Posts Tagged ‘Commercial Real Estate’
Commercial Real Estate Clouded by Delinquencies
Barely a few minutes after reading an article in the Wall Street Journal about banks finally opening the "spigot for commercial real-estate," the folks over at Trepp issued their monthly report on the delinquency rate for commercial mortgage backed securities (CMBS); let's just say it isn't good.
Commercial Real Estate Rallies
Forgive me for being ever so slightly optimistic two days in a row, but we're getting some improving numbers on the commercial real estate market, and it's worth noting.
Deficit Commission’s Proposals Could Hit Commercial Real Estate
Just when you thought the commercial real estate market was finally on the upswing, new roadblocks to recovery may be lurking right around the corner. President Obama's deficit commission recommended some steep cuts in Federal spending that could cut right through to real estate.
Will Rising Rents Spur Home Ownership?
A positive in the commercial real estate sector may be a sign of better things to come in residential housing down the road, or that's the theory. "As rents rise and the cost of home ownership declines, owning is becoming more attractive," notes California real estate analyst John Burns.
REITS on a Roll
It sounds counter-intuitive; as we continue to report all sorts of problems in the commercial real estate market, not the least of which is rising defaults in commercial mortgage-backed securities, real estate investment trusts, many of which invest in commercial real estate, are on a roll.
As housing languishes, mortgage write-downs gain appeal for banks
Eager to avoid writing down the loans on their books, banks have been extending many of them with the hope that the market will improve. Even banks that foreclosed on properties have kept them on their books, reluctant to auction them in a market where investors offer as low as 10 cents on the dollar. Now that appears to be changing, and it could have implications for property owners caught up in the sell-off. “The proverbial logjam is beginning to break up,” said Jim Anthony, CEO of Anthony & Co., a Raleigh real estate services company. As evidence, Anthony said BB&T plans to auction $1 billion of performing and nonperforming loans in the Southeast. BB&T would neither confirm nor deny reports of the auction. “BB&T continues to evaluate opportunities to best execute our problem loan disposition strategy, which may or may not include bulk sales,” said spokeswoman Cynthia Williams. BB&T has been more aggressive of late in writing down its troubled loans and moving to rid itself of some of them. The bank’s CEO, Kelly King, has indicated the strategy will continue as long as investor appetite for the loans remains at current levels. Other regional banks, including Pittsburgh-based PNC Financial Services Group and Birmingham, Ala.-based Regions Financial, are pursuing similar strategies. The move to deal with troubled real estate loans is driven partly by federal regulators who have increased pressure on banks whose capital ratios fall below a certain level. “I think the banks are coming to terms with the fact that, particularly, commercial real estate is declining in value and it’s just not coming back in the next three months or six months,” said Tony Plath, a banking professor at the University of North Carolina-Charlotte. “It’s going to be a while before we’re out of the hole as far as real estate values are concerned.” The auctions also are a sign that the gap between what the banks will take for the loans – and what investors will pay – is narrowing. “I think all of the banks have reached the point where they realize they’re not going to get 80 cents on the dollar for the value of the loans they package,” Plath said. “They’re going to be looking at something like 35 or 40 cents on the dollar, which seems to be where these loan packages are selling.” For property owners whose loans are included in these packages, the auctions could mean trouble. If an investor buys a loan for 40 cents on the dollar, that means they can foreclose on the property, auction it off and still make a profit. “The borrowers that are included in the package face much more rigorous collection efforts on behalf of the buyer,” Plath said. “(If you’re a borrower,) you really don’t want that loan sold.”
Commercial real estate yields spur investors
Yields on U.S. commercial real estate are nearing a record high compared to Treasury bonds. Many investors take that as a signal to buy property. Capitalization rates, a measure of real estate yields, averaged 7.22 percent in the second quarter, as calculated by the National Council of Real Estate Investment Fiduciaries. That was 4.29 percentage points higher than the yield on 10-year government bonds as of June 30 and 4.75 percentage points higher than Treasury yields as of Aug. 31. Current returns are near the record 5.39 percentage points in the first quarter of 2009, when the U.S. was dealing with the worst economic downturn since the Great Depression. The spread shrank to less than 80 basis points when commercial real estate prices peaked in 2007. “The data indicate that real estate is poised for a rebound,” says Gerardo Lietz, who advises pension funds on property investments. Source: Bloomberg, Hui-yong Yu
Florida Supreme Court: Amendment 3 off Nov. ballot
Amendment 3 is off the November ballot. The proposed constitutional change would have offered qualified homebuyers who had not owned a home in eight years a property tax reduction in their first year that progressively declined over time. If passed, the amendment would have also benefited commercial interests by reducing the cap on yearly taxable value increases of commercial and non-homestead properties to 5 percent, down from a 10 percent yearly cap now in place. The Tallahassee judge that removed Amendment 3 from the ballot did so because he found the wording misleading. To qualify for the property tax reduction, homebuyers had to make the purchase after Jan. 1, 2010, a fact not included in the wording voters would read in the ballot box. The judge feared some voters would approve the amendment erroneously, thinking that they would receive the new property tax break. By agreeing with the lower court decision, the Florida Supreme Court finalizes the removal. “We are, of course, disappointed that the courts removed Amendment 3 from the November ballot,” says John Sebree, Florida Realtors vice president of public policy. “However, we do see an opportunity in this. The Florida Legislature clearly favors a yearly cap on property taxes for commercial real estate, as well as a break for first-time homeowners.” Sebree says Florida Realtors will turn to lawmakers again in the 2011 session of the Florida Legislature, and believes there is a good chance of getting a stronger amendment on a future ballot. In addition, the Supreme Court struck down two other proposed amendments to the Florida Constitution, Amendment 7 and Amendment 9. Amendment 7 was an attempt to add additional standards to redistricting. Amendment 9 was the “health care freedom” amendment that would have banned a mandate that individuals purchase health insurance. The court allowed two redistricting amendments to remain on the ballot, Amendment 5 and Amendment 6.
Commercial conditions favor business growth
Commercial real estate sectors, hurt by weak job growth, are offering incentives in many areas that are conducive to business expansion, according to the National Association of Realtors®. Lawrence Yun, NAR chief economist, said fallout from the recession continues to impact commercial real estate. "Vacancy rates are beginning to level off in some sectors, but rent discounts and moderate levels of landlord concessions are widespread," he said. "This is very much a tenant's market, which is quite favorable for businesses that are considering expansion. It's also encouraging that there is a modest improvement in the sentiment of commercial real estate practitioners." The Society of Industrial and Office Realtors' "SIOR Commercial Real Estate Index," an attitudinal survey of more than 600 local market experts, finds vacancy rates are beginning to level, but rents remain depressed, and subleasing space is high. The SIOR index, measuring 10 variables, rose 2.8 percentage points to 41.0 in the second quarter, but remains well below a level of 100 that represents a balanced marketplace. This is the third consecutive quarterly improvement after nearly three years of decline; the last time the commercial market was in equilibrium at the 100 level was in the third quarter of 2007. Fifty-seven percent of respondents expect improvements in the office and industrial sectors in the third quarter. Commercial real estate development remains stagnant in all regions with low investment activity; 88 percent of respondents said it is virtually nonexistent in their markets, but development acquisitions are beginning to grow in many areas in what is described as a buyer's market. Looking at the overall market, vacancy rates will shift modestly in the coming year according to NAR's latest Commercial Real Estate Outlook. The NAR forecast for four major commercial sectors analyzes quarterly data in the office, industrial, retail and multifamily markets. Historic data were provided by CBRE Econometric Advisors. Office Markets Vacancy rates in the office sector, with high levels of available sublease space, are expected to increase from 16.7 percent in the second quarter of this year to 17.0 percent in the second quarter of 2011, and then ease later next year. The markets with the lowest office vacancy rates in the second quarter were New York City, Honolulu and Long Island, N.Y., with vacancies around the 9 to 11 percent range. Annual office rent should fall 2.7 percent this year and decline another 2.1 percent in 2011. In 57 markets tracked, net absorption of office space, which includes the leasing of new space coming on the market as well as space in existing properties, is projected to be a negative 13.6 million square feet this year and then a positive 22.6 million in 2011. Industrial Markets Industrial vacancy rates are likely to decline from 14.1 percent in the second quarter of 2010 to 13.7 percent in the second quarter of 2011, and then continue to ease modestly as the year progresses. The areas with the lowest industrial vacancy rates in the second quarter were Los Angeles, San Francisco and Kansas City, with vacancies ranging between 8 and 11 percent. Annual industrial rent is estimated to drop 5.4 percent this year, and to decline another 4.7 percent in 2011. Net absorption of industrial space in 58 markets tracked is seen at a negative 31.7 million square feet this year and a positive 157.2 million in 2011. Retail Markets Retail vacancy rates should hold steady at 13.1 percent in both the second quarter of this year and in the second quarter of 2011, with a level pattern for most of next year. Markets with the lowest retail vacancy rates in the second quarter include San Francisco, Honolulu and Miami, with vacancies of 7 to 8 percent. Average retail rent is expected to decline 2.6 percent in 2010 and then flatten out, slipping 0.1 percent next year. Net absorption of retail space in 53 tracked markets is forecast to be a negative 2.3 million square feet this year and then a positive 6.4 million in 2011. Multifamily Markets The apartment rental market – multifamily housing – is benefiting from modestly higher demand. Multifamily vacancy rates are likely to decline from 6.0 percent in the second quarter of this year to 5.6 percent in the second quarter of 2011. Areas with the lowest multifamily vacancy rates in the second quarter include San Jose, Calif.; Pittsburgh; and Philadelphia, with vacancies of less than 4 percent. With additions from new construction, average rent should slip 0.6 percent in 2010, and then hold even in 2011. Multifamily net absorption is expected to be 105,200 units in 59 tracked metro areas this year, and another 138,000 in 2011.
Florida Supreme Court considers Amendment 3
The Florida Supreme Court heard arguments yesterday supporting, and also opposing, the ballot wording of a proposed amendment to the Florida Constitution, Amendment 3. Created by the Florida Legislature in 2009 to boost home sales, Amendment 3, if added to the constitution, would give homebuyers who have not owned a primary residency in the previous eight years an additional property tax break; it would also lower the yearly tax appraisal cap for rental property and commercial real estate from 10 percent to 5 percent. The point of dispute, however, is not over what the amendment would do; rather, it's about the wording voters would read in the ballot box and whether it adequately explains what would happen should it become effective. A lower court judge earlier removed Amendment 3 from the ballot, saying the wording misled voters. The key point of contention focused on the effective date of the property tax break – Jan. 1, 2010 – which is not mentioned in the amendment. The judge feared some voters would opt to approve it thinking, incorrectly, that they would get the tax break if it passed. Florida Realtors earlier filed an amicus brief supporting the amendment, prepared by attorneys Vicki Weber and David Powell of Hopping, Green, and Sams. While the Supreme Court justices did not issue a decision yesterday, few of the six justices present for oral arguments seemed inclined to place the amendment back onto the ballot. Trey Price, a Florida Realtors public policy representative, said lawyers advocating removal of Amendment 3 presented a strong case before the Supreme Court due to the omission of the effective date. A decision is expected by early September before the state prints absentee ballots. "If Amendment 3 does, in fact, not appear on the November ballot, Florida Realtors' State and Local Taxation Subcommittee is ready to discuss the next steps and plan for a better amendment for 2012," Price says. "Economists are telling us that commercial property assessments are unlikely to exceed 5 percent in the coming two years, so that is somewhat good news." © 2010 Florida Realtors®
