Commercial Real Estate - Real Capital Analytics in the Press

Experts: What a Difference a Year Makes

Wednesday, March 17, 2010 11:23:20 AM

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

Tuesday, March 16, 2010 4:43:37 PM

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

Friday, March 12, 2010 9:06:29 AM

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 A$19 billion ($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

Friday, March 12, 2010 8:54:03 AM

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

Wednesday, March 10, 2010 10:14:04 AM

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

Tuesday, March 09, 2010 5:40:08 PM

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

Monday, March 08, 2010 11:51:33 AM

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

Monday, March 08, 2010 11:07:25 AM

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

Monday, March 08, 2010 10:46:13 AM

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

Friday, March 05, 2010 5:32:57 PM

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

Friday, March 05, 2010 12:06:09 PM

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.

Banks Failing to Come Clean on Commercial Real Estate Losses

Thursday, March 04, 2010 7:19:24 PM

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.

No Clarity on Fannie Mae and Freddie Mac's Future

Thursday, March 04, 2010 5:31:41 PM

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.

Europe Property Deals Start Strong

Tuesday, March 02, 2010 5:48:19 PM

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.

Istithmar World Capital Defaults on Property in Times Square

Tuesday, March 02, 2010 5:18:49 PM

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.

Credit Squeeze Claims Commercial Developments in Kansas City

Tuesday, March 02, 2010 3:17:14 PM

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.

Zell's Recent NYC Purchases Boost Confidence

Monday, March 01, 2010 3:14:38 PM

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."

Casinos Could Go Belly Up

Friday, February 26, 2010 4:58:17 PM

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 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.

High Number of Distressed Properties in Las Vegas

Friday, February 26, 2010 4:29:59 PM

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.

High Number of Distressed Properties in Las Vegas

Friday, February 26, 2010 4:29:17 PM

NYC Service Cuts and the Bigger Picture

Friday, February 26, 2010 2:30:12 PM

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.

General Growth Properties to split into two companies

Thursday, February 25, 2010 3:41:01 PM

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."

Commercial Real Estate Sales Increase

Wednesday, February 24, 2010 12:22:48 PM

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."

Default Rates Reach 16-Year High

Wednesday, February 24, 2010 11:48:43 AM

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

Wednesday, February 24, 2010 9:37:03 AM

The default rate for commercial property mortgages held by US banks more than doubled in Q4'09 and may peak at 5.4 percent 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 percent from 1.6 percent a year earlier. The default rate for loans on apartment buildings rose to 4.4 percent from 1.8 percent.

“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 percent in January from 10 percent in December, after hitting a 26-year high of 10.1 percent in October. Unemployment and tighter credit are hurting CRE values, which fell 29 percent in December from a year earlier and are down 41 percent 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 percent of commercial property loans outstanding and 15 percent 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 Getting Better and Worse

Monday, February 22, 2010 3:55:34 PM

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."

Pricing ,Credit Woes Plagued 2009 Sales

Monday, February 22, 2010 3:20:11 PM

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

Monday, February 22, 2010 2:25:19 PM

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.

Decaying Apartments Symptom of Housing Crisis

Monday, February 22, 2010 2:08:42 PM

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

Monday, February 22, 2010 8:54:03 AM

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 real estate properties has grown tenfold since April.

Blackstone Considers Joining Simon Property's Bid for GGP

Friday, February 19, 2010 8:38:06 AM

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

Thursday, February 18, 2010 1:16:14 PM

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.”

Oversight Panel Report Forecasts More Commercial Distress

Wednesday, February 17, 2010 4:42:43 PM

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."

Downtown's Downturn

Wednesday, February 17, 2010 4:07:55 PM

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.

Making the Case for a Commercial Real Estate Crisis

Wednesday, February 17, 2010 3:25:52 PM

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.

Simon Property Shopping for GGP

Tuesday, February 16, 2010 9:41:23 PM

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.

States Turn To Commercial Properties For Cash

Tuesday, February 16, 2010 11:20:43 AM

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.

Macklowe Looms Large In Sales

Sunday, February 14, 2010 9:30:57 PM

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.

Fussing Over FIRPTA

Thursday, February 11, 2010 4:27:28 PM

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.

Soured Manhattan deal portends property storm

Tuesday, February 09, 2010 9:55:02 AM

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.”

Blind-Pool Stock Sales Stumble

Tuesday, February 09, 2010 8:52:53 AM

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 Inc. 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.

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.”

Jobless Rate Drops; Losses Still Hurt Commercial Real Estate

Monday, February 08, 2010 1:37:54 PM

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.”

Related Companies in Talks to Save Xanadu

Wednesday, February 03, 2010 11:46:11 AM

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.

Flush REITs Have Loads Of Cash, Little To Spend It On

Wednesday, February 03, 2010 10:30:45 AM

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, chief financial officer 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

Tuesday, February 02, 2010 9:12:49 AM

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.

Leader Building Issued Foreclosure Notice

Monday, February 01, 2010 10:10:00 AM

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.

Chase Tower Downtown Sold To Dallas Firm

Wednesday, January 27, 2010 10:04:54 AM

The Chase Tower, 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."

Philadelphia Story: Losing A Trophy Property

Tuesday, January 26, 2010 5:11:07 PM

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.

Creditors Take Over $5.4 bil. NYC Housing Complexes

Tuesday, January 26, 2010 8:24:54 AM

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

Monday, January 25, 2010 4:35:48 PM

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

Friday, January 22, 2010 4:04:51 PM

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."

Terreno Realty Set To Raise $300M In IPO

Wednesday, January 20, 2010 7:03:05 PM

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.

‘Tranche Warfare’ Erupts as Property Owners Slide Into Default

Wednesday, January 20, 2010 9:08:49 AM

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.

Matter of Debate: Bottom in Commercial-Property Values

Tuesday, January 19, 2010 4:14:43 PM

While the pace of commercial real-estate sales remains anemic, a few gutsy real-estate 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.

International Council of Shopping Centers Announces Agreement with Real Capital Analytics to Build Global Shopping Center Directory for ICSC Members around the World

Tuesday, January 19, 2010 3:53:23 PM

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

Bay Area hotel problems mount

Friday, January 15, 2010 1:03:36 PM

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.

AIB is tight-lipped on possible billion-dollar losses in the US

Friday, January 15, 2010 1:03:13 PM

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.

Recession hits harder in Chicago

Friday, January 15, 2010 12:52:54 PM

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.

Prominent properties get foreclosure notices, portend trend

Friday, January 15, 2010 12:49:27 PM

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.”

Largest Upper Manhattan Sale of '09 Was... a Portfolio?

Thursday, January 14, 2010 8:44:20 AM

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.

Monday, January 11, 2010 8:12:03 AM

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

Friday, January 08, 2010 6:30:05 PM

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

Friday, January 08, 2010 11:05:43 AM

Some foreign investors may swoop in this year and buy up some of the 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

Thursday, January 07, 2010 9:27:22 AM

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.

Macklowe Said Close to Buying Debt on NYC Hotel Site

Wednesday, January 06, 2010 9:17:49 AM

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.

Distress Calls Begin to Go Out

Wednesday, January 06, 2010 9:12:52 AM

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.

Manhattan’s Apartment Market Stabilizes

Wednesday, January 06, 2010 9:04:59 AM

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.

Silicon Valley 'Bloodbath' Leaves Office Buildings Empty

Tuesday, January 05, 2010 8:17:43 AM

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."

Whose Fault is Tight Commercial Property Lending?

Sunday, January 03, 2010 8:58:03 PM

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.

Commercial Real Estate Faces Tough Recovery Slog

Sunday, January 03, 2010 8:39:04 PM

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."

Growth Of Distressed Commercial Properties Slows, Hits $17.6 Billion

Saturday, January 02, 2010 6:07:13 PM

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.

Silicon Valley Brokers Aid Banks In Unloading Properties

Saturday, January 02, 2010 1:01:21 AM

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.

Deals Few And Far Between

Wednesday, December 30, 2009 11:32:17 AM

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

Tuesday, December 29, 2009 11:09:23 AM

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 yearto-date in the region, which has actually seen volume grow 4 percent this year.

Excluding China, though, this puts Asia Pacific’s volume at $49.9 billion, a 49 percent decline from 2008. That is still a significant transaction volume in this marketplace - Asia Pacifics’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 percent on $4.3 billion in sales, followed by Hong Kong, down only 13 percent on sales of $7.5 billion. Much heftier slides were recorded by South Korea, down 51 percent, on volume of $5.6 billion; Japan, down 58 percent, following a sudden slide in the third and fourth quarter on sales of $16.5 billion; and Singapore, off nearly 65 percent with $3.2 billion in sales through November.

US commercial property values at lowest levels in 7 years

Monday, December 28, 2009 12:08:48 PM

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

Wednesday, December 23, 2009 11:45:02 AM

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

Wednesday, December 23, 2009 11:37:58 AM

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

Tuesday, December 22, 2009 10:36:57 AM

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.

Distressed hotels could find buyers in 2010

Monday, December 21, 2009 12:58:58 PM

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.

Low Realty Prices Will Attract Foreign Investment To GCC

Monday, December 21, 2009 11:00:49 AM

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.

Tishman Speyer's $5.4 Billion Boomerang

Monday, December 21, 2009 8:22:13 AM

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.

Survey: US Property Faces Long Road to Recovery

Friday, December 18, 2009 5:32:14 PM

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.

A Recap of the [Quiet] 2009 Student Housing Investment Market

Thursday, December 17, 2009 3:11:08 PM

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.

Loan problems dog lifestyle center

Thursday, December 17, 2009 8:36:54 AM

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.

New Distressed Manhattan Property Tally Tops $12 Billion

Monday, December 14, 2009 5:24:22 PM

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

Monday, December 14, 2009 4:46:23 PM

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

Friday, December 11, 2009 1:07:41 PM

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

Thursday, December 10, 2009 9:18:05 AM

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

Wednesday, December 09, 2009 3:37:55 PM

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."

Dubai World’s Istithmar Loses Control of the W Union Square Hotel

Tuesday, December 08, 2009 1:35:41 PM

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

Tuesday, December 08, 2009 10:02:43 AM

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."

A rep for Lehman declined to comment.

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.

Mandarin Oriental May Acquire Luxury Hotel Brands

Tuesday, December 08, 2009 9:34:14 AM

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.

The Future of Commercial Demand

Friday, December 04, 2009 10:39:06 AM

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. 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.

Dubai's Crazy Quilt of Assets

Thursday, December 03, 2009 5:13:10 PM

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

Thursday, December 03, 2009 10:23:42 AM

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.

Morgan Stanley Looks to Restructure CMBS

Thursday, December 03, 2009 7:32:20 AM

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.

World’s Most Expensive Office Markets Get Cheaper on Job Cuts

Tuesday, December 01, 2009 8:08:18 AM

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

Monday, November 30, 2009 9:55:17 AM

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.

Dubai scares markets

Monday, November 30, 2009 9:46:32 AM

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.

Return to lender: U.S. hotel owners going delinquent on debt

Monday, November 30, 2009 7:31:48 AM

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.

Commercial real estate sales poised to hit $49B in 2009

Wednesday, November 25, 2009 8:56:20 AM

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

Monday, November 23, 2009 10:54:34 AM

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."

BofA Wins Bid to Name Receiver for Chicago Block 37

Monday, November 23, 2009 10:48:22 AM

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).

Hotel investors tiptoe back into buying game

Monday, November 23, 2009 10:43:52 AM

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.

Istithmar May Lose Control of W Union Square Hotel in Auction

Friday, November 20, 2009 11:53:44 AM

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

Thursday, November 19, 2009 4:05:35 PM

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."

Insurers Face $23 Billion Loss on Commercial Property

Thursday, November 19, 2009 3:55:36 PM

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.

Experts: Lending Hampering Industry's Recovery

Tuesday, November 17, 2009 3:19:45 PM

SAN DIEGO-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.

Starwood Completes $144 Million in Investments in First 60 Days

Monday, November 16, 2009 5:00:30 PM

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.

Where's The Promise Land?

Monday, November 16, 2009 10:02:26 AM

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

Monday, November 16, 2009 9:00:56 AM

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.”

Fearing a Commercial Real Estate Crisis in NJ

Tuesday, November 10, 2009 12:46:49 PM

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.

Why This Real Estate Bust Is Different

Tuesday, November 10, 2009 11:12:18 AM

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."

Australians Lead Way In Global Retreat

Tuesday, November 10, 2009 10:27:35 AM

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.

Confidence Grows In Asia And Latin America Real Estate

Wednesday, November 04, 2009 11:35:17 AM

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.

TIME TO BUY HQ?

Tuesday, November 03, 2009 10:35:17 AM

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.

Woolworth Building Stake May Be Purchased By Italian Investor

Monday, November 02, 2009 6:43:18 PM

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

Monday, November 02, 2009 9:29:39 AM

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

Friday, October 30, 2009 12:01:28 PM

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

Friday, October 30, 2009 8:17:57 AM

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.

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Buyers of Huge Manhattan Complex Face Default Risk

Wednesday, September 09, 2009 11:52:00 AM

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.

Shanghai Real Estate Sales Of Apartments Shows Steadfast Soar

Wednesday, September 09, 2009 11:15:33 AM

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.

RCA Partners with CREOpoint.com for Exclusive Online Networking

Wednesday, September 09, 2009 10:51:56 AM

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.

Investment Picks Up for French Property

Tuesday, September 08, 2009 9:26:39 PM

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?

Tuesday, September 08, 2009 12:18:43 PM

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 Market In Richmond Is Ailing

Tuesday, September 08, 2009 12:02:34 PM

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."

Commercial Real Estate: Big Troubles, Small Bailout

Friday, September 04, 2009 1:16:21 PM

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

Wednesday, September 02, 2009 10:06:00 AM

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.

Distress: The Waiting Game

Wednesday, September 02, 2009 9:01:09 AM

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.

For Commercial Real Estate, Hard Times Have Just Begun

Wednesday, September 02, 2009 8:59:28 AM

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.

Pressure Is On Both Buyers, Sellers

Tuesday, September 01, 2009 10:11:27 PM

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.

Economy blamed for closure of former Ponchartrain Hotel

Tuesday, September 01, 2009 8:23:16 AM

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.

REITs on the retreat after $20b losses

Tuesday, September 01, 2009 7:21:59 AM

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.

Report: 3Q Retail Real Estate Transactions To Rise

Monday, August 31, 2009 11:17:38 AM

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.

Property Trusts Hit Hard By US Crash

Monday, August 31, 2009 11:09:04 AM

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.

INVESTMENT IN RETAIL REAL ESTATE DROPPED IN MOST COUNTRIES IN FIRST HALF OF 2009

Monday, August 31, 2009 10:33:56 AM

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 firm, "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).

Chinese commercial property transactions soar as it outperforms UK and US

Friday, August 28, 2009 11:48:38 AM

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

Thursday, August 27, 2009 8:38:34 AM

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

Thursday, August 27, 2009 8:36:36 AM

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.

Market Doldrums Force Brokers To Hone Their Skills

Wednesday, August 26, 2009 10:35:26 AM

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.

Two Sides of a Coin: London and Manhattan

Wednesday, August 26, 2009 8:54:13 AM

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.

And, while London may be leading in transaction activity, "Manhattan is going to be on everyone’s radar as one of the primary markets investors will want exposure to," says Fasulo. "There is some evidence, based on what I’ve seen, as far as bidding activity, to support that. Some of the big office properties that are for sale right now, we’ve heard of 30 or 40 bids for some of those assets," says Fasulo. "We haven’t seen that since the boom times."

The 10 Most Expensive Buildings, Revisited

Wednesday, August 26, 2009 8:35:12 AM

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).

REITs Are Poised to Pick Up the Pieces

Wednesday, August 26, 2009 8:28:08 AM

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.

Hotel Receivers Face Long Stay -- and Rich Rewards

Tuesday, August 25, 2009 8:04:12 PM

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.

Inland Real Estate Dives Into Troubled Commercial Market

Tuesday, August 25, 2009 3:23:36 PM

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 here 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.

Mainland property deals hit US$31.2b

Tuesday, August 25, 2009 12:59:12 PM

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.

Practice Of “Pretend and Extend” Could Stagnate Economy

Tuesday, August 25, 2009 10:07:23 AM

“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.

One Chase's Great Escape

Tuesday, August 25, 2009 8:55:48 AM

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.

Distressed Real Estate Reaches $114B

Tuesday, August 25, 2009 8:43:20 AM

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.

Hanover Marriott sold for $27M, will get $20M upgrade

Tuesday, August 25, 2009 8:37:12 AM

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.

Tokyo office market was world's most active in H1

Tuesday, August 25, 2009 8:29:27 AM

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 (8802.T) 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.

Austin Office Market Shares National Distress

Monday, August 24, 2009 10:17:43 AM

Real Capital Analytics ranks Austin 22nd out of 59 U.S. metro markets in terms of distressed office property value 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.

China Passes U.S., U.K. in Commercial-Property Sales

Monday, August 24, 2009 7:49:05 AM

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

Monday, August 24, 2009 7:10:20 AM

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.

Developing Deadlock

Sunday, August 23, 2009 11:52:53 PM

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.

Second Wave Of The Credit Crisis: Collapsing Commercial Real Estate

Friday, August 21, 2009 2:56:20 PM

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.

London’s real estate recovering faster than NYC’s

Friday, August 21, 2009 2:47:05 PM

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.

Analyst: LV keeps spot at top of list of distressed�properties

Friday, August 21, 2009 7:59:17 AM

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.

Harp Group Puts Two Hotels Into Bankruptcy Protection

Thursday, August 20, 2009 8:23:30 AM

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.

BRE Completes Exit From Capitol Market

Wednesday, August 19, 2009 10:39:15 AM

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.

BP Puts Suburban Building On The Block

Wednesday, August 19, 2009 10:25:39 AM

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 bubble looms

Wednesday, August 19, 2009 8:19:42 AM

"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

Wednesday, August 19, 2009 7:21:44 AM

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.

Manhattan Hotels Fill Rooms at Rock-Bottom Rates

Wednesday, August 19, 2009 7:08:13 AM

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.

Chase Headquarters Goes On The Market

Tuesday, August 18, 2009 10:29:00 AM

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.

Commercial real estate gets worse

Monday, August 17, 2009 10:31:49 PM

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.

Hotels Deliver Some 'Jingle Mail'

Monday, August 17, 2009 3:50:06 PM

'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.

The Rise and Falling of New York's Busiest Building Buyer

Monday, August 17, 2009 1:22:04 PM

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.’”

Quarterly Investment Report: Second-Quarter 2009 - More Distress To Hit I.E.

Monday, August 17, 2009 11:11:27 AM

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.

Mezzanine lenders swoop in

Monday, August 17, 2009 9:00:09 AM

The end came remarkably quickly. Over a matter of months, Fortress Investment Group quietly snapped up deeply discounted debt on a troubled West Side condo conversion project. Two weeks ago, in an auction that lasted less then five minutes, Fortress used its position to foreclose on the property—the 597-unit Sheffield57.
Similarly, Normandy Real Estate Partners and Five Mile Capital Partners took slightly longer to foreclose on two buildings owned by battered New York developer Scott Lawlor. They spent nine months purchasing discounted debt that in March ultimately gave them the keys to Boston's famed John Hancock Tower and another building in Los Angeles.

Sources say those investors and others, including BlackRock Inc., are scouring the market for debt on distressed properties that they can buy for pennies on the dollar, and then use those positions to seize control of the properties when their owners fall behind on their debt payments. The supply of such debt is mushrooming.
“The geometric increase in upcoming mortgage and mezzanine loan maturities will provide opportunistic real estate investors with a vast new playground in which to seek their required returns,” says Mark Edelstein, head of the global distressed real estate group at law firm Morrison & Foerster.

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.

Rare Land Sale Goes to Owner-User

Monday, August 17, 2009 8:57:02 AM

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.

Mezzanine Lenders Swoop In

Sunday, August 16, 2009 10:23:08 PM

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 http://www.rcanalytics.com/CompanyProfiles.aspx?CompanyID=1350 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.

Motor City's commercial property market ailing

Friday, August 14, 2009 5:16:36 PM

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.

Brazil Is Capital

Thursday, August 13, 2009 4:25:02 PM

Brazil property’s capital appreciation prospects are a refreshing change to many countries. As those with overseas property investment portfolios are only too aware, real estate investment overseas has plummeted over the last 18 months.

According to Real Capital Analytics (RAC) quoted by AFIRE, transactions have fallen to one-sixth of their level two years ago and are currently at 73% less than this time last year. RAC also found that no less than 17 countries saw the number of property sales decrease by a massive 80% in the period from Q1 2008 to Q1 2009.

Chase Portfolio for Sale; Who Will Buy?

Thursday, August 13, 2009 8:56:08 AM

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.

Empty Office Space

Thursday, August 13, 2009 8:36:32 AM

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.

APTS TO RENT: $2B TARP SURPLUS MAY GO TO STOP BUILDING FORECLOSURES

Thursday, August 13, 2009 8:33:35 AM

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

Wednesday, August 12, 2009 8:47:30 AM

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

Wednesday, August 12, 2009 8:37:01 AM

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.

PREVIEW - What The Fed Is Mulling At This Week's Meeting

Tuesday, August 11, 2009 10:07:04 AM

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.

Maguire Defaults on Seven California Properties

Tuesday, August 11, 2009 8:33:02 AM

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.

Tanking Real Estate Values Take Toll on Pension Funds

Monday, August 10, 2009 4:32:26 PM

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

Monday, August 10, 2009 1:30:56 PM

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.

Economic Impact Continues In Broward Co. Office Market

Friday, August 07, 2009 1:29:50 PM

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

Friday, August 07, 2009 1:12:37 PM

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.

Bullish US Jobs Report Breathes Life Into Hotel Stocks

Friday, August 07, 2009 10:56:01 AM

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.

Distress Totals Could Be Worse

Wednesday, August 05, 2009 8:37:22 AM

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.

As Values Decline, Pension Funds Jump Into Real Estate

Wednesday, August 05, 2009 8:34:59 AM

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.

The best and worst deals

Monday, August 03, 2009 11:20:30 AM

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.

Atlanta CRE market not as bad off as many

Monday, August 03, 2009 9:41:45 AM

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.

7 local properties in huge retail portfolio deal

Monday, August 03, 2009 9:40:15 AM

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%.

Excess Takes Its Toll On Hotel Values

Sunday, August 02, 2009 3:31:16 PM

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%

Friday, July 31, 2009 8:56:22 AM

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

Friday, July 31, 2009 8:52:07 AM

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

Friday, July 31, 2009 8:43:03 AM

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.

Report: Marriott International set to scoop up competitor hotels

Thursday, July 30, 2009 2:23:21 PM

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.

Sale-Leasebacks Down, But Corporate Appetite Large

Thursday, July 30, 2009 10:58:23 AM

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.

Reform, Demographics Bode Well for Medical Office Investors

Thursday, July 30, 2009 9:15:44 AM

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%.

Despite the rosy outlook, the medical office sector isn’t insulated from risk. “We have been adding medical office space aggressively to the national inventory now for the past several years,” notes Pontius. More than 17 million sq. ft. of new space came to market last year, according to Marcus & Millichap, and another 14.1 million sq. ft. is slated for completion in 2009.

“There are some markets like Phoenix and Las Vegas that are clearly overbuilt today for the current level of demand,” says Pontius. Nearly one-third of the new inventory last year was built in Southwest where housing boomed and healthy population growth bolstered demand. The economy and unemployment have taken a toll as cash-strapped consumers have cut back on elective health care services.

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.”

Trillions in Assets on the Hook

Thursday, July 30, 2009 9:11:55 AM

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.

'Pretend and extend' time

Thursday, July 30, 2009 9:07:09 AM

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.

Equity in U.S. commercial property may evaporate: report

Thursday, July 30, 2009 8:48:31 AM

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 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.

Tampa ranks No. 4 in looming commercial loan payments

Wednesday, July 29, 2009 4:39:48 PM

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.

Commercial real estate mess hits regional bank bonds

Wednesday, July 29, 2009 4:35:57 PM

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.

U.S. Properties Worth $2.2 Trillion at Default Risk

Wednesday, July 29, 2009 10:17:06 AM

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 a survey from Moody’s Investors Service.

San Francisco Skyscraper

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.

New Office Supply Looms Large

Tuesday, July 28, 2009 6:36:54 PM

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.

Investors Finding No Fire Sales In Commercial Property

Tuesday, July 28, 2009 11:08:22 AM

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.

Microsoft Deal Boosts Second-Quarter Sales

Monday, July 27, 2009 5:36:20 PM

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.

Hines Giving Back 333 Bush

Monday, July 27, 2009 5:29:08 PM

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.

Big Offices Now White Elephants

Monday, July 27, 2009 3:13:52 PM

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.

CMBS delinquencies skyrocket 585%

Monday, July 27, 2009 1:59:36 PM

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.

Wells Fargo Buys Mortgage Bonds as Defaults Rise, Sloan Says

Monday, July 27, 2009 10:49:01 AM

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.

Bills coming due for Joe Moinian

Monday, July 27, 2009 8:43:17 AM

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.

Boeing, Citigroup Lead Biggest Jump in Bond Sales in 12 Weeks

Friday, July 24, 2009 10:54:47 AM

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.

Apartments fetch $39M in buyers' market

Friday, July 24, 2009 8:41:25 AM

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.

Commercial real estate drop accelerates

Thursday, July 23, 2009 8:34:36 AM

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.

Economy Affecting Broward Office Market

Thursday, July 23, 2009 8:27:32 AM

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.

Bernanke Says Commercial Property May Pose Risk for Economy

Wednesday, July 22, 2009 11:53:58 AM

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.

U.S. regional banks post losses as loans sour

Tuesday, July 21, 2009 3:36:21 PM

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

Tuesday, July 21, 2009 1:00:53 PM

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

Monday, July 20, 2009 1:56:07 PM

Regions Financial, 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 Analytics.

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.

Regions, KeyCorp Face Losses From Commercial Property Defaults

Monday, July 20, 2009 11:59:54 AM

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 Chief Executive Officer 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

Friday, July 17, 2009 10:15:33 AM

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.

Strategic Hotels Chief Says Corporate Cutbacks to Trim Bookings

Friday, July 17, 2009 7:19:22 AM

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.

Top 20! Manhattan's Biggest Distressed Properties

Thursday, July 16, 2009 5:31:43 PM

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.

Real Estate Experts Say Residential and Commercial Foreclosures Will Continue to Rise

Thursday, July 16, 2009 10:06:05 AM

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."

Scant Good News in Vegas Hotel Metrics

Wednesday, July 15, 2009 4:40:54 PM

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.

Wary Of Realizing Losses, Lenders Pretend and Extend

Wednesday, July 15, 2009 10:32:55 AM

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.

Sale-Leaseback Sticker Shock

Wednesday, July 15, 2009 9:04:18 AM

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.

A Peek At The Troubled Assets Radar

Tuesday, July 14, 2009 2:37:04 PM

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.

GVA Advantis halts brokerage service

Monday, July 13, 2009 3:35:17 PM

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

Monday, July 13, 2009 8:24:10 AM

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.

New owner of Steeplechase plans a ‘face-lift'

Monday, July 13, 2009 8:22:14 AM

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.

UK emerging as best bet for commercial property recovery while US remains troubled

Monday, July 13, 2009 8:15:10 AM

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.

‘Badly bent’ describes lenders and investors

Monday, July 13, 2009 8:08:12 AM

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.

Commercial Real Estate: A Ticking Time Bomb?

Monday, July 13, 2009 8:06:56 AM

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?

Commercial real estate pain good for some

Monday, July 13, 2009 8:00:28 AM

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.

Commercial real estate's bright side: Firms buy buildings for own use

Monday, July 13, 2009 7:55:19 AM

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.

U.S. Commercial Real Estate Next Big Risk

Friday, July 10, 2009 10:59:53 AM

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.

RCA: NYC Distress Tops $9 Billion

Friday, July 10, 2009 10:52:25 AM

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.

Commercial foreclosure rate triples this year

Friday, July 10, 2009 9:19:43 AM

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.

REALTY BUBBLE

Friday, July 10, 2009 8:08:54 AM

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 Real Estate Is a ‘Time Bomb,’ Maloney Says

Thursday, July 09, 2009 1:07:28 PM

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.

Vornado PE fund seeks $1B

Thursday, July 09, 2009 9:28:06 AM

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.

L.A. commercial real estate owners struggling, report says

Thursday, July 09, 2009 9:20:05 AM

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.

Distressed Commercial Property in U.S. Doubles to $108 Billion

Wednesday, July 08, 2009 4:57:15 PM

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.

Office Aftershocks Forecast for Second Half

Wednesday, July 08, 2009 3:23:10 PM

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.

Colliers Arranges Largest CEE Real Estate Deal Of 2009

Wednesday, July 08, 2009 10:40:17 AM

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.

Both Good and Bad News

Wednesday, July 08, 2009 8:26:11 AM

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

Tuesday, July 07, 2009 6:08:43 PM

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 http://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. For more information, visit: http://www.rcanalytics.com.

Worldwide Plaza Deal Is On, Again

Tuesday, July 07, 2009 12:46:15 PM

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.

Deutsche Bank Said to Agree to $605 Million New York Tower Deal

Tuesday, July 07, 2009 9:20:39 AM

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.

Pritzker Pays Blackstone $20M for 400-Acre Carmel Valley Ranch Golf Resort

Tuesday, July 07, 2009 8:24:24 AM

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.

Monument defaults on $69.8M Watergate loan

Monday, July 06, 2009 2:19:56 PM

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.

Skanska sells Deloitte House

Monday, July 06, 2009 2:16:28 PM

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 (zł.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.

From cubicle farm to graveyard

Monday, July 06, 2009 7:22:52 AM

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.

Distressed assets and sales figures show hotel industry angst

Thursday, July 02, 2009 9:48:15 AM

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.

With Loan Default, Watergate Hotel at Risk of Foreclosure

Thursday, July 02, 2009 8:45:22 AM

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.

Retail Casualties Predicted to Rise

Wednesday, July 01, 2009 11:50:15 AM

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

Wednesday, July 01, 2009 10:32:11 AM

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.

Airport Hotel Auction Looms

Wednesday, July 01, 2009 10:26:04 AM

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.

Hotel Loan Defaults Double in U.S. as Recession Curbs Travel

Wednesday, July 01, 2009 10:06:18 AM

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.

State’s Top Court Will Hear Appeal Against Atlantic Yards

Wednesday, July 01, 2009 9:48:00 AM

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.

County-Level Education Data, Trend Savvy Offer Valuation Guidance

Tuesday, June 30, 2009 10:37:50 AM

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

Monday, June 29, 2009 11:03:26 AM

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

Monday, June 29, 2009 8:41:01 AM

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.

US Retail Property Sales In May Drop 12% From Prior Month

Monday, June 29, 2009 8:23:47 AM

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.

Prominent NYC skyscraper secures nearly $1.3B loan

Monday, June 29, 2009 8:11:01 AM

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.

Commercial Developers, Lenders In ‘Stare Down’

Friday, June 26, 2009 10:14:29 AM

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.

Liquid Bricks

Friday, June 26, 2009 9:58:55 AM

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.

Commercial market tilts to tenants

Friday, June 26, 2009 9:02:44 AM

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.

Global property slide may be long

Friday, June 26, 2009 8:55:20 AM

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.

The international real estate hit bottom

Thursday, June 25, 2009 2:35:52 PM

This article has been translated from French by Google Translate.

"No recovery, but more difficult to fall down." This finding mi-mi-fig grape stands firm analysis of real estate transactions Real Capital Analytics.

His latest study, Global Capital Trends, concludes that the fall in the value of real estate transactions in the world coming to an end. The firm provides New York at the end of the second quarter, the total value of transactions has decreased by 5% over the first quarter, after a collapse of 67% in one year.

"We seem to be approaching the bottom," said Pete Culliney 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 CAR. 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. In the second quarter, sales of buildings that reach eight billion dollars in the Americas. The city of Tokyo has recorded both during the month of May

For the first time, which is the Asia-Pacific has the highest real estate activity. The value of transactions that are declined by half since early 2007.

Deal, No Deal

Thursday, June 25, 2009 2:32:41 PM

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.”

Investor marketing Gold Coast, Lincoln Park buildings

Wednesday, June 24, 2009 4:57:48 PM

At a time when few commercial properties are changing hands, investor Fred Latsko has put up for sale a large chunk of his real estate holdings, with lofty price tags totaling nearly $67 million.

“I used to go around saying I’m never selling anything. Now, I’m selling everything,” says Mr. Latsko, a principal with Chicago real estate investment firm Structure Management Midwest LLC.

On the market is an 11-building portfolio of small retail properties primarily in the Gold Coast and Lincoln Park neighborhoods. Tenants range from teen clothing retailer American Apparel and women’s boutique chain Intermix to online bank ING Direct and banking giant JPMorgan Chase & Co.

The nearly 65,000-square-foot portfolio is about 20% vacant, although Mr. Latsko says he has letters of intent for leases that would take up most of that.

Mr. Latsko says he isn’t under pressure to sell the assets and denies that the marketing effort is prompted by a recent lawsuit filed by Harvey-based Mutual Bank, which is seeking to enforce a personal guaranty on a past-due $10-million loan.

“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.

U.S. commercial property market thawing

Wednesday, June 24, 2009 4:54:45 PM

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.

Investor Marketing Gold Coast, Lincoln Park Buildings

Wednesday, June 24, 2009 11:24:13 AM

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.

Texas-Size Deal Boasts Strong Dallas Roots

Wednesday, June 24, 2009 11:14:01 AM

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.

SF Troubled Asset Count: 206 Properties

Tuesday, June 23, 2009 10:08:22 AM

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.

Commercial real estate: The Day the Mall Died

Tuesday, June 23, 2009 8:40:39 AM

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."

Medical Office Buildings Buffered From Real Estate Slide

Monday, June 22, 2009 10:30:40 AM

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.

Extended Stay: One Real-Estate Deal of the Apocolypse

Friday, June 19, 2009 11:16:45 AM

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.

Apartments lead the U.S. property default parade

Friday, June 19, 2009 11:13:24 AM

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.

Skyline: Sales drop sharply across all segments

Friday, June 19, 2009 11:10:20 AM

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

Friday, June 19, 2009 11:07:45 AM

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.

Worst in nation: Las Vegas commercial properties in distress

Friday, June 19, 2009 11:04:36 AM

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.

Storm coming for commercial R.E.

Friday, June 19, 2009 11:00:45 AM

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.

Global real estate reality check long overdue

Friday, June 19, 2009 10:58:30 AM

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.

Commercial real estate sales off 77%

Friday, June 19, 2009 10:55:35 AM

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 Sales Bottom Is in Sight

Wednesday, June 17, 2009 9:38:49 AM

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.

U.S. Equity Mover CB Richard Ellis

Tuesday, June 16, 2009 3:15:23 PM

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.

British Property Investors Returning to Market

Monday, June 15, 2009 4:43:34 PM

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?

Monday, June 15, 2009 11:46:57 AM

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.

Multifamily Misery - Next Housing Headache

Monday, June 15, 2009 11:37:03 AM

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."

RETAIL PROPERTY SELLERS OPT TO OFFERING FINANCING TO GET DEALS DONE

Friday, June 12, 2009 8:08:04 AM

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.

Property Woes Slam Cities Across Continent, But Not Vancouver

Thursday, June 11, 2009 1:53:31 PM

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?

Mosler: Industry Better Off Than Nine Months Ago

Thursday, June 11, 2009 9:59:51 AM

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.

HUD Dumps Problems

Wednesday, June 10, 2009 10:46:44 AM

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?"

Foreign Investors May Have Edge in Buying US Distressed Debt

Tuesday, June 09, 2009 11:23:40 AM

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.

Tight Lending Tanks Commercial Property Sales

Tuesday, June 09, 2009 10:42:40 AM

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

Monday, June 08, 2009 11:10:57 AM

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.

Lembi Group Puts 12 Apartment Assets up for Sale

Friday, June 05, 2009 11:54:36 AM

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.

Deutsche Bank Said to Sell Ex-Macklowe Tower to RCG, Comfort

Friday, June 05, 2009 8:19:04 AM

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

Thursday, June 04, 2009 11:50:06 AM

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.

Why REIT ETFs Are Recovering

Thursday, June 04, 2009 11:46:57 AM

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.

Real Estate: The End Of Gentrification?

Wednesday, June 03, 2009 10:47:11 AM

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.

San Francisco First-Quarter Investment Remains Slow

Tuesday, June 02, 2009 11:08:13 AM

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.

Sale of Berkeley Place could be best thing for center's success, experts say

Monday, June 01, 2009 2:25:53 PM

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

Monday, June 01, 2009 10:49:14 AM

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

Monday, June 01, 2009 10:40:10 AM

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.

RETAIL REAL ESTATE INVESTORS REMAIN PARKED ON THE SIDELINES

Monday, June 01, 2009 9:17:58 AM

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.

Real estate's woe zone

Monday, June 01, 2009 9:06:02 AM

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

Monday, June 01, 2009 8:51:40 AM

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 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.

AvalonBay Closes First REIT Deal of the Year

Thursday, May 28, 2009 11:53:19 AM

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.

As Big Ticket Sales Stall, Mid-Range Deals Still Drawing Interest, Funding

Wednesday, May 27, 2009 10:15:16 AM

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.

Home Sellers, Please Relax

Tuesday, May 26, 2009 6:31:28 PM

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.

Deutsche Bank CEO Ackermann Endures Scandal

Tuesday, May 26, 2009 8:57:55 AM

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.

Brokerages Report Losses, Await Distress Business

Friday, May 22, 2009 11:39:13 AM

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.

Tishman Seeks Buyer for Five California Buildings

Friday, May 22, 2009 9:45:25 AM

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 30 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, a Sydney, Australia- based property trust with an interest in 18 U.S. buildings.

The fund is seeking to bolster its balance sheet as Tishman Speyer in the U.S. 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

Thursday, May 21, 2009 11:22:45 AM

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."

Carlton Markets Pools of FL, CA, NV Loans

Thursday, May 21, 2009 9:01:41 AM

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."

Big US towers going cheap in distressed market

Thursday, May 21, 2009 8:49:35 AM

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."

Lone Star College Could Teach Class on Timing

Wednesday, May 20, 2009 10:39:15 AM

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.

Xanadu - At $2.3 Billion, This Mall Could Be Too Big to Fail

Wednesday, May 20, 2009 7:31:43 AM

Although its common areas are nearly completed, the 2.4-million-square-foot Meadowlands Xanadu 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.

"Sickly" Market Sparks Commercial Mortgage Feud

Monday, May 18, 2009 11:38:35 AM

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.

Orange's Apartment Market Was Resilient

Friday, May 15, 2009 11:31:19 AM

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.

Worries growing about commercial real estate

Thursday, May 14, 2009 4:31:36 PM

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.

Is commercial real estate the next shoe to drop?

Tuesday, May 12, 2009 12:12:46 PM

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.

Dead Weight - Global Distressed Assets

Tuesday, May 12, 2009 12:09:28 PM

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."

German Investors Set to Take Control of Troubled Victory Park Project in Dallas

Tuesday, May 12, 2009 11:43:21 AM

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.

Colliers Int'l Extends License Agreement with RCA

Tuesday, May 12, 2009 10:20:58 AM

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 client’s 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 informational 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.

For further information please contact:

Melanie Heath
Colliers International – Global Investment Services Team (GIST)
Tel: +44 (0) 20 7344 6647
Email: Melanie.heath@colliers.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. www.rcanalytics.com.

Copyright ©2009 Real Capital Analytics Inc. All Rights reserved.

Economy Curbs Atlanta's Commercial Property Market

Friday, May 08, 2009 4:24:22 PM

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.

AIG Near $1 Billion Tokyo Tower Sale to Nippon Life

Friday, May 08, 2009 4:03:13 PM

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.”

Deserted Building Sites Add to Property Bust's Toll

Thursday, May 07, 2009 1:33:42 PM

After a cash-starved developer halted construction last November of an assisted-living center here, it left a hole in the hillside that neighbors say is loosing possibly contaminated dust on their homes.

Local authorities say they haven't detected any pollution. But nearby residents, citing their own tests and some health problems, are calling for an independent investigation. Several trooped recently to City Hall, demanding action.

It's 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, Fla., 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.

There are so many abandoned work sites in Florida that some local entrepreneurs started a Web site, UnfinishedConstruction.com, to keep up with them all. The Web site's latest tally: about 100 properties in Florida, most of them commercial.

"The complaint we hear the most about from these is the safety factor," said John Rebimbas, a partner in the Naples, Fla., site, which also acts as a brokerage for people seeking to buy or sell unfinished projects, including the Lemon Bay site. "Sites are left unsecured, and that means kids can play on balconies with no railing."

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.

Trouble With TALF?

Thursday, May 07, 2009 8:47:59 AM

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."

Ermutigende Signale von den Kreditmarkten

Wednesday, May 06, 2009 9:54:42 AM

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."

Mideast Buyers Eye 5M London Homes

Wednesday, May 06, 2009 9:00:41 AM

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.

Empty storefronts a sign of the times

Monday, May 04, 2009 8:56:47 AM

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

Friday, May 01, 2009 9:58:11 AM

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."

More than $50Bln of Properties Became Distressed Since Start of Year

Thursday, April 30, 2009 2:29:57 PM

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.

HSBC’s Skyscraper Sales May Fetch 40% Less Than at Market Peak

Thursday, April 30, 2009 8:40:54 AM

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.

HSBC May Sell Landmark Buildings To Avoid The Need For Bailout Cash

Tuesday, April 14, 2009 11:18:49 AM

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.

HSBC May Sell London Headquarters, Buildings in New York, Paris

Tuesday, April 14, 2009 9:14:15 AM

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

Tuesday, April 14, 2009 9:07:43 AM

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

Tuesday, April 14, 2009 8:55:47 AM

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.

The Perils of Real Estate at Arm's Length

Tuesday, April 14, 2009 8:51:12 AM

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.

Portfolios Punch Drunk

Wednesday, April 08, 2009 10:11:16 AM

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.

US Commercial Property Foreclosures Expected To Continue Increasing

Tuesday, April 07, 2009 10:41:29 AM

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.

UK property investors wary of distressed assets

Tuesday, April 07, 2009 9:48:37 AM

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 the conference 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.

Report: 25% Of LV Commercial Real Estate Troubled

Monday, April 06, 2009 11:00:11 AM

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.''

Real Capital Analytics' White

Monday, April 06, 2009 9:23:30 AM

"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.

Read the whole interview on GlobeSt

Defaults Rise, Worst Yet To Come For Commercial Property

Friday, April 03, 2009 10:45:14 AM

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.

US programs seen too late to stem foreclosure wave

Wednesday, April 01, 2009 11:49:26 AM

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.

Commercial real estate loan defaults skyrocket

Friday, March 27, 2009 8:42:26 AM

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.

Distressed Commercial Property Offerings Rising, Report Says

Wednesday, March 25, 2009 1:09:34 PM

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

Tuesday, March 24, 2009 10:19:12 AM

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%

Tuesday, March 24, 2009 9:39:33 AM

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.

Looming Stress For Real Estate Projects Across Charlotte Area

Monday, March 23, 2009 11:03:10 AM

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.

Defaulting Commercial Properties Hit Banks on Vacancy-Rate Rise

Monday, March 23, 2009 8:53:33 AM

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.

GE To Shed Light On Its Properties

Thursday, March 19, 2009 10:54:14 AM

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.

AIG Evaluating Sale of New York Headquarters Building

Thursday, March 19, 2009 8:43:43 AM

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

Wednesday, March 18, 2009 1:04:08 PM

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 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.

Loop foreclosure looms

Tuesday, March 17, 2009 4:33:08 PM

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.

The January Effect

Tuesday, March 17, 2009 4:21:31 PM

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.

Eliot Spitzer's Return to Washington Is in Real Estate

Tuesday, March 17, 2009 1:55:10 PM

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.

Real Capital Analytics announces long-term agreement with Nikkei Business Publications

Tuesday, March 17, 2009 7:08:03 AM

Agreement marks 12th leading information provider RCA has partnered with in a collaborative effort to bring transparency to global commercial property markets

New York, NY - March 11, 2009– 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.

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

Monday, March 16, 2009 8:06:12 AM

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 Rise in Popularity

Friday, March 13, 2009 2:15:12 PM

Global information technology firm Unisys Corp. disposed of 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

Thursday, March 12, 2009 2:29:08 PM

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 is an independent firm that tracks sales of commercial property to analyze capital flows, investment trends and real estate prices in more than 80 countries. It tracks deals in the office, retail, industrial, multifamily, hotel and developable land sectors.

Real Capital's recent Global Capital Trends report featured $503.7 billion in global commercial property 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

Tuesday, March 10, 2009 10:23:01 PM

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

Friday, March 06, 2009 3:02:21 PM

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 Acquires Former Macklowe Tower

Friday, March 06, 2009 11:38:33 AM

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

CBRE Extends License Agreement with Real Capital Analytics

Friday, March 06, 2009 10:18:19 AM

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.

Saks’s Ability to Tap Real Estate Is Undermined by Market Drop

Wednesday, March 04, 2009 8:40:22 AM

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

Tuesday, March 03, 2009 1:53:33 PM

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

Tuesday, March 03, 2009 9:01:44 AM

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

Monday, March 02, 2009 7:09:48 PM

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.

F1 theme park suspended

Friday, February 27, 2009 9:09:27 AM

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

Thursday, February 26, 2009 3:40:59 PM

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."

New Stat City: Global Investment Sales Shrank 60 Percent in '08

Thursday, February 26, 2009 8:25:30 AM

More awesome commercial real estate news, this time by way of Real Capital Analytics, which just released its 2008 year-in-review report. The thrust of the report is this: Worldwide, only $504 billion in commercial property sales took place in 2008, a drop of nearly 60 percent compared to the year before.

But our favorite part of the report is this delightful tidbit:

“What is trading now?

The easy answer: Nothing.”

Inland, a Nontraded REIT, Flashes Its Cash

Wednesday, February 25, 2009 11:47:44 AM

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.

Commercial Auctions Expected to Rise

Sunday, February 22, 2009 10:41:28 PM

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 billion in 2008, up 38 percent from $42.3 billion 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.

St. Louis commercial properties in, near foreclosure total $726 million

Saturday, February 21, 2009 5:29:21 PM

Distressed or troubled commercial properties in the 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.”

Global Investment Sales Shrank 60 Percent in '08

Friday, February 20, 2009 5:07:40 PM

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

Friday, February 20, 2009 2:09:04 PM

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.

In the absence of significant deals, however, 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.

Blimey! Dan Fasulo To Ditch New York for London

Friday, February 20, 2009 8:55:17 AM

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.

Global property faces wave of distress - report

Thursday, February 19, 2009 6:34:25 PM

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.

CBRE Back in 1540 Broadway Mix

Wednesday, February 18, 2009 8:37:08 AM

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.

Mort's triumphs turning sour

Tuesday, February 17, 2009 9:18:49 AM

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.

CBRE Report: Slowdown Tightens Global Grip

Tuesday, February 17, 2009 9:11:22 AM

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.

UNDERWATER ABY ROSEN BOUGHT AT MARKET PEAK, NOW HE'S . . .

Tuesday, February 17, 2009 9:10:01 AM

Aby Rosen, the Manhattan 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 buildings 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 per square foot.

Based on current conditions for investment sales, the portfolio's value has dropped 24 to 32 percent to between $575 million and $650 million, 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.

Developer Underwater with Stamford, CT Buildings

Tuesday, February 17, 2009 9:02:11 AM

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.

CB Richard Ellis No. 1 in sales

Friday, February 13, 2009 3:36:19 PM

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

AIG Seeks Buyer for Tokyo HQ

Friday, February 13, 2009 9:10:50 AM

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.

Offers rolling in on ProLogis space

Friday, February 13, 2009 8:36:52 AM

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.”

Fannie Mae Makes Adjustments for 2009

Friday, February 13, 2009 8:32:52 AM

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 Puts Tokyo Headquarters Building Up for Sale

Thursday, February 12, 2009 4:00:03 PM

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 and 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."

Commercial real estate gets in on rescue plan

Tuesday, February 10, 2009 5:47:37 PM

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.

After Nearly a Decade, Apartment Rents Fall

Tuesday, February 10, 2009 9:06:49 AM

On the investment front, Real Capital Analytics’ transactions database shows only two apartment property changing since Oct. 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,” 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.”

Developer pulls plug on 2nd midtown tower

Monday, February 09, 2009 9:12:20 AM

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."

Jones Lang beats analysts' expectations

Monday, February 09, 2009 9:09:48 AM

Jones Lang LaSalle Inc., the world's second largest publicly traded commercial real estate broker, rose 17 percent after the company beat analysts' profit expectations.

Jones Lang lost 71 percent of its market value in the 12 months through yesterday as financial institutions worldwide recorded more than $1 trillion in mortgage-related losses and writedowns and slashed almost 270,000 jobs. Jones Lang and its competitors also confronted a combined 59 percent global drop in commercial property transactions to $495.9 billion last year, according to data provider Real Capital Analytics Inc.

Sam Zell’s Empire, Underwater in a Big Way

Monday, February 09, 2009 9:04:04 AM

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 of Real Capital Analytics, a real estate research firm. 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.

Boston Properties Suspends $980 Million Skyscraper

Friday, February 06, 2009 6:04:27 PM

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, market analysis 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

Friday, February 06, 2009 11:59:09 AM

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

Friday, February 06, 2009 8:54:05 AM

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.

Sorgente presses on in New York

Friday, February 06, 2009 8:46:45 AM

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.

The Expert: Florida's Silver Lining

Wednesday, February 04, 2009 11:03:24 AM

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.

2 local industrial portfolios for sale

Wednesday, February 04, 2009 10:57:08 AM

Two 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.

Distressed properties begin showing up in OKC market

Wednesday, February 04, 2009 8:31:07 AM

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.

Retail R.E. In Dire Straits - C and W Predicts Worst Yet to Come

Monday, February 02, 2009 8:49:10 AM

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 and 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 and W report notes that retail investment activity plummeted 72 percent in 2008 to $19 billion.

CHANDAN AND WHITE

Friday, January 30, 2009 4:34:07 PM

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.

Zuckerman Loss of $165 Million Makes Zell Master of Real Estate

Friday, January 30, 2009 9:08:02 AM

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. Zell exited the office property market in February 2007, selling Equity Office Properties Trust and its more than 500 buildings to Blackstone Group LP 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 writedowns and credit-market losses since 2007, have tightened commercial real estate lending. U.S. 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.

Property Owners' Predicament

Thursday, January 29, 2009 8:42:15 AM

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.

More renters buy own space

Thursday, January 29, 2009 8:36:11 AM

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.

Commercial real estate in for a rough year

Wednesday, January 28, 2009 8:52:06 AM

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.

Global crisis bites into Big Apple's prices

Wednesday, January 28, 2009 8:51:17 AM

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

Wednesday, January 28, 2009 8:45:57 AM

Sale-leaseback deals of industrial, office and retail properties last year totaled $7.3 billion, compared with $15 billion in 2007, according to Real Capital Analytics, a New York research firm that tracks sales of $2.5 million or more. In the last quarter of the year, only $514 million in sale-leasebacks were recorded.

Chart of the Week 1-26-09

Monday, January 26, 2009 9:43:49 AM

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

Monday, January 26, 2009 8:37:38 AM

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.

UAE commercial property price to see modest decline

Monday, January 26, 2009 8:35:55 AM

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.

Real Capital Analytics on Market Lethargy

Monday, January 26, 2009 8:34:15 AM

Bob White, president of Real Capital Analytics, joins host Anatole Pevnev to discuss the impact of the current economic crisis on commercial real estate transaction volume and pricing. Topics discussed include: * How has the global credit market meltdown affected transaction volume? * Has the transaction slowdown been concentrated in specific regions? * How has the demise of major financial institutions affected commercial real estate markets? * What is happening with private equity investors? * Are any REITs attractive as takeover candidates?

$39 Billion Deal Gone Bad

Sunday, January 25, 2009 12:47:15 PM

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.

Lender's strike threatens huge Queens project

Sunday, January 25, 2009 12:44:08 PM

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.”

Commercial real estate perseveres

Wednesday, January 21, 2009 4:38:06 PM

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

Wednesday, January 21, 2009 3:56:29 PM

Capital Synergies podcast with Mr. Dan Fasulo, Director of Market Research for Real Capital Analytics. In this interview, Darbi and Dan speak candidly about the year ahead and what kind of challenges face commercial real estate investors in 2009 and beyond.

Pension, Other Funds See Property Investments Sour

Wednesday, January 21, 2009 8:08:50 AM

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

Tuesday, January 20, 2009 8:30:43 AM

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 report states.

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Punch-Drunk Vegas Retail Market Staggering

Tuesday, January 20, 2009 8:23:03 AM

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.

1/19/2009 - Commercial sales in Dubai more than double in 2008

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.

1/19/2009 - Another fine mess: Next crisis could involve commercial real estate loans

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 (commercial mortgage-backed securities) debt.”