Bottom is near for building owners; recovery is another matter - latimes.com
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Monday, January 25, 2010
Tuesday, January 19, 2010
Monday, January 11, 2010
A Swift Turn-Around in 2010
With plummeting rents and market values the lasting impression of 2009, many industry analysts welcome this news with a much-needed sigh of relief. Nearly every commercial real estate market across the country, including the So. C al commercial real estate market, has seen commercial real estate values take a tumble and commercial real estate sales fall flat.
Forecasters expect a turn-around once the market bottoms out, as many cash-rich investors seem to be waiting along the sidelines for the last of the foreclosures, loan workouts and defaults to hit the market by then. In other words, there are some investors with very fat wallets just waiting to jump in on one-in-a-lifetime opportunities when it comes to commercial real estate.
In addition to the purchase of Los Angeles commercial real estate, leasing activity is expected to increase, as well, thanks to dropping lease prices.
Some of the industry groups that show this rebound in 2010 include: the Real Estate Roundtable, the MIT Center for Real Estate, the National Multi-Housing Council, Pricewaterhouse Coppers and the Urban Land Institute.
The bottom line is that, amidst all of the doom and gloom of 2009, 2010 is expected to bring some great opportunities.
Wednesday, January 6, 2010
Economy will continue to weigh down the commercial real estate sector this year | Real Estate | PE.com | Southern California News | News for Inland So
Wednesday, January 6, 2010
By JACK KATZANEK
The Press-Enterprise
The economy will continue to weigh down the commercial real estate sector this year, but a company with a heavy presence in Inland Southern California believes the free-fall is probably over.
Grubb & Ellis Co., which offers leasing and investment services for commercial tenants and builders in Riverside and San Bernardino counties, is predicting demand for commercial space will be flat in 2010. The company's 2010 forecast suggests more declines this year, but also that a bottom is in sight.
The Inland economy did show some signs of stabilizing in November and December, but few are bullish about employers in the region adding significant numbers of new jobs in 2010. That means it is unlikely they will need additional office or warehouse space.
Job growth forecasts for the area vary, but the consensus suggests there will be little growth. Unemployment did decline in the two-county area in November, the most recent month for which there is data, and the region had some job growth in October and November.
That was among several indicators that signaled the recession ended in the second half of 2009. Grubb & Ellis' forecasters say that this means some fresh investment could enter the game in the form of bargain-hunters.
"Buyers with cash are well-positioned to acquire properties at a discounted rate," Mano Leventakis, managing director of the company's Inland Empire operation, said in a statement.
There are worries that a wave of foreclosures is coming in this sector in 2010, but Grubb & Ellis predicts this concern is probably "an exaggeration." The dollar value of outstanding commercial mortgages adds up just a fraction of the residential mortgages that led to the subprime meltdown.
Leventakis said that the gap in what investors are willing to pay for distressed properties and what the lenders holding the mortgages will sell for will narrow in the second half of the year. This will stave off many potential foreclosures.
Mary Sullivan, the former research director in Grubb & Ellis' Inland office and now a consultant, said there won't be a quick bounce for commercial real estate in the first half of this year.
"I don't think things will be substantially better by mid-year," Sullivan said. "But by the end of the year and into 2011 it will level out a little more."
Sullivan agrees that, nationally, the fears of a wave of foreclosures could be overstated, but it's a bigger concern for the Inland area because many tenants are not as well established as they are elsewhere. That could worry investors.
Another issue is the willingness of banks to back future investment.
"I think the financing issue is still going to be a major unknown for 2010," Sullivan said. "It affects the business side, but it also affects a tenant's ability to expand."
How Commercial Real Estate Could Trigger a Double-Dip
Written by: CHARLES HUGH SMITH
Reports that commercial real estate (CRE) is suffering from a double whammy of soaring vacancies and declining valuations have been making news recently with sobering regularity. DailyFinance addressed the risks that CRE meltdowns pose to banks in early December. And in a stunning confirmation, just weeks later Morgan Stanley announced it was "walking away" from five San Francisco office towers, giving them back to the lenders. These accounts address the impacts on real estate investors, banks and hard-hit locales such as Southern California. But a bigger, often-overlooked, risk is the potential for CRE to remain a drag on the U.S. economy for years to come, or its potential to trigger a slide back into recession -- the so-called double dip that many fear.
Four primary factors are behind the tumble in CRE prices -- and they're eerily similar to those that powered the residential housing boom and bust:
Overbuilding in marginal locales that lacked adequate jobs and services to support massive new commercial construction (malls, hotels, business parks, resorts, etc.)
Excessive valuations fueled by low interest rates and easy credit
Highly leveraged bets on future appreciation
A banking sector that's extremely vulnerable to write-downs and losses from foreclosures
How much have prices tumbled? According to Moody's/REAL Commercial Property Price Index, CRE prices have plummeted 41% from the peak in 2007. Or in many cases, even more. For example, a hotel in Hawaii that sold for $250 million with a $230 million mortgage a few years ago is now only worth about half that amount.
It Starts With the Banks
In a recent research report, Deutsche Bank analysts expect 75% of current CRE loans won't qualify for refinancing. With more than $2 trillion in CRE debt maturing from now until 2013, that suggests $1.5 trillion cannot be "rolled over" into new loans. Part of this crunch stems from the fact that commercial property loans are typically shorter-term than residential mortgages; most common are terms of five to seven years.
Of course, speculators aren't the only ones who are losing big. The banks that provided the mortgages are in trouble, too -- and that's where the problems in CRE can start weighing down the entire U.S. economy.
Over the next few years, the Deutsche Bank analysts estimate CRE losses to lenders of $200 billion to $300 billion. With banks already reeling from losses stemming from U.S. residential real estate's 30% decline from its 2006 peak of $20 trillion (a value set by Federal Reserve data), the analysts believe that "hundreds of banks, mainly smaller community and regional banks, are likely fail." These losses will hit vulnerable regional banks especially hard because they loaded up on commercial loans in recent years.
Don't Bet on Another Bailout
Will the banking sector once again require taxpayer bailouts as these huge losses start draining regional banks' reserves, pushing them toward insolvency? It's unlikely the public will support another TARP-type rescue. It's perhaps even more unlikely that politicians will risk their careers in an election year by supporting yet another massive bailout of lenders that knew -- or should have known -- the risks inherent in highly leveraged CRE loans.
What will happen as banks absorb billions of dollars in new losses, thanks to the meltdown of CRE? They'll have much less money to lend to other borrowers. And that contraction of credit in a fragile economy could trigger a double-dip recession. Anyone believing that banks are "on the road to recovery" hasn't factored in the hundreds of billions of dollars in CRE losses forecast by industry analysts.
Property values are another problem. In that area, CRE faces significant structural headwinds to a recovery. Perhaps the single most important one is the contraction of the consumer economy that supported seemingly endless expansion of malls and other retail space. Consumers' net worth has fallen by about $12 trillion, their incomes are either flat or declining, taxes are rising across the board (income, sales, property, etc.) and baby boomers face the generational task of saving far more for their retirement than seemed necessary at the top of the housing bubble.
That boils down to less money available to spend on discretionary goods and services, and hence less demand for retail space and for resorts and hotels.
Cyberspace Means Less Commercial Space
The steady growth of Internet shopping also saps the demand for bricks-and-mortar retail space. Web-based shopping has already reordered the bookselling industry and is well on the way to permanently reducing demand for other retail outlets.
Beyond retailing, the Net is also transforming demand for office space, as increasing numbers of knowledge workers telecommute from home, cafés or other decentralized locations. That means less need for office cubicles -- and for conference rooms, considering that teleconferencing and other Web-based communications are eroding the old model of business travel and meetings. This also means less demand for business-related hospitality services, such as hotels and restaurants.
Add these structural headwinds to the unavoidable heavy losses and write-downs facing CRE lenders, and you get a recipe for a major drag on lending, banking profits, property taxes, employment, construction and all the other sectors of the economy.
Whether these forces will tip the U.S. into a double-dip recession depends on many other factors, but they certainly have the potential to add to the contraction of credit that's bedeviling wide swaths of the economy. And we all know what happens when credit disappears.
Monday, January 4, 2010
A new year a new beginning
As we enter this first week of the new year, we sit with anticipation and excitement for what the coming year will bring for us. A new year is always welcomed with a sort of rejuvenation and new beginnings. With the creation of Mogul Launcher, we feel no different. We are very excited for our impending launch of our new real estate business in hopes that it will bring a rejuvenation to the real estate industry. We are in the process of incorporating our company, tidying up our business plan and seeking proper funding to move forward. We have made a number of contacts with a variety of professionals to further benefit and serve you. We are very excited about the design company that we have hired to paint our thoughts and ideas to the web and assist us in our marketing materials. We have worked tirelessly these past 6 months with you, our customers, in mind in order to assist and guide you in your property investments. Mogul Launcher's staff is a combination of real estate and marketing professionals that have one goal in mind, "How do we best serve our clients?" With that question in mind, we will always strive to be one step ahead of your needs and help you attain your goals. We will post our progress as we inch closer to our launch and will continue to post articles keeping you up to date in the real estate world.
Posted by: Mogul Launcher
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