LWR Commercial
Archive for March, 2009
Commercial real estate loan defaults skyrocket
Mar 30th
- 5011 Ocean Blvd Siesta Key FL
As loan defaults rise, analysts say the struggling commercial real estate industry is poised to fall into the worst crisis since the last great property bust of the early 1990s.
Delinquency rates on loans for hotels, offices, retail and industrial buildings have risen sharply in recent months and are likely to soar through the end of 2010 as companies lay off workers, downsize or shut their doors.
The commercial real estate market’s fortunes are tied closely to those of the sinking economy, especially unemployment, which hit 8.1 percent in February.
“Until jobs start coming back and industry starts doing better we don’t see performance increasing” among landlords, said Christopher Stanley, an associate with research firm Reis Inc.
While the commercial real estate industry’s woes led to the recession of nearly 20 years ago, this time the industry is “the victim of the economic and financial crisis,” said Hessam Nadji, managing director at Marcus & Millichap Real Estate Investment Services in Walnut Creek, California.
Vacancies at retailers, Nadji forecasts, will shoot up to 11 percent by year-end, matching the peak of the early 1990s. Office vacancies are likely to hit 18 percent by year-end, he said, short of the 1990s-era peak of more than 20 percent.
The commercial real estate market is “at the precipice,” a report by Detusche Bank said earlier this month. So far this year, delinquency rates are up to 1.8 percent of loans in March, more than four times the year-ago level.
Faring worst were retailers, office building owners and apartment buildings. Hotels and industrial properties posted more moderate increases.
Deutsche Bank’s Richard Parkus projects delinquency rates will keep soaring to more than 3.5 percent by year-end and as high as 6 percent by late 2010. He says the industry’s woes will be “at least of a similar magnitude as those that the commercial real estate faced in the early 1990s.”
Drops in property values of 45 percent from a peak in late 2007 are possible, Parkus said, exceeding those of the early 1990s, as demand for office, retail and other commercial space plummets amid a worsening economy.
Adding credence to those gloomy predictions, the government said Thursday that the U.S. economy shrank at a 6.3 percent annual pace at the end of 2008, the worst showing in a quarter-century.
Funding for commercial loans virtually shut down last year as the financial system unraveled.
There was $12.2 billion in commercial mortgage debt issued last year, the lowest figure since 1991 and down 95 percent from 2007, according to a report by Reis.
Making matters worse, about $216 billion in loans are coming due through 2012.
That is putting landlords in a squeeze.
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.
More than 20 metropolitan areas nationwide now have at least $1 billion in troubled commercial loans, she said, up from five at the end of last year. Landlords in Las Vegas, Manhattan and Los Angeles are struggling the most.
As the industry’s troubles worsen, disputes are breaking out. The Dubai developer helping build the $8.6 billion CityCenter complex on the Las Vegas Strip said Monday it is suing struggling partner MGM Mirage over concerns about the project’s viability.
One major shopping mall owner, Chicago-based General Growth Properties Inc. has been struggling to avoid bankruptcy for months. It faces a Friday afternoon deadline to get permission from lenders to avoid penalties for late debt payments.
Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Pending sales rise to highest level in three years in February 2009
Mar 23rd
Commercial Real Estate for Sarasota
Pending sales in the Sarasota real estate market once again rose in February 2009, hitting 782 – the highest level since April 2006, a three year period. According to statistics from the Mid-Florida Regional MLS for members of the Sarasota Association of Realtors®, 611 single family homes and 171 condominiums were reported under contract in February, almost 100 more than the 683 pending sales reported in January 2009, and 19 percent higher than the 654 pendings reported in February 2008.
Pending sales have now exceeded the 500 level for the 14th consecutive month, and the statistic bodes well for the next two or three months, when many of these pendings will become closed sales. Pending sales reflect contracts executed by buyers and sellers. The report continues to reflect a steady, strong pattern, and indicates buyers are more active in the Sarasota market even in the face of difficult economic times.
“We are encouraged by this statistic, and the word of mouth reports indicating an uptick in showings and offers,” said 2009 SAR President Bill Geller. “Buyers are becoming even more aware of the many opportunities in the Sarasota market and are making offers and executing contracts. Local Realtors® are continuing to educate the public on our market, and this excellent chance to purchase a great home at a very attractive price, with interest rates at historic lows.”
Overall, there were 354 sales closed in February, compared to 319 in January, for a 10 percent increase. The figure was lower than February 2008, when 418 properties changed hands. The breakdown was 260 single family homes sold, and 94 condominiums sold.
The recently enacted first-time homebuyers’ tax credit of $8,000 should help spur sales to higher levels, Geller noted. Those who meet eligibility requirements and purchase a home this year prior to Dec. 1 are eligible for a tax credit of up to $8,000, and unlike the 2008 tax credit, this one does not have to be repaid. This credit, combined with historically low interest rates should help encourage more homes sales, experts agree.
“Particularly for the first time homebuyer trying to purchase in the Sarasota market, this is an amazing time to realize the dream of home ownership,” said Geller. “Affordable prices, combined with very low interest rates, plus the tax credit – you really haven’t seen a better time to buy for decades.”
The median sale price for single family homes declined to $142,000 in February 2009 from $149,950 in January 2009 – a 5.3 percent decline. The median sales price for condominiums fell to $198,000 in February 2009 from $220,000 in January 2009, for a 10 percent drop. These statistics appear to indicate the growing number of short sales and foreclosure sales in the market, which tend to impact the median sales prices more dramatically than the normal price trends.
Another important market tracker – the absorption rate of properties on the market – continues to track lower than last year at this time for both single family homes and condominiums, as inventories have declined. Absorption rate is the number of months it would take to sell the entire remaining listed inventory in a particular category, based upon the sales for that particular month.
For February 2009, the absorption rate for single family homes stood at 24.1 months, compared to 25.3 months in January 2009, and compared to 29.6 months in February 2008. For condominiums, the absorption rate was at 28.5 months, compared to 38.4 months in January 2009, and much lower than the 44.0 months reported in February 2008.
Click HERE for a PDF of the press release and two pages of statistical charts.
Tampa Market Gets a 120,000 SF Renewal
Mar 19th
CBRE brokered a 120,500-square-foot renewal at the Sabal Pavilion 1 building in Tampa, FL with Ford Motor Credit Co.
The company has occupied the property for the last 8 years, with about 350 employees. The renewed deal runs through 2017.
The Sabal Park complex in the East Tampa submarket houses the four-story office built in 1998.
Proscenium Project Falters Again
Mar 10th
As the Sarasota Herald-Tribune reported, the developers of the $1-billion mixed-use project known as the Proscenium failed to close on its seven-acre land assemblage last week, the latest in a series of obstacles. This is the fifth time since mid-2008 that the developers have missed deadlines to close on the 18-story project’s planned site in Downtown Sarasota, carrying a $10-million-per-acre purchase price.
GlobeSt.com reported last summer that Proscenium sought a $100-million bridge loan to finance pre-development of the ambitious project, which is to include a 225-room Waldorf-Astoria luxury hotel. Real estate experts say the developers’ inability to acquire the land is not surprising given current economic conditions.
To read more about the latest challenges facing the Proscenium project, click here.
Using the Sale Leaseback to Turn Commercial Real Estate Equity Into Operating Cash
Mar 10th
While land and empty spec office prices are plummeting, there is hope for owner-occupants who need to squeeze some cash out of their property. The sale-leaseback deals happening today aren’t giving owners as much money as they would have just a few years ago, but they can still cash in a relatively large amount of equity, just as the New York Times Co. will in its arrangement with investment management firm W. P. Carey & Co.
As the Commercial Proprty News rag reports:
The newspaper concern just entered into a sale-leaseback agreement involving the 750,000 square feet of office space it owns and occupies in the 1.5 million-square-foot Midtown Manhattan building at 620 Eighth Ave. For W. P. Carey, the deal means adding a stabilized two-year-old trophy asset to its portfolio; for the New York Times, it means pocketing $225 million while staying put in its digs.
For owners with challenging markets to navigate, the challenge to improve liquidity can be met in many different ways and the sale-leaseback is often one of the simplest.
“The opportunity to acquire an asset of this quality at this pricing level is clearly a sign of the times,” a W. P. Carey spokesperson told CPN. “It is certainly driven by the fact that sale-leaseback is still an attractive option when other forms of financing are not available.” The Times will use the proceeds from the transaction to pay down long-term debt. As described in its annual report, the sale-leaseback deal is just one of a handful of steps the company–plagued by plummeting advertising revenue and the challenge of refinancing debt–is taking to improve liquidity.
To see how your business can benefit from a sale-leaseback, contact me for an analysis of your property.
