potential for a dramatic spillover from commercial real estate into the wider economy," Chandan said. "The panel’s report does not resolve this issue conclusively."

Simon Property Shopping for GGP

Tue, 16 Feb 2010 15:26:25 GMT

American consumers aren't buying much these days. That has been the retail through-line the past couple of years. But somehow there is shopping going on in the shopping mall business. Today, the country's largest mall operator, that's a company named Simon Property, announced a $10 billion offer for its biggest rival, General Growth. General Growth has been operating under the protection of a bankruptcy court since last spring. That tells you something about the overall business environment in retail real estate.

But if the deal does go through, Simon would control a third of all the shopping malls in this country.

Simon and General Growth are like the Coke and Pepsi of the mall business. They own lots of high-end malls that skew towards Nordstrom rather than Sears. That's why Simon has wanted to buy General Growth since it declared bankruptcy last spring says Ivan Friedman, who runs RCS Real Estate Advisors.

Dr. Sam Chandan of Real Capital Analytics says both companies ran their malls well, but the financial crisis affected them differently. Simon Property played it safe. General Growth was caught overextended when the credit markets dried up. "This really is about how it is they made choices about taking on new debt" Chandan says.

Making the Case for a Commercial Real Estate Crisis

Tue, 16 Feb 2010 13:34:25 GMT

The Congressional Oversight Panel that monitors government spending under the Emergency Economic Stabilization Act has released a new report on conditions in commercial real estate markets. Titled "Commercial Real Estate Losses and the Risk to Financial Stability," the report addresses the potential for further deterioration in commercial mortgage performance to spill over into the broader economy, thereby curtailing growth. The Oversight Panel concludes that "a significant wave of commercial mortgage defaults would trigger economic damage that could touch the lives of nearly every American." As defaults and bank losses rise, the likelihood of a large number of bank failures increases.

Dr. Sam Chandan, RCA's Global Chief Economist, explains that acquisition, development, and construction (ADC) loans and permanent commercial mortgage financing are concentrated on the balance sheets of smaller lenders, placing these sources of credit at greater risk.

Macklowe Looms Large In Sales

Sun, 14 Feb 2010 14:25:25 GMT

The list of 2009's top 25 property sales paints a stark picture of the state of the market. Not one deal topped the $1 billion mark, while in 2008, also a lackluster year, there were two. The largest deal last year weighed in at a lowly $590 million, compared with the $2.8 billion paid for the General Motors Building in the biggest deal of 2008.

While the GM Building sale was truly unusual, other comparisons are similarly dispiriting. Consider, for example, that the 25th-largest deal in 2008—a $152 million transaction—would have ranked as the fourth-largest in 2009, according to Real Capital Analytics. Conversely, last year's largest deal would have ranked as No. 6 in 2008.

Ironically, the top deals of both years were byproducts of the implosion of Harry Macklowe's holdings. In 2008, he returned to lenders seven buildings that he had purchased for $7 billion the previous year, and sold off four other buildings, including the GM Building. This year's top deal was the purchase by a partnership of George Comfort & Sons and DRA Advisors of WorldWide Plaza at 825 Eighth Ave., one of the buildings Mr. Macklowe had handed back.

States Turn To Commercial Properties For Cash

Sat, 13 Feb 2010 15:25:25 GMT

Political cynics often joke about statehouses being for sale to the highest bidder. These days, that's not far from the truth.

State and local governments are grappling with budget shortfalls and some are eyeing their office high-rises, prisons and even capitol buildings as assets to be sold or mortgaged for some fiscal relief.

In recent weeks, Arizona invited investors to buy bonds secured by several landmark state government buildings. Connecticut, also facing budget woes, has made plans to bring in $60 million over the next two years from real estate sales. But California, with a gaping $20 billion budget gap projected through June next year, has the most ambitious sell-off plan yet.

This month, the state will begin marketing nearly 9 million square feet of office space it values at around $2 billion.

The sales come at a time when the commercial property market is coming off its worst year in decades. Prices are down 40 percent from their peak in 2007 and are expected to fall further this year.

That bodes well for investors looking for a good deal, but not for state coffers.

Government has a history of selling real estate at an inopportune time, said Dan Fasulo, managing director of Real Capital Analytics.

"Usually there's a crisis and part of that crisis is caused by an economic downturn, which means they wind up getting lower prices when they do actually sell," he said.

Fussing Over FIRPTA

Thu, 11 Feb 2010 15:26:25 GMT

With investment markets still hamstrung, foreign investors in commercial real estate are finding new support in policy circles. As part of its 2009 policy agenda, the Real Estate Roundtable, based in Washington, D.C., includes among its key objectives revisions to the 1980 Foreign Investment in Real Property Tax Act (FIRPTA). Under the provisions of FIRPTA, foreign entities are subject to taxes on gains from the sale of U.S. real estate assets.

According to Real Capital Analytics, just 10% of U.S. properties are purchased by cross-border entities. This contrasts with more than 20% for Japan and China, more than 40% for the United Kingdom and just under 60% for Germany. Parsing the latest data and current developments in Washington, Dr. Sam Chandan, Global Chief Economist at RCA, believes that foreign investment in U.S. market has the potential to grow substantially over the next few years, even if FIRPTA remains in place.

Blind-Pool Stock Sales Stumble

Tue, 09 Feb 2010 13:28:25 GMT

Richard Ziman and Timothy Callahan want to raise cash in the equity market after selling their real estate companies for a combined $12 billion before the property crash. Investors may balk at bankrolling their return.

Ziman, former chairman of Arden Realty Inc., and Callahan, who ran Trizec Properties Inc., have each filed to offer shares in "blind-pool companies" which seek to raise money before owning any assets. They plan to use proceeds from the deals to acquire discounted office properties, hoping their talent and track records will lure investors.

Their timing may be wrong. Recent blind-pool stock sales have been cut in size or canceled, or the shares are treading water, amid a slump in demand for initial public offerings. Meanwhile, real estate owners are trying to hold onto distressed or defaulted properties rather than unload them at fire-sale prices, leaving few buying opportunities.

Commercial real estate transactions declined 64% last year to $52 billion, data from researcher Real Capital Analytics show.

Only 14% of an estimated $150 billion in distressed U.S. commercial real estate has been taken back by lenders, according to Jessica Ruderman, director of research services at New York-based Real Capital.

“Blind pools have huge negatives and only make sense if they have the perfect management and the perfect opportunity,” Mike Kirby, chairman of Newport Beach, California-based Green Street Advisors Inc., a research firm focused on real estate investment trusts, said in an interview.

U.S. office REIT share prices are trading at 7% above the underlying value of their real estate and are a safer investment than blind pools, Kirby said.

Still, buildings aren’t changing hands, and even established REITs can’t find deals because owners expect values to rise following the government’s massive support of capital markets, according to Dan Fasulo, managing director of Real Capital.

“I don’t think we’re going to see the wave of distressed opportunities that everyone thinks is out there,” Fasulo said. “Lenders aren’t in a forced position at all. They’re not giving the good stuff away.”

Soured Manhattan deal portends property storm

Mon, 08 Feb 2010 14:24:25 GMT

It's a real estate deal so big – and so bad – that one observer mused it was the city's worst property transaction since a group of Native Americans were swindled out of the island of Manhattan by Dutch settlers.

Struck at the height of the real-estate boom, the $5.4-billion purchase of two storied New York City apartment complexes finally crashed to earth in late January when the owner walked away, turning over the keys to a group of creditors.

The deal's failure is a harbinger of trouble ahead in the US commercial real estate market, where prices have tumbled but many say the woes have just begun.

Sifting through the debris of the deal for the two New York apartment complexes – Stuyvesant Town and Peter Cooper Village – shows how complicated the process can be. Whoever controls the property will face scores of investors maneuvering to recover billions in losses, not to mention thousands of worried tenants.

“We are a little bit in uncharted territory here,” says Sam Chandan, chief economist at Real Capital Analytics, a property research firm in New York. “It's the scale, the scope, the number of participants to the transaction.”

Jobless Rate Drops; Losses Still Hurt Commercial Real Estate

Mon, 08 Feb 2010 12:20:25 GMT

The United States' jobless rate dipped to 9.7% in January from 10% the month before, catching many economists by surprise, as predictions were for unemployment to actually rise to 10.1%. But analysts warn that trends within the government’s new report indicate a rough road ahead for commercial real estate, particularly for apartment and office properties.

The report by the U.S. Department of Labor reveals a loss of 75,000 construction jobs in January. Many of the declines occurred in non-residential construction and specialty trades, points out Sam Chandan, global chief economist at New York-based research firm Real Capital Analytics. “These are areas of construction that are highly correlated with activity in commercial real estate development and building.”

“The commercial real estate and multifamily industry depends critically on employment,” says Chandan. “We need meaningful, sustained gains in employment before we can expect a stabilization of trends in real estate fundamentals. I think that’s still a way off.”

Flush REITs Have Loads Of Cash, Little To Spend It On

Wed, 03 Feb 2010 12:17:25 GMT

For public real estate companies, spending money has turned out to be harder than raising it — even as some signs point to a pickup in big property deals.

Real-estate investment trusts sold $24 billion in new stock last year, raising hopes the companies would be able to profit from commercial-property distress by picking up high-quality real estate at bargain prices.

But publicly traded REITs bought only $4.6 billion of property in 2009, a 67% decline from the previous year, according to research firm Real Capital Analytics.

With few deals happening and REIT shares now trading at twice their March lows, some executives regret last year's money-raising binge.

"Today I'm sitting with $125 million in cash that I can't find investment for," Stephen Richter, CFO of Weingarten Realty Investors, said in an interview. "If I would have known the markets are where they are today, I certainly wouldn't have sold a third of the company."

Real Capital Analytics Acquires Real Estate Econometrics

Tue, 02 Feb 2010 12:17:25 GMT

Dr. Sam Chandan Named Global Chief Economist and Executive Vice President

Real Capital Analytics (“RCA”) announced today that Dr. Sam Chandan, accompanied by his team at Real Estate Econometrics (“REE”), has joined the firm. Chandan joins RCA as global chief economist and executive vice president, and a member of the firm’s management committee.

“Dr. Chandan has long been one of the most influential economists in the industry and we are very fortunate to now have Sam as part of the RCA team,” said Robert M. White, Jr., RCA’s founder and president.

“We are looking forward to being part of the RCA family," said Chandan. "As the flow of real estate capital and credit becomes increasingly international, RCA's global platform offers the foremost vantage point for thought leadership and industry impact."

Dr. Chandan founded Real Estate Econometrics in 2008 to offer strategic insight into policy and regulatory initiatives impacting commercial real estate, as well as commercial mortgage and equity investment surveillance. “The REE team has pioneered new areas of research and has played a leading role in assessing recent policy initiatives on behalf of the industry,” added White. “In joining REE’s capabilities with our own, RCA enhances our unmatched data set and analytical resources.”

Chandan holds a Ph.D. in Applied Economics from the Wharton School of the University of Pennsylvania, where he currently serves as adjunct professor of real estate. Chandan was a Doctoral Scholar in the Economics Department at Princeton University and has served on the faculty of the economics department at Dartmouth College. Chandan also holds masters’ degrees in Economics and Engineering. Prior to joining Real Capital Analytics, Dr. Chandan was president of Real Estate Econometrics, and chief economist and senior vice president at Reis, Inc.

About Real Capital Analytics, Inc - Founded in 2000, Real Capital Analytics, Inc. is a global research firm based in New York City. The firm's proprietary research is focused exclusively on the investment market for commercial real estate. Within that arena, Real Capital Analytics offers the most in-depth, comprehensive and current information of activity in the industry. In addition to collecting transactional information for property sales and financings, RCA interprets data such as capitalization rates, market trends, pricing and sales volume. RCA also quantifies the market forces and identifies the trends that affect the pricing and liquidity of commercial real estate around the world. The firm publishes a series of Capital Trend reports and offers an online service that provides current transactional and troubled asset information or all markets globally.

Related Companies in Talks to Save Xanadu

Mon, 01 Feb 2010 11:26:40 GMT

The Meadowlands Xanadu project, a $2 billion retail development that's been stalled for more than a year, may have found $500 million in construction funding it needs to open.

Billionaire Stephen Ross — whose Related Companies real estate firm is a major player in Manhattan development projects — has been in negotiations with Xanadu developer Colony Capital, as well as New Jersey state officials, about becoming a partner in the mall project, according to three sources familiar with the negotiations. The sources said Monday that a formal announcement may come this week.

If the Ross negotiations come to fruition, it’s expected that Xanadu — perhaps with a new name and a new look — could open before the end of 2010. The mix of entertainment and retail components is not expected to change dramatically.

Ben Thypin, a senior market analyst for Real Capital Analytics in New York, echoed the latter point. He added that Related is more likely than Colony to "finish the job" at Xanadu, because Related has more experience in project management and not just real estate ownership. "Related has a lot of experience in mixed-use development," said Thypin, who analyzes distressed assets.

See the May article Meadowlands Xanadu - At $2.3 Billion, This Mall Could Be Too Big to Fail.

Leader Building Issued Foreclosure Notice

Mon, 01 Feb 2010 10:26:40 GMT

In its “Distressed Property Radar,” Real Capital Analytics reported that as of Dec. 1, 50 properties ranging from office buildings to apartments in the Cleveland-Akron metropolitan statistical areas were classified as distressed. Those properties had a total loan value of $755 million. Last July, Real Capital calculated that the Cleveland-Akron MSA had 29 distressed properties with a total loan value of $712 million.

Real Capital reported that as of Dec. 1, $160 billion in commercial properties nationwide were distressed, which it defines as the subject of foreclosures, defaults or bankruptcy. It also estimated lenders and borrowers are resolving only 10% of them. The report tracks only properties of $2.5 million or more in value.

If misery loves company, the landmark Leader Building is part of a growing party downtown and elsewhere.

The former Baker Building at 1900 East Sixth St., which adjoins the Leader Building, became the subject of a foreclosure Dec. 10 when PNC Bank sued for a $900,000 mortgage in Cuyahoga County court. Capua Properties LLC, which has a Fairview Park address, bought the 11-floor, 45,000-square-foot building, in 2006 for $1 million. Angelo Russo, an attorney that Ohio records list as the agent for the building, did not return a call by deadline.

Philadelphia Story: Losing A Trophy Property

Tue, 26 Jan 2010 15:29:25 GMT

A real-estate fund that is part of Deutsche Bank AG's asset-management business tried to hold onto its properties as it recently restructured some $1.2 billion in debt.

The 29-story office building at 2000 Market St. in Philadelphia is one of the buildings it lost.

The fund, RREEF America REIT III, gave up the building in a deed-in-lieu-of-foreclosure transaction to Prudential Mortgage Capital Co., which held a $49 million mortgage on the property. In December, Prudential sold the property for about $56 million to another fund, CBRE Strategic Partners U.S. Value 5 Fund. The buyer paid Prudential nearly $49 million and also agreed to pay off about $7 million in unpaid construction costs related to the building, according to people familiar with the deal.

The sale was one of the first involving a Philadelphia trophy property since the downturn, and delivered a tough benchmark to the deal-starved City of Brotherly Love. The black metal and glass tower, which is about 76% leased, went for about $85 a square foot, well below the $116-a-square-foot range that RREEF paid for the building in 2003. The price tag also was well below the $135-a-square-foot range that CB Richard Ellis Investors is said to have considered paying back in late 2007 before those talks fizzled, according to people familiar with the property.

"It's not a pretty price but it's a price," said Robert Fahey, an executive vice president with CB Richard Ellis Group Inc. who represented Prudential in the sale negotiations. "We have a data point that people can use to make judgments about other buildings."

The total volume of office deals done in the Philadelphia area that were valued at $5 million or more shrank to $99 million last year from $747 million in 2008, according to Real Capital Analytics, a New York real-estate research firm.

Chase Tower Downtown Sold To Dallas Firm

Tue, 26 Jan 2010 15:27:25 GMT

The Chase Tower in downtown Austin, built in 1974, sits on a full city block at 221 W. Sixth St., has nearly 390,000 rentable square feet and is 96 percent leased. Spire intends to hold Chase for the long term, Ruff said.

The sellers were several limited partnerships that include Austin-based Endeavor Real Estate Group and Grubb & Ellis Realty Investors LLC (formerly Triple Net Properties LLC). Endeavor and Triple Net bought the building in 2006, paying $72 million.

Endeavor's headquarters are in the building, which is home to the private Headliners Club on the top floor.

Several experts said the acquisition is good news for Austin — an omen of an improving office market and solid growth prospects for its economy.

"It's a great sign, a big major office building selling downtown," said Jessica Ruderman, a senior analyst with Real Capital Analytics Inc., a New York-based consulting firm.

Ruderman said the bottom was reached last month for office sales nationally and locally, and "it's only going to increase from here."

Creditors Take Over $5.4 bil. NYC Housing Complexes

Tue, 26 Jan 2010 11:27:40 GMT

A New York investment group said that it’s walking away from its purchase of Stuyvesant Town and Peter Cooper Village, two sprawling multifamily apartment complexes on the east side of Manhattan. The move marks the collapse of the largest residential real estate deal in United States history. Investors ranging from CalPERS to the Church of England will take a hit.

Tishman Speyer and its partner had been negotiating since November to restructure $3 billion worth of debt and hold on to the properties, but they have now relinquished ownership.

Peter Slatin is editorial director of Real Capital Analytics. He says there’s a lesson in what’s happened to the two complexes. "To me this is emblematic of the extremes of the last cycle when investors really lost sight of the value of real estate as an income-producing asset, and saw it as a speculative investment on a grand scale."

Slatin says that with the commercial real estate market as weak as it is right now, this will not be the last property to go under, though few of the deals that collapse will be as big as this one.

Stuyvesant Town Gamble Costs Church of England £40m

Mon, 25 Jan 2010 14:24:25 GMT

The Church of England has lost £40m from a disastrous investment in a buyout of two vast Manhattan housing complexes, Stuyvesant Town and Peter Cooper Village, that collapsed into default after struggling under huge debts incurred at the peak of the US property bubble.

The complexes were bought for $5.4 bil. (£2.86 bil. then) in 2006 by a consortium led by a New York investment firm, Tishman Speyer, and the fund management group BlackRock, in the biggest US residential property deal on record. But after struggling for months to keep up repayments on loans attached to the buyout, Tishman today handed over the entire estates to its creditors, making the deal a landmark victim of the plunge in property values.

Financial backers of the deal will see their investments largely wiped out. Among the big losers are Singapore's sovereign wealth fund and California's huge state pension fund, Calpers.

The church commissioners, who manage the Church of England's assets, revealed that they are writing off "around £40m" put up for a 4% stake in Stuyvesant Town in June 2007.

Residents of the 11,000 apartment units in Stuyvesant Town were staunchly opposed to the Tishman buyout, which was highly leveraged by debt and predicated, in part, on cutting the number of tenants paying below-market rates under "rent controlled" deals.

Popular among soldiers returning from the war when the flats were completed in 1947, the blocks, which together are the size of a small town, are surrounded by pedestrian pathways and leafy parkland. Over the past three years, Tishman has become deeply embroiled in litigation to get veteran residents to pay more rent and has even used private detectives in an attempt to catch tenants suspected of breaching leases that require them to use the flats as their primary residences.

Tishman and its partners failed to make a $16m loan repayment this month. In a statement, Tishman said it had spent the last few weeks "negotiating in good faith to restructure the debt and ownership" of the properties but concluded that surrendering ownership was the only alternative to bankruptcy. "We make this decision as we feel a battle over the property or a contested bankruptcy proceeding is not in the long-term interests of the property, its residents, our partnership or the City," said Tishman.

Experts say the valuation of the estates has slumped to barely $2 bil. Ben Thypin, of Real Capital Analytics in New York, said the 2006 buyout was at the "height of the foolishness" at the peak of the American property boom: "They paid way too high a price. It was purchased at the peak of the market with too ambitious assumptions."

Silicon Valley's Commercial Real Estate Glut

Fri, 22 Jan 2010 14:24:25 GMT

Imagine 15 Empire State Buildings, all of them sitting empty. That real estate broker's nightmare comes to more than 43 million sq. ft., which is how much commercial space stood vacant in Silicon Valley as of the end of the third quarter, according to CB Richard Ellis Group (CBG). And though vacancy rates in the Valley have not reached the levels seen in the wake of the dot-com bust, property owners may be worse off today. That's because many defunct Internet companies back then continued paying rent through the venture capital firms that funded their leases. Now Valley players that have survived the hard times are fighting for—and in many cases winning—sizeable discounts on rents that are already off some 20% from last year's levels.

By some estimates the rate of commercial foreclosures in the Silicon Valley area will at least double in 2010. That works out to about $1.5 billion in foreclosed properties, according to data compiled by New York-based research firm Real Capital Analytics. "Many of these distressed assets have lost half their value," says Real Capital managing director Dan Fasulo. "That's a bloodbath."

California's info tech sector has lost more jobs in the past year than any other except construction and mining, state data show. Unemployment in the San Jose-Sunnyvale-Santa Clara metro area hit a two-decade high of 12.1% in August and has since eased only slightly, to 11.8% in November. Applied Materials (AMAT), Sun Microsystems (JAVA), and Adobe Systems (ADBE) have announced more than 5,000 layoffs since October amid falling sales of computer chips, software, and equipment. Even stalwarts like Hewlett-Packard (HPQ) and Cisco (CSCO) have pared back their workforces over the past year to safeguard profits.

Meanwhile, developers added more than 4 million sq. ft. of speculative office space in the Valley since 2007, building gleaming towers on the expectation that startups would move into classier digs as they matured. Now 21% of the area's top-of-the-line office space is vacant, as is 20% of low-rise so-called flex space that can be adapted for offices or manufacturing, reports CB Richard Ellis. Some buildings in downtown San Jose, such as the Riverpark Tower II, a 318,372 sq.-ft. high-rise completed in July and owned by Foster City (Calif.)-based Legacy Partners Commercial, and a 381,000 sq.-ft. tower that Oracle (ORCL) acquired in the 2008 takeover of BEA Systems, sit empty. Legacy is showing the building to prospective tenants, says Lisa Morrissey, vice-president of marketing. Oracle didn't return calls seeking comment. "None of those towers will fill up anytime soon," says Jon Haveman, co-founder of Beacon Economics, a consulting firm in San Rafael, Calif.

Asking rates on Class A office space averaged $34.56 a square foot in the third quarter, a 21% drop from a year earlier, while rates on flex space averaged $14.16 a square foot, down 16%, according to CB Richard Ellis. That's great news for the likes of Facebook, which signed a lease on roomier quarters in December 2009. The company's new Palo Alto home will span 265,000 sq. ft. across four low-rise buildings that once housed the lathes and centrifuges of a medical device manufacturer. "We're at the end of a bubble," says Stephen Levy, director of the Center for the Continuing Study of the California Economy in Palo Alto. "It will take a long time to get the momentum going."

‘Tranche Warfare’ Erupts as Property Owners Slide Into Default

Wed, 20 Jan 2010 14:24:25 GMT

Infighting among lenders with different classes of debt, called tranches, is on the rise in the hotel industry and throughout the $3.5 trillion market for commercial real estate loans after property prices fell more than 40 percent from their peak in 2007. Commercial mortgage defaults more than doubled to 3.4 percent in last year’s third quarter from a year earlier.

Stuyvesant Town

Earlier this month, real estate investor Tishman Speyer Properties LP and BlackRock Inc., the world’s largest money manager, missed a $16.1 million payment on Stuyvesant Town and Peter Cooper Village, the New York apartment complex they bought in 2006 for $5.4 billion with $1.4 billion of mezzanine debt and a $3 billion mortgage.
A group led by Boston-based Winthrop Realty Trust, holding about $300 million in senior mezzanine debt, last week took a step toward foreclosure by demanding payment from Tishman Speyer and BlackRock, both based in New York.

Fitch estimates the property’s value to be $1.8 billion today, making it worth less than the senior debt. Representatives of Tishman Speyer, Blackrock and Winthrop declined to comment.

Possible resolutions for the complex could include restructuring, sale of the debt or even the property itself, according to Ben Thypin, senior market analyst at New York-based research firm Real Capital Analytics Inc.

W Union Square

“One avenue for sale is an auction for mezzanine debt, which gives a way for all stake holders to participate in the transfer of ownership including bidding with money already owed in a so-called credit bid,” Thypin said. “Junior holders often have the incentive to move most quickly to salvage any return on their investment.”
That’s what happened with the W New York Union Square Hotel after Dubai World’s Istithmar investment unit, which bought the property in 2006 at the height of the market, missed a payment.

Private Equity

In addition to its first mortgage, Istithmar financed the purchase of the W New York Union Square with $117 million in mezzanine debt. The loan was split into three tranches, with LEM’s $20 million piece the smallest and most junior.

The hotel could change hands again as the senior mezzanine lender, DekaBank Deutsche Girozentrale, considers foreclosing on LEM unless loan payments are brought up to date, said David Gutstadt, a senior vice president at New York-based Savills LLC. Savills is DekaBank’s adviser.

“Tranche warfare will increase because of the capital that’s been raised targeting distressed commercial real estate,” said Ben Thypin.

Real estate private-equity firms raised $6.8 billion in the fourth quarter of 2009, according to London-based Preqin Ltd., and more than $40 billion for the year. Sternlicht, the former chairman of U.S. lodging company Starwood Hotels, raised $930 million when he took Starwood Property Trust public in August.

“Private equity has been disappointed with opportunities available through senior debt so they’re looking to subordinated debt to get control of properties,” Thypin said.

Terreno Realty Set To Raise $300M In IPO

Wed, 20 Jan 2010 14:24:25 GMT

Terreno Realty Corp. is expected to sell $300 million in stock this week, making it the second-biggest initial public offering so far in 2010. The real estate investment trust plans to put that money to use buying troubled industrial properties at a bargain.

The commercial real estate market has been rocked by weak rents, climbing vacancies and landlords saddled with high debt. More than 8,000 U.S. properties, worth $170.6 billion, are in foreclosure, bankruptcy or have restructured loans, according to real estate data tracker Real Capital Analytics.

However, pickings in the industrial sector are scant compared to other property types. Only 630 properties, representing $5.1 billion, are troubled.

ICSC Announces Agreement with Real Capital Analytics to Build Global Shopping Center Directory

Wed, 20 Jan 2010 13:23:25 GMT

ICSC selects RCA based upon unique research expertise in 108 countries, 17 language capabilities and 14 global data partnerships.

NEW YORK (January 19, 2010) – The International Council of Shopping Centers, Inc. (ICSC), the world’s largest shopping center trade association, announced today that it has entered into an agreement with Real Capital Analytics (RCA), a leading global research firm, to create the most comprehensive database of shopping centers globally.

“ICSC is pleased to work with Real Capital Analytics to expand its Global Shopping Center Directory coverage and offer a better delivery of this information for its members,” said Michael P. Kercheval, ICSC’s president and CEO. “More importantly than ever, the global financial meltdown experienced over the last two years taught us a lesson that a better understanding of the industry’s global supply, demand and capital needs are crucial and this agreement with RCA is a step towards that objective.”

“The combination of ICSC’s global membership network and RCA’s global research experience will allow us to deliver a powerful shopping center directory to ICSC members,” said Bob White, RCA’s founder and president. “ICSC members will gain greater transparency into the global shopping center universe and be better equipped to conduct business in a more timely and efficient manner.”

RCA will transform the delivery of ICSC’s Global Shopping Center Directory and offer free baseline global shopping center data to ICSC members. RCA will also provide a discount to ICSC members for global shopping center information offered by RCA.

About Real Capital Analytics, Inc
Founded in 2000, Real Capital Analytics, Inc. is a global research firm based in New York City. The firm's proprietary research is focused exclusively on the investment market for commercial real estate. Within that arena, Real Capital Analytics offers the most in-depth, comprehensive and current information of activity in the industry. In addition to collecting transactional information for property sales and financings, RCA interprets data such as capitalization rates, market trends, pricing and sales volume. RCA also quantifies the market forces and identifies the trends that affect the pricing and liquidity of commercial real estate around the world. The firm publishes a series of Capital Trend reports and offers an online service that provides current transactional and troubled asset information for all markets globally. For more information, visit: http://www.rcanalytics.com.

About International Council of Shopping Center
Founded in 1957, the International Council of Shopping Centers (ICSC) is the global trade association of the shopping center industry. Its 60,000 members in the U.S., Canada and more than 80 other countries include shopping center owners, developers, managers, marketing specialists, investors, lenders, retailers and other professionals as well as academics and public officials. As the global industry trade association, ICSC links with more than 25 national and regional shopping center councils throughout the world. For more information, visit: http://www.icsc.org

Matter of Debate: Bottom in Commercial-Property Values

Tue, 19 Jan 2010 11:25:40 GMT

While the pace of commercial real-estate sales remains anemic, a few gutsy experts are saying prices have stabilized and are even, in some cases, rising from their lows of the recession.

Backers of this theory point to the loosening in the public capital markets, which has allowed dozens of real-estate investment trusts and to raise debt and equity financing to fix up their balance sheets. The bulls also say investors who had been sitting on the sidelines are becoming more active, especially foreign buyers like HSBC Alternative Investments Ltd., which is buying 1625 I St. in Washington D.C. in a deal that values the office building at a respectable $203.4 million.

But one major index shows values continuing to decline as of late last year. Market bears note that with unemployment high and rents and occupancies continuing to fall nationwide, values also have further to drop. Both sides agree that any real-estate recovery would be imperiled if interest rates rise significantly.

The differing opinions and cross-currents are a reflection of the moribund commercial real-estate market in which there are huge questions about the critical issue of property values because so few properties sold last year. Last year, there were only $54.4 billion in transactions, compared with $181.6 billion in 2008 and $557.8 billion in 2007, according to Real Capital Analytics.

Calling a recovery can be tricky. More than two years into the housing crisis, experts are still debating whether that market has hit bottom, despite signs of price improvement in some parts of the country.

Prominent properties get foreclosure notices, portend trend

Fri, 15 Jan 2010 13:31:25 GMT

Notices of foreclosure have been placed on two more high-profile properties in Atlanta, a development observers said may be a harbinger for the industry in 2010.

Also this month, a notice was filed for 1138 Peachtree St., the less than one-acre parcel that is the same address on which Tivoli Realty Properties President and Chief Executive Officer Scott Leventhal proposed building a 53-story mixed-use building, featuring a high-end Mandarin hotel and 71 condos costing $1.8 million and up.

Chicago-based Transwestern Investment, which owns the Campanile, declined comment about the notice. Leventhal did not return repeated calls. Both properties are in Midtown and are at or near the 14th Street intersection.

Industry observers predict foreclosures on commercial properties will only worsen in 2010.

Owners were able to stem the foreclosure tide last year by striking deals to put their properties into receivership, which allowed the owners time to improve financing terms or find ways to secure new backing for debt, said Philip Skinner, a partner with the Atlanta law firm Arnall Golden Gregory. But that move has run out of steam.

And Georgia's bank failings have added to potential foreclosures because many builders find themselves working with unfamiliar lending officials, who are more interested in the bottom line than individual personalities.

"All of a sudden, there is a new person that owns the loan," said Skinner, speaking of the change in bank ownership. "There is no personal tie. There is no history or working relationship to lean on."

Mark Woodworth, president of PKF Hospitality Research, said the risk of foreclosure will accelerate because a lot of the projects came out of the ground or were in the development stage just as the economy turned sour. That, coupled with a glut of office space, hotel rooms and retail space, made for an overwhelmed segment ripe for disaster.

The foreclosure tide is upending Atlanta's mighty building industry, which has created a gleaming city of glass towers over the past three decades. Since the turn of the new century, builders have raced at breakneck speed to turn empty lots or older buildings into their signature tower.

But in 2009, that changed. Foreclosed or potentially foreclosed properties included the Equitable building downtown, Tower Place 200 in Buckhead and the Clermont Hotel. Those troubles were followed this year by notices about the Mansion on Peachtree in Buckhead and 50 Allen Plaza downtown.

Campanile owes lender Wells Fargo $98.35 million, according to Databank Atlanta, a real estate research firm. The tower, built in 1987, is undergoing a multimillion-dollar renovation, its Web site said. It is only 15 percent leased, and one of the biggest tenants is Georgia’s Own Credit Union.

Tivoli purchased the 1138 Peachtree St. site in 2007, according to records. The foreclosure notice said $13.5 million is owed on the property to First Citizens Bank and Trust.

When a building goes into foreclosure, the impact on tenants and prospective tenants is very different, said Samuel Gould, president of Alter Asset Management and a principal in Alter Asset Recovery. Both companies are affiliates of Chicago-based the Alter Group, which this week announced the formation of Alter Asset Recovery to help lenders with the takeover and sale of distressed properties.

Alter Group said the formation of the new company comes at a time when more than $160 billion of commercial properties in the U.S. are in default, foreclosure or bankruptcy, according to research firm Real Capital Analytics.

It's not uncommon for owners of distressed property to cut back on services such as cleaning and landscaping, as well as maintenance of elevators and other building systems, said Gould.

“Possibly there could be an increase in costs to tenants,” Gould said, while it is not at all uncommon for rents to be reduced to lure in new tenants. There are some buildings that just cannot be leased, he said. The structures then become known as “zombie buildings” because owners cannot afford upgrades or needed build-outs.

“A few years ago, if you were a tenant looking for a lease, the landlord would scrutinize you pretty closely to see if you could pay the lease. Now there is a reversal. Tenants are scrutinizing landlords to prove the landlords have the money to spend and allocate to that property.”

Recession hits harder in Chicago

Fri, 15 Jan 2010 13:27:25 GMT

The recession appears to be over, but the Midwest, and Illinois in particular, may have more of a difficult time recovering, according to a Federal Reserve Bank economist at Corenet's 2010 Economic Forecast.

Chicago was a hotbed of activity throughout the 1990s and early 2000s, but employment numbers in Chicago have remained stagnant since the 2000-2001 recession.

With its recent string of disappointments--losing the Olympics, the Spire development, and yes...Oprah deciding to leave town--Rick Mattoon, senior economist & economic advisor, Federal Reserve Bank of Chicago, posed the question: "has Chicago lost its mojo?"

"Employment in Illinois is at the same level as 1997," Mattoon noted. "Illinois has added jobs at 40 percent of the national average. It has even underperformed the rest of the Midwest. Has Chicago lost some of its dynamism?"

The unemployment rate in Chicago shot up 4.1 percent in the past year. While job losses in the U.S. seem to be slowing down, Mattoon said that Chicago will still go through more pain in 2010 as job losses will continue throughout the year.

This will not bode well for area commercial real estate, where high vacancy rates are already a concern. The industry has seen a dramatic slowdown in activity, with $489 billion of commercial real estate transactions in 2007 compared to $42 billion in 2009, according to Real Capital Analytics.

While many of these numbers leave little to be positive about in the short-term, Mattoon did stress that as all economic downturns in the past, this too is a cycle that will pass.
"Even a modest gain in pricing will bring the market back," he said. "There still is value in these properties."

However, he did say that buyers in commercial real estate should have a long-term vision.

AIB is tight-lipped on possible billion-dollar losses in the US

Fri, 15 Jan 2010 13:26:25 GMT

ALLIED Irish Banks declined to say yesterday how much it stands to lose on two loans in the US where borrowers ran into problems this week. One loan helped finance the $5.4bn (€3.7bn) acquisition of the biggest apartment block in New York, while the other loan helped finance a fourth-generation chain of 13 daily newspapers and 60 weekly newspapers and magazines.

AIB is one of three banks which lent $1.5bn to one of America's biggest property developers to buy a historic 80-acre apartment complex. AIB and the other two banks have now sent a formal letter to developers Tishman Speyer and BlackRock warning that failing to pay could lead the debtholders to launch a foreclosure action and possible seizure of the original $3bn mortgage the two firms took against the property.

AIB's wrote to the developer after Tishman Speyer and BlackRock missed a $16.1m payment due last Friday. A foreclosure would be the second-largest default of a US commercial mortgage-backed security and leave AIB part-owning Manhattan's largest residential enclave which is home to around 25,000 people.

Evict

Tishman Speyer and BlackRock bought the 11,200-unit property in 2006 with plans to raise rents, evict illegal occupants and build a gym and new gardens.

Problems came to a head last October when New York's highest court ruled the developers could not raise rents despite the improvements.

Tishman Speyer has invested tens of billions of dollars on property around the US and has been the biggest US commercial real estate buyer after venture capital group Blackstone since 2001, according to the New York research firm Real Capital Analytics.

Standard & Poor's last month withdrew its credit rating on a group of Washington-area properties with debt payments that Tishman and its partners have been trying to restructure.

AIB also declined to say yesterday how much it stands to lose after a US-based chain of 13 daily newspapers and 60 weekly newspapers and magazines, the Augusta-based Morris Publishing, filed for bankruptcy protection after agreeing a plan with creditors to plan to slash the publisher's $415m debt by more than two thirds.

Bay Area hotel problems mount

Fri, 15 Jan 2010 11:30:40 GMT

Bay Area hotels with a combined value that tops $1 billion fell into a morass of loan defaults, a fresh sign of the woes being unleashed by a local economy mired in recession.

At the end of 2009, seven times as many hotels in the nine-county Bay Area had tumbled into defaults on their mortgages than was the case at the end of 2008, a new survey by Atlas Hospitality Group shows.

And plenty of money is on the line. The value of the Bay Area hotels in arrears on their property loans totaled $1.1 billion, according to a report by Real Capital Analytics. That's 12 times the $90 million in delinquent loans for Bay Area hotels in 2008, Real Capital estimated.

The weak economy is the primary culprit.

"People can't get financing for their hotels when their loans come due," said Jessic Ruderman, senior analyst with Real Capital Analytics. "Sometimes the hotels can't generate enough revenue to make the loan payments."

"We will see more hotel properties become distressed," Ruderman said.

Largest Upper Manhattan Sale of '09 Was... a Portfolio?

Thu, 14 Jan 2010 13:28:25 GMT

An old relic of the boom-time era – the sale of buildings in bundles, like cigarettes in a pack, or strip-malls in Florida – has reemerged for a brief cameo.

In December, Massey Knakal sold a portfolio of nine apartment buildings in Upper Manhattan for $26.9 million, which, aside from a Sam Chang portfolio of hotels sold to his buddies at Rhode Island’s Magna Hospitality, was both the largest portfolio sale of 2009 and the largest sale of any kind in Upper Manhattan, according to analysts at Real Capital Analytics and the brokerage.

The nine apartment buildings, containing 237 units, are: 125-127 East 118th Street; 149 East 118th Street; 121 East 119th Street; 125 East 119th Street; 166 East 119th Street; 158 East 119th Street; 212 East 119th Street; 135 East 122nd Street; and 2010 Lexington Avenue.

Mind you, the sale of the properties as a portfolio does not necessarily indicate some sort of re-emerging trend, a la the Pinnacle or Praedium days of yore.

“This had to be sold as a portfolio because it was under Section 8,” said Massey Knakal’s Mike Tortorici, who, with brokerage partner Shimon Shkury, represented the sellers, the Seattle-based Security Properties. “When commercial MBS was available, it was easier for people to package together loans and assemble large pieces of real estate. Now, it’s much easier for banks to finance smaller buildings, much as it’s easier for buyers to swallow smaller buildings.”

Francine Kellman, associate director of buyer Pacific Housing Advisers, described the firm's plans thusly: “We certainly plan on keeping the property affordable for the next 30 years and most likely longer than that. We are doing over $40,000 a unit in rehab, including all major systems, work in apartments, social services, laundry rooms, new management office, etc.”

“My motto is, ‘Today's preservation is tomorrow's revitalization.’”

Distressed Commercial Properties Are Poised for Deals in O.C.

Mon, 11 Jan 2010 14:32:25 GMT

Orange County, California saw more than its share of distressed commercial real estate properties trade hands in 2009 compared to other large markets. But the area could see a more proportional amount of deal-making this year.

O.C. is ranked 35th overall among U.S. markets for the percentage of distressed commercial properties, according to a December report from New York-based Real Capital Analytics (RCA).

RCA's report lists Orange County as having at least 95 midsize to large troubled commercial assets -— including properties in foreclosure, bankruptcy, or in modified or restructured status —- which are valued at about $2.8 billion.

In comparison, Los Angeles has $7.1 billion of troubled assets, while the Inland Empire has $2.2 billion and San Diego has $1.7 billion of troubled assets, according to the Real Capital report.

O.C. ranks No. 4 among Western markets in terms of total dollar value of distressed assets.

Las Vegas is No. 1 in the West and in the U.S., with $17.7 billion of troubled assets.

Commercial Property Market to Favor Tenants in 2010

Fri, 08 Jan 2010 13:29:25 GMT

The commercial real estate market is coming off its worst year in decades, and the woes are expected to deepen before a turnaround takes hold.

Experts anticipate vacancies for office, industrial, retail and apartment properties will continue to rise. Rental rates are expected to fall. And prices, already down 40 percent from the peak of the market in 2007, are projected to decline even further.

That means many commercial landlords will struggle to keep their properties leased and tenants will have the upper hand.

Commercial property vacancies soared last year as unemployment worsened and businesses and consumers reined in spending. The global financial crisis dealt another crippling blow, choking off owners' ability to refinance burdensome debt and hampering sales.

By the end of the year, however, the economy had regained its footing, if tenuously. In addition, credit markets began to thaw and the pace of commercial real estate sales accelerated.

As of last month, there were more than $170 billion worth of commercial properties in default, foreclosure or bankruptcy, according to Real Capital Analytics.

Las Vegas, Detroit and Miami had the biggest share of distressed properties.

Further Slide Seen In Commercial Real Estate

Thu, 07 Jan 2010 15:31:25 GMT

More than half a dozen experts on commercial real estate in New York City said that despite some flickering signs of economic recovery here and elsewhere in the country, the universe of big buildings and giant apartment complexes has further to tumble.

Some foreign investors may swoop in this year and buy up some of New York City’s most desirable and stable skyscrapers, said Robert White, president of the research company Real Capital Analytics which tracks the city’s troubled properties. Then the city will be left with properties in financial difficulties that are half empty and in less coveted locations. Recovery for those buildings, Mr. White said, “is going to take a little bit longer. It’s not going to be in a rush.”

No prospective deals on these buildings are apt to be helped by the fact that they are tied up in complicated mortgage structures that grew popular in the boom years. Joseph Harbert, chief operating officer for the New York City region of the commercial brokerage Cushman & Wakefield, says that working out ownership disputes for these buildings will take much longer than in past real estate meltdowns.

Moinian Said to Restructure Debt on 3 NYC Properties

Thu, 07 Jan 2010 15:28:25 GMT

New York developer Joseph Moinian restructured about $550 million of debt for three lower Manhattan buildings in a sign of renewed willingness among lenders to refinance distressed properties.

The Moinian Group renegotiated $340 million of mortgage and mezzanine loans for 180 Maiden Lane, a 1.1 million-square-foot skyscraper, according to two people familiar with the transaction. It also obtained a new $130 million first mortgage on the Ocean Residences apartments and a loan extension on 17 Battery Place, a 22-story office property, said the people, who asked not to be named because of confidentiality agreements.

“There’s a combination of extensions of existing mortgages and there are new mortgages,” Moinian said today in a telephone interview. “The exact amounts of the mortgages before are the same as they are now.”

More than $180 billion of U.S. commercial real estate is in default, foreclosure or bankruptcy, according to Real Capital Analytics Inc., a research firm based in New York. Tight credit and a worldwide recession spurred a plunge in real estate values, making it difficult for landlords to refinance mature loans and pushing them into foreclosure.

New York developer Harry Macklowe and private-equity firm CIM Group, based in Los Angeles, plan to pay off creditors on a Park Avenue development site, a person familiar with that situation said yesterday. SL Green Realty Corp., based in New York, said yesterday that it got a $475 million mortgage on 1515 Broadway, replacing a $625 million loan.

Garment District Start

Moinian, 55, built a 20 million-square-foot empire of mostly New York commercial properties after a stint in the city’s garment industry. His holdings include a stake in Chicago’s Willis Tower, formerly known as the Sears Tower, the tallest building in the U.S.

He has acquired more than $4.4 billion of properties since 2001, mostly by borrowing from lenders who then bundled the loans with other debt sold as commercial mortgage-backed securities, according to Real Capital.

“He’s a self-made man, a talented operator who made money for his investors when times were good,” said Dan Fasulo, managing director at Real Capital. “His pain is like many others who are facing this huge restructuring issue.”

The biggest tenant at 180 Maiden Lane is New York-based insurer American International Group Inc. Lead lender Wachovia Corp. transferred the building’s senior debt to a special servicer last June, citing “potential for refinance risk,” according to data compiled by Bloomberg.

Manhattan’s Apartment Market Stabilizes

Wed, 06 Jan 2010 14:36:25 GMT

As a gauge of the multifamily sector’s health, a trio of new reports on Manhattan apartment-unit sales offer some encouraging indicators and dovetail with a recent report on the island’s rental market and Real Capital Analytics data on apartment property transactions nationwide.

Looking at sales of multifamily buildings rather than individual units, RCA’s most recent monthly report, reflecting year-to-date data through November ’09, showed Manhattan lagging behind Los Angeles, Dallas, Atlanta, Phoenix and tertiary Southeast markets with volume of $530 million. Nationally, sales of significant apartment properties totaled $1.3 billion in November, down slightly from October but up notably from monthly figures recorded earlier in ’09, according to RCA. “Preliminary data indicates that December could wind up being the most active month of 2009,” the firm says.

Distress Calls Begin to Go Out

Wed, 06 Jan 2010 14:28:25 GMT

Big-name investors have swooped in on two high-profile commercial real-estate assets in a sign that activity is returning to the investment-property market.

Private-equity firm CIM Group has teamed up with New York developer Harry Macklowe to help him regain control of what is regarded as one of the most valuable vacant lots in the world, according to people familiar with the matter. The site of the old Drake Hotel, in Midtown Manhattan at Park Avenue and 56th Street, has been under the cloud of foreclosure for about five months after the collapse of Mr. Macklowe's empire.

The lot at Park Ave at 56th Street has been under a cloud of foreclosure for about 5 months.

In the other opportunistic move, private-equity giant Blackstone Group LP is making a grab for Highland Hospitality Corp., a real-estate investment trusts that owns 27 hotels. Highland has been struggling to restructure its $1.7 billion debt load amid the worst downturn for the hotel industry in decades.

Both Blackstone and the partnership of CIM and Mr. Macklowe are using a strategy that is expected to become increasingly popular this year: going after distressed commercial-property assets by buying debt or paying off creditors at a steep discount.

In the case of the Drake site, the partnership has signed a deal to pay off about 10 creditors that hold the $510 million loan the developer took out primarily to acquire the site. The creditors are getting paid as much as 90 cents on the dollar and as little as zero, the people with the knowledge of the matter said.

Deutsche Bank AG, which made the loan, sliced it into four tranches and then syndicated it to the investors. IStar Financial Inc. and Sorin Capital Management hold the senior-most slices of the debt and Realty Finance Corp., owns the junior-most piece. Representatives of Macklowe, CIM and the creditors declined to comment.

Meantime, Blackstone is aiming to control the restructuring Highland by buying a chunk of so-called mezzanine debt with a face value of about $320 million from Wachovia Corp. That piece of debt, in a key position between the equity and the first mortgage debt backed by the hotels, gives Blackstone a significant say in how any restructuring unfolds, people familiar with the matter said.

The Drake Hotel site in New York City has been facing foreclosure.
Blackstone also purchased the debt at a significant discount to its face value, according to a people familiar with the matter. Representatives at Blackstone and Wachovia declined comment.

Blackstone itself is trying to restructure the $20 billion in debt it took on when it bought hotel chain Hilton Worldwide Inc. in 2007 at the market peak.

The deals come as pressure builds in the commercial real-estate market with landlords struggling with rising vacancies, falling rents and heavy debt loads. According to Real Capital Analytics, a New York real-estate research firm, more than $160 billion of commercial properties in the U.S. are now in default, foreclosure or bankruptcy.

Macklowe Said Close to Buying Debt on NYC Hotel Site

Wed, 06 Jan 2010 13:26:25 GMT

New York developer Harry Macklowe and private equity firm CIM Group are seeking to buy out creditors on a prime development site on Manhattan’s Park Avenue, a person familiar with the situation said.

Macklowe and Los Angeles-based CIM are planning to pay off debt holders on the land where the Drake Hotel once stood, said the person, who declined to be identified because the talks are private. In 2008, Macklowe defaulted on a $513 million loan for the East 56th street site and investors bought the debt.

The site is one of the most valuable development parcels in the world due to its central location amid some of Manhattan’s most expensive office and retail real estate, said Dan Fasulo, managing director of research firm Real Capital Analytics Inc. Buying out the creditors may allow Macklowe, who lost control of seven midtown skyscrapers to Deutsche Bank AG two years ago in the credit crisis, to revive his development plans for the site.

“This would be a positive sign for the market in general that things have stabilized enough to make a deal like this transpire,” Fasulo said in an interview. “It means some savvy investors do see some value at the end of this process.”

The creditors on the Park Avenue loan include iStar Financial Inc., Sorin Capital Management and Realty Finance Corp., the person said. The site is an empty lot.

Tower Plan

Macklowe leveled the Drake after buying it in 2006 in anticipation of building a tower that would include retail, condominium apartments and a new hotel. The L-shaped development site included four low-rise buildings on East 57th Street that Macklowe was negotiating to buy to create space that would appeal to a department store or another retailer. That street is among New York’s most expensive shopping districts.

Silicon Valley 'Bloodbath' Leaves Office Buildings Empty

Tue, 05 Jan 2010 14:31:25 GMT

Over 43 million square feet of office space stands vacant in California's Silicon Valley, adding to the technology hub's biggest property glut since the dot-com bust.

Silicon Valley is beset by the biggest office property glut since the dot-com bust, leaving the U.S. technology hub with empty high-rises and office parks that make it impossible for landlords to sustain average rents.

More than 43 million square feet (4 million square meters) — the equivalent of 15 Empire State Buildings — stood vacant at the end of the third quarter, the most in almost five years, according to CB Richard Ellis Group Inc. San Jose, Sunnyvale and Palo Alto have 11 empty office buildings with about 3 million square feet of the best quality space.

"There is a bubble bursting in much the same way as the residential market burst," said Jon Haveman, principal at Beacon Economics, a consulting firm in San Rafael, California. "None of those towers will fill up anytime soon."

Commercial property foreclosures will at least double in 2010 and job growth won't return for two years after that, held back by U.S. consumers who are saving more and "getting back in line with sustainable spending habits," Haveman said.

Bloated inventory and tight lending standards will curtail office construction in pockets around California for "the next several years," said Jack Kyser, founding economist of the Kyser Center for Economic Research at the Los Angeles Economic Development Corp.

"That means there won't be jobs for construction workers and hence no tax revenue from sales of construction materials," Kyser said. "It is the ultimate domino effect."

About 21% of Silicon Valley's Class A office space is vacant, as is 20% of low-rise so-called flex or research and development space for offices or manufacturing, CB Richard Ellis said.

More than 4 million square feet of speculative office projects opened since 2007 as developers anticipated that companies would move from flex space into new towers, according to CB Richard Ellis. Empty Class A offices totaled 13 million square feet and vacant flex space was 30.5 million square feet as of Oct. 1, the Los Angeles-based broker said.

"Many of these assets have lost half their value," said Dan Fasulo, managing director of New York-based research firm Real Capital Analytics Inc. "That's a bloodbath."

Commercial Real Estate Faces Tough Recovery Slog

Sun, 03 Jan 2010 16:25:25 GMT

Home prices finally saw an uptick in 2009 as the government sought to resuscitate the housing markets. But commercial real estate is likely in for more pain as rental rates fall and buyers stay on the sidelines. The market is faced with huge amounts of unoccupied space and a deluge of defaults and foreclosures that are putting new stresses on banks and other financial institutions that already are on life support.

In Midtown Manhattan, the most expensive office market in the U.S., the amount of available space has increased by 16 million square feet since the beginning of 2008, according to brokerage CB Richard Ellis Group Inc. That is roughly equivalent to 16 empty 40-story office towers. Midtown building owners have dropped their asking rents by more than 30% since November 2008.

As rents and property values fell and the extent to which banks are exposed to commercial-real-estate losses became increasingly clear, the government scrambled to contain the damage. The Federal Deposit Insurance Corp., which has been seizing banks hurt by bad property loans, is offering private investors lucrative financing to buy and work out those loans.

In the biggest such deal, Barry Sternlicht's Starwood Capital Group last fall led a group of investors who paid $2.8 billion for a portfolio of 112 construction loans made by Chicago's Corus Bank with a face value of $5 billion. Small and midsize banks are particularly vulnerable to being dragged down by their real-estate portfolios.

"There are going to be huge losses and a huge number of banks failing," says Deutsche Bank commercial-real-estate analyst Richard Parkus. "This is just the tip of the iceberg."

More than $1.4 billion in commercial mortgages will come due by 2013, and as much as 65% of those will have trouble getting refinanced, Mr. Parkus says.

One major wild card in 2010: When will big investors get back into the market?

For now, institutions that control more than $100 billion in unspent capital earmarked for real-estate deals have been gun-shy, waiting for prices to drop and more distress to come.

Research firm Real Capital Analytics recorded only $42 billion in U.S. commercial-real-estate transactions through November 2009, compared with $136 billion in the same period in 2008 and $489 billion in 2007. But optimists believe that all that money on the sidelines will make for a quick rebound when investor sentiment improves.

"When confidence returns to the markets," says Dan Fasulo, Real Capital's head of research, "I think things are going to spiral upwards again very quickly."

Silicon Valley Brokers Aid Banks In Unloading Properties

Fri, 01 Jan 2010 17:34:25 GMT

After a year of record-low activity in the buying and selling of real estate, veterans are rolling up their sleeves to handle the next wave certain to hit hard in 2010: distressed assets that have gone back to the lender.

Calling the level of distress “formidable,” Real Capital Analytics said in its December report that nearly $180 billion worth of real estate is in trouble, and only 10 percent has been resolved.

With just 50 buildings valued at $584 million labeled as troubled in the South Bay, San Jose has the distinction of being the metropolitan area with the lowest level of troubled buildings in the 57 cities tracked by Real Capital Analytics. But that probably will change.

“There may be more to come in SJ,” predicted Dan Fasulo, managing director of the New York firm.

Fasulo explained that much of the ownership of Silicon Valley real estate changed from private and local hands to institutions during the past few years. While initially the new landlords may have greater financial strength, Fasulo said it only delays the inevitable if the asset is overleveraged and empty.

Growth Of Distressed Commercial Properties Slows, Hits $17.6 Billion

Fri, 01 Jan 2010 15:26:25 GMT

The number of commercial properties in distress in the Las Vegas area grew in the fourth quarter — but at a slower pace.

And analysts suggest a wave of commercial foreclosures may not materialize — or at least will be pushed further into the future.

A report on distressed commercial real estate released in December by New York-based Real Capital Analytics, a research and consulting firm, showed Las Vegas held the No. 1 spot in the nation with 37 percent of its commercial properties in distress, up from 34 percent Oct. 1.

The report showed $17.6 billion in properties were distressed. That means the loans are in default, have been modified or restructured or the property has been foreclosed upon or the ownership group is in bankruptcy.

It included office, industrial, hotels, retail, apartments and developments under construction.

The number of distressed properties stood at $9.2 billion in April, but grew significantly over the summer with the Chapter 11 bankruptcy filing of Station Casinos Inc., said Jessica Ruderman, a senior analyst at Real Capital Analytics.

Deals Few And Far Between

Wed, 30 Dec 2009 15:28:25 GMT

It took a strong stomach, and a lot of luck, to get commercial real-estate deals done in 2009.

With lenders loath to extend credit and property values plummeting, transactions were few and far between. As of Monday, $48.8 billion of commercial-real-estate deals had closed, down from $150.8 billion in 2008 and $533.4 billion in 2007, according to Real Capital Analytics, a New York real-estate-research firm. Real Capital counted transactions valued at $5 million and above.

Asia Pacific’s Major Markets’ Strain

Tue, 29 Dec 2009 15:29:25 GMT

As 2009 investment trends in global zones have come into focus, China’s thumb on the scale of the Asia Pacific region has grown larger and heavier, accounting for more than US$127 billion of the $177 billion in total volume year-to-date in the region, which has actually seen volume grow 4% this year.

Excluding China, though, this puts Asia Pacific’s volume at $49.9 billion, a 49% decline from 2008. That is still a significant transaction volume in this marketplace - Asia Pacific’s non-China year-end totals will roughly equal or possibly surpass the United States’ activity. As in China, though, development rights sales drove volume in most of the seven countries in this zone that vie for most of the non-China-targeted investment dollars, whether domestic or cross-border: Japan, Hong Kong, Australia, South Korea, Taiwan, Singapore and India, each of which exceeded $1 billion in sales through November.

The country with the only year-over-year increase was Taiwan, up 3% on $4.3 billion in sales, followed by Hong Kong, down only 13% on sales of $7.5 billion. Much heftier slides were recorded by South Korea, down 51%, on volume of $5.6 billion; Japan, down 58%, following a sudden slide in the third and fourth quarter on sales of $16.5 billion; and Singapore, off nearly 65% with $3.2 billion in sales through November.

Whose Fault is Tight Commercial Property Lending?

Fri, 25 Dec 2009 14:27:25 GMT

In early December, Simon Property Group, the largest US real estate investment trust and mall owner, obtained a slightly larger revolving credit facility to replace an existing one.

Curiously, the existing $3.5 billion credit line was not due to expire for more than a year. So what's the rush?

"There was and is a fair bit of uncertainty in the bank market," Simon Chief Financial Officer Stephen Sterrett told Reuters, citing recent bank failures. Simon has a strong credit rating of "A minus," which affects the company's ability to borrow.

"Allocation of capital by the banks is becoming very precious," Sterrett said.

Many commercial real estate borrowers are saying the same. But banks disagree. Lenders including Bank of America Corp, the largest US bank, have said demand for loans is shrinking. Wells Fargo & Co's Chief Executive John Stumpf earlier this month said finding attractive loans and other assets will be one of the biggest challenges for banks next year.

"The problem is not lack of credit, it's the lack of bankable borrowers," said Richard Jones, partner and co-chair of the finance and real estate group of law firm Dechert LLP.

Banks, slammed by more than $1 trillion in writedowns and credit losses since the beginning of the financial crisis, have become more cautious lenders.

"Enough of the banking community is not just risk averse, they're fighting the last war," said Tom Mitchell, a banks analyst at Miller Tabak & Co.

Banks have become particularly wary of commercial real estate lending, which has been hit by the double whammy of falling property values and a severe recession that has hurt the income streams of many properties.

While the financial crisis had its roots in the US residential housing bust, some bank analysts have cautioned that the $3.4 trillion in US commercial real estate loans maturing over the next several years could be the next train wreck slamming into banks.

From about $1 trillion in commercial real estate loans originated at the height of the property boom, about $120 billion in writedowns have been taken and more than $300 billion have yet to be written down, Mitchell estimated.

The US commercial real estate boom, which began around 2005 and quickly crumbled in the second half of 2007, has ripped the value of many buildings. Since the market peaked in October 2007, prices have fallen 43.7 percent, according to Moody's/REAL Commercial Property Price Index.

In 2009, property sales over $5 million of the four main types of US commercial real estate -- office, industrial, retail and apartments -- totaled $43.86 billion, down 67 percent from last year and 90 percent from the peak in 2007, according to Real Capital Analytics.

US commercial property values at lowest levels in 7 years

Thu, 24 Dec 2009 15:27:25 GMT

Commercial property values in the U.S. declined in October to the lowest level in more than seven years as unemployment reduced demand for apartments, offices and retail space.

The Moody's/REAL Commercial Property Price indices fell 1.5 % in October from September to the lowest since August 2002.

Prices were down 36% from a year earlier and are now 44% below the peak in October 2007, Moody's Investors Service said.

The gloomy news follows predictions from commercial property brokers, including Jones Lang LaSalle and Grubb & Ellis, that office vacancies may approach 20% next year as employers hold off hiring.

The delinquency rate for U.S. commercial mortgage-backed securities rose to 4.47% as of the end of November, Moody's Investors Service said.

That's almost six times the rate of 0.75% a year ago.

And last week the Mortgage Bankers Association reported that delinquency rates continued to rise in the third quarter on properties held by all but one of the five major commercial real estate investor groups tracked by the MBA. Defaults were the highest among holders of bank, thrift and CMBS loans.

Chapter 12: A New Identity

Wed, 23 Dec 2009 14:31:25 GMT

Yes, there is life after bankruptcy. But for some hotels, that also means a new identity.

Investors who bought a 341-room Sheraton hotel in downtown Orlando, Fla., in November plan to convert it next month to Sonesta International Hotels Corp.'s first franchised property in the U.S. Glenmont Capital Management and Resolution Services LLC bought the hotel out of bankruptcy for $8 million.

Sheraton had opted to quit managing the property, so the new owners brought in Sonesta. The company manages 15 hotels and has franchised—but doesn't manage—another 15 internationally.

The purchase of the Orlando hotel by Glenmont and Resolution came roughly 18 months after former owner CF Hospitality Inc. put that property and another hotel in Miami under Chapter 11 bankruptcy protection.

Real Capital Analytics has tracked $1.3 billion of sales of hotels in foreclosure or bankruptcy since the recession's start. Lenders are "becoming much more willing sellers under these circumstances, more willing to take the write-down today and get [the properties] off their balance sheet," Glenmont managing principal Lawrence Kestin said.

Offices At Ire-Sale Prices

Tue, 22 Dec 2009 15:28:25 GMT

Opportunistic investors who have bought buildings at steep discounts are beginning to pass on their savings to tenants, much to the distress of other landlords in the area.

Take the case of the lease that Samsung Electronics America Inc. just signed for 193,000 square feet in an office building in Ridgefield Park, N.J., for its North American headquarters. Earlier this year, the 235,000-square-foot building at 85 Challenger Rd. was purchased by KABR Real Estate Investment Partners LLC, a real-estate fund, from American International Group Inc., which had taken control of the distressed property.

The price KABR paid for the then-empty property: about $10.5 million, or about $44 a square foot. The average price of comparable office buildings sold near the peak of the market in 2007: about $200 a square foot, according to Real Capital Analytics, a New York real-estate research firm.

REITs Lead Industry's Recapitalization

Tue, 22 Dec 2009 14:29:25 GMT

REITs' access to the capital markets is being seen as a part of the solution to the looming debt maturities in the commercial real estate market. The liquidity added to the market has helped improve balance sheets and additional capital could ultimately help open the transaction markets. Given its level of property sales thus far this year, the industrial market certainly could use the boost. For the first nine months of 2009, industrial sales in North America were $5.3 billion, down 72 percent and 87 percent versus the same periods of 2008 and 2007, respectively, according to Real Capital Analytics.

Sales in the Chicago market were $430 million for the same period, down from $1.1 billion and $2.2 billion for the comparative periods in 2008 and 2007, respectively. Interestingly, average cap rates across the country on completed sales in 2009 have been better than many originally anticipated, with September 2009 sales averaging 8.55 percent. The anticipated high levels of distressed assets have yet to materialize, much to the chagrin of a number of funds and investment pools established to take advantage of potential market fallout. Additional price discovery through more reported transactions will give all participants, private and public, a better understanding of values and more confidence to transact.

Tishman Speyer's $5.4 Billion Boomerang

Mon, 21 Dec 2009 15:30:25 GMT

Rob Speyer showed little interest in his family’s real estate business until his father began talking about buying Manhattan’s Rockefeller Center.

It was 1995. Speyer, then 26, was a reporter for the New York Daily News, covering fires and events like the Puerto Rican Day Parade. His dad’s plans to purchase the art-deco complex for $1.2 billion changed everything.

“I caught the bug,” Speyer said of joining Tishman Speyer Properties LP, the firm co-founded in 1978 by his father, Jerry, and Robert Tishman. “Until that moment, I had other ideas and ambitions and it was really hearing about that transaction that flipped the switch in my head and made me say: ‘I want to learn this business.’”

Speyer, now co-chief executive officer of Tishman Speyer, is getting another lesson, one on enduring the global commercial property rout. Tishman Speyer and BlackRock Realty LP’s $5.4 billion purchase of New York’s Stuyvesant Town and Peter Cooper Village apartments is unraveling, testing the young Speyer and his father, a 30-year real estate veteran. “A default is expected” on the complex, according to Fitch Ratings, which has estimated the property’s value at $1.8 billion.

The transaction is among at least four -- including the $13.6 billion purchase of Archstone-Smith Trust with Lehman Brothers Holdings Inc. in October 2007 -- that the company made as values rose and Jerry Speyer was giving his son increasing responsibility for running the company.

Tishman Speyer is in talks to overhaul debt on five downtown Chicago office buildings. Partnerships including the company have been sued for foreclosure on a 56-acre California office park purchased with another parcel for $200 million. And on Dec. 18, Standard & Poor’s withdrew its credit rating on a group of Washington-area properties with debt payments that Tishman and its partners have been trying to restructure.

The Speyers are being hurt in part by U.S. commercial real estate prices that have fallen 43 percent since late 2007.

Since 2001, Tishman Speyer has been the biggest U.S. commercial real estate buyer after Blackstone Group LP, according to the New York research firm Real Capital Analytics. Rob Speyer is part of a multi-generational group of New Yorkers whose families made fortunes in real estate, including the Milsteins, Zeckendorfs and LeFraks. Jerry Speyer was named the world’s No. 1 developer in a 1998 New York Times article that referred to him as the anti-Donald Trump.

When Tishman Speyer and BlackRock Realty bought Manhattan’s biggest apartment complex in 2006, they planned to raise rents, evict illegal occupants and upgrade the Stuytown complex with amenities including a gym, concierge service and new gardens. Those plans were challenged by a recession, slackening demand for rentals and a legal victory for tenants who claimed some rent increases were illegal.

Tishman Speyer has ceased signing new leases at the complex, Bud Perrone, a company spokesman, said. It reached a temporary agreement with tenants this month that will reduce some rents starting in January.

Low Realty Prices Will Attract Foreign Investment To GCC

Mon, 21 Dec 2009 15:25:25 GMT

Asia continued to reign as the unchallenged leader, with six countries in the top 10 list. China's population and long-term economic development prospects, major drivers of real estate markets, put it in first place once again, followed by South Korea and India.

Since the beginning of the economic crisis more than a year ago, most real estate markets – emerging and mature – have seen plummeting prices, as much as 40 to 50 per cent in some Middle East and Asian countries. According to a report by Real Capital Analytics, volume on global real estate transactions plunged 67 per cent year-on-year in the second quarter of 2009.

Conditions in most emerging markets seem to be improving, thanks to government stimulus, infrastructure investment and a resumption of lending.

Distressed hotels could find buyers in 2010

Mon, 21 Dec 2009 13:26:25 GMT

The recession-ravaged U.S. lodging industry will offer opportunities next year for would-be hotel investors interested in picking up plum properties suffering from falling revenue and high debt.

As much as $3.5 billion worth of hotels are expected to trade hands in the United States next year, compared with just $2 billion in 2009, according to projections from hotel investment firm Jones Lang LaSalle ( JLL - news - people ) Hotels.

Much of this activity will be spurred by the sale of distressed hotels struggling to fund looming debt payments as travel demand remains weak.

"When these loans come due, I think that's when you're going to see an awful lot of product in the market," said Daniel Lesser, a senior managing director of CB Richard Ellis.

Nearly 1,300 properties in the United States are classified as distressed, representing a value of more than $32 billion, according to Real Capital Analytics. That figure ticks up daily as more and more hotels buckle under the economic downturn, which has sapped travel demand.

"At some point, it's simple math," said Dan Fasulo, head of research at Real Capital. "If your income from the property (is cut) by half, there's not enough money to go around to pay the bank, to pay your staff, to pay your suppliers."

Hotel deals in the United States have been few and far between in 2009 as buyers and sellers haggled over the worth of these properties.

"There's been a huge disconnect between bid and ask," Lesser noted, adding that valuations are now not as far apart as they were 18 months ago. Many take this as a sign that transactions will pick up again in 2010.

Survey: US Property Faces Long Road to Recovery

Fri, 18 Dec 2009 14:26:25 GMT

With Washington policy-makers increasingly pulling the strings that affect prices, US commercial real estate faces a long, slow road to recovery that is more than a year away for most types of property, according to a survey commissioned by PricewaterhouseCoopers.

According to the fourth-quarter Korpacz Real Estate Investor Survey, the recovery of commercial real estate is not expected to gain much traction until late 2011 or 2012, given current prospects for a lackluster economic revival in the United States and high unemployment.

Rental rates will continue to decline until strong, consistent job growth resumes, according to the survey. With $1.4 trillion of commercial real estate debt maturing by the end of 2012, some property owners will not be able to survive the downturn. Problems related to refinancing that debt could further delay a recovery in the sector, the survey said.

More than one hundred property investors were surveyed, representing the views of real estate investment trusts, pension funds, private equity firms and insurance and mortgage companies.

Pricing in the industry will be more influenced by government and regulatory policy than by occupancy levels or rents, said the founder and president of Real Capital Analytics, Robert White.

Policy makers control what happens to commercial mortgages in default, White wrote in the report, and have encouraged loan modifications and extensions even in cases where loans are above a property's current value.

Tax policy, meanwhile, has made it easier for special servicers to negotiate with borrowers, a move meant to prevent a wave of maturity defaults and property fire sales. Keeping rates low and easing restrictions on foreign capital will also influence industry prospects.

CMBS held about 42% of distressed loans, US banks 31% and international banks another 13%, at the end of November, Real Capital Analytics said.

Loan problems dog lifestyle center

Thu, 17 Dec 2009 15:26:25 GMT

After losing two of its largest tenants to bankruptcy, a big shopping center in Algonquin that opened five years ago now faces financial problems of its own.

Algonquin Commons, a 565,000-square-foot mall in the northwest suburb, is no longer generating enough cash flow to cover its loan payments. Its owner, a joint venture led by Oak Brook-based Inland Real Estate Corp., wants to restructure $92.1 million in debt on the property.

It is the largest local retail property to run into loan trouble in the current real estate slump.

Revenue at Algonquin Commons has fallen over the past year or so because of the deteriorating retail climate and the demise of its second- and third-largest tenants, Wickes Furniture Co. and Circuit City Stores Inc., which have liquidated after filing for Chapter 11 protection last year.

The property, at 1812 S. Randall Road, was 91% occupied at the end of September, down from 99% when the Inland joint venture bought it in 2006.

Algonquin Commons “has been impacted by the bankruptcies of Wickes Furniture and Circuit City and we are actively working to re-tenant those spaces,” an Inland spokesman says in an e-mail. “We also are looking to improve our position at the asset through negotiations with the lender.”

Though the Inland joint venture is current on loan payments, the property’s net cash flow fell to 0.95 of its debt service obligation in the nine months ended Sept. 30, according to a recent report by the special servicer.

The venture says “that due to the market conditions and property-specific conditions,” the mall is “unable to continue supporting monthly debt service,” the report said.

A growing number of retail landlords in the Chicago area face similar problems as retailers shut down stores and demand rent relief.

Among all property types, retail is the biggest source of trouble locally, with $1.3 billion in distressed loans, according to a recent distressed assets report by Real Capital Analytics Inc., a New York-based research firm. Algonquin Commons is the largest local retail property on the firm’s list of troubled assets.

Completed in 2004, Algonquin Commons is a so-called lifestyle center, a high-end shopping mall with freestanding stores and sidewalks but no department stores, unlike an enclosed mall. A joint venture between Inland and the New York State Teachers Retirement System paid $154 million for the property in February 2006.

A Recap of the [Quiet] 2009 Student Housing Investment Market

Thu, 17 Dec 2009 14:26:25 GMT

Credit markets froze following the financial crisis that hit in September 2008, and the commercial real estate sector has been among the hardest hit; not a single property type has been able to avoid the downturn in investment activity. Student housing, an increasingly popular niche for investors, is no exception. Sales volume of properties to trade for $5 million plus in student housing properties hit bottom, with only 20 properties trading hands year to date for a total of $313 million. That marks a stunning 87% fall from 2008 totals, and it is also the lowest volume for the niche since RCA began tracking student housing in 2004. From 2005 to 2008, annual student housing volume ranged between $2 billion to $2.5 billion, and typically represented 2 percent to 3 percent of all apartment properties traded.

Despite the decline in volume this year, student housing sales this year have stayed true to this pattern, accounting for 2.8 percent of all apartment activity. However, cap rates for this niche have risen markedly higher than those for apartments as a whole. Student cap rates are up 140 bps, almost three times the 50 basis-point gain for apartment properties on average. Even so, pricing has held up more for this niche than for the broader apartment sector, with only a 3 percent drop on price per unit compared to a 13 percent per-unit slump for all other apartments.

One indicator of the slow market: to date this year, no student housing asset has traded for $50 million or more; the highest price paid so far this year was the nearly $46 million sale of the Cottages of Lubbock, a 241-unit asset in Lubbock, Texas. The property was acquired by Campus Living Villages, an investor group based in Sydney, Australia, from Capstone Capital Corp.

The thin sales volume cut across the entire country; no region had sales above $100 million, although the Southwest came close and had the most activity five transactions totaling $99 million. Not a single student housing property has traded in the Northeast so far in 2009.

Typically, the public REITs have led investment in this niche, but these companies have stayed out of the market, making no acquisitions to date this year. Private investors accounted for 62 percent of acquisitions. All but two deals involved just a single property. Only Westar Associates and Kayne Anderson Rudnick Investment Management LLC were the exceptions, each acquiring two assets.

One area where student housing stands out on a positive note is distressed properties. The student housing sector is faring well compared to the entire apartment sector when it comes to the percentage of properties in trouble due to default, foreclosure or bankruptcy. Only 4 percent of the student housing sector is in trouble, less than half of the 8.7 percent of distress afflicting the overall apartment sector. There are a total of 25 student housing properties in distress, valued at nearly $350 million. Most of those – 15 in all, accounting for $225 million – are in the Southeast. The Northeast may have had no sales this year, but it also has no student housing properties that have fallen into distress.

All that being said, student housing will nonetheless remain a safe haven for investors. With more people returning to school during the downturn, many universities short of meeting housing needs, and state governments cutting back on construction budgets, this niche should prevail, especially as public REITs ramp up investment and smaller private players participate. In addition, the relatively small nature of the niche and low volume will together keep prices less volatile than those for the broader apartment sector.

New Distressed Manhattan Property Tally Tops $12 Billion

Mon, 14 Dec 2009 15:29:25 GMT

The November spike is seen to be driven by $3 billion in mortgage-backed loans for Stuyvesant Town/Peter Cooper Village that went sour.

The value of new properties in Manhattan falling into distress skyrocketed to over $12 billion last month—the highest levels since July when it reached over $15 billion—according to the latest regional report conducted by Real Capital Analytics.

In the borough, there are 186 distressed properties, ranging from offices to hotels, which are valued at $12.3 billion, according to the latest Troubled Asset Radar report. The spike in Manhattan distressed assets were mostly attributed to the $3 billion CMBS loans for Stuyvesant Town/Peter Cooper Village, which finally transferred to a special servicer in November. The Manhattan market ranked 29th among U.S. markets in distress as a percentage of total property investment volume.

"We have seen more and more owners of office buildings that have purchased assets at the top of the market throw in the towel," said Dan Fasulo, managing director at Real Capital Analytics. "We haven't seen the apex of distressed properties just yet; more will come in 2010."

Some 43 offices, valued at $4.5 billion, and 100 apartment buildings worth $5.7 billion make up the bulk of the distressed properties in Manhattan, the report noted.

Houston Tops Texas CRE Distressed Markets

Mon, 14 Dec 2009 14:29:25 GMT

Houston ranks as the top Texas market for distressed commercial real estate by total property investment volume, according to data released by Real Capital Analytics Inc.

The Troubled Assets Radar report data shows that Houston had 211 troubled assets valued at $4.8 billion as of Dec. 3, while Dallas-Fort Worth was second in the state at $4.4 billion.

Nationwide among metropolitan areas, Houston ranked ninth.

The apartment sector had the most troubled assets with 85, valued at $1.12 billion. Next was retail with 67 distressed properties valued at $1.05 billion, followed by the hotel sector with 22 properties valued at $188 million. Meanwhile, the office sector had 19 distressed properties valued at $2.4 billion.

Troubled assets are considered properties with foreclosure, bankruptcy and restructured/modified statuses.

Real Capital ranks the cities by the estimated dollar value of the distressed assets compared to the size of each market. It bases market activity on the total transaction volume in each market from the past four years.

Leading all distressed markets is Las Vegas, which has 252 troubled assets valued at $17.7 billion, the report said.

Survey Says Top Property Pick in 2010 is Developing Asia

Fri, 11 Dec 2009 19:30:25 GMT

Property investors are most bullish about developing Asian markets next year, as concerns of a second pricing dip across debt-drenched mature markets crimp returns expectations in 2010, a Thomson Reuters survey showed.

Some 85% of the 150-strong audience at the annual Thomson Reuters Global Property Outlook said they expected developing Asian markets like China to deliver total returns in excess of 10% next year as economic growth feeds demand for homes, shops and offices.

In contrast, just 13% of those delegates surveyed said UK or US 2010 total property returns would match those seen in developing Asia, even though both markets looked to be nearing the twilight of their real estate corrections.

61% of the audience said they expected UK total returns between zero and 10% next year, broadly in line with Eurozone total property returns for the same period.

About half of respondents expected to see the same zero-to-10% total returns range in developed Asian markets like Korea and Tokyo as government measures to thwart real estate bubbles bear fruit.

Thin transaction volumes and unclear changes in pricing have damaged sentiment towards the US property market, where the volume of distressed property hit $140 billion by end-October, Real Capital Analytics data shows.

A narrow majority of 42% estimated US total property returns between negative 10% and zero, while 39% of those surveyed expected returns between zero and 10%.

Congested credit markets and reluctance among some banks to lend to real estate has encouraged bargain-hunters to delay investment sprees, and 61% of respondents said they expected a "flat" property market next year.

There was less conviction on the topic of Dubai, illustrating continued fear among property investors that the worst global real estate slump for generations was not over yet. Around half the respondents said they believed Dubai's debt crisis was a sign of further troubles to come for highly-leveraged property markets, while 37% said the problems were too small to spark a calamity outside the Gulf region.

Until valuations stabilize further and banks resolve massive exposures to distressed property loans, real estate will have to compete strongly to maintain its weighting in a diversified portfolio, the survey results indicated.

New suburban building sells for $32 million

Thu, 10 Dec 2009 20:28:25 GMT

A New York investment firm paid $32 million for the new North American headquarters of a Japanese company, a sign of rebounding demand for well-leased properties in good locations.

An affiliate of W. P. Carey & Co. paid about $314 a square foot for the 102,000-square-foot office and warehouse at 2400 Huntington Blvd. in northwest suburban Hoffman Estates. The recently completed two-story building was built for machine tool maker Mori Seiki USA Inc., which has a 20-year lease.

The buyer is the same Carey investment vehicle that last year bought Kendall College’s Goose Island campus in a nearly $28-million sale/leaseback deal.

The Hoffman Estates transaction may be a sign that investment activity is starting to pick up after a long drought.

“People are smelling the bottom,” says Jim Carpenter, a senior director in the Chicago office of Cushman & Wakefield Inc., which brokered the sale. “Equity capital for good properties is growing.”

The seller was a joint venture of Rosemont-based McShane Cos. and MetLife Real Estate Investments.

The all-cash deal, which closed Monday, is notable because so few suburban office properties have traded hands this year as rising vacancies, declining values and a lack of available credit have kept investors on the sidelines.

During the first three quarters of 2009, just 18 office properties totaling $337 million were sold in the Chicago area, according to New York research firm Real Capital Analytics Inc. Last year during the same period, 47 properties totaling a little more than $2 billion had been sold.

W. P. Carey has nearly $10 billion in global real estate holdings. The Carey affiliate that bought the Mori Seiki building, called CPA:17 - Global, specializes in single-tenant properties.

“We feel this acquisition is a strong addition to our portfolio,” W. P. Carey Managing Director Gino Sabatini says in a statement.

Mori Seiki USA’s headquarters is part of the 70-acre Huntington Woods Corporate Center, near Interstate 90 and Barrington Road. McShane and MetLife Real Estate acquired the park in June 2008.

Dubai Market Plunges for Third Day Amid Uncertainty

Wed, 09 Dec 2009 16:28:25 GMT

Dubai's main stock exchange plunged for a third straight day Wednesday as investors dumped holdings in the troubled Arab boomtown amid a scramble for details about the depth of its debt woes.

The Dubai Financial Market's benchmark index dropped 6.3 percent at the close, building on steep declines since Monday. The bourse in Abu Dhabi (home to the United Arab Emirates' federal government) tumbled 2.8 percent.

The declines reflected a lack of information about the scope of Dubai's debt pile and how it plans to repay it. Concerns over the government's increasingly clear unwillingness to assume responsibility for the debts of companies that it owns — best illustrated by officials' lack of backing for troubled conglomerate Dubai World — are also weighing on the market, analysts say.

The crunch prompted Dubai's government, on the eve of the U.S. Thanksgiving holiday, to announce that Dubai World would seek a six-month "standstill," effectively a delay, on repaying some of its $60 billion in debts.

While the company later said the restructuring would involve roughly $26 billion in debts, and indicated it may sell some assets to raise the cash, it said its profitable ports and related free zone operations would be exempt from the restructuring. Also off the table was its private equity division Istithmar World and Infinity World Holding, the co-owner of Las Vegas' new $8.5 billion CityCenter hotel and casino complex.

Dubai World's Istithmar lost ownership of the W Union Square New York hotel in a foreclosure auction Tuesday. Istithmar acquired the hotel in October 2006 for $285 million, according to Real Capital Analytics, a data tracking firm.

Also in trouble was The Fontainebleau in Miami Beach. The Dubai World property's $660 million loan was due in August. Contractors also claim the owner of the historic hotel owes them $60 million.

See RCA's recent Global Currents article "Mapping the Dubai Surprise."

Mandarin Oriental May Acquire Luxury Hotel Brands

Tue, 08 Dec 2009 18:34:25 GMT

Mandarin Oriental International Ltd., operator of 25 luxury hotels from Tokyo to San Francisco, may buy more brands as lodging companies struggle amid a decline in spending, Chief Executive Officer Edouard Ettedgui said.

“We probably can reach 80 to 100 hotels on our own, but if we want to get to 200, we have to do that through brand acquisitions,” Ettedgui said in an interview at the opening of the 392-room Mandarin Oriental in Las Vegas. “If a luxury brand becomes available at a reasonable price, we’re interested.”

Mandarin’s newest hotel enters a market where room rates have slumped because of the global recession and is part of a resort co-owned by MGM Mirage and Dubai World, the state company that’s in talks to restructure $26 billion of debt. Ettedgui said Asia and South America may present the best opportunities and interested sellers have approached the hotel chain, which had $563 million in cash as of June.

Hong Kong-based Mandarin, with properties in Asia, the Americas and Europe, is developing at least 16 hotels in cities including Beijing, Milan and Chicago.

Mandarin rose 4 percent to $1.3, the most in six weeks, in Singapore trading today. The stock has gained 32 percent this year, trailing a 59 percent increase for the Straits Times Index.

“This is a crisis of solvency, but our balance sheet is strong,” Ettedgui said. “We have been approached” by people looking for buyers, he said. “Definitely more so in recent months.”

Mandarin Oriental Las Vegas, which includes 227 wholly owned luxury residences, is part of the CityCenter resort, 67 acres of hotels, condominiums, gaming halls and shopping malls co-owned by Dubai World and MGM Mirage.

Dubai World, the state-owned investment company, borrowed more than $4 billion buying U.S. trophy hotels, including the majority of Mandarin Oriental New York, at the top of the market, according to data from Real Capital Analytics Inc. in New York. Mandarin still operates the New York hotel and owns a 25 percent stake.

Dubai World’s Istithmar Loses Control of the W Union Square Hotel

Tue, 08 Dec 2009 17:34:25 GMT

Dubai World’s Istithmar unit lost control of the W New York Union Square hotel in a foreclosure auction after investing in the property near the top of the commercial real estate market.

LEM, an affiliate of Lubert-Adler Real Estate Funds, won an auction for the mezzanine debt on the luxury Manhattan hotel, which was purchased by Istithmar in 2006 for $285 million. LEM bid $2 million for the debt.

"We are pleased to have completed this step to assume ownership of the W New York Union Square," the buyers said in a statement today. "Despite the recent downturn of the hotel industry, and the defaults that led to today’s foreclosure auction, we are optimistic about the future. Our intention is to ensure a seamless transition of ownership."

State-owned Dubai World is seeking a "standstill" agreement with lenders as it attempts to restructure $26 billion of debt. Istithmar shelled out $665 million for two New York hotels, the W Union Square and the Mandarin Oriental, whose sale prices each broke a local record of $1 million per guest room, according to Real Capital Analytics Inc. Dubai World amassed more than $4 billion in debt buying trophy hotels and office buildings in the U.S., Real Capital data show.

The mezzanine debt of $117 million on the W New York, named by Conde Nast Traveler as one of the world’s top 500 hotels in 2005, was divided into three parts, with LEM holding one portion, according to Ben Thypin, senior market analyst at Real Capital, a New York-based research firm.

See RCA's recent Global Currents article "Mapping the Dubai Surprise."

Isle of Misfit Toy Buildings

Tue, 08 Dec 2009 16:27:25 GMT

There's no end in sight to the mess at 1107 Broadway, the northern-most of the two former Toy Buildings that was slated for condo conversion.

Two years after developer Yitzchak Tessler said he planned super-luxury condos and an eight-story addition on top of the existing 16-story structure, the former toy-wholesale building stands vacant except for a ground-floor bank branch. Many windows are boarded up -- an incongruous sight over Madison Square Park.

Tessler bought 1107 Broadway from Joseph Chetrit for $235 million in 2007 and filed expansion plans with the Buildings Department in September 2008. But the site's been listed on the department's "stalled" projects list since April, and recently popped up on research firm Real Capital Analytics' roster of "troubled assets."

Tessler did not return calls. But industry sources said 1107 Broadway, although in no imminent danger of foreclosure, is likely to remain in a miserable state for years.

Sources said a complicating factor is that Chetrit's "still in the deal" -- which might explain why the $235 million sale price was so low compared with the $480 million sale of comparably sized sister Toy Building 200 Fifth Ave. the same year.

Another issue involves $343 million of debt to Lehman Brothers Holdings.

RCA Research Director Dan Fasulo said, "It isn't clear whether the loan was securitized" prior to Lehman's bankruptcy. Some $203 million was for the purchase and the rest for redevelopment.

A different source said, "The debt was carved up in a confusing way where no one knows what will happen, and there's a lot of finger-pointing going on."

It's all a far cry from what's happened at 200 Fifth Ave., which is linked to it by a sky bridge.

Since David W. Levinson's and Robert T. Lapidus' L&L Holding Co. bought the address from Chetrit in 2007, they lured ad giant Grey Group to be the anchor office tenant with 370,000 square feet, and recently signed Eataly for a 42,000 square-foot gourmet emporium.

The Future of Commercial Demand

Fri, 04 Dec 2009 11:29:40 GMT

Demand Leaders

Whenever recovery comes, it won’t arrive evenly. Though it seems that demand for every commercial property type fell simultaneously, not all property types will recover on the same timetable, says Robert White, president of Real Capital Analytics. Multifamily will be the first to come back, in part because "it hasn’t fallen as hard. Fannie and Freddie were backstopping the debt," he says.

Yun is also "bullish" on multifamily. He points to the recent slowdown in household formation as an indicator of pent-up demand. A growing number of Generation Y renters, born between 1977 and 1994, will help multifamily demand, as will foreclosed home owners who’ll need to reestablish credit.

Office space is harder to call, in part because job recovery will differ by occupation. A few fields, such as health care, should remain relatively strong. "Health care employment is going to lead us as we go forward and provide opportunities to develop medical office and ambulatory care sites in the community, away from hospitals," says Redmond.

The federal government is another source of demand. "The only sure office bet seems to be the D.C. office market," says White. State government is less sure as many struggle with falling revenues.

Educational institutions, especially private universities and vocational schools, are another bright spot for office landlords. "There must be a dozen private colleges leasing office space in our market," says Robin Webb, CCIM, Coldwell Banker Commercial NRT in Orlando. Laid-off workers, retired workers seeking second careers, mid-career workers who need to learn new skills, and Generation Y is helping to fuel this trend.

Technology may be another recovery leader, the Federal Reserve predicted in its Beige Book released in July. "We’re showing a lot of space to start-ups. It’s a positive sign and will pay dividends, but it’s not absorbing significant amounts of space," Collins says.

Morgan Stanley Looks to Restructure CMBS

Thu, 03 Dec 2009 15:27:25 GMT

A real-estate fund managed by Morgan Stanley is trying to restructure a $1 billion securitized mortgage on five resorts it bought in 2007 in the latest example of a bad commercial-property bet made by the firm.

Morgan Stanley's $1.75 billion MSREF V U.S. fund bought eight resorts at the top of the market from CNL Hotels & Resorts Inc. It put $1.52 billion of debt on five of the properties, including a $1 billion first mortgage and a $525 million mezzanine loan. The first mortgage was carved up and sold to investors as commercial mortgage-backed securities, a popular form of financing during the boom.

But the five resorts have been hammered along with the rest of the luxury-hotel market by the economic downturn, making it difficult for them to pay debt service and possibly even operating costs.

Morgan Stanley was among the most aggressive buyers of real estate during the boom of earlier this decade. Its real-estate investing group bought at least $53 billion of property and sold only $14 billion between 2005 and 2007, according to Real Capital Analytics. Now, those deals made at the top of the market are dogging Morgan Stanley as property values plummet, rents decline and refinancing options remain scant. Most of that real estate was purchased by its Morgan Stanley Real Estate Funds unit, known in the industry as MSREF.

The five resorts include the 780-room Grand Wailea Resort Hotel & Spa in Maui; the 796-room La Quinta Resort & Club and PGA West in La Quinta, CA.; the 739-room Arizona Biltmore Resort & Spa in Phoenix; the 693-room Doral Golf Resort & Spa in Miami; and the 279-room Claremont Resort & Spa in Berkeley, CA.

Dubai's Crazy Quilt of Assets

Thu, 03 Dec 2009 09:28:40 GMT

Sheikh Mohammed bin Rashid Al Maktoum wanted to turn Dubai into the next London or Hong Kong, a global hub for finance and tourism. To help execute his vision, the ruler relied heavily on Dubai World, the web of state-owned companies that includes everything from DP World, which operates 49 ports across the globe, to property developer Nakheel to investment arm Istithmar World. Unlike Abu Dhabi, the wealthy emirate to the southwest, Dubai had little oil production to fuel its efforts. Instead, lenders poured more than $100 billion into Dubai, at least $34 billion of which went to Dubai World.

Now, Dubai World is at the center of the mess in the emirate. Executives at the holding company are scrambling to renegotiate $26 billion in debt, which the government said it may not back. The clock is ticking: Roughly $3.5 billion of the debt comes due on Dec. 14. "Dubai World is an example of too big to fail but also too big to guarantee," says Rachel Ziemba, a senior analyst at Roubini Global Economics, a research firm.

Regardless of the outcome, Dubai World may have to temper its global ambitions. Already, advisers are assessing the portfolio to figure out what holdings can be sold to raise cash. The conglomerate likely will retain control of its infrastructure assets such as the ports, which are the emirate's crown jewels. But its global real estate and retail holdings may be auctioned off to the highest bidder.

Dubai World used the cash to fund a flurry of purchases. But dealmakers did so at the height of the credit boom, paying a premium for their global aspirations. The company shelled out $665 million for two New York hotels, the W Union Square and the Mandarin Oriental, whose sale prices each broke a local record of $1 million per guest room, according to Real Capital Analytics. It also has a 50% stake in CityCenter, a resort and casino development on the Las Vegas Strip that's opening this month. "They defined the peak of the real estate bubble," says Dan Fasulo, managing director of Real Capital Analytics.

Now pieces of the portfolio may be sold to pay off creditors. A group of outside advisers is working with Dubai World to assess the damage and figure out the next steps. For example, AlixPartners, a New York restructuring firm, is dealing with the various businesses owned by Dubai World on potential divestitures and layoffs. "The advisers will review Dubai World's portfolio, focusing on assets where there is still equity that can be sold as well as those that are burning through cash," says Fasulo. In a statement, the conglomerate said Port & Free Zone World (the parent of DP World), Infinity World Holding, and Istithmar World would be excluded from the debt restructuring because of the units' "stable financial footing."

CityCenter, the largest-ever privately financed construction project in the U.S., may be one of the easiest assets for Dubai World to sell. The $8.5 billion project has a relatively small debt load. That could make it more appealing to prospective buyers than other assets in the conglomerate's portfolio.

Some properties may be wrested from Dubai World's control. Troubled loans backed by the W Union Square will be auctioned this month. The winner could use them to gain control of the luxury hotel, according to Real Capital Analytics. The Mandarin, which is suffering from the slump in travel, may not have enough money to cover debt payments, say analysts. If the hotel does fall behind, pieces of the debt may be up for grabs, too.

Dubai Trophy-Property Sale Is Well-Timed

Wed, 02 Dec 2009 13:29:25 GMT

In the U.S., the total value of all commercial real-estate deals of $5 million or more will reach just $49 billion in 2009, research firm Real Capital Analytics projects. That is less than one-tenth of the $497 billion in deals done in 2007, and even less than the $79 billion in deals done in 2001. Meanwhile, real-estate private-equity firms around the world are sitting on $172 billion in commitments from investors, according to research firm Preqin.

"There is no product out there, there is nothing to buy, and there's a lot of money out there that would love to buy," said Sam Zell, the real-estate "grave dancer" who made a fortune from earlier downturns.

That could be one of the few bits of good news for landlords who need to raise cash by selling buildings. Bidding has been especially heavy when prime properties—such as fully leased, trophy office buildings in major cities—have gone on the block.

Buyers have been most aggressive outside the U.S. In Hong Kong, a wealthy investor in September purchased a 23-story office building for $465 million at a 4.3% yield—recalling values at the height of the bubble. In London, the average yield that buyers have been willing to accept fell one percentage point over the past six months, signaling an uptick in valuations, according to Real Capital Analytics research director Dan Fasulo.

International investors have also been looking for deals in the U.S., in some cases driving up values. German property-fund manager Deka stunned American real-estate investors when it agreed to buy a 12-story office building in Washington for $208 million.

World’s Most Expensive Office Markets Get Cheaper on Job Cuts

Tue, 01 Dec 2009 14:25:25 GMT

The world’s most expensive office markets got a little cheaper this year.

More than 130 cities worldwide saw rent expenses decline an average of 7.7 percent in the year ended Sept. 30, CB Richard Ellis Group Inc. said in a report today. Almost 50 cities reported declines of more than 10 percent. Rental costs fell about 30 percent in Midtown Manhattan, 53 percent in Singapore and 41 percent in central Hong Kong.

“The places that went up the fastest and highest also came down the fastest and at greater depth,” said Raymond Torto, chief economist for CB Richard Ellis, the largest publicly traded broker. “You party Saturday night and you pay for it on Sunday morning. That’s true across the globe.”

The global recession and credit crisis are pushing down office rents as companies pare jobs. About 1.93 million job cuts have been announced worldwide this year, Bloomberg data show. In the U.S., the unemployment rate jumped to 10.2 percent in October, the highest level since 1983.

London’s West End district retained its position as the world’s most expensive office location, Los Angeles-based CB Richard Ellis said. Offices there cost $184.85 a square foot. That’s down 26 percent from a year ago in U.S. dollars or 18 percent in pounds.

Inner central Tokyo came in second in the CB Richard Ellis survey, while outer central Tokyo came in third. Central Hong Kong was fourth and Moscow was fifth. A year ago the order was the West End, Moscow, central Hong Kong, inner central Tokyo and Mumbai.

New York City’s Midtown Manhattan came in 24th in the CB Richard Ellis survey, down from 15th last year. It remains the most expensive U.S. office market.

In the Americas, Sao Paulo and Rio de Janeiro displaced Midtown as the most expensive markets for offices. Rio rose to 12th in the semi-annual survey from 37th a year ago, while Sao Paulo rose to 16th from 26th.

Rio office costs increased 12.1 percent, the second biggest increase in the survey. Sao Paulo has about 115 million square feet of offices, about the size of Chicago’s office market, according to Torto.

“With the emerging economies, their office markets are much more volatile, and they have a much more limited supply of grade-A office space,” said Dan Fasulo, managing director of Real Capital Analytics Inc., a New York-based firm that tracks commercial property sales. “So when there’s an economic boom, there’s always a violent increase in occupancy costs due to constrained supply.”

Rio was among 41 cities in the survey where costs rose. The biggest increase was in Aberdeen, Scotland, where office costs rose 12.3 percent. Sao Paulo office costs were little changed.

George Comfort reaches deal with lenders at 119 West 40th Street

Mon, 30 Nov 2009 13:29:25 GMT

L.H. Charney Associates and George Comfort & Sons have reached an agreement with lenders on a deal that would save their struggling office tower at 119 West 40th Street from going into receivership.

High-level sources familiar with the negotiations say they have reached an agreement to settle a lawsuit by mezzanine lender Wein & Malkin and are finishing up a deal with their senior mortgage lenders.

"It's done," Leon Charney, chief executive of L.H. Charney, confirmed to The Real Deal, in a brief telephone interview.

On Oct. 16, W&M, now called Malkin Properties, filed suit against Charney, George Comfort President Peter Duncan and Fortis Property principals Joel and Margaret Kestenbaum alleging they defaulted on a $22.25 million mezzanine loan with the original mezzanine lenders, Wachovia Bank and Greenwich Capital, who issued the loan in April 2007.

That year, George Comfort, Charney and Fortis Property Group agreed to buy the 340,000-square-foot office tower from Colliers ABR and AEW Capital Management for $182 million, and launched a major renovation of the property, including extensive common area and tenant improvements.

The original mezzanine loan was sold to W&M in December 2007 for $16.8 million, however by 2008, the new owners ran into trouble.

"Obviously the original acquisition structure was not going to work anymore," said Dan Fasulo, managing director of research at Real Capital Analytics. "This was almost a 100 percent financed deal."

The goal was to completely overhaul the building and double the rent roll, said Fasulo, but the market downturn changed all that.

In October 2008, the landlords signed a lease extension with Kensington Publishing for the entire 21st, and part of the 22nd, floors of the building, after signing an initial lease in June 2008. The deal included an allowance for free rent and reimbursement for tenant improvements and a promise to renovate the building's common areas.

By June, W&M sent a default letter to Duncan and Charney alleging they failed to renovate the common areas and turn over the building's financial records. One month later, they defaulted on a $116 million interest payment, incurred millions in mechanics liens and failed to pay commissions on new lease signings, according to the October lawsuit by W&M.

A non-judicial foreclosure sale, originally scheduled for Aug. 17 was postponed, and the loan was later placed into special servicing. Duncan and Charney have been in talks with the lenders to block the foreclosure sale, however officials did not provide any details about how the case was allegedly settled.

Return to lender: U.S. hotel owners going delinquent on debt

Sun, 29 Nov 2009 17:26:25 GMT

Like many home owners, hotels are starting to drown in debt. They have been enticing travelers all year with sweet deals: credits for in-house spas and restaurants, up to 50 percent off five-star rooms, even free nights.

But all that discounting hasn't stopped occupancy from dropping an average of 10 percent. The result? Hotel loans have begun falling into delinquency faster than any other kind of commercial real estate debt.

The rising defaults paint a grim picture for an industry with increasingly more rooms than guests, and more hotels still opening every day. It's a problem that could get worse before it gets better, with demand expected to remain weak and ambitious new projects planned before the meltdown worsening the room glut.

The oversupply means room rates should stay low for at least another year, good news for consumers but not so great for hotel owners and the banks that lent them the cash to build or buy.

"Right now is an absolutely horrible time to be in the hotel business," said Ben Thypin, senior market analyst for market research firm Real Capital Analytics.

Dubai crisis jolts markets, but early fears ease

Sat, 28 Nov 2009 13:31:25 GMT

Dubai's debt crisis rattled world financial markets Friday, raising concerns that some banks could further tighten lending and stall the global economic recovery.

The possible spillover effects centered on fears that international banks could suffer big losses if Dubai's investment arm defaulted on its $60billion debt. Stock and commodity markets tumbled in New York, London and Asia as investors flocked to the U.S. dollar as a safe haven.

But earlier concerns that the crisis might trigger another financial meltdown seemed to ease after some analysts downplayed the risks for U.S. banks, which are thought to have little exposure to the Middle Eastern city-state.

U.S. stocks fell sharply but rebounded from their lows as investors concluded that the damage might be contained. The Dow Jones industrial average lost about 155 points, or roughly 1.5 percent, in a shortened trading day, and other stock averages also sank. Oil prices plunged as much as 7 percent before recovering some ground later in the day.

"I don't think the collateral damage is going to be that great," said Jeffrey Saut, chief investment strategist at Raymond James. "People will dig into this over the weekend, but I think balance sheets have healed enough to withstand a shock like this."

Still, the crisis in Dubai pointed to the vulnerability of the global economy despite signs of recovery. Last year's credit debacle left major banks with billions in losses, forcing them to reduce lending to consumers and businesses.

Access to credit has improved in recent months, but analysts said Dubai's woes could make some banks more cautious. That could further squeeze lending and weaken the recovery after the deepest recession in decades.

"What we need for the economic momentum to continue is for banks to feel confident about lending, and clearly what has happened in the last 48 hours is not a step in the right direction," said David Williams, banking analyst at Fox-Pitt Kelton in London.

Dubai's troubles caught investors by surprise. A year after the global slump derailed the city-state's dizzying growth, its main investment arm, Dubai World, revealed this week it was seeking at least a six-month delay on repaying its $60 billion debt. Credit agencies responded by slashing debt ratings on Dubai's state companies, saying they might consider the plan a default.

In recent years, Dubai has expanded with ambitious, eye-catching projects like the Gulf's palm-shaped islands and the world's tallest skyscraper in hopes of becoming a tourist-friendly Middle Eastern metropolis. In the process, though, the state-backed networks nicknamed Dubai Inc. have racked up $80billion in red ink. The emirate may now need another bailout from its oil-rich neighbor Abu Dhabi, the capital of the United Arab Emirates.

In Europe, stock markets rebounded after Wall Street fell less than feared. Earlier, stock indexes in Hong Kong and South Korea tumbled 5 percent in response to the previous day's Dubai-related losses in Europe.

The Dubai crisis caused the dollar to spike higher against the euro and pound but slump against the yen, another traditional safe haven. Speculation that the Bank of Japan might intervene by buying dollars or selling yen to aid Japanese exports helped the dollar recover after it had fallen to a 14-year low against the yen.

European banks appeared to be at most risk if Dubai World can't pay its bills. London lenders HSBC Holdings and Standard Chartered could face losses of $611million and $177million respectively, according to early estimates from analysts at Goldman Sachs. Both have substantial Middle East operations.

Among U.S. banks, Citigroup had $1.9billion in exposure to the United Arab Emirates as of 2008, according to a JPMorgan research note. But it's unclear how much of that was related to Dubai. Citigroup declined to comment.

In the United States, Dubai World owns at least eight office buildings and hotels, including the Mandarin Oriental and W Union Square hotels in New York and the Fontainebleau in Miami Beach, according to data supplied by Real Capital Analytics. Its projects also include Dubai World's and casino operator MGM Mirage's deal to build the CityCenter project on the Las Vegas Strip.

Offices sold

Between October 2005 and April 2008, Dubai World bought 10 U.S. properties for about $9.7 billion, the Real Capital Analytics data showed. Two of those properties, both office buildings in New York, were sold in November 2007 for a combined $2.4billion.

Dubai World's woes likely won't have a major effect on the U.S. commercial real estate market, said Dan Fasulo, managing director of Real Capital Analytics. "They didn't acquire enough," he said.

But the effect on the banking system could eventually touch businesses and consumers. Even if most banks could absorb any Dubai-related losses, the emirate's troubles could lead them to reevaluate and scale back lending. That would make it harder for companies to borrow and to help sustain the global recovery, analysts said.

Commercial real estate sales poised to hit $49B in 2009

Wed, 25 Nov 2009 13:33:25 GMT

Real Capital Analytics predicts sales volume for all commercial real estate sectors will hit $49 billion in 2009, less than half the amount sold in 2008 and significantly less than the $80 billion sold in 2001.

In Silicon Valley, 26 properties have been sold so far in 2009, for a total of $730.9 million. During the same time in 2008, 110 properties had changed hands for a total of $2.7 billion. The highwater mark for the valley was 2008, when $7.86 billion worth of commercial real estate was sold.

In the 2009 breakdown for the South Bay, the office sector had the highest volume out of apartments, industrial property, offices and retail. So far, five office buildings sold for a total of $226 million: Nine industrial properties sold for $138.7 million, six apartment complexes sold for a total of $223.7 million and six retail centers sold for a total of $142.3 million.

The New York firm said in the report released Tuesday that the 2009 total represents a “modestly improving investment picture,” as investors tiptoe back into the market.

“Investment activity is much improved from earlier in the year, but no quick rebound is underway,” said the report.

And, in a surprising twist, Real Capital reports that less than 10 percent of the properties sold this year have been considered “distressed.”

Buyers are interested, but the bid-ask gap remains wide. Sellers who are “realistic and motivated” to list at current market prices remain rare, according to the firm.

Multiple bids on some properties illustrate that “not all current sellers are troubled or need to raise cash to avert distress, however, no one is selling unless there is a compelling reason. Every investor group has reduced sales significantly and generally would much rather hold than sell at a low price.”

While noting that the credit crunch is in its third year, and has shown few signs of easing, Real Capital listed 440 lenders across the world that are lending -- albeit with far more conservative terms.

The five serving South Bay customers include Pinnacle Bank in Morgan Hill, Stanford Federal Credit Union in Palo Alto, Provident Credit Union in Redwood City, and Lighthouse Bank and Santa Cruz County Bank, both in Santa Cruz.

While October’s investment sales climbed slightly above September’s level, the firm expects November’s sales to dip. But December sales should make up for the drop as buyers and sellers rush to close escrow on property before the year’s end.

Among the sectors, office is seeing the most activity, at 31 percent of the market, followed by apartments and then retail. At 5 percent of the market, hotels barely register.

Apartment and office sales are expected to each hit more than $14 billion in volume in 2009; retail is expected to reach $10 billion and hotels bring up the rear with $2.4 billion in sales. The firm predicted industrial property sales, which hit $7.2 billion in 2009, could increase dramatically in 2010.

Values Off 43% From 2007 Peak

Mon, 23 Nov 2009 16:29:25 GMT

Prices nationwide have fallen 42.9% from their October 2007 peak, according to the latest Moody’s/REAL Commercial Property Price Index report issued Thursday, while Real Capital Analytics says total transaction volume for 2009 will be the lowest of the decade. The November Moody’s/REAL report, which covers transactions through Sept. 30, notes that monthly price declines appear to be leveling off, although September’s index represented a 3.9% value decline compared to August.

According to the CPPI report, which is prepared for Moody’s by Real Estate Analytics using RCA data, the four months between June and September saw prices fall by an average 3.2%. That compares with a 4.6% decline in values for the previous four-month period.

"Further price declines are almost certain over the short term," says Nick Levidy, Moody’s managing director, in a statement. "However, it is notable that the pace of deterioration appears to be moderating."

Similarly, the report points out that transaction volume has been hovering "just below 400" per month throughout ’09, compared to a monthly average of 1,000 sales last year. In September, the number of deals dipped slightly to 363 while the dollar volume rose slightly to $5.1 billion.

"The relatively tight range of transaction volume we’ve seen over the past year may mean that we have reached our bottom in terms of sales per month," Levidy writes in the new report. "However, we may see the market bouncing around this bottom for some time before a significant uptick in overall volume is recorded."

Included in the Moody’s/REAL report is the quarterly National Property Type Indices, which noted an improvement in the third quarter compared to the second for all sectors except office. The 12.2% drop in values for office in Q3 puts the peak-to-trough decline for the sector at 36.2%. In the report’s Top Ten MSAs indices, office prices dropped 19.3%, making office the only sector to experience larger value declines in the top 10 markets than nationally.

Apartment prices, which declined 10.9% in Q3, dropped off less than they had in the previous two quarters. The peak-to-trough decline for apartments is 39.5%. Industrial’s 8.1% decline was considerably less than the record-setting 20.4% drop the sector experienced in Q2, while retail property values showed a minor 2.5% gain after seven consecutive quarters of flat or negative price growth, the report states.

RCA said Friday that total transaction volume this year for the four major sectors and hotels will total just $49 billion, less than half of the 2008 tally and below even the $80 billion recorded in 2001. "While astonishingly low and an excellent illustration of the vast frustration over the still-stagnant credit markets and the interrelated murkiness of the outlook for operating fundamentals and asset pricing for performing and troubled properties alike, the 2009 total represents a modestly improving investment picture," according to RCA’s latest issue of US Capital Trends.

Across most sectors, asset sales "have moved unequivocally off of their lows from earlier in the year," according to RCA. "Throughout the fall, sales have been gaining ground month-to-month, as investors gain confidence on pricing for select assets, and some sellers--and lenders--seek to cut their losses."

Hotel investors tiptoe back into buying game

Mon, 23 Nov 2009 16:22:25 GMT

Want to buy a hotel? 2010 may be just the time.

Hopes for an economic turnaround are prompting some hotel investors to get back in the long-dormant acquisition game, laying the groundwork for what could prove to be an active acquisition market next year.

Through the third quarter, national hotel sales volume was $2.1 billion, with 123 hotels sold, according to Peter Slatin, editorial director of New York-based Real Capital Analytics Inc., which tracks commercial real estate trends. That’s 75 to 80 percent of last year’s volume, Slatin said.

Just two hotels have been sold in D.C. so far this year — the Embassy Inn and the Windsor Inn — for a total of $11.25 million. Six were sold in the Maryland and Virginia suburbs for an additional $77.9 million.

In 2008, four hotels were sold in D.C. for $301.5 million and four others in the suburbs for $122.6 million.

Nationally, Real Capital Analytics is currently tracking about $30.2 billion in distressed hotel assets. Of those, the only D.C. hotel is the Watergate — it was bought out of foreclosure by its lender in July. Also being tracked are 30 others in the region.

“Investors are smart enough to know if they just wait until the desperation point, they will be able to get good assets,” Slatin said.

BofA Wins Bid to Name Receiver for Chicago Block 37

Mon, 23 Nov 2009 13:30:25 GMT

Bank of America Corp. won a court bid to appoint a receiver for Chicago’s Block 37 shopping mall after the developer defaulted, taking control of one of the city’s largest projects.

CB Richard Ellis Group Inc., the largest publicly traded commercial property broker, will be the receiver, Cook County Circuit Court Judge Margaret Brennan ruled today.

Bank of America sued to foreclose on the 278,000 square- foot project after developer Joseph Freed & Associates LLC defaulted. The firm owes $128.5 million, according to the bank. Block 37 is in the heart of Chicago’s downtown and is being built as a “world-class collection of amenities and attractions” including shops, restaurants and theaters, according to Joseph Freed’s Web site.

“We are pleased with the ruling,” Shirley Norton, a Bank of America spokeswoman, said in a statement.

Joseph Freed will appeal the decision, Larry Freed, president of the company, said in a statement.

“We strongly disagree with the court’s ruling,” Larry Freed said. “We still own Block 37 and will fight to protect our rights, reputation and investment.”

Bank of America asked the court to appoint the receiver to manage the property and complete construction, the bank said. The developer has been in default since at least March 2008, the bank said. Joseph Freed & Associates is the largest privately owned real estate development company in the Midwest, according to its Web site. It was founded in 1965.

Brennan heard arguments for almost two hours this morning in a courtroom across the street from Block 37.

Bank of America alleged the developer defaulted on the loan because the cost to finish the project is more than budgeted. Anderson said today that figure is $41.6 million. The bank also claimed guarantors Larry Freed, and DDL LLC, a limited liability company, didn’t have at least $5 million of unrestricted liquid assets, violating the loan agreement.

The developer said in court filings the project shouldn’t be put into receivership because two of the alleged defaults are technical and non-monetary and the bank has known about them both for more than a year. The company said it’s not in default on payment of the loan because it doesn’t mature until March 2011 and there is an extension option on it through March 2012.

About $537 billion in U.S. construction loans have defaulted and been foreclosed on this year, according to a report by the New York-based real estate research company Real Capital Analytics. Lenders recovered an average of 43 percent of what they were owed, Real Capital said.

The case is Bank of America v. 108 N. State Retail LLC, 09-CH-39930, Illinois Circuit Court, Cook County (Chicago).

Istithmar May Lose Control of W Union Square Hotel in Auction

Fri, 20 Nov 2009 04:11:40 GMT

Istithmar PJSC, the Dubai-based investment company, may lose control of the W New York Union Square hotel in Manhattan at a foreclosure auction next month by holders of the mezzanine debt on the property.

The Istithmar Hotels Union Square Mezz 2 LLC will be sold to the highest bidder on Dec. 8 in New York at the offices of Allen & Overy LLP, according to newspaper advertisements by the law firm.

"The winner of the auction may file to foreclose on the equity and wrest control of the property," said Ben Thypin, senior market analyst at New York-based research firm Real Capital Analytics Inc.

Abdelaziz Al Mazam, a spokesman for Istithmar, said on Nov. 18: "As Istithmar World has demonstrated repeatedly throughout the financial crisis, we have stood by the investments in our portfolio. As signs have begun that the global economy is recovering, we expect to continue to do so with increased confidence."

Istithmar is a unit of state-owned holding company Dubai World.

The average daily rate among hotel chains with the costliest rooms fell 17 percent to $240.93 in the nine months through September, according to Hendersonville, Tennessee-based Smith Travel Research. In New York, rates for all hotel types slid 25 percent to $201.03, a record drop among the top 25 U.S. markets.

Mezzanine loans are intended to make up the gap between a first mortgage and the borrower’s equity. Unlike a mortgage, where the bank has a lien on the actual property, a mezzanine loan is secured by a pledge of equity ownership in the borrowing entity that bought the property.

FDIC Moves to Stave Off Distress

Tue, 17 Nov 2009 18:26:25 GMT

Two recent moves by the federal government will further help lenders and owners ride through the storm by providing cover to keep amending and extending loans. But the impact, and consequences, of each move are a source of debate within the finance community.

In the fall, the IRS announced a new rule allowing CMBS loans to be modified without triggering massive tax implications. And in late October, the FDIC clarified a rule, basically allowing banks to extend and amend loans without triggering higher capital reserve requirements.

Both policies apply to performing loans that are hurt by either a weak local market or the lack of liquidity available on the market to refinance.

The FDIC's policy clarification, announced last month, had an immediate effect on some borrowers. A member of the National Apartment Association said that his bank called him hours after the FDIC announced the policy and agreed to do a workout and two refinancings that he’d been asking for.

"The bank wanted to do the deal, but were waiting for confirmation that they wouldn’t get hit," says David Cardwell, vice president of capital markets for the Washington, DC-based National Multi Housing Council. "The fact that it happened the same day tells me it’s a very positive thing for the industry.

The policy is also a signal that the government believes sunnier days are ahead and waiting for the capital markets to pick up is a better bet than forcing foreclosures now.

"It was definitely a sigh of relief for the lending community," says Dan Fasulo, managing director of New York-based Real Capital Analytics. "Just about every asset purchased over the last few years has broken loan-to-value (LTV) covenants, but it’s just a function of valuations falling."

Experts: Lending Hampering Industry's Recovery

Tue, 17 Nov 2009 18:21:25 GMT

The residential housing forecast by NAR chief economist Lawrence Yun earlier during the National Association of Realtors’ conference in San Diego was all smiles. That was not the case during the "Economic Issues and Commercial Real Estate Business Trends Forum." The commercial real estate loan is "dead in the water," Yun said. "A severe ongoing credit crunch in commercial real estate lending is hampering recovery."
Yun addressed a packed house of attendees all hoping to hear something positive in his forecast. Unfortunately, what they mostly got was some major concern surrounding the credit situation in the commercial market. Yun said the recent severe economic downturn and high unemployment continue to impact commercial real estate markets. "The commercial real estate market continues to struggle in this difficult economy, with rising vacancy rates and falling rents," Yun said. "Commercial transactions and sales are down across the country from the virtual lack of available credit—banks are not lending and mortgage-backed securities are virtually nonexistent. The government needs to take action to relieve some of the lending pressure."

According to Yun, the commercial real estate market price movement of the past 10 years closely mimicked the rise and subsequent fall of the residential housing market, even though commercial underwriting standards were far more prudent than those of residential subprime and other risky mortgage loans. Yun said in the current market the federal government is not backing commercial loans as it is for the residential home market.

While commercial REIT equity issuance increased recently because of positive increases in the US stock market, the flow of capital into the commercial real estate market remains weak because lenders remain very reluctant to lend, Yun explained. Yun pointed to data from Real Capital Analytics, which showed that the largest source of financing for commercial projects under $5 million is currently local and regional banks, which helped fund nearly 48% of recent transactions. Yun explained that there are many small regional banks that weren’t involved in risky lending in recent years and aren’t suffering from large amounts of loan defaults like some of the larger banks.

Insurers Face $23 Billion Loss on Commercial Property

Tue, 17 Nov 2009 16:16:25 GMT

US life insurers, a group led by MetLife and Prudential Financial, may lose as much as $22.6 billion on investments in commercial real estate through 2011, Fitch Ratings said.

Losses on investments in apartment buildings, offices, shopping malls and other commercial real estate will begin to increase in the next 6 months to a year as rents decline and vacancies increase, said Fitch Senior Director Andrew Davidson. Life insurer losses on commercial real estate have been "virtually nil" so far, he said.

"It will be more of a 2010 and 2011 issue," Davidson said in an interview today. "It will put some stress on the capital positions as they realize the losses."

Life insurers held more than $450 billion in commercial loans and mortgage-backed securities at the end of 2008, Fitch said in a related report. The delinquency rate on US CMBS rose to 4.01 percent at the end of October, almost seven times what it was a year ago, Moody’s Investors Service said yesterday.

MetLife has recorded three straight quarterly losses and Hartford Financial Services Group Inc. has lost money since June 2008 as investments that include those backed by commercial and residential mortgages dropped in value. New York-based MetLife and Prudential have said commercial mortgage defaults will climb in the next year.

"Losses in our commercial mortgage portfolio are going to accelerate over the next 18 months," Bernard Winograd, executive vice president of Newark, New Jersey-based Prudential, said in an August conference call. "The fact that there have been very little in the way of delinquencies so far should not be taken as an indication that there won’t be losses."

The credit crisis has driven $138 billion worth of US commercial properties into default, foreclosure or debt restructuring, according to New York-based Real Capital Analytics Inc. Commercial real estate prices have plunged almost 41 percent since October 2007, the Moody’s/REAL Commercial Property Price Indices show.

Where's The Promise Land?

Mon, 16 Nov 2009 14:29:25 GMT

Steve Forbes: Well Peter, good to have you with us.

Peter Slatin: Thanks for having me.

Forbes: Well, let's get right to it. Third-quarter numbers were good. What does this mean for both commercial real estate, residential real estate and all the various parts of commercial real estate? Is the promise land now coming on the horizon?

Slatin: Not yet, I have to say. You know, yes, the numbers were good. But real estate is a lagging indicator. And we're still, in the commercial real estate industry, I'll start with that, is still suffering from fallout in values, in undercut by the terrible over-leveraging of many properties. Look at what's happening in New York Stuyvesant Town, and Peter Cooper Village. This was a property purchased for $5.4 billion. It's now valued at about $2 billion.

And there's a lot of leverage under the bridge on that one. And there's enormous overhang of properties that just can't be sold, that are in trouble. The firm I work with, Real Capital Analytics, has tracked $130 billion of real estate, that's commercial real estate, that's either in default, foreclosure or bankruptcy. And only about 17 billion of that has been resolved through a resale or restructuring, and another 12 billion has been claimed back by the lenders, is real estate owned.

So there's a huge overhang of assets that need to be cleaned off the balance sheets of lenders. And that's not happening anytime soon, because values, as I said at the outset, have fallen so sharply that just like in the residential market, the investors are suddenly underwater. The value of their asset is lower than the value of their mortgage. And sometimes they have several mortgages, and mortgages have been securitized out and are held by huge numbers of anonymous investors who are unable to sort of decouple their investments. So there's just a lot of issues preventing re-sale of these assets. And without that, it's hard to set market-clearing benchmarks. At the same time, we have, as you know, even though we've now emerged from recession, companies are not hiring. And there's tremendous pressure on rental rates and vacancy.

These are the operating fundamentals of real estate, so there's no clear indication of how that can turn around until companies start hiring and need more space. And investors aren't eager to place their bets on property where they don't know how to grow the rental income in the long term.

Forbes: Now, you mentioned over 100 billion.

Slatin: 130 billion.

Forbes: 130 billion is unresolved. And that's out of, what, 800 billion?

Slatin: Roughly. And that's so far. In other words, and we've tracked most of that this year. You know, there's some $800 billion in loan maturities, over the next few years that we have to deal with. This is the other question, as to when are these, as you know, major and minor banks just aren't handing out money like they used to, and underwriting standards are finally strong. But they're not really enabling borrowers to get what they need. So this is a real concern. In addition, as we know, a lot of the major banks, your Citigroups and your Goldman Sachs and JP Morgan & Chase have declared their write-downs, have, you know, revealed their losses or much of them anyway. What we have now is throughout the country, many smaller lending institutions--community and regional banks, local banks--have made loans that are harder to unwind and they are depressing their ability.

Those loans are really depressing the ability of those institutions to lend to small businesses. And will continue to do so for some time. That's got to be a major drag on growth.

Forbes: Which hurts job creation.

Slatin: Right.

Forbes: You mentioned about clearing markets.

Slatin: Right.

Pretend And Extend

Forbes: Should the banks just be urged, just dump it out there? You've talked about pray and delay.

Slatin: Yeah, pray and delay.

Forbes: Pretend and extend, extend and pretend.

Slatin: And extend and extend. Yeah. I think that that would have been better a while back. I think now it's a little too late for that. I think what that might do, if that happened right now, suddenly, is that would be the next big shoe on the economy. And we don't really need that right now. I mean, we saw that a year ago with Lehman Brothers and Merrill Lynch and Bear Stearns. I think right now the world financial system doesn't need another huge dump immediately of, you know, large amounts of troubled assets. I think working through these assets, there should be some pressure to do that over time. But I don't think that a major housecleaning right now, anymore, is in order. I would have preferred that early on this year and even late last year.

Forbes: Now, when a loan comes due, one of the things that saved the REIT industry, as you know, was the ability to sell stock, even though it was underwater. At least everyone knew it was going to get the debt in order, and so therefore, these things could survive. With a bank or holding a loan, and the loan's coming due, do they just extend it, and hope, somehow, the borrower, or the regulators--are the regulators going to allow that to happen?

Slatin: I think right now, the regulators are feeling that they don't have much of a choice. The banks also don't want to take back this property. And have to sell. You know, it's expensive for them to do that, on several fronts, just managing it until they resell it, process of selling it and when they sell it, then they have to declare the loss.

So with pretend and extend, or extend and pretend, whatever, you're extending a loan for some relatively short duration and hoping that by the time you have to close again and have to deal with it again, the market is improved. We are seeing slight pickups in the volume of sales; pricing on the commercial side is still falling, but it's falling at a slower rate. It's down about 40%, according to the Moody's Real CPPI, which we supply the data for. So, there's no immediate answer. That's for sure. It's just going to take time. It has to work through. There are billions and billions of dollars in opportunistic funds out there, waiting to buy assets.

Housing Vultures

Forbes: Now, you've just hit on the keyword.

Slatin: Yes.

Forbes: Waiting.

Slatin: Waiting. That's right.

Forbes: You can feel the vultures are out there, however you want to call them, opportunistic.

Slatin: Yeah. And they're really pissed off, if I may say, because prices haven't. They want 10, 20 cents on the dollar and they're getting 40, 50, 60 cents on the dollar. And that's just not good enough, you know. These are greedy folks and you know, this is also not 1991 or 1994. So, the truth is that the assets were well-valued at 60, 70 cents on the dollar. And it depends on where you are. Here in New York City, 70 cents on the dollar, 75 cents on the dollar. If you're in, I don't know, Minneapolis, I hate to pick on Minneapolis. Well, St. Paul, that would be, you know, it's probably closer to 40 or 50 cents on the dollar. So, but yes, these guys are waiting and at some point, they have to adjust their expectations.

The sellers also have to adjust their expectations. They're thinking, "Oh, I can get this, 80, 90 cents. My losses won't be too bad." But everyone has to deal with it.

Forbes: And in terms of the sellers, yes, they have to come down. But the very fact that banks are willing to avert their eyes --

Slatin: Well said.

Forbes: Will enable them to wait out the opportunistic buyers and not have to say, "OK, we can't hold any longer. We got to dump it. We need the cash."

Slatin: That often depends on the case by case basis. We are seeing an increase in the rate of foreclosure. As we mentioned briefly, residential properties, there are still plenty of areas where foreclosures are going to go up, and residential assets and the same is going to be true in commercial assets. We will see banks begin to lose patience, and they'll need money, no matter how they get it. So we'll see an increase in that and an increase in what's known as REO, real estate owned, increase in re-sales, and again, it's just going to take time. But these are fundamentally, for the most part, one of the bright spots in commercial real estate, which is different than housing, is that there has not been tremendous overbuilding in most categories of real estate.

Malled Over

Forbes: Well, that is one of the things that makes this peculiar is unlike some disasters in the past, you had empty buildings. There don't seem to be as many empty buildings. Troubled tenants, but you don't have empty buildings the way you had in the past.

Slatin: You're seeing that more in retail. We definitely are over-retailed.

Forbes: So we're still over-malled, as you once said?

Slatin: Oh yeah, over-malled. We're malled over, yeah. So, you know, and that's just going to be with us. Those are harder to turn around. What do you do with an old mall? Well, that's a problem we haven't really figured out yet. So, we can look at housing, too. Housing, we've seen housing prices come down. Again, we saw sales slow down this week. We saw that came out. Sales slowed down. There's still no engine for growth in housing, as you know. It's jobs, jobs, jobs, that create homes, homes, homes.

Job creation and household formation are linked forever. And without that, you're not going to get beyond these first-time home buyer credits, which now there's some discussion of extending that to anyone who buys a home.

Forbes: Clunkers for houses?

Slatin: Sorry?

Forbes: Clunker program for housing?

Slatin: Yes, and to me, that says, "Well, you're not going to really incentivize people who can't afford to buy a home anyway." Especially if they can't get financing from the bank.

Jobless Recovery

Forbes: Now, before we get to REITs, what you've outlined that with banks having this commercial real estate. Yes, they have tenants, but they're troubled tenants.

Slatin: Yup.

Forbes: That means that's real pressure on small businesses and consumers, especially without lack of a securitization market for these consumer loans.

Slatin: Right.

Forbes: That means no job creation. So even though the demographics on paper are good, kids in college, all that sort of thing in terms, rental apartments, it means jobs aren't going to be created. This is truly going to be a jobless recovery. The banks don't have the wherewithal to do it.

Slatin: I'm afraid I do see things that way. And I feel like those of us who do are in the minority. There's still not really a lot of recognition that these problems are endemic. They're much deeper than just, you know, what the public likes to hear about is the fate of Wall Street barons getting hurt.

This is really endemic throughout society, because if small business is the engine of growth for the U.S., then small banks and community banks and the money they provide, that's the engine of growth for small business. And without that, there's really no new mechanism yet that we're aware of that's going to provide the means for that kind of growth that we need.

REITs' Heyday Is Gone

Forbes: Now, looking at REITs, you know better than anyone the crash that they took, but also the very impressive rise they've had, rise since earlier this year.

Slatin: Yes.

Forbes: The best day's over?

Slatin: For now. I don't know if it's over. It's certainly leveled off. What REITs did, which was very smart, and what they've done better than anyone else in real estate investing this year is they've raised capital. How have they raised capital? They went to the public and issued new equity. They've raised around $20 billion in equity. They've sold some assets, prime assets. And they have capital that can actually buy properties. They can invest. That will grow their revenue, even if they're buying distressed assets. They have the wherewithal to do that. They can also pay down their debt, re-equitize themselves, basically. De-leverage, so they've been pretty smart. And also lucky, that the public said, "We like this." Now why does the public like this? They have an income stream. These are well-managed companies. Not all of them, but the well-managed companies with good balance sheets that are even better now that they've raised capital. They have long experience in real estate. And they know how to pick properties that can survive and thrive, even in these tough circumstances.

Techie Hotels

Forbes: Particular areas that you'd look at, apartments, not hotels?

Slatin: No, hotels, I had recommended in one of my columns this year, I recommended Host Hotels, that was selling for about just under $4 a share. It's now up to $9 or $10 a share, because it was just ridiculously cheap. And they're well-positioned going forward, when the economy picks up to some degree, even a little bit in renewed business travel. They have great assets in gateway cities. They have a strong balance sheet, one of the strongest in the industry. So, and it's a good company. I would focus right now on the niche areas.

There's one in particular I like, and I've mentioned this in my column, Digital Realty Trust. This is what we used to call Tel-Co hotels, telecommunications switching services, et cetera. There's just an endless need for this kind of space that's technology-intensive. There's not a lot of people running around in these buildings. These are server farms where switching entities, switching machines and companies pay high rent for these and they need them. And just as our demand for the Internet grows, for Internet capability grows, there is no shortage in sight for this kind of facility. And Digital Realty Trust, which is DLR, is the premier provider of this in the public space.

Forbes: Are there a handful of others that you would recommend now?

Slatin: The only one that's really out there is called Dupont Fabros, DFT. Again, I'm not a huge fan of it. I'm not dissing it either. I just think Digital is a better-managed company with a more stable tenant base and a better growth plan, better management.

Apartments, Hotels

Forbes: Are there other areas of REITs, apartments that --

Slatin: Absolutely. Apartments are sort of steadfast. They've fallen less far, and come back better than other areas. I particularly like a company called AvalonBay Communities, AVB, which has great properties on the East and West coast, high barrier to entry markets, high quality properties and an experienced management. Their stock has also come back from a low. All these companies have come back from lows.

And they're about 50% or more off of those lows. They don't have a lot of growth in the near term, but long-term they do have growth. They have a steady and dependable yield. And I like them. Good balance sheets. AvalonBay, Essex Properties Trust. That's ESS. More properties on the West coast. I like Essex. And that's in the apartment space that I really like.

I also mentioned niche areas. A couple other niche areas, one is student housing. A company called American Campus Communities, ACC, based in Austin, Texas, has grown from about 300 million a few years ago in market cap, to a couple billion today. And they really dominate that space, and they provide the kind of housing that you or I wish we could have stayed in when we went to college, trust me. These are like places with swimming pools and beautiful suites. And it's the life of royalty for these kids.

Forbes: It's too bad you have to study.

Slatin: Well, who says you have to, if you just, you know.

Forbes: Grade inflation, yes.

Slatin: Yeah, but that's a very good company. And again, excellent management, good balance sheets. Going forward, they have good growth in front of them. A couple other areas. The one office area that's really got growth potential is life sciences, biotech, et cetera. And the leading company in that space is Alexandria Realty Trusts, ARE.

They're based in California, San Francisco area. They really run some great biomedical research facilities, storage facilities. Just all kinds of medical office buildings. It's a wonderful company, very well managed, very careful, and they've seen tremendous growth. And they're allied with another important area of growth, and that's, of course, health care. Whether you're talking, and that's either senior housing, health care. There's a mix. These companies get kind of muddy in what they own or what they don't own. But there's good growth in that, as we all know. Health care. You've heard a little bit about health care lately? Haven't you?

Forbes: I think. Yes.

Slatin: Yeah, it sounds familiar, right? Companies like Vantas, VTR. They're more in the housing, senior housing life communities, at every stage.

Forbes: And these aren't dependent on what particular bill passes Congress?

Slatin: No, but they get a lot of their money from the government. They have contracts, I guess they're Medicare, Medicaid contracts.

Forbes: So they're doing well even before this latest?

Slatin: They're doing well. Yeah.

Non-traded Listed REITs

Forbes: Now, you've warned about gimmicks like listed non-traded REITs.

Slatin: Yes.

Forbes: Blind pool REITs? What's all of this about?

Slatin: Well, blind pool REITs are different than listed non-traded REITs. Gimmick? I'm not sure I'd call it a gimmick, but I just find that these are high fee-driven, illiquid investments.

The point is, you can put your money in, but if you want it back, you're gonna have a haircut, a big one. Sometimes 15, sometimes 18%. If you take it, if you need your money out long before the maturity of your investment. If you say, "I'm putting it in for seven years," or they tell you, "This is a seven-year fund, and we'll give you 7% a year." Well, great, they'll give you 7% yield. That's nice. And that's not to be sneezed at. But if you need that money, you can't just turn around and sell it and get your principal back intact. Of course, that's true in any public investment, if it goes down. But these are not traded. These don't mark to market every day, and every second, the way publicly traded REITs mark to market every second. And so, I find them, they're just not transparent enough for me.

Forbes: Now, in terms of financing, do you see outside sources like the Middle East or Asia coming back again or most of them have been too burned?

Slatin: No, I see them coming back. Well, certainly, the Middle East is not playing with a full deck right now, but Abu Dhabi is still strong. They are clearly in the market. The Chinese, I believe, well, you know, the Chinese sovereign wealth fund, the Chinese Investment Corp, is basically in cahoots, they're in league with our own Treasury Department to put out hundreds of millions of dollars. I forget the total figure, but they've pledged to invest in opportunistic investments in the U.S., with help from the U.S. Treasury. German banks, which are really running open-ended funds, they're making serious investments in the U.S.

DekaBank has made several major investments in the U.S. and Canada and around the world this year, most recently in Washington (1999 K Street). Deka bought a property from Vornado, VNO, for a yield of 6.3%. A low cap rate, very good yield, fully-leased, brand new office building. They bought it. So they want that high quality, stable yield. That's what they're looking for. They're not looking, right now, for opportunities. They're looking for stability. So you got the Chinese. You have some --

Forbes: Germans.

Slatin: Some German money. Some Middle Eastern money. You'll probably see some Australian money come back into the US. Australia has stabilized. They took some big hits with some of their major listed property trusts, like Centro, McQuary Group, but they are stabilizing. They've seen steady investment this year at home, but their tax record is such that they will have to put some of that money out when it recovers. And you can bet some of it will end up back here.

See a list of 440 Active CRE Lenders

Forbes: Now, on the mortgage market, how much damage has been done in the sense that you take residential mortgages? The waters seem to have been muddied, once upon a time. If you had a mortgage, you had first call, if something went wrong.

But now, how much is going to be paid off to the second mortgager? How much is going to be paid off to the home equity loan? Banks have loads of conflicts of interest on this.

Slatin: They do.

Forbes: And how are securitized markets supposed to come back, if people don't know what they're buying?

Slatin: Well, you know, Wall Street will come up with something. And whether it's something you want is a major question.

And I think the securitized markets, I don't think, are going to come back soon, although I do believe there will be another instrument or two that someone will come up with. And you know, and the residential mortgage space, you know, we're done with subprime, at least for now, but we are going to see just enormous trouble with people trying to restructure their home mortgages. It's just not working that well. And that's why we're seeing increasing foreclosures. And again, without the job creation and the income growth that people need, there's trouble out there. Now you have these special servicers. And you have mezzanine lenders. You have vulture funds out there, buying up tons of home mortgages. And homes themselves. I knew someone recently who flew to Detroit to look at 300 homes for a weekend.

Not for a weekend home. She was looking to buy up pools of houses. I know three very savvy commercial real estate investment professionals who recently bought homes in Las Vegas.

Forbes: There's faith.

Slatin: They're brave, I think, but you know, that's because there are opportunities there. Prices are way down. That doesn't quite answer your question. But I think the mortgage markets, we're all in for a rough ride on that front, because we just don't know what the banks are capable of. It goes back to our original discussion. What's happening with the banks? They're playing it close to the vest. And they're running scared too. They're under enormous pressure internally.

Forbes: So bottom line, we've come a long way since earlier this year.

Slatin: Yes, we have.

Forbes: But be cautious.

Slatin: Be cautious. I couldn't say it better. There is growth potential. Real estate is cyclical, just like people can never imagine how the bubble can burst, people can never imagine digging out of it. I think this one, this particular time--is it different? Yes. Is it a new paradigm? No. No such thing.

It just will take time to work through this massive overhang of bad debt, of low pricing and low growth, but we will work it out. And people who are cautious and selective about the entities they invest in will do well.

Forbes: Peter, thank you very much.

Slatin: Thank you very much. It's been a pleasure.

Deutsche Bank Drowning in Vegas on Costliest Bank-Owned Casino

Mon, 16 Nov 2009 14:27:25 GMT

Deutsche Bank AG’s Cosmopolitan Resort & Casino complex in Las Vegas, already the most expensive debacle in the city for a single lender, is now two years behind schedule, $2 billion over budget and under water -- literally.

Deutsche Bank, the resort’s owner since it foreclosed on developer Ian Bruce Eichner last year, requires 24-hour pumps and containment walls after workers hit an aquifer below the Nevada desert floor. It’s another challenge for a project whose delays and redesigns have sparked lawsuits from condominium buyers and sales agents amid record declines in Las Vegas’s gambling revenue, home prices and hotel-room bookings.

The German bank’s foray into the heart of the U.S. gambling industry, where it’s also a lender to bankrupt Station Casinos Inc. and the unfinished Fontainebleau, looms as an “impending disaster,” casino magnate Stephen Wynn said on a conference call with analysts last month. Wynn, who presides over the Wynn and Encore Las Vegas resorts, built the Bellagio next door to the Cosmopolitan.

Deutsche Bank took over the project after Eichner defaulted on a $760 million loan last year. The Frankfurt-based lender hired Related Cos., the developer of New York’s Time Warner Center, to oversee construction of the development’s two high- rise condominium and hotel towers, resort and casino. Cosmopolitan sits on 8.5 acres between the 76-acre Bellagio, MGM Mirage’s most profitable resort, and CityCenter, the firm’s newest development, packed on 67 acres.

When Eichner, developer of the luxury condominium Continuum in Miami, broke ground in October 2005, the Cosmopolitan was slated to cost $1.8 billion and open in mid-2008, according to a press release at the time. Deutsche Bank now plans to open the doors in September 2010.

The current projected total cost of the project, according to analysts: $3.9 billion. That’s part of the reason the Cosmopolitan is the costliest project in Las Vegas for a single lender, according to New York-based research firm Real Capital Analytics Inc.

Cosmopolitan’s original design included a 75,000-square- foot casino, a 1,800-seat theater and a five-acre “Cosmo Beach Club” overlooking the Strip, according to the press release. Deutsche Bank declined to discuss subsequent modifications.

Now the project is swimming in water from an underground aquifer that once irrigated the golf course at the now- demolished Dunes. These days, the water helps refill a fountain at the Bellagio that “dances” to ballads every half-hour -- and twice as often after dark.

The aquifer forms as runoff seeps into the ground and pools atop a layer of caliche, a cement-like rock, according to Bronson Mack, a spokesman at Las Vegas Valley Water District. Resorts often excavate through the caliche to build footings and parking garages, creating an ongoing need to pump water, Mack said.

“The relatively high water table on this site required the installation of a pump system and containment walls,’’ said Gallagher, the Deutsche Bank spokesman. “This is not uncommon for any Las Vegas project that includes underground parking or other underground facilities. The temporary certificate of occupancy for the entire parking garage, including the pumping system itself, was granted in February 2009, and we have encountered no problems whatsoever.”

Built around the Jockey Club resort, Cosmopolitan had no choice but to dig deep and build its parking garage below ground, regardless of the water, said Dan Fasulo, managing director for Real Capital Analytics. The Cosmopolitan’s subterranean parking structure was designed to hold 3,800 automobiles, according to the 2005 press release.

“Any construction project of this size runs into problems,” Fasulo said. “But to bump into an aquifer is just bad luck.”

Starwood Completes $144 Million in Investments in First 60 Days

Mon, 16 Nov 2009 12:24:25 GMT

Barry Sternlicht’s Starwood Property Trust, the commercial real estate mortgage investor and lender, completed $144 million in investments in its first 60 days.

Starwood completed the $110 million acquisition of loans on seven properties leased to a single tenant and also invested $10.9 million in bonds secured by the first mortgage of a New York City hotel, the Greenwich, Connecticut-based company said today in a statement.

Sternlicht, 48, plans to profit in the commercial real estate market by buying distressed debt and originating loans. The credit crisis has driven $138 billion worth of U.S. commercial properties into default, foreclosure or debt restructuring, according to New York-based Real Capital Analytics Inc.

Lenders are reluctant to extend credit as property values fall and unemployment rises. Commercial real estate prices have plunged almost 41 percent since October 2007, the Moody’s/REAL Commercial Property Price Indices show.

Starwood Property boosted the size of its initial public offering by 62 percent on strong demand from investors. The company raised $931.5 million from investors in the offering and an additional $20 million in a private placement with an affiliate of Starwood Capital.

Fearing a Commercial Real Estate Crisis in NJ

Mon, 09 Nov 2009 16:32:25 GMT

Distress among commercial real estate mortgages in New Jersey is intensifying, with more properties in the state going back to the lenders. Some industry insiders say a crisis may be in the works if the economy continues to falter.

"You’re certainly seeing an increasing rate of foreclosures, and of lenders taking back properties," said David Bernhaut, executive vice president at the East Rutherford office of Cushman & Wakefield, a commercial real estate brokerage. "It’s distress that everybody feels and senses."

New Jersey currently has nearly $3.6 billion of distressed commercial assets, according to Real Capital Analytics, a New York-based research and consulting firm. Distressed assets include those in foreclosure or bankruptcy, have been restructured or modified, or have been taken back by the lender through foreclosure.

Lenders are currently lending at a 50 percent to 65 percent loan-to-value ratio, compared to 70 percent or 75 percent five years ago, said Kenneth Pasternak, chairman of KABR Real Estate Investment Partners LLC, a Paramus-based opportunistic real estate investment fund. Meanwhile, real estate is being appraised at values that are off by 25 percent of what they were five years ago, he said.

Real estate investment activity in New Jersey peaked from 2005 to 2006, and with most commercial real estate loans having five-year terms, the majority of those mortgages are due to mature between 2010 and 2012, he said.

Australians Lead Way In Global Retreat

Thu, 05 Nov 2009 15:33:25 GMT

Many of Australia's once blue-chip property trusts charged offshore between 2003 and 2007, culminating in Centro Properties Group's $US3.7bn ($4bn) top-of-the-market purchase of New Plan Excel and ranking Australians as one of the bigger buyers of international property in the latter boom.

Australian investors sold more international property than they bought during the year, moving from spending $US13.1bn around the world in 2007 to a negative net investment of $US1.2bn in 2009, according to New York based researcher Real Capital Analytics.

Australian groups have bought $US241.3 million of international property this year and sold $US1.4bn.

Real Capital Analytics managing director Dan Fasulo said that around the world the number of transactions had been very low, but that more sales were expected next year.

Why This Real Estate Bust Is Different

Thu, 05 Nov 2009 14:35:25 GMT

Commercial real estate prices have plunged 41% from the peak in 2007, according to Moody's/REAL Commercial Property Price Index—worse than the 30.5% fall in the housing market from its 2006 apex. "We've never seen this extreme a correction as far back as the data go, which is the late 1960s," says Neal Elkin, president of Real Estate Analytics LLC, the research firm that created the index. Adds billionaire investor Wilbur Ross: "Commercial real estate has gone from being highly liquid at sky-high prices to being extremely illiquid at distressed prices."

To appreciate why this bust is like no other, first consider the typical commercial real estate downturns that used to crop up every 5 or 10 years. The pattern was predictable: When prices for apartment complexes, office buildings, shopping malls, and other properties began to rise, developers sped up their projects to cash in on the bull market. Eventually, some of those developers, unable to fill all the new space, began to default on their loans, and lenders were stuck with the buildings they'd financed. The slump lasted no longer than the time it took for the property glut to be worked down.

But overbuilding isn't the culprit in this bust. An oversupply of money is what pushed commercial real estate over the edge.

The main driver of the commercial real estate bust is the underlying loans. How frothy did the market get? In one notable example, New York investment fund Sterling American Property and real estate company Hines paid $281 million in 2007 for the 42-floor office building at 333 Bush St. in San Francisco. That worked out to $518 a square foot, far higher than today's price, according to Real Capital Analytics, a research firm. Less than two years later, the building's primary tenant, law firm Heller Ehrman, filed for bankruptcy and stopped making rent payments. According to Real Capital Analytics, the building's owners did not make a recent loan payment, and the lender is expected to begin foreclosure proceedings. Says a spokesman for Sterling and Hines: "[We] continue to own and operate the property."

What's striking is how quickly some big commercial deals have gone south. In April 2007, Charney FPG, a New York real estate partnership, paid about $180 million to buy a 22-story office building in Manhattan's Times Square district. It borrowed $202 million to pay for the purchase, renovations, and incidentals—111% financing. Because the rental income didn't cover the debt payments, Comfort's lenders, Wachovia and RBS Greenwich Capital, required the firm to set aside $10 million in reserves to keep the project afloat until it got more paying tenants. Those occupants never materialized, and by July the owners had exhausted 95% of their reserves. The building is now in jeopardy of being seized by the bankers, says Real Capital Analytics' head of research, Dan Fasulo. "Everyone knows Judgment Day is coming."

Time to Buy HQ?

Tue, 03 Nov 2009 13:31:25 GMT

Many investors have given up on real estate. But one group has been on the prowl for property: corporations. Fully 10% of commercial real estate transactions in 2009's first half were corporations acquiring office buildings, sometimes the very ones in which they were renters, according to market tracker Real Capital Analytics. That's up from an average of 2.3% earlier in the decade, when many businesses sold their buildings—leasing the space they needed—as property values zoomed. Among those switching from tenants to owners this year: Sotheby's, which bought back its Manhattan headquarters for $390 million; and video game developer Electronic Arts, which paid $233 million for the Redwood City (Calif.) headquarters that it had always leased. Jay Koster, president of Jones Lang LaSalle's (JLL) Capital Markets, says that with many companies sitting on cash and office-property prices at 25% to 50% below 2007 peaks, such moves make sense. If values bounce back, these buyers can sell and become tenants again, banking the gains.

Confidence Grows In Asia And Latin America Real Estate

Tue, 03 Nov 2009 12:30:25 GMT

Latin American and Asian countries have the most favorable readings when it comes to the outlook for rents with Hong Kong enjoying a particularly big swing in sentiment.

In the second quarter of the year, a net balance of 67% of respondents from Hong Kong expected rents to fall further but in the latest survey, a net balance of 16% of respondents suggest rents are likely to rise over the next three months.

Peru, Columbia and Brazil also reported positive net balances on rental expectations while South Korea, China, Thailand and India were only moderately negative.

Australia, the United Arab Emirates and the UK also saw rental expectations become less negative over the quarter but the weak results from the US and Japan were not far from the lows touched in the second quarter report.

But Europe is not as positive as other parts of the globe. A number of European countries including Ireland, France and Spain have the worst readings on the rental outlook.

The mood amongst real estate investors also appears to have perked up according to the survey with capital values expected to increase in a number of countries including Brazil, Hong Kong, South Korea, China and India.

This more positive mood has also been reflected in activity indicators with the number of investment bidders per property picking up sharply not just in Asia and Latin America but also in a number of European countries.

This is consistent with the latest data from Real Capital Analytics which also shows either a steadying or a modest increase in transaction levels around the globe.

Woolworth Building Stake May Be Purchased By Italian Investor

Mon, 02 Nov 2009 14:25:25 GMT

The Woolworth Building, the neo-Gothic Manhattan skyscraper that was once the world’s tallest building and a symbol of American capitalism, may soon gain Italian owners.

Sorgente Group is in talks with the owners to acquire a 51 percent stake, Chief Executive Officer Valter Mainetti said in an interview. Sorgente owns a stake in the Flatiron Building in New York City. A group including the Witkoff Group Inc. and investor Rubin Schron owns the Woolworth Building.

“We are in talks on two or three properties in New York, of which I can name only one: the Woolworth Building,” Mainetti said at Sorgente’s headquarters in Rome yesterday.

Overseas investors are jumping into Manhattan’s office market as prices fall and landlords struggle to refinance debt. International buyers have accounted for more than half of the $2.27 billion in New York office deals this year, according to data from property research firm Real Capital Analytics.

Wilbur Ross Sees "Huge" Commercial Real Estate Crash

Sat, 31 Oct 2009 15:24:25 GMT

Billionaire investor Wilbur L. Ross Jr., said today the U.S. is in the beginning of a “huge crash in commercial real estate.”

“All of the components of real estate value are going in the wrong direction simultaneously,” said Ross, one of nine money managers participating in a government program to remove toxic assets from bank balance sheets. “Occupancy rates are going down. Rent rates are going down and the capitalization rate -- the return that investors are demanding to buy a property -- are going up.”

U.S. commercial property sales are forecast to fall to the lowest in almost two decades as the industry endures its worst slump since the savings and loan crisis of the early 1990s, according to property research firm Real Capital Analytics Inc. The Moody’s/REAL Commercial Property Price Indices already have fallen almost 41 percent since October 2007, Moody’s Investors Service said Oct. 19.

Billionaire George Soros, speaking today at a lecture organized by the Central European University in Budapest, said a “bloodletting” may be coming for leveraged buyouts and commercial real estate. “The American consumer will no longer be able to serve as the motor for the world economy,” said Soros, 79. His comments came in the same week that Capmark Financial Group Inc. filed for Chapter 11 bankruptcy protection after originating $60 billion in commercial property loans in 2006 and 2007.

Beanie Baby Tycoon Warner Hits Trouble With Hotels

Fri, 30 Oct 2009 13:28:25 GMT

Beanie Baby tycoon Ty Warner has run into difficulty getting an extension on a $345 million securitized mortgage on four of his luxury hotels, including the New York Four Seasons, because of the hotels' declining cash flow. The servicer overseeing the mortgage transferred it earlier this month to a special servicer, Capmark Financial Group.

In addition to the 368-room Four Seasons in Manhattan, the other hotels pledged as collateral for the mortgage are the 211-room Four Seasons Biltmore in Santa Barbara, Calif., the 38-room San Ysidro Ranch in Santa Barbara and the 38-room Las Ventanas resort in Mexico's Baja California.

Mr. Warner, whose plush, bean-filled toys made him a billionaire in the 1990s, bought the hotels between 1999 and 2004. He paid $271 million for the New York Four Seasons in 1999 and spent $86 million renovating it. Other properties his hotel company owns include the Montecito Country Club and the Sandpiper and Rancho San Marcos golf clubs, all in Santa Barbara.

Mr. Warner is just the latest of many resort owners to run into difficulties in the worst hotel downturn since the Great Depression. Steep declines in occupancy and revenue in the past two years have led to many owners either defaulting on their debt or asking lenders and servicers to revise the terms of their debt to help them survive the downturn.

Securitized mortgages are just one portion of lending for commercial properties. Overall, distressed debt tied to hotels now amounts to $21.9 billion, up from $1.9 billion a year ago, according to Real Capital Analytics. The company classifies as distressed any loan that is delinquent, in foreclosure, in bankruptcy or otherwise revised to help struggling borrowers.

Equity Residential Raises Asset Sale Outlook to $900 Million

Thu, 29 Oct 2009 12:29:25 GMT

Equity Residential, the largest publicly traded owner of apartments in the U.S., raised its forecast for property sales this year to $900 million as investor demand increased.

Nationwide sales of rental apartments climbed 12 percent in the third quarter from the previous three months to $3.6 billion, according to research firm Real Capital Analytics. Scarce credit and falling property values slowed the pace of deals beginning in 2008. Equity Residential’s long-standing strategy is to exit so-called second-tier markets and buy in cities including New York, Los Angeles and Washington.

The company began 2009 anticipating $700 million in property sales, Marty McKenna, a spokesman for the Chicago-based REIT, said in an interview today. It later boosted that forecast to $800 million, he said.

Proceeds “strongly position us to take advantage of any future opportunities to add high-quality properties to our portfolio,” Equity Residential Chief Executive Officer David Neithercut in a statement yesterday announcing quarterly results.

Billionaire investor Sam Zell established Equity Residential in 1969 and owns about 1 percent of the shares, according to data compiled by Bloomberg.

Pending acquisitions include a 326-unit apartment building in Pentagon City outside Washington for $99 million. Equity Residential may complete the deal as early as tomorrow, Neithercut said.

The REIT sold 24 properties totaling 4,620 apartments in the third quarter for an aggregate value of $381.1 million, the company said in a statement. It sold 47 properties this year for a total of $734.5 million.

German Firms Scour U.S. for CRE Deals

Wed, 28 Oct 2009 14:24:25 GMT

More than 25 years ago, when the U.S. commercial real-estate industry began to emerge from its last collapse, German investors were among the first to snap up properties at discount prices.

History may be repeating itself. While numerous foreign investors have begun to scout the U.S. market in recent months, German investors have been among the few that have actually done deals.

"Regardless of whether the U.S. has reached the bottom already or won't do so for another three-quarters of a year, prices today are good compared to long-term averages," said Matthias Danne, head of the real-estate investment business at DekaBank Deutsche Girozentrale.

Deka is the asset manager for Germany's savings banks and operates the country's largest portfolio of open-ended property funds, with a total of some €19 billion ($28.24 billion) in property assets under management. The German open-ended funds are required by law to maintain high levels of liquidity. As a result, they don't take on a lot of debt and are more focused on generating income through dividends than property appreciation.

In September, Deka purchased 1999 K Street, a 12-story office building designed by architect Helmut Jahn and located in the central business district of Washington, D.C. Deka paid $208 million for the building, which analysts said represented a capitalization rate of about 6.3% and was at the top end of prices of prime office space in the capital. The capitalization rate, annual net income divided by purchase price, is a measure of how the market values real estate.

But Mr. Danne said that from a long-term perspective, the deal still is a bargain.

"We got one of the best properties in D.C., a brand-new fully rented office on K Street with 15-year leases," he said.

Foreign investors have spent about $2 billion on U.S. commercial properties this year, nearly half of the amount coming from German investors, according to Real Capital Analytics, a New York property-research firm. Foreign investment could reach about $5 billion by the end of the year, the firm projects.

Compared with past years, however, foreign investment in U.S. property, never a major force, is the lowest it has been in recent years. At the peak of the property boom in 2007, foreign investors poured $33.4 billion into U.S. commercial properties, according to Real Capital Analytics. Last year, foreign investment plunged to $12.4 billion.

Unlike private-equity property funds, the German open-ended funds aren't looking for 15% to 20% returns, but aim at a dividend yield of 5% to 6%. That allows them to take a longer view of the market and to pay a premium to secure a deal.

"A lot of people are frustrated with the Germans for accepting 6.3% because cap rates in D.C. are more like 8%," said Dan Fasulo of Real Capital Analytics.

Capmark Increased Office, Hotel Loans as Zell Saw Top

Tue, 27 Oct 2009 13:29:25 GMT

Capmark Financial Group Inc., the lender that filed for bankruptcy this week, was making billions of dollars in property loans just as investor Sam Zell was exiting the U.S. office market in early 2007.

In 2006 and 2007, Capmark originated $60 billion in commercial mortgage loans, most for office buildings, according to the Oct. 25 bankruptcy filing. While Capmark was lending, Zell was selling Equity Office Properties Trust at the top of the market for $39 billion, including debt.

Capmark collapsed under the weight of the loans it made and the debt that financed its leveraged buyout by a group led by Goldman Sachs Group Inc. and KKR & Co. By the time of the filing, Capmark had $18.5 billion in corporate debt, including $6.9 billion due in 2010 and $8.54 billion due in 2011, according to data compiled by Bloomberg. As commercial property prices started falling, loan defaults accelerated. Payments were at least 60 days late on $4 billion of the $24.1 billion in loans Capmark listed as managed assets on June 30. That was up 166 percent from Dec. 31.

"They were aggressive lenders and the company was highly leveraged," said Jeffrey Rogers, president and chief operating officer of Integra Realty Resources Inc., the largest U.S. commercial real estate valuation company. Capmark, based in Horsham, Pennsylvania, is an Integra client.

Of the loans Capmark originated, office, multifamily and retail properties account for the biggest share of those that are delinquent. Of the non-performing loans, $444.7 million were made to office buildings, $282 million to apartment owners, and $243.7 million to retail properties, as of June 30.

"After the new ownership took over in 2006, they got even more aggressive," said Dan Fasulo, managing director of Real Capital Analytics Inc., a New York-based research firm.

Real Capital identified 234 properties with Capmark financing, 62 of which had fallen into foreclosure, default or distressed status.

Record NYC real estate deal now on the rocks

Mon, 26 Oct 2009 15:39:25 GMT

It was the most expensive real estate deal in U.S. history. Now it's poised to become one of the biggest flops.

At the height of the real estate bubble in 2006, an investment group led by New York City real estate firm Tishman Speyer Properties and BlackRock Realty Advisors paid $5.4 billion for a pair of gigantic Manhattan apartment complexes known as Stuyvesant Town and Peter Cooper Village.

The price seemed outrageous to many, but the company believed it had a winning strategy: It would aggressively convert thousands of rent-regulated apartments occupied by middle-class families into luxury units that would fetch top dollar.

Three years later, to the glee of many New York renters, the tactic has been a bust.

Tenants fought back, conversions happened much slower than expected and a state court ruled Thursday that about $200 million in the company's new rent increases were improper.

Real estate analysts say the ownership group is now just two to three months away from a likely default on the $3 billion mortgage it used, along with a $1.4 billion secondary loan, to buy the property.

Foreclosure looms as a strong possibility.

Even before the state Court of Appeals ruling on a lawsuit filed by the apartment complex tenants, ratings firms had estimated that the value of the 80-acre property, home to 25,000 people, had fallen to as little as $2 billion — far less than the outstanding loan balance.

Given the math involved, "I wouldn't be surprised if they just want to walk on it," said Steve Kiritz, a senior vice president at the credit ratings agency Realpoint LLC. "The whole master plan with this project had been for Tishman to come in and ramp up the number of units that were paying market rent," he said.

Regular folks — especially those who have had home financing problems of their own — might laugh at the folly until they realize that some of their own money might be tied up in the deal. Some of the biggest equity investors in the deal are public pension funds that manage retirement system benefits for millions of government employees.

Florida's State Board of Administration had put $250 million into the project. It has already written off the entire investment as a loss.

California's two largest government pension funds, the California Public Employees' Retirement System and the California State Teachers Retirement System, invested a combined $600 million. CalSTRS has also already written off its $100 million stake. Tishman, by comparison, stands to lose much less. Its share was $112 million, less than 2 percent of the purchase price.

Teams of lawyers will likely spend the next few months fighting over who gets control of the complex and which lenders are entitled to get some money back, said Dan Fasulo, a managing director of Real Capital Analytics.

How much they recover, and who is wiped out, may come down to how much appraisers decide the building is really worth, based on more realistic rent projections.

"I had a number, put together last week, that I thought was fair. I don't think that number is fair anymore," Fasulo said. "No one could give you an honest appraisal right now."

Stuyvesant Town isn't the only such project to run into trouble after plans to increase rents went poorly.

An investment group that purchased Riverton Houses, a big development in Harlem built around the same time as Stuyvesant Town, ran into financial problems after its bid to convert hundreds of rent-regulated units to market rates went slower than expected.

One analyst estimated the value of the complex in September at $108 million, about half the value of the $225 million mortgage on the property, which is currently in default.

Any debt restructuring process at Stuyvesant Town is likely to be complicated.

The mortgages that financed the deal were chopped up, repacked and sold as Commercial Mortgage Backed Securities to a variety of investors.

Fasulo said the complexity of the arrangement and the size of the property itself mean that a traditional liquidation still might not happen.

A sale, he said, "would be very disadvantageous at this time," given the state of the real estate market.

"There would be tremendous demand," he said, but at such a depressed price that the lenders might be better off holding on to the troubled property.

Worldwide Plaza sale a good deal

Mon, 26 Oct 2009 13:26:25 GMT

When Deutsche Bank sold Worldwide Plaza on Manhattan's West Side to George Comfort & Sons and RCG Longview in the summer, the price was a meager $590 million. That was a far cry from the $1.8 billion Harry Macklowe paid for the tower just two years earlier, and from Deutsche Bank's $800 million original first mortgage on the property.

“The deal looked terrible, but it wasn't that bad for Deutsche Bank,” says Ben Thypin, senior market analyst at Real Capital Analytics, noting that the recovery rate for the outstanding debt was 74%. “When comparing how much was owed and what the property sold for, it wasn't a huge discount.”

In fact, Deutsche did better than most. The average recovery rate in New York is currently 70% for holders of defaulted mortgages, according to data compiled by RCA. Nationally, that figure drops down to a mere 60%.

R&D, Office Vacancies In Silicon Valley Climb In Q3

Fri, 23 Oct 2009 10:12:40 GMT

Lenders recovered almost 60 percent of the loan value for properties that were foreclosed in 2009, according to an analysis by Real Capital Analytics.

In a report released Oct. 15, the New York firm said lenders recovered $1.9 billion on 145 defaulted commercial mortgages totaling $3.2 billion.

Indicating more is to come, Dan Fasulo, managing director for Real Capital, said in an e-mail, “For the entire U.S. we have only been able to track 145 recovery rates — that’s how little of the distress has been cleaned up until now.”

The best recovery rates occurred in the West and Northwest, where rates for acquisition and refinancing loans were 76 percent and 78 percent respectively. The Los Angeles metro area tops the list of Real Capital’s 11 regions with a 70-plus percent recovery rate. Detroit and Tampa are at the bottom with a recovery rate of 45 percent.

The San Francisco metro area, which includes Silicon Valley, is third with a recovery rate of close to 70 percent.

Price Declines Start to Level Off

Wed, 21 Oct 2009 13:29:25 GMT

Although it’s a little too soon to bust out the champagne and party hats, the latest Moody’s/REAL Commercial Property Price Index offers encouraging signs that a market bottom is on the horizon. The October CPPI, compiled using Real Capital Analytics data, suggests that price declines are leveling off, while transaction volume showed a slight uptick.

Morgan Stanley Takes $251 Million Charge for Crescent

Wed, 21 Oct 2009 12:33:25 GMT

Morgan Stanley recorded a $251 million impairment charge on its Crescent real estate unit, another sign the $6.5 billion purchase made in 2007 is facing economic challenges.

Morgan Stanley is in talks with Barclays Capital to avert default on a $2 billion loan used to buy Crescent Real Estate Equities, according to people with knowledge of the situation. Morgan Stanley bought Crescent as the U.S. property market peaked and has since sold some of the assets to pay debt. The purchase gave the investment bank 54 office buildings in cities including Dallas, Houston, Denver, Miami and Las Vegas.

"They paid top dollar for those assets when they bought out Crescent," said Peter Slatin, editorial director at New York-based Real Capital Analytics, which tracks commercial real estate pricing worldwide. "They paid a pretty penny."

Commercial property values in the U.S. have plunged since 2007 as employers shed jobs and the recession reduced demand for offices, retail space and rental apartments. The Moody’s/REAL Commercial Property Price Indices fell 3 percent in August from July, bringing the decline to almost 41 percent since October 2007.

Liquidating Lenders Manage 60% Recovery

Mon, 19 Oct 2009 15:34:25 GMT

Lenders that liquidate defaulted commercial mortgages are recovering an average of just under 60% of the balance of those loans, Real Capital Analytics says in a new report. The bigger picture rendered by the RCA report contains a few surprises, not least of which is the relationship between underwriting and the rate of recovery.
“It is reasonable to expect that the more conservatively a loan was underwritten, the higher its recovery rate upon resolution,” the report states. “However, the resolutions thus far in 2009 challenge the assumption that loans originated when lending standards were the loosest and property prices were the highest will suffer steeper losses.” In fact, mortgages from 2002 and earlier have a slightly lower RR than those originated in the irrational exuberance of 2006 and 2007, even though the more recent loans have a higher default rate, according to RCA.

Similarly, the highest RR among property types is the 72% rate picture may change when for retail, “even though the outlook for the retail industry remains poor and retail properties have among the highest default rates.” One explanation is that lenders have liquidated only a small percentage of defaulted retail mortgages, choosing “only those loans that offer the prospect of a relatively high RR.” A similar dynamic is at work in the hospitality sector.

Lenders have also done better on recovering the balance of defaulted suburban office loans than they have with CBD mortgages, RCA says, partly because the CBD recovery activity was concentrated in failed redevelopment and conversion projects. Overall, the office sector has proven the most resistant to recovering balances, with an RR averaging 53%.

The RCA report, which managing director Dan Fasulo says is “the first comprehensive analysis of the recovery rates that lenders are achieving from the liquidation of loans on US distressed properties,” notes that the purpose of the loan matters more than the property type in determining RR. The balances of acquisition or refinancing loans are more apt to be recovered than those on land or construction loans.

As a rule, RCA says, “the higher the loan-to-value at origination, the lower the RR. Mortgages that were originally 50% LTV experienced a 75% RR, while those that were 100% or more at origination averaged a recovery rate of 57%.”

RCA notes that the picture may change when lenders begin stepping up resolution activity. The RR of about 60% is based on recovery of $1.9 billion from a balance of $3.2 billion in defaulted loans. That compares to what RCA estimates as “at least $130 billion of significant commercial mortgages currently in default, foreclosure or bankruptcy” across the US.

Although the number of properties sold out of foreclosure is on the rise, RCA says that relatively few troubled situations have been liquidated by the lender. “To date in 2009, lenders have taken control and forced the sale of mortgages totaling $9.5 billion, but in the vast majority of troubled situations, a workout is still ongoing or the loan has simply been extended or modified and remains on the lender’s books.”

Vultures go hungry as banks extend loans

Mon, 19 Oct 2009 14:32:25 GMT

A number of large vulture funds circling billions of dollars of distressed property could be shut down, as banks increasingly extend or modify loans for troubled borrowers rather than rushing to foreclose.

In the US, at least $US130bn of commercial mortgages are in default, foreclosure or bankruptcy, according a report released by US researcher Real Capital Analytics.

"Although the number of properties sold out of foreclosure is rising, relatively few troubled situations have been liquidated by the lender," RCA said.

Lenders had forced sales for mortgages totalling $US9.5bn this year, the report said.

"In the vast majority of troubled situations, a workout is still ongoing or the loan has simply been extended or modified and remains on the lender's books," RCA said.

The researcher estimated lenders had clawed back just under 60 per cent of the value of the loans after selling the assets, based on a sample of 145 defaulted commercial mortgages worth $US3.2bn.

On Thursday, The Australian reported the Future Fund had committed $US1bn to a new vulture fund started by giant fund manager Brookfield.

Australian Investors Feel U.S.-Office Pinch

Thu, 15 Oct 2009 16:30:25 GMT

In late 2004, when Tishman Speyer Properties became one of the first U.S. real-estate companies to launch a publicly listed fund on the Australian Stock Exchange, the future looked bright.

Tishman Speyer Office Fund gave Tishman a fresh source of capital, while offering Australian investors a chance to profit from the rising tide in U.S. office values with the security of knowing one of New York's most prominent property owners and developers was at their side.

Five years later, the outlook is much grimmer for the fund that is managed by a subsidiary of the Tishman empire that also owns New York's Rockefeller Center and the Chrysler Building. The stock price, which touched highs near three Australian dollars in early 2007, are off their lows in the single-penny range earlier this year but are still trading in the 35-cent range. And in its latest move to resolve its troubles, the fund is raising cash and reducing its debt load by selling two California office buildings at substantial losses.

For fiscal year ending June 2009 the Tishman fund had an accounting loss after-tax of A$628.6 million ($568.2 million) compared with an after-tax loss of A$112 million in the year earlier. The 2009 loss was largely due to the decline in the value of its portfolio. As of June 30, the value of the fund's share of the portfolio was down about 34% to US$1.5 billion from a year earlier, the company reported. A spokesman for the fund and Tishman Speyer Properties declined to comment.

In a sign that Tishman may have paid too dearly for some of those prime properties, the fund is now taking losses as it sells the properties into the downturn. The sales come as a number of property owners are cutting loose some of their better holdings to raise cash.

"Investors are selling some of their healthiest assets in order to take care of other distressed issues," says Dan Fasulo, a managing director at Real Capital Analytics, a New York real estate research firm.

Lenders get back nearly 60% on foreclosures

Thu, 15 Oct 2009 15:31:25 GMT

Lenders recovered almost 60 percent of the loan value for properties that were foreclosed in 2009, according to an analysis by Real Capital Analytics.

In a report released Thursday, the New York firm said lenders recovered $1.9 billion on 145 defaulted commercial mortgages totaling $3.2 billion.

In an indication that more is yet to come, Dan Fasulo, managing director for Real Capital, said in an e-mail, "For the entire U.S. we have only been able to track 145 recovery rates — that’s how little of the distress has been cleaned up until now."

Rosen's Piece of Zell's Office Empire Takes Downward Dive

Wed, 14 Oct 2009 13:29:25 GMT

New York City real estate developer Aby Rosen is joining the long list of investors who have headaches from buying pieces of Sam Zell's $39 billion office building empire when it was dissolved in 2007.

Mr. Rosen, also is a well-known art collector and fixture in Manhattan society, paid $850 million back then for seven Stamford, Conn., office buildings. Now, the portfolio's value has plunged, and Mr. Rosen is in talks to modify the $300 million first mortgage secured by the properties.

In July, the loan, which was converted into commercial mortgage-backed securities, or CMBS, was transferred to a special servicer, a company that handles loans that are troubled and require attention. RFR Holding LLC, the New York-based firm founded by Mr. Rosen and his partner Michael Fuchs, said negotiations with lenders were due to a "minor required loan modification," and didn't involve a shortfall or default. The company declined to elaborate further. The special servicer, Centerline Capital Group, didn't respond to a request to comment.

Like many investors who bought at the top of the market, Mr. Rosen has seen the value of his Stamford properties fall sharply. He paid roughly $513 a square foot for the 1.6 million-square-foot portfolio. The property's value has dropped 30% or more, according to an estimate by Dan Fasulo, head of research for Real Capital Analytics.

The number of real-estate loans in special servicing is expected to increase sharply over the next few years as the commercial real-estate market deteriorates and the number of troubled loans rises.

Hawaii Hotels Face Fewer Visitors, More Debt

Tue, 13 Oct 2009 15:32:25 GMT

For the hotel industry in the continental U.S., this downturn is the worst since the Great Depression. But the Hawaiian resort industry is taking a beating that's even more severe.

Hotel-room demand in the state has declined sharply at a time when the number of expensively renovated rooms is rising. Thus, occupancy at Hawaii's resorts dropped to 66.9% in the first eight months of this year, the lowest level since the same period in 1993 and down from this decade's high of 80.7% in 2005, according to Smith Travel Research. Meanwhile, revenue per available room has fallen nearly 25% in the past two years and now averages $150.75.

That combination means a number of Hawaii's resorts no longer generate enough revenue to pay the mortgages on their properties. Distressed debt tied to hotels is rising across the nation, but Hawaii has more troubled hotel debt per room than any other state, about $23,256 compared with $5,083 in California and $5,345 in Florida, according to statistics based on data from Real Capital Analytics. Overall, Hawaii's distressed debt tied to hotels totals nearly $1.6 billion.

Real Capital classifies as distressed any loan that's in foreclosure, receivership or bankruptcy or has been revised by the lender to help the borrower.

Commercial Real Estate May Be Next Victim of Recession (VIDEO)

Wed, 07 Oct 2009 13:25:25 GMT

Just two years ago an office space in midtown Manhattan could fetch close to $1.7 billion. Today, the same property trades for about $600 million. A sign the commercial property market will be the next shoe to drop in the U.S. economy?

Watch the video here.

ROBERT WHITE, Real Capital Analytics: There are so many vacancies of retail spaces, former restaurants, other shops...

PAUL SOLMAN, NewsHour economics correspondent: Real estate analyst Bob White, playing Virgil to our Dante on a guided tour of what some fear might become the hellish state of Manhattan commercial real estate - the hotels and stores, apartments and office buildings - that raise the possibility of a next mortgage meltdown.

First stop: Worldwide Plaza, 1.6 million square feet of prime midtown office space, developed by one Harry Macklowe.

ROBERT WHITE: In early 2007, it sold as part of a package of buildings, and this building was priced around $1.7 billion.

PAUL SOLMAN: And what was the deal?

ROBERT WHITE: His organization bought this property and six others for a package deal for around $7 billion.

PAUL SOLMAN: And how much did he put in?

ROBERT WHITE: Well, that's what's amazing. Only $50 million, reportedly, was the equity component of that deal. The rest was a combination of a first mortgage and a second mortgage.

PAUL SOLMAN: So $50 million on $7 billion, that's less than 1 percent down.

ROBERT WHITE: But at the time, the market was full of such optimism that rents would keep increasing and office buildings would stay fully leased. The economy was still growing, banks had a lot of money to lend, and there were many investors that also wanted to be in commercial real estate.

PAUL SOLMAN: But not any more: Great Recession, sky-high unemployment, a glut of office space, so rents fell, building values, too. Meanwhile, the short-term one-year mortgage for Worldwide Plaza came due. Owner can't refinance; the lenders take over. Resale price?

ROBERT WHITE: It just traded about a month ago for just under $600 million.

PAUL SOLMAN: Wait, it sold two years ago for $1.7 billion and now for $600 million?

ROBERT WHITE: Yes, in very rough numbers. That's a significant discount, and that is...

PAUL SOLMAN: Significant discount? That's two-thirds of the price!

ROBERT WHITE: Exactly. The overall market is down approximately 35 percent from the peak. This traded at a more significant discount because it is 50 percent vacant. And in today's market, vacant space is worth very little.

Concord Starts PE Fund For Distressed Hotels

Tue, 06 Oct 2009 13:29:25 GMT

Things are expected to get so ugly that even newbies to private equity investing are trying their hand. Concord Hospitality Enterprises Co., a hotel management company that operates franchisees for Hyatt, Starwood and others, announced on Monday that it's in "the initial stage of forming a $300 million discretionary private equity fund ... which will focus on acquiring distressed hotels and debt."

With the new vehicle, which is expected to close within the next 90 days, Concord plans to double the size of its portfolio of hotel properties. And if the commercial real estate market gets as bad as some think it will, companies like Concord will have plenty of opportunity to pick up property on the cheap.

In July Real Capital Analytics found 5,315 troubled commercial properties nationally, valued at more than $108 billion, and in June, Real Estate Econometrics LLC predicted that the default rate on commercial real estate is likely to reach 4.1% by year's end. That projection would imply defaults on about $44.3 billion of commercial mortgages, based on the $1.08 trillion of such loans held by U.S. banks in the first quarter, according to data in the report.

Starwood Bid for Corus Assets 20% More than Nearest Rival's

Tue, 06 Oct 2009 13:28:25 GMT

Investors led by Starwood Capital Group and TPG won an auction for the real estate assets of failed Chicago lender Corus Bankshares by outbidding the nearest competitor by 20 percent, including about $100 million more of their own cash, people familiar with the matter said.

The cash provided by the Starwood-led group would be $554 million, compared with about $450 million for the next highest bid, said the people, who declined to be identified because the decision hasn't been announced. Including debt financing and an equity investment from the government, the bid values the assets at $2.77 billion, about half their face value, the people said.

Corus was seized by the Office of the Comptroller of the Currency and the FDIC was named receiver. As part of the transaction, MB Financial Bank, which has more than 80 branches in the Chicago area, agreed to pay $7 billion for Corus’s deposits and take over its 11 branches.

The bank, incorporated in 1958, held $3.9 billion in condominium loans as of March 31, including $997 million tied to properties in Miami and southeast Florida, according to filings.

"There is some great stuff in there and to get access to it at a bargain basement price level will be a boon for Starwood," said Dan Fasulo, managing director at New York-based research Real Capital Analytics Inc. "They’ll be able to pick and choose which asset they want to hold."

Ninety-eight banks have failed so far this year, depleting the FDIC's insurance fund. The regulator is seeking to lure non-bank investors including private-equity firms to bid on assets of collapsed banks.

HSBC to Sell NYC HQ for $330 Mil. Cash

Mon, 05 Oct 2009 14:27:25 GMT

HSBC Holdings Plc, Europe’s largest bank, agreed to sell its New York City headquarters for $330 million in cash to a company controlled by Israeli businessman Nochi Dankner.

The London-based lender will lease back the HSBC HQ tower at 452 Fifth Ave., according to company filings. The price comes to about $381 a square foot.

"The fact that an investor is willing to pay all cash for a several hundred million-dollar asset is a very bullish sign for the Midtown office market," said Dan Fasulo, managing director of New York-based Real Capital Analytics Inc., which tracks commercial property sales worldwide. "At some point these cash deals are going to add up and give investors the confidence to return en masse."

Commercial real estate transactions in the U.S. may fall 93 percent this year compared with 2007, according to Real Capital. New York sales through September totaled $1.62 billion, down 95 percent from the same period two years ago, as tight credit and rising unemployment sapped demand.

Cash buyers from other countries who made money outside of real estate are now looking at New York property "as a place to stash that capital," Fasulo said. They’re "targeting commercial real estate as a counter-cyclical play, whether it’s right or not," he said.

2016 Olympics: No Games, More Pain

Fri, 02 Oct 2009 13:25:25 GMT

So much for an Olympics bounce. Chicago contractors, architects, real estate developers, hoteliers and commercial property owners who hoped the 2016 Olympics would hasten the recovery of their moribund businesses were left cold Friday by the city’s snub from the International Olympic Committee.

Hosting the Olympics also could have bolstered the city’s standing among foreign real estate investors. Chicago hasn’t been listed among the top five U.S. cities for property investment in the Association of Foreign Investors in Real Estate (AFIRE) annual survey since 2002. Foreign investment here this year has totaled just $40 million, down 90% from last year, according to Real Capital Analytics.

(RCA subscribers: see our latest report on Chicago's troubled commercial properties.)

Despite the sting of Chicago’s fourth-place finish, the prospects for the city’s future aren’t diminished, says Roger Hill, CEO of Gettys Group, a Chicago-based hotel design and consulting firm.

"Chicago is a city that’s very resilient, and we’ll do great things without it," he says.

ALM's Real Estate Media Group Launches Distressed Assets Investor

Thu, 01 Oct 2009 00:00:40 GMT

"DAI is geared to the investor who wants to tap into the sale of distressed assets, providing field-level guidance on the pitfalls and possibilities inherent in this area,” said Michael Desiato, vice president–real estate media group for ALM. “We believe this newsletter will also deliver a solid, interested audience and platform for practitioners interested in promoting their capabilities."

Each issue of DAI features in-depth analysis of issues critical to the investment process, such as mark-to-market shifts and the impact of ratings agencies on valuations, as well as columns from industry experts in the fields of real estate law, appraisals, special servicing and finance. Editorial advisory board members and contributors include a wide variety of experts from the commercial real estate, finance and legal industries. Content partners Real Capital Analytics and Trepp will provide detailed data on specific properties and CMBS paper currently in some form of distress, including addresses, prices, players and distress status.

Apartment Know-How in NoHo?

Wed, 30 Sep 2009 13:30:25 GMT

Sales of apartment complexes nationwide have slowed to a trickle. But some investors have stayed behind as others have fled the sector and the sale of the Gallery at NoHo Commons gives a glimpse into their thinking.

NoHo Commons (in the North Hollywood section of Los Angeles) was purchased by a nontraded REIT managed by Behringer Harvard, a Dallas real-estate company. Behringer has become one of the biggest buyers of U.S. multifamily properties this year, buying five apartment complexes with 1,690 units for a total of about $274 million in cash and assumed debt. Behringer executives say they see opportunity in the downdraft.

Apartment buildings are clearly producing higher returns than they used to. In 2007, the so-called capitalization rates of apartment buildings, derived by dividing a building's net operating income by the price paid, were 5.8%. Today they have risen to 7.1%, according to Real Capital Analytics, the commercial real-estate research firm.

Seattle Area Tops U.S. In Share Of Troubled Real Estate Loans

Fri, 25 Sep 2009 12:29:25 GMT

Seattle's distress came on quickly. In mid-2008, the Seattle area ranked 39th among metropolitan areas in troubled loans. Now, the area ranks No. 1, with just under a third of all loans for land acquisition and all types of construction at least 30 days in arrears.

That’s double the national delinquency rate of 16.3 percent, according to Foresight Analytics, which bases the statistic on bank regulatory filings.

Tacoma is not far behind, ranking fourth, with a 28.9 percent delinquency rate.

Prominent local real estate developer Michael Mastro Sr.’s commercial and residential properties and development projects represent an increasing share of the Puget Sound area’s troubled assets. A recent report by Real Capital Analytics Inc. includes 15 of Mastro's properties, valued at $122 million, on its list of 54 troubled commercial assets in King County. Unlike Foresight Analytics, Real Capital does not include residential development in its troubled assets reports.

Mastro was forced into Chapter 7 bankruptcy this summer by three banks seeking repayment. One of those banks, Venture Bank, has since been shut down and sold by federal regulators.

Status Report: Small-Business Lending

Wed, 23 Sep 2009 00:00:40 GMT

Small-business loans are up at many of the nation's lenders, but business isn't exactly humming, and growing apprehension about commercial lending could leave a substantial number of firms without a source of capital.

Firms holding their expansion plans in check may have a good reason, says Bob Coleman, a small business banking analyst in La Canada, Calif. "We're still in a recession," he says. "We're not talking Armageddon here, but it will [likely] remain tough for businesses to get loans," says Coleman.

The root of the problem is a lack solid private backing for small-business loans. One example is the disparate markets for the two components of 504 loans, which business owners use to purchase real estate and equipment. Although the secondary market for 504 debentures (the 40% stake of each of these loans that is guaranteed by the government) is flowing relatively freely, there is no secondary market for 504 first mortgages (the 50% stake made by private lenders), Coleman says. In the American Recovery and Reinvestment Act (ARRA), the SBA was instructed to take steps that would establish a secondary market for these first mortgages, says Jonathan Swain, a SBA spokesman. "We are currently in the process of finalizing the regulations for that piece of the Recovery Act," he says.

Still, Coleman insists that the SBA is dragging its feet. Through the program, the Treasury would purchase mortgages if no other buyers step forward. Assurance of a buyer might drive banks to continue issuing 504 loans. Without that guarantee, banks could remain wary about issuing such loans, as many analysts expect the market for commercial loans to be the next shoe to drop, he says. Already, there are about $135 billion in defaulted commercial mortgages, a figure that has more than doubled since the beginning of the year, according to Real Capital Analytics, a firm that tracks commercial property sales.

Moody's Property Index Resumes 'Steep' Fall in July

Tue, 22 Sep 2009 15:52:25 GMT

Commercial property prices in the United States resumed a "steep decline" in July after showing signs of leveling off in June, Moody's Investors Service said, as credit restrictions curtail lending and push landlords toward default.

The Moody's/REAL Commercial Property Price Indices fell 5.1 percent in July from the month before, Moody's said today in a statement. The index is down almost 39 percent from its October 2007 peak. The decline in June was 1 percent.

Commercial real estate sales this year may fall to an 18-year low. This latest set of numbers suggests no letup in that trend, said Neal Elkin, president of Real Estate Analytics LLC, a New York firm that partners with Moody's in producing the report.

"We are still vulnerable to moves on the downside," Elkin said in a telephone interview. "As time passes, the distress and the stress among those who need to sell is growing."

Elkin cited figures from Real Capital Analytics Inc., whose data are used in compiling the report, showing the portion of sales classified as "troubled" - those commercial properties in or close to default - almost doubled to 23 percent in July from March.

That's "something we've never seen," Elkin said.

Taubman Will Relinquish Atlantic City Shops to Lender

Tue, 22 Sep 2009 00:00:40 GMT

Mall owner Taubman Centers Inc. plans to turn over to its lender a mall on the Atlantic City, New Jersey, boardwalk because the recession cut traffic to the East Coast gaming capital.

Taubman said the shops at the Caesars Atlantic City hotel aren’t generating enough cash to pay the debt. The Bloomfield Hills, Michigan-based real estate investment trust wrote down the value of The Pier Shops at Caesars and its Regency Square property in Richmond, Virginia, it said in a statement today.

“Taubman has made the decision not to fund the negative cash flow, and we’re going to start talking to the lenders about restructuring the debt,” Lisa Payne, Taubman Centers’ chief financial officer, said in a telephone interview. The lender may end up owning the asset, she said.

Atlantic City’s gambling revenue fell 16 percent in August as the second-biggest U.S. gambling center grappled with the industry’s worst slump on record. Sales at U.S. retail properties fell 71 percent to $3.6 billion in the first half of the year, according to New York-based research company Real Capital Analytics Inc.

Facing the next real-estate collapse

Fri, 18 Sep 2009 14:37:25 GMT

The next wave of the credit crisis is about to hit -- a collapse in commercial real estate and potential explosion of bank failures. With its resources tapped out by the first wave, what should Washington do?

Over the last year, the Federal Reserve doubled the size of its balance sheet, and took unprecedented action in monetizing government debt and extending credit to financial institutions. Now it must head off inflation and extricate itself from $5 trillion-plus in credit exposure from various bailouts. The Treasury, meanwhile, is issuing debt at the fastest pace in peacetime history.

Now comes the next crisis. The same factors that caused the residential bubble -- easy credit, lax lending standards and booming mortgage-backed-securities underwriting -- also drove commercial real-estate overvaluation. But the commercial market lags the residential one by about a year, so this bubble is still popping.

Already, commercial-real-estate prices nationwide are 39% off their peak of two years ago, reports the MIT Center for Real Estate. The 18% price decline in this year's second quarter was the largest quarterly drop in 25 years.

Most commercial properties bought or refinanced in the last five years are now upside-down on their loans -- that is, the property can't be sold for its finance value or purchase price. Commercial real estate market research firm Real Capital Analytics reports that owners have lost their entire down payments on about $1.3 trillion worth of property.

Nearly half of all U.S. commercial-real-estate-mortgage loans come due within the next five years. Deutsche Bank believes that 65% or more will fail to qualify for refinancing.

Buyout Fund Contemplates a REIT Turn

Wed, 16 Sep 2009 16:33:25 GMT

Richard Baker, a big investor in shopping centers and retailers, raised $400 million in 2007 for a "blank-check company" that would buy operating businesses like restaurants and casinos. But he didn't do a deal as the economy fell off a cliff.

Now he has another strategy that is being watched closely in the real-estate industry. Instead of returning the money -- which he would be required to do soon if he didn't spend it -- Mr. Baker wants to convert the company, named NRDC Acquisition Corp., into a public real-estate investment trust. The new company, named Retail Opportunity Investments Corp., would be geared toward buying retail properties from distressed owners.

The move is the latest sign real-estate investors are looking to the public markets for capital at a time banks are reluctant to lend and private capital is scarce. The strategy has paid off for many. Investors have bought more than $15 billion in REIT secondary stock sales so far this year.

Several companies have completed initial public offerings to raise money to invest in distressed real-estate debt, including Starwood Capital Group LLC's $810 million IPO last month. But Mr. Baker's attempt is different from these "mortgage REITs" because he would focus on buying actual properties -- specifically, supermarket-anchored strip shopping centers on the East and West coasts of the U.S. -- rather than the debt behind them.

If successful, Mr. Baker's attempt could set the stage for other companies to ask stock-market investors to fund blind pools for investing in shopping centers, warehouses, office buildings and other kinds of commercial real estate whose owners face loan defaults.

Green Street Advisors, a commercial real estate research firm, expressed support for the strategy in a note to clients last week. One-fifth of all U.S. strip-center properties changed hands during the asset-price bubble of 2004 to 2007, Green Street noted, citing Real Capital Analytics data, amounting to a total sales volume of $125 billion. That could mean distress sales ahead as the big loans required to do those deals come due.

CRE Warning Signs: Get Ready for RTC 2.0

Wed, 16 Sep 2009 15:28:25 GMT

Get ready for RTC 2.0. At least, that's Mark Grinis' take on the current commercial real estate market. Grinis, speaking at RealShare's Distressed Assets conference in Dallas yesterday, said this downturn could be "tougher than the last cycle." Today, unemployment has already surpassed the last cycle and delinquencies continue to trend upward, the Distress Service Group leader for Ernst & Young LLP said.

Grinis was followed by Robert M. White, Jr., founder and president of Real Capital Analytics, in a special presentation entitled, "Putting Distress in Perspective." Therein, White stressed the opportunities on the table, even while delivering some dismal data points. There's about $135 billion in defaulted commercial mortgages, which has more than doubled since the beginning of the year, he said. Each month, another $10 billion comes onto the distressed markets. And CMBS loans are defaulting faster than any other loans out there.

Still, White believes now's the time in the market when people are starting to get active and vested. Noting that the transaction market has most likely hit bottom, White said that Q3 should show a 20% gain in transaction volume in the US. He also noted that some international markets, such as Asia, the UK and Australia, are already seeing a "tremendous rebound of activity." But, he noted, it's tough to say right now in a market where there are so few trades.

Learn more about RCA's reports and analysis on commercial troubled assets.

Vacancies Raise Risks and Lower Value for Landlords

Wed, 16 Sep 2009 13:32:25 GMT

With the economic slump continuing, 1999 K Street, a new 12-story building in Washington's CBD was sold this month in an all-cash deal for over $200 million. The per-square-foot price was one of the highest ever paid in the nation’s capital. What makes the building especially valuable is the fact that it is fully leased for the next 15 years.

Meanwhile in Seattle, 1301 2nd Avenue sold for a drastically lower price per square foot, reflecting the dismal state of the Seattle market, where no major office buildings had sold in nearly two years. But there was another important reason: more than half of the building may remain vacant.

When the real estate market was hot, investors coveted space that was vacant, or would soon be vacant, because rents were steadily rising. But now, vacancy detracts from the value of a building.

The owners of One California Plaza, a 42-story building at 300 South Grand Avenue in Los Angeles, are also taking a haircut because of vacant space. The building is in contract to be sold to a New York company, Metropolitan Real Estate Investment, for roughly $225 million, or about $225 a square foot, according to Real Capital Analytics, a commercial real estate research company. The seller is Macquarie Office Trust, an Australian company, which paid $325 a foot for an 80 percent stake in the building in 2006. One-fifth of the building is unfilled, and a major tenant, the law firm of Skadden, Arps, Slate, Meagher & Flom, has not decided whether to renew leases that are expiring in a couple of years.

To clinch a deal on vacant space, the landlord must offer concessions like months of free rent and help in creating or refurbishing the offices. "We’re seeing the largest concession packages I’ve seen in the last 25 years," said Mary Ann Tighe, the chief executive of the New York region for CB Richard Ellis. "When you’re calculating what it costs to buy something, concession packages have to be part of that calculation."

Additional expenses will be accrued in converting a building that was designed for one tenant, like the Washington Mutual Center in Seattle, to multi-tenant use, said Robert M. White Jr., the president of Real Capital Analytics.

Commercial real estate crisis threatens recovery

Tue, 15 Sep 2009 16:29:25 GMT

The Federal Reserve has limited options since it has doubled the size of its balance sheet and taken unprecedented action in monetizing government debt to deal with the credit crisis over the past year.

Now, it is faced with managing the dual challenges of shrinking the money supply to head off inflation and extricating itself from more than $5 trillion of credit exposure from the bailout programs instituted so far.

At the same time, the U.S. Treasury Department is on a path to continue funding government bailouts and budget deficits by issuing debt at the fastest pace in peacetime history.

So what is Washington going to do about the second wave of the credit crisis caused by the unfolding collapse in commercial real estate and the potential explosion of bank failures across the U.S.?

A bailout of bank deposit insurance seems inevitable. The question is what can Congress, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency do to mitigate this rapidly unfolding problem?

Commercial real estate, valued at some $3.5 trillion, has experienced a 39 percent decline in prices from the peak only two years ago, according to the MIT Center for Real Estate.

This drop is greater than the 27 percent commercial real estate decline associated with the longer savings and loan crisis of the late '80s and early '90s that precipitated government Resolution Trust Corporation seizures and auctions.

The same conditions that caused the residential bubble — including the Fed’s easy credit, lax lending standards and booming mortgage-backed securities underwriting on Wall Street — also drove commercial real estate overvaluation.

The 18 percent price decline in second quarter was the largest quarterly drop in the 25 years since MIT first published the commercial real estate price index. Most commercial properties bought or refinanced in the last five years are now upside down on their loans — with current property prices having fallen below the finance or purchase price. Real Capital Analytics reports that owners have lost their entire down payments on about $1.3 trillion worth of property.

Asia scours world capitals for choice property

Mon, 14 Sep 2009 14:28:25 GMT

Asian property investors, including sovereign wealth funds with large war chests, are on a shopping spree for choice office buildings in global capitals, striking while there are bargains to be had.

They have set their sights on property in central business districts or the prime retail streets in London, New York and Sydney, as property prices in parts of Asia, including China and Singapore, rebound to close to pre-crisis levels.

"With property yields in places like Hong Kong and Singapore relatively low, investors have spotted a chance to make double-digit returns and harness good capital growth from UK real estate over the next two years or so," said Shaun Gorvin, an investment director at BNP Paribas Real Estate in London.

Britain attracted $13.7 billion in commercial property investment in January-June, while the United States drew $16.2 billion, said New York-based real estate market research firm Real Capital Analytics.

The UK and U.S. alone accounted for around a quarter of the $116 billion invested in global real estate in the first half.

Banks are also slowly resuming lending to property buyers, albeit at lower loan-to-value levels than about two years ago.

Encouraging Signs Emerge For Investors With Cash

Mon, 14 Sep 2009 00:00:40 GMT

If you are on the transaction side of the commercial real estate business, you may feel as if you are an unwilling participant in a video of heavy metal band Quiet Riot's "Bang your head" song where nonstop music streams to your ear in ever louder chords.

Every day is similar to the last. Deals are few and far between, and they just don't close.

Welcome to the life of a real estate broker in 2009.

Various industry research reports support what many are experiencing.

Investment sales transaction volume is down about 70 percent compared with the same time last year, according to Real Capital Analytics.

The reasons: Money is scarce. Investors lack an appetite for risk. Values have fallen more than sellers want to realize. The days of easy money are gone.

But amidst the doom and gloom, a number of encouraging signs emerge, particularly for private or local investors who have some cash.

Private buyers or local investors for apartment properties now make up more than 80 percent of transaction volume, Real Capital Analytics said. This is up significantly from prior years when institutional money and real estate investment trusts, or REITs, were more active and crowded out local investors.

CRE Deal Drought to Make 2009 Worst in 18 Years

Fri, 11 Sep 2009 13:26:25 GMT

Commercial property sales in the US this year are forecast to fall to the lowest in almost two decades as the industry endures its worst slump since the savings and loan crisis of the early 1990s.

About $16 billion of office transactions will be completed by year-end, according to data compiled by Real Capital Analytics Inc., a New York research firm that has tracked deals for nearly a decade. Real Capital Managing Director Dan Fasulo and Sam Chandan, chief economist of Real Estate Econometrics LLC, said that may be the lowest volume since at least 1991.

"There's no real way to sugarcoat it," Fasulo said in an interview. "A slowdown of this magnitude certainly hasn't occurred since I've been in the business."

The volume of office sales in the second quarter was 97 percent less than the market's peak in the first three months of 2007, according to Real Capital. That reminds some investors and analysts of the S&L crisis.

"Some of the older folks in the industry I talk to said it has a similar feel to the early '90s, when transaction activity went to basically zero," Fasulo said.

See The Big Picture - Trillions of Property at Risk from RCA's July US report.

Bank of China Lends $120M for Net-Leased HQ

Thu, 10 Sep 2009 14:27:25 GMT

W.P. Carey & Co. has landed a nearly $120-million debt financing for the New York Times headquarters here, which it bought earlier this year in an all-cash transaction.

The New York branch of the Bank of China provided the non-recourse loan. Terms were not disclosed. In an announcement, Steve Kohn, president of Cushman & Wakefield Sonnenblick Goldman said "Despite the fact that a large number of lenders remain on the sidelines, especially for loans over $50 million, we continue to see strong interest for loans on high-quality properties that are owned by strong, experienced sponsors." The firm was the exclusive advisor in the financing to Carey and two of its non-traded REITs, which specialize in sale-leaseback acquisitions.

Some non-US-based banks have been among the top lenders for single-tenant properties, according to recent Real Capital Analytics Inc. market data research. During the 12 months through the second quarter of this year, the top lenders for single-tenant office deals included Rabobank and SNS Property Finance, both based in the Netherlands; top lenders for single-tenant industrial assets included Allianz SE of Germany, Canada’s TD Bank Financial Group, Allied Irish Bank and SMBC Leasing and Finance of Japan; and top lenders for single-tenant retail properties included TD Bank Financial.

Peninsula Owner Buys Klutznick Stake In Hotel

Thu, 10 Sep 2009 14:25:25 GMT

The transaction comes at a time when hotel sales — even between partners — have dried up amid concerns about the recession and scarcity of financing. Nationwide, only 70 significant sales, totaling $1.2 billion, were recorded in the first half of the year, an 85% drop compared with the same period last year, according to New York research firm Real Capital Analytics Inc.

"To put the inactivity in context, the $1.2 (billion) of volume in the first six months of 2009 compares to $4.7 (billion) averaged each month in 2006 and 2007," according to Real Capital’s midyear hotel report.

The last major downtown Chicago hotel sale came in January 2008, when the 297-room Hotel James, 55 E. Ontario St., was sold for $137 million, or $460,000 a room.

Peninsula Chicago hasn’t been immune from the recession, with revenue per available room (RevPAR) falling 37% in the first half of this year compared with the same period in 2008, Hongkong & Shanghai said last month.

RCA Partners with CREOpoint.com for Exclusive Online Networking

Wed, 09 Sep 2009 14:29:25 GMT

Subscribers of Real Capital Analytics' commercial real estate tools and analysis are now able to access CREOpoint, the exclusive, free, invitation-only online community for CRE leaders worldwide.

"We are at a critical crossroads for the industry," says Robert M. White, Jr., founder and president of Real Capital Analytics (RCA), a research and consulting firm focused on commercial property transactions and distressed assets. "More than ever before commercial real estate professionals need accurate, intelligent and concise information to make well informed decisions. This partnership with CREOPoint will enable productive real-time conversations among our clients and friends worldwide."

"We are very pleased to join forces with Real Capital Analytics," says JC Goldenstein, Founder and CEO of CREOpoint. "This partnership will immediately bring valuable new functionality to RCA's subscribers and CREOpoint members. A dedicated meeting point is now available to professionals interested in discussing breaking industry news and RCA research findings. The partnership between Real Capital Analytics and CREOpoint will further connect experts with knowledge and accelerate transaction activity."

This partnership is just one piece of RCA's strategy to provide more timely, frequent and interactive content to its subscribers. The company has recently announced new website features and improvements coming in September, including more streamlined online search tools and enhanced property details.

About Real Capital Analytics

Real Capital Analytics, Inc. (RCA), founded in 2000, provides current and comprehensive commercial real estate data on investment and distressed assets. RCA's data covers all markets globally, providing subscribers with:
TRANSACTIONS • Comparable commercial property sales and deal details (prices, buyers, sellers, financing) plus profiles of over 10,000 investment firms.
TRENDS • Exclusive trend analysis of volume, prices and capital flows from industry-leading analysts (RCA is publisher of US Capital Trends and Global Capital Trends™).
TOOLS • In-depth local and national market reports, powerful search tools and the most complete database of commercial real estate transactions and troubled assets.
TROUBLED ASSETS • Special tools for locating distressed property including assets with mortgages currently in default or foreclosure, those restructured/modified, or those already Lender REO.

Learn more at www.RCAnalytics.com and look forward to the ongoing conversation on www.creopoint.com/profile/RealCapitalAnalytics

About CREOpoint

CREOpoint is the online meeting point for commercial real estate leaders worldwide. It was founded in 2008 by former executives from Citibank, Credit Lyonnais, Ernst & Young, McKinsey, Morgan Stanley, NAI Global, Newsweek, TechRepublic and WPP. Thousands of quality members from 40 countries have joined this exclusive community. The new partnership with Real Capital Analytics is another step in offering more value to CREOpoint members and existing CREOpoint partners such as ARGUS Software, Business Immo, Commercial Property Executive, CRE Russia, Euromoney, EuropaProperty, MIPIM, Property Week, REDailyTV and REIDIN.

Media Contacts

For Real Capital Analytics:
Matt Stone
Phone +1 212 387 7103

For CREOpoint:
JM Bonthous
BrightMagnet
Phone: + 1 310 457 0444
JMBonthous@BrightMagnet.com

Shanghai Real Estate Sales Of Apartments Shows Steadfast Soar

Wed, 09 Sep 2009 14:22:25 GMT

Commercial real estate market in Shanghai, China indicates astonishing growth along with the escalating performance of its residential property market. In fact, according to Real Capital Analytics, Shanghai, China has surpassed the performance of US and UK in their combined sales in commercial properties. In the past six months of this year, the country has gained a total of US$31.2 billion in land development sales. This happened after the government terminated the credit terms. On the other hand, the United States has reached total sales of US$16.2 billion while the United Kingdom has obtained US$13.7 billion sales. These figures are all based on the reports of the Real Capital Analytics or RCA.

These facts indicate that Shanghai will remain an active player in the global real estate market. According to Dan Fasulo, RCA’s managing director, China will become a good contender against the Western nations. However, Shanghai’s performance in global commercial real estate remains unpredictable despite its thriving progress.

In a report presented by a New York based research group, around US$62.8 billion of commercial of commercial estates were sold in the course of the second quartile of this year. This is 17 percent higher than the first three months of the country’s performance. This increase has been the first upsurge after 18 months.

Buyers of Huge Manhattan Complex Face Default Risk

Wed, 09 Sep 2009 14:22:25 GMT

Three years ago, the sale of the 110 red brick apartment buildings at Stuyvesant Town and Peter Cooper Village in New York City amounted to the biggest American real estate deal of all time.

Now the buyers are running out of time and money. Tishman Speyer and partner BlackRock Realty, who together paid $5.4 billion for the quiet middle-class redoubt near the East River, have nearly exhausted an additional $890 million set aside for apartment renovations, landscaping and interest payments. Rents are down 25 percent from their peak.

Real estate analysts say that the partnership’s money will run out as soon as December and that the owners are at "high risk" of default on $4.4 billion in loans. Two real estate executives who have been briefed on the finances insist that the owners can hold out, but only until February.

The deal has become a "poster child" for all that was wrong with that era of easy credit, highly speculative deals and greed, said Ben Thypin, an analyst at Real Capital Analytics, a research firm.

Learn about Real Capital's research and tools for troubled commercial asset research.

Commercial Real Estate Market In Richmond Is Ailing

Tue, 08 Sep 2009 15:20:25 GMT

The commercial real estate market in the Richmond area is ailing and likely to get worse, much like the rest of the country.

Twenty-three properties here -- ranging from hotels to mixed-used developments, apartments and shopping centers -- are in financial distress, according to Real Capital Analytics, a commercial real estate research and consulting firm based in New York.

A year ago, only five properties locally were troubled assets.

A surge of foreclosures of commercial properties in the Richmond area and nationwide is expected in the next year, as borrowers face loans coming due and can find no source of refinancing.

"It's a universal problem," said Stevens N. Gentil, chairman of Grubb & Ellis/Harrison & Bates, a commercial real estate firm in Richmond.

"There's a high probability that any property acquired, financed and developed since 2003 is over-financed," he said.

In most cases, property values have dropped precipitously and borrowers owe more than their properties are worth.

What's more, the commercial real estate problem isn't limited to new developments. Many stores, offices, hotels and town-house projects built 30 years ago were refinanced -- and over-leveraged -- during the boom.

"It's not like in the early 1990s when Richmond was overbuilt and we slugged it out over three or four years," Gentil said. Builders stopped constructing then and supply eventually caught up with demand.

"This time around, the national economy is worse and we have some bigger, more fundamental issues," he said. "The market came back quickly in the '90s. Let's hope that is the situation now."

Others are less optimistic.

"I think it will get worse before it gets better," said Jessica Ruderman, a senior analyst with Real Capital Analytics. "Banks are still not lending money. Buyers and lenders don't agree on prices."

Investment Picks Up for French Property

Tue, 08 Sep 2009 14:35:25 GMT

International commercial-property investors looking for prime assets are beginning to target France, which is emerging as the second-most popular market after the United Kingdom.

The French investment market, which was static in the first quarter after almost two years of declines in activity, now seems to be moving again. Investment levels doubled in the second quarter, the biggest increase for that period in Europe, according to Aberdeen Property Investors.

There were three retail deals in the second quarter valued at more than €100 million ($143.4 million), including Hennes & Mauritz AB's April purchase of 31 Rue du Faubourg Honore from Unibail-Rodamco SA for €103.3 million, according to Real Capital Analytics.

Increased activity continued into the third quarter. In August, Deka Immobilien Investment GmbH closed on its purchase of office property Le Triangle Part Dieu in Lyon from ING Real Estate for €40 million. Also, GLL Real Estate Partners bought 10 Boulevard Haussmann in Paris for €50.1 million from AXA REIM, and Commerz Real bought the Espace Dumont d'Urville office asset in Paris from Klepierre SA for €32.7 million, according to Real Capital Analytics. All three properties are 100% occupied.

Real Estate Stock Talk: Should You Buy REITs?

Tue, 08 Sep 2009 13:29:25 GMT

If you don't already have a significant chunk of your net worth invested in rental property, it's time to think about buying stock in real estate companies. But in our first Real Estate Stock Talk, Alexander Goldfarb, a seasoned stock analyst, and Peter Slatin, a veteran journalist and industry observer, suggest you go slow.

Slatin says: "Once you've accepted the diversification argument, there's another strong argument for investing in real estate: income. The nasty lesson of the past few years is that growth is part of the story, but it should never be the whole story.

So why REITs? Well, there is a lot to be said for professional, experienced management that understands its industry. Why do lay people feel they can invest directly in real estate? It looks simple. Buy it, fix it up, rent it, re-sell it. Yes, but ... Real estate investor Sam Zell thought he could do that with the Tribune Co., but he didn't know beans about the media (other than how to give interviews).

But Zell and other REIT managements have come out looking pretty darn good against all those private fund-runners. The REITs were big sellers rather than buyers during the peak, according to the numbers at Real Capital Analytics. And this year they've raised a lot of capital, more than anybody else, as the possibility of distressed sales looms ever larger."

Commercial Real Estate: Big Troubles, Small Bailout

Fri, 04 Sep 2009 15:21:25 GMT

High-flying financiers are sweating a coming wave of mortgage defaults tied to office and apartment buildings. Unfortunately for them, too big to fail doesn't apply to the $6.5 trillion US commercial real estate market.

Unlike the multi-trillion-dollar government intervention launched to keep the American housing market from cratering, Washington has done little to ease a looming crunch on the commercial side. "Housing probably gets more attention because it's a big part of household wealth and, at its peak, it was a much bigger portion of the economy than [commercial] real estate," says Abiel Reinhart, an economist at JP Morgan.

"It's one thing to bailout mom and pops on Main Street but another to bailout these big boys with big paychecks," said Peter Slatin of Real Capital Analytics, referring to the government's multi-pronged effort to help struggling homeowners. "People were trading buildings like trading cards."

The commercial real estate debt market, half mortgage-backed securities and half whole loans, has been virtually frozen since markets seized up in the summer of 2007. The situation will get worse as loans come due and values continue to deteriorate. "This is a drip, drip, drip transfer of ownership, not a flood of properties hitting the market," said Slatin.

Office Market Overtime

Wed, 02 Sep 2009 17:13:25 GMT

The credit crunch has reduced office transaction volume to a trickle and factors weighing on the sector are likely to limit deal making through year-end. Asset values have declined nearly 30 percent from their peak, financing is scarce, and downward pressure on office fundamentals is exacerbating the wide gap between bids and asking prices.

It’s a difficult landscape for investment brokers and their clients to navigate, whether they are office buyers, sellers, or developers. In the first four months of this year, property owners put nearly $13 billion of office properties up for sale but only closed $4.4 billion in transactions, according to Real Capital Analytics. Nationwide, sales volume is down 70 percent from year-ago totals.

Perhaps more critical is a dearth of acquisition financing that hampers deals even where buyers and sellers reach a middle ground on price. Conduit providers have ceased to issue new loans due to a logjam of commercial mortgage-backed securities, and life insurers largely have reached the limits of their real estate lending allocations.

Pressure Is On Both Buyers, Sellers

Wed, 02 Sep 2009 13:29:25 GMT

Africa Israel Investments Ltd., a beleaguered Israeli real-estate company, has cut the price of a Miami parcel of land by more than half so it could complete its sale.

A group affiliated with Africa Israel agreed in 2006 to sell the seven-acre parcel in 2006 for about $88.7 million to a partnership led by Falcone Group of Boca Raton, Fla. But the deal never closed as the recession deepened and property values tumbled. Now, to end three years of wrangling, Africa Israel has agreed to reduce the price to about $39 million. The deal is expected to close later this month.

The deal reflects, in part, the pressure that Africa Israel has been under to raise cash. Led by Lev Leviev, an Israeli diamond merchant, the company is best known for its top-of-the-market purchase of the old New York Times building and the troubled Apthorp condominium-conversion development on Manhattan's Upper West Side. The company is selling some real-estate assets to pay off debt.

But the buyers also were under pressure to compromise. The group led by Falcone, a real-estate company owned by three brothers, had already sunk $18 million into the deal from the original deposit along with increases paid to keep extending the closing. In 2007, the Falcone-affiliated group, known as 150 NE 7th Street LLC, filed a lawsuit in a Florida circuit court and sought to recover its deposit money. But Africa Israel battled back. In an amended complaint filed earlier this year, the buyers alleged that the seller didn't meet certain conditions of sale, including failing to remove defects in the property's title in a "timely basis."

Art Falcone, Falcone Group's chief executive, described the price cut as a "settlement."

If the transaction closes as expected, it will be one of only a handful of larger commercial land sales this year. From January through July, the total value of sales of vacant land entitled for commercial development in the U.S. fell to about $636 million, from $5.5 billion in the year-earlier period, according to data from Real Capital Analytics based on transactions valued at $5 million or more.

The decline comes as some lenders, already skittish about financing any real-estate purchases in the recession, are just saying no to borrowers seeking loans on acquisitions of vacant land and empty buildings with no hope of near-term income.

"Lenders are avoiding properties without income like the plague," says Dan Fasulo, managing director of Real Capital Analytics.

For Commercial Real Estate, Hard Times Have Just Begun

Wed, 02 Sep 2009 13:20:25 GMT

As the commercial real estate market heated up earlier in the decade and lenders competed feverishly to issue ever-riskier mortgages, hundreds of bankers, investors, lawyers, brokers, appraisers, accountants and analysts flocked to an investors’ conference in Florida each January to celebrate their good fortune with lavish beach parties featuring bikini-clad models and popular entertainers.

But in what a Prudential Real Estate Investors report described as “a move of near-perfect symbolism,” the conference sponsor, the Commercial Mortgage Securities Association, recently announced that next year’s event would be relocated from South Beach to Washington, where the industry has been lobbying strenuously for federal assistance.

These days, the people who buy and sell office buildings, shopping centers, warehouses, apartment buildings and hotels are hardly in a festive mood, despite some recent encouraging signs relating to the job and housing markets and a recent increase in sales of small office buildings.

Even though industry lobbyists were able to persuade Congress to extend a loan program aimed at prodding the stalled securitization market back to life, several analysts said it was unlikely to head off a spate of defaults, foreclosures and bankruptcies that could surpass the devastating real estate crash of the early 1990s. “It will prop up a few deals, but you can’t stop the wave that’s coming,” said Peter Hauspurg, the chief executive of Eastern Consolidated, a New York brokerage firm.

The distress is still in its early stages, analysts said. “We are between the first and second inning,” said Richard Parkus, who directs research on commercial mortgage-backed securities for Deutsche Bank. “We’re going to have to get through a very difficult period.”

Mr. Parkus said that vacancy declines and rent increases already mirrored what happened in the 1990s, and until new jobs were created, generating an increase in demand for commercial space and more retail spending, this was not likely to be reversed.

Building values have declined by as much as 50 percent around the country, and even more in Manhattan, where prices soared the highest. As many as 65 percent of commercial mortgages maturing over the next few years are unlikely to qualify for refinancing because of the drop in values and new stricter underwriting standards, he said.

By midyear, Real Capital Analytics, a New York research company, had identified $124 billion worth of distressed property. Less than 10 percent of the distress had been resolved through loan modifications or sales.

Distress: The Waiting Game

Wed, 02 Sep 2009 12:42:25 GMT

For the third month in a row, acquisitions of office properties increased in July, albeit modestly. However activity remains muted and sales of distressed properties, expected to be the catalyst to re-energize investment, have yet to materialize in earnest. There is no shortage of distress--$17.4 billion of office properties are known to be in trouble, according to Real Capital Analytics’ August 2009 Month in Review report, but lenders are in little rush to foreclose.

Economy blamed for closure of former Ponchartrain Hotel

Tue, 01 Sep 2009 14:35:25 GMT

The Riverside Hotel, formerly the Pontchartain, has become downtown's first major hotel to shutter amid a national wave of distressed properties.

The once-elegant hotel, at 2 Washington Blvd., across the street from Cobo Center, is under a court-appointed receiver, who closed it two weeks ago.

"I decided to shut it down after I realized I didn't have the money to pay the employees," said David Findling, the Royal Oak lawyer who has been the hotel's receiver for over a month.
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"But I want to emphasize it's temporarily shut. I've had inquires from potential buyers, so it's far from over."

U.S. hotel occupancy, which registered 64 percent in July, is at its lowest level since Smith Travel Research began tracking the figure in 1987.

Metro Detroit's occupancy is just under 50 percent, according to the Detroit Metro Convention and Visitors Bureau. Last year's occupancy rate was 56 percent.

Commercial real estate information firm Real Capital Analytics classifies $18 billion in hotel loans as distressed, compared to 1.3 billion a year ago. Distressed can mean the hotels are delinquent in loan payments, in foreclosure, in bankruptcy or have been restructured by lenders.

Australian REITs on the retreat after AUD$20b losses

Tue, 01 Sep 2009 13:29:25 GMT

Australian property trusts are unloading failed overseas investments from Munich to Michigan after piling up losses equal to almost a third of their market value in the last 12 months.

Westfield Group, the world’s largest shopping-mall owner by market value, and GPT Group, which last month announced plans to dump its overseas properties, are among the companies to rack up losses from foreign ventures.

The 16 members of the S&P/ASX 200 A-REIT Index reported combined losses of $19.5 billion and writedowns of $21.7 billion in the year to June 30, according to data compiled by Bloomberg.

Australia’s $1 trillion in pension savings helped fuel a global buying spree from companies such as Centro Properties Group that saw the nation become the biggest overseas buyer of US property from 2005 to 2007. That backfired when property values tumbled and borrowing costs spiked because of the credit crunch, forcing companies to write down and sell offshore assets and replenish balance sheets ravaged by losses.

Buying spree

Australians spent twice as much as Middle Eastern investors on US real estate from 2005 to mid-2007, and almost three times more than Germans, according to New York-based Real Capital Analytics, a provider of data on the global commercial property market. That investment into the US "evaporated" in 2008, according to an April report from the industry researcher.

Among the biggest buyers was Centro, which last year handed control to banks after failing to refinance $5.1 billion of debt accumulated as it acquired 650 US malls.

Investment in Retail Real Estate Dropped in Most Countries in First Half of 2009

Mon, 31 Aug 2009 15:25:25 GMT

Real Capital Analytics' mid-year Global Capital Trends report reveals that total investment in retail real estate around the world was down 61 percent from 2008. Overall, the total deal volume amounted to $20.2 billion. Furthermore, deal volume in the second quarter of 2009 was lower than the first quarter of 2009, making retail the only property sector that suffered a drop from the first to second quarters.

Activity fell across the board in the second quarter, dropping 51 percent in Europe, the Middle East and Africa (EMEA), 47 percent in Asia Pacific and 28 percent in the Americas. Portfolio sales fell by 71 percent year over year and amounted to $5.9 billion while one-off sales fell 55 percent and amounted to $14.3 billion.

Still, Real Capital expects the retail sector to see a modest resurgence of transition activity in the third quarter.

According to the RCA, "The turbulence of retail property investment is evident in rankings of the most active markets: Second-tier Sheffield stole the top spot due to the Meadowhall transaction, the largest single asset sale (albeit a partial interest) in H1’09. Three other outliers invaded the top ten as activity fell in primary markets: Madrid, Tel Aviv and Taipei. Osaka’s showing was driven by the $422 million sale of a single department store." (The Meadowhall deal was a $1.7 billion transaction on a 1.5-million-square-foot property that took place in February.)

Overall, the United Kingdom ranked as the most active country for retail deals in the first half of the year, displacing the United States. Spain also jumped ahead of the U.S. thanks largely to one deal—a $2.0 billion disposition of a 1,288-property bank portfolio. Spain was one of the few countries were volume was greater than last year. The $2.69 billion in deals represented an 88 percent jump over the first half of 2008. Other markets that posted year over year gains included France (up 286 percent) and Israel (up 1,231 percent).

Property Trusts Hit Hard By US Crash

Sun, 30 Aug 2009 16:22:25 GMT

The crash in American asset values, and to a lesser extent, those in Japan and Europe, has sent many Australian companies scurrying back to home base, cutting their losses on the way.

According to US property research house Real Capital Analytics, Australian listed property trusts (now called A-REITs) pumped more than $47 billion into American property. This $2.7 trillion market has fallen by more than 18 per cent this year and more than half of assets have dropped 25 per cent of their value.

After revaluing their portfolios at the end of the June 2009 financial year, companies with big exposures to the US market, such as shopping centre owners Westfield and the embattled Centro, recorded big hits.

The value of Westfield's portfolio fell to $15.31 billion from $19.35 billion in the six months since December. And Centro Properties suffered an 18.2 per cent fall in the value of its shopping centres which are now worth $10.16 billion.

Report: 3Q Retail Real Estate Transactions To Rise

Fri, 28 Aug 2009 14:30:25 GMT

The first half of the year saw just $20.2 billion in retail property transactions worldwide, down 61 percent from a year ago, according to Real Capital Analytics. The decline is in line with other property types, but retail is the only sector to see second-quarter deal volume fall from the first quarter. Real Capital Analytics predicts a modest resurgence of retail transaction activity for the third quarter, based on deals already closed or pending in the quarter. The U.K. saw the most retail real estate transactions during the first half — some $5.35 billion worth, down 34 percent from a year before. Spain was second, with $2.69 billion, up 88 percent year on year, thanks largely to the $311 million sale of the Centro Comercial Plenilunio, in Madrid, and the $2 billion sale of a 9 million-square-foot portfolio of BBVA bank branches to Deutsche Bank, Real Capital Analytics says.

Chinese commercial property transactions soar as it outperforms UK and US

Fri, 28 Aug 2009 12:26:25 GMT

Not only is the Chinese residential property market soaring, but now the latest figures show that the country's commercial real estate sector is performing above expectations too.

China outpaced the US and the UK combined in commercial property sales in the first half of the year, according to a report from Real Capital Analytics.

China's transactions totalled US$31.2 billion following a surge in sales of land development rights after the Government eased credit terms, according to RCA.

US sales were US$16.2 billion in the first half, according to the report, and the UK's were US$13.7 billion.

'There's no question that China will be a more significant player on the world stage for commercial property transactions versus other Western countries,' said Dan Fasulo, Real Capital's managing director. But he questioned whether such strong growth was sustainable.

About US$62.8 billion of commercial properties were sold during the second quarter of 2009, some 17% more than in the previous three months and the first increase in 18 months, the report from the New York based research company found.

Analysts said that sales growth is the first step toward a global recovery. The first half's total sales were US$116.4 billion, some 65% less than a year earlier and US$500 billion below the market's peak in the first half of 2007.

They said that countries that receive the most financial support from their governments will recover faster. For example, in China, real estate investors took advantage of looser borrowing terms to buy the rights to develop buildings on state owned land, Fasulo explained.

Broward industrial and retail complexes reeling

Thu, 27 Aug 2009 16:39:25 GMT

The owner of Las Olas Centre, a prestigious office complex in downtown Fort Lauderdale, is facing foreclosure, the latest commercial property in South Florida dealing with financial problems amid the credit crisis.

In Palm Beach and Broward counties, 52 office, industrial and retail complexes worth nearly $800 million -- including Pembroke Lakes Mall -- are considered troubled assets, according to Real Capital Analytics and Grubb & Ellis Co.

Chicago Capone-Era Post Office to be Sold at Auction Today

Thu, 27 Aug 2009 14:27:25 GMT

Chicago’s former Main Post Office Building, a landmark completed the year gangster Al Capone went to prison for tax evasion, will be sold at auction today with a starting price of $10 a square foot.

The suggested opening bid is $300,000 for the 14-story, 3 million-square-foot property, according to auctioneer Rick Levin & Associates Inc. Replacement would cost more than $300 million, the Chicago-based firm estimates. Office space in the city’s downtown peaked at $224 a square foot in 2007, data from research firm Real Capital Analytics show.

“It’s not often you see a building of this magnitude go up at public auction,” said Lisa DiChiera, director of advocacy at Landmarks Illinois, a preservation group in Chicago. “It’s one of the grandest, biggest, U.S. post offices ever built.”

The U.S. Postal Service, which reported a net loss of $2.4 billion in the third quarter, is selling property to cut expenses as electronic communication usurps old-fashioned letters and packages. It costs about $2 million a year to keep the Chicago property, according to a report by Congress’s General Accountability Office.

U.S. commercial real estate prices have fallen by a third since the market peak in 2007, in part because it’s harder for investors to get credit. Loan originations for offices, shops, hotels, apartments and health-care facilities plunged 70 percent in the first quarter from a year earlier, according to the Washington-based Mortgage Bankers Association.

Commercial real estate values in the U.S. fell 27 percent in the year through June, according to the Moody’s/REAL Commercial Property Price Indices.

Chicago area sales plunged 86 percent in the first half compared with a year ago to $682 million, according to New York- based Real Capital Analytics.

Two Sides of a Coin: London and Manhattan

Wed, 26 Aug 2009 16:24:25 GMT

While both Manhattan and London office transactions have turned into ‘rare occasions’ in the months since the onset of the financial melt-down, there are signs--at least in London--activity has started to return, according to a new Global Trends report by Real Capital Analytics.

The report points out glaring similarities, like Manhattan and London tenant bases that are comparable--often duplicative--with similar credit profiles; investment communities that are very much intertwined; and space markets both locked into similar patterns.

More broadly, "a number of international companies, would certainly be present in both financial centers, but on the margins, there are thousands of employees that could basically work out of any office," says Dan Fasulo, managing director at RCA, tells GlobeSt.com. He adds that despite being significantly more expensive than Manhattan, London offers the appeal of being better connected to the fast growing regions of Eastern Europe, Russia, and even Asia.

Overall the place many consider to be Manhattan’s closest rival for dominance of the world's most high profile business stage, has seen its commercial investment community brush aside ‘commitment phobia’ and begin to buy leased assets, taking the more sunny path; not every tenant is going to go bust and leave a building vacant.

In fact, RCA data shows that since April, 37 office properties priced at $20 million or higher, traded or went into contract in London. That compares to 15 transactions in Q1’09. But, in Manhattan, only three similar properties saw trades in Q1, and only six in the same period since April.

"The lack of transactions in New York City has created a lot of confusion," says Fasulo, adding Manhattan lacks comparables. But, he says, given how consistently London and New York have moved together over the past decade, "I think it’s fair to use comparables in London."

Drilling down a bit, the RCA report says among London office trades, average cap rates have moved around 7.5%, up 300 basis points from the height of the market. The report says that stabilized building sales in Manhattan will need to occur before the acquisition yield picture clears and pricing benchmarks can be established that will reassure investors.

"Based on the bids I’ve seen behind the scenes, that is exactly where the New York market is too, 7.5% to 8% cap rate," says Fasulo.

Noting how psychologies have changed over the past two years, Fasulo says just 24 months ago, "everyone wanted vacancy, because they were convinced they could rent at a higher rent, and increase the income at their property." However, "that thought process completely flipped."

These days, "investors are looking at vacant space as a significant negative factor. As a result, they are basically reducing the amount they’re willing to pay for assets with any type of vacancy. They do not want the risk involved with vacant space right now," or Fasulo says in matter of fact like fashion, "in the near future."

As for Manhattan investors following London’s proactive lead, "I guess it depends on your view of the future," he says. "If you think the world is going to end, you might as well put your money in gold bars and go to sleep," a nap Fasulo is clearly going to avoid taking.

Instead, he predicts a coming inflationary environment, one in which he wonders where an investor can find long term income that pays 8% a year, and is inflation protected. "What’s interesting about this downturn?" he asks. "The fact that we have 900 clients and not one have I heard say, 'hey, we’re just throwing in the towel, we’re giving up on real estate as an asset class'," says Fasulo who added back in the early 1990’s, "that was the mindset after the first real estate depression." He says that even the people who’ve suffered tremendous losses, haven’t given up on the sector at all.

REITs Are Poised to Pick Up the Pieces

Wed, 26 Aug 2009 15:29:25 GMT

Overleveraged private real-estate funds are gasping for money, but public property companies have been chugging down cash from the capital markets. Now, they are poised to emerge as more-dominant players when the commercial-property-market starts to recover.

Many expect the landscape change to be as profound as it was in the early 1990s, when many real-estate developers went public to avoid bankruptcy and helped turn real-estate investment trusts into a major force in the property market. Most of the leading private real-estate funds during that time vanished from the scene.

REITs are poised once again to pick up the pieces from the commercial-property bust. This year, they have tapped the stock market for nearly $15 billion in new equity and, this month have raised $2 billion in unsecured debt. The equity deals diluted shareholders' ownership stakes, but positioned many REITs -- such as mall owner Simon Property Group Inc. and warehouse landlord ProLogis -- to avoid loan defaults and have buying power when distress hits the market.

Few of the private-equity funds that became Wall Street stars during the boom can say the same thing. An increasing number are trying to raise cash to recapitalize existing investments.

But the strategy has been a hard sell. The Townsend Group's Martin Rosenberg, who consults institutions on their real-estate investments, says he has seen 16 funds make such proposals since late last year, but only one has raised all the equity it asked for. Two others raised part of what they were seeking, and two more are on track to succeed, Mr. Rosenberg adds.

Funds also are having trouble raising money to take advantage of distressed opportunities because their traditional investors -- pension funds and other institutions -- have little to invest after going on a real-estate binge in the mid-2000s.

The country's 50 biggest public pension plans are on pace to commit only $5 billion to real-estate investment vehicles this year, according to trade publication Real Estate Alert. That would be the lowest total since 2003, compared with $17 billion last year and a peak of $36 billion in 2007.

In all, property funds raised $370 billion from 2003 to 2008, according to Probitas Partners, a San Francisco research firm. They were seen by many investors as being more nimble than public REITs, and they goosed returns with mountains of cheap debt.

All that debt has led to a spate of bankruptcies at companies taken over by private-equity funds -- such as Morgan Stanley Real Estate's Crescent Resources LLC and Colony Capital LLC's Station Casinos Inc. -- and huge markdowns across the industry. Even Prudential Financial Inc.'s $11 billion PRISA fund, with a reputation as one of the most conservative in the industry, told investors last month to expect a 55% peak-to-trough loss by the beginning of next year.

Private-equity funds invest money from pension funds and other institutional investors to buy properties or entire real-estate companies. They collect part of the profits and earn management fees.

Shares of publicly traded REITs, meanwhile, can be bought and sold by rank-and-file investors.

REITs, under closer scrutiny from analysts and shareholders, didn't take on as much debt as their private counterparts and proved to be astute sellers as the market peaked.

In 2006 and 2007, as values skyrocketed and private-equity funds and institutional investors were net buyers of $134 billion of property, public REITs sold $94 billion more in real estate than they bought, according to Real Capital Analytics data cited by Green Street Advisors.

Inland Real Estate Dives Into Troubled Commercial Market

Wed, 26 Aug 2009 15:28:25 GMT

This year, United States commercial property sales are down by about 90 percent from their peak in 2007, but a handful of cash-rich investors see this troubled market as a prime buying opportunity.

A few years ago, the market was characterized by inflated appraisals, heavy reliance on debt and almost instant resale of buildings. Today’s buyers pick properties more carefully, pay low prices in cash and plan to hold the buildings for years.

But high-quality properties aren’t very easy to find, since many owners are hoping for prices to rebound before they are willing to sell. In this environment, even a relatively mundane structure like the red brick building at 250 Royall Street in Canton, MA was in demand. In June, the fully leased 182,000-square-foot four-story suburban office building sold for $62 million. A few years ago, the same building sold for $68.8 million.

The buyer was G. Joseph Cosenza, president of Inland Real Estate Acquisitions of Oak Brook, Ill. His company is the largest buyer of United States commercial real estate so far this year, according to the research firm Real Capital Analytics.

The 10 Most Expensive Buildings, Revisited

Wed, 26 Aug 2009 15:26:25 GMT

In April 2007, during those blindered days of economic bluster, The Observer published an article naming New York’s 10 most expensive towers, according to prominent real estate professionals. They agreed on the most valuable single building: the GM Building. That rocket of marble and black glass, considered then and now the most coveted skyscraper in Manhattan, if not the country, was, said one, “worth $4 billion–plus.”

Sure! Why not? The building sits at that delicious juncture of midtown and the Upper East Side, at the southeast corner of Central Park, above the Apple Store, and across from the Plaza and Peter Schjeldahl’s favorite piece of New York public art: Augustus Saint-Gaudens’ statue of William Tecumseh Sherman astride a horse.

The GM Building, based upon its reported income, is today worth between $1.9 billion and $2.6 billion, according to Dan Fasulo, managing director of Real Capital Analytics. Such is the economic reality for Manhattan’s top office trophies.

Since the peak years of 2007, the trophies’ values have fallen by somewhere between 25 and 60 percent. Emphasis on modifying words like “somewhere between,” “probably” and “about.”

So what are the other nine buildings included in our 2007 survey now worth?

The 2007 most expensive list included, along with the GM Building: 9 West 57th Street; Rockefeller Center; 200 Park Avenue; the Seagram Building; 4 Times Square; One Bryant Park; 245 Park Avenue; 277 Park Avenue; and the one non-midtown entry, 7 World Trade Center. Based on interviews with real estate professionals, their values have declined anywhere between 25 and 60 percent. So, Rockefeller Center, guesstimated to be worth $8 billion in 2007, might be worth between $6 billion and $3.2 billion. 277 Park, then valued at about $2 billion, would sell for between $800 million and $1.5 billion. And The Seagram Building, in 2007 valued at around $1.6 billion, might today sell for between $640 million and $1.2 billion.

Upon what are we basing these wildly irresponsible estimations? That, we’re afraid, entails a discussion of what the pros refer to as “price discovery,” a process that involves broadly comparing the prices of recently sold buildings (of which there are, frankly, very few, given the economy and the ongoing dearth of credit).

Want to do your own research on commercial properties and transactions? Check out RCA's Property Trade Search.

Hotel Receivers Face Long Stay -- and Rich Rewards

Tue, 25 Aug 2009 16:28:25 GMT

The growing wave of US hotels defaulting on their debt has spawned a growth industry for companies that oversee and operate hotels seized by lenders.

In many cases, the companies taking over the ailing properties own their own hotels as well. The new business is helping them hang tough during one of the worst hotel markets since World War II.

Real-estate research company Real Capital Analytics now classifies $18 billion in hotel loans as distressed, meaning they are delinquent, in foreclosure, in bankruptcy or have been restructured by lenders. That compares with just $1.3 billion in distressed loans on hotels a year ago.

A foreclosure doesn't always mean a big operator, such as a Marriott International Inc., will stop managing a hotel or licensing its brand to it. But, in some cases, a brand will drop a hotel in response to a previous owner's customer-service shortfalls or refusal to renovate the property.

Another challenge for interim managers: hanging on to the conventions and group meetings booked at those properties. Contracts for such events often allow the visiting groups to cancel if the hotel goes into foreclosure or receivership.

That happened at the 331-room Wigwam Golf Resort & Spa near Phoenix. Interim manager Destination Hotels & Resorts, a unit of Lowe Enterprises, took over management of Wigwam in May after the resort went through receivership and into bankruptcy.

By then, the Wigwam had lost several conference bookings amid the management upheaval of the previous weeks. Destination hustled to retain the rest, succeeding in some cases but not in all.

"It takes a lot of work to convince a client that we're still going to be here in six months when they bring their group in, and we're going to service that event," said a Destination senior vice president.

Distressed Real Estate Reaches $114B

Tue, 25 Aug 2009 16:28:25 GMT

The total value of distressed commercial real estate reached $114.2 billion in August, according to the latest issue of the quarterly Distressed Commercial Real Estate Journal. The journal is published by the Distressed Asset Recovery Team--a consultancy formed earlier this year by Beers and Cutler, Delta Associates, Fore Consulting, and BlackwellAdvisors--and uses data provided by several firms including Real Capital Analytics.

The picture the report paints, of course, is hardly pretty: retail properties continue to be the largest asset class under distress at $32.7 billion this month, compared to $29.7 billion in June. Indeed, in general every product type recorded an increase with hotel properties increasing the most, by 65%, to $18 billion.

One Chase's Great Escape

Tue, 25 Aug 2009 15:30:25 GMT

The leaseback terms for JPMorgan Chase's sale of One Chase Plaza are so unpalatable, the bank will have to sweeten them to avoid chasing away possible buyers, sources told The Post.

The bank wants to sell 23 buildings around the country to rid itself of excess space -- most prominently among them One Chase Plaza, the 60-story downtown tower that was the brainchild of David Rockefeller and completed in 1960.

But with today's near-dead market for commercial properties, Real Capital Analytics research chief Dan Fasulo told The Wall Street Journal last week a sale of the 2.2 million square-foot One Chase Plaza was unlikely unless the bank leases back "a significant amount of space."

Realty Check has now seen a confidential "property summary" the bank prepared for interested parties by Houlihan Lokey, the investment-sale firm Chase tapped to sift offers.

According to the term sheet, Chase would lease its 31 floors in the tower for a lowball rent of $35 a square foot. More significantly, it would have options to give back more than half of the space to a new landlord over time -- including over a quarter-million square feet within two years.

Chase occupies about 1.27 million square feet in the building. A stacking plan shows the bank has floors 3-10, 13-26, 28-30, 50, 58 and a portion of 40.

According to the term sheet, the bank would have the right to give back "up to seven floors" at the end of the second year of the lease.

Mainland China property deals hit $31.2b

Tue, 25 Aug 2009 15:30:25 GMT

US and UK lag China in commercial real estate transactions.

China outpaced the United States and Britain in commercial property sales in the first half of the year, underpinning hopes domestic demand will quicken a recovery in the mainland economy.

Analysts attributed the extraordinary gap between the East and the West to ample liquidity on the mainland, strong interest from buyers driven by the prospect of real estate investment trusts (REITs) and the rosy outlook for the retail industry.

But they remain divided over whether the momentum would be sustainable this year as uncertainty over monetary policy grows.

The total value of deals in the commercial property sector on the mainland reached US$31.2 billion in the six months to June, according to research firm Real Capital Analytics. US sales were US$16.2 billion during the period and Britain's were US$13.7 billion.

Tokyo office market was world's most active in H1

Tue, 25 Aug 2009 15:29:25 GMT

Tokyo was the most active market for office property transactions in the first half of this year, buoyed by major deals in prime properties, according to Real Capital Analytics, the real estate market research firm.

Tokyo's property market was hit hard as the global credit crunch pushed down property values and squeezed financing, driving investors away. But they began returning earlier this year, hoping to scoop up properties at attractive prices.

The biggest office transaction during the January through June period was American International Group Inc's $1.2 billion sale of its main building to Nippon Life Insurance Co.

The second-largest was Mitsubishi Estate Co's acquisition of the Asahi Seimei Otemachi Building in Tokyo's central business district for $811 million, data compiled by Real Capital Analytics showed. The firm counted 80 deals worth $10 million or more in Tokyo's office market in the January-June period.

Japan as a whole attracted a total $7.4 billion of investment in the January-June period, down 52 percent from the previous year, but topping the most active country ranking for the first time.

Britain came second with $5.79 billion in investment, followed by the United States with $5.22 billion, said Real Capital Analytics in its Global Capital Trends report.

Market Doldrums Force Brokers To Hone Their Skills

Tue, 25 Aug 2009 13:30:25 GMT

Across the nation, brokers are looking for productive ways to use their time while transactions are at a near standstill. The number of commercial real estate deals closing today is a fraction compared with volume in the years leading up to the market peak in October 2007.

Just 650 commercial properties in the United States sold for $5 million or more in the second quarter this year, a 33% drop compared with the same period a year ago, according to Real Capital Analytics.

“Brokers are having a nice, long summer holiday this year,” quips Dan Fasulo, managing director at the New York-based research firm. Humor aside, Fasulo says that brokers seem to be growing busier this summer as property owners seek marketing proposals for assets they plan to sell.

Hanover Marriott sold for $27M, will get $20M upgrade

Tue, 25 Aug 2009 12:29:25 GMT

The Hanover Marriott, an upscale hotel on Route 10 in the Whippany section of the township, has been sold for $27 million to HEI Hotels & Resorts, which will invest $20 million to fully renovate all public and private spaces of the 353-room hotel.

“We believe this demonstrates the loosening of the hotel acquisition market,” said Roger Clark, HEI senior vice president for acquisitions and development, in a statement. “With approximately $500 million of equity in our fully discretionary fund, we intend to be in the vanguard of this wave, surfacing deals that make sense for our investment plans.”

HEI plans to “acquire between $1 billion and $1.5 billion in hotels and resorts in the coming years,” Clark added.

The $27 million price tag makes this the largest hotel deal in New Jersey this year, said Dan Fasulo, head of research for Real Capital Analytics, in New York. Fasulo said he’s not counting casino/hotel acquisitions in Atlantic City, since such properties generally are analyzed as casinos, not hotels.

When it comes to the U.S. hotel business, this year, “there has been little to no transaction activity anywhere,” Fasulo said. “Investors are having a hard time getting their hands around the fundamentals, which have fallen off a cliff since last October — it’s very hard to value these assets.”

Industry experts say commercial real estate properties are selling for 30 percent to 50 percent less than they would have brought several years ago, during the nation’s real estate boom.

The Hanover Marriott serves Morris County’s business community, and the pharmaceutical industry in particular, “which has visiting employees, doctors and scientists” seeking hotel rooms, Fasulo said.

Practice Of “Pretend and Extend” Could Stagnate Economy

Mon, 24 Aug 2009 16:29:25 GMT

“Pretend and Extend is a practice by lenders of extending a loan to de facto forbearing a default because they don’t want to deal with the problem,” Chris Grey, a managing partner with the Los Angeles-based real estate advisory firm Third Wave Partners, says. “This usually happens so that the lender can avoid writing down the loan or foreclosing and writing down the asset.”

The New York research firm Real Capital Analytics found that in late July, $93 billion in U.S. office, industrial, retail, and apartment real estate was in default, foreclosure, or bankruptcy, with the specter of troubled hotels and other commercial property types adding $31 billion or more to that total.

The RCA report found that less than one in ten distressed situations have been resolved – an indicator that Pretend and Extend may be taking a stronghold in the real estate world.

China Passes U.S., U.K. in Commercial-Property Sales

Mon, 24 Aug 2009 11:22:40 GMT

China outpaced the U.S. and the U.K. combined in commercial property sales in the first half of the year, Real Capital Analytics Inc. said.

China’s transactions totaled $31.2 billion following a surge in land sales after the government eased credit terms, according to RCA. U.S. sales were $16.2 billion in the first half, according to the report, and the U.K.’s were $13.7 billion.

“There’s no question that China will be a more significant player on the world stage for commercial property transactions versus other Western countries,” said Dan Fasulo, the managing director at Real Capital. China’s growth “may not be sustainable at this level,” he said.

About $62.8 billion of commercial properties were sold during the second quarter, 17 percent more than in the previous three months and the first increase in 18 months, Real Capital, a New York-based research company said in a report today.

The research firm said sales growth is the first step toward a global recovery. The first half’s total sales were $116.4 billion, 65 percent less than a year earlier and $500 billion below levels at the height of the market in the first half of 2007, according to the report. Countries that receive the most financial support from their governments will recover faster, said RCA.

The slow U.S. recovery reflects the “deep connections of its major institutions to the epicenter of the 2008 financial cataclysm,” RCA said. U.S. spending was 6 percent of the first- half amount in 2007, Fasulo said, compared with China’s spending of 92 percent.

The total volume of properties in default, foreclosure or bankruptcy around the world has reached $230 billion, increasing $96 billion in the second quarter, RCA said.

“The growth in transactions is only a first step in the recovery process,” according to the report. “Pricing and operating fundamentals remain in decline and debt remains scarce.”

Price Index Suggests Declines Are Ebbing

Mon, 24 Aug 2009 00:00:40 GMT

June saw a "mild" 1 percent decline in property values after two back-to-back months of 7 percent drops, Real Estate Analytics said on Friday. At the same time, REAL reported that the month also represented an uptick in sales volume compared to May, possibly auguring a market bottom.

"This month is not unexpectedly bad news like the two previous months," Neal Elkin, president of REAL, in a release accompanying the newest Moody's/REAL National All Property Type Aggregate Index. "It could signal the beginning of a gradual tapering of the decline, the beginning of the final stage of the price correction from the lofty bubble of two years ago."

Nonetheless, the June index of 123.82 represents a 35.5 percent drop in prices over the past two years, and a 33.9 percent decline below the peak measured in October 2007. According to REAL, properties purchased between 2005 and 2008 have now suffered price drops of more than 20%, with the declines largest for those purchased two years ago.

The Moody’s/REAL indices are based on transaction data from Real Capital Analytics.

Austin Office Market Shares National Distress

Sun, 23 Aug 2009 00:00:40 GMT

Real Capital Analytics ranks Austin 22nd out of 59 U.S. metro markets in terms of distressed office and 32nd when that value is scaled to the size of its market over the past several years.

For example, Pittsburgh has $134 million worth of office property in trouble — less than Austin — but is a smaller office market. So Pittsburgh's total represents 12 percent of its market, while Austin's accounts for only 3 percent of its market, said Ben Thypin, a market analyst with Real Capital Analytics.

Thypin said that nationwide, there aren't as many foreclosures as might be expected. Credit has become a little more available, so some borrowers have been able to refinance. Also, with prices coming down, there are some buyers in the market, he said.

Also, banks in general are hesitant to take properties back and are inclined to modify or extend a troubled loan rather than have to mark down the value on their books, meaning they could run afoul of federal requirements for capital ratios.

Developing Deadlock

Sun, 23 Aug 2009 00:00:40 GMT

Across the country, the hotel sector is suffering more than any other property type, according to Real Capital Analytics. So far, Manhattan has fared better than elsewhere in the country. But experts say that could change quickly if room rates continue to fall and the frozen credit markets continue to eliminate the possibility of refinancing. Average Manhattan room rates fell 26% to $215 since the beginning of the year, according to Smith Travel Research. Lower rates have helped prop up occupancy levels, but revenue per room has dropped a precipitous 33% to $163 this year.

“I think we are going to see more foreclosures,” says John Fox, head of the New York office of hotel advisory firm PKF Consulting. “It is going be very difficult to find financing as hotels struggle with room rates.”

There are about seven hotel development sites in Manhattan that have stalled, been canceled or faced foreclosure, says RCA. Meanwhile, three properties stopped making their mortgage payments, including the Dream Hotel, a 220-room luxury property on West 55th Street.

Analyst: LV keeps spot at top of list of distressed properties

Fri, 21 Aug 2009 15:25:25 GMT

The number of commercial properties facing foreclosure tapered off over the summer, but that hasn’t prevented Las Vegas from holding onto its No. 1 ranking for distressed buildings and development.

In its August report that tracks the market through the end of June, New York-based Real Capital Analytics said Las Vegas had 168 troubled assets valued at $9.2 billion. That is down from $9.4 billion in its July report and $9.7 billion in its June report.

The slowdown comes after distressed properties rose 52 percent during the spring.

“It has been consistent, but I still think it gets worse before it gets better,” said Jessica Ruderman, a senior analyst at Real Capital Analytics.

The Chapter 11 bankruptcy filing by Station Casinos in July will be a new factor to consider, Ruderman said. That will push the number of distressed properties past $15 billion with $6.5 billion attributed to Station, she said.

Excluding Station, however, the value of distressed properties has stabilized, Ruderman said.

The reason for the stabilization in Las Vegas is the attitude of lenders, Ruderman said. Many don’t want to take over the properties in foreclosure and would rather work out a deal. They are even reluctant to file default notices, she said.

Of the distressed properties, about $1 billion or less than 10 percent have been resolved, Ruderman said. Resolving them means they have been sold, refinanced or a new tenant has been found, she said.

Las Vegas’ No. 1 ranking from Real Capital Analytics is based on the percentage of commercial property in distress rather than raw numbers. Detroit was No. 2.

In its August report, the firm breaks down the $9.2 billion in distressed properties to $6.5 billion in commercial properties that are “troubled,” $692 million are having loans restructured or extended and $2 billion in properties foreclosed by lenders.

Development properties fared the worst with $4.6 billion in distress. That was followed by $1.8 billion in retail properties and $1.5 billion in hotels. Retail distressed properties have grown by about $100 million to 6.7 million square feet, up from 5.8 million in the last report.

Other distressed properties include 37 apartment complexes at $907 million; $51 million in industrial and $72 million in miscellaneous commercial.

Sales activity has remained tepid in the commercial market in Las Vegas with $17.4 billion in sales reported as of Aug. 1 through the past 12 months. It was $17.7 billion through July 1, the firm reported.

About $17.2 billion of the sales were 13 hotel properties with an average price per square foot of $256,854, the firm reported.

Eight retail properties sold for $82 million in the past year at an average price of $121 per square foot. Industrial and office sales amounted to $55 million. The five office sales averaged $213 per square foot, while the six industrial sales averaged $106 per square foot. Six apartment buildings sold for $48 million, the firm reported.

Nationally, the volume of troubled commercial properties grew by 123 percent in the first half of 2009 as $67 billion became troubled. At the end of June, the value of 6,063 commercial properties in default, foreclosure or bankruptcy was nearly $115 billion, Ruderman said.

London’s real estate recovering faster than NYC’s

Fri, 21 Aug 2009 00:00:40 GMT

While real estate investment markets in both London and New York were devastated by the global economic crisis, it’s the financial capital on the eastern end of the pond that seems to be recovering more quickly.

In London, 52 office buildings worth more than $20 million were sold or in contract to be sold in the first six months of the year, compared with a mere nine in New York, according to data from Real Capital Analytics. And the pace of sales in London is strengthening, with 37 of the buildings trading in the second quarter.
Each city is struggling with higher vacancy rates and lower rents. So why do investors seem more eager to leap into London?

Real Capital Analytics managing director says London’s building owners may be more willing to accept the fact that real estate prices have indeed fallen and won’t be recovering anytime soon.
“I think when [it comes to] accepting that prices have corrected, London is just in a different ballpark,” said Dan Fasulo, managing director of Real Capital Analytics. He noted that because the recession hit earlier in London, people there have had longer to adjust to the new environment.

The types of buildings that have been sold lately in Manhattan likely contribute to investors’ skittishness about buying here. For example, both 1540 Broadway and Worldwide Plaza were a part of a distressed sale; each is either substantially vacant or faces major tenant turnover.

The broader problem in Manhattan: No one is certain how much to bid for a building that is fully leased.

SL Green recently reached a deal to sell half of 485 Lexington Ave., a well-located tower that is 97% occupied, for a deal that valued the building at $547 a square foot. Meanwhile, HSBC is trying to orchestrate a sale-leaseback deal for its Fifth Avenue location and J.P. Morgan Chase & Co. is seeking to do the same for at least one of its properties in Manhattan. All those deals together could help set a price floor in New York.

“We need to have a ground breaking sale,” Mr. Fasulo said.
London may also be ahead of New York because buildings there tend to be smaller, so they require less cash. Last year, the average deal size in London was $83 million, while in Manhattan it was $172 million.

Manhattan appears to be the bigger bargain for now. Prices have tumbled 41% here this year, to $462 a square foot, while in London they’re off 27%, to $844 a square foot. However, Mr. Fasulo noted that the wide difference in the number of transactions voids a true comparison.

Second Wave Of The Credit Crisis: Collapsing Commercial Real Estate

Thu, 20 Aug 2009 11:32:40 GMT

The recent uptick in home sales, green shoots of new housing starts and rebounding stock market may suggest that the long-awaited turn in the U.S. economy is here.

But is this daylight at the end of the tunnel or the beam of an oncoming locomotive of commercial real estate insolvency coming down the tracks on a collision course with a shaky economy?

Commercial real estate (CRE), valued at $3.5 trillion in the U.S., has experienced a 39% decline in prices from the peak only two years ago, according to the MIT Center for Real Estate.

This drop is greater than the 27% commercial real estate decline associated with the longer savings and loan crisis of the late '80s and early '90s that precipitated government Resolution Trust Corp. (RTC) seizures and auctions.

Additionally, the 18% price decline in the second quarter was the largest three-month drop in the 25 years since MIT first published the CRE price index.

Real Capital Analytics, the source of the same-site transaction data reports that over $2 trillion in commercial properties bought or refinanced in the past five years are upside down on their loans — having fallen below the finance or purchase price.

It appears owners have lost their entire down payments on $1.3 trillion worth of property. In the first six months of this year, commercial properties in default, foreclosure or bankruptcy doubled. That pace may accelerate because commercial usually lags residential by a year.

Commercial real estate bubble looms

Wed, 19 Aug 2009 15:31:25 GMT

"We seem to be nearing the end of the recession but the situation in the commercial real estate market is getting worse," analyst Patrick Newport told USA Today Tuesday.

On Monday, the Federal Reserve extended a program six months to buy $200 billion of securities backed by commercial property, a program that has to date only lent investors $29.6 billion

Real Estate Econometrics President Sam Chandan said commercial mortgage defaults could reach 4.1 percent by the end of the year, up from 2.25 percent in the first quarter.

Real Capital Analytics estimates commercial property loans worth $83 billion have been involved in default, foreclosure or bankruptcy in 2009.

Lenders however, are becoming more reluctant to push a commercial property into foreclosure, which would force them to resell the properties at lower prices, New York real estate attorney Edward Mermelstein said.

Tishman Faces Office Downturn

Wed, 19 Aug 2009 14:34:25 GMT

A partnership led by Tishman Speyer Properties is in default on debt tied to one of the largest office portfolios in the Washington area, the latest in a line of humbling turns for the prominent property developer.

Tishman Speyer paid $2.8 billion in late 2006 for what was known as the CarrAmerica portfolio, a collection of 28 buildings leased to law firms, lobbyists and other upscale tenants in and around Washington. But in taking advantage of the easy credit terms of the time, Tishman ended up overpaying.

With office vacancies rising and rents falling, the partnership has violated lender's covenants. Tishman also must find a way to refinance the debt when it comes due in 2011, something that analysts say could be a struggle.

Tishman Speyer itself isn't threatened by the problems.

Despite its size, CarrAmerica is one of the lesser-known investments in the Tishman Speyer empire, which includes Manhattan's Rockefeller Center and the Chrysler Building. In addition to the CarrAmerica deal, it also is facing stress from its other top-of-the-market acquisitions including Archstone-Smith, a high-end apartment real-estate investment trust, and the sprawling New York apartment complexes of Peter Cooper Village and Stuyvesant Town.

The woes of Tishman and other landlords is stoking fears among regulators and bankers that turmoil in commercial real estate may derail the hoped-for economic recovery. There are more commercial-mortgage-backed securities outstanding than credit-card debt, student loans and car loans combined and many of those loans are going bad rapidly. About $128 billion in office buildings, hotels, stores and other commercial property are in default, foreclosure or bankruptcy, according to Real Capital Analytics.

Harp Group Puts Two Hotels Into Bankruptcy Protection

Wed, 19 Aug 2009 11:26:40 GMT

Hotel owner Harp Group Inc. put two of its properties -- the InterContinental Chicago O'Hare and the Radisson at Los Angeles International Airport -- into Chapter 11 bankruptcy protection after it couldn't reach compromises with lenders holding $278 million of debt on the properties.

The hotels filed for bankruptcy Monday in U.S. Bankruptcy Court in Chicago. The bankruptcies don't involve the other 10 hotels Harp owns or the 25 it manages.

The bankruptcies are the latest fallout in what is shaping up to be the worst downturn for hotels since the early 1990s. The combination of curtailed travel and high debt loads taken on during the boom years of 2004 to 2007 are squeezing hotel owners. Many now can't pay interest costs on their debt, and the value of many hotels has fallen below the balance remaining on their mortgages.

The result is a rapid rise in loan delinquencies, hotel foreclosures and owners turning over hotels to their mortgage holders. According to real estate research company Real Capital Analytics, distressed hotel debt -- including delinquent loans, foreclosures, bankruptcies and restructured loans -- now totals $16.8 billion in the U.S. That's in comparison to $1.3 billion a year ago.

Manhattan Hotels Fill Rooms at Rock-Bottom Rates

Wed, 19 Aug 2009 11:19:40 GMT

No other sector in commercial real estate is suffering as badly right now as the hotel industry.

In June, the average occupancy rate nationwide was 54.6 percent — by far the worst performance since Smith Travel Research of Hendersonville, Tenn., began keeping track in 1987. Distress is rampant, with increasing numbers of hotel owners surrendering control of their properties to their lenders.

Around the country, owners of more than 1,000 non-casino hotels, including some well-known properties on the West Coast, have defaulted on $16.8 billion in loans, and many more are expected to follow suit, according to Real Capital Analytics, the New York-based research company. The distressed properties include the W Hotel in San Diego and two prominent San Francisco hotels: the Renaissance Stanford Court and the Four Seasons.

But a few Manhattan hotels have also run into trouble. Among them are the Dream Hotel, a 220-room luxury boutique hotel on 55th Street between Broadway and Seventh Avenue.

BP Puts Suburban Building On The Block

Tue, 18 Aug 2009 13:31:25 GMT

BP has hired real estate firm Jones Lang LaSalle Inc. to market Cantera One, an eight-story structure built in 1997, part of the sprawling Cantera mixed-use development. A BP spokesman confirms that the building and an adjacent vacant parcel are on the market but declines to provide an asking price.

But Chicago-based Jones Lang is aiming for a sale price of $19.2 million, an ambitious goal in a market where few office buildings have changed hands, sources say. To reach that target, Jones Lang is marketing the property to companies looking to pay a premium to own a headquarters-quality office building rather than lease such a facility.

Just nine office properties worth a total of $232 million sold in the Chicago area during the first six months of 2009, but more than $1 billion is on the market, a sign that some sellers think investment activity will pick up, according to a report by Real Capital Analytics Inc.

“Although recent data indicates the market is starting to stir, the headline statistics for the office sector . . . are disappointing,” New York-based Real Capital says.

Commercial real estate gets worse

Tue, 18 Aug 2009 13:22:25 GMT

The commercial real estate downturn is deepening, threatening to slow the economic recovery.

To try to contain the damage, the Federal Reserve said Monday that it will extend into 2010 a program to help investors buy commercial property loans. But some say that will have limited impact.

"We seem to be nearing the end of the recession but the situation in the commercial real estate market is getting worse," says Patrick Newport, an analyst at IHS Global Insight.

About $83 billion of office, retail, industrial and apartment properties have fallen into default, foreclosure or bankruptcy this year, says research firm Real Capital Analytics. The default rate for commercial mortgages jumped from 1.62% to 2.25% in the first quarter and should hit 4.1% by the end of the year, says Sam Chandan, president of Real Estate Econometrics. The carnage will likely cut half a percentage point off economic growth this year and in 2010, Newport says.

Fueled by easy credit, developers built too many shopping malls and office buildings from 2004 to 2007. As the economy soured, vacancy rates rose. Property values are down about 40% from their 2007 peak, Deutsch Bank says, and loans for commercial properties have come to a virtual standstill.

Hundreds of smaller regional banks, which are heavily exposed to commercial mortgages, could go bankrupt the next two years, Newport says.

Unwilling to seize devalued properties in a moribund market, lenders have foreclosed on fewer than 10% of the loans, says Real Capital Analytics.

BRE Completes Exit From Capitol Market

Tue, 18 Aug 2009 13:18:25 GMT

San Francisco-based apartment REIT BRE Properties says it has completed a series of planned dispositions in Sacramento, California. Arbor Point is a 20-building, 240-unit property built in 1987 on 20 acres at 9750 Old Placerville Rd. in Sacramento. Overlook at Blue Ravine is a 39-building, 512-unit property constructed in 1991 and 2001 on 39 acres at 1200 Creekside Dr. in nearby Folsom. Both assets were approximately 93% leased when they came to market at the beginning of the year.

Overlook sold for $51 million, or $99,609 per unit, according to BRE; the buyer was David Mercer of California, according to Real Capital Analytics. Arbor Pointe was sold for $16 million or $66,666 per unit to an unidentified Bay Area-based private investor. Curtis Gardner and Mark Leary, principals in the West Coast office of Atlanta-headquartered Apartment Realty Advisors had the disposition assignment.

BRE revealed its plan to exit the Sacramento market some 18 months ago.

Chase Headquarters Goes On The Market

Tue, 18 Aug 2009 10:35:40 GMT

JPMorgan Chase is marketing its Houston headquarters building as it seeks to get out of the real estate business.

The property at 712 Main downtown is part of a portfolio of 23 office buildings around the country being offered for sale by Chase, which last year acquired Bear Stearns and the banking operations of Washington Mutual.

“We are considering the sale of 712 Main so we can focus our talent and capital on our core business of meeting the financial needs of businesses and consumers, and not on being a landlord,” said Greg Hassell, a spokesman for Chase in Houston.

The former Gulf Building and headquarters for Texas Commerce Bank was constructed in 1929 by real estate magnate, banker and newspaper publisher Jesse H. Jones. At 36 stories, the Art Deco landmark was the tallest skyscraper in Houston until 1963, according to architecture historian Stephen Fox.

If the building is sold, it will remain the bank's local headquarters through a long-term lease, Hassell said.

But selling the property in today's troubled commercial real estate market won't be easy.

Office building transactions have shrunk significantly since the credit markets tightened and financing became harder to come by. Borrowers are being charged higher interest rates and are having to put up more equity to close deals.

Over the past 12 months, the dollar volume of sales of Houston-area office buildings $2.5 million and higher was down 89 percent compared with a year earlier, according to data from LoopNet and Real Capital Analytics.

Uncertainty in the economy is causing real estate investors to sit on the sidelines.

Rare Land Sale Goes to Owner-User

Mon, 17 Aug 2009 17:33:25 GMT

With the capital markets still tight as a drum there are none too many land sales occurring these days. Just one, actually, according to Real Capital Analytics. The buyer was an owner with near-term, non-speculative development plans.

“There’s still a big capital crunch,” says Art Macaraeg, a broker with Marcus & Millichap who brokered the deal. “Developers aren’t able to get loans to build anything so why would they buy?”

The most recent fulfilled a requirement for Cox Communications, which was looking for a site within its network boundary, Macaraeg tells GlobeSt.com. The company plans to sub-5,000-square-foot buildings. The company paid $788,436 for the 1.8-acre site at Ann and Simmons, behind a Taco Bell, a Chevron and Star Nursery and across from an Albertson’s shopping center.

Quarterly Investment Report: Second-Quarter 2009 - More Distress To Hit I.E.

Mon, 17 Aug 2009 12:33:25 GMT

Making the case for Inland Empire investment was the biggest challenge the region faced during the second quarter, especially in comparing the market with more favorably positioned properties in Los Angeles, Orange and San Diego counties. Even with brokers noting a slight increase in investment activity, transactions were off 80.3 percent in second-quarter 2009 from the year-ago period.

Total transactions across all property types ended the second quarter at $132.3 million, according to Real Capital Analytics.

"The first quarter was pretty quiet, and then in the second quarter there were a number of transactions and activity seemed to be picking up significantly than in the first quarter," said Mark Zorn, executive vice president in the Ontario office of DAUM Commercial Real Estate Services.

Although Zorn spoke specifically to Inland Empire industrial investment, the overall trend is expected to play out across all property types with more activity expected in the third and fourth quarters.

Though its image has been marred by an oversupply of speculative development and soaring vacancies, the Inland Empire office market recorded an increase in office investment totaling $27.7 million, according to Real Capital Analytics. Last quarter, the region did not see any office transactions over the $5 million mark.

The Rise and Falling of New York's Busiest Building Buyer

Mon, 17 Aug 2009 12:29:25 GMT

The New York Observer reports: Two years ago, Broadway Partners was an empire on the march. They owned some of the country’s best Class A office properties—the 62-story Aon Center in Los Angeles, One City Centre in Houston, 522 Fifth Avenue in New York—but they were always searching for more.

Their Macklowe-like strategy: to rake in office properties on highly leveraged loans, wait for rents to rise, and sell the buildings at a profit within two years.

Now, Broadway has defaulted on short-term loans for over a dozen buildings, and two of their properties have been foreclosed. To make matters worse, Broadway’s primary lender for many of these buildings—such as 10 properties, including one in New York, bought on May 15, 2007, alone—was Lehman Brothers. The question now is whether they can raise the necessary capital to pay off their loans and survive.

Selling may be the only way Broadway can raise the necessary capital to pay off their short-term loans, which are coming due for three office properties in spite of a recent deal struck with Lehman, according to Real Capital Analytics: 280 Park Avenue, the Park Avenue Atrium, and the Union Bank of California Center in Seattle (340 Madison is also potentially troubled).

Real Capital Analytics’ managing director Dan Fasulo explained that lenders don’t see the use in taking back that much real estate. “As opposed to rushing to foreclosure,” he said, “many lenders have realized that, ‘If I take this asset back, what am I going to do with it? At least I have a skilled operator on the ground who can manage it.’”

Mezzanine Lenders Swoop In

Sun, 16 Aug 2009 17:36:25 GMT

In Manhattan alone, there are 130 troubled properties worth $7.5 billion, according to Real Capital Analytics. With credit markets still frozen shut, many owners will be unable to refinance loans falling due and will have no choice but to default.

Eastdil Secured, for example, is currently marketing a $100 million debt position owned by insurer The Hartford that was used in 2006 to help finance the $5.4 billion purchase of Stuyvesant Town/Peter Cooper Village by Tishman Speyer and BlackRock. The owners had hoped to deregulate a substantial number of units in the sprawling rent-regulated complex and use the increased cash flow to pare down debt. That didn't happen, and the complex has been rapidly burning through rainy-day reserve funds. A default is possible as early as this fall, sources say.

It doesn't take long for vulture investors to bag their prey. That's because many buildings were partially financed with mezzanine debt, which bridges the gap between the buyer's down payment and the first mortgage loan.

Hotels Deliver Some 'Jingle Mail'

Sat, 15 Aug 2009 13:06:25 GMT

'Jingle mail" isn't just for homeowners anymore. From San Diego to Dearborn, Mich., an increasing number of hotel owners in the U.S. market are simply walking away from money-losing properties and forfeiting them to lenders.

The rise in hotel forfeitures is the product of the worst hotel market since the early 1990s, with revenue declining by double-digit percentages. That has pushed the value of many hotels to less than the balance on their mortgages. Just like homeowners who mail their house keys back to the bank -- so-called jingle mail -- hotel owners see no hope in renegotiating their loans.

Distressed non-casino hotel loans now cover more than 1,000 properties with a cumulative loan value of $16.8 billion, according to Real Capital Analytics, a real-estate research company. That figure encompasses delinquencies, foreclosures, bankruptcies and restructurings of securitized mortgages in addition to loans from banks and other institutions.

Among them are a Mondrian boutique hotel in Scottsdale, Ariz.; a St. Regis resort in Dana Point, Calif.; the InterContinental Montelucia Resort & Spa in Scottsdale, and a Hyatt Regency in Dearborn -- each of which is either in foreclosure or has stopped making payments on its debt. It includes the 680 hotels of the Extended Stay Inc. chain that filed for bankruptcy in June.

Delinquencies of loans on casinos that have hotels adds 31 properties and $8.6 billion in distressed loans to the mix.

One major factor in the foreclosures: Many hotel loans are difficult to restructure because they were packaged into commercial mortgage-backed securities, or CMBS, which combine hundreds of property payments into one single bond. With scores of investors owning those bonds, it is extremely hard to cut a new deal to keep the hotel in owners' hands.

Motor City's commercial property market ailing

Fri, 14 Aug 2009 16:34:25 GMT

Times are tough for US commercial property owners, but few have it worse than landlords in Detroit.

Motor City never quite recovered from the previous recession at the start of the decade only to get snagged in the current slump. And in the last 12 months, it's seen joblessness nearly double and two pillars of its economic lifeblood, General Motors and Chrysler, go on government life-support.

The ripple effect was a tidal wave: commercial real estate vacancies and mortgage delinquencies surged, rents plunged and major new construction virtually dried up.

More than 100 commercial properties in Detroit (valued at $2.6 billion) were in some stage of foreclosure, bankruptcy or had their mortgages restructured as of the end of July, according to Real Capital Analytics. That makes Detroit second only to Las Vegas with the worst commercial real estate market.

"It's going to be a depressed situation for many years," said Dan Fasulo of Real Capital Analytics.

Empty Office Space

Thu, 13 Aug 2009 16:28:25 GMT

The world of commercial real estate is not a pretty picture.

On Monday, downtown Los Angeles’ largest landlord, Maguire Properties, turned in to creditors the keys to seven Orange County, California, buildings with $1.06 billion in debt. In Harris County, Texas, 335 commercial properties in the Houston area were posted for foreclosure in May, June, and July, an increase of 84 percent over the last year. And in Washington, the collapse of the commercial real estate market is causing headaches for Fed chairman Ben Bernanke.

“Just to give you the scope, in the U.S. alone, we have accounted for over $115 billion in commercial property assets that are troubled,” either in default, foreclosure, or bankruptcy, says Peter Slatin of Real Capital Analytics. “So how does that affect the overall economy? I think in a big way.”

The trauma in the commercial real estate market—pain brought about by debt and exacerbated by tenant vacancies—contrasts with a slowly reemerging residential real estate market.

Chase Portfolio for Sale; Who Will Buy?

Thu, 13 Aug 2009 16:27:25 GMT

In what is reportedly the largest office portfolio to go to market this year, JPMorgan Chase has put 23 properties on the block, including the iconic One Chase Manhattan Plaza in Lower Manhattan. A report in Wednesday’s Wall Street Journal, which is corroborated by a source familiar with the bank’s marketing plans, says the eight-state, 7.1-million-square-foot portfolio could fetch more than $1 billion. However, it’s not clear how these assets would be valued in a market with few data points to go by, or who would ultimately buy them.

"I honestly have no idea what these properties are worth" in the current market, Dan Fasulo, managing director of Real Capital Analytics, tells GlobeSt.com. He notes that the cap rate for HSBC’s long-rumored sale-leaseback of its headquarters at 452 Fifth Ave. would probably be in the range of 8% to 9% if it goes through, "and that’s where I’d put the ballpark for these assets as well."

At any rate, that’s where Fasulo would rank the values of One Chase Plaza and Four New York Plaza, also in the Financial District. For the others, which range from the 865,000-square-foot former Washington Mutual headquarters in Seattle to a 46,000-square-foot office property in Utah, "It’s a crapshoot. That’s one of the reasons there have been so few transactions--buyers and sellers can’t get together and agree on a price."

As for buyers setting price expectations with so few comparables as reference points, Fasulo says, "The investor has to take a little bit of a leap of faith and be comfortable with the yields they’ll achieve, as well as getting their arms around the credit quality of the tenants." He adds that in London, a hard-hit office market comparable to Manhattan in terms of its tenant base, "they’ve had about 40 major office property sales in the past several months. They’re all well-leased properties and the cap rates are coming in between 7% and 8%."

By contrast, Manhattan has seen just eight major office sales transactions so far this year, according to RCA data. Fasulo chalks up the difference to momentum. "It feeds on itself," he says. "Once the first handful of transactions takes place, sellers say, ‘okay, that’s the market, you can have my building for x amount.’ The buyers feel comfortable that there are comps to work with and the lenders feel comfortable because there are other transactions happening at these price levels."

In contrast to some of the distressed office property sales seen in Manhattan this year, a deal for 452 Fifth or the two JPMorgan towers would represent a sale of stabilized assets. Fasulo says such transactions, along with S.L. Green Realty Corp’s sale of a 49.5% interest in 485 Lexington Ave. earlier this week, will help establish the market here.

Despite recent developments such as Tuesday’s announcement by Brookfield that it was forming a $4-billion investment consortium, Fasulo doesn’t see institutional buyers going after the JPMorgan portfolio. "It’s not the institutional players chasing these deals," he says. "It’s mostly high-net-worth individuals who jump at the opportunity to park their money in inflation-protected assets paying 8% a year. Where else can you get that?" He adds that the properties will probably be sold off in several "one-off" deals; a buy of the entire portfolio at once is unlikely.

Helping the marketability of the JPMorgan portfolio is the likelihood that the bank will end up leasing back much of the space in its former properties, thus ensuring their income streams. A source confirms the WSJ speculation that JPMorgan plans to continue occupying much of the square footage in the 23-property portfolio.

However, Fasulo points out, "JPMorgan doesn’t need all of the space anymore," so he feels the company will probably look to structure leasebacks that allow it to wind down operations over time at certain locations. Many of these properties came into JPMorgan’s possession following its acquisitions last year of Bear Stearns and WaMu, including 383 Madison Ave., which is now the US headquarters of its investment banking operations. In total, JPMorgan currently owns or leases 75 million square feet of office and retail space across the US, according to its most recent annual report.

Apts to Rent: $2B TARP Surplus May Go To Stop Building Foreclosures

Thu, 13 Aug 2009 14:27:25 GMT

First it was the banks and automakers that got a helping hand from Uncle Sam -- and soon some New York City apartment complexes could get one, too.

A bill winding its way through Congress proposes to prop up deteriorating apartment complexes by injecting $2 billion from the Troubled Asset Relief Program into an effort to stabilize multifamily properties in default or foreclosure.

The bill, which is called the TARP for Main Street Act and was sponsored by House Financial Services Committee Chairman Barney Frank (D-Mass.) and Rep. Nydia Velazquez (D-Brooklyn and Manhattan), would use TARP funds that have been returned by banks and plow it into programs that, according to the bill, would create "sustainable financing" for the complexes as well as provide funding for property rehabilitation.

The House is considering the measure, which focuses on apartment buildings with units that are either rent stabilized or receive government subsidies.

Many developers during the housing boom bought rent-regulated apartments by borrowing against the properties themselves and betting they could make hefty returns by converting them into market-rate buildings.

However, thanks to the recession and the collapse of the real estate market, many developers are now struggling to make mortgage payments, let alone finance repairs and upkeep of the properties they own.

"Just about everyone who purchased an asset in 2006 and 2007 is under water, especially the rent-stabilized complexes bought in upper Manhattan, the Bronx and Brooklyn," said Dan Fasulo, managing director of Real Capital Analytics, a real estate research and consulting firm.

There already have been casualties. Larry Gluck of Stellar Management and partner Rockpoint Group last October defaulted on their loan for Riverton Apartments in Harlem.

More recently, developer Kent Swig lost control of Sheffield57 to hedge fund Fortress Investment Group after he defaulted on loans used to convert the former rental building into a condominium.

According to data released last month from Real Capital Analytics, 120 properties in Manhattan, including 84 apartment buildings, were considered "troubled."

Feeling Roomy, J.P. Morgan Shops Its Space

Wed, 12 Aug 2009 15:31:25 GMT

J.P. Morgan Chase & Co. is marketing 23 office properties across the nation in an effort to rid itself of excess space. But the bank's timing, amid the worst property market in decades, means any sale is likely to come with sizable concessions.

The portfolio of properties for sale, with a combined 7.1 million square feet of space, includes four notable towers: One Chase Manhattan Plaza, near Wall Street; Four New York Plaza, also in the Financial District; the former headquarters of Washington Mutual in a downtown Seattle skyscraper that also houses the city's art museum; and a landmarked 1929 Art Deco building in Houston, the former headquarters of Texas Commerce Bank.

J.P. Morgan's real-estate holdings have grown significantly since the bank's acquisitions last year of Bear Stearns Cos. and the banking operations of Washington Mutual. Bank executives have repeatedly said they have too much real estate and intend to sell some of the office space.

J.P. Morgan already has moved many employees of its investment bank into Bear's former headquarters in Midtown Manhattan, which is located around the corner from J.P. Morgan's corporate offices on Park Avenue.

But selling such a large swath of real estate won't be easy. Values for office space have plummeted as corporations reduce staff. And with financing hard to come by, fewer deals are getting done. Across the country, $5.7 billion in office-building sales closed in the first half of 2009, compared with $30.9 billion in the first half of 2008, according to research firm Real Capital Analytics.

Just eight office buildings were sold in Manhattan in the first half of 2009, at an average price of $470 a square foot, according to Real Capital Analytics. In the same period last year, 43 properties changed hands in Manhattan at an average price of $877 a square foot.

Real-estate experts say that in order to sell some of the buildings, J.P. Morgan must offer incentives, including guaranteeing a building's income stream by structuring a sale-leaseback transaction. "They're not going to be able to sell Chase Manhattan Plaza without leasing back a significant amount of space," said Dan Fasulo, head of research at Real Capital Analytics.

Medical space real estate sector remains healthy

Wed, 12 Aug 2009 14:38:25 GMT

Dr. James Reilly’s dental practice was in a pinch.

He’d worked in the same office for eight years. In fact, the growing practice was actually three offices combined and still tight. “We were just plumb out of space,” Reilly said.

So when Corporate Campus was redeveloped into a mixed-use medical office project and renamed Perimeter Town Center, Reilly was among the first tenants to move into new medical space — at Hammond Drive and Peachtree Dunwoody Road. It was just across the street from his old office, in the area known as Pill Hill.

“We have the same space, but it’s configured better,” Reilly said. “It has better flow, more windows, the hallways are wider. It’s easier to move patients in and out of the office. It’s made us a whole lot more efficient.”

Open since last October, the project is anchored by Piedmont Healthcare and is already 70 percent leased — at a time when other types of new office developments are begging for tenants. While the commercial real estate industry is getting hammered, the one sliver of business that seems to be doing OK is space for medical offices. According to New York-based research firm Real Capital Analytics, medical office space is the sector with the smallest amount of troubled assets — 1 percent or nearly $200 million — compared to $18 billion for the traditional office sector.

Maguire Defaults on Seven California Properties

Tue, 11 Aug 2009 16:25:25 GMT

It's one of the nation's largest real estate investment trusts, but these days Maguire Properties (MPG) looks like just another heavily indebted homeowner trying to renegotiate loans and cope with foreclosure.

The Los Angeles-based company announced on Aug. 10 that it was handing over the keys to seven of its office buildings in Orange County and Los Angeles to lenders because it could no longer afford to carry them. The news followed other moves the company has made in the past three months to shore up its balance sheet, including renegotiating the terms of another large loan.

Since the burst of the housing bubble roughly two years ago, investors have been speculating about a wave of foreclosures in commercial real estate—shopping centers, office buildings, and warehouses. The market research firm Real Capital Analytics figures that the owners of some $127 billion worth of office buildings could ultimately lose control of those properties because they are carrying too much debt in this weak market for leasing.

PREVIEW - What The Fed Is Mulling At This Week's Meeting

Tue, 11 Aug 2009 14:28:25 GMT

The Federal Reserve this week is expected to give a nod to signs the U.S. recession is waning but will likely warn that the recovery will be slow and dampen any expectations it will soon start to raise interest rates.

Risks remain and any recovery is likely to be slow, policymakers have warned in recent speeches.

Many American households still face "tattered finances" after the loss of trillions of dollars of wealth through the drop in home prices and the stock market, Janet Yellen, president of the San Francisco Fed Bank, said in July.

The U.S. Conference Board's consumer sentiment index fell to 46.6 in July from 49.3 in June as the percentage of Americans saying jobs are hard to get increased.

A number of policymakers point to the collapse in commercial real estate prices as potentially putting the recovery in jeopardy.

U.S. commercial real estate prices have fallen about 35 percent from their peak in October 2007 and are a major driver of banks' loan losses. About $2.2 trillion of U.S. commercial properties bought or refinanced since early 2004 have fallen below the price at which they changed hands, according to a report by Real Capital Analytics, a research firm based in New York.

Tanking Real Estate Values Take Toll on Pension Funds

Mon, 10 Aug 2009 15:26:25 GMT

Optimism is growing that a turnaround is on the doorstep. In recent months, the stock market has recovered much of losses notched over the past year. In early August, New York-based rating agency Standard & Poor’s issued an encouraging report on the recovery of stock prices for publicly traded real estate firms. In the second quarter, the S&P property and REIT indices saw sharp rises, following a drop of nearly 20% in the first quarter.

But many industry experts believe that more pain is ahead. According to Robert White, president of New York-based researcher Real Capital Analytics, some $2.2 trillion of properties acquired or refinanced after June 2004 have lost value since their transaction date.

Given that prices have declined 25% on properties purchased or refinanced from 2006 through 2008, “the equity in $1.3 trillion of properties is at great risk, if not already wiped out,” says White.

Both institutional and private owners alike see no signs of an immediate rebound in the property sales market to help stem the tide of dwindling values. Commercial property sales through the first six months of 2009 amounted to only 7% of the volume reached at the peak of the frothy sale market in the first half of 2007, according to Real Capital Analytics.

But White also notes that the number of office property sales in June was 24% higher than in May. “The jump in activity in June may be an early signal that buyers are returning, lured by lower prices,” he says.

Still, June was one of the worst months to date for new distress, with $13.6 billion worth of properties falling into default, foreclosure or bankruptcy. According to White, by the end of June the total value of distressed commercial properties nationwide was nearly $115 billion.

The Fed keeps an eye on commercial real estate

Mon, 10 Aug 2009 15:25:25 GMT

When Federal Reserve Chairman Ben Bernanke meets with his fellow governors Tuesday, the state of commercial real estate market is sure to be high on their agenda. While a deterioration in the residential real estate market kicked off the recession, the rapid decline of the commercial market could quickly undo all the recovery efforts taken so far.

While there are "green shoots" showing up throughout the U.S. economy, commercial real estate isn't one of them. Last month, Realpoint Research reported that June delinquencies in commercial mortgage-backed securities rose an "astounding" 585% to a 12-month high of nearly $29 billion. In June 2008, delinquencies totaled only $4 billion.

Other assessments of the commercial real estate market were even more alarming. In July Real Capital Analytics found 5,315 troubled commercial properties nationally, valued at more than $108 billion; and in June, Real Estate Econometrics LLC predicted that the default rate on commercial real estate is likely to reach 4.1% by year's end. That projection would imply defaults on about $44.3 billion of commercial mortgages, based on the $1.08 trillion of such loans held by U.S. banks in the first quarter, according to data in the report.

Bullish US Jobs Report Breathes Life Into Hotel Stocks

Fri, 07 Aug 2009 14:29:25 GMT

A better-than-expected monthly jobs report Friday was a much-need piece of good news for the nation's embattled lodging industry.

Hotel stocks rose sharply after the Labor Department reported that U.S. job losses tapered off in July while the unemployment rate surprisingly fell to 9.4%, providing further evidence that the U.S. recession is nearing an end. An improving employment environment could promote more consumer spending, leisure and business travel.

All types of hotels - from budget to luxury - have been cutting costs, including work force reductions, as tumbling occupancy and room rates have left some hotel companies without enough cash to cover expenses. Time-shares, a former industry profit center, are also suffering.

The lodging industry is also the commercial real estate market's most distressed sector, with only $1.2 billion in significant sales in the first half of the year, marking an 85% drop from the same period last year, according to a new report by Real Capital Analytics.

"Although sales of apartments and industrial properties increased from Q1 to Q2 and office sales have recently started to pop, hotel acquisitions continue to slide," the report said.

Underscoring the malaise, the $1.2 billion of volume in the first half of 2009 was a paltry sum compared with the $4.7 billion monthly average in 2006 and 2007, Real Capital's data showed.

Economic Impact Continues In Broward Co. Office Market

Thu, 06 Aug 2009 15:27:25 GMT

Sales activity of office product also decreased from the 567,900sf reported during second quarter 2008. Commercial sales are off by 77%, according to a recent report by Real Capital Analytics. Currently in Broward County, there is $147 million dollars of commercial office property classified as distressed. Overall, the South Florida market, with 263 troubled assets valued at $6.9 billion, is ranked sixth among U.S. markets in distress as a percentage of total property investment volume.

Due to economic uncertainty, new planned development will remain scarce throughout 2009 and very few construction projects are scheduled for delivery for the remainder of the year. Sawgrass Pointe II, located within the Sawgrass submarket, recently received its Certificate of Occupancy and was delivered to the market fully leased. Market corrections are projected to continue throughout 2009, yet positive indicators remain throughout Broward County’s office sector.

Government Gives Ailing Apartment Market a Financial Lift

Thu, 06 Aug 2009 14:25:25 GMT

Real Capital Analytics (RCA), a research firm also based in New York, reports that apartment transactions plunged 81% year over year in the first five months of 2009.

In addition, the $2 billion in apartment sales reported in the first quarter of 2009 was far lower than the $7 billion in sales recorded in the first quarter of 2008, according to RCA, and it was the lowest dollar volume in sales since RCA began tracking the data in 2001. In the peak year for sales, 2007, $19 billion in transactions were reported in the first quarter.

As Values Decline, Pension Funds Jump Into Real Estate

Wed, 05 Aug 2009 13:39:25 GMT

The Queens Center Mall doesn't seem to have followed the dour shopping-center story line of this recession.

Sales per square foot actually ticked up in 2008 to $876, and year-end occupancy stood at 97.5%. In the food court, 20-year-old shopper Mario Ontaneda, wearing a cap and jeans he purchased from stores in the mall, said: "I need to save up, but I'm constantly buying stuff."

The strong performance of Queens Center Mall, located in New York's borough of Queens, helps to explain why Cadillac Fairview Corp. agreed to pay $150 million and to assume $167 million in mortgage debt to acquire a 49% stake in the mall last week. Cadillac is owned by the Ontario Teachers' Pension Plan. Macerich Co., the Santa Monica, Calif., real-estate investment trust, sold a stake in the one-million-square-foot mall as part of a broader plan to reduce debt.

Cadillac Fairview acquired a 49% stake in the Queens Center Mall in New York for $150 million.

The deal is among a few early signs that pension funds, a huge source of real-estate capital, are looking at new property investments even as they lick their wounds from past deals.

A day after the Queens Center deal was announced, the California Public Employees' Retirement System said it had closed a $463 million deal to buy a stake in 86 shopping centers around the U.S. from Macquarie CountryWide Trust of Australia.

Queens Center was Cadillac's first U.S. real-estate purchase since 1999. The company owns about $15 billion of mostly malls and office buildings in Canada, the U.S. and elsewhere.

"We've looked at, literally, billions of dollars worth of transactions and bid on several of them, but we haven't been successful from a pricing perspective for a long time," Cadillac Vice President of Investments Andrea Stephen said in an interview.

As property values fall, investors around the world are starting to pay attention to the U.S. market. Macerich said it expects to close two more joint ventures in the next two months as the publicly traded real-estate investment trust tries to reduce its $7.9 billion debt load. Chief Executive Art Coppola said in a conference call on Tuesday that a big U.S. pension fund and an international sovereign-wealth fund are the lead contenders to join those ventures.

The danger is moving too soon. Few commercial real-estate transactions are getting done, not only because they are hard to finance but also because it is unclear how much further the market will fall. Before last week's transactions, there had been only three retail deals of more than $100 million this year, according to research firm Real Capital Analytics. By this time in 2008, there had been 15 such deals.

Atlanta Distress Totals Could Be Worse

Wed, 05 Aug 2009 13:27:25 GMT

The amount of distressed assets locally looks bad at first blush, but could be worse in the bigger picture. Real Capital Analytics has recorded nearly $2.3 billion worth of troubled commercial real estate here, largely in the retail and apartment sectors.

Although Atlanta ranks 44th in the US in distress, it's second in the Southeast behind Miami, which has double the amount at nearly $4.6 million and is ranked seventh nationwide. Atlanta also pales in comparison to other markets across the country such as Las Vegas, with $9.4 billion, and Manhattan, with $8 billion.

See RCA's market-level commercial real estate distress reports.

7 local properties in huge retail portfolio deal

Mon, 03 Aug 2009 15:20:25 GMT

Seven Chicago-area retail centers, including the one on the site of the former Riverview amusement park in Chicago, were included in a huge shopping center portfolio deal this month.

The local centers, two in Chicago and five in the suburbs, total more than 1 million square feet and sold for an estimated $167.5 million. The properties are part of an 86-center portfolio in which Australia-based Macquarie CountryWide Trust is selling most of its 75% stake for $1.3 billion to a joint venture of the California Public Employees’ Retirement System and Bethesda, Md.-based First Washington Realty Trust Inc.

In the deal, CalPERS and First Washington are buying back many properties they sold to Macquarie in 2005, according to a recent report by New York research firm Real Capital Analytics Inc. This time around, CalPERS/First Washington is paying about 25% to 30% less than Macquarie paid four years ago, Real Capital says.
The deal values the entire portfolio at $1.73 billion. Dividing that price into the square footage not owned by tenants, the local malls would have these values, at about $162 a square foot:

• Riverview Plaza, 3322-3358 N. Western Ave.: $22.63 million
• Riverside Square and River's Edge Plaza, 3145 S. Ashland Ave.: $27.53 million
• Brentwood Commons, 1113 S. York Road, Bensenville: $20.4 million
• Civic Center Plaza, 7801 N. Waukegan Road, Niles: $43.05 million
• McHenry Commons Shopping Center, 2000-2078 Richmond Road, McHenry: $16.33 million
• The Oaks Shopping Center, 1515-1589 Lee St., Des Plaines: $21.94 million
• Stonebrook Plaza, 3205-3242 W. 115th St., Merrionette Park, $15.57 million

Grocery-store chain Dominick’s Finer Foods is an anchor tenant at five of the seven properties.

Riverview Plaza, near the corner of Belmont and Western avenues near the Roscoe Village neighborhood, is on the site of the former Riverview amusement park, which closed in 1967. The shopping center was built in 1981, according to CoStar Group Inc.

The deal almost matches the second-quarter total of $1.5 billion in significant retail sales in the U.S., Real Capital’s report says.

The CalPERS-First Washington joint venture is to buy at least 60% of Macquarie’s stake in the portfolio. Jacksonville, Fla.-based Regency Centers Corp., which owns 25% of the portfolio in a partnership with Macquarie, has options to increase its stake as part of the deal.

Macquarie CountryWide says that based on its estimated net operating income for 2009, the sale price represents a capitalization rate, or first-year yield, of 9.1%.

Atlanta CRE market not as bad off as many

Mon, 03 Aug 2009 13:32:25 GMT

The Big Peach’s commercial real estate market isn’t spoiling as fast as those in other cities.

Atlanta is the 44th most distressed market out of 59 U.S. markets tracked by Real Capital Analytics, a New York firm that monitors capital investment in real estate.

The report includes shopping malls, apartment complexes and undeveloped land whose owners can face an array of financial challenges in the next several months, including looming debt maturities, potential foreclosure and bankruptcy.

Worst off is Las Vegas, with 152 properties worth $9.4 billion in distress. Other hard hit markets include Manhattan and Chicago.

The best and worst deals

Mon, 03 Aug 2009 12:35:25 GMT

Next month will mark the one-year anniversary of the fall of Lehman Brothers — a date often referred to in "pre-" and "post-" terms in the New York City real estate market. With that in mind, The Real Deal zeroed in on the 15 best and worst deals since Wall Street's collapse and the earlier onset of the credit crunch.

The deals were selected based on interviews with real estate professionals, published reports from the past year, research and an informal survey.

While the list includes some high-profile examples, it was not designed to revisit all of the soured deals that have been staples in the headlines. Instead, it's a cross-section of not only big-ticket but also lesser-known significant deals, which might otherwise have gone down as footnotes.

The very public sale of Worldwide Plaza to an investment group led by George Comfort & Sons for $375 per square foot — down 65 percent from what developer Harry Macklowe paid for it in early 2007 — was flagged as one of the smartest purchases. Like many of the other deals on the list, it involved a seller unloading a distressed asset.

Lesser-known deals included the British fashion house Burberry, which leased 71,000 square feet for its Madison Avenue headquarters with the bonus rights to erect a glowing sign on top of the building, an extremely rare find outside of Times Square, and a group of former East Village squatters who acquired an Alphabet City building from the city.

"Worst deals" included record-breaking purchases like the GM Building, although Mort Zuckerman, chairman of Boston Properties, told The Real Deal he still considers it "the best purchase we've ever made" when viewed as a long-term investment. Also singled out as a not-so-savvy investment were individual apartment sales like one at Julian Schnabel's Palazzo Chupi, where a Wall Street buyer paid $15.5 million only to see the value plummet by 55 percent, doubling the declines seen in the overall market.

Best: George Comfort & Sons and RCG Longview's purchase of Worldwide Plaza for roughly $600 million

Even though the purchase of Midtown's Worldwide Plaza was the most expensive real estate deal done so far this year, it could very well be one of the smartest.

Late last month, an investment group led by George Comfort & Sons and RCG Longview reached a contentious agreement to purchase the distressed building at 825 Eighth Avenue from Deutsche Bank for $600 million-plus — 65 percent less than Harry Macklowe paid for it in 2007.

"I think the partnership that purchased Worldwide Plaza is going to have to work hard to lose money," quipped Dan Fasulo, managing director of Real Capital Analytics.

Even though the 1.8 million-square-foot building is half vacant, Fasulo said that at $365 per rentable square foot, "They're going to be able to offer the office space for lease at some of the most competitive rental rates in Midtown, so they're going to basically be able to buy tenants."

Worst: Tishman Speyer's purchase of Peter Cooper Village and Stuyvesant Town from MetLife for $5.4 billion

Tishman Speyer's landmark purchase of the middle-income housing complex Peter Cooper Village and Stuyvesant Town for an eye-popping $5.4 billion was made back in 2006, but the chickens are coming home to roost these days.

A current court case -— centered on whether Tishman and the complex's previous owner, MetLife, illegally deregulated apartments while receiving a tax abatement intended for regulated buildings — could impact thousands of city landlords. If Tishman loses, the company estimated investors could be forced to refund $200 million in rents to market-rate tenants. Another $10 million class action lawsuit was filed in May, accusing Tishman of using illegal tactics to evict regulated tenants.

Unfortunately for Tishman, its ability to make money on the complex depended on rents continuing to increase (they have fallen 17.5 percent in Manhattan in the past year, according to appraiser Jonathan Miller), and on evicting a higher number of regulated tenants than has been possible, despite hiring three law firms to ferret out tenants breaking stabilization laws.

To put it nicely, "They may have over-estimated the amount of people who occupied the complex illegally," Real Capital Analytics' Fasulo said.

Excess Takes Its Toll On Hotel Values

Sat, 01 Aug 2009 14:26:25 GMT

The lack of available credit is causing defaults in all markets and among every property type. New York-based real estate research firm Real Capital Analytics reports that as of June 30, there were 1,060 distressed hotels in the United States valued at US$15.7 billion. The biggest chunk of that distress comes from bankrupt Extended Stay America.

"We started seeing distressed hotels 18 months ago and it started with smaller independents in secondary markets," says Alan Reay with the brokerage firm Atlas Hospitality Group, Irvine, California. "Right now (mid-July) in California there are 32 hotels being foreclosed on, and 31 of those are independents. Only one is a franchise."

California's default rate soars to 9.5%

Fri, 31 Jul 2009 13:29:25 GMT

About 1 in 10 Californians with a home loan is now in default, and there's growing evidence that the mortgage meltdown is spreading to commercial real estate.

The staggering number of home mortgage defaults probably will lead to large numbers of foreclosures through at least this year, housing experts say.

Mortgage defaults are more likely to result in foreclosure when borrowers owe more on their homes than they are currently worth -- commonly called being "upside down" or "underwater" in industry lingo.

Low interest rates are enabling many commercial borrowers to stay current on loans, but that's certain to change if rates rise, and a high percentage of office, retail and apartment buildings are already underwater.

"There's no question we're going to see more commercial properties end up in restructuring; the question is how much," said Dan Fasulo, managing director of Real Capital Analytics, a New York research firm.

Fasulo said lenders are trying to avoid foreclosures on commercial properties partly because they don't want to take on properties they would have trouble selling.

"They're saying, 'If we foreclose now, what are we going to do with it?' This is the worst market to sell property in modern times."

Lenders have been making allowances to upside-down borrowers, hoping to keep from foreclosing long enough for commercial real estate values to recover, Fasulo said. There's now a popular street term for the practice, he said: "extend and pretend."

Giant Warehouses Dot Phoenix Desert Awaiting Imports That Never Came

Fri, 31 Jul 2009 12:42:25 GMT

Along a 15-mile stretch of desert, amid strip malls and unfinished subdivisions, nearly a dozen giant warehouses sit silent and empty. They are relics of this city's dream of becoming a national warehouse hub, a vision dashed by plunging imports and a reordering of the nation's biggest ports.

Decisions to site these warehouses were made earlier this decade as Americans were buying so many new cars, televisions and T-shirts that California -- the gateway for many Asian imports -- was running out of cheap storage space. With cash from pension funds and other investors, developers sought to turn the desert on the city's west side into a distribution hub, 370 miles from Los Angeles ports.

Today, an empty, half-mile-long warehouse lingers from that vision. The building's 1.2 million square feet could fit 193 full-size copies of the Statue of Liberty. Its parking lot has room for 292 tractor trailers. But on a recent morning the only signs of life were a security guard's trailer, golf cart and bicycle.

New warehouses also sprang up in, among other places, California's Inland Empire east of Los Angeles. In total, U.S. developers built more industrial real estate during the boom than office buildings or retail space, as measured by square footage.

Feeding the commercial space boom were publicly traded real-estate investments trusts and private-equity funds that funneled cash from pension funds, endowments and other investors.

From 2001 through 2008, some $5.6 billion in industrial property deals were done here, according to Real Capital Analytics Inc.

Value of distressed US property doubles in H1 09

Fri, 31 Jul 2009 12:35:25 GMT

The level of distress in the US real estate markets continues unabated, with the value of properties in default, foreclosure or bankruptcy more than doubling so far in 2009.

According to research by data provider Real Capital Analytics, $93 billion worth of US office, industrial, retail and apartments are in default, foreclosure or bankruptcy. Troubled hotels and other commercial property types would add at least another $31 billion to the total, the firm said in its latest study on distressed properties.

However, the New York-based firm added that things could get worse - with much of the equity in $1.3 trillion of properties either bought or refinanced between 2006 and 2008 at ”great risk” of being valueless - if it hasn't already been wiped out.

The gloomy analysis takes account of the full spectrum of property classes involving investments of "significant size". But the figure would be higher still if the firm had counted hotels, land and smaller properties in its research.

Real Capital Analytics said loans taken out in 2007 were presenting borrowers with the greatest difficulties. Loans originated in this year are seeing the highest levels of default, while loans taken out between 2004 and 2006 are likely to “remain problematic” as they reach maturity over the next few years.

The report adds that less than one in 10 distressed situations are being resolved. Real Capital Analytics says lenders have been slow to foreclose on assets with the phrase “pretend and extend” a popular part of the US vernacular.

'Pretend and extend' time

Thu, 30 Jul 2009 17:39:25 GMT

Worried that you have less to worry about during the current surge of economic optimism? The US commercial property market is here to help.

Just when there are signs of some sort of life in the US housing market, reports are rapidly multiplying of looming and current disasters in commercial property involving trillions of dollars.

Bloomberg is quoting a report by one New York analyst that some $US2.2 trillion ($2.7 trillion) worth of US commercial properties bought or refinanced since 2004 are now worth less than their original price with $US1.3 billion of them having lost their equity component.

But so far only about $US124 billion of commercial property has fallen into default or worse, according to the Real Capital Analytics report.

''The phrase 'pretend & extend' has recently entered the vernacular,'' wrote the author.

Sale-Leasebacks Down, But Corporate Appetite Large

Thu, 30 Jul 2009 14:45:25 GMT

Sale-leaseback activity totaled $798.5 million during the first half of the year, according to data from Real Capital Analytics Inc., the lowest volume for comparable periods in the last nine years. The second-lowest comparable period was in 2002, when almost $1.37 billion of sale-leasebacks were recorded. Even the first half of last year was considerably more active, with $3.95 billion of sale-leasebacks. The first half of 2007, by contrast, saw nearly $6.17 billion worth.

Of course, sale-leasebacks are no exception to the fact that volume of commercial real estate sales is down dramatically across the board. All commercial property sales during the first half of 2009 totaled a mere $18.78 billion, according to New York City-based RCA, which tracks properties and portfolios of $5 million and greater. For the first half of 2008, that figure stood at $88.44 billion. And as the market was peaking in 2007, total commercial property sales for the first six months of that year totaled $267 billion.

So while the sheer dollar volume is down, sale-leasebacks are accounting for a greater portion of the overall commercial property sales market. What’s more, experts indicate there is the potential for significantly more sale-leaseback business to be done this year.

Trillions in Assets on the Hook

Thu, 30 Jul 2009 14:35:25 GMT

More than $2 trillion in major commercial properties, traded during the peak of the current cycle, are at risk, says Real Capital Analytics in a report issued Wednesday. "Significant refinancing hurdles" and a rising threat of default are cited in the report, prepared by Robert M. White Jr., RCA’s founder and president.
The RCA report notes that $2.2 trillion of properties acquired or refinanced between 2004 and 2008 have lost value since the transaction. "Many of these properties, typically leveraged 70% to 80%, would face [problems] even if prices held firm," White writes. "Few lenders now are willing to advance more than 50% to 60% of value."

He adds that the equity in $1.3 trillion of properties is "at great risk if not already wiped out," because properties acquired or refinanced in 2006 through 2008 have already seen price declines of 25% or more. Prices for office, industrial, retail and apartment properties nationally have dropped 34.8% from the October 2007 peak, as measured by the latest Moody’s/Real Estate Analytics Commercial Property Price Index, which is derived from RCA data.

RCA’s report notes that property sales so far in ’09 equates to just 7% of the volume achieved at the peak in the first half of 2007. "While sales volume this year barely registers on the graph, the jump in activity in June is clearly visible and may be an early signal that buyers are returning, lured by lower prices," White writes.

Meanwhile, the value of distressed properties has more than doubled so far his year, according to RCA’s report. A total of $93 billion of US office, industrial, retail and apartment properties have fallen into default, foreclosure or bankruptcy during this cycle, and troubled hotels and other commercial property types add "at least another $31 billion" to the total, the report states.

And although distress is accumulating quickly, its resolution is another matter. "Less than 10% of the distressed situations that have emerged have been resolved," the report states. Lenders have been slow to foreclose on assets and the phrase 'pretend & extend' has recently entered the vernacular."

Just as slow, apparently, is the mushrooming of interest in distressed assets. An Ernst & Young survey of investors in distressed debt, released Tuesday, finds that most are waiting for an increase in loan defaults before acting. "It’s clear from what we’re being told by buyers and sellers and what we see in the market that we’re in the dog days of distressed debt right now," says Mark Grinis, leader of E&Y’s real estate distress services group, in a release.

Unlike the 1990s, when the formation of the Resolution Trust Corp. led to market-clearing price levels, "there are very few deals happening today other than one-off distressed sales," Grinis adds. "The government’s PPIP initiative has largely fallen on deaf ears, sellers are weighing their options, and a broad spectrum of buyers are simply waiting for the dam to burst and unleash a highly anticipated wave of deals."

RCA’s analysis includes only office, industrial, apartment and retail properties of significant size. Hotels, land, other property types and smaller properties "would add billions more to the total," according to RCA.

Report: Marriott International set to scoop up competitor hotels

Thu, 30 Jul 2009 12:32:25 GMT

Marriott International Inc. sees the current corporate credit crunch as an opportunity to increase its market share by seizing on the weakness of others in the hotel industry.

Marriott owns about 45 of the 3,000 hotels that carry its flag and expects conversions to help the company gain market share during the global recession, Bloomberg said. Data compiled by Real Capital Analytics Inc. shows that the value of distressed hotel properties almost doubled to $17.3 billion in the second quarter from $9 billion at the end of the first quarter.

Equity in U.S. commercial property may evaporate: report

Thu, 30 Jul 2009 10:03:40 GMT

The equity in $1.3 trillion worth of U.S. commercial real estate acquired or refinanced in 2006 through early 2008 is at risk of being completely wiped out by price collapses, according to a report by Real Capital Analytics.

About $2.2 trillion of properties acquired or refinanced after the 2004 start of the commercial real estate bubble have lost value, according to the report, released on Wednesday by the commercial real estate data company. As most those deals were financed with 70 percent to 80 percent or more of debt, the lower value will directly eat away at the equity.

Prices for warehouses, office buildings, shopping centers and apartment buildings are down about 37 percent from the peak in 2007, according to the Moody's/REAL Index. The cost and availability of new loans has dried up, and lenders that will grant loans will do so only at 50 percent to 60 percent of value. Prices have plunged at an increasing rate, dropping 18 percent in the first five months of 2009, Real Capital Analytics said.

Meanwhile, the value has declined even more as rent and occupancy rates have tumbled.

Properties bought or refinanced in 2006 through 2008 have seen a 25 percent decline in value, Real Capital Analytics said.

The value of distressed properties has more than doubled so far in 2009. Some $93 billion of office, industrial, retail, and apartment properties in the United States have fallen into default, foreclosure or bankruptcy this cycle, Real Capital Analytics said. Struggling hotels and other commercial property types add at least another $31 billion to the total.

Less than 10 percent of the distressed situations that have emerged have been resolved. Lenders have been slow to foreclose and have chosen to instead extend the loans.

Loans originated at the peak of the market in 2007 are seeing the highest levels of default.

Reform, Demographics Bode Well for Medical Office Investors

Thu, 30 Jul 2009 08:09:40 GMT

Already enjoying a surge in investment activity, the burgeoning medical office sector is poised for an even larger boost, if Congress approves President Obama’s sweeping overhaul of the nation’s health care system. The plan could cost at least $1 trillion over the first 10 years, according to experts.

Investors also have responded positively to the reform. Last year, the dollar volume of medical office transactions in Massachusetts rose 55%. With the state’s budget shortfall, however, Massachusetts is struggling to pay for the program, which requires nearly everyone in the state to have health insurance.

Whatever the eventual outcome of national health care reform, property fundamentals for the medical office sector are already on a firm footing. “Out of all the niches, medical office has the lowest amount of distress at only 1%, or nearly $200 million, which is nothing compared to the $18 billion in the traditional office sector,” explains Jessica Ruderman, senior analyst with New York-based research firm Real Capital Analytics. The research firm defines distressed properties as those that are in foreclosure, bankruptcy or for which the loan is being restructured.

Nationally, medical office transactions of $5 million and higher are on the rise. For the first half of 2009, medical office sales accounted for 8.4% of all office transactions, compared with 7.6% in the same period last year. “Typically it’s been around 2% to 4% for all other years,” notes Ruderman.

Although the economy has caused office vacancy rates to spike across the board, the blow to medical office appears much less severe. The vacancy rate for medical office is projected to end the year at 12.4%, up 100 basis points from a year earlier, while general office vacancies are expected to breach 17%.

But perhaps the most distinguishing characteristic of the medical office sector is strong valuations. At mid-year, medical office space fetched $251 per sq. ft., up from $218 per sq. ft. in mid 2008, a 15% jump. In contrast, the general office valuations were down 24% over the same period. “If you’re looking for a safe asset that you want to hold long term,” says Ruderman. “I would say buy medical office.”

Tampa ranks No. 4 in looming commercial loan payments

Wed, 29 Jul 2009 15:40:25 GMT

Florida has the fourth-highest rate of home foreclosures in the nation.

Similar problems in the commercial real estate market would slow a rebound in the economy. The commercial market, valued at about $6.7 trillion nationally, is expected to see half its loans due during the next three years.

Regionally, the south has the largest number of maturing loans, with 60,893 mortgages valued at $96 billion coming due on offices, hotels, apartment buildings, shops and land. The West is second with 20,549 mortgages maturing, with a value of $35 billion.

As these loans get closer to due, landlords worry they will be unable to hang onto their properties.

Credit is tight, property value continues to fall, and lenders may be unwilling to refinance projects. Owners also are dealing with tenants who are having trouble paying rent or are closing their businesses.

A separate report, released Wednesday by Real Capital Analytics, says $2.2 trillion of the nation's office, industrial, apartment and retail properties acquired or refinanced since early 2004 have lost value.

Many of these properties were leveraged 70 to 80 percent. Those owners would have a difficult time refinancing because lenders now typically allow only 50 to 60 percent of the value to be leveraged.

U.S. Properties Worth $2.2 Trillion at Default Risk

Wed, 29 Jul 2009 14:32:25 GMT

About $2.2 trillion of U.S. commercial properties bought or refinanced since 2004 are now worth less than the original price, raising the threat of more foreclosures, Real Capital Analytics said.

Prices have fallen so far that about $1.3 trillion of properties have either lost their owners’ down payment or are close to it, Robert White, president of the New York-based research firm, said in a report. The analysis includes only office, industrial, multifamily and retail properties. Hotels and raw land would “add billions more to the total,” he wrote.

“The sad fact is that many of these assets are healthy performing assets,” said Dan Fasulo, managing director of Real Capital. “Conditions have changed so much in the lending arena that many owners are going to have significant troubles refinancing.”

The report details the magnitude of the crisis in commercial real estate, where the collapse of securitized mortgages have combined with the recession to send prices plummeting and push landlords into default. U.S. commercial property prices are down 35 percent since the peak in October 2007, according to the Moody’s/REAL CPPI.

Even relatively conservative buyers are getting caught by falling values, according to Fasulo. He cited 333 Bush St., a 43-story tower in downtown San Francisco, whose owners, Hines Interests and Sterling American Property Inc., plan to surrender the building to its lenders. The move came after the main tenant, the law firm Heller Ehrman LLP, filed for bankruptcy.

The partnership paid $281 million for the skyscraper in 2007, near the top of the market.

Properties that were typically leveraged at 70 percent to 80 percent would have had tough times refinancing “even if prices held firm,” White wrote in the report. Few lenders are now willing to advance more than 50 percent to 60 percent of value in this market, he said.

About $124 billion of commercial properties have fallen into default, foreclosure or bankruptcy since prices started falling, Real Capital said. Less than 10 percent of distressed properties have resolved their financing issues and lenders have been slow to take action against property owners.

“The phrase ‘pretend & extend’ has recently entered the vernacular,” White wrote.

Commercial real estate mess hits regional bank bonds

Wed, 29 Jul 2009 13:30:25 GMT

The corporate bond market is signaling trouble ahead for those U.S. regional banks that are facing rising loan losses from commercial real estate.

U.S. bank bonds have rallied broadly since March, when the market was awash with fears for the financial system.

But while investors are increasingly confident that big banks can survive an extended downturn, they are worried about the next tide of toxic loans that threatens to inundate an already floundering economy.

Bonds of some U.S. regional banks with big commercial real estate exposure reflect this concern, analysts said. For example, the bonds of Birmingham, Alabama-based Regions Financial Corp (RF.N) have dropped about 17 percent in price since late March.

This week's data suggested a bottom in the housing market is in sight, with a report on Tuesday showing U.S. home prices rose in May for the first time in three years.

Yet analysts fear that much of the drama in the commercial real estate market has yet to unfold.

U.S. commercial real estate prices, which have fallen about 35 percent from their peak in October 2007, are a major driver of banks' loan losses.

About $2.2 trillion of U.S. commercial properties bought or refinanced since early 2004 have fallen below the price at which they changed hands, according to a report by Real Capital Analytics, a research firm based in New York.

Investors Finding No Fire Sales In Commercial Property

Tue, 28 Jul 2009 14:31:25 GMT

There are expectations the commercial real estate market is in the clutches of a free-fall similar or worse than the crisis in the early 1990s. Troubled commercial properties have more than doubled this year with the value of assets in default, foreclosure or bankruptcy topping $108 billion, according to a recent report by Real Capital Analytics.

Investors are getting prepared to pounce on distressed deals. For instance, over the last couple of months more than six real-estate investment trusts filed paperwork to launch initial public offerings, including Starwood Property Trust Inc., managed by an affiliate of Starwood Capital and Colony Financial Inc., spawned by Colony Capital LLC, the owner of casinos, hotels and the late Michael Jackson's Neverland Ranch.

Bills coming due for Joe Moinian

Mon, 27 Jul 2009 15:28:25 GMT

Two months ago, developer Joseph Moinian and a partner were forced to give up 475 Fifth Ave.—a building they had purchased only two years earlier—after failing to repay a loan.

With troubled deals all over town, it's likely that building won't be the last one Mr. Moinian will lose.

In fact, over the past two months, Mr. Moinian has quietly told lenders that he expects to default on loans due in November for two of his other holdings: 180 Maiden Lane and 17 Battery Place North. Meanwhile, challenges are mounting at his other holdings, including 1775 Broadway and 95 Wall St.

Mr. Moinian is one of a number of developers who took full advantage of the abundant capital and low lending standards of the boom years to gobble up properties at eye-popping prices. And like his peers—including Harry Macklowe, who has given up eight buildings to lenders, and Broadway Partners' Scott Lawlor, who has lost one and is about to relinquish three more—Mr. Moinian is now suffering the consequences of the bust.

“A lot of these guys who bought in 2006 and 2007 are in trouble,” says Dan Fasulo, managing director of Real Capital Analytics, a research firm.

Hines Giving Back 333 Bush

Mon, 27 Jul 2009 14:32:25 GMT

Values for Bay Area office properties have fallen by approximately 50% during the recession, and rents and occupancies also have suffered mightily. In many cases, the debt on the property is now greater than the value of the property and/or the revenue stream is no longer enough to cover the interest payments on the debt. As a result, instead of investing additional cash in the building in order to cover the mortgage or restructure the debt some owners are choosing simply to sell at a loss or walk away.

Some 15 San Francisco-area office properties are in distress, according to a recent report by Real Capital Analytics. One of those properties was 250 Montgomery. Earlier this month Realty Finance Corp. of Connecticut sold its original $47-million loan on the 15-story, 126,736-square-foot class A office building here for approximately $25 million or $200 per square foot, according to a source familiar with the transaction. The building was completed in 1989 at a cost of about $41 million. The borrower, Lincoln Property Co., paid approximately $47 million or $405 per square foot for the building in late 2006 and defaulted on the loan in late 2008. Prior to the note sale Lincoln agreed to hand over the property to its new creditor in lieu of foreclosure.

Overall availability in the San Francisco office market increased by 40 basis points in the second quarter to 20.2%, according to a quarterly report from CB Richard Ellis that tracks 76.4 million square feet in the market. The last time the combination of direct vacancies and sublease availabilities crested 20% of the market was 2003, amid the aftermath of the dot-com bust.

Wells Fargo Buys Mortgage Bonds as Defaults Rise, Sloan Says

Mon, 27 Jul 2009 14:26:25 GMT

Wells Fargo & Co., the bank that boosted its U.S. property-related holdings by acquiring rival Wachovia Corp., is adding to those investments with purchases of mortgage-backed bonds, even as Federal Reserve Chairman Ben S. Bernanke warns of another wave of defaults.

The bank reported its portfolio of real-estate securities, excluding those backed by the U.S. government, rose 6.6 percent last quarter to $41.2 billion. San Francisco-based Wells Fargo has been buying commercial-mortgage bonds because the debt has been available at “good” prices, said Tim Sloan, an executive vice president.

“We believe that there are good opportunities in investing in those securities,” Sloan said in a telephone interview on July 23. “There are good opportunities across the board today if you get the right people who can underwrite credit and can look into the deals and make sure you really understand what you’re investing in.”

Wells Fargo is betting it can pick up discount-priced assets amid the recession that began in December 2007. It runs the risk of getting caught in a new round of defaults as more commercial mortgages turn sour. Properties valued at more than $108 billion are now in default, foreclosure or bankruptcy, almost double the figure at the start of the year, Real Capital Analytics Inc. said earlier this month.

New Office Supply Looms Large

Mon, 27 Jul 2009 13:31:25 GMT

Office construction activity in this market would normally be considered a good thing, but not with unemployment nearing 10% and job reductions eroding demand for space. Consequently, Miami-Dade County is facing tough times with nearly two million square feet of new space slated for completion this year, further softening property fundamentals.

Real Capital Analytics identifies $240 million worth of troubled office assets in 12 properties totaling 2.4 million square feet within the Miami market. Miami is ranked seventh overall in the US in distress with a total of $4.6 billion, mostly involving development, apartment and hotel properties.

Microsoft Deal Boosts Second-Quarter Sales

Mon, 27 Jul 2009 12:29:25 GMT

The value of local commercial real estate sales edged up 3% to $369.3 million in the second quarter, compared to the first quarter, thanks to Microsoft Corp.’s purchase of its west suburban data center, which accounted for nearly half the total.

Without that unique deal, the drive to the bottom of the real estate investment market would have continued. Excluding Microsoft, sales plunged 47%, to a mere $188.3 million during second quarter, compared to $358.6 million in the first quarter, according to data provided by New York research firm Real Capital Analytics Inc.

Even with the Microsoft deal, sales during the first six months of 2009 plunged 84%, to $727.9 million, compared to $4.6 billion during the first half of 2008, according to the report, which tracks sales of office, apartment, industrial and retail real estate.

CMBS delinquencies skyrocket 585%

Mon, 27 Jul 2009 00:00:40 GMT

Here's more ammunition for the argument that problems within commercial real estate will be the next shoe to drop and blow any progress made toward ending the recession.

Things are getting ugly in the commercial mortgage-backed securities arena as delinquencies have gone through the roof over the past year, rising an "astounding" 585%, according to data from Realpoint Research. Citing a report from the research firm, New Mexico Business Weekly is reporting that delinquencies rose another $10 billion in June, to hit a 12-month high of nearly $29 billion. In June 2008, late loans totaled only $4 billion.

Other assessments of the commercial real estate market are even less rosy. Earlier this month research firm Real Capital Analytics found 5,315 troubled commercial properties nationally, valued at more than $108 billion. One of the trouble spots is the U.S.' second-most populous city, Los Angeles, which has 263 commercial properties valued at $4.5 billion that are in default, foreclosure or bankruptcy.

Apartments fetch $39M in buyers' market

Fri, 24 Jul 2009 13:49:25 GMT

A Philadelphia real estate company is taking advantage of a buyers' market to snap up a northwest Raleigh apartment complex.

Switzenbaum & Associates on Wednesday paid $39 million for the 374-unit Ashley Park at Brier Creek. The price was 5 percent more than what Chicago-based seller Equity Residential, one of the nation's biggest real estate investment trusts, paid in March 2005.

It's the Triangle's biggest apartment sale of the year. At the same time, the deal shows just how much prices have cooled in recent years.

When Equity bought Ashley Park for $99,000 per unit, the deal represented the third-most expensive apartment transaction this region had seen. In ensuing years, as apartment investors flooded the region, prices soared. One Durham complex sold in late 2006 for more than $180,000 per unit.

In the past two years, as lenders have tightened loan standards, many investors have fallen out of play. During the year ending March 31, about $360 million have been spent on Triangle apartments, according to Real Capital Analytics, a New York research firm. That's down 71 percent from the same period a year earlier.

Big Offices Now White Elephants

Fri, 24 Jul 2009 12:21:25 GMT

Arthur Jones, senior economist with Torto Wheaton Research in Boston, said office sales have been dwindling nationwide for two years, primarily because of the liquidity crunch. He added that data from research firm Real Capital Analytics shows office building investment sales nationwide are down 50 percent compared with this time last year.

In Austin, one prominent downtown building may be the first to break that trend. Kemp Management has reached an agreement with the Texas General Land Office to buy the 76,000-square-foot Starr Building at Sixth and Colorado streets. The deal will likely close in October or November, said Jim Suydam, press secretary for the General Land Office.

Meanwhile, many continue to watch the Chase Tower on West Sixth Street, which Grubb & Ellis Realty Investors LLC and Endeavor Real Estate Group LLC put on the market in March.

Boeing, Citigroup Lead Biggest Jump in Bond Sales in 12 Weeks

Fri, 24 Jul 2009 00:00:40 GMT

U.S. corporate bond sales jumped the most in 12 weeks as companies led by Boeing Co., the world’s second-biggest commercial-jet maker, and Citigroup Inc. took advantage of resurgent demand for their debt.

Issuance totaled at least $22.7 billion this week, up from $10.8 billion in the prior five-day period, according to data compiled by Bloomberg. Chicago-based Boeing offered $1.95 billion of debt and Citigroup, the New York-based bank, sold $2.5 billion of bonds in its biggest dollar-denominated issue without government backing since August.

Investors are snapping up bonds on speculation that efforts by companies to reduce expenses amid the deepest recession since the 1930s will bolster their creditworthiness. While second- quarter revenue fell 6.6 percent for the 180 companies in the Standard & Poor’s 500 that have reported results since July 8, per-share earnings beat analysts’ projections by an average of 11 percent, Bloomberg data show.

Bonds may continue to outperform stocks if the economy doesn’t recover as quickly as forecast. Federal Reserve Chairman Ben S. Bernanke in testimony before Congress this week noted risks in commercial real estate loans and said it “may be appropriate” for the government and Congress to consider “fiscal” measures to support the market.

Real Estate Outlook

Commercial properties in the U.S. valued at more than $108 billion are in default, foreclosure or bankruptcy, almost double the level at the start of the year, Real Capital Analytics Inc. said earlier this month.

Bernanke Says Commercial Property May Pose Risk for Economy

Wed, 22 Jul 2009 15:33:25 GMT

Federal Reserve Chairman Ben Bernanke said a potential wave of defaults in commercial real estate may present a "difficult" challenge for the economy, without committing to additional steps to aid the market.

Bernanke, testifying before the Senate Banking Committee today, urged lenders to modify "problem" mortgages to avert defaults. Christopher Dodd, the Connecticut Democrat who chairs the panel, told Bernanke that some have suggested the commercial market "may even dwarf the residential mortgage problems" in the U.S.

The Term Asset-Backed Securities Loan Facility (TALF), a Federal emergency program that lends to investors to purchase securities backed by consumer and business loans, began accepting commercial mortgage-backed securities as collateral last month.

Fed policy makers will extend the TALF, currently scheduled to expire Dec. 31, should they judge financial markets are still "some distance from normal operation," Bernanke said today.

"We will certainly be monitoring the situation, and if markets continue to need support, we will be extending the final date of that program," Bernanke said.

It "may be appropriate" for the government and Congress to consider "fiscal" steps to support the industry, Bernanke said today. Ideas for fresh support for the market could include government guarantees for commercial mortgages, Bernanke also said today, while noting no proposal on the subject has emerged.

U.S. commercial property prices fell 7.6 percent in May from a month earlier, bringing the total decline to 35 percent since the market's peak, Moody's Investors Service said in a report this week. Commercial properties in the U.S. valued at more than $108 billion are now in default, foreclosure or bankruptcy, almost double than at the start of the year, Real Capital Analytics Inc. said earlier this month.

Economy Affecting Broward Office Market

Wed, 22 Jul 2009 00:00:40 GMT

In Florida, Broward County’s office market is being affected by higher unemployment and increased rightsizing by corporate tenants.

A large amount of distressed assets are likely to be listed in the next 12 to 18 months, especially properties purchased or refinanced during the market peak from 2005 to 2007. Broward currently has $132 million worth of office properties in distress, with nine properties totaling 1.1 million square feet, according to Real Capital Analytics.

See our Broward Troubled Asset Radar report for more details and a list of 50 recent examples of distressed property.

Commercial real estate drop accelerates

Wed, 22 Jul 2009 00:00:40 GMT

Commercial real estate values around the country have dropped 35 percent from their peak in October 2007, according to Moody’s REAL Commercial Property Price Indices.

The decline appears to be accelerating as the index dropped more than 15 percent during April and May. Transactional volume also fell along with value, which is showing signs of effects from distressed sales.

Along the lines of kicking a sector when it’s down, a rise in interest rates caused several deals to unravel, hitting apartment sales the hardest.

To calculate the index, Moody's used 52 repeat sales, which had a dollar value of $400 million in April 2002.

Dan Fasulo, managing director of Real Capital Analytics, said the Moody's report is beginning to reflect true market pricing conditions "well ahead of any other indicators" and noted that commercial property values have fallen more than residential prices in annual terms.

U.S. regional banks post losses as loans sour

Tue, 21 Jul 2009 15:28:25 GMT

Regions Financial Corp and Comerica Inc, two large US regional banks, posted second-quarter losses on Tuesday as a deteriorating commercial property market caused bad loans to soar.

The weakness comes as regional lenders experience rising loan losses, with falling property values causing red ink to pile up for developers as well as for homeowners. Zions Bancorp, another regional bank, posted a quarterly loss late Monday.

"The falloff in values has been more significant than anyone would have anticipated," Dale Greene, Comerica's chief credit officer, said on a conference call.

About $114.1 billion of U.S. property is in distress, according to New York-based Real Capital Analytics Inc.

Moody's Investors Service, meanwhile, said U.S. commercial real estate prices are down 28.5 percent from a year earlier, including a 7.6 percent drop in May alone.

Lack of Transactions Makes True Cap Rates Hard To Pin Down

Tue, 21 Jul 2009 15:26:25 GMT

One of the big challenges facing the retail real estate sector is that with so few investment sales getting done there is little confidence that the prices paid on the few deals currently getting closed reflect true property values or cap rates.

In testimony before Congress' Joint Economic Committee on July 9, Jeffrey Deboer, president and CEO of the Real Estate Roundtable, said, "With a scarcity of property transactions, there is no effective price discovery, and this further exacerbates the real estate market crash."

According to the most recent data from Real Capital Analytics (RCA), a New York City-based research firm, cap rates on closed sales of retail properties averaged approximately 7.75 percent in May, a comparatively slight increase from the 7.5 percent reported in January. (At the peak of the market, in 2007, cap rates were in the 6 percent range). But RCA researchers note that the limited market data in the absence of new transactions make it hard to come up with a true benchmark for retail caps. The average cap rate for May is based on total retail sales volume of just $418 million, down 89 percent from May 2007, according to RCA. Further, most of the sales getting done are on stabilized properties—the only kinds of deals that can get financed in the current environment. If more distressed sales were occurring, market participants think average cap rates would be quite a bit higher.

This month, Moody's/Real Commercial Property Price Indices reported a drop of 19.4 percent for retail assets compared to the same period in 2007, to 150.09. The retail index was also off 12.9 percent compared to one quarter ago. Moody's estimates that for all commercial property types, the Aggregate Price Index has declined 34.8 percent compared to its peak in October 2007.

As a result of financing difficulties and the perception that retail assets will continue to lose value for the foreseeable future, buyers of retail centers remain few and far between. Most REITs and insurance companies have stopped acquisition activity altogether, says Bernard Haddigan, managing director of the national retail group with Marcus & Millichap Real Estate Services.

Regions, KeyCorp Face Losses From Commercial Property Defaults

Mon, 20 Jul 2009 13:27:25 GMT

Regions Financial Corp., Zions Bancorporation and KeyCorp may tell investors this week how hard they’ll be hit by the doubling of commercial property defaults after tying up 25 percent of their loans in the business.

Analysts expect the three regional banks to report more than $400 million in combined second-quarter losses as more borrowers fell behind on loan payments. Zions, the biggest bank based in Utah, releases results after U.S. markets close today. Regions, the largest in Alabama, reports before trading tomorrow and KeyCorp, ranked second in Ohio, follows on July 22.

With more than $108 billion of U.S. commercial properties in distress, according to Real Capital Analytics Inc., banks are being forced to extend and modify loans to avoid taking losses. There were 5,315 buildings in default, foreclosure or bankruptcy at the end of June, more than twice the number at the close of 2008, according to New York-based Real Capital.

Commercial real estate prices in the U.S. have tumbled more than 30 percent from their peak in 2007 and are likely to end up 40 percent to 50 percent below their highs before starting to rebound, according to Real Capital CEO Robert White. Of the $108 billion of distressed commercial properties, $4.1 billion have been worked out by lenders, White’s firm said in a July 8 report.

Real estate forecast: Gloom, touch of doom

Fri, 17 Jul 2009 16:17:25 GMT

Mortgage banker John Parker fears the commercial real estate market is a long way from hitting bottom.

“People are saying now that the market may not bottom until 2011,” said Parker, CEO of Q10 Triad Capital Advisors in Mission. “I hope that isn’t the case.”

New data, however, suggest a grim future in which tight credit, plummeting values and a lingering recession squeeze commercial real estate players out of the industry and leave stalled projects, such as the $130 million West Edge complex near the Country Club Plaza, as monuments to unfortunate timing.

According to Real Capital Analytics, the value of distressed and potentially troubled commercial properties in this market has more than tripled to $981 million from $322 million in January.

Top 20! Manhattan's Biggest Distressed Properties

Thu, 16 Jul 2009 16:33:25 GMT

Eight of Manhattan’s top 20 distressed properties fall in downtown; and several are well known: the Apthorp apartment building; the condo conversion 20 Pine The Collection, where some of the interiors were designed by a branch of Giorgio Armani’s empire; Kent Swig's 25 Broad; the Riverton in Harlem; the Jean Nouvel–designed condo at 100 11th Avenue; the Philippe Starck–backed 95 Wall (where Gossip Girl's Chace Crawford reportedly has an apartment); all three downtown AIG buildings; and a few former Harry Macklowe holdings.

"What’s different about this down cycle is there still appears to be unlimited demand once you reduce your price point for people," said Dan Fasulo, managing director for research at Real Capital Analytics, which provided the data. "And the problem is many owners and developers are into the project at pricing levels that don’t give them the flexibility to lower prices on the market without getting wiped out."

The distressed properties are ranked by their value at mid-year 2009.

Scant Good News in Vegas Hotel Metrics

Wed, 15 Jul 2009 16:31:25 GMT

Visitor volume improved nominally from April 2009 to 3.19 million but was down 5.8% from May 2008. The decline was pulled down by an 11.5% drop in air passenger traffic and pulled up by a 4.4% rise in car-based visitation. Year-to-date (through May), visitor volume was running 6.9% behind 2008.

Convention attendance in May (341,846 people) was 17.5% lower than April 2009 (414,764) and 32.9% lower than May 2008 (509,482). Year-to-date (through May), attendance (15.19 million) was running 28.6% behind the comparable 2008 period.

There are $1.7 billion of distressed hotel assets in Las Vegas, according to Real Capital Analytics’ July Troubled Asset Report. The dollar value translates to 15 properties with a combined 9,036 units. One of the better known distressed hotel properties is the 727-room Hooters Casino Hotel.

Strategic Hotels Chief Says Corporate Cutbacks to Trim Bookings

Wed, 15 Jul 2009 16:17:25 GMT

Strategic Hotels & Resorts Inc., owner of the Four Seasons in Washington, will probably see a decline in luxury bookings through this year as companies cut travel to avoid public reproach, Chief Executive Officer Laurence Geller said.

Criticism of corporate spending "had a tremendous effect on us for probably three immediate months with a lingering effect of six more months," Geller said in an interview. "It was almost as if something turned the spigot off."

President Barack Obama said in February that companies receiving federal bailout money "can’t go take a trip to Las Vegas or go down to the Super Bowl on the taxpayers' dime." U.S. Representative Barney Frank and the House Financial Services Committee criticized Northern Trust Corp. for organizing a golf tournament in Beverly Hills, Calif. The bank received and repaid $1.6 billion in federal assistance.

The value of hotel properties in default or foreclosure almost doubled to $17.3 billion in the second quarter through June 24 from $9 billion at the end of the first quarter, data compiled by Real Capital Analytics Inc. show. The New York-based research firm, which began tracking distressed commercial property in November, expects hotel defaults to increase by as much as $2 billion this quarter, said analyst Jessica Ruderman.

Sale-Leaseback Sticker Shock

Wed, 15 Jul 2009 14:31:25 GMT

Demand for corporate sale-leaseback real-estate transactions is picking up across the U.S. as companies seek a fast way to raise cash to ride out the recession. But a scarcity of buyers and low bids mean fewer deals are actually getting done.

Sale-leaseback transactions -- where a company sells its office building, plant or other property and then leases it back from the new owner -- is an alternative form of financing that some companies turn to when traditional financing, such as bank loans, are harder to obtain. During the first five months of this year, the value of U.S. sale-leaseback transactions declined to $853 million, compared with nearly $3 billion in the year-earlier period, according to Real Capital Analytics, which tracks deals greater than $5 million.

Part of the drop in transaction value reflects lower real-estate values, but the biggest issue is that buyers and sellers are so far apart on price that many transactions fizzle when sellers walk away. Just 63 deals were completed between January and May, compared with 174 in the first five months of 2008, according to Real Capital Analytics.

Real Estate Experts Say Residential and Commercial Foreclosures Will Continue to Rise

Tue, 14 Jul 2009 16:33:25 GMT

Commercial foreclosures are also on the rise. The Dallas Business Journal reports that commercial foreclosures jumped 12 percent in the first seven months of 2009 compared to 2008. In New Jersey, foreclosed commercial properties also continued to soar. When the second quarter of 2009 was compared to 2008, the numbers had tripled.

Nationwide, retail space is the biggest commercial property sector of concern, with more than $31 billion in property considered distressed, according to Real Capital Analytics, a New York-based commercial real estate analysis company.

When seeking a foreclosed property, ForeclosureDeals.com is a good place to start. The easy-to-use Web site offers more than 1.5 million listings, nationwide. They say, "If it's not a deal, we won't list it here."

Wary Of Realizing Losses, Lenders Pretend and Extend

Tue, 14 Jul 2009 15:30:25 GMT

Two new phrases have entered the commercial real estate industry lexicon in recent months: "Pretend and extend" and "A rolling loan gathers no loss." Both witticisms describe an ongoing phenomenon in commercial real estate finance: as the level of distress mounts, lenders have been loath to seize properties from troubled borrowers.

Instead, in many cases banks are generously granting extensions or other modifications even in situations where it appears unlikely that borrowers will be able to pay back the loans.

Year-to-date, $60.5 billion in commercial real estate assets have entered default or delinquency, according to a recent report from Real Capital Analytics (RCA), a New York City-based research firm. (Overall, the firm counts $108 billion of assets in default, foreclosure and bankruptcy, including some 1,420 retail assets worth $31.1 billion.) In contrast, only $4.1 billion in troubled asset situations have been resolved this year. As one indication of this trend, from January through April, the 20 largest banks in the country reported that modifications of existing loans outnumbered new commitments by approximately two to one, notes Sam Chandan, president and chief economist with Real Estate Econometrics, another New York City-based real estate research firm.

A Peek At The Troubled Assets Radar

Tue, 14 Jul 2009 15:26:25 GMT

The other day, we received what is regularly one of the most fascinating reads to real estate reporters, Real Capital Analytics’ Troubled Assets Radar report.

This national report, released July 8, puts the total inventory of “distressed assets” (defined as property in default, foreclosure or bankruptcy) at $108 billion at the end of June. The report graphically depicts a steep upward climb in the number of properties falling into distress each month. On the flip side, it shows a very modest rate at which problems are actually being resolved.

According to the report, the District has seven distressed properties representing $276 million in debt.

Northern Virginia has 26 such properties with $388 million in troubled debt.

Suburban Maryland towers over both of those jurisdictions, with 33 troubled properties carrying almost $562 million in debt.

Normally, Real Capital Analytics prepares separate regional reports for major metropolitan areas. Finding no such report for Washington, we asked RCA’s managing director, Dan Fasulo, why no love for us.

“That’s a good thing — means we were not able to aggregate enough troubled assets in the market,” Fasulo said.

But, but but ... we have 51 empty office buildings in Northern Virginia alone...

Local banks are seeing something like an average 7.6 percent nonaccrual rate (basically, that’s the default rate) on construction and land development loans — compared to something in the 5 percent range nationally. Eleven local banks have nonaccrual rates in the double-digits.

The Watergate is in default, the Dumont is in foreclosure, Monument Realty is in trouble all over town, empty buildings abound by the ballpark, Opus East is in Chapter 7 liquidation ...

“Are we overreacting to signs of trouble here?” we ask Fasulo.
“Just because a building is empty, doesn’t mean its troubled — we have a pretty strict methodology, and we need hard evidence that a building has fallen into the foreclosure process,” Fasulo said.

Wait, don’t exhale yet: “Many of these properties are heading down that path and I believe that, next month, we may have enough to run a full report on D.C.,” Fasulo said.

Commercial real estate's bright side: Firms buy buildings for own use

Mon, 13 Jul 2009 15:41:25 GMT

The investment market for commercial real estate is way off except for one segment — those buying properties to use for their own businesses.

Called the user-buyer, these real estate investors are able to get something many prospective buyers aren’t able to these days: money from a bank to spend on purchasing a property. If they don’t need a loan, they already have earmarked their own funds for such a purchase. This allows these user-buyers to buy a building despite the credit freeze and wary lenders. The number of user-buyer transactions climbed between June 2008 and last month, according to Real Capital Analytics. During that timeframe, of the 40 office and industrial sales in the region, 25 percent were made by users.

Commercial Real Estate: A Ticking Time Bomb?

Mon, 13 Jul 2009 12:29:25 GMT

In a committee hearing in Congress that just ended, Joint Economic Committee Chairwoman Carolyn Maloney said that commercial real estate is a “ticking time bomb.” That comment alone has generated a Dow Jones story, an Associated Press story, a blog entry at the Washington Post, a Reuters story, a CNBC story and a Bloomberg story.

One question: How can commercial real estate be a “ticking time bomb” when we’re already more than two years into the sector’s decline? This testimony is occurring as a wave of new data hits us that shows that commercial real estate has already been hit very, very hard. We got the June same-store sales data today. Sales came in down between 4.3 percent and 5.1 percent, depending on whose numbers you look at. Reis also released new numbers on shopping center and regional mall vacancies showing vacancies have hit 17-year highs. A report from Real Capital Analytics shows that commercial real estate worth $108 billion is now in default, foreclosure or bankruptcy. Isn’t the correction playing out? What exactly does the industry need?

UK emerging as best bet for commercial property recovery while US remains troubled

Mon, 13 Jul 2009 12:29:25 GMT

The UK commercial property market is in the best position to recover compared with other key European sectors but the US is still on a downward spiral, according to reports from analysts.

But it is a different story across the Atlantic. In the US the number of commercial properties in default, foreclosure or bankruptcy are now valued at more than $108 billion, an amount that has almost doubled since the beginning of the year.

Research from Real Capital Analytics, shows that a scarcity of credit is causing property defaults in all regions and among every investor type. Hotels and retail properties are among the most problematic assets, it said in a report.

'Perhaps more alarming than the rapid growth in the distress totals is the very modest rate at which troubled situations are being resolved,' the report added.

Even although about $4.1 billion of commercial properties have emerged from distress, the future is still gloomy. 'In far more situations, modifications and short-term extensions are being granted, but these can hardly be considered resolved, only delayed,' the report concluded.

New owner of Steeplechase plans a ‘face-lift'

Mon, 13 Jul 2009 12:28:25 GMT

Houston-based Schreer Partnership Interests expanded its holdings with the purchase of Steeplechase Shopping Center from Weingarten Realty Investors and plans to polish it to attract national tenants.

The 194,000-square-foot center at Jones Road and FM 1960 West was developed by Weingarten in 1982 and is 76 percent leased. The price was not disclosed.

“Functionally, it's a great shopping center. It just needs a face-lift,” said Andrew Shreer, general managing partner.

The northwest Houston center is anchored by Palais Royal, 99¢ Only, Anna's Linens and Capital One Bank. Plans call for a new exterior facade and signage. About 50,000 square feet is available and the partnership is hoping to secure a tenant such as PetSmart or Office Depot to attract more shoppers. Lyle Cowand of WPW Management will lead the marketing effort.

Weingarten was represented by Rudy Hubbard and Leah Gallagher of Transwestern. The deal is one of only six large retail transactions to close in the Houston area so far this year as financing has dried up, Gallagher said. By comparison, 31 retail centers in the Houston area closed in the first half of 2008, according to Real Capital Analytics.

Weingarten was represented by Rudy Hubbard and Leah Gallagher of Transwestern. The deal is one of only six large retail transactions to close in the Houston area so far this year as financing has dried up, Gallagher said. By comparison, 31 retail centers in the Houston area closed in the first half of 2008, according to Real Capital Analytics.

Commercial real estate pain good for some

Mon, 13 Jul 2009 12:28:25 GMT

Private equity funds that are targeting investing in distressed commercial properties in the U.S. have their fair share of financially troubled buildings from which to choose.

Nationally, research firm Real Capital Analytics found 5,315 troubled commercial properties valued at more than $108 billion. One of the trouble spots is the U.S.' second-most populous city, Los Angeles, which has 263 commercial properties valued at $4.5 billion that are in default, foreclosure or bankruptcy.

GVA Advantis halts brokerage service

Mon, 13 Jul 2009 11:21:40 GMT

Thirteen months after announcing a recapitalization of GVA Advantis, the company said Monday it was being forced to discontinue real estate brokerage services immediately to survive the economic downturn.

It was unclear how the announcement would affect the Tampa brokerage office, which was the ninth largest commercial real estate broker in the Tampa Bay area in 2008, according to the Tampa Bay Business Journal Book of Lists.

Washington-based Advantis Holdings will remain active in the property management business and will continue to own and operate Advantis Construction Co., states a release.

Advantis Holdings will continue to provide facilities management and corporate and advisory services, states the release. To improve operating performance, Advantis is pursuing a number of possible joint venture or other affiliation strategies.

Commercial real estate investment sales have dropped dramatically since the capital markets meltdown in the fall of 2008, according to Real Capital Analytics. Sales are off by more than two-thirds in most markets.

Latest data confirms depth of R.E. slump

Mon, 13 Jul 2009 00:00:40 GMT

Dollar volume for commercial property sales in Boston during the first half of the year was off 46 percent from the same period last year and 92 percent from the first six months of the peak year of 2007.

For the first six months of this year, 22 properties sold for $870 million compared with 92 properties selling for a total of $1.6 billion in the first six months of 2008. At the peak of the white-hot investment sales market, 235 properties sold for $11.2 billion in the first six months of 2007, according to Real Capital Analytics Inc.

‘Badly bent’ describes lenders and investors

Mon, 13 Jul 2009 00:00:40 GMT

A bluegrass tune "I ain't broke, but I'm badly bent" recently recorded by The Dan Tyminski Band accurately describes both commercial real estate lenders and investors today.

On the lender side, more focus is placed on managing current portfolios and avoiding substantial write-offs than on new business.

New business for investors is limited to bargain-basement shopping. Most of their effort and time is spent on managing debt that is coming due and property level cash flows.

Commercial real estate values continue to drop from their highs reached in 2007, industry research reports show.

The most often-cited research is the Moody's/REAL Commercial Property Prices Indices, which shows that, in aggregate through April, commercial property values have fallen 29.5 percent from the peak in October 2007.

That is not terribly surprising given the state of the economy, but since the index is based on actual sales, perhaps the best conclusion is that it's just not a good time to sell real estate.

Most owners of commercial real estate agree.

Even in the multifamily market, where capital is still somewhat plentiful, few transactions are occurring. Multifamily sales in May fell 46 percent from April 2009 and dropped 80 percent from May 2008, according to Real Capital Analytics.

Realty Bubble

Fri, 10 Jul 2009 16:17:25 GMT

Long-awaited evidence that the commercial real estate market is about to stumble may finally be emerging.

According to newly released data from Real Capital Analytics, some $108 billion worth of commercial real estate is either in default, foreclosure or bankruptcy as of July 1, a jump of $60.5 billion from the start of the year as office and residential rents sag, condo sales languish and retailers go bankrupt.

Meanwhile, 120 properties in Manhattan worth nearly $8 billion are considered "troubled," Real Capital's data show. They include 84 apartment buildings, 24 office buildings, eight development sites, two hotels, two retail properties and one industrial building.

"It's not surprising as we've had $100 billion in sales just in the last three years in New York -- and many were highly leveraged," observed Jon Caplan, an investment broker with Cushman & Wakefield.

The outer boroughs and Long Island combined have 78 troubled assets worth $1.7 billion, of which the four New York City boroughs account for $376.8 million.

So far, just $4.1 billion in problem loans have been resolved nationally, with Manhattan accounting for nearly $2 billion of that figure. Most resolutions have been in the form of loan modifications or short-term extensions, which Real Capital's analysts say simply means many properties' problems are being pushed off into the future.

"Excess leverage is endemic to every type of investor, all of which are facing difficulties refinancing mortgages as they come due," the report said.

Commercial foreclosure rate triples this year

Fri, 10 Jul 2009 16:17:25 GMT

Commercial foreclosures soared in New Jersey in the second quarter, with lenders and loan servicers going to court to take back 413 income-producing properties - nearly three times the number of such filings during the same period last year.

About half of the state's commercial foreclosures in the second quarter came in June, according to records provided by the state judiciary.

The increasing commercial foreclosures is another sign of how the recession is rippling into commercial real estate, the sector that includes office buildings, shopping centers, industrial sites and apartments.

Nationwide, retail space is the biggest sector of concern, with more than $31 billion in property considered distressed, according to Real Capital Analytics, a New York-based commercial real estate analysis company. The group, which tracks properties worth $5 million and up, said it has its eye on 73 properties in New Jersey considered distressed that are worth a combined $3.3 billion.

One such property the company singled out was the Morristown Plaza office building in Morristown, two buildings it listed as being worth $18.8 million in November.

U.S. Commercial Real Estate Next Big Risk

Fri, 10 Jul 2009 14:28:25 GMT

This all spells looming trouble for banks. The banking industry, which has a $1.8-trillion exposure to commercial real estate, could face losses of nearly $200-billion, according to Mr. Parkus.

And unlike the housing meltdown, this crisis is likely to hit smaller banks the hardest. Mr. Parkus pointed out that the four largest U.S. banks have an average exposure of 2 per cent to commercial real estate. The 30 to 100 largest banks have an average 12-per-cent exposure.

“We see [commercial real estate] as a very significant risk,” acknowledged Jon Greenlee, the Fed's associate director of bank supervision and regulation.

He pointed out that the 19 large financial institutions that recently underwent stress tests had roughly $600-billion in commercial real estate loans. The total market is worth $3.5-trillion.

There were 5,315 U.S. commercial properties in default, foreclosure or bankruptcy at the end of June, more than twice the number at the end of 2008, with hotels and retail among the most “problematic,” Real Capital Analytics Inc. said in a report Thursday.

Commercial Real Estate Is a ‘Time Bomb,’ Maloney Says

Thu, 09 Jul 2009 15:28:25 GMT

The $3.5 trillion commercial real estate market is a ticking “time bomb” that may lead to a second wave of losses at large U.S. banks, congressional Joint Economic Committee Chairwoman Carolyn Maloney said.

About $700 billion in commercial mortgages will need to be refinanced before the end of 2010 and “doing nothing is not an option,” Maloney, a New York Democrat, said at a committee hearing today. This “looming crisis” may lead to significant losses for banks, force shopping center and hotel owners into bankruptcy, and impede economic recovery, she said.

The response by banks to this “growing threat has been slow and inadequate,” said James Helsel, a partner at RSR Realtors in Harrisburg, Pennsylvania, and treasurer for the National Association of Realtors. “The lack of liquidity and banks’ reluctance to extend lending are also becoming apparent in the increasing level of delinquent properties.”

There were 5,315 commercial properties in default, foreclosure or bankruptcy at the end of June, more than twice the number at the end of last year, with hotels and retail among the most “problematic,’ Real Capital Analytics Inc. said in a report yesterday. Losses on commercial mortgage-backed securities, or CMBS, will total 9 percent to 12 percent of the market, or as much as $90 billion, said Richard Parkus, a research analyst for Deutsche Bank Securities in New York.

L.A. commercial real estate owners struggling, report says

Thu, 09 Jul 2009 12:29:25 GMT

Los Angeles commercial real estate continues to spiral downward, according to a report released Wednesday by Real Capital Analytics Inc.

The New York-based real estate research firm found that Los Angeles had $4.5 billion in troubled commercial properties at the end of June.

In all, 263 properties are in default, foreclosure or bankruptcy, the firm reported. At the beginning of the year there were 113, a 133% increase.

But things could be worse, said Dan Fasulo, RCA managing director of research. Compared with the national picture, Los Angeles is faring well.

"Los Angeles has held up better than its peers," Fasulo said. "For example, you couldn't give away a commercial property in the Midwest right now."

Nationally, RCA found 5,315 troubled commercial properties valued at more than $108 billion.

The report lists hotels and retail properties as the most "problematic sectors" and goes on to note the bankruptcy filings by mall owner General Growth Properties Inc. and hotel chain Extended Stay America Inc. The report said the lack of available credit is causing properties to fall into default across the country and among every investor type.

"Excess leverage is endemic to every type of investor, all of which are facing difficulties refinancing mortgages as they come due," the study said.

The figures released Wednesday are preliminary, the report said.

Vornado PE fund seeks $1B

Thu, 09 Jul 2009 00:00:40 GMT

On Monday, Deutsche Bank AG (NYSE:DB) sold its office property WorldWide Plaza in Manhattan for $605 million. The German bank took possession of the property after Macklowe Properties was unable to pay its mortgage. According to Real Capital Analytics, the office was acquired during the height of the real estate boom in 2007 for $1.74 billion by developer Harry Macklowe.

RCA: NYC Distress Tops $9 Billion

Thu, 09 Jul 2009 00:00:40 GMT

Although it may not be the metro area’s proudest distinction, New York City just edges out Las Vegas as the nation’s leading market for distress by dollar volume when Long Island dollar totals are included, according to data released by Real Capital Analytics. The total volume of distress for Manhattan, the outer boroughs and Long Island reached just under $9.7 billion in June, about 9% of the US total of $108 billion. That compares to about $9.4 billion for Vegas, with New York City itself cracking the $9-billion barrier last month, RCA data indicates.

However, RCA ranks the outer boroughs and Long Island in fifth place among US markets in distress measured as a percentage of total property investment volume. Notwithstanding Manhattan’s high dollar volume for distressed assets--slightly less than $8 billion--it’s ranked in 32nd place among metro areas, due to the sheer density of the market.

As might be expected, Vegas vaults to the top of that list, followed by Detroit. For that matter, Manhattan comes in well below Southeastern tertiary markets in the rankings, although the dollar volumes for distress in Manhattan and outlying Southeastern markets are within a few million dollars of one another. However, it ranks higher than Los Angeles--36th place, despite the nation’s second largest city having the largest number of distressed assets--263, compared to Manhattan’s 120.

Office Aftershocks Forecast for Second Half

Wed, 08 Jul 2009 14:28:25 GMT

With the national office vacancy rate threatening to breach 17% by year’s end and a wave of maturing loans coming due, landlords are working feverishly to clean up their balance sheets and retain tenants.

At this juncture a year ago, owners believed that they would be able to weather the downturn by granting higher tenant improvement allowances and free rent, rather than lowering rents. That scenario never played out.

In the first quarter, the U.S. office vacancy rate climbed to 15.3%, up from a low of 12.5% in the third quarter of 2007. Over the same period, effective rents fell by 3.6%. And by year’s end, Reis projects effective rents will shrink by 8.1%.

“I think when most of us look back on ’08, people were feeling like we were headed into a recession in the first part of the year. But I think everybody felt like it was going to be relatively manageable,” says Charlie Baughn, CEO of the capital markets group at Hines.

Distressed Commercial Property in U.S. Doubles to $108 Billion

Wed, 08 Jul 2009 12:29:25 GMT

Commercial properties in the U.S. valued at more than $108 billion are now in default, foreclosure or bankruptcy, almost double than at the start of the year, Real Capital Analytics Inc. said.

There were 5,315 buildings in financial distress at the end of June, the New York-based real estate research firm said in a report issued today. That’s more than twice the number of troubled properties at the end of 2008.

Hotels and retail properties are among the most “problematic” assets following bankruptcy filings by mall owner General Growth Properties Inc. and Extended Stay America Inc., according to the report. The scarcity of credit is causing property defaults in all regions and among every investor type, Real Capital said.

“Perhaps more alarming than the rapid growth in the distress totals is the very modest rate at which troubled situations are being resolved,” the report said.

About $4.1 billion of commercial properties have emerged from distress, according to Real Capital.

“In far more situations, modifications and short-term extensions are being granted, but these can hardly be considered resolved, only delayed,” the study said.

The June figures issued today are preliminary.

Both Good and Bad News

Wed, 08 Jul 2009 11:27:40 GMT

Tuesday's news that a New York City skyscraper sold for about $600 million, in the city's largest real-estate transaction so far this year, holds good and bad news for the nation's largest and priciest office market.

The accord by a partnership led by developer George Comfort & Sons to buy the 47-story Worldwide Plaza from Deutsche Bank AG offers hope the deal drought might be ending. However, the price, which translates to roughly $375 a rentable square foot, means the building's value plunged 65% in just 2½ years.

According to research firm Real Capital Analytics, developer Harry Macklowe acquired Worldwide Plaza for $1.74 billion in February of 2007 -- $1.14 billion less than the new price.

Moreover, the transaction could mean big drops in rents are ahead for landlords. "At that price, [Comfort] can now afford to undercut the whole midtown market," said real-estate attorney Steven Schlesinger, of Jaspan Schlesinger LLP, who wasn't involved in the transaction. Comfort declined to comment via a spokesman.

Real Capital Analytics Wins Corporate Excellence Award from International Real Estate Society

Wed, 08 Jul 2009 00:00:40 GMT

Real Capital Analytics Inc. (RCA) was presented with the International Real Estate Society (IRES) Corporate Excellence Award for 2009 in Stockholm, Sweden at the European Real Estate Society Annual Conference.

Real Capital Analytics was commended for the quality of their global property transactions database and the caliber of their capital trends reports supporting more informed global real estate investment decision-making. The strong support provided by Real Capital Analytics to real estate academics in many countries was also recognized.

"On behalf of our Founder, Bob White, the rest of my colleagues at RCA and our data partners, we are honored to receive this award," said RCA's Executive Vice President Joe Mannina who accepted the award in Stockholm. "We will continue our efforts to support the valuable academic research that is being done by IRES members around the world."

IRES has presented this award annually since 2001 to recognize outstanding contributions in corporate excellence in international real estate. Previous recipients of this major award include NAREIT, Appraisal Institute, Jones Lang LaSalle, Royal Institution of Chartered Surveyors and Investment Property Databank.

About International Real Estate Society
The International Real Estate Society (IRES) is a federation of regional real estate societies. Each Society maintains control over its own activities while participating in the federation to get the benefits of global co-operation. For more information, visit www.iresnet.net.

About Real Capital Analytics, Inc.
Real Capital Analytics, Inc. is a global research firm based in New York City. The firm's proprietary research is focused exclusively on the investment market for commercial real estate. Within that arena, Real Capital Analytics offers the most in-depth, comprehensive and current information of activity in the industry. In addition to collecting transactional information for property sales and financings, RCA interprets data such as capitalization rates, market trends, pricing and sales volume. RCA also quantifies the market forces and identifies the trends that affect the pricing and liquidity of commercial real estate around the world. The firm publishes a series of Capital Trend reports and offers an online service that provides current transactional and troubled asset information for all markets globally.

Pritzker Pays Blackstone $20M for 400-Acre Carmel Valley Ranch Golf Resort

Tue, 07 Jul 2009 13:18:25 GMT

New York City-based Blackstone Group LP has unloaded the 400-acre, 144-room Carmel Valley Ranch golf resort to John Pritzker's San Francisco-based Geolo Capital company for $20 million or about $138,889 per room.

The property is less than 50 percent occupied and needs $25 million in room renovations and other rehabilitation, including the installation of a new spa, according to Bloomberg and Forbes, which both carried the transaction.

John Pritzker is the son of the late Jay Pritzker, billionaire founder of the Hyatt Hotels chain.

Blackstone bought Carmel Valley Ranch in 2005 as part of its Wyndham International Inc. acquisition, valued at $3.24 billion including assumed debt.

The same year, Blackstone put some Wyndham hotels including the Carmel resort into a new company called LXR Luxury Resorts and announced plans to spend $400 million on improvements.

Luxury-hotel revenue has dropped for 12 months, including 28 percent in April from a year earlier, according to Smith Travel Research Inc. in Hendersonville, TN.

The value of hotel properties in default or foreclosure almost doubled to $17.3 billion in the second quarter through June 24, according to data compiled by New York-based real-estate research company Real Capital Analytics Inc.

Deutsche Bank Said to Agree to $605 Million New York Tower Deal

Tue, 07 Jul 2009 12:28:25 GMT

Deutsche Bank AG, Germany’s largest bank, plans to sell Manhattan’s Worldwide Plaza to a group of New York investors after pulling out of the transaction last month, a person familiar with the matter said.

RCG Longview and George Comfort & Sons agreed to acquire the tower at Eighth Avenue and West 49th Street for about $605 million, or $345 a square foot, according to the person, who declined to be identified because the talks were private.

Deutsche Bank is selling the last of seven buildings it seized from developer Harry Macklowe. He paid $1.74 billion for the 1.75 million square-foot property in February 2007, according to Real Capital Analytics Inc. data. Manhattan office building prices have dropped 30 percent to 50 percent since the peak in 2007, according to Woody Heller, head of the capital transactions group at Studley, a New York-based brokerage.

“This will be the largest transaction of the year in Manhattan, and hopefully it will help jumpstart the market again,” said Dan Fasulo, managing director of research at Real Capital, which tracks commercial property sales. “Manhattan has certainly been a laggard because participants are having a hard time figuring out where true pricing levels are.”

Deutsche Bank will provide $470 million of financing for the transaction and the buyers will put up $130 million in cash, according to the person.

The earlier deal called for Deutsche Bank to retain a stake in the building and receive revenue based on the property’s future income, said the person. The bank canceled that agreement, which was reached on June 3, after executives became uncomfortable with the structure, the person said.

The 47-story building will have more than 700,000 square- feet of vacant space with the expected departure of advertising and public relations firm Ogilvy & Mather. The vacancy will be the second biggest block of available space in New York, according to Colliers ABR, a commercial property brokerage.

Steve Solomon, a spokesman for RCG and Comfort, said the partners would have no comment. Scott Helfman, a Deutsche Bank spokesman, declined to comment.

Worldwide Plaza Deal Is On, Again

Tue, 07 Jul 2009 00:00:40 GMT

Last month’s collapsed deal to sell Worldwide Plaza--the last unsold property in the Macklowe/Equity Office portfolio--has been reborn as a new deal with the same buyers, according to Bloomberg News. A source familiar with the proceedings tells GlobeSt.com that an investment group led by RCG Longview and George Comfort & Sons has agreed to acquire the 1.75-million-square-foot office tower at 825 Eighth Ave. for approximately $600 million, or $345 per square foot. That compares to the $1.74 billion Macklowe Properties paid for the building in February 2007, according to Real Capital Analytics data.

Deutsche Bank, which nixed the previous agreement with the investor group in June, will provide $470 million of financing, while the buyers will put in $130 million in cash, the source tells GlobeSt.com. In the earlier deal, Deutsche Bank would have retained a stake in Worldwide Plaza and received revenue based on the property’s future income; the source says this joint venture structure has been replaced in the new deal by an outright sale to the investor group.

Senior executives at the bank reportedly grew uncomfortable with the JV structure and canceled the earlier agreement two weeks ago. Deutsche Bank took back Worldwide Plaza and other properties last year after Macklowe defaulted on $5.8 billion in financing from the bank.

Spokesmen for Deutsche Bank and George & Comfort & Sons tell GlobeSt.com their firms have no comment. When the earlier deal fell through, George Comfort president Peter Duncan issued a statement saying his company and RCG were "ready, willing, able and eager" to close the deal, which was brokered by Eastdil Secured, and was "disappointed" that the bank opted not to honor the contract.

Colliers Arranges Largest CEE Real Estate Deal Of 2009

Tue, 07 Jul 2009 00:00:40 GMT

Colliers International has announced it arranged the largest commercial real estate transaction in Central and Eastern Europe to date in 2009

In the transaction, construction giant Skanska sold Deloitte House, located in the central business district of Warsaw, to a fund managed by German-based international investment management firm Deka Immobilien for EUR 117 mln.

The newly constructed, 21,000m2, Class A office building is the first certified green building in the Polish capital. The property officially opened this month.

Colliers represented Skanska and Clifford Chance acted as legal advisor to the seller.

Colliers also serves as property manager for the fully leased building. The global financial services firm Deloitte is the anchor tenant. 'Deloitte House is a best-in-class product in the European Union's best performing economy,' said John Banka, a director of Colliers International in Poland.

Banka arranged the transaction together with colleague Neil Gregory-Eaves, a director of Colliers International in Central & Eastern Europe (CEE).

Skanska and Deka reached a preliminary sale agreement in September 2008. Originally called Atrium City, the building was renamed Deloitte House when the firm signed on as the anchor tenant, taking 14,600 m2.

Colliers said that according to data supplied by industry research firm Real Capital Analytics the sale ranked as the fifth largest office sale in Europe, Middle East and Africa in 2009 to date, the year's largest transaction in Poland, and one of the top 12 office trades globally.

Skanska sells Deloitte House

Mon, 06 Jul 2009 14:13:25 GMT

Developer Skanska has sold its Deloitte House office building in Warsaw to a Germany-based investment fund managed by Deka Immobilien. The transaction, whose value amounted to €117 (zl.516) million is, according to research company Real Capital Analytics, the largest commercial real estate deal in Poland and the CEE region this year and one of the 12 largest transactions of its kind in the world.

Monument defaults on $69.8M Watergate loan

Mon, 06 Jul 2009 14:13:25 GMT

Monument Realty has defaulted on a $69.8 million loan on the Watergate Hotel, according to Real Capital Analytics, a New York commercial real estate tracking firm.

The June 3 default is at least the third by the D.C.-based developer with deep ties to the troubled Lehman Bros. Monument declined to comment.

The Watergate lender, PB Capital, has been facing its own challenges during the recent real estate crash. In December, PB Capital moved to foreclose on D.C.’s Dumont Condominium but declined at the time to comment on plans to foreclose on other nonperforming assets in the area, such as the Watergate. Real said it is now indicated that PB has started foreclosure proceedings on the Watergate.

From cubicle farm to graveyard

Sun, 05 Jul 2009 02:16:40 GMT

Companies reconfigure surplus office space as work force shrinks.

From the 30th floor of Centennial Tower in downtown Atlanta, employees at Gensler architectural firm have a breathtaking view of the Atlanta skyline.

Lately, though, that panorama offers two different views at once: a soaring collection of buildings that define the city, and an office market you wouldn’t wish on Birmingham. A vacancy rate of 20 percent this summer is not out of the question. In good times, vacancies run between 12 and 14 percent.

A year ago, Gensler occupied 17,000 square feet of office space. But layoffs and realignments earlier this year left the company with 3,000 square feet of open space —- little desert islands inhabited only by silent workstations. Instead of moving the firm, Gensler moved the furniture, separating its workers from its unused workstations.

“All the empties are at one end; 80 percent of our space is occupied, so it feels full,” said Stephen Swicegood, managing director of Gensler’s Atlanta office. “There’s nothing more depressing than walking on a floor that used to be full of workers, and now there’s only half the seats that are occupied. You lose energy that way. There’s no buzz.”

It’s a notable turn for a firm that has built a reputation helping other companies make good use of their space. It also illustrates corporate America’s dilemma: At many companies, two years of punishing layoffs have transformed the cubicle farm into a cubicle graveyard. Because real estate is a fixed cost, holding more of it than your company needs affects the bottom line.

Nationally, a lot of landlords are finding themselves with a surplus of space. Nearly $9 billion worth of distressed office assets —- 211 properties —- are on the market. That list continues to grow by more than 30 properties a month, according to Real Capital Analytics, a commercial real estate research and consulting company.

With Loan Default, Watergate Hotel at Risk of Foreclosure

Thu, 02 Jul 2009 10:07:40 GMT

The Watergate Hotel is headed for foreclosure unless the lender agrees to new terms with Washington developer Monument Realty, officials with the company said yesterday.

The owners of the 251-room landmark overlooking the Potomac River in Northwest Washington defaulted on a $70 million loan that came due this week, another fallout from the real estate crash and the collapse of Lehman Brothers, a partner and equity investor in the property.

Hotel loans are in default across the country as travel dries up. But the Watergate, one of the city's most famous properties, has been closed since Monument bought it five years ago. It was hit not only by Lehman's bankruptcy but also by a lengthy legal battle with neighbors over the company's initial plans to turn it into luxury co-ops. By the time Monument was ready to redevelop it last year as a luxury hotel, the residential market had soured.

"Monument is still committed to the Watergate," Michael J. Darby, a company principal and co-founder, said yesterday. "We still believe it's a phenomenal asset and will have the potential to be a great hotel in the future." He said Monument "would want to stay involved in the project if at all possible."

A source familiar with the negotiations said Monument is working with the lender, New York-based PB Capital, to restructure the loan by bringing in new investors and diminishing Lehman's equity stake so renovations can proceed. At a time when millions of dollars in loans on commercial properties are coming due, lenders in some cases are giving extensions, but it's unclear whether Monument can avoid foreclosure.

"Everyone thought this would be a home run at the time," said Dan Fasulo, managing director of Real Capital Analytics, a New York firm that tracks commercial real estate.

Distressed assets and sales figures show hotel industry angst

Thu, 02 Jul 2009 07:18:40 GMT

Real Capital Analytics, which tracks commercial real-estate transactions, recently began to track distressed assets. Their distressed assets information is updated in real time, which gives this data even more credence.

As of 30 June, there were a total of 1,060 troubled hotel assets worth US$15.7 billion in the U.S.

The Extended Stay Hotels portfolio of 447 hotels makes up the largest part of this figure, according to Jessica Ruderman, senior analyst with Real Capital. ESH's parent company Lightstone has 665 hotels total in bankruptcy. Other assets included in this alarming tally are Homestead Studio Suites and Red Roof Inn.

“All of those went troubled this quarter,” Ruderman said.

State’s Top Court Will Hear Appeal Against Atlantic Yards

Wed, 01 Jul 2009 12:35:25 GMT

New York’s highest court has agreed to hear a case challenging the state’s use of eminent domain on behalf of the Atlantic Yards project in Brooklyn.

The decision by the top court, the Court of Appeals, to hear arguments in October came as something of a surprise to the project’s developer, Bruce C. Ratner, who had expected a clear path after a lower court rejected the case in a unanimous decision in May.

The Court of Appeals’ involvement, announced on Monday, is the latest hurdle to Mr. Ratner’s plans to build a $772 million basketball arena, the centerpiece of the project. The developer and his bankers intend to sell about $650 million in bonds for the arena in late September. Both sides expressed confidence that they would prevail.

Mr. Ratner must finance the project and begin construction by Dec. 31 to qualify for tax-exempt status, which would save him millions of dollars in borrowing costs. Most analysts say it is unlikely that conventional bonds would sell in the current market.

"I certainly don’t envy anyone who has to raise capital in the current environment," said Robert White of Real Capital Analytics, a research firm.

Retail Casualties Predicted to Rise

Wed, 01 Jul 2009 12:33:25 GMT

Don’t be surprised on a long drive to find a strip mall or two abandoned along the highway, flamboyant signs askew and the empty parking lot looking eerily reminiscent of the 1980s, when commercial foreclosures and savings and loan failures were rampant. It’s not farfetched to anticipate a slew of mall closures, says Victor Calanog, director of research at New York data firm Reis. “I think we’re seeing it right now. We’re seeing a lot of properties in distress. I think a lot of malls will go dark.”

Despite the differences in performance between regional malls and strip centers, both are facing difficulty. In the first quarter, the vacancy rate of regional malls reached a historical high of 7.9%, up from 5.9% a year earlier, says Calanog. The vacancy rate of strip malls also rose by 200 basis points to 9.5%. “It’s something we haven’t seen since 1994.”

As for retail property sales — forget it. “Nothing’s really trading. The inventory of properties for sale is getting greater,” says Jessica Ruderman, senior analyst at New York-based research firm Real Capital Analytics, which tracks sales of $5 million or greater. From January through May, sales volume declined 70% from 2008 levels, Ruderman says.

Record Central/Eastern European Deal Closes Despite Global Real Estate Downturn

Wed, 01 Jul 2009 00:00:40 GMT

Warsaw's first certified green building also earned the recognition as the largest commercial real estate transaction so far this year for Central and Eastern Europe, selling for €117 million, or $164 million. But commercial real estate markets in many parts of the world continue to fact debt repayment issues, declining values and deteriorating rents and occupancies in different combinations.

The newly-constructed Class A Deloitte House office building--located in Warsaw's Central Business District, officially opened this month.

While the United States is poised for a deep, lingering dive in commercial real estate, commercial property markets in many parts of the world are falling, as well. Prices are resetting lower at different speeds and magnitudes country by country.

But in the United States, commercial real estate players are trying to avoid selling at prices most experts believe are half of what they were at their peaks in 2007. Commercial real estate sales worldwide in the second quarter are expected to be off 67 percent from a year earlier, according to research firm Real Capital Analytics, with U.S. volume down 83 percent, according to a Reuters report.

Hotel Loan Defaults Double in U.S. as Recession Curbs Travel

Wed, 01 Jul 2009 00:00:40 GMT

As many as one in five U.S. hotel loans may default through 2010 as the recession means companies are spending less on travel and perks, according to University of California economist Kenneth Rosen.

"Hotels without question will have the highest foreclosure rate of any commercial real estate sector," said Rosen, who runs a real estate hedge fund with $310 million in assets and is chairman of the University of California’s Fisher Center for Real Estate and Urban Economics in Berkeley.

The value of hotel properties in default or foreclosure almost doubled to $17.3 billion in the second quarter through June 24 from $9 billion at the end of the first quarter, data compiled by Real Capital Analytics show. The New York-based research firm, which began tracking distressed commercial property in November, expects hotel defaults to increase by as much as $2 billion next quarter, said analyst Jessica Ruderman.

Owners of the 250-room Watergate Hotel, part of the DC complex made famous by the bungled 1972 burglary that led to President Richard Nixon’s resignation, defaulted on a $69.8 million loan held by PB Capital Corp. this month, Real Capital Analytics said.

Airport Hotel Auction Looms

Tue, 30 Jun 2009 13:49:25 GMT

Excluding vacant parcels, foreclosure auctions of large commercial properties have been rare during the current South Florida real estate downturn. Yet the number of commercial loans in default is growing, both nationally and across the region.

Delinquent loans on South Florida commercial real estate totaled nearly $1.8 billion in the second quarter, up from $1.5 billion in the first quarter, according to Real Capital Analytics, a real estate research firm. The $3.3 billion of troubled loans in the first half of 2009 is approaching the $4 billion in all of 2008.

Many owners, facing declining values and income and the sluggish credit market, have been unable to refinance debt. Many lenders, who are reluctant to foreclose on properties that could be expensive to maintain and operate, have tried to work out loan extensions or sell notes at deep discounts.

County-Level Education Data, Trend Savvy Offer Valuation Guidance

Tue, 30 Jun 2009 12:29:25 GMT

As investors and owners strive to value retail centers, they can draw on a correlation between college education levels, vacancies and gross leaseable area to predict performance. This edition of CPN and sister business Nielsen Claritas’ quarterly reports provides a close-in look at counties that stand out around the country.

Over the next several years, one of the most common questions in commercial real estate will be, "What's that retail center really worth?" A first-quarter survey of distressed assets offers a clue as to how often that question will apply to underperforming assets. Through the first quarter, 1,276 retail properties were classified as distressed by Real Capital Analytics, Inc. That is the most of any property sector and represents assets valued at up to $16.8 billion--second only to the $18 billion in distressed development properties tallied by Real Capital Analytics.

To some extent, a combination of experience and anecdotal observation can help owners, investors and their consultants sort out retail property values during a turbulent and confusing time. Conventional wisdom has sprung up around the relative worth of various retail categories. Of all the sector's niches, grocery-anchored centers continue to win the highest marks for value because they provide consumer necessities. "Grocers have been through the grinder in competing against Wal-Mart, and the survivors are doing a good job of it," noted Alan Billingsley, managing director & head of research for RREEF, the Deutsche Bank affiliate specializing in alternative investments.

RCA: Sales Rise Along With Distress

Mon, 29 Jun 2009 11:54:40 GMT

Sales in the major food groups across the US this spring have shown either an uptick or a leveling-off in decline, according to Real Capital Analytics. At the same time, however, troubled assets are on the rise.

RCA says troubled commercial properties have more than doubled as of the end of May, with the value of assets in default, foreclosure or bankruptcy now exceeding $107 billion; $56 billion of that total is new this year. T.S. Eliot once called April “the cruelest month,” and thanks largely to the bankruptcy of General Growth Properties, that has proven to be the case in commercial real estate, with April adding a record $19.5 billion in distressed assets. Much of that total was due to the bankruptcy of General Growth Properties, an event that RCA says accounted for $13.5 billion of the April total.

When GGP is removed from the equation, April and May averaged $5.5 billion of new distressed assets per month. However, RCA says June is shaping up to be “among the worst of the year,” with more than $10 billion in newly defaulted mortgages already recorded for the month.

Deka completes central and eastern Europe's biggest 2009 deal

Mon, 29 Jun 2009 11:33:40 GMT

Deka has bought Deloitte House in Warsaw for €117m in central and eastern Europe’s largest office transaction of 2009.

The German fund manager bought the 226,000 sq ft office building from the world’s fifth largest construction company, Skanska.

Originally called Atrium City before the accounting and consulting firm took 157,000 sq ft of space, Deloitte House was Warsaw’s first certified green building.

The deal is the fifth largest office sale in Europe, the Middle East and Africa (EMEA) this year and one of the top 12 trades globally in 2009, according to research from Real Capital Analytics.

Prominent NYC skyscraper secures nearly $1.3B loan

Sat, 27 Jun 2009 11:32:40 GMT

Developers of one of the city's tallest new skyscrapers said Friday they had lined up a nearly $1.3 billion loan, sealing what experts called one of the biggest real estate financing deals since the economic crisis began last fall.

Coming amid the worst commercial real estate market in decades, the refinancing package for the Bank of America tower drew congratulations from Mayor Michael Bloomberg and Gov. David Paterson. Real estate experts hailed the deal as a sign that the moribund market might be reviving.

"When you have a commercial real estate transaction that has this many zeroes after it, people take notice," said Dennis M. Sughrue, a real estate attorney with Herrick, Feinstein LLP, which wasn't involved in the deal. "It's a singular building and a singular transaction, but it is a note of hope for a real estate market which is flat on its back."

The 945-foot-tall tower in midtown Manhattan is partially occupied and is set to be finished next year. The glass-covered skyscraper boasts a prominent location off Bryant Park and a roster of green features that drew Al Gore's environmentally friendly investment firm.

The building's developer, The Durst Organization, says 98 percent of it has been leased - about 80 percent to Bank of America Corp.

Despite those attributes, it took about nine months to line up the new financing, Durst spokesman Jordan Barowitz said. The money will pay off a construction loan that came due last month and finance the remaining work, among other things, he said.

The refinancing lag didn't affect construction of the 55-floor building, formally known as 1 Bryant Park, he said.

To real estate watchers, lenders' reluctance to refinance the project symbolized how paralyzed the market had become.

"This is the kind of deal that would be done in a week at the height of the market," said Dan Fasulo, a managing director at Real Capital Analytics, a real estate research and consulting firm that wasn't involved in the deal.

US Retail Property Sales In May Drop 12% From Prior Month

Sat, 27 Jun 2009 11:31:40 GMT

The retail real estate market continued to struggle significantly in May. Sales activity of major properties continued to slow amid a continuing credit crunch and concerns about the trajectory of commercial real estate, according to a report by Real Capital Analytics.

Sales of significant retail properties totaled $418 million last month, with activity falling 12% below April's numbers, Real Capital said. It added that May marked one of the slowest months since the firm began tracking such transactions.

"With levels so low, the decline in dollar terms would have been considered just a rounding error in prior years, a clear illustration of just how far the transaction market has sunk," the report said. The firm said that as sales volume languishes, inventory, defaults and foreclosures are proliferating.

Meanwhile, the firm said new buyers, the return of other investors and sales momentum in the office and apartment markets are positive developments.

Commercial Developers, Lenders In ‘Stare Down’

Fri, 26 Jun 2009 12:34:25 GMT

Property owners are doing what they can to cut prices to lure buyers, but the market for office buildings, retail parks and other commercial development is at a standstill.

As of June 4, New York-based Real Capital Analytics reports 53 sales worth $17.7 billion have closed in the past 12 months out of 185 for sale.

The worst rate has been in retail: 13 out of 71 on the market sold for a total of $143 million or $198 per square foot.

Hotels have fared the best with 13 of 16 properties on the market selling in the past 12 months at an average price per square foot of $256,854. The sales volume was $17.2 billion.

Sales of office and industrial buildings have been tepid. Of the 29 office properties on the market, nine have sold with an average price per square foot of $227,000. Eight of 38 industrial buildings have sold with an average price per square foot of $109.

Prospective buyers are waiting for prices to fall more before jumping in. Price drops are expected once a wave of commercial foreclosures hits in the market in the coming months. Commercial-zoned land is expected to be the first to hit the market.

Global property slide may be long

Fri, 26 Jun 2009 12:24:25 GMT

Commercial real estate markets in many parts of the world are falling and in the United States, the largest market, things are poised for a deep, lingering dive, experts said.

"I've never seen the sector get so tied up in knots as it is right now," Jacques Gordon, global strategist and head of Research for LaSalle Investment Management, told the Reuters Real Estate Summit this week.

Commercial real estate markets around the globe are facing debt repayment issues, declining values, and deteriorating rents and occupancies in different combinations.

Prices are resetting lower at different speeds and magnitudes country by country.

"The UK is way out ahead," Gordon said. "We do not see the U.S. teed up to be the number two in the re-pricing process. We are seeing Australia, even signs of Japan and Germany out ahead in terms of re-pricing."

But in the United States, commercial real estate players -- buyers, sellers, and lenders -- have been taking other avenues to avoid selling at prices most experts believe are half of what they were at their peaks in 2007.

Commercial real estate sales worldwide in the second quarter are expected to be off 67 percent from a year earlier, according to research firm Real Capital Analytics, with US volume down 83 percent.

Commercial market tilts to tenants

Fri, 26 Jun 2009 11:32:40 GMT

Suffering real estate segment may help startups

Commercial real estate has taken a beating along with the housing market. Commercial mortgage delinquency rates have doubled in a year, vacancy has surged and foreclosures are looming.

Southern Nevada's commercial development will be severely affected by foreclosures, real estate analyst John Restrepo of Restrepo Consulting Group said. The wave of commercial real estate defaults is gaining strength each month and will likely crest sometime in 2010, he said.

Troubled commercial real estate assets in Las Vegas jumped 72 percent from $4.7 billion in early 2008 to $8.1 billion in April, according to New York-based Real Capital Analytics. About one-fourth of commercial projects are in financial trouble, with apartment complexes experiencing the most difficulty.

Access to financing and economic uncertainty are cited as the biggest obstacles to recovery in commercial real estate, a May survey by Los Angeles-based LoopNet showed.

Deal, No Deal

Thu, 25 Jun 2009 12:27:25 GMT

Sales of commercial properties on the Gulf Coast have fallen 82% so far this year. Buyers and sellers are still far apart on price, but some think activity may pick up by the end of the year.

Here’s an indication of how tough the commercial-property market has become.

Orlando-based Eola Capital and an undisclosed seller came within 2% of closing on a deal for a commercial building in the Tampa area before both sides walked away. “We just couldn’t close the gap,” says Kyle Burd, Eola’s regional vice president in Tampa. “There wasn’t the motivation.”

In the commercial real estate boom that peaked a few years ago, a narrow a gap would never have halted a deal. But in this downturn the smallest molehills turn into insurmountable obstacles.

On the Gulf Coast from Tampa to Naples, the volume of commercial-property sales has fallen 82% in the first five months of 2009 to $137 million compared to the same period in 2008, according to Real Capital Analytics. There have been just 15 transactions so far this year exceeding $5 million, down 69% from the 48 in the same period last year.

“We’re experiencing that everywhere,” says Jessica Ruderman, senior analyst with Real Capital Analytics. Nationwide, commercial-property sales are down 75% in that same period. “Buyers and sellers haven’t agreed on a price yet.”

International real estate hits bottom

Thu, 25 Jun 2009 12:23:25 GMT

This article has been translated from French by Google Translate.

"No recovery, but little room left to fall." This analysis of real estate transactions according to Real Capital Analytics.

The firm's latest study, Global Capital Trends, concludes that the fall in transaction activity for global real estate is coming to an end. The New York company said at the end of the second quarter, the total value of transactions has decreased by only 5% over the first quarter, after a collapse of 67% in one year.

"We seem to be approaching the bottom," said Pete Culliney, chief analyst at Real Capital. "There is nothing for sure, but we can hope for recovery. We're at a point where transactions can not decrease."

The sharp decline was for two and a half years. In the first quarter of 2007, worldwide sales reached $295 billion U.S. dollars at the end of the current quarter, they will be more than 49 billion, according to RCA. This represents 84% of the value of transactions in the world.

The United States being the epicenter of the global financial crisis, the American continent is hardest hit, declining 95% of the value of transactions.

For the first time, the Asia-Pacific region has the highest real estate activity. The value of transactions there declined by half since early 2007.

Liquid Bricks

Thu, 25 Jun 2009 11:31:40 GMT

With many banks continuing their cautious ways -- about 40 percent of respondents to the Federal Reserve's Senior Loan Office Opinion Survey from April had tightened credit standards; none had eased them -- treasurers and other financial execs are looking at a range of financing options. One that's getting attention is sale-leaseback transactions.

As the term suggests, with a sale-leaseback, a company sells a property to an investor, which could be an investment fund, a real estate investment trust (REIT), or an individual, and gains the proceeds. The company then agrees to make ongoing lease payments and continues operating in the facility.

While the volume of commercial real estate transactions overall is down, the ratio of sale-leaseback deals has increased, reports Real Capital Analytics, a real estate research firm. Sale-leasebacks through May of this year accounted for 8.6 percent of all commercial real estate sales of $5 million and up. This compares with 7.3 percent for all of 2008 and is the highest percentage in the past 9 years, says Jessica Ruderman, senior market analyst with RCA.

Investor Marketing Gold Coast, Lincoln Park Buildings

Wed, 24 Jun 2009 13:25:25 GMT

Instead, Mr. Latsko plans to reinvest the proceeds from the sales, hoping to take advantage of the bargain prices for distressed real estate.

“Other people may like the upside of these things," he says of the properties he's marketing. "It’s solid real estate. I see more opportunities with the cash.”

Nonetheless, this is a tough time to sell, with sales of retail properties dramatically lower during the first four months of 2009 compared to the same period in 2008, according to a recent report by New York research firm Real Capital Analytics Inc.

“No rebound in sales is expected soon,” the report says.

Mr. Latsko is handling the sales of the apartment buildings himself. The other properties are being marketed by the Chicago office of Marcus & Millichap Real Estate Investment Services Inc.

A buyer of the 11-building portfolio could assume a nearly $21-million mortgage that runs until November 2014 and charges interest of about 5.5%, Marcus & Millichap says. In 2005, the properties had a combined appraised value of $29.5 million.

The asking price of $46 million is based on current annual net operating income of nearly $3.2 million and assumes that a buyer would expect a return, or capitalization rate, of 6.84%, according to an offering memorandum obtained by Crain’s.

That cap rate prediction may be optimistic. The average cap rate for Chicago-area retail properties was 7.3% during the 12-months ending April 30, Real Capital says. Just 38 properties have been sold during that time.

Included in the portfolio:

• 50-54 E. Walton St., a 6,300-square-foot building that kitchen products retailer Sur La Table is expected to vacate in September.
• 21 E. Chestnut St., a nearly 4,800-square-foot retail space leased to ING Direct until 2017.
• 40 E. Delaware St., a nearly 4,200-square-foot retail space leased to Intermix until 2017.
• 1160 N. Dearborn St., a nearly 8,000-square-foot building leased to Tsunami Japanese Restaurant.
• 851 W. Armitage Ave., a small building where apparel retailer Paul Frank Industries Inc. has a lease until 2013.
• 837 W. Armitage Ave., a small building where American Apparel has a lease until 2015.
• 823 W. Armitage Ave., a three-unit apartment building with vacant retail space.
• 819 W. Armitage Ave., a 2,500-square-foot building where a Berry Chill frozen yogurt shop is expected to open next month.
• 701 W. Armitage Ave., a five-unit apartment building with about 2,020 square feet of retail space.
• 662-664 W. Diversey Parkway, two buildings totaling about 5,700 square feet that are vacant, although Charter One has a lease for about half the space that runs until 2012.
• 1240 W. Belmont Ave., a roughly 12,500-square-foot strip mall anchored by a Chase branch bank.

U.S. commercial property market thawing

Wed, 24 Jun 2009 13:25:25 GMT

The gap between U.S. commercial property buyers and sellers is narrowing, indicating the shattered market is closer to beginning the painful path to recovery, the head of Prudential Real Estate Investors said on Wednesday.

Prudential Real Estate Investors, or PREI, invests in commercial real estate-related debt and equity on behalf of pension funds and other institutional investors. The alternative investment arm of Prudential Financial Inc (PRU.N: Quote, Profile, Research, Stock Buzz) had $42 billion of assets under management, including $26 billion in the United States, at the end of the first quarter.

"Just recently -- and by recently I would measure this in weeks not months -- we've seen the transaction market begin to show some strengthening," Allen Smith, chief executive officer, said at the Reuters Global Real Estate Summit in New York. "Credible players are appearing and bidding on assets.

Commercial real estate sales worldwide in the second quarter are expected to be off 67 percent from a year earlier, according to research firm Real Capital Analytics, with U.S. volume down 83 percent.

Texas-Size Deal Boasts Strong Dallas Roots

Wed, 24 Jun 2009 12:26:25 GMT

Highland Park Village, a landmark Spanish Mediterranean-style shopping center near downtown Dallas, was recently purchased for about $170 million by a legendary oil family, in one of the priciest retail-property sales in Dallas in recent years.

The names of the buyers and sellers of the posh 250,000-square-foot center, viewed by some as Dallas's answer to Rodeo Drive in Beverly Hills, read like a page out of a social register. The buyer was a partnership including Ray Washburne and his wife and sister-in-law, both great-granddaughters of oil tycoon and wildcatter H.L. Hunt. Mr. Washburne, chief executive of Dallas real-estate firm Charter Holdings, also is the great-grandson of Hempstead Washburne, a mayor of Chicago in the 1890s. Moreover, the seller was a joint venture operated by Henry S. Miller Interests, comprised of members of a prominent Dallas-area real-estate family and some other individuals. The sellers had owned the property since 1976, when they paid about $5 million for it.

Highland Park Village is something of a benchmark sale for Dallas and the nation. While a handful of properties have sold for a higher price per square foot elsewhere in the U.S. this year, no single U.S. retail property has sold for a higher total price, according to Real Capital Analytics, a New York real-estate firm. In addition, the roughly $680 price per square foot that it fetched is the highest per-square-foot price paid for retail in the Dallas region since Real Capital first began keeping records in 2001.

Commercial real estate: The day the mall died

Tue, 23 Jun 2009 13:27:25 GMT

April 16, 2009: The Day the Mall Died

One of them is the Mall — that icon of consumption itself. In fact, on April 16, 2009, "The Mall" as we know it actually died.
That was the day Chicago-based General Growth Properties (GGP) — the second-largest mall owner in the United States — filed for bankruptcy in federal court.

After all, GGP's bankruptcy filing was simply the tip of the iceberg. With more than $530 billion in commercial mortgages coming due in the months ahead, we could be facing another real estate collapse as dangerous as the one in housing.

That makes GGP the equivalent of a dead canary in a coal mine, as this cycle of distress will undoubtedly take others down. General Growth Properties will certainly not suffer alone.

"This is kind of the beginning of the end," Dan Fasulo of Real Capital Analytics said recently. "This bankruptcy will drive down the values of mall assets in the United States. It's going to put, I believe, more supply on the market than can be absorbed by investors."

When Could Empty Condos Become Affordable Homes?

Mon, 22 Jun 2009 13:26:25 GMT

Don't pack your bags yet -- the fact of empty new buildings doesn't mean the city has any new funding streams yet to put toward their 'adaptive reuse.'

As the new spectator sport of watching for condominium developers to go bankrupt continues – just see websites like Curbed and The Real Deal to track luxury developments' struggles for survival – the city is developing a plan to populate those under-subscribed buildings with New Yorkers in need of affordable housing.

Following an announcement by City Council Speaker Christine Quinn this winter that new, vacant apartments "now represent our best asset in the fight for affordable housing,” officials are working to determine exactly how to “turn these unsold apartments into affordable homes,” as Quinn said in her State of the City speech in February. The outlines of how defunct condos might come into the hands of affordable housing developers are beginning to become clear, though a formal announcement of a program is still probably weeks away, according to officials.

The city’s existing affordable housing programs will only have the resources to address some, but not all, of the failed condo projects. Officials say they would choose which bankrupt buildings to convert to affordable housing based on how many subsidy dollars the deals would need for each affordable home produced, and also on how their intervention would help stabilize neighborhoods where the city has recently spent significant resources to build affordable housing communities—neighborhoods like Bushwick, Brooklyn or parts of Harlem.

“We want to make sure the city is getting bang for their bucks,” says Holly Leicht, deputy commissioner for development for the Department of Housing Preservation and Development (HPD).

How many bankrupt condos?

While condo developers struggle to pay their bills, officials and market analysts struggle to understand how many condominium buildings might eventually be seized by their banks. “The universe of troubled properties is not complete yet,” says Leicht.

There are already 23 high-rise or mid-rise new condominium buildings totaling thousands of units in financial trouble. Some have been forced to stop construction because their financing has dried up, while others have been unable to sell units and are falling behind on their construction loan payments. Another six properties totaling more than 2,300 units that converted from rental apartments to condominiums in Manhattan are also on the brink of default, according to research firm Real Capital Analytics.

In addition, dozens of smaller condo projects are now finishing up in gentrifying neighborhoods, just as condo sales slow and prices fall. Real estate website StreetEasy.com counts 700 listings for one-bedroom apartments in Brooklyn at prices ranging from an average of $524,500 in downtown Brooklyn to an average of $337,000 in Bushwick. Condominium properties like these, if sold in foreclosures auctions, could be sold for less than their appraised value, according to Jessica Ruderman, senior analyst for Real Capital.

“You could get a third off,” Ruderman says.

Medical Office Buildings Buffered From Real Estate Slide

Mon, 22 Jun 2009 12:28:25 GMT

According to Real Capital Analytics, in May 3% of commercial office buildings were identified as being in bankruptcy, foreclosure or some other form of financial distress. This was true for only 1% of medical office buildings. Sales volume of medical buildings dipped 20% over the past year but plummeted 51% for other types of offices. A report issued by the New York-based firm in May concluded, "Medical office properties have proven to be a safe haven, and this niche has little trouble."

Interest in this usually staid sector is growing because there is a sense among investors that health spending is not being hit quite as hard as the rest of the economy in this downturn and many believe this sector will recover more quickly. Also, more medical procedures are moving to offices from hospitals, and demographic trends, such as the aging of the population, mean demand for health care will increase. Recovery is expected to be slower for retail and general office properties because investors expect it will take a while for consumers to start spending again.

San Francisco Troubled Asset Count: 206 Properties

Mon, 22 Jun 2009 12:26:25 GMT

As of earlier this month the San Francisco metro was home to 205 troubled assets valued at $3.1 billion, according to a new report this month by Real Capital Analytics. The vast majority of troubled assets were apartments (96 properties) and retail (45 properties) but the list also includes hotel (11 properties), office (20 properties) and industrial (12 properties). The list does not include dozens of Extended Stay America hotels in the region that were added to the list this month due to that 800-plus unit hotel chain’s recent bankruptcy filing. The San Francisco region is ranked 51st overall among US markets in distress as a percentage of total property investment volume, according to the report.

News in the past week here has focused on hotel and office buildings. GlobeSt.com reported that the Renaissance Stanford Court Hotel and adjacent parking garage have been handed to a receiver, Douglas Wilson Cos., which is now overseeing hotel operator Marriott International. Funds of JER Partners paid approximately $93 million in January 2007 for the 393-room luxury hotel on Nob Hill and then spent $32 million completely renovating the eight-story property. Barclays Capital, the lender, says in court documents that the borrower defaulted on its $89-million loan for the acquisition, renovation and operation of the hotel and then essentially walked away from the asset, prompting it to litigate for the foreclosure and sale of the property. The property continues to be operated by Marriott International.

Here come the real estate vultures

Mon, 22 Jun 2009 12:25:25 GMT

REITs are raising cash to take advantage of bargain prices on distressed commercial properties and mortgages.

These are tempting times for real estate bargain hunters. Whether it's the tony house down the street with an asking price that keeps dropping or office space at a deep discount, if you have the means, there are deals to be had. Individual investors snapping up foreclosed houses have helped boost home-sale figures sharply in recent months (although prices have remained depressed). And now some real estate investment trusts are raising money to fund acquisitions of distressed commercial properties.

Financially strong REITs offer attractive yields. But now some of the equity REITs with stronger balance sheets are looking to move from defense to offense, building billion-dollar war chests to fund acquisitions of troubled properties on the cheap. Indeed, if you believe that now is a once-in-a-generation opportunity to buy low in real estate, REITs allow you a way to bet on a rebound in the market without getting approval for financing and taking possession of a piece of property yourself.

And there seems to be no shortage of prospective purchases. There is an estimated $90 billion in commercial real estate in the U.S. alone that is "distressed," according to New York-based real estate research firm Real Capital Analytics. These are properties that have been foreclosed on, or whose owners are in default on their loans or in bankruptcy. "On top of those properties, there is hundreds of billions more in debt coming due in the next few years," says Peter Slatin, editorial director at Real Capital. "Some REITs are getting prepared for that."

Storm coming for commercial R.E.

Fri, 19 Jun 2009 17:35:25 GMT

A commercial real estate storm is brewing in Boston that threatens to wash away investors who bought at the peak of the market a few years ago.

It might end up becoming as ugly as the commercial real estate crash of the late 1980s, when lenders routinely took the keys back without mercy, say observers in the real estate community.

Between 2006 and 2007 investors tapped $4.5 billion in commercial mortgage-backed security debt to help acquire some $34 billion in commercial real estate in Greater Boston, according to Jones Lang LaSalle and the New York research firm Real Capital Analytics Inc.

Worst in nation: Las Vegas commercial properties in distress

Fri, 19 Jun 2009 13:27:25 GMT

The number of commercial properties facing foreclosure is growing rapidly, and observers said a massive bank takeover of office and retail buildings is likely in the coming months.

In its June 4 report, New York-based Real Capital Analytics said April had the largest increase in properties in default, foreclosure or involved in bankruptcy in this recession. The firm ranked Las Vegas No. 1 in the nation with $9.7 billion worth of properties in distress and another $5.7 billion worth that have been resolved. That’s a bump from its report earlier this year stating the value of troubled loans in Las Vegas was $6.4 billion.

Most of the bank takeovers have been undeveloped land — more than 90 percent by one estimate — but real estate brokerages say more lenders are starting to take possession of buildings as well.

Any property takeover by lenders is expected to depress prices more as the lenders seek to get the properties off their books. That could lead to more foreclosures and weaken local and regional banks that made the loans.

In its report, Real Capital Analytics outlined the $9.7 billion in distressed Las Vegas properties:

• $4.48 billion in land.
• $2.4 billion in hotels.
• $1.6 billion in retail with 5.4 million square feet.
• $830 million in apartments with 7,374 units.
• $177 million in offices with 678,377 square feet.
• $43 million in industrial with 258,819 square feet.
• $27 million in “other” properties.

Commercial real estate sales off 77%

Fri, 19 Jun 2009 13:27:25 GMT

While bargains are driving residential sales, South Florida’s commercial real estate market remains largely shut down – a reminder that another potential wave of distressed properties still looms.

Sales of office buildings, warehouses, shopping centers and other commercial properties fell 77 percent in South Florida through May, compared to the first five months of 2008, according to data from Real Capital Analytics.

That’s consistent with what is happening with commercial sales volumes nationally, but it could foretell that 2009 is setting up to be far worse than 2008 when sales volume toppled 65 percent.

“Commercial property is very much an industry that relies on debt and the lack of financing has really brought us these low sales levels,” said Dan Fasulo, managing director of Real Capital Analytics, a New York-based research firm. Many of the deals getting done, Fasulo said, are for assets priced at $10 million or less, a level where community banks will lend to buyers with large down payments.

Global real estate reality check long overdue

Fri, 19 Jun 2009 12:28:25 GMT

The global economic renaissance will remain in grave peril until banks and investors quit mourning the end of a long-dead real estate boom and face up to losses inflicted by years of reckless lending and spending.

While those on the global property market frontline have struggled through phases of shock, denial and acceptance, others are failing to cope with the bitter reality that property values and the price of debt are unlikely to see 2007 levels soon.

Leading industry figures at the 2009 Reuters Global Real Estate Summit will be asked whether reluctant lenders and pipe-dreaming sellers have a responsibility to realize losses, to soothe parched property markets and slake stubborn fears in the underlying weakness in some of the world's biggest banks.

Until investors find reassurance, this stalemate in the global property sector is destined to prevail.

Real Capital Analytics estimates second-quarter 2009 global property transaction volumes are down 67 percent year-on-year to $48.6 billion, reflecting poor demand and poorer access to debt.

Extended Stay: One Real-Estate Deal of the Apocolypse

Fri, 19 Jun 2009 11:30:40 GMT

What is striking about the bankruptcy filing of Extended Stay isn’t the filing itself, but how predictable it all seemed. And it isn’t just the many early warning signals, either.

No, it was a deal that seemed doomed from the beginning. LBOs typically sport a 30%-70% split in the amount of purchase price paid with “equity” and the amount paid using the proceeds from the sale of debt. As this April 2007 WSJ article reports, the $8 billion price paid by the New Jersey private-equity fund Lightstone included $1 billion in cash and $7 billion in debt. (The hotel chain is now valued at $3.3 billion, according to Lightstone’s bankruptcy filing.)

Then there were the underlying assumptions mentioned in today’s WSJ article linked to above. At the time of the deal, Extended Stay was generating $545 million a year in earnings before capital expenditures. The buyout was predicated on a belief that would rise nearly 15% to $625 million within two years. Sure, the deal was struck in April 2007, before the full magnitude of the credit crisis became apparent beginning that summer. Still, with a 13 times debt-to-earnings ratio, the Extended Stay acquisition was highly leveraged even by the easy money standards of the time.

Alarms sounded outside the company, too. Bloomberg reported in May that a REIT managed by Tishman Speyer is trying to sell five California office buildings to bolster its balance sheet. Meantime, Standard & Poor’s Ratings Services recently downgraded the debt on Washington area properties held by a Tishman Speyer partnership. Tishman Speyer, you might remember, was part of the $14 billion purchase (with the now-defunct Lehman Brothers) of Archstone-Smith Trust, among other big deals this decade. It was the second largest real-estate LBO in history, according to data tracker Dealogic. (Tishman says it put just $250 million of equity into that deal.)

The Bottom Rung list of Moody’s, which features the companies it views as most likely to default on debts, includes Realogy, bought by private-equity firm Apollo Management for $7.48 billion in a deal announced in December 2006.

For those keeping track at home, that is Nos. 2, 3 and 4 on the list of largest LBOs of a real-estate target or by a real-estate acquirer. In general, the industry is being buffeted by “by poor credit availability, falling rents and rising vacancies in the office sector nationwide,” said Peter Slatin, editorial director of Real Capital Analytics Inc., a New York firm that tracks commercial property sales, as quoted in that Bloomberg story.

Skyline: Sales drop sharply across all segments

Thu, 18 Jun 2009 15:37:25 GMT

Sales of offices, retail centers and multifamily properties in metro Atlanta fell in the first quarter, according to LoopNet, the online site that lists commercial properties for sale.

Working with research firm Real Capital Analytics, LoopNet reports that the value of retail-center transactions declined almost 86 percent compared with the first quarter of 2007. The total for this year was $221 million, compared with $1.56 billion last year.

The data do not include deals under $2.5 million.

The drop-off for office sales was 84.3 percent. This year's first-quarter number was $305 million; last year's number was $1.94 billion.

Sales of multifamily properties declined 45.6 percent for the quarter; the total fell from $717 million to $390 million.

The research also shows that foreign investors were big players, buying 47 percent of the offices, 28 percent of the multi-family properties and 26 percent of the retail centers.

The top lenders were Wachovia Bank for retail, Metropolitan Life Insurance for offices and Lehman Brothers for multifamily.

Single-Tenant Industrial Assets Still Trade

Thu, 18 Jun 2009 13:30:25 GMT

The volume of single-tenant industrial property sales during the first quarter hit its lowest since the same quarter in 2003, at least among properties and portfolios of $5 million and greater, which is what Real Capital Analytics Inc. tracks.

The data provider counted $200 million of single-tenant industrial assets changing hands in the first three months of the year, and almost $3.34 billion for the 12 months through the first quarter, a 65% decline compared to the prior 12-month period.

Cap rates, as would be expected, rose further, to a 12-month average of 7.6% at the end of the first quarter, RCA also reports, a 108 basis point increase from the prior 12-month period.

But deals are getting done. New York City-based non-traded REIT American Realty Capital Trust Inc., for example, recently announced that it expects to close on a newly built freight facility double-net leased to FedEx Freight this month. The purchase price is $30.9 million and the 152,640-square-foot facility in northwest Houston has a 15-year lease, plus two five-year extension options, that is guaranteed by the tenant’s parent FedEx Corp. Base rent increases 8% every five years, according to ARCT, which is buying the property from developer PinPoint Commercial and putting approximately 50% leverage on it with a first mortgage from KBC Bank NA.

Global Sales Bottom Is in Sight

Wed, 17 Jun 2009 11:27:40 GMT

A quarter of sluggish sales globally is hardly cause for celebration, unless that quarter’s results show a plateau from the prior one and suggest that the bottom is in sight. So says Real Capital Analytics in its latest global report, although the research firm warns that "there is no recovery in sight."

The June edition of RCA’s Global Capital Trends reports that property sales in the Americas are projected at $8 billion for the second quarter, off just 6% from Q1 but down 83% year-over-year. In EMEA markets, Q2 transactions are off 24% from Q1 to $17.3 billion, a 71% YOY drop. However, Asia Pacific numbers are in the positive column, with RCA projecting an 18% gain on the prior quarter for a total of $23.3 billion--nearly half the global total for Q2.

Robert M. White Jr., RCA’s founder and president, tells GlobeSt.com that "we’re probably at the bottom" for transaction activity but the rate of upturn will be sporadic across the globe. "If anything, the downturn was correlated more closely across property rates and geographic regions than the recovery will be," he says.

However, White adds that there are encouraging signs outside of China, Japan and Australia. "Activity in Europe is growing, especially the UK," he says. "And there is a buzz in the US, too. In the past few weeks, we’ve seen more and larger deals. I wouldn’t say it’s a quick rebound, but frankly I don’t think volume could sink any lower in the US."

If deal velocity has hit a trough, pricing may be a different story, White says. "We may already be there, but none of it will be realized until these distressed deals close," he says, adding that "we can look forward to more activity" this fall and through year’s end.

One continuing trouble spot will be the former Soviet bloc. "Eastern Europe is one of my biggest worries right now," says White. "Investment there held up pretty well; it was one of the last of the markets to see activity drop off. A lot of loans there were euro-denominated, and because of changes in the currency, a number of them are under water." Eastern European assets are falling into distress at more than 10 times the rate of Western European properties: a 982% increase YTD compared to a 69% gain in the western half of the continent, according to RCA.

In Western Europe, a particularly bright spot is an uptick in activity by German investors. "In April, the Germans raised another half-billion euros"--about $690 million--for their open-ended funds, on top of a billion raised in the first quarter," White says. Although that fund-raising mechanism is "kind of unique" to Germany, White adds that it’s not so different from the non-traded REITs that have been amassing capital via retail investors. "We’re definitely seeing more capital raised, and it’s not institutional," he says. "It’s definitely the mom-and-pop, entrepreneurial type of investors capitalizing some of these deals."

German investors--who have gravitated more toward quality rather than distress--aren’t the only ones who have been active lately in cross-border transactions; White cites recent Saudi activity in London as an example. "There are a lot of foreign investors eyeing the US, but they tend not to be the first movers," he says. He predicts that overseas buyers will be a major part of the recovery here, "but not the leading wave."

When RCA predicted a bottom on Friday, Bloomberg reported that the news was followed by an upturn in real estate-related stocks. CB Richard Ellis gained 8.4% for $9.81 per share, according to Bloomberg, while Apartment Investment & Management Co. closed the day 5.6% higher at $10.92 and Boston Properties rose 4.2% to $50.93. "I don’t know if that’s totally correlated to us, but for a service company like CBRE, it’s very positive that things are only going to get better from here," says White.

Apartments lead the U.S. property default parade

Wed, 17 Jun 2009 00:00:40 GMT

The multifamily sector is leading all other types of U.S. commercial real estate in having the highest loan default rate but the others are likely to follow, experts say.

Defaulted apartment loans that back commercial mortgage backed securities (CMBS) in May surpassed 5 percent, while retail and lodging broke the 3 percent level and overall delinquencies were 2.77 percent, according to Trepp, which tracks CMBS issues.

Apartment building prices peaked in the fourth quarter 2006, according to research firm Real Capital Analytics. Peak prices for other classes of real estate followed -- hotels in the first quarter 2007, offices and retail in the second quarter 2007, and warehouses in the third quarter 2007.

Multifamily Misery - Next Housing Headache

Mon, 15 Jun 2009 13:33:25 GMT

The US home-foreclosure rate fell in May for the first time since January. But with filings on 321,480 homes in May, it hardly suggests housing is out of the woods.

Indeed, multifamily properties have begun to feel the stress of the credit crisis, with apartment defaults spiking to 3% in recent months, versus an average monthly rate of less than a half-percent in the past eight years. And with unemployment up and rents and occupancy down since the start of the year, the numbers are poised to get worse. So says Mike Kelly, president and co-founder of Caldera Asset Management, a multifamily-real-estate consulting firm: "It's the single-family world, just two years later."

First-quarter multifamily apartment transaction volume fell more than 70%, according to Real Capital Analytics. Kelly says the situation in the $880 billion multifamily debt market is likely to get only worse, with $7 billion of such asset-backed securities coming due next year.

Meanwhile, the average capitalization rate for multifamily properties has risen by two percentage points since 2007, to about 7.5%. The capitalization rate, similar to the yield on a bond, is calculated by dividing annual net operating income by total debt and equity,

Although apartment cap rates have moved closer to those of other properties, their costs of borrowing (largely from government-sponsored entities) are typically up to 1.5 percentage points lower than for other commercial properties, Real Capital Analytics noted in its May report. Its conclusion: This is "a buying opportunity."

British Property Investors Returning to Market

Mon, 15 Jun 2009 12:28:25 GMT

A growing number of investors think it is time to start buying again. At least three British investment firms announced plans to raise about $240 million each for property purchases over the last month amid signs that yields have started to stabilize.

Dan Fasulo, head of research for Real Capital Analytics, estimates London’s market cycle is about six months ahead that of New York. Some analysts attribute the lag in the cycle partly to greater price transparency in the British market, where property funds traditionally have more smaller investors. When the market dropped, many asked for their money back, forcing companies to value their assets almost on a monthly basis.

Britain’s market is also less financed by commercial mortgage backed securities and more through commercial bank loans.

Is it Time for the Vultures?

Mon, 15 Jun 2009 12:27:25 GMT

Vulture investors are circling Chicago's real estate landscape, but few are swooping yet. Ironically, some of the vultures are real estate developers — the very people many observers blame for the frenzy of overbuilding that promises to prolong the recession.

But developers who have survived the crash with cash in hand — or with access to other peoples' cash — are stowing away their cranes and backhoes and beginning to hunt for distressed properties to buy at substantial discounts. Many see this as a way to survive until demand for new construction picks up again — a prospect that could be years away.

Prices on local apartment properties are down already. The average price per unit for Chicago-area apartment properties sold between October and March fell 15% from a year earlier, to $101,215, according to New York-based research firm Real Capital Analytics Inc. But before hungry investors start licking their chops, there are challenges to consider.

Retail Property Sellers Opt to Offering Financing to get Deals Done

Fri, 12 Jun 2009 12:33:25 GMT

In today's troubled financial climate, it isn't easy to sell shopping centers. But some property owners—because conventional financing is scarce—have gotten creative and begun to finance sales themselves.

For example in April, Jim Glabman, owner of an empty retail building in Costa Mesa, Calif., offered $5.5 million, seven-year mortgage to prospective sellers in an attempt to move a 40,000-square-foot, two-story property. That's not the ideal scenario for Glabman. In good times, he would lease the property and up and collect the rental stream, according Philip Voorhees, senior vice president at CB Richard Ellis in Costa Mesa, who is trying to broker a deal for Glabman. But finding tenants—especially for a fully empty center—is extremely difficult.

But by offering a mortgage, Glabman may be able to replace that income stream. If he sold the property for cash, he could get as much as $7.5 million in a best-case scenario and then earn 2.0 percent to 2.5 percent interest by investing the proceeds of the sale in government or corporate securities, says Voorhees. "By carrying paper, he will earn 6.5 percent," he says.

Glabman's situation is typical of how seller financing is functioning in today's market. In most cases, the deals are on properties selling for $10 million or less. However, there are exceptions. In recent months, 47 percent of the total transactions are being financed through assumed debt and another 7 percent through seller financing, according to New York-based real estate research firm Real Capital Analytics. (See a chart published in mid-May on how the sources of acquisitions financing have evolved.) At the market's peak, just 10 percent of transactions were financed through assumed debt and less than 1 percent through seller financing. However, seller-financing is not completely transparent because not all deals are recorded, says Dan Fasulo, managing director at Real Capital. Moreover, many sellers don't have enough equity in their properties to be in a position to offer a mortgage, says Voorhees. This is one reason why—despite its rise—its overall use is limited.

This rise in seller financing is coming a time when investment sales volumes on retail real estate have virtually collapsed. For the first three months of 2009, sales transaction volume for retail properties worth $5 million or more amounted to $1.9 billion—off 75 percent compared to the $7.2 billion in the first quarter of 2008 and 90 percent off the $18.8 billion in the first quarter of 2007, according to Real Capital. In some markets, volume has fallen off even more than that. For example, in the Chicago area, just two retail properties for a combined $12.5 million traded in the first quarter.

U.S. Equity Mover CB Richard Ellis

Fri, 12 Jun 2009 11:29:40 GMT

Real estate shares advanced after Real Capital Analytics said global property sales activity may have hit bottom in the second quarter. CB Richard Ellis Group Inc. climbed 8.4 percent to $9.81. Apartment Investment & Management Co. added 5.6 percent to $10.92. Boston Properties Inc. rose 4.2 percent to $50.93.

Mosler: Industry Better Off Than Nine Months Ago

Wed, 10 Jun 2009 12:30:25 GMT

Cushman & Wakefield CEO Bruce Mosler told a packed room of Young Men and Women of Real Estate Association members Tuesday that the real estate industry is in a better place than it was nine months ago. On today’s real estate business climate, Mosler advised perspective, reminding the mostly younger group that just a few months ago, "there was extraordinary uncertainty" as to whether the banking system would survive or be nationalized.
Today, amid TALF, TARP and other government bailouts commonly known by their initials, Mosler said, "Banks are lending," but added after a slight pause, "at least to each other." He said liquidity is "still the greatest challenge," pointing out that an emerging question among lenders appears to be "who goes first?"

Despite what he called government’s attempts at restoring liquidity, Mosler said the real estate industry has yet to see it. Speaking to current and future uncertainty, Mosler noted the $400 billion in commercial real estate mortgages set to mature over the next three years, and said there’s really no telling how much distressed property will come onto the market.

As of June 4, Manhattan was home to 74 assets considered to be troubled assets according to Real Capital Analytics. The value of those properties was listed at $7.5 billion. The outer boroughs contained slightly more than $1 billion in distressed property; Long Island, $595 million; and Westchester, $172 million.

Property Woes Slam Cities Across Continent, But Not Vancouver

Wed, 10 Jun 2009 12:30:25 GMT

The picturesque city of Vancouver, Canada, has turned into an unexpected oasis in the bleak desert of commercial real estate.

In most cities in the US and Canada, sales activity has frozen to a standstill. Would-be sellers are unwilling to accept the steep drops in value of office buildings, shopping centers and other commercial property. And even if they were, buyers can't get financing.

But then there's Vancouver, a city of about 578,000 people with views of the Pacific Ocean and the Coast Mountain range. Its office market has logged seven building transactions this year capped off by Germany-based Deka Immobilien's recent $263 million purchase of Bentall V, a 33-story tower in the heart of the city's business district.

Just as impressive, prices have held up well. By contrast, only five office properties have sold in Manhattan in the first two quarters of this year, and average prices paid are off 32%, according to Real Capital Analytics.

So what gives?

Foreign Investors May Have Edge in Buying US Distressed Debt

Tue, 09 Jun 2009 13:31:25 GMT

Foreign Investors—institutional players, sovereign wealth funds and high-net-worth individuals—should be aware of the favorable tax treatment they may enjoy when purchasing distressed US real estate debt.

The economic malaise infecting global markets and the Obama Administration’s recent efforts to counter the downturn may give rise to greater investment in distressed US real estate, particularly loans, notes and mezzanine interests. Capitalization rates dropped close historic lows in recent years, aided by plentiful and inexpensive capital markets debt. However, with liquidity issues in the credit markets freezing transactions these days, investors may pursue institutional-quality assets that they refrained from buying under prior frothy market conditions.

Recent estimates by Real Capital Analytics value US distressed property at more than $120 billion with growth potential, based on a total face value for US real estate of $6 trillion, according to the Real Estate Roundtable.

HUD Dumps Problems

Mon, 08 Jun 2009 12:29:25 GMT

Despite the costs and risks, industry observers generally agree that selling bad HUD loans makes sense for taxpayers. Some projects will inevitably fail, and HUD is not well-equipped to manage distressed properties, said Cheryl Malloy of the Mortgage Bankers Association. "They've never been good at that."

Selling bad loans has helped the Federal Housing Administration, which insures HUD mortgages, withstand losses such as the Columbus Properties project. But the pressure is building, and the stakes for taxpayers are enormous.

FHA insures $56 billion in "multifamily" apartment loans, as well as $412 billion in single-family mortgages. Borrowers pay into the insurance fund as part of their monthly mortgage payments.

If defaults ever overwhelm the FHA fund, the government would be obligated to cover losses, putting taxpayers on the hook.

In May, FHA announced that it would ask Congress for $800 million to prop up the insurance fund against expected losses.

It would be an unprecedented taxpayer appropriation for the FHA insurance fund, which was created in the 1930s, and industry observers say problems with the single-family market can be an indicator of future problems with multifamily projects.

FHA is required to keep the equivalent of 2 percent of outstanding single-family loans in the insurance fund. As of September, FHA reported having 3 percent set aside -- legally sufficient, but a sharp drop from 6.4 percent a year earlier.

The recent blows to single-family FHA loans naturally raise questions about the apartment-renovation loans and other insured multifamily mortgages.

Mortgage defaults on apartment and industrial buildings among commercial lenders have risen 80 percent in the past six months, according to Reis Inc., of New York, which tracks the commercial real-estate market.

Pete Culliney, research director for Real Capital Analytics, a commercial real-estate research firm in New York, said of HUD: "They're between a rock and hard place. How do you manage the middle and low end of the market when the bottom is falling out?"

Tight Lending Tanks Commercial Property Sales

Mon, 08 Jun 2009 11:31:40 GMT

Commercial real estate sales in the Chicago area sank in the first quarter as four major asset classes had volume declines of greater than 80% compared with the year-ago period with lending still scarce and investors wary the worst isn’t over.

Deals for retail properties were practically non-existent, as just two shopping center sales closed in the quarter for $12.5 million, down 99% from the first quarter last year, according to data from research firm Real Capital Analytics Inc.

Apartment sales fared only slightly better at $32.9 million, down 94% from the first quarter last year. Office building sales plunged 85% to $218.6 million while industrial sales slumped 81% to $77.1 million.

While the recession and dim prospects for rents and occupancies is playing a role, New York-based Real Capital Analytics blames much of the stalemate on the debt markets.

Two years ago, commercial mortgage-backed securities (CMBS) and Wall Street firms provided 60% of the financing used to acquire commercial properties. Such debt has financed just 2% of deals since last September.

“The unwillingness of any other group to step in to help fill this massive funding gap is a primary reason that sales volume has fallen so far off the peak,” Real Capital Analytics writes.

Regional and community banks have doubled their share of acquisition financing, to 12% from 6% two years ago. But the most substantial changes have been that in the first quarter almost half of all deals involved assumed debt, while 7% of sales involved seller financing. Such deals — typically where the seller takes back a first mortgage — were “unheard of during the market peak,” says Real Capital Analytics.

Retail Recession Spreads To Wealthier Parts Of Southland

Sat, 06 Jun 2009 12:28:25 GMT

With their rental income falling, some landlords are having trouble paying their mortgages and may face foreclosure. Banks have been reluctant to take over malls so far, but that patience may end soon, industry observers said.

"We're in the beginning stages of banks taking back assets," Kaplan said. "We'll see a lot of that occurring between June and December."

In addition to reduced income from rents, many owners of retail space are finding that -- like homeowners -- the value of their property has dropped considerably.

Those who bought their properties during the recent boom may be upside down on their mortgages, industry observers said.

Although many banks are still trying to avoid foreclosing, some are trying to improve their bottom lines by calling for landlords to put in more equity if they want to keep their loans, Kaplan said.

"Then they have a staring match to see who flinches," he said.

He predicted that commercial owners and lenders would soon come to terms with what property is worth now, and that property would be re-priced downward through foreclosures and sales.

But that will take some time, as long as 12 to 18 months, according to some analysts.

"There is a huge volume of stuff in trouble and only a tiny bit of it resolved," said analyst Peter Slatin of Real Capital Analytics.

Why REIT ETFs Are Recovering

Thu, 04 Jun 2009 12:32:25 GMT

REIT exchange traded funds (ETFs) give investors a broad base of real estate exposure while giving great tax benefits to the corporations that help build them up. They are the latest vehicle of interest for exposure during the markets latest rebound.

The past two years have been brutal for real estate investment trusts (REITs) and the funds that track them. They are regaining their popularity with investors as a cost-effective way to gain market exposure during a possible market rebound.

CNBC says that REITs are being looked at as long-term plays that will stand up against expected economic trends. Over just the past several weeks, publicly traded REITs have gone to the marketplace and raised more than $10 billion in equity, according to Real Capital Analytics. This is welcome news, after the turmoil over the past two years saw REITs tumbling around 38%. Although 2009 saw negative numbers, March posted a 4.41% gain and April saw a rise of just under 28%.

Many REITs are still below their long-term trend lines, however, so be sure to watch those. If REITs are something you’d like exposure to, be selective with purchases. The bigger, well-known trusts are the best bet, and look for companies that have issued equity in the last year, as these are the ones that are on the rebound, with solid, long-term growth possibility.

Deutsche Bank Said to Sell Ex-Macklowe Tower to RCG, Comfort

Thu, 04 Jun 2009 12:30:25 GMT

Deutsche Bank AG agreed to sell Worldwide Plaza, a New York skyscraper it seized from investor Harry Macklowe, to a partnership including RCG Longview and George Comfort & Sons, two people familiar with the matter said.

A contract was signed yesterday, according to the people, who asked not to be identified because they weren’t authorized to speak publicly. The terms weren’t disclosed. The 47-story building, at Eighth Avenue and West 49th Street, has 1.6 million square feet.

Macklowe paid $1.74 billion for the property in February 2007, according to Real Capital Analytics Inc. data. It was among seven buildings Macklowe bought for $7 billion from Equity Office Property Trust, primarily using debt. New York City office building prices have dropped 30 percent to 50 percent since the peak in 2007, said Woody Heller, head of the capital transactions group at Studley, a New York-based brokerage.

“If it’s financed and goes through that could be real good news for the New York commercial market,” said Jessica Ruderman, a Real Capital senior market analyst. The transaction may be the biggest office sale of 2009, she said.

Retail REITs Pursue Stock Offerings in a Darwinian Battle of the Balance Sheets

Wed, 03 Jun 2009 12:30:25 GMT

In early May, Simon Property Group, the largest regional mall REIT in the country with 246 million square feet of space and a market capitalization of more than $13.7 billion, announced its second round of stock and unsecured debt offerings since the beginning of the year. The offerings included 20 million common shares priced at $50 per share, with an additional 3 million shares set aside for an overallotment option, and $600 million in senior unsecured notes. The REIT already raised $1.2 billion through concurrent stock and debt offerings in late March. With the lowest debt to total market cap ratio in the regional mall sector, at 59.10 percent, only $6.9 billion in debt coming due over the next three years and $3 billion available on its credit line, Simon did not appear under pressure to raise cash to deal with debt maturities. So why would the company decide to dilute shareholder value by issuing shares twice within the space of three months?

One answer is that with REIT stocks up considerably from lows reached earlier in the year, it is the best climate for REITs to raise cash in a while. Moreover, Simon may be gearing up to take advantage of discounted properties coming on the market over the next few years, according to Rich Moore, an analyst with RBC Capital Markets. By the time the current offerings are completed, Simon should have $2.9 billion of cash on hand, in addition to its $3 billion credit line. That will give the firm plenty of potential buying power in coming years. For example, there is already $16.8 billion worth of distressed retail assets the REIT could attempt to pluck, according to estimates from Real Capital Analytics (RCA), a New York City-based research firm. That number is likely to rise as firms face continued difficulties refinancing expiring debt. In RCA's definition, distressed assets include properties that have defaulted on loans, been foreclosed upon or transferred into the hands of special servicers or receivers. Aside from distressed assets, other owners are looking to sell non-core properties from portfolios in efforts to cut costs and raise cash.

Real Estate: The End Of Gentrification?

Wed, 03 Jun 2009 11:33:40 GMT

Urban gentrification has been a fact of life for two decades. But can it last, and if so where? Our real estate experts have the answers.

Forbes recently gathered a panel of real estate experts to discuss urban gentrification. Panelists included Pat Lashinsky, Spencer Rascoff, Peter Slatin and Michael Feder. Stephane Fitch hosts this discussion.

Though some areas are under pressure, our experts say gentrification might slow down, but it won't stop. The discussion follows.

Forbes: Gentlemen, welcome once again to our lively discussion of housing and the economy. I want do some deep thinking this week about the future. As housing purchasers, we've been able to depend for at least two decades on a wave of urban gentrification. Can that continue? Will the housing collapse ruin a long-term trend that had been reviving downtown neighborhoods like Manhattan's Lower East Side, Los Angeles' Venice Beach, and Chicago's West Loop and Bucktown neighborhoods?

Pat Lashinsky, Zipreality.com: Actually I don't think so. One item that we have seen that is becoming more important to buyers is reduced commute times and closer-to-work locations. In the places you noted, they are all closer to many of the work places then the suburbs, and consumer demand for those areas is still pretty strong. Of course, the major prevailing issue that could undermine that is if crime goes up in those areas, then that could slow down that demand.

Michael Feder, Radar Logic: There's no immediate evidence that the trend has been "ruined," nor would one expect there to be. The real force behind gentrification was probably more demographic growth toward the center city than anything else, and lower-cost neighborhoods provided the space for new development to satisfy the resultant housing demand. So if anything is going to deter this trend, it's the loss of jobs in those cities, not the housing bust.

Forbes: Really? Michael, you're a hardened New Yorker. Do you remember when Manhattan neighborhoods like SoHo or the East Village or Brooklyn's Williamsburg used to be cheap? Now even the scuzziest blocks are expensive. In the classic gentrifications, it starts with artists and urban pioneers swooping in to buy housing on the cheap and hoping they'll be seeing huge appreciation later. Is that really possible anymore?

Feder: Stephane, I'm not sure I agree with your characterization. Some of those neighborhoods attracted business people and artistic people. And, of course, the trend can continue and probably will. The north edge of Central Park is a great example. Some beautiful blocks and buildings, where people who were hoping to generate a "return" by renovating or even developing saw real opportunity. There is no indication that the "return" motive has vanished, nor that the pioneers will either.

Spencer Rascoff, Zillow: I walked from Central Park South to Columbia (120th Street) a few months ago and was blown away by what has happened to the area north of Central Park. Growing up as a kid on the Upper East Side, I was basically never allowed north of 96th Street, but it's a completely different story nowadays, and New York is a better place for that.

Lashinsky: It is definitely possible to get great deals in many of the area you mentioned, Stephane: Venice Beach, West Loop, BuckTown--in all of those areas, condos are value-priced and buyers are still looking there.

Forbes: I'm sorry, I'm not sure I agree on Venice Beach. But you're the expert.

I'll bet, though, that in Bucktown and West Loop, which are two Chicago neighborhoods that hadn't completely gentrified yet, there are folks who bought two years ago who are now kicking themselves for having played the pioneer. Doesn't that sour the whole movement?

Peter Slatin, Real Capital Analytics: For once, I can be the optimist. While there will surely be regression in some newly gentrified neighborhoods, for the most part, gains will hold. Residents, investors, retailers, etc. will fight to keep areas moving up or at least flat. Where holes do develop--and they will--investors will buy up REO. There's still plenty of life and enticement in most of these neighborhoods, and emptied out tracts are far less alluring.

The concept of a "great" deal remains relative, and isn't that what pricing is all about? Then there's financing. In other words, despite falling prices, the buyers are still not plentiful enough because people remain uncertain about the firma of their terra.

Lembi Group Puts 12 Apartment Assets up for Sale

Tue, 02 Jun 2009 11:31:40 GMT

Lembi Group has listed a 12-building, 232-unit apartment portfolio here with Alain Pinel Realtors. Lembi hopes to generate $43 million in revenue from the disposition, which equates to approximately $185,000 per unit, approximately 50% of replacement cost and a significant discount to what it paid to acquire the properties.
The buildings may sell as a group or individually. Most were constructed in the first quarter of the 21st century and a few were built in the 1960s. The per-unit prices range from $320,000 to $100,000. Most of the projected cap rates on the buildings are in the 5% range and are based on scheduled income and a 3% vacancy factor. Much of the interest so far has been local buyers each looking to purchase one or two properties, according to local sources.

The sales will be watched closely by the market because only one other comparable property has sold in San Francisco this year, according to Real Capital Analytics. The property was Empire, a 40-unit, four-story property built in 1907 at 1040 Leavenworth Street. The property sold for $5.8 million or $145,000 per unit; the pro forma cap rate was 4.7%. All of the Lembi properties are said to be of higher quality.

San Francisco First-Quarter Investment Remains Slow

Mon, 01 Jun 2009 11:31:40 GMT

Investment in big-ticket commercial real estate remained stagnant in San Francisco during 2009's first quarter, with office properties making up the period's only significant transactions, according to reports from local brokerages and analysts.

Nearly $159 million traded hands on the city's office buildings priced higher than $5 million during the first quarter, more than doubling its performance from the previous quarter closing 2008, according to New York-based Real Capital Analytics. That amount remains well off the $765 million in office investment reported a year ago, however, and is nearly 50 times lower than the recent peak of $7.67 billion set in 2007's second quarter.

In San Francisco's central business district, $41 million from two transactions were reported during the first quarter, according to NAI BT Commercial. But those two deals averaged $206.75 per square foot - five deals in the nearby Peninsula region averaged $843.56 per foot by comparison - and the overall market's capitalization rate was 5 percent, 220 basis points lower than its 2008 average.

Tim Maas, senior vice president with Colliers International in San Francisco, said the only notable transactions in the first quarter were two small owner-user office deals, including the purchase of 717 Battery Street, also known as Musto Plaza. That building was bought by Michael and Xochiltzin Birch for $14 million - about $430 per square foot - even though it traded hands for around $10.3 million less than two years before, according to the brokerage.

Real estate's woe zone

Sun, 31 May 2009 16:17:25 GMT

Over the past year, the amount of commercial real estate trading hands has plummeted and values have dropped, leaving many owners with assets they can't sell.

In many instances, loans are coming due and those owners are unable to refinance because of the banking meltdown.

"We've gotten through most of the pain in residential real estate, but the pervasive feeling in the financial markets is we haven't seen all of the pain in the commercial real estate market," said Jeff Thredgold, an economist with Vectra Bank Colorado. "There is a fair amount of distressed properties around the country that has to be dealt with, and there is a fear of the unknown that has led to a decline in major transactions."

During the 12 months ending March 31, transaction volume across all property types in metro Denver dropped 75 percent to $1.5 billion, compared with $6.2 billion during the same period last year, according to a report complied by LoopNet, a commercial real estate information services provider.

Those deals that are getting done are commonly smaller properties financed with private equity.

Nationally, the volume of commercial deals dropped 70 percent to $110.4 billion in the 12-month period ending in the first quarter, from $371.4 billion a year ago.

Still, Denver is faring better than markets such as San Francisco, Los Angeles and Phoenix, where home values plunged after peaking in 2006. Total commercial deals in San Francisco plummeted 91 percent to $1.3 billion during the 12-month period, and in Las Vegas and Phoenix, they dropped 82 percent to $696 million and $1.5 billion, respectively.

"Commercial property transactions are at the lowest point we have seen this decade, which makes sense given the economic uncertainty and difficult lending environment," said Dan Fasulo, managing director of Real Capital Analytics, a New York-based commercial real estate market research firm that provides the data for the report. "Real estate is an industry that relies on debt in its normal course of daily business, and when lending tightened up, there was no question that transactions were going to fall significantly."

Commercial real estate loans aren't likely to have as big an impact on the banking industry as residential mortgages have, Fasulo said.

"Commercial property loans will affect banks on a one-off basis where bad bets were made, but I don't foresee any systemwide troubles in our future because of this," Fasulo said.

Empty condos give universities new dorm space

Sun, 31 May 2009 10:18:40 GMT

River views, granite countertops, stainless-steel appliances, 9-foot ceilings. This is student housing?

When classes start this fall — if all goes as planned — more than 300 students at Johnson & Wales University will be living in Capitol Cove, an upscale condominium project that had been languishing on the Providence, RI market for more than six months.

"It's a great Band-Aid," said Irving Schneider, president of Johnson & Wales's Providence campus, which just signed a three-year lease for the Capitol Cove development. "This arrangement was good for the developer as well as Johnson & Wales."

Some universities around the country have found a silver lining to the real estate recession that has left condominium developers in the lurch. For less time and money than it would take to build a residence hall, universities in places like New York City and Ohio are buying or leasing entire condo projects. And they are also eyeing vacant lots once targeted for high-end condos for use as retail and parking.

"This is a bonanza of an opportunity ... for universities to acquire the space they desperately need," said Dan Fasulo, managing director of Real Capital Analytics.

For developers, such deals save their projects from being total washouts. The arrangements offer builders an exit strategy from flagging projects, allowing them to unload dozens of unsold units to a single buyer rather than piecemeal.

Sale of Berkeley Place could be best thing for center's success, experts say

Sat, 30 May 2009 12:28:25 GMT

The owner of Berkeley Place shopping center and Sea Turtle Cinemas in Bluffton probably won't be able to refinance the $23.5 million loan on which it has defaulted, an analyst of high-dollar commercial real estate said Friday.

Banks haven't been willing to help borrowers with big, troubled loans recently, said Jessica Ruderman, senior analyst at Real Capital Analytics, which tracks commercial real estate deals and sales of more than $5 million.

"We're not really seeing that too much because there's not much money being lent," she said.

That means Bluffton's Berkeley Place could sell at a discount of as much as 30 to 40 percent if it's moved to repay the loan, Ruderman said. Sea Turtle Entertainment owes Wells Fargo more than $27.3 million, the bank claimed in Beaufort County court records.

The bank initiated foreclosure proceedings, and a judge appointed Charlotte commercial real estate firm Faison & Associates to run the center and look for a buyer, pending the approval of the bank and the court. Faison officials could not be reached for comment Friday.

Sea Turtle managing partner Lori Kaylor said earlier this week the owner is "working on a solution." She did not elaborate.

Similar situations are becoming more frequent at shopping centers nationwide, Ruderman said. Her firm counts $98 billion worth of commercial property in some state of financial trouble, she said.

Almost a third of that is retail property, considerably more than other segments, such as apartment, office and industrial properties.

"Retail is definitely the worst right now," Ruderman said.

In the case of Berkeley Place, Ruderman said, an optimistic scenario might be that a new buyer gets the center at a good price. If that were to happen, the new owner could weather some vacancies and make improvements, so the center would be more attractive to shoppers and potential tenants once the recession ebbs, Ruderman said.

In a more grim scenario, the center could continue to struggle if a new buyer can't fill storefronts that have sat vacant under Sea Turtle's management, Ruderman said.

One longtime local commercial real estate broker said the pace of residential growth in the area could help determine the center's future, regardless of who owns it.

Demand For Office Space Drops

Sat, 30 May 2009 11:28:40 GMT

A continued lack of financing and uncertainty in the economy caused demand for Houston-area office buildings to plunge in the first quarter.

Sales volume fell 88 percent, with $42 million worth of properties trading hands, compared with $347 million a year ago.

Prices fell almost as much.

The average price per square foot paid for office space in the quarter fell to $56, according to a report from LoopNet, an online commercial real estate listing service, in conjunction with Real Capital Analytics.

But because volume in the quarter was so low — there were just five office transactions — it’s hard to rely on any statistical pricing information, said Thomas Fish, vice chairman of CBRE/Melody Capital Markets.

“There’s a much smaller universe of trades happening,” he said.

The LoopNet report also showed big declines in quarterly sales and prices for retail, industrial and multifamily properties from year-earlier levels. Its data is based on property sales of at least $2.5 million.

Commercial property investors, brokers and owners expect prices to fall further. But many anticipate the beginnings of a recovery next year, according to a national poll released last week by LoopNet.

Two-thirds of the respondents said they expect price declines of 10 percent or more will be required to restart the market.

Transaction volume in Houston is clearly at a low.

When it does pick up, said Fish, it will be because lenders are no longer willing to extend terms on borrowers in distress who will be forced to sell.

“If you don’t force the issue, then it won’t happen,” he said.

Offices Taken Off The Market

Fri, 29 May 2009 11:31:40 GMT

The office investment market has been so upended that more buildings are being pulled off of the market than are getting sold.

The Colonial Penn building on East Market Street in Philadelphia was put up for sale in March just to be taken off in May when offers didn’t meet the seller’s expectations. It’s not the only one. Among the other office properties that have met a similar fate are 1700 Market, Evesham Corporate Center, Curtis Center, Public Ledger Building, and a smattering of office and industrial properties between South Jersey and King of Prussia as well as Domus, a luxury apartment complex in University City.

Transactions were expected to be off, but the depth of the lackluster sales has surprised the real estate community. For the first quarter of this year, the Philadelphia metropolitan area rang up $30 million in commercial property sales, according to LoopNet data. A year ago, it tallied $265 million in sales, which was still off.

Three properties have sold so far this year as compared to 25 during the same period last year, according to Real Capital Analytics.

AvalonBay Closes First REIT Deal of the Year

Thu, 28 May 2009 13:36:25 GMT

It took five months, but the first acquisition of the year by a multifamily REIT recently closed when AvalonBay purchased the Verona Apartments in Bellevue, Wash., on May 8.

The $33.1 million deal represented a steep discount, 45 percent below the company’s estimated replacement cost of the community, or what it would cost to build it today. The seller was Northwestern Mutual Life Insurance Co., which acquired the property in early 2000 for about $24.5 million.

But the year’s first REIT acquisition isn’t exactly a signal that the transaction market will suddenly pick up, according to New York-based market research firm Real Capital Analytics. “In a period where there’s not a lot of good news, it’s a positive sign, but not a huge one,” says Robert White, president of Real Capital.

White notes that over the past two months, more large deals (of $30 million or more) have occurred, and that sales volume was up slightly in April, while the level of new offerings was down. “Taken altogether, it’s all positive on a relative basis, but on an absolute basis, the market is still stuck in the mud,” he adds.

RETAIL REAL ESTATE INVESTORS REMAIN PARKED ON THE SIDELINES

Wed, 27 May 2009 16:17:25 GMT

Buyers are sitting on vast mountains of cash, but are content to wait for bargains to emerge.

With investment sales volumes nearly at a halt, investors have continued to hoard capital as they wait for prices to fall further. Yet in the current climate, where those with access to capital remain in the driver's seat, questions linger as to how much liquidity exists and what properties are actually worth. As a result, there remains great uncertainty as to when money will start to move back into the retail real estate market.

However, this cash is being amassed at a time when the broader commercial real estate market is recording its lowest level of sales activity since the early 1990s. Sales of retail properties have slowed to a trickle, with 128 properties valued at $1.8 billion trading hands during the first quarter of 2009. That volume is less than one-quarter of the 592 properties valued at $7.1 billion that sold during the same period in 2008, according to New York-based Real Capital Analytics. In 2007, the first quarter volume amounted to 991 properties for $18.8 billion. The research firm tracks real estate sales valued above $5 million.

The lack of deal flow can be blamed on several factors–the continuing gap between bid and ask prices, uncertainties in the market, and the ongoing crisis in financial markets. All of those hurdles are contributing to investors' decisions to keep capital on the sidelines. The biggest stumbling block for many is the perception that prices remain high. Cap rates on completed retail deals were 7.32 percent during the first quarter, according to Real Capital Analytics. That's less than 100 basis points above the low of 6.56 percent recorded in the second quarter of 2007. However, most observers in the market think that retail property values are down at least 25 percent from peaks and may fall 40 percent before all is said and done.

As a result, the gap between bid and ask prices remains sizable. In some cases, the difference between the bid and ask spread is as high as 20 percent to 40 percent, says Dan Fasulo, managing director at Real Capital Analytics. "In that type of environment where sellers and buyers can't agree on pricing, it's pretty easy to see why sales activity would come to a screeching halt," he says.

So how do you resolve this disconnect between the data, bid/ask gap and broader perception that values need to fall further? For one, Real Capital's figures only cover completed deals and for the most part the properties changing hands are higher quality. So that's skewing the figures some. The cap rate on offered deals (as opposed to closed), for example, was 7.68 percent. In the past, Real Capital had recorded offered cap rates lower than closed cap rates. Some brokers think that if more lower quality and distressed assets were trading today, cap rates would be at least 200 basis points above the 2007 low. As a result, some properties will eventually trade for cap rates higher than 9 percent or 10 percent.

As Big Ticket Sales Stall, Mid-Range Deals Still Drawing Interest, Funding

Wed, 27 May 2009 12:30:25 GMT

Yet, despite rising vacancies and the nearly impenetrable credit market, office deals are still being done--although on a much smaller scale. Two years ago, sales well over the $200 million mark were practically commonplace; today, transactions well, well under $100 million are making the news. Recently, Dividend Capital Total Realty Trust Inc. secured a $36.5 million seven-year, fixed-rate loan with a national life insurance company for the acquisition of a $63.6 million premier 125,900-square-foot office building in Washington, D.C. Just last week, news emerged that The JBG Cos. and Buvermo Properties Inc. had gotten their hands on $32 million in financing for the purchase of a 228,000-square-foot property in North Rockville, Md.

As per numbers from Real Capital Analytics, only 53 office asset sales over $5 million closed during the first two months of the year.

Deutsche Bank CEO Ackermann Endures Scandal

Tue, 26 May 2009 13:24:25 GMT

Deutsche Bank: Ackermann Endures Scandal

Josef Ackermann, who has run Deutsche Bank since 2002, was recently reappointed as CEO, extending his contract by three years. A native of Switzerland, Ackermann is the first non-German to hold the position in the bank’s 139-year history. Some have called the banker’s pledge to stick to his 25 percent pre-tax return-on-equity target "a scandal" because it encouraged the industry’s penchant for risk taking.

The bank climbed to No. 3 among arrangers of leveraged loans in Europe, the Middle East and Africa in 2007 and No. 7 in the U.S., according to Bloomberg data, as it chased fees from private equity firms in a record year for takeovers. After credit markets froze in the summer of 2007, Deutsche Bank was saddled with 44 billion euros of the loans, including the 1.67 billion pounds ($2.56 billion) it put up as part of a 9 billion-pound syndicate to finance KKR & Co.’s takeover of U.K. drugstore chain Alliance Boots Ltd.

Another distress zone is commercial real estate. In the past two years, Deutsche Bank booked 1.34 billion euros of writedowns on 16 billion euros of commercial real estate loans, the largest share of which were in North America, according to its 2008 annual report. It cut its property investments to 3.2 billion euros by the end of last year.

Deutsche Bank took control of seven New York office towers in 2008 after developer Harry Macklowe defaulted on about $7 billion in loans the bank helped arrange to enable him to buy the buildings from New York-based LBO firm Blackstone Group LP in 2007. It has since sold all but one of the properties and would lose as much as $600 million in all if the remaining property, Worldwide Plaza, were sold today, according to estimates by Dan Fasulo, managing director at real estate research firm Real Capital Analytics.

Deutsche Bank also foreclosed on a Las Vegas property, the $3.5 billion Cosmopolitan Resort & Casino, after developer Ian Bruce Eichner defaulted on a $760 million loan. The bank is moving forward to complete the project and is in talks to hire a company to manage the complex, whose two glass towers house 3,000 condos and hotel rooms. With the Las Vegas Strip experiencing its worst annual decline on record, Deutsche Bank booked a 500 million-euro impairment charge on the Cosmopolitan in the first quarter.

Home Sellers, Please Relax

Tue, 26 May 2009 12:26:25 GMT

Forbes recently gathered a panel of real estate experts to discuss whether the U.S. is truly experiencing a bottom in housing prices. Panelists include Pat Lashinsky, Michael Feder, Spencer Rascoff and Peter Slatin. Our panel believes that if you are a seller it might still be prudent to wait as the bottom is not yet here. The discussion follows.

Forbes: Gentlemen, welcome back to our lively discussion of the housing market and the economy. Michael Feder, Radar Logic has released data that supports the idea that the housing market crash is slowing. The number of housing transactions in January was down just 6% from January 2008. And in a few key markets, particularly California, the transaction counts are up hugely, by 11% to 33% in that state's big cities. Prices are way down, of course, but the plummet is slowing, with house values losing 0.3% per month on average nationwide in the first three months of this year vs. the whopping 2% a month we saw them sliding last year.

Spencer Rascoff, Zillow's recent survey of homeowners indicates that many of them expect we're near a bottom, too. We can talk a bit about that.

But is all this talk premature? What would each of you tell a wealthy, investment-minded homeowner who has decided he or she owns too much real estate? Do you say sell now? Do you tell them to wait and see? Do you tell them lease their homes out? What's the smart move and how do smart investors make sense of all this talk?

Pat Lashinsky, ZipRealty: If you are a seller, you wait. Our April reporting showed that the median price of homes for sale in the metro areas where we do business were up in every market in April, and inventory levels are down. So while stabilizing, if you are a seller, there are numerous figures to show that waiting could be beneficial right now.

Michael Feder, Radar Logic: Yeah, if you're a sophisticated investor and you think you have too much real estate, you've probably been trying to sell for a while. If you haven't already sold, and there are signs of stabilization (which we think there are), wouldn't you wait now and see?

Spencer Rascoff: Nationwide, we're not at the bottom yet. Nationwide home values will still decline into 2010, and then I expect a long slow recovery--an "L-shaped" recovery rather than a "V." So from a pure returns standpoint, your investment-minded homeowner should either sell now or wait a few years, but don't plan on selling six to 12 months from now. The problem with trying to sell now though--and I see this all over the place--is that homes get tainted if they come on the market priced too high and then sit. So if you're going to try to sell now, price the home to move. Don't plan on being able to slowly drop the price if it doesn't sell right out of the gate.

Forbes: Good practical advice. Perhaps we shouldn't think that putting a house on the market at an above-market price and waiting a year for a buyer works.

Don Trump Jr. isn't here today. But I'm not sure he'd agree with this. His dad is a master marketer, obviously, and I've seen him be very patient selling condos in New York, even during the boom. That's come back to bite him in Chicago, I think. Next time we'll ask Don to explain when it makes sense to let a property hang out there on the market.

Rascoff: It's almost impossible for a seller to resist the urge not to price too high and "see what happens." Sometimes listing agents exacerbate the problem by "buying the listing" by quoting the owner a higher initial listing price and then lowering it a few weeks after putting it on sale. The Internet has made this tactic much more dangerous because buyers can now easily see "days on market" and the price history.

Peter Slatin, Real Capital Analytics: I have to agree with Pat--if you can, wait to list the property to begin with. Remember the blockbuster foreclosure rate we just saw, meaning more low-priced inventory on the market. But again, as always, a lot depends on your submarket or even your block. Whatever you do, don't do it in a hurry.

Big US towers going cheap in distressed market

Thu, 21 May 2009 12:26:25 GMT

The 40-story skyscraper sits on a prime corner in the country's wealthiest commercial market, steps from the Museum of Modern Art and a few blocks from Rockefeller Center and Central Park.

It recently sold for $100,000.

The 1330 Avenue of the Americas building - which sold for close to $500 million three years ago - was auctioned last month for the minimum to a Canadian pension fund unit after owner Harry Macklowe defaulted on a $130 million loan.

A month before that, the John Hancock Tower - Boston's tallest skyscraper - sold at auction for just over $20 million. The 33-story Equitable Building in downtown Atlanta is set to go up for auction next month; its owners owe more than $50 million to the bank and have only half of the building leased.

Loan defaults in the worst commercial real estate market in decades have created tens of billions worth of distressed properties across the nation, sometimes forcing cut-rate auctions of landmark skyscrapers. Developers are falling behind on mortgages as tenants leave and can find no financing to cover payments, analysts say.

So they are selling skyscrapers at a drastic discount, with the condition that the new buyer take on the enormous amounts of debt connected to the properties.

"Just imagine in a residential market, if there weren't 80 percent loans available for everyone. If everyone had to buy their houses in cash, the values of houses would plummet everywhere," said Dan Fasulo, a managing director at Real Capital Analytics. "That's happening on a massive scale on the commercial side."

Real Capital Analytics, which tracks commercial real estate transactions, counted over $86 billion worth of distressed properties in the country as of April, over $6 billion in Manhattan.

In New York City, addresses in "serious jeopardy," Fasulo says, include a 23-story Moinian Group skyscraper across from the New York Public Library that sold for $160 million two years ago, and an office building a few blocks away on Fifth Avenue that Moinian and Goldman Sachs' Whitehall group bought two years ago.

The only major property sales that are likely in the next several months, analysts say, are distressed properties with delinquent loans.

"No healthy owner in their right mind would try to sell a property in this environment," said Fasulo. He said devalued sales of skyscrapers represent "a trickle right now. It will turn into a flood over the next 12 months."

Brokerages Report Losses, Await Distress Business

Thu, 21 May 2009 11:27:40 GMT

Times are tough in brokerage land these days, forcing real estate service providers to make deep expense cuts and mine for future business in distressed properties. Confirmation of the challenging business climate came in the latest round of quarterly earnings releases from two of the largest publicly traded services firms.

First, Chicago-based Jones Lang LaSalle (JLL) announced that it lost $61 million, or $1.78 a share, in the first quarter of 2009 compared to a year ago. Revenue fell 12% to $494.2 million from $563.9 million in the same period. The next day, April 29, Los Angeles-based CB Richard Ellis (CBRE) said it lost $36.7 million in the first quarter, with revenue falling 26% to $890.4 million from $1.2 billion in first quarter 2008.

At the crux of the slide is a dearth of transactions. Slowed investment sales and companies holding off on leasing plans translate to lower revenues. According to New York-based research firm Real Capital Analytics, first quarter office building sales nationwide totaled just $3.6 billion. That is the equivalent of only 6% of the peak sales volume of $77.5 billion recorded in the first quarter of 2007.

As more properties and their owners become financially distressed, sales could climb. To date, however, the lack of deals has meant cutbacks and layoffs for every major services firm. Until transaction volume returns in a meaningful way, service providers have shifted to client advisory work and property management mode for the time being.

Carlton Markets Pools of FL, CA, NV Loans

Thu, 21 May 2009 11:26:40 GMT

Carlton Group CEO Howard Michaels says his company has been hired by an institutional seller to sell around $268 million in mostly sub- and non-performing residential development and hospitality loans in Florida, Nevada and California. Managing director Thomas McCarthy tells GlobeSt.com he cannot identify the institutional lender that retained his company.

Included among the two sets of loans are 28 assets that include a multi-tenant commercial/industrial building, the penthouse of a 16-story condo building, several large finished custom estate homes in a gated community and around 1,000 acres of undeveloped land zoned for large residential lots, according to offerings posted on the Carlton auction website. McCarthy says the loans are being offered on a competitive sealed-bid basis and prospective bidders can bid on the assets individually or collectively as portfolios.

He says the Carlton Group, which saw over $4 billion in equity and debt financing in 2008, has seen business grow slowly this year, but by the second half of next year, "we’re contemplating that business will be quite active." He adds that at the auction site, he’s noticed that the bid-ask gap is narrowing.

Dan Fasulo, managing director at Real Capital Analytics, tells GlobeSt.com that loan offerings like this one have seen a spike in activity in recent months. However, he says that since most of the transactions are private in nature and don’t have to be recorded publicly, they are often difficult to track. Nonetheless, Fasulo says a number of these acquisitions have been made by investors looking for bargains.

"But there have also been acquisitions of a more defensive nature by investors that have other positions in the same deal like equity, mezzanine or first loan," he says. Fasulo adds there have also been many lenders acquiring properties at foreclosure auction where they owned the loan on a property. The lenders will buy the loans "since they have the most to lose if a property sells for less than the mortgage, and they are usually in the position to offer the highest price."

Xanadu - At $2.3 Billion, This Mall Could Be Too Big to Fail

Wed, 20 May 2009 12:30:25 GMT

Although its common areas are nearly completed, the 2.4-million-square-foot Meadowlands Xanadu mall is eerily quiet. The opening of the $2.3 billion entertainment-and-shopping center, originally scheduled for last November and then postponed until this summer, has been delayed again until some unspecified date next year. Work has slowed considerably at the project, which occupies state-owned land in the Meadowlands Sports Complex, at the intersection of Route 3 and Interstate 95, where the Giants and Jets are building a football stadium.

Now, however, Meadowlands Xanadu, like many other projects, is enmeshed in the fallout from the banking crisis. In March, the developers accused one of its construction lenders, Xanadu Mezz Holdings, described in court papers as "a nonbankrupt affiliate of Lehman Brothers Inc.," of defaulting on its loan obligations in recent months. The default "has caused, and is likely to continue to cause, substantial and irreparable damage" to the developers and could threaten the entire project, the complaint said. By this week, Xanadu was $22.9 million short, according to a motion filed on Monday.

Because of the legal battle and the construction delay, Real Capital Analytics, a research company that tracks real estate investments, has listed Meadowlands Xanadu as the largest of $9.2 billion worth of troubled assets in the New York area. But Dan Fasulo, a managing director of the research group, said he did not think the center would be suspended indefinitely. "In my opinion, the project is too big to fail at this point and will be completed," he said.

Lone Star College Could Teach Class on Timing

Wed, 20 May 2009 12:28:25 GMT

A spokeswoman for Hewlett-Packard, of Palo Alto, Calif., which acquired the property as part of its 2002 purchase of Compaq, declined to comment on price. In a written statement the company said the sale was part of a global effort to reduce the amount of underused space in its real-estate portfolio. The company also is seeking to sell more than a half million square feet of office space near the Lone Star property, brokers say.

The $35-a-square-foot price Lone Star paid was below the $57 average paid for the few suburban Houston office properties sold in the first quarter of 2009 and a deep discount to the $145 per-square-foot suburban average in the year-earlier first quarter, according to Real Capital Analytics, a New York-based real-estate-research firm.

The deal was the second-largest U.S. office transaction so far this year, based on square footage, after Boston's 1.8-million-square-foot John Hancock tower, according to Real Capital Analytics. The Texas property's cut-rate price underscores the beating many sellers are taking to cash out of one of the worst commercial-real-estate markets in decades, even as it highlights how some higher-education institutions have proved to be a niche source of commercial-real-estate demand.

Pete Culliney, director of research for Real Capital, says some schools have taken advantage of the downturn to buy properties, particularly apartments, while many skittish or cash-poor investors remain on the sidelines. Among the larger recent buys by schools: The Regents of the University of California, the governing body for the 10-campus University of California system, paid $53 million in February for a 211,000-square-foot office building in Berkeley, Calif., to use partly for adult and continuing-education classes. The Lone Star purchase was driven in part by the growing demand for its affordable higher education. The publicly supported college system has seen its enrollment climb nearly 40% in the past five years.

Tishman Seeks Buyer for Five California Buildings

Wed, 20 May 2009 11:32:40 GMT

Tishman Speyer Properties LP, the real estate developer that owns Rockefeller Center, is seeking a buyer for five California office buildings at a time when values have fallen thirty percent in the past two years.

Three of the buildings are in Beverly Hills and one each are in San Francisco and Orange County, according to a statement today from the Tishman Speyer Office Fund, an Australia-based property trust with an interest in 18 US buildings.

The fund is seeking to bolster its balance sheet as Tishman Speyer in the US is facing headwinds. Standard & Poor’s Ratings Services this week downgraded the debt on a Washington area properties held by a Tishman Speyer partnership, citing “high leverage” and “declining asset values” in cutting the debt to CCC from BB+. Commercial real estate prices are down almost 23 percent from their October 2007 highs and transactions have plunged as much as 80 percent, according to the Moody’s/REAL Commercial Property Price Indices issued yesterday.

“They’re marketing into significant headwinds, which are caused by poor credit availability, falling rents and rising vacancies in the office sector nationwide,” said Peter Slatin, editorial director of Real Capital Analytics Inc., a New York- based firm that tracks commercial property sales.

San Francisco Retail Waiting Out Recession

Mon, 18 May 2009 13:24:25 GMT

It is that scenario that often gives San Francisco an extra layer of protection while metropolitan areas without thriving tourism industries are weathering the recession. During milder economic downturns, the city's retailers can often offset the downturn of domestic spending by continued reliance on the international shopper, Portugeis said.

"It gives us somewhat of an immunization when the surrounding areas are crumbling because the domestic shopper just stopped shopping," Portugeis said.

So when the intake of international dollars slowed during the winter, retailers were hit by a double-whammy, Brownell said. In other downturns, such as the most recent following the dot-com bust and Sept. 11 attacks, the losses came much more gradually.

"This is much more severe," he said. "They've fallen, like, 60 percent. You don't know what to do at that point."

The losses in revenues have led to difficulties in keeping up with lease payments, forcing building owners to fall behind on their mortgages. According to a recent study by Real Capital Analytics, San Francisco has $1.15 billion in distressed retail properties - more than the city's combined value of distressed office, hotel, apartment and industrial properties.

Union Square rents that a year ago would have hovered around $600 per square foot are now closer to the $300 to $400 range, Brownell said. And owners who have been forced to consider nearly across-the-board rent reductions or deferrals suddenly have less cash to pay their bills - particularly those who bought at the market's peak.

"Some of these guys bought these properties right at the height of it," Brownell said. "That's trouble."

Properties aren't changing hands as frequently either. During the 12-month period ending in April, less than 40 percent of the retail properties offered for sale in the city were sold, according to Real Capital Analytics.

"It's just thrown everyone for a loop," Portugeis said. "People are having a real rough time."

'Sickly' Market Sparks Commercial Mortgage Feud

Mon, 18 May 2009 12:29:25 GMT

In the CMBS dispute, middle ground has been elusive. Investors harbor suspicions of servicers' agendas since many hold the riskiest portion of bonds that could lose big in liquidations but retain some value under their proposal.

Servicers must show that loan extensions or the proposed mortgage assumptions will leave bondholders better off than a foreclosure and distressed sale. Total losses on liquidated loans have surged to 73 percent this year from 34 percent in 2008, according to Credit Suisse.

Investors contend servicers cherry pick data to make their case for a solution that is best for all parties.

"It's a serious conflict," said Precilla Torres, a managing director at NewOak Capital LLC in New York. "But at same time, the special servicers take very, very seriously their fiduciary responsibility of maximizing present value."

What's more, the rout in mortgage debt has already pummeled the holdings, known as B-pieces, of these servicers, she said.

Servicers "know that their analysis has the potential to be scrutinized during a lawsuit," Torres said. "They are not going to risk (lawsuits) for a B-piece that is already toast."

One of the largest servicers, Midland Loan Services, is not an investor but still sides with its industry, an investor said. Midland declined to comment.

The urgency of a solution is palpable. Commercial property sales totaled $9.2 billion last quarter, compared with $47.8 billion a year earlier and $133.4 billion for the same period in 2007, according to Real Capital Analytics.

"The market is looking very sickly," said Peter Slatin, editorial director at Real Capital Analytics.

Worries growing about commercial real estate

Thu, 14 May 2009 12:29:25 GMT

Even as banks grapple with rising foreclosures, many lenders have something else to worry about: A rising tide of potential losses from commercial real estate loans that could reach into the billions.

While homeowners are defaulting at almost four times the rate of commercial landlords, the sudden spike in late payments has many industry insiders worried about the collateral threat to the economy and financial system. Nearly $73 billion worth of commercial real estate loans are in some level of financial distress, according to Real Capital Analytics.

Las Vegas accounted for the biggest slice of troubled commercial properties of any metro area.

"Twenty-four percent of the Las Vegas commercial market is in distress," said Jessica Ruderman, a senior market analyst with Real Capital Analytics.

Apartments account for most of Sin City's troubled properties. The only market that even comes close to is Detroit, with 20 percent of its commercial properties in distress.

Orange's Apartment Market Was Resilient

Thu, 14 May 2009 12:28:25 GMT

After years of record sales volume and record prices, lenders have been requiring more equity from borrowers, edging highly leveraged investors out of contention.

Sherman Residential of Deerfield, Ill., bought the Pointe with a 60 percent loan. Two years ago, it was accustomed to borrowing up to 75 percent of the cost of a transaction.

Fewer investors are willing or able to pay 40 percent equity into a deal, which helps explain the stagnant market.

Only $7 million in Triangle apartment sales were closed during the first three months of the year, down 98 percent from an average of $331 million during the same period over the previous five years, according to Real Capital Analytics.

This year's first-quarter total came from the only other Triangle apartment sale this year. In February, The Greens of Pine Glen in Durham sold for $7 million, 24 percent below its tax value , which was assessed near the top of the market.

Colliers Int'l Extends License Agreement with RCA

Tue, 12 May 2009 16:17:25 GMT

Colliers International, One of the World’s Largest Commercial Property Services Firms, Partners with Real Capital Analytics to Provide RCA’s Full Suite of Global Products to Colliers Professionals Around the World.

New York, NY - May 12, 2009– Real Capital Analytics (“RCA”), a leading research firm focused exclusively on the commercial property markets, announced today that it has extended and expanded its license agreement with Colliers International, one of the world’s largest commercial real estate services firms, to deliver RCA’s global transaction database, reports and publications to Colliers professionals around the world.

“Colliers has always been well positioned to support our clients' global requirements. Providing our teams with RCA’s global research and transactional knowledge simply enhances our worldwide offer. Our Global Investment Services Team (GIST) has put in a lot of effort in attaining this partnership. We are delighted to be able to provide our brokers with access to RCA’s full range of products,” commented James W. Horne, President-International of Colliers International.

RCA is the first and only independent research firm to comprehensively track sales of commercial property and to analyze capital flows, investment trends and real estate prices in more than 80 countries. RCA’s proprietary database includes details on each transaction and the parties involved for the office, retail, industrial, multifamily, hotel and developable land sectors.

“I am extremely proud that an industry leader like Colliers with a truly global presence is making RCA’s data and analysis available to its professionals throughout the world. Our international data is relatively new but the Colliers Global Investment Services Team was quick to see its value since it is so committed to providing its organization and clients with the best information available,” said Bob White, RCA’s founder and president.

RCA recently published the April edition of Global Capital Trends which highlighted $47 billion USD in global commercial property sales for Q1 of 2009. RCA also tracks commercial real estate distress and has identified more than $160 billion USD of troubled assets around the world that are in the process of being foreclosed upon.

Colliers International is a worldwide affiliation of independently owned and operated companies that provides a full range of services to real estate users, owners and investors worldwide. Colliers operates in 293 offices in 61 countries. The Colliers Global Investment Services Team (GIST) is a global partnership of real estate professionals within the Colliers International network. The group provides unparalleled knowledge and expertise in investment sales services to a broad range of institutional and private clients around the world.

Real Capital Analytics, Inc. is a global research firm based in New York City. The firm's proprietary research is focused exclusively on the investment market for commercial real estate. Within that arena, Real Capital Analytics offers the most in-depth, comprehensive and current information of activity in the industry. In addition to collecting transactional information for property sales and financings, RCA interprets data such as capitalization rates, market trends, pricing and sales volume. RCA also quantifies the market forces and identifies the trends that affect the pricing and liquidity of commercial real estate around the world. The firm publishes a series of Capital Trend reports and offers an online service that provides current transactional and troubled asset information for all markets globally.

Dead Weight - Global Distressed Assets

Tue, 12 May 2009 13:27:25 GMT

The total amount of assets known to be in distress worldwide is now $153bn (£105bn), as reports of defaulted mortgages and failed commercial property assets reached $55bn (£37.6bn) during the first quarter of 2009.

The Americas is the region with the largest amount of distress, according to data from independent research firm Real Capital Analytics. Troubled assets there grew by $26bn (£18bn) to a total of $75bn (£51bn) during the first quarter of 2009. But a rise in troubled assets was also recorded in Europe, the Middle East and Africa, where the amount of distressed property soared by 53% to $51bn (£35bn), and in the Asia-Pacific region, which experienced a 68% rise to $27bn (£18.5bn). From the $170bn (£116bn) of total distress that Real Capital Analytics has recorded since the beginning of 2008, only $17.9bn (£12.2bn) has been resolved, either through sales or other methods of recapitalisation.

"At this early point in the cycle, far more assets are falling into trouble than are being resolved," said Real Capital Analytics, in a report. "The transaction market is stalled and bidders for distressed assets are often demanding shocking amounts."

Is commercial real estate the next shoe to drop?

Tue, 12 May 2009 12:30:25 GMT

Overall, some $270.5 billion commercial property loans are expected to come due this year alone, said McLaughlin, a financial analyst for Reis. And it's likely many borrowers won't be able to refinance.

That's what snagged General Growth Properties, the nation's second-largest shopping mall owner. Unable to pay or restructure its debts, the company sought shelter from creditors last month, making it the largest U.S. real estate bankruptcy in history.

Real estate experts are concerned financially strapped landlords from General Growth to General Motors may have to sell property at bottom-dollar prices. On Monday, General Motors said it may sell the Renaissance Center in downtown Detroit, which not only includes the automaker's headquarters, but also hotels, restaurants and more than a dozen shops.

Las Vegas accounted for the biggest slice of troubled commercial properties of any metro area.

"Twenty-four percent of the Las Vegas commercial market is in distress," said Jessica Ruderman, a senior market analyst with Real Capital Analytics.

German Investors Set to Take Control of Troubled Victory Park Project in Dallas

Mon, 11 May 2009 13:29:25 GMT

Once touted as a landmark case study in urban regeneration, the financially troubled Victory Park mixed-use project in Dallas is in the final stages of reverting back to its German-based institutional backers.

Hillwood, a Fort Worth-based development firm run by Ross Perot Jr., is negotiating to cede control of the developed portions of the project to US Treuhand, an organizer of German closed-end funds based in Hamburg.

Located just north of downtown, in 2008 Victory Park celebrated the 10th anniversary of its formal approval by the City of Dallas. Over the next 10 years, the project was set to include 12 million sq. ft. of office, retail and residential space on a 75-acre brownfield site spanning 33 city blocks.

To date, only $1 billion of the total projected $3 billion development has been completed. That includes the 20,000-seat American Airlines Center sports arena, home to the NBA’s Dallas Mavericks and the NHL’s Dallas Stars, a 33-story W Hotel, four residential buildings and three office properties. Future phases of office, retail and residential components are now on hold.

“Hillwood Victory is in negotiation with its equity partner, UST XVI LP, regarding the future of the existing vertical development at Victory Park,” Hillwood said in a statement. “We are working together to bring a fresh infusion of capital to the District to enable Victory Park to move forward with new restaurant and retail development. Our highest priority has been and will continue to be the success of Victory Park.”

Market watchers agree that it was a case of bad timing. In its rush to create a landmark destination within the North Texas Metroplex, Hillwood’s luxury retail tenants have suffered from today’s depressed economic environment. Its high-end condominiums have also not achieved expected sales volume. But Victory Park is certainly not alone in its troubles.

“I believe you would be hard pressed to find a major development project anywhere in the country that is not under tremendous pressure due to the changes in the debt markets,” says Dan Fasulo, managing director with Real Capital Analytics, a New York-based research firm.

AIG Near $1 Billion Tokyo Tower Sale to Nippon Life

Fri, 08 May 2009 17:52:25 GMT

American International Group Inc. is close to selling its Tokyo headquarters building to Nippon Life Insurance Co., Japan’s largest life insurer, for about $1 billion, a person familiar with the situation said.

An agreement for the 15-story tower in central Tokyo’s Marunouchi district may be announced as early as next week, the person said. Negotiations are continuing, said the person, who declined to be identified because the talks are private.

The property is in the most expensive office district in Japan, next to the Imperial Palace, making a potential sale a benchmark for commercial real estate prices. AIG, based in New York, is selling property and businesses after being bailed out four times by the U.S. government. The company has tapped about $45.5 billion from a U.S. credit line as of last week.

“It doesn’t sound like a distressed price,” said Peter Slatin, editorial director of Real Capital Analytics Inc., a New York-based firm that tracks commercial property sales. “If you compare that to the big asset sales we’ve had in the U.S. this year like One Beacon, and Hancock and 1540 Broadway, it sounds like a premium to those.”

Economy Curbs Atlanta's Commercial Property Market

Fri, 08 May 2009 14:17:25 GMT

More than 3 million square feet of new office space scheduled to become available in Atlanta over the next 12 months. That will pile more inventory on a commercial property market facing higher vacancies amid a severe economic downturn and unemployment that hit 9.1 percent in March.

The multiple projects are emblematic of a development rush that gripped Atlanta during the real estate boom and is now giving tenants the upper hand for the first time in years.

Sales of office properties have slowed to a crawl. Real Capital Analytics, which tracks commercial real estate transactions, shows only one deal that closed this year: The purchase of a 118,000 square-foot medical office space for $26.7 million by Meadows & Ohly LLC.

Yet many properties are on the market, with some sellers offering to lend buyers the money themselves.

Several recent Atlanta listings, including one for a 15,000 square-foot retail space selling for $1.4 million, boasted owner financing available.

Atlanta's market for industrial space has also been dampened by the addition of new properties beginning in 2005.

Vacancies climbed to 16 percent last year and are projected to reach 17 percent this year, ahead of the 12.6 percent expected for the U.S., Nadji said.

Some sales are taking place. Stockbridge Real Estate Partners signed contracts to buy at least seven warehouse properties in March, according to Real Capital Analytics.

Trouble With TALF?

Thu, 07 May 2009 00:00:40 GMT

Commercial real estate players got welcome news this past Friday as the Federal Reserve Board said that eligible collateral for the late June round of its term asset-backed securities loan facility will expand to include certain issuances of CMBS. The extension authorizes TALF loans with five-year maturities and in securities backed by small business insurance premium finance loans. The Fed has said the extension means the $200-billion program could grow to $1 trillion in size.

Dan Fasulo, managing director at Real Capital Analytics, points out that "all the numbers floating around" on maturing commercial real estate debt are just estimates. "Best guesstimates are that there will be 100s of billions worth of commercial real estate debt to refinance each year over the several years, approaching or surpassing $1 trillion in 2014/2015," Fasulo tells GlobeSt.com. "The current debt markets do not have the capacity to refinance this debt. A functioning CMBS market is the only way to refinance the debt."

He adds that the new TALF program will helps, as extending five-year loans for the acquisition of new CMBS issues "will encourage some new issues to be released. The biggest complaint from industry is the new five-year loans available do not apply to vintage CMBS issues (pre-2009), which many consider to be the toxic assets that the Treasury claims they want to help clean up."

Deserted Building Sites Add to Property Bust's Toll

Thu, 07 May 2009 00:00:40 GMT

Another facet of the real-estate bust: across the country, local authorities are facing a rise in complaints about environmental and safety hazards from construction sites where work has been frozen.

In the Phoenix area, where scores of unfinished condominiums and other projects dot the horizon, local officials report a surge in calls about increased dust and tumbleweeds from sites cleared of native foliage. In San Diego, a block of sidewalks was torn up for several months where construction of a 14-story residential tower was halted in early 2008.

On the Gulf Coast south of Sarasota, Florida, trash and other debris was blowing into Lemon Bay from an unfinished condominium project until local officials ordered a barrier fence put up in January. The four-story project of luxury condos had halted construction in late 2007, said Larry Bailie, a broker for the property.

No one tracks precisely how many construction projects nationally have been stopped by developers midstream. But an indication of the scale comes from New York-based Real Capital Analytics Inc., which estimates that there were 3,929 distressed commercial properties across the U.S. as of March 31 -- a 55% jump since Dec. 31, 2008. Roughly a quarter of the properties involve developments, unfinished, Real Capital said.

Mideast Buyers Eye GBP 5M London Homes

Wed, 06 May 2009 00:00:40 GMT

Despite the initial appetite for commercial property in the U.K., Dan Fasulo, managing director of New York research firm Real Capital Analytics, which tracks international real estate movements, says residential properties are drawing the most interest from Middle Eastern buyers.

"It is possible that buyers from the Middle East may have returned on the residential side, but we are certainly not seeing this for commercial property," he said.

According to data from the research firm, one buyer from the U.A.E. bought a commercial property worth $1.7 billion earlier this year, and a Lebanese buyer bought a property worth $80.7 million.

Ermutigende Signale von den Kreditmarkten

Wed, 06 May 2009 00:00:40 GMT

Financial Times (Germany)
"Encouraging signals from the credit markets"

(Auto-Translated from German) "Confidence is slowly returning in the financial world, with positive news even on loans to foreign-financed acquisitions. But the risks for the industry are still large."

"During the financial crisis, leveraged loan banks have been severely burdened; they could scarcely issue loans to the market as it existed prior to the outbreak of turmoil. The price decline led to depreciation. Meanwhile, the institutions had their pre-crisis high largely dismantled: Citigroup at the end of the first quarter had less than $10 billion in leveraged loans - compared with $57 billion at the end of the third quarter of 2007."

"No more huge write-offs on leveraged loans threaten to increase the risks associated with commercial real estate lending. The number of loans for which the debtor is insolvent had increased in the first quarter by 43 percent, according to the research firm Real Capital Analytics. 3,678 buildings in the U.S. are affected."

Empty storefronts a sign of the times

Mon, 04 May 2009 00:00:40 GMT

Empty storefronts and deserted office parks are stark evidence that housing isn’t the only troubled segment of the real estate market in Sonoma County.

The commercial sector is taking a pounding as stores and companies go out of business, drying up demand for industrial, office and retail space while triggering a rise in foreclosures.

The most significant change is in the historically strong retail market. The departure of mainstays like Circuit City and Mervyns helped drive the retail vacancy rate to 8.6 percent in the first quarter — more than twice the figure of two years ago.

The lack of business could lead to bigger trouble as rents and mortgage payments come due.

Jessica Ruderman, senior analyst for the market research firm Real Capital Analytics, said 14 buildings in the Marin-Napa-Sonoma market worth $123 million are in default or foreclosure. That’s up from seven distressed properties in the region four months ago, she said.

In the Bay Area, $2.6 billion in commercial real estate is on the brink, compared to $373 million in December, Ruderman said.

“I think we’ll see more properties get into trouble before this is resolved,” Ruderman said. “We’re waiting for federal bailout money to flow through, but we haven’t seen it yet.”

Xanadu Makes List of Troubled Properties

Fri, 01 May 2009 16:17:25 GMT

A list of troubled properties compiled by research firm Real Capital Analytics includes the massive Xanadu project here as well as a busted mixed-use development in Ft. Lee. All told, nine properties in the Garden State were found to be in some form of fiscal distress.

Earlier this month, New York City-based RCA released its "Troubled Assets Radar" report for the New York Metro area. The firm found New York City and its surrounding suburbs were home to 189 troubled assets valued at nearly $9.2 billion. RCA defines a troubled property as one that is in foreclosure, bankruptcy or undergoing a loan restructure.

On the list was Xanadu, a sprawling 4.5-million-square-foot retail/entertainment development in the Meadowlands. The complex was to open in August; however, it debut has reportedly been delayed due to funding difficulties.

Yet Dan Fasulo, managing director and head of research for RCA, tells GlobeSt.com that Xanadu will eventually get built and be successful. "It’s one of those projects that is too big to fail," he says. "The stakeholders have way too much capital at stake not to finish the project. At this point, obviously, they are going to be opening in a very difficult economic environment. They have already pushed back the opening a couple of times. I’d be surprised if it opens before the end of the year. That being said, it’s one of those mega projects, like a Disney World, that might take many years for it to become profitable. But at some point, it will be a success."

Fasulo maintains that naming these troubled properties will ultimately be good for the industry. "At the end of the day we think it’s going to be a net plus because it is really going to help get the skeletons out of the closet and hopefully get us moving again," he says. "The market is not going to move forward until the distressed assets are cleaned up from the real estate world."

HSBC’s Skyscraper Sales May Fetch 40% Less Than at Market Peak

Thu, 30 Apr 2009 13:31:25 GMT

HSBC Holdings Plc’s planned sale of its London, New York and Paris offices may bring Europe’s biggest bank about 40 percent less than the properties would have fetched at the 2007 market peak.

The sales may raise about $2.24 billion, 38 percent less than in 2007, according to real estate analysts in the three cities. HSBC’s London headquarters might be worth about $1.2 billion (800 million pounds), said William Newsom, head of U.K. valuation for Savills Plc. The Paris office could sell for about $665.7 million, according to Etienne Prongue of property consultant Atisreal. And HSBC “would be lucky” to get $400 million in Manhattan, said Dan Fasulo of Real Capital Analytics.

Values have dropped by at least 15 percent and as much as 45 percent for the three buildings, according to Savills, Atisreal and Real Capital. Those declines, along with the falling value of the pound, would mean HSBC brings in about $1.35 billion less than it would have at the market peak. The bank is raising cash after mortgage-related losses and asset write-downs of $42.2 billion since the third quarter of 2007.

HSBC said April 12 it was considering selling the three properties after receiving inquiries from potential buyers. The company plans to lease back the offices from any buyer.

There is a limited pool of potential buyers, Sierra said. Global property acquisitions fell 73 percent in the first quarter from a year earlier, to $47 billion, or 1,014 properties, according to Real Capital Analytics.

More than $50Bln of Properties Became Distressed Since Start of Year

Thu, 30 Apr 2009 12:22:25 GMT

Slightly more than $50 billion worth of commercial properties have become distressed since the start of the year, according to Real Capital Analytics.

The dollar volume of properties classified as distressed by the New York research company increased by 136 percent to $88.2 billion, while the number of distressed properties rose 131 percent to 4,566. Some 1,649 assets valued at a combined $23.5 billion were added to the distressed rolls just since mid-February.

The increases were driven primarily by the bankruptcy of General Growth Properties Inc. and troubles in casino-hotel properties in Las Vegas and Atlantic City, N.J.

Real Capital's definition of distressed encompasses properties that are in default of their mortgages, including ones taken over by lenders, owned by a troubled or bankrupt entity or have a major tenant in bankruptcy. It also includes properties whose debt has been restructured and those taken over by the holders of junior debt.

Bankruptcy is a common theme among the assets that have fallen into the troubled category this year. In addition to the bankruptcy filings by owners, filings by tenants, both major and non-major, have resulted in lost rental income and hurt some properties' ability to service debt.

And, the bankrupt Lehman Brothers Holdings is or was an investor in 34 assets with a combined value of $2.7 billion that became listed as troubled this year. Some of that trouble surfaced amid allegations that Lehman failed to provide committed financing.

"There's definitely a lot more trouble in the market and a lot more bankruptcies now," said Jessica Ruderman, senior research analyst at Real Capital. She noted that the increase in tabulated volume may be partly due to the fact that Real Capital just started tracking troubled assets late last year and has since refined its research methodology, which would make recent reports more comprehensive.

Rise in leasing of condos worries local governments, residents

Tue, 28 Apr 2009 12:29:25 GMT

The housing market's mood and long-term city planning don't always agree with each other. High-end condominiums have become a desirable feature for suburbs, but with the weakening of the economy, some developers are trying to adjust to a sluggish condo market by converting units into rentals temporarily or permanently.

Developers say they're thinking about market demand, but government officials are trying to shape what their cities will look like in ten years and ensure that a variety of housing options will be available.

The challenges are that each community has different housing needs and a distinct image, said Kyle Ezell, a city-planning lecturer at Ohio State University. The market change has been so fast that it's hard for communities to judge how to respond.

"Just five years ago, apartments were switching to condos like crazy, and it's amazing to see that reversed in such a short time," Ezell said. "Converting to apartments is a natural market reaction, and it's not necessarily a bad thing, but it's touchy."

About four percent of housing complexes that were sold in the U.S. this year for more than $5 million have been converted into apartments, up from less than 1 percent for most of the decade, and no apartments have been resold as condos this year, according to Real Capital Analytics, a New York consulting firm.

Atlanta-based Portman invested $1.5B in commercial real estate

Tue, 28 Apr 2009 12:29:25 GMT

While the recession has put a damper on investing in real estate, Atlanta-based Portman Holdings ranks among the world’s top buyers of commercial real estate property.

With $1.5 billion in global investments last year, Portman Holdings ranked No. 13 among the top 30 global investors of 2008, according to a report in this month’s Global Capital Trends, a publication of research firm Real Capital Analytics.

The top 30 global buyers of 2008 bought individual properties valued at $10 million or more and made purchases worldwide, said RCA spokesperson Jessica Ruderman.

Global investment leader Goldman Sachs — at $6.5 billion — was one of only five global buyers investing more than $2 billion, the report said. The other four were Morgan Stanley, Jones Lang LaSalle, Arcapita Bank (Arcapita Inc., an Atlanta-based private equity firm, is a subsidiary of Arcapita Bank) and Dubai World. The global investment threshold for 2008 was so low, the report said, “that last place buyer Canada Life of Toronto made the (top 30) cut with only $800 million in acquisitions” in 2008.

Based on volume, the $1.5 billion spent by Portman Holdings put it at No. 49 among the top 100 buyers of 2008, according to the report.

Also, Atlanta-based Invesco Real Estate ranked No. 64 among the top 100 buyers of 2008, according to the report, with $1.2 billion in investments — mostly in domestic properties.

Interested in distressed commercial property? Learn about RCA's new Regional Troubled Asset Radar report for Atlanta.

Massive REIT Stock Offerings May Signal Future Deals

Tue, 28 Apr 2009 11:31:40 GMT

Simon Property Group, an Indianapolis-based REIT with the largest retail portfolio in the country at 246 million square feet, was the first to announce a stock offering on March 19, concurrent with a debt offering. By March 25, the firm closed on the sale of 17.25 million common shares, priced at $31.50 per share, and $650 million of its 10.35 percent senior unsecured notes, for a total of approximately $1.2 billion. Speaking at New York University’s annual REIT symposium on Apr. 2, Steven Roth, chairman and CEO of Vornado Realty Trust, a New York City-based diversified REIT which has also commenced a stock offering recently, said the stronger players in the REIT sector would soon start raising equity in order to buy quality assets.

Since then, five additional retail REITs have announced stock offerings, including Kimco Realty Corp., Regency Centers Corp., Weingarten Realty Investors, Acadia Realty Trust and Equity One, Inc. The trend was further spurred by a price recovery in the REIT sector—in the past month, REIT shares have risen by 30 percent to 60 percent, according to Morningstar. In March, the NAREIT Equity REIT Index registered a 3.05 percent increase in REIT prices after a 21.28 percent drop in February. Fearing the rally might not last, REIT executives might feel they have a short window of opportunity to improve their balance sheets, says Rich Moore, an analyst with RBC Capital Markets.

"There is real fear about this credit environment," Moore notes. "I think it tells you how bad things are when you have so many REITs making the same play. When they all do it, something’s not right."

Nevertheless, most analysts agree some of the money might be deployed toward acquisitions of choice assets, given that in April prices on commercial properties were down 17 percent year-over-year, according to Real Capital Analytics, a New York City-based research firm. Retail prices were down more than 25 percent from 2007 peaks. Many observers predict that the peak-to-trough drop-off in retail property prices will total approximately 45 percent.

Subscribers: for more on recent REIT activity, see "REIT Offerings Provide an Opening for Capital," in RCA's April 2009 issue of Capital Trends Monthly.

L.A. Distressed Totals at Nearly $7B

Tue, 28 Apr 2009 11:29:40 GMT

The total value of distressed commercial properties in the greater Los Angeles region rose to $6.68 billion in Q1, according to the newest edition of the Troubled Assets Radar report from Real Capital Analytics. The figure includes $5.78 billion of LA Metro properties currently in distress and $903 million of properties whose distress has been resolved.

The regional total represents approximately 7% of the total value of distressed US commercial properties. Nonetheless, the area ranked only 24th among US markets in terms of the percentage of properties under distress. “Overall, L.A. is not one of the main areas in the country for distressed properties on a percentage basis,” observes Dan Fasulo, director of research for Real Capital. “While some of the secondary and tertiary markets have suffered, prime markets in L.A. are still extremely attractive.”

The region's troubled asset tally includes 267 properties. While the retail sector accounts for the largest number of properties with 78 assets compared to 58 office assets, 51 industrial assets and 40 apartment assets, on a dollar basis, office is number one at $1.84 billion, followed by retail at $1.81 billion, apartment at $511 million and industrial at $397 million.

RCA: Q1 Adds $23B to Distressed Asset Total

Mon, 27 Apr 2009 13:24:25 GMT

The first quarter of 2009 saw at least $23 billion of distressed assets added to the tally being measured by Real Capital Analytics, the locally based research and consulting firm says in a new report. The New York City metro area, with $9.2 billion from 189 known troubled assets, represents more than 10% of the US total of $86.8 billion.

However, sheer dollar volume does not tell the whole story, and RCA says the biggest concentrations of distressed assets are in "the expected places," including Las Vegas and South Florida as well as tertiary markets around the US. "There is no question that because New York City metro has the most expensive properties, it was going to represent a significant percentage of distress in the US on a dollar value basis," Dan Fasulo, managing director at RCA, tells GlobeSt.com. "That’s why it’s also important to put the distress into context with overall market size." A chart in the New York metro overview, one of nine such local "Troubled Assets Radar" market reports now available from RCA, places the region’s submarkets well down the list in terms of distressed property as a percentage of the market total.

Fasulo observes that the velocity of properties going into distress has accelerated "as more owners decide to capitulate and hand property back to bank or agree to a fire sale. We are in the first phase of the distress cycle now and should be well into it by the second half of this year."

Office properties comprise about 55% of troubled assets in Manhattan and its suburbs, according to RCA. Nearly $7 billion of the New York-area assets measured by RCA fall under the "troubled asset" heading, compared to $63.9 billion of such assets nationally. Another $2.1 billion of local assets are experiencing loan restructuring or modification, with a total of $15.4 billion worth of assets falling into this category nationally. To date, only $77 million in New York City-area distressed assets have been taken back by lenders, compared with $7.6 billion nationwide.

Fasulo cites a number of patterns emerging with regard to how properties are falling into distress. They include ownership-level bankruptcies, notably General Growth Properties’ Chapter 11 filing earlier this month. Fasulo says bankruptcies "affect all assets of a real estate company, even the healthy ones" and stem mostly from overleveraging.

Another scenario entails property-level financing needs, where an asset is overleveraged, "and based on replacement refinancing available, would be under water," Fasulo says. Property level distress, including the bankruptcy of a major tenant, the owners’ inability to lease vacant space and other cash flow problems, is also a contributing factor, he says. And lender distress can cause property or owner distress "when the lender stops funding property/development capital needs."

Broadly speaking, Fasulo says, "every case is different. But given how out-of-line some assets are financially--within the context of the current financing and fundamentals environment--I believe you will see a wave of owners decide to surrender their assets to lenders, as opposed to trying to hang onto an ugly duckling."

Look Out Below: Property Still in Sewer

Mon, 27 Apr 2009 12:30:25 GMT

Worldwide commercial property sales volume fell off a cliff in the first three months, plunging to one-sixth its level of two years ago (and down 73% from 2008's first quarter) to a paltry $47 billion, according to Real Capital Analytics' quarterly Global Capital Trends report. In the U.S., there was barely $9 billion in commercial property transactions, a sum that might have represented a single building a few short years ago.

"The commercial-sales market as we once knew it is basically nonexistent," says Dan Fasulo, a managing director at Real Capital and one of the authors of the report. The bid-ask spread is "as wide as it has been since the early '90s," he adds.

In the first quarter, new reports of defaulted mortgages and failed commercial-property companies exceeded $55 billion, bringing the total of distressed assets to $153 billion.

The misery was widely distributed: Ireland saw a complete absence of sales, while 17 nations saw sales fall by 80% or more in the quarter versus 2008's first quarter. Meanwhile, price changes varied from small gains to declines of 40 to 50 percent below those of a few years ago.

Fasulo isn't too sanguine about prospects for improvement in the current quarter, although he notes that "we've seen a trickle of things picking up just over the past few weeks." He points to places like London and Paris, where markets have seen pricing beginning to correct.

To get the market back on track, says Fasulo, the distressed properties need to be cleared out, and the banks, some of which are lending, need to be more generous with their terms.

Global Slide In Property Acquisition In The First Quarter Of 2009

Mon, 27 Apr 2009 12:29:25 GMT

The latest Global Capital Trends report of Real Capital Analytics presents the most comprehensive overview available of property sales activity in Q1. The current issue tracks the important trends that are reshaping commercial real estate investing across all countries and property types. From new trade routes to swiftly changing global capital flows, the report offers a complete picture of the trends affecting real estate capital today.

The global slide in property acquisition in Q1 2009 reached well beyond any adjustment for currency fluctuation. Worldwide sales volume and the number of trades plummeted to one-sixth their levels of two years ago and fell 73 % from Q1 2008 to just $47 b and 1,014 properties in Q1 2009, according the report. The broad drop in activity cut across all property types and just about every market.

Compounding the drop in transactions is an astounding rise in properties that need to be recapitalized.

New reports of defaulted mortgages and failed commercial property companies exceeded $55 b in Q1 2009, bringing the total universe of property assets currently known to be in distress to $153 b. A significant change in capital flows emerged in Q1 as the tide of cross-border activity turned and buyers were retreating to home countries and local markets to scout opportunities amid the distress.

Since the financial crisis toke the world by sotrm, real estate trading activity has achieved a stunning global uniformity: no matter the global zone, property type or even the prior trajectory of sales volume in a given zone, the patterns are very similar.

Acquisition volume around the world since September 2008 has tanked by roughly 70% or more.

Volume in the Americas has fallen hardest with Q1 2009 sales down 84% yoy and 56% from Q4 2008. Investors typically show strong preferences for property type when buying, but now are shunning all sectors with remarkable consistency, reinforcing the bluntness and breadth of the market retreat.

Few differences emerge at a more granular national level in Q1 2009 activity.
From major to minor markets, from mature to emerging economies, the yoy falloff in Q1 2009 was severe, led by Ireland’s 100% absence of sales.
Seventeen nations saw sales slip by 80% or more in Q1 2009 vs. Q1 2008.
But there were glimmers: Australia, now a value play, and the Czech Republic surprised with small gains in transactions.
France, viewed as a defensive play by some property buyers, recorded a decline in sales of 55%, a signifi cant drop, but one that is lower relative to most other European countries.

The UK, which has seen volume steadily decline for almost two years now, was one of the better performers with a fall in sales of 35%. This coupled with reports of an uptick in the number of bids properties are attracting could signal a rebound in UK market (though maybe not prices) ahead of other Western economies.
In addition to the significant price correction that has already occurred, currency fluctuations have made UK property look very cheap to Euro-denominated investors. The dearth of transactions globally not only makes property a very illiquid investment but also makes asset value very difficult to gauge. Price changes for recent sales vs. prior sales are far from
uniform, with some properties showing a gain but many others selling for 40% to 50% below prices of one or two years ago.

Cap rates, defying basic assumptions of relative risk across emerging and developed economies, also reflected the global unanimity of investor appetites and of lender capability. Cap rates in every global zone are up at least 75-100 bps over the past year.

Despite thin data, convergence is evident as yields on property acquisitions approach or exceed 7.0%.

About Global Capital Trends

Global Capital Trends is the only truly independent source for information and analysis on property acquisition activity worldwide. The proprietary data and analysis provide a comprehensive picture of markets, countries and continents, both wide-angle and deal by deal. From property type to investor breakdown to industry rankings of every kind, Global Capital Trends offers a winning information edge.

With six in-depth PDF issues per year and exclusive online content every month, Global Capital Trends includes a wealth of data. For more information, please visit their website: www.rcanalytics.com

Report: Fla. ranks No. 3 for financially distressed projects

Mon, 27 Apr 2009 11:30:40 GMT

South Florida ranks third in nation for the volume of commercial real estate and condo projects now at some level of financial distress, according to a new report from Real Capital Analytics.

The region has 232 known troubled assets, representing $6.3 billion in problematic loans, the RCA data showed

That is less than the $9.2 billion in troubled properties in metropolitan New York City and $8.1 billion in greater Las Vegas. RCA has identified $86.8 billion in trouble assets nationwide.

South Florida’s mounting pile of troubled assets is larger than the metropolitan areas of Los Angeles, with $5.8 billion: Chicago, $3.5 billion; Phoenix, $3.1 billion; San Francisco, $2.7 billion; Dallas, $2.1 billion; Houston, $2 billion; and Atlanta, $1.7 billion.

“There is no question that Florida has been very heavily hit, mainly due to oversupply issues,” said Dan Fasulo, RCA’s managing director. “There has certainly been a plethora of failed developments.”

Trump International Hotel and Tower in Fort Lauderdale, Paramount Bay in Miami and the Shops at Sunset Place in South Miami are among the most recent projects that RCA has added to its Troubled Assets Radar report, which will now be issued quarterly.

RCA also listed Mint at Riverfront, but developer Inigo Ardid, VP of Development at Key International, said the project is not in distress. The loan doesn't mature until late this year, Ardid said.

To be listed, Fasulo said, a project has to be at some level of default on its loan.

“It doesn’t mean that at some point they won’t work it out, but we have hard evidence that a development is in trouble,” he said.

Corus Bank, the lender on the Trump, Mint and Paramount Bay projects, disclosed earlier this month that nearly all of its $1.1 billion in loans to South Florida projects were impaired.

The Shops at Sunset Place is the latest Simon Property Group retail center to surface, gulping for financial air. On April 14, Wells Fargo, acting as a trustee for a commercial mortgage-backed securities fund, filed a foreclosure lawsuit against the Simon-run Palm Beach Mall over a $55.4 million leasehold mortgage.

RCA identifies Sunset Place as being past due on a maturing $74.7 million CMBS loan.

Simon spokesman Les Morris did not return phone calls seeking comment.

“Obviously, the economy has affected the retail spender in this country,” Fasulo said. “That was going to trickle down and affect the tenants and, eventually, the owners.”

Credit Crunch Hits The Malls

Sun, 26 Apr 2009 12:31:25 GMT

Though it came as no surprise to investors, the collapse of General Growth Properties, the nation's second-largest mall owner, has stirred new fears about a coming debacle in commercial real estate. The company, which owns 200 shopping centers encompassing 200 million square feet and 24,000 tenants, filed for bankruptcy protection last week.

With the credit markets virtually shut down, General Growth said it was unable to refinance the $3.3 billion in debt that had already matured or would be due this year. These included loans totaling $900 million on two malls in Las Vegas - Fashion Show and the Shoppes at the Palazzo - that were due to be repaid in November. An additional $6.4 billion in debt matures next year.

The global credit crisis, weakening retail demand and rising unemployment have taken a toll on commercial property around the world. At least $153 billion worth of property is already in distress, according to Real Capital Analytics, a New York research company. Of this, $87.1 billion represents defaulted mortgages, while the rest is outstanding debt from about 40 commercial-property and investment companies that have failed, most of them outside the United States.

In Japan, Australia and Spain, more companies than properties have faltered, said Robert M. White Jr., the president of Real Capital. "Here in the U.S., the majority of the issues are more at the property level than the company level right now," he said.

Report: Florida Ranks No. 3 for Financially Distressed Projects

Fri, 24 Apr 2009 16:32:25 GMT

Southern Florida ranks third in the US for the volume of commercial real estate and condo projects now at some level of financial distress, according to a new report from Real Capital Analytics (RCA).

Real Capital's data showed that the region has 232 known troubled assets, representing $6.3 billion in problematic loans.

That's less than the $9.2 billion in troubled commercial properties in New York and its suburbs, and the $8.1 billion in Las Vegas. RCA has identified $86.8 billion in trouble assets nationwide.

"There is no question that Florida has been very heavily hit, mainly due to oversupply issues," said Dan Fasulo, RCA’s managing director. "There has certainly been a plethora of failed developments."

South Florida’s growing tally of troubled assets is larger than the metropolitan areas of Los Angeles, with $5.8 billion; Chicago, $3.5 billion; Phoenix, $3.1 billion; San Francisco, $2.7 billion; Dallas, $2.1 billion; Houston, $2 billion; and Atlanta, $1.7 billion.

Stress-Tested Banks May Struggle as Bad Assets Triple

Fri, 24 Apr 2009 12:37:25 GMT

U.S. banks that get preliminary results today of government stress tests may struggle to raise money after bad assets at the biggest lenders almost tripled on average in the past year.

The tests on the 19 largest banks are likely to focus in part on loan quality as a measure of health. The lenders, which may need to raise $1 trillion in capital to cushion losses according to an April 23 KBW Inc. report, may have a hard time persuading investors to give them cash.

Commercial loans in default or foreclosure leaped 43% in the Q1, from $46 billion at year-end to nearly $66 billion, according to research firm Real Capital Analytics Inc. Property values have fallen at least 30% since their peak in 2007.

Fifth Third, Regions May Face Stress-Test Struggle

Fri, 24 Apr 2009 00:00:40 GMT

Fifth Third Bancorp and Regions Financial Corp. may be among regional lenders that struggle to pass the U.S. government’s stress test because they are mired in commercial real-estate debt, analysts say.

Commercial loans in default or foreclosure rose 43 percent in the first quarter to $65.9 billion from $46 billion at the end of last year, according to New York-based research firm Real Capital Analytics Inc. Commercial property values have fallen at least 30 percent since their peak in 2007.

Commercial Property Loses Four Years of Gains

Thu, 23 Apr 2009 12:29:25 GMT

Commercial real estate values are falling fast and are quickly catching up (or more precisely down) with the drop in residential values.

The Moody’s/REAL National All Property Type Aggregate Index is out and finds that value of offices, apartments, hotels, warehouses and malls has fallen to March 2005 levels. Remember March 2005? Big news then was Terry Shiavo and the Dow was still solidly above 10,000.

Since then, of course, lots of office buildings have traded hands, mostly with huge amounts of debt. Falling prices hurts landlords with lots of debt. In 2007, for instance, there was $200 billion of issuance of commercial mortgage backed securities. Values are 20% below where they were when that debt was issued.

“Given the extent of price decline, significant potential exists for leveraged properties to have depleted their credit support. In other words, the equity has disappeared,” says Neal Elkin, President of Real Estate Analytics, the firm that produces the index. The index hit 150.63 in February, down 0.6% from the previous month. (100 on the index equals December 2000 prices.)

The monthly index measures commercial properties in general. Full quarterly numbers due next month will break down by sector and region.

The Moody’s/REAL index measures the value of real estate by surveying the change in sales prices of actual properties. It uses a similar methodology for commercial real estate as the often cited Standard & Poors Case-Schiller Home Price Indexes do for residential property. The Case-Schiller 20-city index says January 2009 home prices are at the same level at October 2003. Stay tuned to see if commercial real estate can catch its rival in this race back in time.

Shakeout Nears for Real Estate Firms

Wed, 22 Apr 2009 00:00:40 GMT

Though it came as no surprise to investors, the collapse of General Growth Properties, the nation’s second-largest mall owner, has stirred new fears about a coming debacle in commercial real estate. The company, which owns 200 shopping centers encompassing 200 million square feet and 24,000 tenants, filed for bankruptcy protection last week.

With the credit markets virtually shut down, General Growth said it was unable to refinance the $3.3 billion in debt that had already matured or would be due this year. These included loans totaling $900 million on two malls in Las Vegas — Fashion Show and the Shoppes at the Palazzo — that were due to be repaid in November. An additional $6.4 billion in debt matures next year.

The global credit crisis, weakening retail demand and rising unemployment have taken a toll on commercial property around the world. At least $153 billion worth of property is already in distress, according to Real Capital Analytics, a New York research company. Of this, $87.1 billion represents defaulted mortgages, while the rest is outstanding debt from about 40 commercial-property and investment companies that have failed, most of them outside the United States.

In Japan, Australia and Spain, more companies than properties have faltered, said Robert M. White Jr., the president of Real Capital. “Here in the U.S., the majority of the issues are more at the property level than the company level right now,” he said.

Heavy borrowing crippled Providence Place mall owner

Tue, 21 Apr 2009 16:17:25 GMT

The financially troubled owner of Providence Place mall borrowed nearly $400 million on the property shortly after it took control of the retail center in 2004.

The borrowing, on a shopping center that had changed hands only months before for $510 million, is symptomatic of the problems General Growth Properties Inc. (GGP:NYSE) created for itself as it amassed a portfolio of more than 200 properties in 44 states.

General Growth’s bankruptcy filing will worsen the decline in property values, Dan Fasulo told Bloomberg News.

“This bankruptcy will drive down the values of mall assets in the United States,” said Fasulo, managing director of research firm Real Capital Analytics. “It’s going to put, I believe, more supply on the market than can be absorbed by investors.”

Industry Questions Whether GGP Can Avoid Asset Sales

Tue, 21 Apr 2009 00:00:40 GMT

Selling assets in the current sales environment is not an attractive proposition. In February of 2006, mall sales closed at an average price of $167.48 per square foot and an average cap rate of 6.5 percent, according to research firm Real Capital Analytics (RCA). By February of this year, the average price on mall transactions had fallen by more than 35 percent, to $108.7 per square foot with the cap rate rising 70 basis points, to 7.2 percent.

In fact, with a debt to total assets ratio of approximately 98 percent, virtually any bid General Growth receives in today's environment will be at a discount to the book value of its properties, says Suzanne Mulvee, senior real estate economist with PPR, a Boston-based research firm. "Obviously the assets are attractive, but as attractive as they are, they are priced to perfection under GGP's structure," Mulvee notes. "[In this market], any transaction price on those assets will be at a discount."

One bit of good news in this scenario is that if General Growth will be forced to put a large number of its centers up for sale, the bids it will receive might help the market value retail assets more accurately. With the recent dearth of investment sales transactions (in February, closed retail sales totaled only $455 million, representing a 78 percent drop from the same month in 2008, according to RCA), real estate appraisers are having difficulty determining pricing on retail properties, Mulvee says. Sales of General Growth's centers might give them a fresh perspective.

"It will give the market a benchmark," Mulvee notes. "It will be an unwelcome benchmark, but it will be a benchmark that will have to be acknowledged."

Can General Growth Keep Gems It Bought With Debt?

Sat, 18 Apr 2009 12:27:25 GMT

The bankruptcy may remake the nation's mall business and allow Simon to strengthen its position as the No. 1 mall owner, said Dan Fasulo, managing director at real estate research firm Real Capital Analytics.

General Growth's filing is the "beginning of the distress cycle," Fasulo said, and may lead other companies to fail.

The company in October put three Las Vegas properties up for sale: the Fashion Show Mall, the Grand Canal Shoppes and the Shoppes at the Palazzo. Simon's Forum Shops at Caesars is next to the Caesars Palace hotel and casino on the Las Vegas Strip.

The Rouse transaction sealed the company's fate, said Sullivan of Green Street.

General Growth bought Rouse after a bidding contest with Simon, Westfield and others in what was then the largest takeover of a real estate investment trust.

General Growth had chances to refinance since 2004 and didn't take advantage of them, said Sullivan. Now it faces the prospect of emerging from bankruptcy a smaller player in an industry that has consolidated to the point where an "oligopoly" of publicly traded REITs own about 80 percent of the country's malls, he said.

"Bigger is better in the mall business," said Sullivan. "The more malls you own, the stronger the relationship is with your tenants."

Las Vegas braces for commercial foreclosures

Fri, 17 Apr 2009 16:17:25 GMT

A tsunami of commercial real estate foreclosures is on the horizon and is threatening banks and undermining developers who are already struggling with high vacancy rates.

It’s another looming blow for many Southern Nevada banks that are sweeping up after the financial wave of the residential real estate bust. Since the first of the year, a growing number of developers of offices, industrial space and retail centers are in default and face foreclosure, according to local real estate analysts.

New York-based Real Capital Analytics’ recent report ranked Las Vegas second behind New York and ahead of Los Angeles when it comes to troubled commercial properties. The value of troubled loans has grown from $4.7 billion in early 2008 to $6.4 billion, said Jessica Ruderman, a senior market analyst with the firm.

That’s 26 percent of the commercial market either in default or that has been foreclosed upon. That includes office, industrial, retail, hotels, casinos, condominiums and apartments, Ruderman said.

Economic Update - CRE Refi Problems Loom

Fri, 17 Apr 2009 12:28:25 GMT

"Forbearance into foreclosures" was how the Wall Street Journal characterized prospects for the commercial mortgage-backed securities market over the coming years, when many billions of loans underlying CMBS will come due--$22 billion of which will be this year and next.

CMBS is just one part of the nagging (or looming) refinance problem for commercial real estate. Can TALF, at least as far as the U.S. industry is concerned, really really delay or ameliorate a possible wave commercial real estate defaults? Like for any large economic question, "maybe" seems like the most reasonable answer.

"TALF has the ability to help remove legacy debt from lender balance sheets which should theoretically open up more capital for commercial property lending," Dan Fasulo, managing director at Real Capital Analytics, told CPN. "Yet the program will be hindered due to the short-term nature of the debt that the Treasury will provide investors, two or three years. Treasury will have to provide at least five-year terms on the acquisition loans to get investors to participate en masse."

Major Shopping Mall Owner Files For Bankruptcy

Thu, 16 Apr 2009 14:29:25 GMT

General Growth Properties, the second-largest owner of shopping malls in the United States, has filed for Chapter 11 bankruptcy protection, after lengthy efforts to renegotiate its $27 billion debt load collapsed.

The company, which owns New York's South Street Seaport, Boston's Faneuil Hall, the Glendale Galleria in California and Fashion Show in Las Vegas, said its properties will continue to operate as normal while it attempts to restructure its loans.

"Our core business remains sound and is performing well, with stable cash flows. We believe that Chapter 11 is the best process for restructuring maturing mortgage loans, reducing the company's corporate debt and establishing a sustainable, long-term capital structure for the company," said Chief Executive Officer Adam Metz.

Like many commercial real estate companies, General Growth has found it nearly impossible to refinance the enormous amount of short-term debt it took on during the credit boom.

The company has worked "tirelessly" to address its debt load, but "the collapse of the credit markets has made it impossible for us to refinance maturing debt outside of Chapter 11," Metz said.

Much of the debt was acquired by mortgaging the company's existing malls and was used to purchase more properties, said Peter Slatin, editorial director and associate publisher of Real Capital Analytics, a research firm whose clients include many institutional investors.

For instance, the company spent more than $11 billion in 2004 to buy the Rouse Co., the innovative commercial developer that built the planned community of Columbia, Md., among others.

"They basically never recovered. It was a big swallow, and they never quite digested it," Slatin says.

Slatin says the company pursued a bigger-is-better strategy, buying one mall after another, without any clear strategy.

"What they really did was go on a buying binge almost as soon as they went public in the early '90s," Slatin says. "They got bigger and bigger, but I never felt there was a management philosophy that said, 'This is the type of property we want to own; this is the type we don't want to own.' "

General Growth was founded in 1954 by brothers Matthew and Martin Bucksbaum, whose family owned a grocery business. They built the Town and Country Center in Cedar Rapids, Iowa, one of the Midwest's first regional shopping malls. The company went on to become one of the largest mall operators in the United States, before going public in 1993.

Last year, the company replaced its CEO, John Bucksbaum, with Metz, the first time that a non-family member had been named to lead General Growth.

Now that the company is in bankruptcy, it will probably be forced to sell some of its properties, Slatin said. If it puts too many malls on the market at one time, the already-anemic market for retail real estate could weaken further, and that prospect sent shares of other real estate investment trusts down Thursday.

VIDEO: A New Role for Appraisers

Thu, 16 Apr 2009 12:33:25 GMT

Appraisals aren't what they used to be. With pressure rising for greater regulatory scrutiny, credible valuation has become a lethal weapon in an adversarial market.

"Valuations and appraisals are being used today to determine who owns the asset -- to find out who's in charge with all the traunch wars going on" says Bob White, Real Capital Analytics founder.

Later, in this interview with John Salustri, Editorial Director at GlobeSt.com, White says about toxic assets, "We're tracking major commercial properties that fall into default or foreclosure... and what's alarming is how much of it is tertiary markets all over."

Commercial real estate market softens

Thu, 16 Apr 2009 12:28:25 GMT

Another wave of real estate defaults is rapidly gathering strength - this time in the office sector.

In most cases, tenants will play the market woes to their advantage, haggling for reduced rents.

In February alone, $5.7 billion in U.S. commercial real estate assets were subject to default, foreclosure or bankruptcy, according to New York research firm Real Capital Analytics. Meanwhile, property is tumbling onto the market as loans coming due and other factors pressure landlords to unload their holdings. But with few eager buyers, the ratio of offerings to sales is "rising off the charts," it said.

General Growth Files Biggest U.S. Property Bankruptcy

Thu, 16 Apr 2009 00:00:40 GMT

General Growth Properties Inc. filed the biggest real estate bankruptcy in U.S. history after amassing $27 billion in debt during an acquisition spree that turned it into the second-largest shopping mall owner.

The owner of Boston’s Faneuil Hall and the South Street Seaport in New York City ended a seven-month effort today to refinance its debt. The company listed $29.5 billion in assets and debts of about $27.3 billion in the Chapter 11 filing. General Growth will continue operating its more than 200 properties.

“We intend to emerge as a leaner company,” General Growth President Thomas Nolan said in an interview today. “We want to come out as a less leveraged company. Our business model remains strong.”

General Growth collapsed after spending $11.3 billion to buy commercial-property developer Rouse Co. in 2004 only to get caught in the credit crunch and a U.S. recession that has cut spending and property values. Banks have reduced lending amid mortgage-related writedowns. Commercial real estate prices in the U.S. dropped 15 percent last year, according to Moody’s Investors Service. Retail sales in the U.S. unexpectedly fell in March as soaring job losses forced consumers to pull back.

The filing lists Eurohypo AG, a unit of Commerzbank AG, as General Growth’s largest unsecured creditor with claims totaling $2.59 billion under two loans. Noteholders are owed about $4 billion.

Simon Gains?

The bankruptcy may remake the nation’s mall business and allow General Growth competitors including Simon Property Group Inc. to buy properties and strengthen its position as the No. 1 mall owner, said Dan Fasulo, managing director at real estate research firm Real Capital Analytics.

“I think Simon’s going to be able to pick up some of these assets on the cheap,” Fasulo said in an interview.

General Growth’s filing is the “beginning of the distress cycle” and may lead other companies to fail.

“This is kind of the beginning of the end,” Fasulo said. “This bankruptcy will drive down the values of mall assets in the United States. It’s going to put, I believe, more supply on the market than can be absorbed by investors.”

The Perils of Real Estate at Arm's Length

Tue, 14 Apr 2009 12:27:25 GMT

It may not rank up there with the tech and housing bubbles. But troubles in commercial real estate have deflated a once highflying market for property investment known as TICs.

TIC stands for tenant-in-common, a form of ownership that has exploded in popularity among real-estate investors in recent years. The TIC format became a favorite vehicle for property owners crafting 1031 exchanges, named for a section of the federal tax code that allows sellers of income-producing real estate to defer capital-gains taxes if they roll over their sales proceeds into other income property within six months.

At their peak, in 2005 -- when housing and commercial real estate were on a tear -- TIC property transactions totaled slightly more than $7 billion, says Dan Fasulo, managing director of research at Real Capital Analytics. But in the next three years, volume slid sharply. Last year, says Fasulo, it fell below $1 billion; a scant 42 deals were done nationwide.

HSBC May Sell Landmark Buildings To Avoid The Need For Bailout Cash

Tue, 14 Apr 2009 00:00:40 GMT

LONDON (Bloomberg) — HSBC Holdings Plc may sell three of its landmark office buildings, including the Canary Wharf world headquarters in London, to raise cash as it tries to avoid a bailout from the British government.

HSBC is gauging interest in its 45-story tower at 8 Canada Square in London, its Fifth Avenue skyscraper in New York, and its Paris offices on the Avenue des Champs Elysees, said Ruth Lavelle, a London-based spokeswoman for HSBC. The Sunday Times of London reported the potential sales yesterday at a combined asking price of £2.7 billion pounds ($3.96 billion). The newspaper didn't include the source of its information and Lavelle, in an e-mail, said she couldn't confirm a price.

The London-based bank is seeking to sell at a time when financing for commercial real estate is difficult and values are falling. In New York, transactions dropped 40 percent in the first quarter compared with a year earlier, according to broker Cushman & Wakefield Inc., and U.K. values fell 29 percent in the 12 months through February, Investment Property Databank Ltd. said in a March 13 report.

"Despite the challenging environment, the properties can be moved if HSBC is willing to offer attractive lease-back and seller-financing terms to a prospective buyer," Dan Fasulo, managing director of New York-based research firm Real Capital Analytics Inc., said in an e-mail message.

HSBC would probably lease the offices back from any buyer, the Times reported.

"The sale price will be predicated on the lease terms HSBC is willing to accept" to rent back the space, Fasulo said.

HSBC raised £12.5 billion in the UK's largest rights offer earlier this month. The bank needs cash to help counter the $15.5 billion pretax loss of its North American operation for 2008 and to add to the $53 billion it set aside during the past three years to cover bad loans. It has so far avoided taking UK government funding, unlike rivals Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc.

"As part of managing a significant global real estate portfolio HSBC is testing the market with three of its landmark property assets," HSBC said in a statement. "HSBC constantly monitors the commercial property market carefully, making decisions based on what is most appropriate for the business and our stakeholders."

Two years ago HSBC sold the Canary Wharf headquarters to Spanish developer Metrovacesa SA for £1.09 billion in the first sale of a UK office building to top £1 billion.

HSBC then rented offices there at an annual rate of £43.5 million. In December, it bought the building back from Metrovacesa for £838 million, a profit of £250 million. The bank built the tower in 2002.

The New York Times Co. struck a similar deal last month, agreeing to sell the space it occupies in its Manhattan headquarters for $225 million to W.P. Carey & Co., a New York- based real estate investment bank. The newspaper company will rent the building for 15 years from the new owner with an option to buy back its stake in 2019 for $250 million.

Manhattan office vacancy rates in March rose to their highest in more than five years, according to Los Angeles-based real estate services firm CB Richard Ellis Group Inc.

In London's financial district, empty office space is also at a five-year high, according to NB Real Estate.

HSBC's London headquarters accommodates about 8,000 workers and was designed by Norman Foster. The 29-story New York property, built in 1985, is at 452 Fifth Ave. between 39th and 40th streets and has 500,000 square feet, according to the Web site MrOfficeSpace.com.

Dallas-Ft.Worth Office Market Sees Growth

Mon, 13 Apr 2009 00:00:40 GMT

Dallas-Fort Worth was one of the few metro areas nationwide that saw positive growth in office market leasing during the first quarter, according to a new market trends report.

Still, the new report from Grubb & Ellis Research says the D-FW market is feeling the impact of the recession.

The report says most businesses leasing space are looking for 12 to 18 month leases or extensions, rather than longer-term leases. In addition, landlords who are dealing with less-than-stable operating capital levels are allowing fewer building improvements, and tenants are looking for properties with sound financials to ensure building stability.

Despite some of the recessionary challenges, the report says the D-FW office leasing market remained stable by recording 516,205 square feet of positive net absorptions during the first quarter of the year. Most of the absorption came from leases that were signed prior to the economic downturn, the report said.

Class A and B sectors fared the best, with positive absorption figures of 294,209 and 269,300 square feet, respectively. The Class C sector had negative absorption of 47,304 square feet.

The majority of the absorption growth occurred in the Uptown/Turtle Creek area, which saw a 10 percent increase from the previous quarter to 328,320 square feet. That area was followed by the Las Colinas/Irving submarket with 275,749 square feet in positive growth. The Central Expressway submarket posted its third consecutive quarter of negative absorption, seeing vacancy up by 84,649 square feet.

Overall, the Dallas-Fort Worth area office market saw its vacancy rate jump 80 basis points in the past three quarters, with the rise in vacancy occurring mostly in the Class B and C sectors, according to Grubb & Ellis.

In terms of investment activity, the report categorized the first part of 2009 as “slow” with Real Capital Analytics reporting that only eight office properties with a market value of $72 million traded between September of 2008 and January.

HSBC May Sell London Headquarters, Buildings in New York, Paris

Sun, 12 Apr 2009 00:00:40 GMT

HSBC Holdings Plc, Europe’s biggest bank, may sell three of its landmark office buildings, including the Canary Wharf world headquarters in London, to raise cash as it tries to avoid a bailout from the British government.

HSBC is gauging interest in its 45-story tower at 8 Canada Square in London, its Fifth Avenue skyscraper in New York, and its Paris offices on the Avenue des Champs Elysees, said Ruth Lavelle, a London-based spokeswoman for HSBC. The Sunday Times of London reported the potential sales earlier today at a combined asking price of 2.7 billion pounds ($3.96 billion). The newspaper didn’t include the source of its information and Lavelle, in an e-mail, said she couldn’t confirm a price.

The London-based bank is seeking to sell at a time when financing for commercial real estate is difficult and values are falling. In New York, transactions dropped 40 percent in the first quarter compared with a year earlier, according to broker Cushman & Wakefield Inc., and U.K. values fell 29 percent in the 12 months through February, Investment Property Databank Ltd. said in a March 13 report.

“Despite the challenging environment, the properties can be moved if HSBC is willing to offer attractive lease-back and seller-financing terms to a prospective buyer,” Dan Fasulo, managing director of New York-based research firm Real Capital Analytics Inc., said in an e-mail message.

HSBC would probably lease the offices back from any buyer, the Times reported.

“The sale price will be predicated on the lease terms HSBC is willing to accept” to rent back the space, Fasulo said.

Commerical real estate debt clouds future

Thu, 09 Apr 2009 16:17:25 GMT

Wakefield Commons looks like almost any other shopping center in this growing region. People who live and work nearby --the ones who rely on the center for groceries, a quick bite or sometimes a movie --hustle in and out, around the clock.

Few, if any, shops are empty, a rarity in these penny-pinching times, which is part of the reason competing landlords are keeping an eye on the 160,000-square foot center in North Raleigh.
The other part: Its owner, half a world away, is trying to escape a rolling boulder of debt in an era of constrained lending.

Centro Properties Group of Melbourne, Australia, needs to pay down at least $2.6 billion in debts maturing by the end of 2011. And if credit doesn't start flowing soon, the balance could be a burden not to just Centro, but to competing landlords.

Lenders, who have tightened up in the past year and a half as the economy soured, have made it harder for many landlords to refinance debt. The lack of debt financing is also sidelining many buyers.
So Centro, to pay back its lenders on time, has been forced to unload some of the 650 properties it owns around the country at bargain prices. And if Wakefield were to be sold under pressure, it could weigh on the values of other nearby retail properties.
This financial fix --healthy property, ailing owner --illustrates how the global credit crisis is turning landlords into casualties even in some of the country's fastest-growing regions. And Centro is just one landlord.

In the middle of this decade, rapids of easy money flowed through commercial real estate, forcing up property values, rents and expectations for more of the same. Now landlords, already facing softening values, are bracing for a severe correction as the debts that fueled the boom come due.

Nationally, the value of distressed commercial properties has at least doubled to $49.2 billion since the end of last year, according to Real Capital Analytics of New York, which defines a distressed asset as a property with a reported default, foreclosure, bankruptcy filing or lien.

The Triangle represents a mere fraction, accounting for the second-fewest troubled assets, next to the Washington, D.C., metropolitan area. Real Capital lists only a few distressed commercial properties in this area, including Wakefield Commons and several other Centro properties.

Downtown 2020: Manhattan's Lifeline Into the Future

Wed, 08 Apr 2009 00:00:40 GMT

Retaining Manhattan as the epicenter of the world is the work of many minds. How to plan, and build the heart of a major city into the future is a balancing act requiring careful consideration of residential space, commercial and office space, cultural elements, transport, and amenities.

“We have to keep this going,” said Berger, who states completing the World Trade Center (WTC) is top priority. “This is the single largest stimulus project in New York City. We need this project.”
The redevelopment of the WTC site will provide the office space needed to remain the business capital of the world when the economy recovers, she said, speaking at a forum recently organized by the Stephen L. Newman Real Estate Institute's Downtown Futures Group.
The Downtown Futures Group authored the report Downtown 2020—a comprehensive look into the future of Manhattan. Downtown 2020 was prepared by a team that includes representatives from Baruch College, New York University, and private companies including Real Capital Analytics, Grubb & Ellis, and Sam Schwartz Engineering.

Portfolios Punch Drunk

Tue, 07 Apr 2009 14:31:25 GMT

Remember the portfolio deal? That’s right, the practice of grouping a bunch of buildings together and selling them all at once? Yep, it’s hard to remember, because the last time a big portfolio deal happened in New York City was …

“Wow,” laughed Pete Culliney, director of Global Research for Real Capital Analytics, when The Observer posed him that question. “Let me dust off the books. Who would imagine that would be the question of the day! In general, portfolios of more than three or four properties are almost nonexistent.”

Mr. Culliney was able to find one—that’s right, one—portfolio transaction in Manhattan this year—a small sale of three apartment buildings in January, for $14.5 million.

In contrast, January of 2008 saw a six-unit Manhattan portfolio sell for $44 million; a nine-property Manhattan portfolio sell for $311 million; a two-unit Manhattan portfolio sell for $20 million; and another two-unit trade for $10 million.

You hear that dolorous sound? It’s the death knell of yet another boom-time practice.

UK property investors wary of distressed assets

Tue, 07 Apr 2009 00:00:40 GMT

European property stocks are rallying but some leading property investors are wary of storming back into the crisis-hit market for bricks and mortar, because they fear prices may still have further to fall.

Delegates at IMN's European Distressed Real Estate Symposium said investors would become more confident about pumping money back into the sector as soon as a broadly expected flurry of fire sales begins.

"We are starting to get bullish because the only way is up," said Daniel Fasulo, managing director of research at Real Capital Analytics (RCA).

"Sellers are reluctant to capitulate and accept the reality of where pricing is, but 2009 will be about distressed sales."

RCA has tracked some 16 billion euros ($21.65 billion) worth of European commercial property sales in the first quarter of 2009, down 78 percent from 75 billion euros in Q1 of 2007.

"As more distressed assets change hands we will get a better idea of where the pricing is, but the window to pick up assets at stupid prices will be very short -- six months at most," Fasulo warned.

US Commercial Property Foreclosures Expected To Continue Increasing

Mon, 06 Apr 2009 13:22:25 GMT

Commercial property loans in default or foreclosure in the US rose in the first quarter of this year as the recession cut occupancies and the credit crisis halted refinancing.

Delinquent loans climbed 43% in the first three months of this year to $65.9 billion, according to data from New York-based research firm Real Capital Analytics, an increase of $46 billion since the end of 2008.

A total of 3,678 US properties are now listed as in distress and commercial real estate values have fallen at least 30% since their 2007 peak and may decline another 11% this year, increasing the number of properties that may be repossessed, according to Deutsche Bank AG's real estate unit.

'We haven't yet seen the worst of the effects of the recession on the commercial markets,' said Stuart Saft, a partner at the law firm of Dewey & Leboeuf LLP in New York, who specializes in real estate.

Landlords who financed purchases with at least 60% debt are now dangerously close to zero equity, analysts claim.

There are numerous examples of once prime office property being sold at bargain prices. Foreclosures will continue to grow, probably for at least another year or so, according to Peter Culliney a Real Capital research director.

Boston's John Hancock Tower, the state's tallest skyscraper, was sold at auction at the end of March to Normandy Real Estate Partners and Five Mile Capital Partners for $661 million, about half of the purchase price of just three years ago. Broadway Partners paid $1.3 billion for the property in 2006 and defaulted on its loan.

The Nobu Hotel & Residences in lower Manhattan is among properties on Real Capital's troubled asset list. The planned 62 story tower, the Nobu sushi restaurant chain's first US hotel near the New York stock exchange, was being built by property investor Kent Swig but has been halted because of a dispute over loans.

Developer Sheldon Solow's planned East River housing and office development near the United Nations is also identified as delinquent on Real Capital's list. Solow is said to owe $85.7 million in construction loans and letters of credit on the project, according to Citigroup.

Real Capital defines distressed properties as those in which a lender has taken steps to foreclose or declare a borrower in default, as well as properties that have been returned to the bank, or in cases where landlords were given a loan extension or the debt was restructured.

UpClose with Real Capital Analytics' White

Mon, 06 Apr 2009 00:00:40 GMT

"Distressed assets" is the buzz phrase in the industry right now. Every day we learn about more properties going into foreclosure, and firms and funds being created to acquire those assets. But the industry still isn't seeing much in the way of transactions. New York City-based Real Capital Analytics is one firm tracking distressed assets and loans. For his part, Robert White, the firm's founder and president, doesn't see a change in the market taking place until someone jumps in and buys a "big, diverse portfolio." White recently spoke with GlobeSt.com about distressed assets and the transaction market.

Report: 25% Of LV Commercial Real Estate Troubled

Fri, 03 Apr 2009 00:00:40 GMT

Commercial properties valued at a whopping $7.885 billion are in trouble in Las Vegas as casinos struggle under the weight of the recession and office buildings and shopping malls lose or are unable to find tenants, a research firm says.

Real Capital Analytics Inc. of New York said that in terms of troubled commercial properties and loans against them, Las Vegas ranks second in the nation behind the much larger New York market, with $8.525 billion of loans and property in trouble, and is ahead of the far larger Los Angeles market at $5.02 billion.

Real Capital senior market analyst Jessica Ruderman said the problem has accelerated in Las Vegas since February 2008, when loans on troubled local properties totaled $4.8 billion, or 17 percent of the market. She estimated the new figure of $7.885 billion represents about 25 percent of the market.

The company identifies properties that are in trouble by looking at foreclosures, tenant departures and the weakening finances of their owners, among other factors, she said. For instance, the Las Vegas numbers include the Tropicana hotel-casino, which is in bankruptcy; the Riviera hotel-casino, which has warned it may need to seek bankruptcy; and two shopping malls owned by struggling real estate giant General Growth Properties Inc. Those malls are the Fashion Show and the Shoppes at the Palazzo, both on the Las Vegas Strip.

The problem in Las Vegas, and other markets, is that developers and other borrowers who run into trouble because of the economy are having difficulty refinancing their debt; while lenders increasingly are having to make concessions so they don't have to foreclose on the properties, Ruderman said.

So far, she said, government assistance to banks hasn't freed up a lot of credit, "But we're hopeful that will help.''

Defaults Rise, Worst Yet To Come For Commercial Property

Thu, 02 Apr 2009 00:00:40 GMT

Commercial property loans in default or foreclosure grew in the first quarter as the US recession cut occupancies and the credit crisis stymied refinancing.

Delinquent loans increased by 43% in the first three month of this year to $US65.9 billion, according to data from New York-based research firm Real Capital Analytics Inc. That’s up from $US46 billion at the end of 2008.

A total of 3678 US properties are now listed as in distress by Real Capital. Commercial real estate values have fallen at least 30% since their 2007 peak and may decline another 11% this year, increasing the number of properties that may be repossessed by banks, Deutsche Bank AG’s real estate unit said in a March 25 report.

Commercial real estate loan defaults skyrocket

Fri, 27 Mar 2009 16:17:25 GMT

Funding for commercial loans virtually shut down last year as the financial system unraveled.

About $11 billion of distressed commercial property is currently up for sale, compared with a lackluster $2.7 billion worth of properties that were actually sold in February, according to Real Capital Analytics.

A growing imbalance between supply and demand is likely to push down prices in the coming months, analysts say.

Similar to the residential property market, foreclosures and defaults are surging, with nearly $19 billion in commercial real estate loans in default, foreclosure or bankruptcy so far this year, according to Jessica Ruderman, a senior analyst with Real Capital.

US programs seen too late to stem foreclosure wave

Thu, 26 Mar 2009 10:30:40 GMT

The new federal programs to aid the U.S. financial markets will likely not fend off the impending wave of foreclosures on U.S. commercial property loans, experts said.

U.S. Treasury Department officials unveiled this week more specifics of a program that will enable the federal government to help private buyers purchase toxic loans and asset-backed securities, including commercial mortgage-backed securities (CMBS).

The U.S. commercial real estate boom that started around 2004 and peaked in 2007 was fueled by cheap debt. Banks and other lenders were often willing to lend up to 90 percent or more of the purchase price. The loans often assumed optimistic rent growth and rising occupancies in the future.

Borrowers and lenders assumed that the loans, often interest-only, would be repaid by property sales or by new loans that would cover the principal due and more.

But in the second half of 2007, when the credit markets froze, the market began to collapse. Now borrowers are finding themselves squeezed as older loans come due and there is little lending to support sales or refinancing.

"The myth has been that commercial is far more solid than residential," said Robert White Jr, president of Real Capital Analytics. "We were all patting ourselves on the back, that we weren't overbuilding."

U.S. commercial property prices are falling at a similar rate to residential, down about 17 percent year over year, according to Real Capital Analytics.

Sales volume for commercial real estate was down 80 percent in February because of the inability to get a loan and the wide gap between the prices buyers and sellers want.

Distressed Commercial Property Offerings Rising, Report Says

Tue, 24 Mar 2009 12:39:25 GMT

March 24 (Bloomberg) -- About $11 billion of defaulted or foreclosed commercial properties were being offered for sale last month as landlords struggled to refinance loans, Real Capital Analytics Inc. said.

About $5.7 billion worth of properties defaulted, were foreclosed upon or entered bankruptcy in February, the New York- based research firm said in a report today.

The situation “is likely to only worsen over the near term since behind the statistics are sellers that are rapidly morphing from pressured to distressed, while buyers are content to wait,” Real Capital analysts said.

With U.S. unemployment at 8.1 percent, the highest in a quarter-century, and more than 100,000 people and companies filing for bankruptcy in February, commercial property defaults are poised to rise. That may lift the vacancy rate at office buildings to 16.7 percent this year from 14.5 percent at the end of 2008, analysts at New York-based Reis estimate.

Real Capital said $8.8 billion of U.S. office properties are distressed, or about 211 properties. The list is growing by about 30 properties a month, the report said.

Real estate investment trusts including Vornado Realty Trust as well as private high-yield investment funds are raising cash to buy property from overextended owners.

The ratio of offerings to sales is now almost 5 to 1 this year. In 2005, it was 2 to 1 and in 2006 it was 1 to 1.

With so many properties on the market, owners are cutting prices, Real Capital said. Office buildings are selling for 91 percent of their original asking prices, down from 94 percent at the market’s 2007 peak, the company said.

“An influx of more realistic and distressed sellers may also serve to break the stalemate that has brought sales to a halt,” the researchers wrote.

More Office Space, Lower Leases In Silicon Valley

Tue, 24 Mar 2009 12:21:25 GMT

When comparing all of 2008 with 2007, the results are similarly stark. According to Real Capital Analytics and LoopNet data, only 123 commercial properties worth more than $5 million sold in Silicon Valley in 2008, compared with 243 in 2007. In 2008 the total sales volume for those deals was $3 billion, compared with nearly $8.8 billion the previous year.

The biggest deal that closed in the area in 2008 was the $191 million sale of The Park Kiely, an apartment complex in San Jose. In 2007 the top deal was the sale of the Mathilda Place office buildings in Sunnyvale for $272 million, Real Capital Analytics reported.

With the economy in turmoil, vacancy rates rose at the end of last year in both office and R&D space, the Cornish & Carey report showed. Vacancy in R&D — so-called research and development buildings, which tend to be one- and two-story structures — rose to 16.8 percent in the fourth quarter, or 24.7 million unoccupied square feet. That's up from 15.5 percent in the third quarter.

Asking rents for office space, meanwhile, dipped slightly in the fourth quarter, to an average of $2.67 per square foot per month. That's a decline from $2.71 in the third quarter, and down from a recent peak of $2.91 in the fourth quarter of 2007.

Among cities in Santa Clara County, office rental rates ranged from an average of $3.78 per square foot per month in Palo Alto to an average $1.98 in Milpitas.

Those rates are likely to keep eroding, experts said. Tenants seeking new space are negotiating for lower rents, and plenty of tenants with time remaining on their leases are going to their
landlords early to seek lower rates.

Moody’s Commercial Price Index Dips 5.5%

Tue, 24 Mar 2009 11:30:40 GMT

The biggest one-month drop in the eight-year history of the Moody’s/REAL National All Property Type Aggregate Index was recorded during January, Moody’s and Real Estate Analytics LLC reported on Monday. The monthly decrease of 5.5%, compared to a 2.2% drop registered for December 2008, puts the index back at levels last seen in spring 2005.

REAL began compiling the monthly index, which is derived from Real Capital Analytics transaction data, in December 2000. That month’s index of 100 has served as the baseline for monthly increases or decreases. The index rose steadily until October ’07 and began declining each month thereafter except for February and September ’08.

Get the Moody's/REAL index here

Defaulting Commercial Properties Hit Banks on Vacancy-Rate Rise

Mon, 23 Mar 2009 11:34:40 GMT

While the housing boom of the past decade drove banks to issue tens of thousands of subprime and option adjustable-rate residential loans, lenders also made cheap credit available to builders and buyers of high-rise office buildings, strip malls and apartment complexes.

The number of retail properties seized by banks or in some state of default rose to 464 this month, more than triple the number on Dec. 18, with a total value of $7 billion, according to Jessica Ruderman, a research analyst at Real Capital Analytics Inc. in New York. That means banks aren’t being repaid and are stuck owning properties that have plunged in value.

[RCA's Troubled Asset Search tool helps subscribers find investment opportunities and distressed assets in any market, as well as view the sales and refinancing history of specific properties. The site's tools also allow the tracking of new situations as they arise in the multifamily, office, industrial, retail, hotel and development markets.]

Looming Stress For Real Estate Projects Across Charlotte Area

Fri, 20 Mar 2009 00:00:40 GMT

The number of troubled commercial properties — offices, apartments, shopping centers, hotels and warehouses — in the Charlotte region is starting to stack up.

Industry research firm Real Capital Analytics has more than 60 local properties on a watch list of troubled assets. Some are saddled with maturing commercial mortgages. Others have owners that are either bankrupt or are in financial distress. Nearly half are development projects that are delayed or abandoned.

The projects range from Eastland Mall, stuck with darkened anchor stores, to The Park, the unfinished uptown condo tower that’s now owned by the developer’s lender.

Carolina Place mall, Sycamore Commons and Centrum shopping centers in Charlotte and Northlite Commons in Kannapolis are on the list, along with an empty big-box retail store on Sardis Road North.

So are seven hotels, part of a troubled portfolio of nearly 700 Extended Stay properties owned by a joint-venture of New Jersey-based Lightstone Group and The Chetrit Group of New York, and 10 apartment complexes.

The 1.9 million-square-foot Meridian Corporate Center in the University Research Park remains the biggest local property in default. Its owners and lender Hartford Life Insurance Co. are embroiled in a legal battle in N.C. Business Court over a delinquent mortgage debt, last estimated at $116 million.

New York-based Real Capital says the worst cases are where a lender has taken a property via foreclosure, an owner has gone bankrupt or a loan is in default. That describes seven commercial properties in the region, up from four in December, says Real Capital senior analyst Jessica Ruderman.

AIG Evaluating Sale of New York Headquarters Building

Thu, 19 Mar 2009 15:16:25 GMT

American International Group Inc. the insurer that received a $173 billion U.S. bailout, is considering a sale of its New York headquarters and another tower in lower Manhattan to help repay the government.

AIG is evaluating the sale of 70 Pine St. and 72 Wall St., spokesman Mark Herr said in an e-mail today. Two years ago the properties were likely worth about $315 million, said Dan Fasulo, managing director of Real Capital Analytics Inc., a New York-based firm that tracks commercial real estate sales.

Embattled AIG puts headquarters on sales block

Wed, 18 Mar 2009 14:11:25 GMT

AIG said Wednesday it's putting its downtown Manhattan headquarters and a nearby office building on the sales block.

Mark Herr, spokesman for American International Group Inc., said the company is evaluating the sale of its The 66-story headquarters at 70 Pine Street and 72 Wall Street as part of its efforts to boost operations.

The potential sale, first reported by The New York Post, comes at a difficult time for the insurance conglomerate and in the New York real estate market. Prices for office buildings are falling in the wake of tight credit and downsizing in the financial industry.

"I dare not even venture a guess on a price because this is exactly the type of asset lenders are avoiding like the plague right now," said Dan Fasulo, managing director at research firm Real Capital Analytics Inc.

If AIG leaves the building, securing a new tenant would be nearly impossible in a recession, Fasulo said.

The best option for a new owner is to redevelop the property into a hotel or residences, Fasulo said, which is also risky in the current climate.

GE To Shed Light On Its Properties

Wed, 18 Mar 2009 00:00:40 GMT

GE's portfolio is vulnerable to steeper losses partly because the company bought so much at the top of the market. According to Real Capital Analytics, a research firm in New York, GE sold $7 billion of real estate world-wide in 2007 but acquired $16.6 billion that frothy year.

Some of GE's 2007 deals appear to be turkeys. For example, in July 2007, GE bought nine office complexes in Chicago from Blackstone Group LP for $1.05 billion. Those properties had been owned by Equity Office Properties, which Blackstone acquired for $39 billion at the beginning of 2007 and then sold off in large chunks. Vacancy is rising at most of those properties, according to real estate firms.

Real Capital Analytics announces long-term agreement with Nikkei Business Publications

Tue, 17 Mar 2009 12:29:25 GMT

Real Capital Analytics (RCA), a leading global research firm, announced today that it has entered into a long-term license agreement with Nikkei Business Publications, Japan’s leading source for commercial property transaction data, to incorporate Japanese transaction data into RCA’s Global Transaction Database.

Agreement marks 12th leading information provider RCA has partnered with in a collaborative effort to bring transparency to global commercial property markets

RCA has similar data partnerships with Property Data (UK), HBS Research (France), Thomas Daily (Germany), Bulwien Gesa (Germany), Feri EuroRating (Germany), VGM Real Estate (Netherlands), Stan Dickens Property Services (Spain), KTI (Finland), Confidencial Imobiliario (Portugal), EPRC, a division of Hong Kong Economic Times (Hong Kong) and SAMS (Korea).

“Our data partnerships with best-of-country information providers like Nikkei Business Publications have allowed us to reach a critical mass of global commercial property transactions much sooner than we had anticipated” said Joe Mannina, RCA’s Executive Vice President. “It would be very difficult for us to replicate the access to proprietary transaction data and local market knowledge our data partners have been able to provide us with in such a short period of time.”

RCA’s global investment sales database is the first transparent database to track global capital flows in more than 80 countries and reveal each transaction researched by RCA with details such as sales price, sale date, buyer name, seller name, cap rate/yield and building specs for the office, retail, industrial, multifamily and hotel sectors.

Taro Tokunaga, Chief Editor for the Nikkei Real Estate Market Report from Nikkei Business Publications, commented as follows: "Amid the globalization of the real estate investment market, every year sees Asia increasingly becoming a target for investment. It is significant that Nikkei Business Publications has entered into this data partner agreement with RCA, in that it helps encourage investment from abroad to be made in Japan. Until now, information on real estate in Japan has certainly been in short supply for global players. From now on, a greater understanding of the Japanese real estate market will be facilitated through our partnership with RCA."

RCA also recently published its Global Capital Trends report which highlighted $503.7 billion USD in global commercial property sales for 2008 and also identified more than $82 billion USD of troubled assets around the world that are in the process of being foreclosed upon.

About Nikkei Business Publications, Inc
Founded in 1969, Nikkei Business Publications is the publisher of the Nikkei Real Estate Market Report and is the leading provider of business information and commercial property transaction data for Japan. Nikkei Business Publications is part of The Nikkei group, which has newspaper publication as its main business and three additional business divisions of digital media, publishing and broadcasting under its umbrella. Covering a wide variety of specialized areas including business, computer, electronics, construction, services and medicine, Nikkei Business Publications, in July 2008, merged with its sister company, Nikkei Home Publishing, to also bring consumer magazines into its portfolio. For more information, visit http://www.nikkeibp.com/

About Real Capital Analytics, Inc.
Real Capital Analytics, Inc. is a global research firm based in New York City. The firm's proprietary research is focused exclusively on the investment market for commercial real estate. Within that arena, Real Capital Analytics offers the most in-depth, comprehensive and current information of activity in the industry. In addition to collecting transactional information for property sales and financings, RCA interprets data such as capitalization rates, market trends, pricing and sales volume. RCA also quantifies the market forces and identifies the trends that affect the pricing and liquidity of commercial real estate around the world. The firm publishes a series of Capital Trend reports and offers an online service that provides current transactional and troubled asset information for all markets globally.

Watergate Office, Retail Complex Put Back Up for Sale

Mon, 16 Mar 2009 12:30:25 GMT

The Washington D.C. office complex made famous by the political scandal that brought down President Richard Nixon is being put back on the market after the owner failed to find a buyer last year.

BentleyForbes, the Los Angeles-based real estate investor that bought the office and retail portion of the Watergate towers in 2005, hired investment banking firm Savills LLC to market the property.

BentleyForbes put its stake in the complex, site of the bungled 1972 burglary that led to Nixon’s resignation, up for sale a year ago, and pulled it from the market last May. Buyers wouldn’t pay what the company was seeking, CEO David. W. Cobb said at the time. He wouldn’t say then how much BentleyForbes was asking.

The office, retail and parking garage likely would have sold for about $120 million last year, said Dan Fasulo, managing director of Real Capital Analytics Inc., a New York-based property-research firm. The property is likely to go for less than that now because of the global capital crunch, he said.

BentleyForbes bought the Watergate complex in 2005 from Trizec Properties Inc. for $86.5 million.

"They should’ve sold it last year. They should’ve taken the bid, whatever it was," Fasulo said. However, with vacancy rates low in D.C., prospects may not be so gloomy. "Just about everyone is very bullish that the federal government is going to continue to expand under the Obama administration," Fasulo said. "That’s going to create demand for all kinds of office space in Washington, especially in a prime location like the Watergate."

Partial Sale-Leasebacks Rising in Popularity

Thu, 12 Mar 2009 12:29:25 GMT

Global information technology firm Unisys Corp. sold a 356,000-square-foot suburban Philadelphia office property in a $19.5-million sale-leaseback that closed late last year. But unlike your traditional sale-leaseback transaction, in which the seller continues to occupy the entirety of a facility, Unisys leased back only about half of the space at the Malvern, PA asset.

Such partial sale-leasebacks aren’t an entirely new phenomenon, but they appear to be on the rise, at a time when increased interest in sale-leasebacks in general is anticipated.

Partial or whole, market experts predict that sale-leasebacks will be an increasingly used corporate real estate strategy this year as companies look for ways to shave costs, raise capital and otherwise strengthen their balance sheets.

New York City-based market research provider Real Capital Analytics notes in its February Capital Trends Monthly reports that owner/occupiers are likely to be parties to an increasing share of transactions this year, both as buyers and sellers. On the sell side, "the increase in dealmaking stems not only from dispositions of excess/vacant property, but also from sale-leasebacks," RCA notes. "For some companies, sale-leaseback may be the preferred--or only--method for raising capital at present."

CB Richard Ellis teams with Real Capital Analytics

Wed, 11 Mar 2009 10:31:40 GMT

Commercial property research firm Real Capital Analytics has partnered with CB Richard Ellis Group Inc. to deliver global research data to the more than 30,000 employees associated with the worldwide commercial real estate services firm. The contract is "a huge vote of confidence in the global product we recently launched," Bob White, Real Capital founder and president, said in a release.

Real Capital Analytics (RCA) is an independent firm that tracks sales of commercial property to analyze capital flows, investment trends and property prices in more than 80 countries. It tracks deals in the office, retail, industrial, multifamily, hotel and developable land sectors.

RCA's recent Global Capital Trends report featured $503.7 billion in global commercial real estate sales for 2008. It also identified more than $82 billion of troubled assets that are being foreclosed.

Appeal of Short-Term Leases Grows in Manhattan

Tue, 10 Mar 2009 12:31:25 GMT

With the economic outlook murky at best, fewer tenants and landlords want to tie themselves to long leases. Both seem to be growing afraid of commitment.

Manhattan office leases often last 10 years, but there has been a noticeable uptick recently of leases lasting only one to three years. Some prominent landlords have begun playing up the availability of short-term leases in their buildings.

Charlie Malet, the executive vice president in charge of national leasing for Shorenstein, a real estate company based in San Francisco, which owns several office buildings in Manhattan, said that short-term leases were attractive for both landlords and tenants now.

"Landlords don’t want to tie up space for what they perceive to be a low rent," he said. "And if the tenants are a little uncertain about the long-term business environment, they don’t want to lock themselves into a 10-year deal."

Mr. Malet said that Shorenstein recently signed a one-year lease renewal with Harbor View Advisors, an investment advisory firm, at 850 Third Avenue. Shorenstein bought this 39-story, 1.2 mil. square foot office tower last summer. The price tag was around $325 million, according to Real Capital Analytics, a New York research firm that tracks sales of office buildings.

Commercial property sales volume fell last year

Fri, 06 Mar 2009 11:29:40 GMT

Tight credit markets led to far fewer big deals for Twin Cities area office, retail, industrial and multifamily properties.

Last year's sharp drop in commercial property sales rippled across virtually every segment of the Twin Cities-area market, and in some cases more severely than other parts of the country.

The dollar value of office property sales in both downtown Minneapolis and St. Paul fell nearly 90 percent, compared with a 73 percent drop for central business districts nationwide. The figures were compiled by two widely quoted real estate research firms, Real Capital Analytics of New York and LoopNet of San Francisco.

The average price per square foot for office space sold in downtown Minneapolis and St. Paul decreased 23 percent while dropping just 4 percent nationwide. The decline for the two downtowns was one of the largest for 10 Midwestern metro markets surveyed by Real Capital and LoopNet and contrasts with gains in some Midwestern cities such as Chicago, Detroit, Indianapolis and Kansas City.

Area real estate professionals say the main reasons for the substantial drop in sales volume were a lack of large office building deals and a sharp fall in buying by foreign and institutional investors. They only accounted for 5 percent of the value of office properties sold in 2008, according to figures from Real Capital and LoopNet, a commercial real estate firm. Foreign buyers accounted for more than 20 percent of the office deals done in the Twin Cities area in 2007.

CBRE Extends License Agreement with Real Capital Analytics

Fri, 06 Mar 2009 11:29:40 GMT

CB Richard Ellis offices in more than 50 countries now have access to RCA’s full suite of global products.

Real Capital Analytics (“RCA”) announced today that it has extended its license agreement with CB Richard Ellis Group, Inc. (“CBRE”), the world’s largest commercial real estate services firm, to deliver RCA’s global transaction database, reports and publications to CBRE professionals around the world.

“RCA has enjoyed a longstanding relationship with CBRE in the US for quite some time and the new global license with them is a huge vote of confidence in the global product we recently launched,” said Bob White, RCA’s founder and president.

RCA is the first and only independent research firm to comprehensively track sales of commercial property and to analyze capital flows, investment trends and real estate prices in more than 80 countries. RCA’s proprietary database includes details on each transaction and the parties involved for the office, retail, industrial, multifamily, hotel and developable land sectors.

Ray Torto, Global Chief Economist for CBRE said, “Providing our clients with transaction knowledge and deal comparables across the globe is a CBRE goal that is greatly enhanced with every CBRE professional having access to RCA’s timely and comprehensive global data services. We have been serviced well by RCA in the United States for some time and look forward to the same level of professional service globally.”

RCA also recently published its Global Capital Trends report which highlighted over $503 billion USD in global commercial property sales for 2008 and also identified more than $82 billion USD of troubled assets around the world that are in the process of being foreclosed upon.

CBRE Acquires Former Macklowe Tower

Fri, 06 Mar 2009 11:27:40 GMT

One of the last two unsold towers in the Macklowe/Equity Office portfolio that Deutsche Bank took back in early 2008--1540 Broadway--has finally found a buyer. CB Richard Ellis Investors is closing a reported $355-millon deal to acquire the office portion of the 1.1-million-square-foot skyscraper with its CBRE Strategic Partners US Value 5 Fund. A spokeswoman for CBRE Investors tells GlobeSt.com that the company does not comment on speculation. A release from CBRE confirms the purchase of 905,533 square feet at 1540 Broadway, but not the sale price.

The Wall Street Journal reported in mid-February that CBRE Investors was back in the bidding for the 44-story Times Square office and retail property, although the Journal article said at that time a deal hadn’t been finalized. A week later, Real Estate Finance and Investment reported that CBRE Investors had signed a non-refundable contract for just under $360 million, while the New York Observer, citing unnamed sources, said on Thursday that the deal was about to close.

Dan Fasulo, managing director of Real Capital Analytics, was quoted in the Journal article as saying that if the $355-million figure is accurate, "That’s a harsh price for a well-located building." Fasulo could not confirm to GlobeSt.com whether the deal had taken place at that time.

If the property is changing hands for $355 million, it would be a lower figure than the $426.5 million that the Paramount Group paid for it in 2004

Eliot Spitzer's Return to Washington Is in Real Estate

Thu, 05 Mar 2009 12:28:25 GMT

Eliot Spitzer is returning to Washington, D.C., but this time as an investor in the commercial real-estate market.

The former New York governor, who resigned in disgrace a year ago after getting caught patronizing a prostitute in a Washington hotel, has purchased a prominent office building blocks from the White House through his father's real-estate company.

The Spitzers are paying $180 million to buy 1615 L St. NW, a 13-story dark-glass building whose tenants include the public-relations firm Fleishman-Hillard, the Washington outpost of the Nixon Presidential Library and the Institute of Scrap Recycling Industries.

The Spitzers are buying the building from a distressed seller that defaulted on part of its debt. Private-equity firm Broadway Partners bought the tower at the end of 2006 for $209 million, according to Real Capital Analytics. Broadway's lenders have moved to foreclose on several buildings.

But the Spitzers aren't paying a bargain-basement price. While $180 million is well below what the previous owner paid, it's above what the building sold for five years ago, $124 million.

Mr. Spitzer said his family intends to hold the property for years and is unconcerned that values might fall further. "We aren't trying to time the global market," he said.

Saks’s Ability to Tap Real Estate Is Undermined by Market Drop

Wed, 04 Mar 2009 00:00:40 GMT

Saks Inc. Chief Financial Officer Kevin Wills told investors the unprofitable luxury retailer has “very valuable” real-estate assets it could tap to raise money if needed.

Easier said than done. Plunging real estate prices and tighter credit markets would make it difficult for New York-based Saks to harness the value of its properties, according to Dan Fasulo, managing director of Real Capital Analytics; Richard Hastings, who tracks the consumer industry for Global Hunter Securities LLC; and retail analyst Patricia Edwards.

“There is no way in a short period of time that they can monetize their real estate and say they are a healthy company,” Fasulo said. “Retail real estate has probably been the worst performer.”

Sales of properties in the U.S. retail sector plunged 74 percent in 2008 from a record the previous year, according to Real Capital Analytics, a real estate data provider.

“The luxury segment of commercial real estate got hit exceptionally hard,” New York-based Fasulo said.

General Growth Said to Get Mall Bids of $400 Million

Tue, 03 Mar 2009 12:32:25 GMT

General Growth Properties Inc., the mall owner at risk of bankruptcy, received offers of almost $400 million for properties including Boston’s Faneuil Hall and New York’s South Street Seaport, according to a person familiar with the matter.

General Growth, the No. 2 U.S. shopping-mall owner, put the two properties and Harborplace & the Gallery in Baltimore up for sale in December. More than 10 offers were received, including offers for the entire portfolio and for individual properties, said the person, who asked not to be identified because the sales process isn’t public.

General Growth is negotiating with lenders and selling real estate to remain solvent. The company last week said it has $1.18 billion in past-due debt, and warned again it may be forced into bankruptcy. The company has cut its workforce by 20 percent, suspended payment of its cash dividend, and halted or slowed development and redevelopment projects.

The Chicago-based company is likely to choose a buyer for Faneuil Hall, South Street Seaport and Harborplace & the Gallery in the next several weeks, the person familiar with the sale said. The person wouldn’t identify the bidders, which included private groups, buyers from overseas and real-estate developers. The highest bids for each property total almost $400 million, the person said.

The three properties, acquired when General Growth purchased Rouse Co. for $11.3 billion in 2004, are “unique assets” that likely will be sold to a buyer experienced in running “operator- heavy properties,” said Dan Fasulo, managing director of Real Capital Analytics Inc., a New York-based property-research firm.

“You’re not going to get a novice coming in here and trying to get these to work,” Fasulo said. “You need someone who has some experience running a lifestyle-type asset. There will be a finite number of people looking at these.”

New York Tenants Could Benefit From Foreclosure

Tue, 03 Mar 2009 09:29:40 GMT

These might seem like the worst of times for large-scale housing complexes like Riverton Houses, Stuyvesant Town and Savoy Park. Their owners, all of whom bought the buildings at the top of the market, are in rough shape, stumbling under the weight of oversize debts and teetering at the edge of foreclosure.

But in the midst of an unforgiving market in which rents are falling and lenders are showing no mercy, real estate executives and even some housing advocates say that the tenants at these large complexes may come out of this dire situation in good shape.

“I think the tenants are going to be all right in an overwhelming majority of cases,” said Dan Fasulo, a managing director of Real Capital Analytics, a real estate research firm. “These buildings will be attractive to investors at the right price and the right rate of return. Everything will turn on how much of a bath the lender is willing to take.”

Riverton is in the most advanced stage of distress. Credit ratings agencies like Realpoint and Trepp say that the owners of Savoy Park, another Harlem complex, and dozens of heavily leveraged buildings on the Lower East Side, in the South Bronx and in East New York are in danger of defaulting.

Extended Stay's Fate Remains Unknown

Mon, 02 Mar 2009 12:30:25 GMT

Hotel chain Extended Stay Hotels could be turned over to its lenders. The situation is clearly a direct result of the weakened state of the economy in general and commercial real estate in particular.

"Hotel properties are some of the most sensitive types of commercial real estate to general economic conditions—they have daily leases, basically," says Dan Fasulo, managing director of Real Capital Analytics.

The nearly 700-hotel Extended Stay portfolio (encompassing more than 75,000 rooms) is currently owned by Lakewood, New Jersey-based Lightstone Group, which purchased the hotel chain from the Blackstone Group for US $8 billion in April/June 2007, funding the purchase with more than US $7 billion in debt.

But as business conditions continue to deteriorate, it looks more likely that a transfer of ownership is imminent.

"Occupancies have fallen significantly, and rates and RevPAR have dropped dramatically," Fasulo notes. It is possible that Extended Stay has been among the hardest hit, based on the chain's primary guest being the regular business traveler.

"The room rates and occupancy levels just are not there to support debt levels in something like this," Fasulo says.

Dubai F1 theme park suspended

Fri, 27 Feb 2009 13:28:25 GMT

Plans to construct a Formula One theme park as part of a massive motorsport-orientated development in Dubai have been put on hold as the global economic crisis reaches the Middle East.

"The project is founded on a strong business model that withstands recession whilst allowing for the future growth of Dubai," F1-X marketing director Penny Fischer confirmed, "With construction more than 50 per cent complete, the core of international expertise on the ground and operational plans virtually complete, it is hard to believe that a financial partner will not come forward in coming days or weeks to capitalise on the opportunity."

Union Properties borrowed around $680m for the project, but reported as long ago as June 2007 that it would need more loans. Although well advanced, construction has been halted as Union Properties - which backs cars in the Middle East-based Speedcar Series - refocuses on its main business of managing and renting property. The company, which earlier this week announced a twelve per cent growth in net profit, insists that nearby developments, including Index and Limestone House, were due to be completed in 2009 as scheduled.

"[F1-X] was a borderline project when the market was booming," Real Capital Analytics MD Dan Fasulo told financial publication Bloomberg, "The world has changed. There is nobody willing to fund these projects anymore."

Property prices in Dubai have fallen by around 25 per cent since September, and lending in the UAE is slowing as much as in other, more widely-reported, areas of the world.

Office Sales in U.S. Fall to Eight-Year Low, Real Capital Says

Thu, 26 Feb 2009 13:31:25 GMT

Office building sales in the US fell in January to the lowest since at least 2000 as commercial real estate values and frozen credit markets kept buyers at bay.

About $744.6 million in office property sold last month, an 86 percent drop from a year earlier. It compares with $2.8 billion paid by Mortimer Zuckerman’s Boston Properties Inc. for just one skyscraper -- New York’s General Motors Building -- in June of 2008. In all, 30 buildings traded hands in January, three for more than $50 million, Real Capital Analytics said in a report today.

Lack of credit has all but shut down commercial real estate sales in the U.S. as potential buyers search for affordable financing in a market where lenders can’t securitize and re-sell mortgages. Values are down more than 16 percent from their peak in October 2007, Moody’s Investor Service said Feb. 19.

"There is little investor confidence right now due to the turbulence in the capital markets and general economy," said Dan Fasulo, New York-based Real Capital’s market research director. "This is causing the bid-ask spread to widen to levels unseen in decades, resulting in market stagnation."

Inland, a Nontraded REIT, Flashes Its Cash

Wed, 25 Feb 2009 01:05:40 GMT

While transactions have slumped in most corners of the real-estate world, the recent sale of a New Jersey office complex for $230 million highlights the unusual position of a suburban Chicago-based company that is still ready and able to buy.

Inland American Real Estate Trust Inc., a so-called nontraded real-estate investment trust sponsored by one of the Oak Brook, Ill.-based Inland Real Estate Group of Cos., last month paid $40 million in cash and assumed a $190 million mortgage to acquire a three-building office complex in Bridgewater, N.J., from SL Green Realty Corp., a New York-based office REIT, and property financing specialists Gramercy Capital Corp. The approximately 670,000-square-foot office property is the North American headquarters of Sanofi-Aventis SA, a France-based pharmaceutical company.

The sale is one of the highest prices paid in the U.S. this year for an office property, according to Real Capital Analytics, a New York-based real-estate-research firm. It also is part of a string of acquisitions valued at a total of about $700 million that Inland American has agreed to or completed so far this year.

Inland American's acquisitions are fueled by more than $7 billion that it has raised since 2005 from investors, largely individuals, who have bought the shares that aren't traded on a public exchange. That inflow has slowed somewhat but has continued even as Inland has faced pressure from some investors seeking to sell back their shares. Inland American raised about $91 million last month, according to Robert A. Stanger & Co., a Shrewsbury, N.J., investment-banking firm that specializes in nontraded REITS.

St. Louis commercial properties in, near foreclosure total $726 million

Sat, 21 Feb 2009 16:17:25 GMT

Distressed or troubled commercial properties in the St. Louis metro area are on their way to reaching the $1 billion mark, with $726 million in commercial properties currently foreclosed on or at risk for foreclosure.

Industry research firm Real Capital Analytics (RCA) identified 45 local apartment, hotel, office or retail properties that are in financial trouble or at risk for foreclosure in a study that tracks properties nationwide.

The bulk of the properties — with a value of $499.7 million — are considered “potentially troubled.” These 29 properties have an owner in financial distress that could lead to foreclosure or a bank taking back ownership of the property.

A more severe category is labeled “troubled,” which represents a property in bankruptcy or default. There are 12 troubled commercial properties in the St. Louis area with a value of $118.4 million. RCA’s data shows there are four local commercial properties in the most severe level of distress — “lender foreclosed” properties — totaling $108.4 million. New York-based RCA tracks individual properties with a value in excess of $2.5 million.

“RCA has tracked an increasing amount of distressed properties in recent months,” Managing Director Dan Fasulo said. “With almost $5 billion worth of foreclosures (nationwide) in January, this will be the first month where foreclosures outpaced actual commercial property sales.”

Just under $90 billion worth of property nationwide that is on RCA’s watch list has the potential to move into the distressed category in upcoming months, Fasulo said. Nearly two dozen metropolitan areas in the United States each have a total of $1 billion or more in financially troubled properties. Fasulo said RCA does not have historical data because commercial foreclosures even a year ago were rare.

“Owners are having to recapitalize or walk — lose their assets,” said Tripp Hardin, senior vice president of investment properties at CB Richard Ellis. Hardin projects more Class B and Class C office and industrial buildings will be available this year as their owners default or simply walk away from properties because of the debt load.

A driving force behind commercial foreclosures locally and nationally is the inability of property owners to refinance their properties due to tightening in the credit markets. Commercial mortgage-backed securities, or CMBS, are repackaged loans on hotel, retail, office and industrial properties. According to Standard & Poor’s, between $15 billion and $20 billion in CMBS loans are expected to mature nationwide in 2009 and could hit $35 billion next year.

“What we’re going to see are better-quality properties being foreclosed upon due to lenders being a lot more conservative with refinancing when a loan matures,” said Paul Hilton, senior vice president and principal with Colliers Turley Martin Tucker. “We’ll likely see properties that don’t have anything fundamentally wrong with them, but they were over-leveraged.”

Commercial Auctions Expected to Rise

Sat, 21 Feb 2009 16:17:25 GMT

In a dismal real estate environment, one segment of the market is actually booming these days: the auction business.

Sales generated through auctions — including residential, commercial and agricultural properties — totaled $58.6 bil. in 2008, up 38 percent from $42.3 bil. in 2003, according to a recently released tally by the National Auctioneers Association, a trade group based in Overland Park, Kan.

Most of the recent activity and attention has focused on the residential sector, with an increasing number of homeowners being forced into foreclosure. But commercial auctions are expected to pick up this year as property owners and developers seek to raise cash to pay off loans or are forced into foreclosure themselves.

“We’ve seen two years of residential downturn,” said David E. Gilmore, a managing partner at the Sperry Van Ness Accelerated Marketing Company, an auction and brokerage firm with offices in several states. Noting that commercial real estate generally lags behind residential by 18 to 24 months in a downturn, Mr. Gilmore added, “We’re there.”

The research firm Real Capital Analytics estimates that there are 5,227 troubled, potentially troubled or lender-possessed commercial assets in the United States, valued at around $124 billion.

Global Investment Sales Shrank 60 Percent in '08

Fri, 20 Feb 2009 12:33:25 GMT

According to the Real Capital Analytics 2008 year-in-review global report, only $504 billion in commercial property sales took place in 2008, a drop of nearly 60 percent compared to the year before.

The United States holds the distinction of serving as the epicenter for the office meltdown, with a decrease of 76 percent YOY (year-over-year) in sales volume.

On a more local level, New York City's market tanked, its spot as No. 1 in the office market rankings slipping a notch, while Tokyo jumped from number seven in 2007 to the top spot in 2008.

RCA anticipates many fewer portfolio transactions, many more investors interested in taking partial interests in prime assets, more owner/occupier transactions, more note sales, and at some point in the future, distressed sales: the "growth potential in this arena is huge."

After Manhattan’s Office Boom, a Hard Fall

Fri, 20 Feb 2009 00:00:40 GMT

Just as office towers appreciated in value faster in Manhattan than elsewhere during the boom years, now their decline is outpacing the rest of the nation, brokers and analysts say.

One office tower, 450 Park Avenue, at 57th Street, changed hands for nearly $1,600 a foot. These extravagant prices were based on the widely held belief that as leases expired, many spaces would fill up at rents well above $100 a square foot.

So what are Manhattan office buildings worth today? Since no substantial transactions have taken place in recent months, no one knows for sure. In the absence of significant deals, many people in the industry say it is impossible to gauge how far values have declined. “The true answer about where prices are right now is, ‘I don’t know,’ ” said Robert M. White, the president of Real Capital Analytics, a New York research company.

Global property faces wave of distress - report

Thu, 19 Feb 2009 12:31:25 GMT

About $10 billion of commercial property worldwide has been transferred back to lenders or foreclosed and $72 billion is in trouble, according to a report by real estate research firm Real Capital Analytics.

But that current $82 billion of troubled and foreclosed property could be dwarfed by the loans coming due this year in the face of a global credit freeze, according to the report released on Thursday.

The credit crisis helped drive down commercial property sales in 2008 by 58 percent to $504 billion globally, the report said. Hotel sales saw the sharpest decline, down 75 percent globally.

In the largest individual soured deal, Deutsche Bank foreclosed on the site of developer Bruce Eichner's Cosmopolitan Resort and Casino in Las Vegas.

Blimey! Dan Fasulo To Ditch New York for London

Thu, 19 Feb 2009 12:30:25 GMT

Dan Fasulo, the media-friendly go-to guy for all matters skyscraper, is moving to London. On Sunday.

Until that dread day, when he flies Virgin across the Atlantic, Mr. Fasulo will continue to head up the research department at the New York office of Real Capital Analytics, which, since its creation in 2000, has come to dominate the hungry market for reliable research on New York City investment sales. In other words, on buildings—who owns them, who leases them, who finances their transactions, who covets them. You get the picture.

CBRE Back in 1540 Broadway Mix

Wed, 18 Feb 2009 13:30:25 GMT

CB Richard Ellis Investors is back in the bidding for the office portion of 1540 Broadway, a skyscraper in New York's Times Square connected to landlord Harry Macklowe.

A deal hasn't closed, but a person familiar with the matter said CBRE Investors, the asset-management unit of CB Richard Ellis Group Inc., would pay as little as $355 million, a major drop in value.

"That's a harsh price for a very well located building," said Dan Fasulo, managing director of property-tracking firm Real Capital Analytics.

According to city records and loan-marketing documents, Mr. Macklowe attributed the value of the office building to over $950 million when he bought it in February 2007 as part of a $7 billion skyscraper spending spree. The tower's 880,000 square feet of office space had sold in 2006 for $525 million.

CBRE Report: Slowdown Tightens Global Grip

Tue, 17 Feb 2009 12:34:25 GMT

Economic pain is spreading to a growing number of commercial real estate markets around the world, concludes a new assessment by CB Richard Ellis Inc. The report’s title, “The Quarter the Global Economy Stalled,” suggests that the end of 2008 was a turning point.

The authors contend that the slowdown is rapidly filtering through leasing and investment sales in a wide range of property types. CBRE’s office rent index for European Union nations dropped 2 percent. Rents declined significantly in London, Madrid, Paris, Frankfurt and some Scandinavian markets. CBRE also cited estimates by Real Capital Analytics Inc. that investment sales volume dropped by about half in Western Europe last year. A projected 1 percent to 3 percent slide in GDP this year will most likely further weaken conditions in the Western Europe.

Mort's triumphs turning sour

Tue, 17 Feb 2009 12:29:25 GMT

Boston Properties Chairman Mortimer Zuckerman could barely contain his glee after picking up the General Motors Building last summer for $2.8 billion in a fire sale, trumpeting the transaction as the best he had made in his nearly 40 years in real estate.

How times have changed. With the Manhattan office market entering a depression, Mr. Zuckerman is recording losses on some of his holdings in the city instead of crowing about them.

Over the past month, his real estate investment trust has taken hefty write-downs on three midtown towers and pulled the plug on construction of two others. Meanwhile, the REIT is scrambling to contain fallout from the implosion of Lehman Brothers, a major Manhattan tenant, and the troubles of its biggest leaseholder, Citigroup.

Trends in the midtown market are sobering. The vacancy rate on top-quality buildings in the area shot to 11.3% last month from 9.9% in December and 6.2% in January 2008, according to a recent report by Colliers ABR. The average asking rent dropped 15% in January from a year earlier, to $80.70.

“Everyone is hurting right now,” says Dan Fasulo, managing director of Real Capital Analytics.

Developer Underwater with Stamford, CT Buildings

Sun, 15 Feb 2009 13:28:25 GMT

Aby Rosen, the New York City real-estate developer and owner of trophy properties like the Lever House and the Seagram Building, doesn't make many missteps. He has a long record of buying property at distressed prices, sprucing them up and then enjoying top-level rents for years.

So it was unusual that 18 months ago he jumped at the opportunity to buy seven Stamford, Conn., office buildings at what turned out to be the top of the market - plunking down $850 million for 1.6 million square feet, an eye-popping $513 PSF.

These buildings were a part of Sam Zell's well-timed sale of Equity Office Properties, two years ago this month for $39 billion. Private-equity powerhouse Blackstone Group, which bought the company and then sold off most of the collection for about $21 billion, sold the buildings to Rosen.

Today that deal looks like a very bad bet. The buildings are now worth far less than what Rosen's RFR Holding paid. Stamford tax assessment records show the total value of one of the properties, 300 Atlantic Street, has plummeted 33 percent in just one year, from the sale price of $151 million in 2007 to $101.2 million in 2008. RFR's 177 Broad Street plunged 35 percent from $79 million when RFR bought it to $51.6 million last year.

Based on current conditions for investment sales, the portfolio's value has dropped 24 to 32 percent to between $575 mil. and $650 mil., according to an estimate from Real Capital Analytics. "It's never fun to buy at the top of the market, let's face it," said Dan Fasulo, managing director at Real Capital Analytics.

Offers rolling in on ProLogis space

Fri, 13 Feb 2009 13:29:25 GMT

As many as 80 offers have been made on pieces of the 33.23 million square feet of industrial space that real estate titan ProLogis is now marketing for sale nationwide.

But, the pricing “is all over the map,” according to the real estate investment trust’s chief investment officer.

Antenucci said the REIT expects the pricing to reflect “single-digit” capitalization rates.

Real estate experts say that may be optimistic.

“The fact is no one knows,” said real estate analyst Dan Fasulo, managing director of New York-based Real Capital Analytics. “There is no acquisition financing for something that large. There would be a huge discount. If they wanted to move this today, there is no way it is under a 10 percent cap rate.”

CB Richard Ellis No. 1 in sales

Fri, 13 Feb 2009 12:30:25 GMT

CB Richard Ellis Group Inc. ranked first nationally in investment sales activity in 2008, with 18 percent market share, according to Real Capital Analytics.

Los Angeles-based CB Richard Ellis (NYSE: CBG) totaled $25.3 billion in transaction values, according to RCA, which tracks national commercial real estate sales of $5 million and greater

Fannie Mae Makes Adjustments for 2009

Fri, 13 Feb 2009 11:32:40 GMT

For those concerned about where Fannie Mae is going in 2009, the GSE says not to worry, it will be around. But that doesn't mean there won't be changes.

Fannie plans to stimulate its mortgage-backed security (MBS) and delegated underwriting and servicing (DUS) business and broaden the investor base. Its focus will shift from primarily being a multifamily portfolio lender to acting as a lender that provides liquidity to the multifamily market primarily through MBS issuance. It's already reaching out to its DUS lenders and dealers to increase interest in this execution.

That's a good thing, says Dan Fasulo, managing director for New York-based research firm Real Capital Analytics. "The one item that differentiates the multifamily sector from the other property types is the availability of GSE debt," Fasulo explains. "The multifamily market is the closest thing we have to a normal market because the government is in there lending. It's the only game left. Some regional banks and local banks are lending for their own portfolio, but those types of institutions only have a finite amount of capital that they can put out."

AIG Seeks Buyer for Tokyo HQ

Fri, 13 Feb 2009 11:28:40 GMT

American International Group Inc., based here, has put its Tokyo headquarters on the market. The beleaguered reinsurer has enlisted the aid of Merrill Lynch to sell the trophy property, an AIG spokesperson tells GlobeSt.com.

Since its $85-billion bailout by the federal government last September, AIG has sought to sell assets to help repay the loan. These have included business lines as well as some of the company’s real estate holdings. In the case of the 15-story building in Tokyo’s Marunouchi district, a source says a $1-billion ballpark figure is "a good starting point, although the market will determine the price, of course."

What that price will end up being is difficult to determine, in part because the volume of sales globally has declined since the Wall Street meltdown. Both Cushman & Wakefield and Real Capital Analytics recently reported that commercial property sales transactions declined by 59% in 2008. In particular, Japan’s volume, which was down 23% for the year, plummeted 80% in Q4 2008 compared to the same quarter in 2007, according to RCA.

AIG Puts Tokyo Headquarters Building Up for Sale

Thu, 12 Feb 2009 12:29:25 GMT

American International Group Inc., the insurer selling assets to repay a U.S. loan, put its Tokyo headquarters building on the market in the past week, spokesman David Monfried said.

Merrill Lynch & Co. is looking for potential buyers on behalf of New York-based AIG, Monfried said today.

Until about six weeks ago, when the Japanese property market began to be affected by the global economic slowdown, Tokyo “had been a very active office market,” said Dan Fasulo, market research director for Real Capital Analytics Inc., a New York-based which tracks building sales worldwide.

“Tokyo in 2008 was the largest office sales market in the world, overtaking London and New York,” Fasulo said in an interview. “No major metro worldwide has been immune from the effects of the credit crunch, but their lending community had held up better. But now everybody’s worried about how fundamentals have collapsed.”

After Nearly a Decade, Vegas Apartment Rents Fall

Tue, 10 Feb 2009 12:31:25 GMT

Demand for professionally-managed multifamily communities in Las Vegas slid to its lowest level in five years, forcing the average asking rent into its first negative growth rate in nearly a decade, according to a new report by Applied Analysis.

On the investment front, according to the Real Capital Analytics transaction database, only two apartment property changing since October 1, 2008. “Tight capital markets, softening effective rents and a handful of projects that remain under water all have the potential to place downward pressure on pricing for investors,” Applied Analysis principal Brian Gordon says. “While it is difficult to quantify current values as little to no sales transactions have taken place in the past several months, market average prices have likely peaked out and a return to values that align with net operating incomes will prevail.”

Commercial real estate gets in on rescue plan

Tue, 10 Feb 2009 12:28:25 GMT

The commercial property industry applauded the US government's move to include commercial mortgages in a key lending program Tuesday, but experts said the plan's lack of details is disconcerting.

US Treasury Secretary Timothy Geithner said the government's Term Asset-Backed Securities Loan Facility will include securities backed by commercial property loans.

The program, being developed by the Federal Reserve, allows investors to swap AAA-rated securities for US Treasuries, which could then be used as collateral for new financing. The goal is to create new lending in a now frozen market.

The news comes not a moment too soon for the troubled commercial property industry, which is facing a torrent of debt coming due this year at the same time that property prices, rents and occupancies are falling.

"No one is calling for a bailout for high-flying guys who overpaid at the top of market, but there are many healthy owners with performing assets who can't access the debt markets right now," said Dan Fasulo, managing director of research firm Real Capital Analytics.

Sam Zell’s Empire, Underwater in a Big Way

Mon, 09 Feb 2009 13:27:25 GMT

It was, for a brief shining moment, the real estate deal of the century.

In 2007, Sam Zell, the billionaire Chicago investor, sold a portfolio of 573 properties he had assembled over three decades, Equity Office Properties Trust, to the Blackstone Group for $39 billion. It was the largest private equity deal in history, but Blackstone did not stop there: it immediately flipped hundreds of the buildings for $27 billion.

But elsewhere, problems with Equity Office properties have spread like a virus, weakening and even paralyzing major real estate developers.

In Stamford, the crisis on Wall Street and the consolidation of financial services has weakened the market, undermining the RFR Properties’ effort to raise rents at its seven Equity Office buildings by 15 percent. The purchase price of $850 million, roughly $515 a square foot, was close to a record for Stamford.

RFR’s Equity Office buildings are now worth less than its mortgages, said Dan Fasulo, a managing director at the commercial real estate research firm Real Capital Analytics. But the company has not defaulted on its loans.

“Some of the rents they projected won’t come to fruition for many years,” Mr. Fasulo said.

Jones Lang beats analysts' expectations

Mon, 09 Feb 2009 12:35:25 GMT

Jones Lang LaSalle, the world's second largest publicly traded commercial real estate brokerage, rose 17 percent after the company beat analysts' profit expectations.

JLL lost 71 percent of its market value in the 12 months through February 8, 2009 as financial institutions worldwide recorded more than $1 trillion in mortgage-related losses and writedowns and slashed almost 270,000 jobs. Jones Lang LaSalle and its competitors also confronted a combined 59 percent global drop in commercial property transactions to $495.9 billion last year, according to data from Real Capital Analytics.

Developer Pulls Plug on 2nd Midtown NY Tower

Mon, 09 Feb 2009 12:28:25 GMT

Boston Properties Inc. has suspended construction of another Manhattan skyscraper. Work at 250 West 55th Street was stopped after a law firm pulled out of a planned lease, the company announced Friday. The move came less than two weeks after Boston Properties pulled the plug on another tower, on West 46th Street.

The developer had been negotiating with the law firm of Proskauer Rose for 500,000 square feet for at least $100 a square foot at the West 55th Street tower, according to sources. The project, a 1 million square foot office building, had already broken ground and was scheduled for completion in 2011. It is unclear what this suspension will mean for the law firm of Gibson Dunn, which had agreed to take 250,000 square feet in the same building.

“I wish I could say I'm surprised," said Dan Fasulo, managing director of Real Capital Analytics. "The market has changed."

Sorgente presses on in New York

Fri, 06 Feb 2009 13:29:25 GMT

The Sorgente Group, which specialises in buying ‘trophy’ buildings, now controls 51% of the 22-storey skyscraper. It did not disclose the price it paid but the share is estimated to be worth $190m (£133m).

The Italian investor, which has a €1.38bn (£1.24bn) property portfolio, completed the purchase after a year of negotiations with the seller, Newmark Knight Frank. Talks began last year, when the dollar was at a low point against the euro, making purchases cheap for European buyers.

The deal, which increased Sorgente’s share in the building from 15%, will be seen as a boost for the Manhattan market, where investment volumes in 2008 hit their lowest level for four years.

During the final quarter, investment volumes fell 90% to $961m (£671m) on the same period in 2007, according to Real Capital Analytics.

Boston Properties Suspends $980 Million Skyscraper

Fri, 06 Feb 2009 12:31:25 GMT

Boston Properties Inc., the biggest US office landlord, plans to suspend construction on a $980 million midtown Manhattan skyscraper after a law firm abandoned plans to lease space there.

"Recently the law firm informed the company that it could not proceed on those terms, thereby rendering the project economically infeasible in today’s environment," the Boston-based company said today in a statement. The one million square-foot tower at 250 West 55th Street and Eighth Avenue was scheduled for completion in 2011.

Lending has also dried up as financial companies have taken more than $1 trillion of writedowns and credit-market losses. "It has more to do with the state of financial markets than the merits of individual projects," said Dan Fasulo, managing director at Real Capital Analytics. "Lenders don’t want additional exposure to commercial real estate at this point. There’s nothing we can do about it but wait this out."

A completed building on that site would have fetched $1,500 per square foot during the peak of the real estate market in 2007, Fasulo said. That would value the tower at $1.5 billion and made it one of the most expensive in the city.

ProLogis selling 33M feet of industrial space

Fri, 06 Feb 2009 12:30:25 GMT

In what promises to be one of the nation’s largest industrial portfolio sales by square footage, real estate titan ProLogis (NYSE: PLD) is selling 33.23 million square feet nationwide.

The portfolio spans 14 states and the District of Columbia, including 1.73 million square feet in Florida, according to the investment summary package. It carries an estimated value $1.43 billion, real estate experts say.

“You can’t sell 33 million square feet of industrial space right now,” said real estate analyst Dan Fasulo, managing director of New York-based Real Capital Analytics. “It is a signal of distress.”

Apartment Investors' New Task: Preserve Capital As Jobs Vanish

Fri, 06 Feb 2009 12:29:25 GMT

Until recently, multifamily housing investments had been doing better than retail property, hotels and offices. And a lot better than houses and condos.

But now the apartment market has taken a turn for the worse as unemployment has continued to spike and vacancy rates start to climb. As people lose jobs, they are less able to pay rent. They move in with parents or friends, or get cheaper places.

"The bulk of transactions now are your smaller, local deals in the $5 million to $20 million range," said Dan Fasulo, managing partner with Real Capital Analytics.

2 local industrial portfolios for sale

Wed, 04 Feb 2009 13:29:25 GMT

Two Chicago industrial real estate portfolios totaling more than 4 million square feet are on the market, in what is likely to set a benchmark on local warehouse prices after a long period of tumult in the credit markets.

Denver-based ProLogis has put up for sale a 3.3-million-square-foot collection of properties, including 1.45 million square feet in Elk Grove Village near O’Hare International Airport, sources say. A decision on a winning bidder is expected in about two weeks, sources say.

Meanwhile, San Francisco-based AMB Property Corp. has put up for sale a nearly 1-million-square-foot portfolio, sources say.

Few experts doubt that prices fell in 2008 for industrial real estate, like other sectors. The question has been: How far?

The dollar value of all warehouses sold in the Chicago area last year fell 54%, to $1.06 billion, compared to 2007, according to report by New York research firm Real Capital Analytics. The average price of a Chicago-area warehouse in 2008 was $51 a square foot, compared to $62 in 2007, when the credit crisis began.

Despite the sharp drop in transactions, Chicago remains a top market for investors, second in total sales only to Los Angeles, where warehouses sales fell 51% in 2008, to nearly $1.3 billion, Real Capital said.

The Expert: Florida’s Silver Lining

Wed, 04 Feb 2009 13:26:25 GMT

Market-based discussions are back, and among the hot topics is the outlook for Florida’s apartment market, in which investors are probing for opportunities. Apartment values are down between 25 and 45 percent, depending on the submarket. Condominiums have traded for as little as 40 percent of development costs. Is it time to buy?

In 2008, Florida experienced a 3.2 percent job loss and ended the year with unemployment at 8.1 percent. The drop in employment has hurt apartment occupancy and rent growth. In the major markets, transaction volume was down between 31 and 77 percent, according to Real Capital Analytics Inc. The only segment that had a pick up in activity was the sale of failed or fractured condominiums, up from two transactions in 2007 to 14 in 2008.

Distressed properties begin showing up in OKC market

Wed, 04 Feb 2009 12:28:25 GMT

But Oklahoma is not doing as bad as other areas of the country in regards to distressed properties, according to a report from Real Capital Analytics.

The report tracks distressed, potentially distressed and real estate-owned assets that have reverted back to the lender. Nationwide, the report shows $80.9 billion in commercial properties are potentially troubled and $25.7 billion in troubled or distressed assets.

Industrial Sale-Leasebacks Outnumber Retail, Office

Tue, 03 Feb 2009 13:32:25 GMT

Sale-leaseback deal volume got off to a slow start in January, not a surprising development in light of the generally sluggish investment sales market. According to Real Capital Analytics Inc., sale-leaseback deals totaled only $183 million for the month. That figure represents only a fraction of the volume tallied for January 2008, when Real Capital Analytics tallied $790 million.

In the biggest sale-leaseback deal reported so far this year, Gilead Sciences Inc. disclosed last Thursday that it had completed the $137.5 million acquisition of a 163,000-square-foot office building and 30 adjacent acres in Foster City, Calif. The transaction, a partial sale-leaseback, also provides significant room for growth to the buyer, a pharmaceutical development company, as it includes entitlements for 540,000 square feet of additional development.

Transportation Firm Pockets $101M on First Phase of Sale-Leaseback Deal

Tue, 03 Feb 2009 12:28:25 GMT

For real estate-owning businesses seeking a quick cash infusion, selling the property they occupy and then leasing it from the new owner has proven to be a popular move, but the credit crunch has put a damper on such activity, which makes transportation service provider YRC Worldwide Inc.'s closing of the first phase of a $151 sale-leaseback deal quite a coup.

According to global commercial real estate research and consulting firm Real Capital Analytics, sale-leaseback transactions decreased 51 percent from 2007 to 2008, and fourth quarter numbers are even more dire; sale-leaseback deals plunged 86 percent from the last three months of 2007 to the last three months of 2008.

Loop foreclosure looms

Mon, 02 Feb 2009 12:28:25 GMT

A New York real estate investment firm must pay off a $48.5-million loan on 500 W. Monroe St. next week or face the first foreclosure on a downtown skyscraper in a decade.

If Broadway Partners Fund Manager LLC misses the February 9 deadline, Chicago-based Transwestern Investment Co. is expected to foreclose quickly on the 46-story tower, which Broadway bought for $336.7 million at the peak of the market in mid-2007, sources say. Transwestern's loan is part of a complicated package of mortgages that accounted for about 90% of the purchase price, sources say.

The threatened default is a sign that the wave of foreclosures that began pounding homeowners and homebuilders last year is starting to hit major office buildings. The last big Loop foreclosure was in 1999, when Travelers Insurance Co. seized One Financial Place, 440 S. LaSalle St., to satisfy a $220-million loan.

Local office properties account for just 9% of the $937.0 million in Chicago-area commercial real estate that is in default or controlled by a lender, according to New York research firm Real Capital Analytics Inc. But that total is likely to grow as corporate layoffs sap demand for office space.

Retail R.E. In Dire Straits - C and W Predicts Worst Yet to Come

Mon, 02 Feb 2009 12:27:25 GMT

The retail market took a beating in 2008 and with the ongoing recession and anticipation of further job loss, the United States retail property sector is in for more trouble, according to a new report by Cushman & Wakefield's Retail Industry Group.

On the valuation side of the retail property sector, given the credit crunch and the great disparity in pricing by buyers and sellers, the numbers are equally discouraging. Citing research from Real Capital Analytics, the C&W report notes that retail investment activity plummeted 72 percent in 2008 to $19 billion.

Chandan and White

Fri, 30 Jan 2009 13:35:25 GMT

Although we've started to dread economic forecasts, we were eager to learn yesterday from Real Estate Economics chief economist Sam Chandan and Real Capital Analytics founder Bob White, who spoke to a joint Counselors of Real Estate/Appraisal Institute breakfast at Club 101 on Park Avenue.

Mr. White tells us that US transactions are down 75% by value, and $100-million-plus mega-deals only account for 8% of the total. All property types are feeling the shock, and the rest of the world is in the same boat. Investors are staying in the US with all the distressed opportunities—as of this week, there are $87 billion worth of potentially troubled assets, $23 billion troubled, and $5.4 billion that are already lender-owned. Unlike the 1980s and '90s, these are quality assets with good owners, he says.

Zuckerman Loss of $165 Million Makes Zell Master of Real Estate

Fri, 30 Jan 2009 12:28:25 GMT

Billionaire Mortimer Zuckerman just learned a hard lesson from billionaire Sam Zell.

Zuckerman’s Boston Properties Inc. said this week that three Manhattan skyscrapers it bought in May lost about $165 million of value in seven months. Sam Zell exited the office property market in February 2007, selling Equity Office Properties Trust and its more than 500 buildings to Blackstone Group for $39 billion in debt and equity, the largest leveraged buyout at the time. It was the peak of the market.

“After that, the world changed,” said Dan Fasulo, managing director at real estate data provider Real Capital Analytics.

Boston Properties disclosed the writedowns as it reported its first quarterly net loss in at least eight years. Zuckerman bought the three office towers from developer Harry Macklowe, who was forced to sell because he had to repay short-term loans he used to buy eight buildings from Zell in February 2007.

Financial companies, battered by more than $1 trillion of write-downs and credit-market losses since 2007, have tightened commercial real estate lending. US sales of office buildings plunged 88 percent since the second quarter of 2007, according to New York-based Real Capital Analytics.

The tower that Boston Properties bought in May that kept its value was the General Motors Building, the $2.8 billion skyscraper on Fifth Avenue adjacent to Central Park.

“You can’t fault Mort Zuckerman for buying the single best property in the US, the GM Building,” New York real estate billionaire Richard LeFrak said in an interview.

More renters buy own space

Thu, 29 Jan 2009 13:35:25 GMT

Owner-occupants accounted for at least $95 million in Triangle office sales last year -- more than three times the total in 2007, an analysis of data from Real Capital Analytics and CB Richard Ellis shows. Almost one-quarter of last year's volume was attributed to occupants buying their spaces, up from about 3 percent in 2007.

Property Owners' Predicament

Thu, 29 Jan 2009 13:29:25 GMT

A third of the loans used to finance Washington area commercial buildings and then sold to Wall Street are coming due in the next five years, leaving investors scrambling to find new funding. If owners can't refinance their loans, they could be forced to sell at a time when their properties are worth less. They could lose money and be forced to lay off workers.

About $21 billion of these loans must be refinanced by the end of 2013, according to data from Real Capital Analytics, a real estate research firm in New York that tracks 4,284 commercial loans.

Global crisis bites into Big Apple's prices

Wed, 28 Jan 2009 15:39:25 GMT

MANY in the US commercial real estate market are hoping President Barack Obama's proposed $US800 billion ($1.196 trillion) stimulus package will help boost the sector, stricken by the economic crisis. For now, there is no relief for ailing commercial property markets, including New York. If pricing uniformly falls 20 per cent, a $US500-a-square-foot building will fall to $US400, while a $US1000-a-square-foot building will fall to $US800. Class B has less far to fall. The number of transactions has also fallen sharply. In the US last year, there were 1410 transactions, compared to 4410 transactions, valued at $US207.2 billion a year earlier, according to Real Capital Analytics, a research company.

Cash-Hungry Companies Turn to Leaseback Deals

Wed, 28 Jan 2009 14:31:25 GMT

As the economy has worsened, an increasing number of corporations are clamoring to divest themselves of their real estate through sale-leasebacks, where a firm sells but continues to occupy their offices. But like all forms of real estate investment, the sale-leaseback market flourished in mid-decade but has all but stalled in recent months as financing has dried up.

Large corporations are usually loath to say much about the process of transforming themselves from owners to tenants, and often the transactions are not even made public. But according to Real Capital Analytics, a New York research firm that tracks sales of $2.5 million or more, sale-leaseback deals of industrial, office and retail properties in the US last year totaled $7.3 billion, compared with $15 billion in 2007. In the last quarter of the year, only $514 million in sale-leasebacks were recorded.

The pool of buyers has diminished as some of the more active participants, including GE Real Estate, IStar Financial, First Industrial Realty Trust and Lexington Corporate Properties Trust, have been sidelined by financial difficulties.

Investors in sale-leasebacks have been especially skittish since HSBC, the British bank, sold its headquarters in London’s Canary Wharf to a Spanish developer, Metrovacesa, in April, 2007 for £1.09 billion ($1.5 billion) and the buyer was unable to refinance the loan it took out to close the deal, said Robert M. White Jr., the president of Real Capital Analytics. The bank repurchased the building for £838 million.

Commercial real estate in for a rough year

Wed, 28 Jan 2009 14:28:25 GMT

Commercial property sales plunged 73 percent across the country last year, according to Real Capital Analytics Inc. in New York. Those national conditions are putting further pressure on the Lansing area's real estate market, which for years has been battling Michigan's lackluster economy.

The Upside of Distress?

Tue, 27 Jan 2009 15:30:25 GMT

Investors have become giddy about taking advantage of distressed assets in the credit crunch, Real Capital Analytics research guru Dan Fasulo told us when we visited his Fifth Avenue office recently. Funds began asking RCA about these, so its analyst team started tracking and flagging properties globally last fall for a new product offering. It discovered that distress is not only on the property level, but on the ownership level, so it split the assets in two buckets: troubled, when the owner or building has defaulted, or is in danger; and potentially troubled, when the owner has immediate refi debt and may not meet obligations or a building may lose a major tenant.

He tells us that while there are $3.5 billion in distressed assets in NYC, there are only $300 M in the DC metro area. (You can thank tenant/owner U.S. government, Dan says.) They range from Record Realty's office portfolio from the Government Properties Trust takeover; former Boscov department stores; and many General Growth Properties assets that may become available. About 150 assets are tagged as potentially troubled, mostly in NoVa, where prices rose rapidly in '06 and '07, and have since fallen significantly. The D.C. metro will also see more apartment buildings tagged, Dan says.

Maul Market: Cincinnati Mall Sells on the Cheap

Tue, 27 Jan 2009 13:34:25 GMT

With the commercial real-estate market at a virtual standstill, there is much to be learned from the sale of one of the Cincinnati area's largest malls by retail giant Simon Property Group.

But be warned: It isn't a pretty picture. Not only was the price abysmally low, but the buyer, North Star Realty of suburban Atlanta, also had to agree to onerous personal-recourse provisions to obtain financing.

Just five malls valued at $5 million or more sold in the second half of last year in the U.S., down from 68 in the second half of 2007, according to Real Capital Analytics, a New York-based real-estate-research firm.

"The market for malls is dead," says Dan Fasulo, RCA's managing director of research. "These properties are very capital intensive and without the debt markets it's impossible to make them work."

A Nice, Staid Corner: Medical Offices

Tue, 27 Jan 2009 12:33:25 GMT

As the commercial real estate market limps along in the midst of a global recession, some investors say they believe that at least one sector — medical office buildings — might serve as a crutch, as it has in past economic downturns.

“There certainly are investors who want this type of property in their portfolio,” said Dan Fasulo, a managing director at Real Capital Analytics. “It’s kind of a recession-proof bet, if you will. We did have a spike in activity for these properties in the last slowdown in 2002 and 2003.”

UAE commercial property price to see modest decline

Mon, 26 Jan 2009 13:17:25 GMT

Stable commercial real estate prices in the UAE unaffected so far by the global economic downturn will witness a modest decline this year, market analysts said. The supply-demand gap for office space is still wide as the expected delivery of towers, such as Business Bay, has been delayed, they said. With these projects expected to complete this year, more commercial space availability will result in a natural drop in prices, they added. These views followed the release of three reports this week by Asteco, Real Capital Analytics and CB Richard Ellis (CBRE). These market reports indicated that commercial real estate survived 2008 – ending flat on sales prices and slightly lower on rental prices for the last quarter. Latest research from CBRE showed that prime rents in each of the three main commercial property sectors – office, retail and industrial – remained static in the fourth quarter of 2008. However, rental growth in 2008 as a whole reached 50 per cent for industrial buildings, 29 per cent for offices and 18 per cent for retail. Asteco reported that office sales prices maintained stability posting an average growth rate of 10 per cent last year. Research by Real Capital Analytics suggested that year-on-year commercial property sales doubled in 2008, with property jumping 148 per cent to $3.12 billion.

Chart of the Week 1-26-09

Mon, 26 Jan 2009 12:37:25 GMT

Real Capital Analytics has initiated a program to identify distressed and potentially troubled assets. The company has identified $106 billion in potentially troubled assets. Of that, about one quarter, $25.7 billion encompassing more than 1,000 assets, are situations where the mortgage is in default, the owner is bankrupt or the property has already been foreclosed. Of this total, approximately 200 properties valued at $4.5 billion have reverted back to the lender to become real estate owned (REO). Thus, the majority of the distressed assets have only recently fallen into default and a foreclosure process commenced. The retail sector has the largest pipeline of potentially troubled properties, with many several large retail owners facing significant financing hurdles plus a growing number of retail tenants filing for bankruptcy protection.

Absence of last-minute rush seen in 88% Q4 deals drop

Mon, 26 Jan 2009 12:34:25 GMT

The waning days of 2008 defied tradition in the commercial investment sector by the sheer lack of buyers and sellers rushing to nail down deals. While real estate investments were slow throughout the year, preliminary numbers from Real Capital Analytics show that by the fourth quarter, volume across the country had all but disappeared. Transactions dropped an astounding 88 percent during the last three months of the year, when just $128.6 billion worth of property changed hands, according to the New York-based firm.

Lender's strike threatens huge Queens project

Sun, 25 Jan 2009 03:13:40 GMT

A dispute among lenders could soon halt construction of Sky View Parc, one of New York's biggest projects, throwing nearly 400 workers off the job.

The conflict over Muss Development's 3.3 million-square-foot retail and residential complex in Flushing, Queens, surfaced two months ago, when Arbor Realty Trust stopped paying monthly advances on its portion of the loan, according to sources close to the matter. Fearing that other lenders would also stop making payments, Muss ponied up about $4 million to cover Arbor's share. The situation reaches a key juncture this week as lenders are slated to release their next portions. With Arbor showing no sign of resuming lending and Muss reluctant to dole out more cash, a crisis looms.

Muss' predicament underscores that no developer is immune in this environment as many lenders seek ways to wriggle out of honoring their pledges. At least 16 projects in the city—including hotels, apartment buildings and malls—are in some sort of distress, according to research firm Real Capital Analytics.

“For lenders, condo has become a four-letter word,” says Dan Fasulo, managing director of Real Capital Analytics. “And Flushing isn't Manhattan [or] the Brooklyn waterfront.”

The January Effect

Sat, 24 Jan 2009 16:35:25 GMT

Heard of the "January Effect?" This phenomenon seemingly causes stocks, particularly small caps, to surge in the first month of each year. The theory holds that investors and institutions sell in December for tax-harvesting reasons, then buy their former holdings back the following month, causing them to jump in price.

Can this explain the generally stellar January performance of financial institution Corus Bankshares? Whatever the reason, the CAPS community believes that each of these stocks has significant potential to outperform the market going forward.

According to data from Real Capital Analytics, as reported in The Wall Street Journal, sales of significant office properties plunged 55% to $7 billion in November. Major banks such as Wachovia and Lehman Brothers hold large amounts of commercial mortgage-backed securities (CMBS). At the end of last month, Lehman said that about half of the $79 billion in mortgages it holds are CMBS loans.

This weakening of the commercial markets could have short sellers betting that Corus shares will fall further. Roughly 67% of the bank's float is sold short, suggesting that investors foresee a tumble. But the high short interest has some CAPS players thinking that the high percentage of insider ownership can counterbalance the shorts.

$39 Billion Deal Gone Bad (interview)

Fri, 23 Jan 2009 00:00:40 GMT

Forbes financial columnist and editor of the Forbes/Slatin Real Estate Report Peter Slatin looks at the repercussions of a $39 billion REIT deal that went bad. Slatin says we're just at the beginning of problems in the commercial real estate market. In the video, Slatin, who is also the Associate Publisher/Editorial Director of RCA's Capital Trends publications, offers a grim outlook for the industry noting that Real Capital Analytics has reported that there is $30 billion worth of troubled assets currently and another $80 billion in potentially troubled assets.

Slatin goes on to explain that he feels the problems being seen in the national commercial property market is just the tip of the iceberg.

Commercial real estate perseveres

Wed, 21 Jan 2009 15:44:25 GMT

The excesses that led to a bust in the housing boom haven't spread to the commercial real-estate market, where the outlook is cautious but decidedly upbeat. Led by strong growth in the office and retail segments, commercial property sales hit $401 billion through Thursday, outpacing last year's $359 billion total, according to Real Capital Analytics, a New York real-estate research firm.

2009 Outlook for Commercial Real Estate Investors

Wed, 21 Jan 2009 15:39:25 GMT

In this Capital Synergies podcast with Dan Fasulo, managing director of research at Real Capital Analytics, Darbi Worley asks Dan speak candidly about the year ahead and what kind of challenges face commercial real estate financing and investors in 2009 and beyond.

"This is the most difficult time I've seen in my 10-year career as a commercial real estate analyst." Dans says. "It's going to be a challenging year. I think anyone who has the opportunity to take the year off, God bless."

Pension, Other Funds See Property Investments Sour

Wed, 21 Jan 2009 11:38:40 GMT

Real-estate investments by pension funds and other big investors lost a record 11% of their value in the fourth quarter of 2008, according to preliminary data from NCREIF.

But market participants said that values are almost certain to fall further, highlighting a debate over how property investments should be appraised and how appraisal techniques affect the real-estate market.

In the UK, where appraisers have been much more aggressive in marking down property values, some investors said the commercial real-estate market is showing signs of restarting.

Ric Lewis, CIO for AEW Europe, a real-estate asset manager that is a subsidiary of French bank Natixis SA, said property prices in the UK are "not market-clearing yet, but close."

AEW closed a $95 million acquisition of an industrial property in England this month, according to Real Capital Analytics, and he said AEW Europe is getting close to doing two more deals in the UK.

Data collected by RCA show that real-estate transaction volume in the UK dropped an estimated 58% in 2008 from the year before, to $46.6 billion. In the US, transaction volume fell 74% in 2008, to $134 billion.

Office Sales Plunge, Weakening to Continue

Tue, 20 Jan 2009 14:28:25 GMT

The precipitous drop in office sales in 2008 reflected a weakening market that faces more troubles before it recovers, new reports suggest. New York City-based Real Capital Analytics' preliminary 2008 results show that the dollar volume of worldwide office sales plunged to $184.1 billion in 2008, which was down 60% for the year and 74% for the fourth quarter. Office tallied the largest dollar volume of any property type, but all property sectors reflected the worldwide slowing in sales.

Even more remarkable was how much of the plunge occurred in the fourth quarter, according to the Real Capital Analytics report. "No matter how you slice it, whether by global region, property type or deal type, year-over-year deceleration of activity in Q4’08 was remarkable for its velocity," the RCA report states.

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Punch-Drunk Vegas Retail Market Staggering

Tue, 20 Jan 2009 11:19:40 GMT

Agreement on the exact state of the retail market here is hard to come by, but only because it’s degrading so quickly. Banks’ lack of lending and consumers’ lack of spending is tumbling a long line of dominoes that spikes unemployment, bankruptcy, vacancy and loan default rates, halts projects both planned and under construction, and begets more of the same.

On the investment front, only a handful of retail properties have changed hands since July 2008, all of them smaller than 25,000 square feet, according to Real Capital Analytics. Two properties currently being marketed for sale are Eastwind Center, a 45,240-square-foot retail center shadow anchored by grocery and drug stores, and Shoppes at Canyon Pointe, a 25,048-square-foot multi-tenant retail center that is 80% occupied. The asking prices are $15.8 million and $10.7 million respectively. The cap rates are 7% and 6.75%, respectively.

Another fine mess: Next crisis could involve CRE loans

Mon, 19 Jan 2009 13:12:25 GMT

For the past two years, home foreclosures grabbed most of the headlines regarding the real estate bust. This year, it's likely to be commercial real estate's turn.

A new study by research firm Real Capital Analytics of New York identified 18 properties valued at $240 million it classified as “distressed” in San Diego County. They included five apartment buildings, six offices, one retail center and one industrial building.

Real Capital Analytics found an additional 68 properties worth $1.5 billion that are “potentially troubled” in the county – mostly because they have loans coming due and may face difficulty refinancing. Potentially troubled buildings locally include 18 apartment buildings, 14 retail properties, seven offices and seven hotels.

“Our last down-cycle in the early 1990s was really signified by property-level distress,” said Dan Fasulo, managing director of Real Capital Analytics. “The property was empty. You could see through the building. We had massive overbuilding. It didn't matter what the asking rent was. There wasn't a tenant.”

“We have some of that this cycle,” he said. “But with a majority of these troubled assets, the problem exists with the ownership, not necessarily the property. Most of the issue is that ownership paid too much and used a lot of aggressive CMBS debt.”

Hotels are full, but downturn still taking its toll

Mon, 19 Jan 2009 12:26:25 GMT

As the hospitality industry across the country struggles with plunged consumer confidence and spending, some hotel investors and developers face the same challenges as their office and retail counterparts: scarce financing, steep losses in stock prices, declining asset values and timid buyers. The flurry of local hotel ownership changes in recent years — 16 deals in 2005 alone, according to New York research company Real Capital Analytics Inc. — had been so frenetic the city issued a pamphlet to help cabbies decode the name changes and deliver passengers to the right hotel.

Commercial sales in Dubai more than double in 2008

Mon, 19 Jan 2009 00:00:40 GMT

Sales volume in Dubai's commercial property market more than doubled in 2008 compared to 2007, despite the global market witnessing sharp decline in activity, says a new report. According to Real Capital Analytics (RCA), Dubai's commercial property jumped 148 per cent to $3.12 billion (Dh11.45bn) last year, with Saint Petersburg in Russia witnessing an increase of 60 per cent to $1.98bn.

Tough '09 Is Seen for Commercial Real Estate

Mon, 19 Jan 2009 00:00:40 GMT

This year will be among the worst for the U.S. commercial real estate industry, as unemployment leads to a drop of as much as 30 percent in rents in some places and more office towers from Washington to Chicago and Los Angeles sit empty, according to several research reports from large commercial real estate service companies. Roughly $107 billion worth of hotels, office buildings and shopping centers are in trouble, ranging from mortgage delinquency to foreclosure, according to a report from Real Capital Analytics, a research firm.

Global property deals plummet 80% in Q4

Fri, 16 Jan 2009 15:17:25 GMT

Real estate investors literally stopped buying and selling property in the final quarter of 2008, as global property transactions fell by a staggering 80 percent.

According to preliminary data from Real Capital Analytics, the US was one of the hardest hit countries during the closing stages of the year, with real estate sales and purchases down 88 percent in the last 3 months to the end of December 2008 (compared to 12 months earlier).

The best performing region in the world during the fourth quarter was Eastern Europe, where property trades fell by just one half.

Global Property Investors Expect Spending Surge

Fri, 16 Jan 2009 13:30:25 GMT

Both foreign lenders and equity investors plan to increase investment globally and in the U.S., their favored international investment target, report members of the Association of Foreign Investors in Real Estate (AFIRE).

The U.S. has more appeal this year, even after the economic tumult of 2008 and despite the painful impact of the global credit crunch on commercial real estate, according to Jim Fetgatter, AFIRE's chief executive.

U.S. commercial property sales are down 73% to $139.43 billion in 2008 compared with 2007, according to research firm Real Capital Analytics. The shares of U.S. real estate investment trusts, or REITs, are off about 62% from their highs in February 2007, as measured by the benchmark MSCI US REIT Index.

President Bush to Rent $300,000 a Year Dallas Office Space

Thu, 15 Jan 2009 13:35:25 GMT

President George W. Bush will rent offices in Dallas at the Sherry Lane Place building at an initial cost to taxpayers of $311,600 a year, close to what former President Bill Clinton paid when he settled on New York’s Harlem neighborhood in 2001.

“The top of the market in Dallas is the bottom of the market in Manhattan,” said Dan Fasulo, managing director of Real Capital Analytics Inc., a New York-based property research firm.

Fasulo said he doubts Bush’s moving to Dallas will boost rents in that city.

“Bill Clinton took office space in Harlem and he hasn’t done anything to the office market up there,” Fasulo said. “I presume Bush would have the same minimal impact."

Office prices spur renters to buy

Thu, 15 Jan 2009 13:29:25 GMT

More companies, government agencies and institutions are considering becoming their own landlords. They're taking on the hassles of building maintenance and the risks of property investment, but hoping to save on occupancy costs as real estate prices fall.

In the the Research Triangle of North Carolina, owner-occupants accounted for at least $95 million in office sales last year -- more than three times the total in 2007, an analysis of data from Real Capital Analytics and CB Richard Ellis shows. Almost one quarter of last year's volume was attributed to occupants buying their spaces, up from about 3 percent in 2007.

Just $409 million in Triangle offices were sold in 2008, 50 percent less than in 2007, according to CB Richard Ellis data. Those that did sell traded for an average of 5 percent less than in 2007, data from Real Capital Analytics show.

Commercial Loans Are the New Subprime Mortgages

Thu, 15 Jan 2009 12:36:25 GMT

Recently, the Federal Reserve surveyed senior loan officers from 60 large domestic banking institutions and the U.S. agencies of 24 foreign banks. The results: In the fourth quarter of 2008, 87 percent of loan officers said they have tightened their lending standards for commercial real estate loans, a marked increase from the fourth quarter of 2007, when only 50 percent reported tightening standards.

In the fourth quarter of 2008, 100 percent of loan officers reported tightening standards for subprime loans, in contrast to 55.5 percent at the same time the year before.

Dan Fasulo, managing director of Real Capital Analytics, said the data underscored a “disturbing” trend.

“Good, healthy owners can’t get loans right now,” Mr. Fasulo said. “And that’s really spooked the industry into action. We have our representatives down in Washington right now. There’s just too much debt that needs to be refinanced within the next year. What everyone’s worried about is the fact that it doesn’t look like the debt markets have the capacity to handle the demand coming down the pipeline. It’s scary.”

An Owner of Towers Walks a Tightrope

Wed, 14 Jan 2009 16:17:25 GMT

With Wall Street hemorrhaging jobs and the commercial property industry poised to take a big fall, this might not seem the ideal year to be completing a luxury hotel and condominium building near the World Trade Center.

But the $240 million W Hotel and Residences, which is rising on Washington Street, is not the only project that could cause headaches for Joseph Moinian, its developer. One of the largest private real estate magnates in the country, Mr. Moinian is a former garment manufacturer who has amassed more than 20 million square feet of office, residential and industrial space since the early 1990s.

Moinian is far from the only real estate executive facing difficulties as office vacancies rise and property values decline. And unlike some companies that flipped properties at a dizzying pace during the go-go years, Moinian is a long-term holder who rarely sells a building. He has relatively little near-term refinancing risk.

But a $328 million loan from Wachovia, a frequent lender to Mr. Moinian, for 180 Maiden Lane in Manhattan’s financial district comes due in November and could be difficult to refinance, said Robert M. White Jr., the president of Real Capital Analytics, a New York research company. “My guess is that Moinian will have to come up with more equity to get it refinanced,” he said.