Category Archives: Finance

Commercial Real Estate Distress Far From Over, Survey Shows

With high unemployment pushing up vacancies, no credit capacity, and property values plummeting, commercial real estate markets remain extremely stressed with little prospect for significant near-term improvement, according to The Real Estate Roundtable’s latest quarterly survey of senior commercial real estate executives.

All three indices tracked by the “Sentiment Survey” have risen considerably since the near-collapse of financial markets last fall–a reflection of respondents’ collective sense of relief at having survived the worst of the turmoil, and the extreme uncertainty and paralysis of last year giving way to a greater sense of acceptance of market realities. However, the latest numbers–particularly the “Current Conditions” reading of 56–remain well below the ideal 100.  An overall index of 100 means all survey respondents have answered that conditions today are “much better” than they were a year ago, and will be “much better” 12 months from now.

“The problems now are more clearly defined and there’s a grim sense of reality setting in, but that’s a long way from saying markets are stabilizing or that conditions are on the mend,” said Roundtable President and CEO Jeffrey DeBoer. “With job losses mounting, consumer confidence in the doldrums, and a relapse of the recession still possible, additional policy action is needed to restore credit availability–the lubricant of the economy and job creation–and to address the equity shortage resulting from falling commercial property values,” DeBoer continued.

An overwhelming majority of the 100+ respondents in the Q4 survey said property values are down today vs. a year ago, although the percentage declined to 77 percent from 93 percent in the previous quarter. But respondents were far from optimistic about future valuations, with 71 percent saying they expect values to remain “about the same” or to erode even further in the next 12 months.

“So-called “zombie buildings” and empty storefronts on Main Street will only mean bigger budget shortfalls for local governments, more layoffs for construction, hotel and retail workers, and further devaluation of investment portfolios held by individual and institutional investors,” DeBoer added. Continue reading

A Little Bit Bullish

arew“I can’t believe I’m here being a little bit bullish,” said Barry M. Gosin, CEO of Newmark Knight and Frank at the November 3 Association of Real Estate Women luncheon.

Gosin said he is seeing positive absorption in the Midtown market and that his firm was having a good fourth quarter. He admitted, however, that the first quarter of 2009 set the bar so low that anything would look better.

“I was so bearish for so long, for probably four years, that everyone got tired of hearing me cry wolf,” Gosin said.

David R. Greenbaum, president of Vornado Office, said the market is extraordinarily healthy when you look back 12 months when the industry was facing disaster. No business wanted to make leasing decisions a year ago because they weren’t sure that they were going to survive.

Greenbaum said, “As tenant brokers, we’ve said to tenants, ‘if you’re confident that your business will survive, this is the time to look into a long-term lease.’”

Rents have dropped and velocity is down. For example, a building that rented office space at $90 a square foot at the height of the market, will rent that same space today at $65 a square foot.

With an office vacancy rate of about 14 percent, Gosin said tenants will move to financially stable buildings with good owners and managers and stay away from signing leases in “zombie buildings” that are financially troubled. Continue reading

“It Will be a Bleed Out, Not a Tsunami”

Lenders are taking properties back from borrowers, but rather than selling buildings in this market, they’re managing the assets in house, according to Dave Karson, managing director of Cushman & Wakefield Sonnenblick Goldman.

“It will be a bleed out, not a tsunami,” Karson said of the commercial real estate market. “Lenders will hold onto the assets.”

Karson was one of the speakers on a recent National Realty Club panel, “Current Mortgage Financing and Joint Venture Opportunities” that was moderated by Allan Riley. Continue reading

CMBS Market May Get First Issue in Over a Year

Bloomberg News reported on Oct. 9 that the first new commercial mortgage backed security issued since June 2008 may be sold by Goldman Sachs Group Inc. The article said the underlying asset is a $400 million loan to Developers Diversified Realty Corp. that it is secured by 28 shopping centers. Goldman and Developers Diversified are seeking to include the loan in the Fed’s TALF program, the article said.

Anti-Business Party Wins City Elections

As if the commercial real estate industry in New York City doesn’t have enough to worry about, the Working Families Party, which launched a major campaign last spring in Albany to push for stronger rent laws, claimed major victories in the September 15 Democratic primary and September 29 runoff.

 A March 10, 2009, press release on the WFP Web site said repealing vacancy decontrol was a top priority. The measure died last spring, but Dan Cantor, executive director of the WFP, promised on the night of the runoff to revive the issue. 

John Liu, who was supported by the WFP, won the Democratic runoff for New York City Comptroller with a little more than 26,000 votes. Around 228,000 New Yorkers voted in the runoff, with about 127,000 voting for Liu and 101,000 voting for David Yassky.

The WFP Web site boasted that Liu and Bill DeBlasio, the winner of the runoff for Public Advocate, were victorious because of the WFP’s coalition of neighborhood leaders, union members, tenant activists, advocates for the homeless, and just good old-fashioned civic-minded citizens.

Less than 8 percent of New York City’s voters voted in the runoff and the winning candidates were supported by a coalition that is anti-business, hostile to the real estate industry, and an advocate for tax increases. This at a time when the city is suffering from more than 10 percent unemployment and New Yorkers are desperate to find jobs. The  unions making up the core of the WFP haven’t suffered massive job losses experienced by those working in small businesses, retail, media, advertising, finance, real estate, nonprofits and other sectors.

As part of its anti-business agenda, the WFP is now advocating that the City Council force small businesses to provide paid sick time. The Five-Borough Chamber Alliance affirms its opposition to Intro. No. 1059, Provision of Paid Sick Time Earned by Employees, that will mandate businesses – regardless of size – to provide paid sick time.  Businesses with 10 or less employees will be required to provide five days of sick time to all employees and businesses with 10 or more employees will be required to provide nine days sick time for all employees.  Businesses found in violation will be subject to $1,000 fine for each infraction.

Ed Koch and David Yassky wrote about the WFP threat in the New York Daily News on October 7, 2009.  “..as ‘liberals with sanity’ we see danger when narrow agendas overwhelm the public good. That happened this spring when the WFP masterminded a whopping 9% increase in state spending in a year when the state’s economy is actually contracting. The spending was financed by a steep tax hike and in part by more than $6 billion in one-time-only federal stimulus money–which will leave a gaping budget hole for next year.

“Or a few years ago,” the article continued, “when the WFP pressured a majority of the City Council members to sign on to a proposal for a ‘stock transfer tax’ in New York City. Sticking it to Wall Street may sound good to a lot of people–all the more so now–but a moment’s thought should tell you that the idea would be ruinous for New York.”

“The problem is the WFP is driven not simply by ideology, but also by the very specific interests of its component parts–namely, the city’s largest labor unions. These organizations have a very direct financial stake in the state and city budgets, an interest that is often at odds with public interest.”

See the full article here:

http://www.nydailynews.com/opinions/2009/10/07/2009-10-07_the_working_families_threat.html

Times Reports Debt-Securitization Markets Still in Disarray

The New York Times reported today that even though the government funneled billions of dollars into major financial institutions after the financial crisis began last year, credit is still tight because the debt securitization markets aren’t functioning.

The article by Jenny Anderson explained that the securitization of corporate loans, home mortgages, commercial real estate, student loans, and others made up roughly 60 percent of the credit in the United States before the crisis, and that private investors abandoned them after the collapse of subprime mortgage market.  For example, securities backed by home loans fell from $744 billion in 2005 to $8 billion in the first six months of 2009.  

Experts quoted in the article said the securitization markets are critical to increasing bank lending and economic growth. Of particular concern are the “$50 billion of securitized commercial property loans due to be refinanced in the next year. If this can’t be done, a toxic mix of declining property prices and maturing loans could lead to fresh losses at many banks” Anderson wrote.  The government has used the Term Asset-Backed Securities Loan Facility (TALF) to encourage investment in these markets.

Access the article here http://www.nytimes.com/2009/10/07/business/economy/07shadow.html?emc=eta1

A Bit Better, but Very Far from Best

William Dudley, president and CEO of the New York Fed

William Dudley, President and CEO of the New York Fed

 

New York Fed President and CEO William C. Dudley said in a recent speech that the capitalization rate for commercial real estate has climbed sharply and income generated from real estate has been falling, resulting in “rollover risk” when commercial real estate loans and mortgages mature and need to be refinanced. He predicts more pain lies ahead for the sector.

Here’s the full text of his Oct 5, 2009 remarks at the Fordham Corporate Law Center Lecture, New York. Continue reading