Commercial real estate investors reveal both frustration and disappointment at the lack of quality buying opportunities that many expected would have materialized by now, according to the second quarter 2010 findings of PricewaterhouseCoopers’ Korpacz Real Estate Investor Survey®, released today. The report notes that the unknown speed and strength of the economic recovery has many investors anxious, with the uncertainty surrounding the large debt volume coming due in 2011 and 2012 amplifying the angst.

Average Overall Cap Rates Decreasing in Certain Markets

In the quarterly survey, the average overall capitalization (cap) rate, a key measure of investors’ expectations of property income and value, declined in 17 of the survey’s 30 markets over the past three months, an indication that investors perceive less risk in the industry now, particularly for prime properties and better markets.

The ‘bottoming’ of the industry continues to be recognized by investors’ expectations that overall cap rates will either decline or hold steady in most markets over the next six months.

Specifically, survey participants forecast overall cap rates to hold steady in 18 of the survey’s 30 markets. Furthermore, the survey data reveals that 13 markets could see overall cap rates decline by as much as 100 basis points in this time period.

Surveyed investors cited potential declines in near-term overall cap rates in the Manhattan office market, the national warehouse market and the national apartment market (all three segments down as much as 100 basis points). For the individual office markets in the survey, average overall cap rates remain lower for central business district (CBD) submarkets than for suburban counterparts, suggesting that investors continue to see less risk and better investment potential in the 24-hour work-live-play aspect offered by many major CBDs.

“While most investors sense that the worst is over in terms of market deterioration, supply greatly outweighs demand across all property sectors keeping overall vacancy rates high and rental rates on a downward trend,” said Susan Smith, director, real estate advisory practice, PricewaterhouseCoopers, and editor-in-chief of the survey. “Top-tier locations are showing the most signs of life with respect to tenant interest and recovery potential. However, inspiring leasing trends have yet to fully materialize, further contributing to this sense of market flux.”

Uptick in Financing for Institutional-grade Assets

Surveyed investors comment that financing has become more readily available for the right borrower seeking quality assets in better markets. The report finds that for second-tier markets and non-core assets, debt availability and buyer interest are very limited. Until uniform patterns of stability occur, surveyparticipants expect that the investment market will remain highly bifurcated with little attention paid to offerings with vacancy issues that do not deliver the highly sought after gains in value.

“There is a tremendous amount of capital targeting institutional-grade, quality assets. In fact, survey participants cited that strong competition among well-capitalized buyers is helping to elevate sale prices and lower overall cap rates for many prime properties. Furthermore, the low percentage of distressed trades as of late reflects investors’ preferences as most buyers are steering clear of “junk” and focusing only on core assets according to surveyparticipants,” added Smith.

Key Findings and Survey Highlights

The report finds that despite encouraging economic data reports for retail sales and job growth, the retail sector continues to struggle and present challenges to property owners. According to the report, U.S. retail sales growth has been propelled mostly by auto sales while temporary hires account for a large portion of the country’s recent job growth. In the office sector, overall vacancy rates show some signs of improvement as the rate at which space is being returned to the national CBD office market has slowed dramatically over the past year. In fact, many of the large gateway CBDs are seeing downward shifts in vacancies. Nevertheless, surveyed investors envision a slow rebound for the office sector, where a full recovery will lag behind that of the U.S. economy.

In the industrial sector, the report notes that market conditions continue to soften, but at a slower pace than in months past. As a result, quality warehouse assets are seeing multiple bids and strong interest from perspective buyers, which could result in a rise of offerings, according to surveyparticipants . The report also finds that the apartment sector is continuing to lead the recovery with investment appetite for high-quality assets in first-tier markets showing an uptick in transactions in the national apartment market. Surveyed investors find that while rental rates have stabilized, rent declines from the previous 24 months are still working through apartment rent rolls.

Information about subscribing to PricewaterhouseCoopers’ Korpacz Real Estate Investor Survey® can be found at http://www.pwc.com/us/korpaczsurvey. Members of the media can obtain an electronic copy of the full report by contacting Ray Yeung (212) 986-6667 or yeung@braincomm.com.

About the PricewaterhouseCoopers’ Korpacz Real Estate Investor Survey®

PricewaterhouseCoopers’ Korpacz Real Estate Investor Survey®, now in its 23rd year of publication, is one of the industry’s longest continuously produced quarterly surveys. The current report provides overviews of 30 separate markets, including ten national markets — regional mall, power center, strip shopping center, CBD office, suburban office, flex/R&D, warehouse, apartment, net lease, and medical office buildings. Newly added to the report this quarter is a review of the Southeast region apartment market.

The report also includes a review of 18 major U.S. office markets including Atlanta, Boston, Charlotte, Chicago, Dallas, Denver, Houston, Los Angeles, Manhattan, Northern Virginia, Pacific Northwest, Philadelphia, Phoenix, San Diego, San Francisco, Southeast Florida, Suburban Maryland, and Washington, DC.

The second quarter 2010 report also features up-to-date commentaries concerning Technology News and Trends, Economic News, Domestic Self-Storage Market, National Development Land, special commentary on institutional-grade real estate, as well as information relating to valuation issues in the industry, such as tenant improvement allowances, market rent growth rates, forecast periods, and structural vacancy.

About PricewaterhouseCoopers’ Asset Management Practice

PricewaterhouseCoopers’ (PwC) asset management practice is a leading global provider of audit and assurance, business advisory and tax services to all areas of the industry, including real estate funds/advisors, REITs, homebuilders as well as hospitality and leisure. PwC is one of the leading providers of integrated professional services, with an integrated approach to problem-solving. Its international network of real estate professionals offer in-depth experience in a wide range of financial accounting and reporting issues; global tax solutions; investment fund structuring; capital market transactions; securitization issues; technological applications; systems and operations; due diligence and transaction support; and valuation management.

About PricewaterhouseCoopers

PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 163,000 people in 151 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice.

“PricewaterhouseCoopers” refers to PricewaterhouseCoopers LLP or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate and independent legal entity.

Source: PricewaterhouseCoopers

PR-USA.net – Deal Flow Remains Muted with Market in Flux, According to PricewaterhouseCoopers’ Korpacz Real Estate.

The Florida apartment market saw its largest one-year decline in value since index inception, dropping value of 29.9 percent, according to the Moody’s/REAL National All Property Type Aggregate Index from Real Estate Analytics LLC.

Despite its weak performance, Florida apartment index has fared better than its respective index in the South region.

Three of property types – office, retail and apartments underperformed their respective national property type index. The only exception was industrial, which fared better over the past four quarters. Office and retail sectors performed worse than their respective national indices, which recorded an 11.4 percent decline in retail. The apartment market was the worst performing sector and has now reached its lowest point since the inception of the index.

“The big picture is still that of an essentially flat market, with perhaps a slight upward trend on average and some bouncing around from month to month,” said Neal Elkin, President of REAL. “The proportion of “troubled asset” sales in the CPPI increased slightly from 25 percent in March to 29 percent?in April, with the lifetime price-change rate of return performance of the distressed sales increasing only slightly and remaining very low. Yet in spite of this, the overall CPPI advanced in April, due to the very strong performance of? healthy properties.

via Florida apartment buildings decline 30 percent in value, a Moody’s report says | Real Estate | HeraldTribune.com.

Ground broken for LWR vets memorial

JAMES A. JONES JR./jajones1@bradenton.com Among the veterans attending the groundbreaking for Veterans Memorial Park at Lakewood Ranch on Wednesday were, from left, Denny King, Dennis Merriman, Edward Devers and Frank Rogers.

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Read more: http://www.bradenton.com/2010/06/17/2368526/ground-broken-for-lwr-vets-memorial.html#ixzz0rc1sZfmZ

Tag technology coming to cell phones at Lakewood Ranch – Technology

magine a technology that would allow anyone using a web-enabled cell phone equipped with a camera to scan Microsoft Tags on buildings, businesses or even people, to tap into an instant information source.

When the cell phone scans a Microsoft Tag — a sort of bar code — it can open a web link, dial a phone number or launch a video.

A home buyer could scan the tag on a model home and receive a virtual tour and watch a video from the builder.

A diner standing outside a restaurant could scan and study the menu on a cell phone.

Or scan a tag at the cinema and play a movie trailer.

Using the new technology, Lakewood Ranch is preparing to become one of the first communities in the country to be tagged from top to bottom, said Candice McElyea, director of marketing and public relations for Schroeder-Manatee Ranch.

First introduced at the Consumer Electronics Show in Las Vegas in January 2009, more than one billion Microsoft Tags have been created by people and businesses all over the world. In April, more than 20 million magazines with tags were in the hands of U.S. consumers, Microsoft’s Anna Kim-Williams said in an e-mail Monday.

Lakewood Ranch is the first to widely deploy tags throughout its community in a variety of scenarios, Kim-Williams said.

Known for its green building standards and embrace of anything hi-tech, SMR plans to have the first phase of the new technology in place for the tour of homes that starts Nov. 6.

Builder models on the tour and businesses on Lakewood Ranch Main Street would be included in the first phase.

Phase two, tentatively set for January would add tags to wayfarer signs and amenities at Lakewood Ranch, everything from parks to polo.

In the third phase, SMR would launch a line of clothing to be sold on line and at the Lakewood Ranch Information Center, allowing a person to be tagged as well. The tagging process would be completed by April, McElyea said.

The first group to be introduced to the new technology were local Realtors, who received a presentation Friday.

“The technology has a wow factor. It’s very cool and edgy,” McElyea said.

Read more: http://www.bradenton.com/2010/06/22/v-print/2379192/tag-technology-coming-to-cell.html#ixzz0rc1c4OyV

By Richard Dymond, The Bradenton Herald, Fla.Jun. 11–LAKEWOOD RANCH — A Summerfield couple who are shooting their own independent romantic comedy in and around Lakewood Ranch are looking for 100 extras to populate Main Street on Saturday.”There's no compensation, but it's perfect for the person who has always wanted to be in a movie or see what it's like to be on a movie set,” said Richard Siggins, who is teaming with his fiancee, Brooke Reid, to create and produce “Wasband.”The title stands for “a husband who never was,” Reid said.Siggins says the movie is about a man who finally finds the person who “wants one extra kiss before he goes to work, who he wants to call or text during the day for no reason and who he wants to rush home to at the end of the day.”The extras, who can be any age or sex, are asked to dress casually and come to Main Street between 6:45 p.m. and 7 p.m. Saturday for a two hour shoot that will begin at 7:30 p.m.Anyone under the age of 18 has to have a parent or guardian with them at the shoot to sign for them, Siggins said.Siggins and Reid, who met chatting online two years ago, named their movie company, “Siggybunk,” which is short for Siggins and “Bunk,” Reid's childhood nickname.Reid's son, Eddie Duffy, 14, who will be a freshman at Lakewood Ranch High next fall and daughter, Lauren Duffy, 11, are in the movie as extras.”Wasband” is being made for about $9,000, part of a rising number of films with “micro” budgets, which means less than $25,000, Siggins said.A low budget film is less than $1 million, Siggins added.”Micro” budget movies generally are not action or science fiction since those usually require computer generated graphics.Through a few connections and Craigslist, Siggins and Reid got 15 professional actors who agreed to be paid only if the film becomes a success.”They are working for reels,” which is the film term for resume material, Siggins said.They also found Eric St. John, a composer, who created original music, and Rich Hubel, an experienced director of photography.Most of the expense, which is coming out the couple's savings, involves use of a high tech digital camera, Siggins said.The scene to be shot at 7:30 p.m. Saturday, among the film's final 10 of 46, calls for leading man Michael Newman's character to get to know leading lady Angela Austin's character in a romantic setting.Candice McElyea, Schroeder-Manatee Ranch's pro- motions and public rela- tions manager, suggested the filmmakers use Main Street, with its music, boutiques, restaurant and fountain, for a portion of the shooting. The filmmakers agreed.Siggins and Reid have shot scenes at the Polo Grill, Big Olaf's Creamery and Arts A Blaze on Main Street.They have also shot at Woody's River Roo in Ellenton, the Pink Pelican in St. Petersburg and Eckerd College, among other local venues.They have gotten permission for two days of shooting at Lakewood Ranch Medical Center later this month.”We really had no idea what to do when we started but we just decided to get out there and try,” said Reid, who describes herself as a romantic comedy lover who has seen “When Harry Met Sally” umpteen times.Siggins and Reid plan to enter “Wasband” into the Sarasota Film Festival in January in order to launch it.

via California Chronicle | Movie producers looking for extras.

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Senate Tweaking Carried Interest; CRE Recovering? (Wednesday’s News & Notes) | TrafficCourt.

I’m doing some long overdue catch-up with some of the links below. We’ve been spending the last few days trying to get our heads around what’s going on with taxation of carried interest.

On that front, the New York Times Dealbook blog described in some detail how the Senate is looking at possibly softening the tax in contrast to what passed the Senate.

Hat-tip to Christina Pitchford for this story.

Wasn’t commercial real estate supposed to crash?

By Heidi N. Moore, contributorJune 8, 2010: 11:22 AM ET

FORTUNE — During the long years of the financial crisis, the American economy has been like a retelling of the Somerset Maugham story “Appointment in Samarra,” in which a man unsuccessfully runs from city to city in attempts to avoid a run-in with Death — who, of course, is one step ahead of him. Similarly, investors have now spent years dodging disaster in one area of the markets, only to find their investments coming to a bad end elsewhere.

Oddly, however, there is one sector that has been outrunning the reaper since 2007, and it’s the last place you’d expect to have survived so long: commercial real estate. For much of 2008 and 2009 CRE was awash in red ink, and yet it hangs on. Richard LeFrak, chairman of the LeFrak Organization, said at the Milken Institute Global Conference in April, “The failure that we were all anticipating in the commercial real estate market, it kind of didn’t happen. We blinked, it went away.”

The only question now is how long it can keep up the sprint while the ghosts of boom-time leverage haunt the sector, and $1.4 trillion in loan maturities loom three years over the horizon.

To crash or not to crash: Which side is right?

There is a sharp disagreement among experts in how things will play out. Some predict foreclosures, loan defaults and a national crisis of disastrous proportions. In that corner is Elizabeth Warren’s Congressional Oversight Panel, which flatly predicted this year that commercial real estate loans are heading for a crash that will bring down small banks, destroy small-business lending and create “a downward spiral of economic contraction,” in her ominous words.

On the other side, investors in commercial properties and buyers of commercial mortgage-backed securities believe that the commercial real estate market will continue to suffer until it hits a bottom, but it will never crash in the way that the residential market collapsed. They believe that commercial real estate will be an example of how a market can take the hits and keep on ticking, that not every spot of trouble results in a crisis, that an industry can actually, somehow, stop a crisis if it acts early enough and has enough support.

Peter Roberts, Chief Executive Officer of the Americas for property giant Jones Lang LaSalle (JLL), put it this way: “We’re not going to see a ‘crash’. We’re going to see a long work-through.” Roberts believes commercial property values are in the process of bottoming out and will get to the ground floor by early 2011.

He credits the government’s support programs in capital markets with reversing the psychology of nervous markets in 2009: “The powers that be are very focused in making sure that we don’t have a crash in the real estate market. That has infused the mindset of investors.”

The Hilton maneuver

Investors are making the most of their good luck while they can. There have already been deals of several different varieties that show us their plan for addressing the problem of high-water mark commercial mortgages coming due.

Of them, there’s no better example of temporarily sidestepping the debt monster than Blackstone Group’s clutch move with Hilton Hotels. The PE firm’s $26 billion buyout of Hilton in 2007 — with $20 billion of outstanding debt due by 2013 — is a prime example of the sweaty palms that high leverage deals can cause even savvy investors.

But in April, Blackstone (BX) bought back $1.8 billion of Hilton’s debt and restructured another $2.1 billion to turn it into preferred equity. Blackstone also pushed off the maturities of the remaining $16 billion until 2015, buying itself two whole years of breathing room. Hilton is still debt-laden, but it’s not dead — and hedge-fund investors speak approvingly of Blackstone’s decisions to face its problems early.

The deal has kicked off a quiet trend of what one real-estate investor at a hedge fund calls “mini-Hiltons” — a pending wave of real estate investors seeking to buy back and restructure their own debt to stay alive until the recovery.

In another pattern, auctions for distressed assets are becoming more and more competitive, giving troubled assets quick homes. One of the most notable was the acquisition of Corus Bankshare’s $4.5 billion real estate portfolio, sold for a mere 60 cents on the dollar in an FDIC auction to a group of real estate investors and hedge funds including Barry Sternlicht of Starwood Capital Group, TPG Capital, WLR LeFrak and Perry Capital. The FDIC kept the majority of the portfolio, but gave the buyers zero-percent financing — a sweet deal for any investor.

Unhinged loans

Since properties have become so hard to buy, many investors have turned with voraciousness to the bundles of securitized loans known as commercial mortgage-backed securities, or CMBS. If anything in commercial real estate stands ready for a reckoning, it is these securities.

Despite CMBS hurtling toward higher default rates, however, investors who have faith in them are practicing some serious compartmentalization. They say that there are only some CMBS — and some tranches of CMBS — that will be hurt. They believe that the highest-rated tranches, rated triple-A, are in no danger.

They also say that CMBS could never create as much havoc as their residential cousins because of their structure: They are made of whole loans that haven’t been chopped up as much in the Wall Street sausage factory, and are based on stronger assets.

The tranches most likely to be hurt, of course, are those with the worst ratings – the triple Bs. These were the biggest victims of lax underwriting standards. According to Commercial Mortgage Alert, the boom years of 2005 through 2007 saw a total of $602 billion in CMBS issuance. (The CMBS written during those three years, by the way, account for a whopping 49% of all CMBS written over the past 20 years.) Those are likely to be the problematic securities. The CMBS written before and after don’t have as much leverage put on them, say investors.

CMBS, however, accounts for only about 20% of the total loan market, according to Jones Lang LaSalle’s Roberts. The bigger danger to the capital markets — and to banks — are speculative commercial loans, like those in construction and land loans. Those aren’t backed by firm assets and are a key part of the reason that many smaller banks have failed in recent years. It is these loans, in particular, that worry Warren and others, and could yet bring a reckoning to CRE.

There is a lot riding on the outcome of commercial real estate’s do-it-yourself salvation. If the sector can escape the same kind of crash that took down residential real estate, then we have a case study in how investors and government can prevent a crash before it happens. If it doesn’t work, however, the economy could be hit again at a moment when it is least able to bear the punch. 

Where is the CRE/CMBS crash? – Jun. 8, 2010.