Commercial Real Estate Tornado hit Texas

Commercial real estate values are continuing their downward spiral, dropping 8.6 percent in April, according to a report released Wednesday by Moody's Investors Services and Real Estate Analytics.

That's the largest one-month nationwide decline on record. And the Southern region of the U.S., which includes Texas, is seeing the worst declines. Prices for investment properties in the Southern sector of the country are off more than 20 percent in the last year, Moody's researchers said.

U.S. commercial real estate values are down 29.5 percent from their peak in late 2007. "The question is will this mark the bottom or not," said Neal Elkin of Real Estate Analytics.
The biggest declines have come in the office sector, where prices are down about 29 percent nationwide from a year ago. And shopping center values have fallen 18.5 percent.
Another recent commercial property report predicts that the Dallas area will have the largest decline in office prices in the country during the coming year. That forecast last week by PricewaterhouseCoopers predicts that the commercial real estate market won't begin to recover until 2011.

Some industry watchers are even more pessimistic. The top analyst for Deutsche Bank's Commercial Mortgage Backed Securities operation predicted last week that the U.S. property market won't recover until 2017. "We are currently in something which is comparable to what we saw in the 1990s and potentially worse," Richard Parkus said at a New York real estate summit sponsored by the Reuters news agency. By STEVE BROWN / The Dallas Morning News stevebrown@dallasnews.com


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Got Money? Invest in US. Commercial Real Estate

NEW YORK (Reuters) - Brazil, Russia, India and China move over. There's another emerging market for commercial real estate opportunities.

"Now that the meltdown has happened, the new emerging market is the United States," Tom Shapiro, president of real estate investment firm GoldenTree InSite Partners, said on Tuesday at the Reuters Global Real Estate Summit in New York.

The U.S. commercial real estate crash, in which prices are down more than 20 percent and are expected to fall 40 percent to 50 percent, has created a landscape of what is expected to be a land of vast opportunity for those with cash.

"I think there's going to be the best opportunity to make money in the last 20 years in real estate in the U.S.," Shapiro said.

GoldenTree InSite stopped investing in U.S. real estate in early 2006 and has focused most of its attention and cash on Brazil, where it has invested in residential and office properties.

But with about a $1 billion to use, it is poised to return to the U.S. market and take advantage of the right projects that need or will need money when they come up short.

"We are just at the point now where we are seeing some very interesting entry points on certain transactions," he said.

New York-based GoldenTree InSite is an opportunistic real estate company that invests funds raised from pension funds and other institutional investors.

Shapiro said his firm not only considers location but places more weight on the merits of an individual project.

"We're more about finding the right project in the right location," he said. "We're not looking for shotgun shots. We're looking for rifle shots."

Still, Shapiro said his firm likes big cities, such as Los Angeles and New York where downtrodden commercial real estate markets tend to rebound strong.

"San Francisco right now is a pretty interesting place to think about because San Francisco is a very diversified economy," he said.

He also mentioned residential land and hotels are of note because they are bottoming out.

"There's a lot of projects, whether it be development or operating properties, or properties that need to be renovated that were done with the best of intentions but relied on increasing fundamentals, rents working and not having construction overruns," Shapiro said.

GoldenTree InSite has not yet committed any funds to a new U.S. investment. It is not only evaluating what project to invest in, but how to enter the deal -- via equity, mezzanine financing or by buying distressed senior mortgages. Depending on the position of the financing, investment could be bought at 20 cents or 30 cents on the dollar.

For U.S. investing, GoldenTree InSite is likely to add leverage to its existing capital but will use it carefully, Shapiro said.

(Reporting by Ilaina Jonas; editing by Carol Bishopric)



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A Ticking Time Bomb (CRE)

WASHINGTON -(Dow Jones)- Some lawmakers welcomed news Tuesday that 10 of the nation's largest banks are poised to repay billions of federal assistance but warned that a "ticking time bomb" in commercial real estate could deal a punishing blow to lenders and the economy.
"I am very concerned about the ticking time bomb we face in commercial real estate lending," congressional Joint Economic Committee Chair Carolyn Maloney, D-N.Y. said at a hearing Tuesday. She noted that an estimated $400 billion of commercial real estate loans are coming due this year, with another $300 billion due in 2010.

If commercial real estate developers cannot refinance or pay off that debt, " we could expect to see the default rate on commercial mortgages climb much higher," Maloney warned.
Maloney's comments came at a hearing into the $700 billion Troubled Asset Relief Program approved by Congress to help banks saddled with soured assets linked to risky home mortgage loans. Just before the hearing began, the U.S. Treasury Department announced that 10 recipients of so-called TARP funds will repay a total of $68 billion, which Maloney called "welcome news."

The hearing follows the release of a new Congressional Oversight Panel report on the TARP, which faulted recent "stress tests" of 19 large financial firms by the Treasury Department and the Federal Reserve, saying the economic assumptions probably were too rosy and that the projections only run through 2010.

"We simply are asking for more," Congressional Oversight Panel chair Elizabeth Warren told lawmakers. She recommended that the stress tests be run again, with tougher assumptions, and be continued as long as banks hold troubled assets.As a case in point, Warren noted that the U.S. unemployment rate projected for 2009 under the stress tests' "worst-case scenario" was 8.9%, but "we're now at 9.4%,"

"This is a real concern, the worst case scenario in 2009 is in fact not the worst case," said Warren, whose panel is monitoring the Treasury's spending of the bailout money.
In addition, the oversight panel called for regulators to issue more information about the stress-test methodology, allowing outside analysts to replicate the tests themselves. -By Judith Burns, Dow Jones Newswires

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S&P's commercial real estate revolt

NEW YORK (Fortune) -- Despite near universal criticism of their many missteps during the credit bubble, the ratings agencies aren't irrelevant just yet.
Commercial real estate investors discovered as much last week, when an announcement by Standard & Poor's doused the spring rally in the beaten-down market for commercial mortgage-backed securities, or CMBS.

S&P's move left commercial property investors scratching their heads over the ratings agency's timing. The proposal, in which S&P warned it may soon downgrade hundreds of recent bond issues, could complicate a new federal plan to make financing more available for office buildings, apartment complexes and shopping malls.

Investors also wondered about S&P's change in tone on the prospects for the senior-most commercial real estate-backed debt securities. The ratings agency and its rivals Moody's (MCO) and Fitch have been under fire in Congress for their failure to alert investors to the housing bubble, and some observers wonder if they aren't hastily trying to make amends.
"They've spent 18 months getting raked over the coals for being too lenient, and now they appear to be oversteering," said Steve Jernigan, a director at NewOak Capital, an advisory, asset management and capital markets firm in New York.

S&P says politics aren't influencing ratings actions. "Our ratings are driven only by our best analytical judgment of the creditworthiness of the issuers and securities we rate and are formed independent of other concerns," spokesman Ed Sweeney said in an email. He added that S&P's comments last week reflect its "careful review and analysis of the current CMBS market and our expectations for it going forward." ~ By Colin Barr, senior writer at Fortune.com


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Lately, there has been a wealth of information concerning the health and state of the Commercial Real Estate industry and the article posted today is no different, but at SpacePlace.net, we feel it is vitally important that our members are kept up to date with the most current information available. We promise not every post will be about the impending doom of CRE, but enlight of all the new information, we feel it is critical to our members to share what others around the country are saying. Check out the latest article below!

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Even if rents and vacancies don't totally collapse, the commercial real estate market may be in for violent upheaval, if only because there isn't enough available credit to deal with all the re-financings. The New York Post runs down some of the grim numbers: At the center of the worries is some $3.5 trillion in debt backed by everything from strip malls to offices and apartments across the nation -- the lion's share of which is badly underwater because this recession followed a five-year commercial property boom fueled by easy money and loose underwriting standards.

Now the owners of the less-than-full malls, apartment complexes and office buildings are succumbing to the worst economic collapse since the Great Depression -- because they can't refinance the debt. The commercial debt securitization market is dead. "Because there is no securitization the system cannot process the wave of maturities coming due," said Scott Latham, commercial property broker at Cushman & Wakefield.

"This is arguably the most important fact we're going to be dealing with. If there's no mortgage market that can feed the machine you're just not going to have deals," he said. "It's going to be years before we recover and even when that happens we're going to discover that we're in a new paradigm," Latham added.

About $1.4 trillion in real estate debt is set to mature over the next four years, with some $204 billion coming due this year alone. From what we've heard, it's impossible to overstate how stingy commercial real estate lenders have become. Even projects with very solid tenants and no indication of a drop-off are having a hard time rolling over their debt. Still, there's a difference between a homeowner going into foreclosure and a commercial real estate owner that still has paying tenants. Whoever receives the property will still be seeing cash flow, and there's a good chance it will have some value, rather than some house in the middle of nowhere, with no prospects of being sold, whose only realistic fate is a bulldozer. ~ By Joe Weisenthal of Clusterstock.


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The Wobbly Skyscraper

Loan defaults in the worst commercial real estate market in decades have created tens of billions worth of distressed properties across the United States, 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.

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 per cent 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." The Hancock Tower and the Sixth Avenue building are the first of a wave of foreclosures and auctions expected in the next year that will slash sale values of formerly prime real estate.

"This is a train wreck that’s coming in the large office towers," said Matthew Haines, chairman of the Propertyshark.com real estate website.

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.
Many of the towers that are likely to go up for sale were bought at inflated prices during the boom three to five years ago and could lose over half their value at sale.

The MIT Centre for Real Estate said last week that commercial property sales in the first quarter fell by six per cent from the end of last year, and were down 21 per cent down from the same period a year ago. And on Wednesday, the National Association of Realtors said its index of commercial brokerage activity fell almost 13 percent from a year ago.

Sales volume is "historically low. It has never been this low. It has never even been half this low," Geltner said (research director at MIT Centre of Real Estate).

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." ~ By AMY WESTFELDT The Associated Press NEW YORK


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What is the state of the Commercial Real Estate industry ? When will the industry begin to recover? What is the formula for success? Top executives discuss these issues. Check out the link below!

http://link.brightcove.com/services/player/bcpid1847322079?bclid=4133070001&bctid=4051348001

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Commercial Real Estate, A Lagging Indicator.

The US government's pumping up of the economy via various programs created by the nearly $800 billion economic stimulus package and interceding in the financial market will indirectly incite the revival of the commercial real estate market, according to a new report by Marcus & Millichap Real Estate Investment Services. But the major impact is unlikely to be felt this year. The present state of the commercial real estate market leaves a great deal of room for improvement. Marcus & Millichap notes in its report that sales volume, restricted by the gap between buyers' and sellers' pricing, has barely made a blip on the radar within the last six months. While the pricing disparity showed some signs of improvement in the first quarter of 2009 due to declining property fundamentals and the ongoing general inaccessibility of debt capital, there remains the issue of the impending maturity of commercial mortgages with which the industry must contend.

Approximately $218 billion of commercial mortgages will come due this year, followed by $270 million between 2010 and 2011, so while commercial delinquency rates were relatively low as the economy headed downward, the lag effect will soon come into play. The CMBS delinquency rate increased in the first quarter and is on track to increase even further to the 4 percent to 5 percent range by the close of 2009. Banks could see the delinquency figure climb to $53 billion, as indicated by recent stress tests.

However, the aforementioned stress tests have also revealed that, with the new federal programs coming into play, capital should become more easily accessible, thereby eventually spurring an uptick in commercial real estate conditions, particularly since the majority of property sectors avoided overbuilding as the downturn approached. Yet, visible change in the commercial real estate market, will trail economic recovery by about six to nine months. Improvement is on the way, but the impact of the federal stimulus package and financial market intervention won't be felt at its strongest until after the year has come to a close. As Marcus & Millichap notes in its report, one can look to the apartment and industrial sectors, which are most sensitive to job creation and increased consumption, to show the first signs of recovery. By Barbara Murray, contributing editor to CPN Online

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Commercial Real Estate In A Credit Crisis?

According to the Wall Street Journal, in a worst case scenario analysis, roughly $100 billion of losses could hit smaller banks by the end of next year. The root cause of which are commercial real estate loans.

Taking at look at 900 small to midsize banks across the US, the Wall Street Journal estimates that commercial real estate loans pose a massive threat to the banks' livelihood. Using a similar process that was used on the 19 'big banks' in the Federal government's stress tests, the Journal is seeing danger from the loans in the commercial real estate sector.

The study estimates a worst-case scenario in which unemployment hits 10.3%, which also means that banks would do better if unemployment topped out at a more manageable 8.9%. The contrast in the smaller banks losses to some of the larger banks the government is examining, has as much to do with investor interest as anything else. Some of the smaller banks, the Journal asserts, may not find the same kind of opportunistic investing when these smaller institutions run into trouble, meaning there is a likelier chance of those banks going under should the recession stretch on, which will further tighten lending markets.

Stay tuned for the latest in CRE market information!

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