By Chris McLaughlin
Over the past 18 months, the government has taken extraordinary steps to keep the housing market viable. Home sales reversed their four-year descent, and prices stabilized. So far. But it has cost $126 billion to date, and the bill is still growing. What’s next? With the Obama administration largely mute on the issue, Congress will hold its first hearing today about how to restructure the mortgage system in the wake of the financial crisis. “Don’t make the American taxpayer responsible for handling speculative situations or bubbles,” he said. Rep. Spencher Bachus, ranking Republican on the committee, said in a subsequent CNBC interview that he would prefer government exit the industry entirely. “We need to phase it out over time,” he said. “America is about competition and innovation. The federal model simply is not the efficient model.” Working out a new system is likely to take years. For the time being, the market is still resting on three government pillars: Fannie, Freddie and the Federal Housing Administration. And even staunch free-market advocates who want to get rid of Fannie and Freddie in the long run agree that the housing recovery remains too fragile for the government to step away anytime soon. “The first priority is we have to keep financing homes, and we don’t have a way to do that without Fannie and Freddie,” said Peter Wallison, a senior fellow at the conservative American Enterprise Institute. “We have to deal with the realities of where we are today.” Since the government took over Fannie and Freddie, Obama officials have given few details on their long-term thinking, apart from saying that they want to delay a legislative proposal until next year.
DSNews.com – short sales now number 1
According to the latest Campbell/Inside Mortgage Finance Monthly Survey of Real Estate Market Conditions, last month distressed properties – those involving homes acquired as part of a foreclosure or pre-foreclosure sale – accounted for 48.1% of the home purchase transactions tracked by the survey. The February numbers were up significantly from the 37.3% level recorded as recently as November. It was also the highest distressed property market share seen since last July. Stepped up government efforts, including temporary foreclosure moratoriums and a push to qualify more financially troubled homeowners for mortgage modifications, temporarily reduced the number of distressed properties coming on the housing market in the fall and much of this past winter. But now a growing number of distressed properties appear to be hitting the housing market. There are three major types of distressed properties: damaged REO, move-in ready REO, and short sales. During the period from November to February, sales in all three categories rose. Damaged REO grew from 12.3% to 14.4%; move-in ready REO grew from 12.6% to 16.6%, and short sales grew from 12.4% to 17.1%. “Short sales now account for the No. 1 category of distressed property,” commented Thomas Popik, research director for Campbell Surveys. “Losses on short sales are typically lower than for REO, and both lenders and the government are pushing programs to facilitate short sales. But as more and more people default or simply want to walk away from their properties, mortgage servicers are having trouble expeditiously processing these complicated transactions.”
More regulation needed
Philadelphia Federal Reserve Bank President Charles Plosser said yesterday that better regulation is needed to dissuade financial market players from taking excessive risks after the “too big to fail problem” undermined discipline. “The too big to fail problem has essentially removed much of that market discipline,” Plosser told an economic conference in Prague. “We have to have ways of disciplining the actors in the marketplace so that they don’t take excessive risks, and in many cases the market can do that and do that quite effectively. But when we protect creditors, when we protect people from failure, we encourage them to take risks.” Bernanke made clear at the weekend that large financial firms continued to play a crucial role in the global economy, and Plosser said different, but not necessarily more regulations were needed. “Government regulation and government oversight will never replace the marketplace officially … when there is regulation they will look for ways around that regulation in order to be successful,” he said. “We will always as regulators be behind that curve. The only way we can be effective in protecting financial stability is to have regulations and rules that complement and encourage more market discipline, not replace it.” If only things were as simple as adding more bureaucrats.
DSNews.com – seven more banks fail
The FDIC’s failed bank list jumped to 37 for the year after seven more community banks fell over the weekend – three in Georgia, and one each in Alabama, Minnesota, Ohio, and Utah. Appalachian Community Bank in Ellijay, Georgia had 10 branch locations, with $1.01 billion in total assets and $917.6 million in deposits. Bank of Hiawassee, based in Hiawassee, Georgia, ran five branches and had $377.8 million in assets and $339.6 million in deposits. Century Security Bank in Duluth, Georgia operated two branches and had $96.5 million in assets and $94 million in deposits. First Lowndes Bank in Fort Deposit, Alabama was a four-branch institution, with $137.2 million in assets and $131.1 million in deposits. Minnesota’s State Bank of Aurora operated out of a single branch office. It had $28.2 million in assets and $27.8 million in deposits. The single branch of American National Bank in Parma, Ohio had approximately $70.3 million in assets and $66.8 million in deposits. Bank Corp. in Draper, Utah, had $1.6 billion in assets and $1.5 billion in total deposits.
Goodbye to Acorn
The Association of Community Organizers for Reform Now
(ACORN) will no longer darken our doors nationally, after a meeting of the board over the weekend. The fate of the local branches remains unclear. Although the majority will cease operation on April 1, as the non-profit continues to look for ways to settle its debts, some may rebrand themselves and operate around under a different name. In an e-mail sent to reporters, ACORN said: “[We] have a great deal to be proud of — from promoting homeownership to helping rebuild New Orleans, from raising wages to winning safer streets, from training community leaders to promoting voter participation— ACORN members have worked hard to create stronger to communities, a more inclusive democracy, and a more just nation.” ACORN began a turn for the worst when, in September, videos emerged online of ACORN workers allegedly giving some fraudulent advice to filmmaker James O’Keefe and his associate, Hannah Giles. House Republicans last year began an investigation into how Acorn’s political arm was funded. Republican investigators on the House Oversight and Government Reform Committee determined that “there were no firewalls” between Acorn’s federally subsidized housing activities and its political wings, said Kurt Bardella, a spokesman Rep. Darrell Issa, the top Republican on the committee. Officials of Acorn Housing, created by the main Acorn group in the mid-1980s, have said they had a separate board and budget, though the two organizations shared office space in some cities. Congress last year cut off federal funding for Acorn Housing. Federal money last year provided about three-quarters of the group’s budget of $24 million. A large offshoot formerly known as Acorn Housing, which counsels low-income homeowners, has changed its name to Affordable Housing Centers of America and plans to continue operations.
Wednesday, March 24, 2010
Tuesday, March 23, 2010
The Curious Case for a Real Estate Shortage
by BRIAN DAVIS
At a time when almost everyone in the real estate industry, and most homeowners trying to sell, are desperate for more buyers and market activity, some analysts are predicting a real estate shortage in the next few years.
Really? Is a real estate shortage even possible in the foreseeable future?
David Crowe, the head economist for the National Association of Homebuilders, is arguing forcefully that America will in fact see a real estate and rental lease shortage in the coming years, and points to the relatively little real estate development currently underway (about 591,000 new homes in 2010, and 87,000 new rental lease units). Population growth and its subsequent demand should outstrip those figures pretty easily.
But wait a minute – is David Crowe a reliable source? He’s paid to push for more real estate development! Still, the argument is so brazen, so counterintuitive, that perhaps there’s something there.
Consider for a moment that the number of distinct households has contracted quite a bit since early 2008, as more people are living under a single roof to consolidate resources and slash expensive rental lease or mortgage costs. Single and young people in particular who lose their jobs or take pay cuts are often quick to move in with a friend or with family, or to sign a rental lease on an extra bedroom in their home to help pay the bills.
Then there are the people who would likely have moved out on their own, but didn’t because of the poor job market. Many in Generation Y are camping out with Mom and Dad for an extra year or two to save money and slash costs, where a few years ago their counterparts were quick to go sign a rental lease on a flashy apartment in the drinking district of their local city.
In short, the demand for real estate is artificially contracted at the moment, and is poised to expand back to normal levels as soon as jobs reappear and people feel confident in signing a new deed or rental lease.
But here’s where things get interesting: there are currently about 14.2 million vacant homes in America right now, which is a discouraging high number for any real estate professional. It will take years to fill all of those vacant homes, even using the most generous estimates of population growth and expansion in the number of households. And it doesn’t matter.
A hefty percentage of that vacant real estate sits in areas that will either not recover economically, or will recover slowly, and those homes are effectively irrelevant for the housing recovery. Because the demand for real estate will follow the job recovery, what we’ll see is a rental lease and real estate shortage erupt in areas where employment recovery blossoms, as hungry job seekers eagerly move where the jobs are. Rural areas, and systemically depressed areas (such as much of Michigan and Ohio), will sit fallow and all of their vacant real estate will have not the slightest effect on housing demand.
There may well be a housing shortage, as our biased friend Mr. Crowe suggests. If and when it comes, it will be extremely location-sensitive, with hot pockets of demand and large swaths of untouched, unwanted real estate.
At a time when almost everyone in the real estate industry, and most homeowners trying to sell, are desperate for more buyers and market activity, some analysts are predicting a real estate shortage in the next few years.
Really? Is a real estate shortage even possible in the foreseeable future?
David Crowe, the head economist for the National Association of Homebuilders, is arguing forcefully that America will in fact see a real estate and rental lease shortage in the coming years, and points to the relatively little real estate development currently underway (about 591,000 new homes in 2010, and 87,000 new rental lease units). Population growth and its subsequent demand should outstrip those figures pretty easily.
But wait a minute – is David Crowe a reliable source? He’s paid to push for more real estate development! Still, the argument is so brazen, so counterintuitive, that perhaps there’s something there.
Consider for a moment that the number of distinct households has contracted quite a bit since early 2008, as more people are living under a single roof to consolidate resources and slash expensive rental lease or mortgage costs. Single and young people in particular who lose their jobs or take pay cuts are often quick to move in with a friend or with family, or to sign a rental lease on an extra bedroom in their home to help pay the bills.
Then there are the people who would likely have moved out on their own, but didn’t because of the poor job market. Many in Generation Y are camping out with Mom and Dad for an extra year or two to save money and slash costs, where a few years ago their counterparts were quick to go sign a rental lease on a flashy apartment in the drinking district of their local city.
In short, the demand for real estate is artificially contracted at the moment, and is poised to expand back to normal levels as soon as jobs reappear and people feel confident in signing a new deed or rental lease.
But here’s where things get interesting: there are currently about 14.2 million vacant homes in America right now, which is a discouraging high number for any real estate professional. It will take years to fill all of those vacant homes, even using the most generous estimates of population growth and expansion in the number of households. And it doesn’t matter.
A hefty percentage of that vacant real estate sits in areas that will either not recover economically, or will recover slowly, and those homes are effectively irrelevant for the housing recovery. Because the demand for real estate will follow the job recovery, what we’ll see is a rental lease and real estate shortage erupt in areas where employment recovery blossoms, as hungry job seekers eagerly move where the jobs are. Rural areas, and systemically depressed areas (such as much of Michigan and Ohio), will sit fallow and all of their vacant real estate will have not the slightest effect on housing demand.
There may well be a housing shortage, as our biased friend Mr. Crowe suggests. If and when it comes, it will be extremely location-sensitive, with hot pockets of demand and large swaths of untouched, unwanted real estate.
Monday, March 15, 2010
Commercial real estate: A protracted recovery
Thu, 2010-03-11 12:09 — Michael Lagazo
Rising vacancies and falling rents are impacting all sectors of commercial real estate. Landlords are focusing on tenant retention and negotiating lease extensions at low rents with favorable allowances to sustain revenues. The Beige Book Jan. 13, 2010 Summary indicated that while economic activity remains at a low level, conditions have improved modestly further, and those improvements are broader geographically than in the last report. Commercial real estate markets deteriorated in most districts based on information collected on or before Jan. 5, 2009. Commercial real estate transactions and leasing activity are minimal with isolated minor increases in sales. Commercial construction activity is reported to be shrinking rapidly (http://bit.ly/7zmicc).
Bloomberg reporters, Beth Williams and Stuart Bern, note that U.S. commercial real estate prices have fallen more than 40 percent from their peak in October 2007, while the default rate on commercial mortgages more than doubled in the third quarter of 2009 to 3.4 percent from the previous year, according to data compiled by Moody’s Investors Service and Real Estate Econometrics.
Grubb & Ellis indicates that in 2010, commercial real estate fundamentals will decline more slowly than in 2009, with most property types reaching bottom near the end of 2010 and beginning a slow recovery starting in 2011. Robert Bach, senior vice president, chief economist at Grubb & Ellis, reports in the Jan. 19, 2010 Weekly Market Insight that vacancy rates in Q4 2009 increased by 30 basis points for office and 20 basis points for industrial compared with third quarter gains of 50 and 30 basis points, respectively. This raises the possibility that the office and industrial leasing markets may bottom out as early as mid-year with modest, positive absorption possible in the second half of 2010.
As featured in the Jan. 19, 2010 National Real Estate Investor podcast titled, “Commercial Real Estate: Hey, Save a Piece of Stimulus Pie for Me!”, John B. Levy, founder of John B. Levy and Company, the real estate investment banking firm, does not anticipate resurgence in commercial real estate values until 2011. Levy offers a clearly improved outlook for 2010 compared to last year, anticipating a protracted recovery of values and pricing with gradual increases depending on how the economy grows as well as the rebirth of commercial mortgage-backed securities (CMBS). According to Levy, the first and second quarters of 2010 will be slow improving in the second half of the year, but favorable overall compared to 2009’s totals.
In a Jan. 13, 2010 Bloomberg interview, Kenneth Laub, a broker for five decades, and consultant and founder of Kenneth Laub & Company, is said to have handled more than $40 billion of real estate transactions since its inception in 1969, says, “It’s not a supply/demand thing; it’s an overleveraged condition." Unlike previous cycles driven by supply and demand where inventories have been overbuilt making it a landlords’ market or diminished rents make it a tenants’ markets, the current market is driven by a need to deleverage. Ultimately, Laub said that a coming recovery will extend beyond typical periods of two to three years. “It won’t be a typical part of a cycle where we’re down for two or three years and things recover. It will be longer than we’ve gone through before.”
Wall Street Journal Real Estate Reporter Christina S.N. Lewis explains that, despite property prices bottoming, a large number of commercial assets remain underwater, with loans worth more than the property's value. That distressed debt totals hundreds of billions of dollars on bank balance sheets and in commercial-mortgage-backed securities held by institutional investors.
Any stabilization applies to only the top quartile of properties—fully leased buildings with steady rental income located in established markets. "[In general] I wouldn't say there's been any improvement in pricing for a property that isn't top-tier," said Robert M. White Jr., president and founder of Real Capital.
Michael Stuart elaborates in the January issue of Commercial Investment Real Estate that loan demand continues to decline or remain weak and credit quality continues to deteriorate. Amassing capital in a credit-restricted market tops real estate priorities. Stuart recommends pursuing non-traditional capital-raising options. For instance, Simon recently sold $500 million of five-year unsecured bonds priced to yield 5.46 percent, bringing the total capital Simon has raised in bond and equity offerings since March 2009 to $3.4 billion. Its cash available for strategic acquisitions, including capacity on its revolving line of credit, is now in excess of $6 billion.
Moody’s Investors Service said that commercial property prices rose one percent in November, after 13 consecutive months of declines, according to their latest Moody’s/REAL Commercial Property Price Index (CPPI).
Here are some excerpts from the Moody’s/REAL report:
►After 13 consecutive months of declining property values, the Moody’s/REAL Commercial Property Price Index (CPPI) measured a one percent increase in prices in November. Prices began falling over two years ago and significant declines were seen throughout 2009, with several months experiencing five percent-plus value drops. The one percent growth in prices seen in November is a small bright spot for the commercial real estate sector, which has seen values fall in excess of 43 percent from the peak.
►Transaction volume fell in November. Overall, 362 total sales were recorded, with an aggregate value of $4.1 billion.
►We expect commercial real estate prices to decline further in the months ahead. Prices for properties with short-term lease structures, such as multi-family, could show signs of a sustainable recovery later this year, while other property types will likely need longer to turn the corner.
“We are beginning to see some early, yet encouraging, recovery signals, as the manufacturing sector is improving,” said Craig Meyer, managing director and head of Jones Lang LaSalle’s North American Industrial Services team. National Real Estate Investor reports that rental rate appreciation is not expected to begin until consumer spending and production activity trends reverse.
“There will be giant opportunities that come out of this,” said Laub. Opportunity lies in overleveraged and underfinanced distressed assets. Record-level inventory is available in all sectors. Bargain hunting hedge funds, foreign investors and solvent real estate companies will acquire properties with diminished values. In a Jan. 19, 2010 Bloomberg interview, Laub said that prices and values will begin to stabilize once unemployment stabilizes. At approximately 200-square feet per unemployed worker, demand for space will increase once companies begin hiring.
New services are emerging as property owners seek to restructure their finances, acquire tenants or liquidate assets. In a Jan. 15, 2010 squarefeetblog post, Stan Mullin, the former head of SIOR, wrote a detailed article covering receiverships that explains how commercial agents will benefit from working with court-approved receivers to preserve the value of an asset after a default. There is a major upsurge in receiverships as a result of the crisis, and most of the major commercial real estate (CRE) firms have either revived or setup service lines to service the loan industry.
“We’re going to have a lot of new services that are going to evolve, things we haven’t seen or done before,” Laub said.
Deleveraging is just getting underway. Deleveraging takes two to three years at which time gross domestic product (GDP) growth is suppressed. The market is only at the beginning stage or renegotiating between mortgage holders and developers.
“The rebirth of the CMBS market is absolutely going to happen this year,” said Levy. “Last year, we had three CMBS deals, and that was three more than anyone predicted. The CMBS market in 2010 won’t resemble the one we knew and loved in 2007, but we will see a rebirth with reasonable and rational underwriting. I even think we’ll see the first multi-borrower CMBS deal this year.”
Rising vacancies and falling rents are impacting all sectors of commercial real estate. Landlords are focusing on tenant retention and negotiating lease extensions at low rents with favorable allowances to sustain revenues. The Beige Book Jan. 13, 2010 Summary indicated that while economic activity remains at a low level, conditions have improved modestly further, and those improvements are broader geographically than in the last report. Commercial real estate markets deteriorated in most districts based on information collected on or before Jan. 5, 2009. Commercial real estate transactions and leasing activity are minimal with isolated minor increases in sales. Commercial construction activity is reported to be shrinking rapidly (http://bit.ly/7zmicc).
Bloomberg reporters, Beth Williams and Stuart Bern, note that U.S. commercial real estate prices have fallen more than 40 percent from their peak in October 2007, while the default rate on commercial mortgages more than doubled in the third quarter of 2009 to 3.4 percent from the previous year, according to data compiled by Moody’s Investors Service and Real Estate Econometrics.
Grubb & Ellis indicates that in 2010, commercial real estate fundamentals will decline more slowly than in 2009, with most property types reaching bottom near the end of 2010 and beginning a slow recovery starting in 2011. Robert Bach, senior vice president, chief economist at Grubb & Ellis, reports in the Jan. 19, 2010 Weekly Market Insight that vacancy rates in Q4 2009 increased by 30 basis points for office and 20 basis points for industrial compared with third quarter gains of 50 and 30 basis points, respectively. This raises the possibility that the office and industrial leasing markets may bottom out as early as mid-year with modest, positive absorption possible in the second half of 2010.
As featured in the Jan. 19, 2010 National Real Estate Investor podcast titled, “Commercial Real Estate: Hey, Save a Piece of Stimulus Pie for Me!”, John B. Levy, founder of John B. Levy and Company, the real estate investment banking firm, does not anticipate resurgence in commercial real estate values until 2011. Levy offers a clearly improved outlook for 2010 compared to last year, anticipating a protracted recovery of values and pricing with gradual increases depending on how the economy grows as well as the rebirth of commercial mortgage-backed securities (CMBS). According to Levy, the first and second quarters of 2010 will be slow improving in the second half of the year, but favorable overall compared to 2009’s totals.
In a Jan. 13, 2010 Bloomberg interview, Kenneth Laub, a broker for five decades, and consultant and founder of Kenneth Laub & Company, is said to have handled more than $40 billion of real estate transactions since its inception in 1969, says, “It’s not a supply/demand thing; it’s an overleveraged condition." Unlike previous cycles driven by supply and demand where inventories have been overbuilt making it a landlords’ market or diminished rents make it a tenants’ markets, the current market is driven by a need to deleverage. Ultimately, Laub said that a coming recovery will extend beyond typical periods of two to three years. “It won’t be a typical part of a cycle where we’re down for two or three years and things recover. It will be longer than we’ve gone through before.”
Wall Street Journal Real Estate Reporter Christina S.N. Lewis explains that, despite property prices bottoming, a large number of commercial assets remain underwater, with loans worth more than the property's value. That distressed debt totals hundreds of billions of dollars on bank balance sheets and in commercial-mortgage-backed securities held by institutional investors.
Any stabilization applies to only the top quartile of properties—fully leased buildings with steady rental income located in established markets. "[In general] I wouldn't say there's been any improvement in pricing for a property that isn't top-tier," said Robert M. White Jr., president and founder of Real Capital.
Michael Stuart elaborates in the January issue of Commercial Investment Real Estate that loan demand continues to decline or remain weak and credit quality continues to deteriorate. Amassing capital in a credit-restricted market tops real estate priorities. Stuart recommends pursuing non-traditional capital-raising options. For instance, Simon recently sold $500 million of five-year unsecured bonds priced to yield 5.46 percent, bringing the total capital Simon has raised in bond and equity offerings since March 2009 to $3.4 billion. Its cash available for strategic acquisitions, including capacity on its revolving line of credit, is now in excess of $6 billion.
Moody’s Investors Service said that commercial property prices rose one percent in November, after 13 consecutive months of declines, according to their latest Moody’s/REAL Commercial Property Price Index (CPPI).
Here are some excerpts from the Moody’s/REAL report:
►After 13 consecutive months of declining property values, the Moody’s/REAL Commercial Property Price Index (CPPI) measured a one percent increase in prices in November. Prices began falling over two years ago and significant declines were seen throughout 2009, with several months experiencing five percent-plus value drops. The one percent growth in prices seen in November is a small bright spot for the commercial real estate sector, which has seen values fall in excess of 43 percent from the peak.
►Transaction volume fell in November. Overall, 362 total sales were recorded, with an aggregate value of $4.1 billion.
►We expect commercial real estate prices to decline further in the months ahead. Prices for properties with short-term lease structures, such as multi-family, could show signs of a sustainable recovery later this year, while other property types will likely need longer to turn the corner.
“We are beginning to see some early, yet encouraging, recovery signals, as the manufacturing sector is improving,” said Craig Meyer, managing director and head of Jones Lang LaSalle’s North American Industrial Services team. National Real Estate Investor reports that rental rate appreciation is not expected to begin until consumer spending and production activity trends reverse.
“There will be giant opportunities that come out of this,” said Laub. Opportunity lies in overleveraged and underfinanced distressed assets. Record-level inventory is available in all sectors. Bargain hunting hedge funds, foreign investors and solvent real estate companies will acquire properties with diminished values. In a Jan. 19, 2010 Bloomberg interview, Laub said that prices and values will begin to stabilize once unemployment stabilizes. At approximately 200-square feet per unemployed worker, demand for space will increase once companies begin hiring.
New services are emerging as property owners seek to restructure their finances, acquire tenants or liquidate assets. In a Jan. 15, 2010 squarefeetblog post, Stan Mullin, the former head of SIOR, wrote a detailed article covering receiverships that explains how commercial agents will benefit from working with court-approved receivers to preserve the value of an asset after a default. There is a major upsurge in receiverships as a result of the crisis, and most of the major commercial real estate (CRE) firms have either revived or setup service lines to service the loan industry.
“We’re going to have a lot of new services that are going to evolve, things we haven’t seen or done before,” Laub said.
Deleveraging is just getting underway. Deleveraging takes two to three years at which time gross domestic product (GDP) growth is suppressed. The market is only at the beginning stage or renegotiating between mortgage holders and developers.
“The rebirth of the CMBS market is absolutely going to happen this year,” said Levy. “Last year, we had three CMBS deals, and that was three more than anyone predicted. The CMBS market in 2010 won’t resemble the one we knew and loved in 2007, but we will see a rebirth with reasonable and rational underwriting. I even think we’ll see the first multi-borrower CMBS deal this year.”
Thursday, March 4, 2010
Real estate forecast: Time is of the essence for sellers
CB Richard Ellis, Allen Matkins highlight trends in O.C., Southern California regions.
BY TAMIRRA STEWART
Published: March 03, 2010 03:20 PM
Time is of the essence for sellers: That was the mantra that emerged from a commercial real estate forecast delivered online Wednesday by CB Richard Ellis and the Allen Matkins law firm.
The conference covered the office, industrial, retail and multi-family sectors, as well as retail investment and capital markets in Orange County and the greater Southern California region.
“Landlords need to streamline,” says Martin Togni, a partner in Allen Matkins’ San Diego office. “By the time third-party approvals are received, the deal is gone. Landlords need to be nimble.”
Industry executives who spoke during the event, which was viewed via the Internet by about 1,000 commercial real estate owners, developers, investors and tenants, encouraged quick closings and the need for sellers to "bend" to buyers' requests.
"It's not just about rent," especially in Orange County's tenant-driven office market, notes Natalie Bazarevitsch, senior vice president of CB Richard Ellis. “Buildings are competing for tenants at the same time, and tenants are carefully studying landlords.”
Orange County’s office sector can expect flat or negative absorption, with no rent growth expected until the end of this year or the beginning of 2011 – which falls in line with a number of recent reports.
But the region's quality of life, entrepreneurial spirit and proximity to major airports draws buyers in, notes Dave Desper, senior vice president of CB Richard Ellis' Newport Beach office.
“We expect price decline in leases and sales in the next couple of quarters, with recovery expected in the third and fourth quarters,” he says.
Speakers noted a number of trends to expect in Southern California's commercial real estate sector this year. Here's a breakdown of the highlights:
Office sector: Rental and vacancy rates will fall in the first half of the year, with rent growth at the end of 2010 or early 2011.
Industrial sector: Though activity has been rising, recovery is expected toward the end of the year and into 2011.
Retail sector: Rent is stabilizing, though the year will be tough. The speakers project slow growth over a long period of time.
Retail investment: Executives expect large declines in defaulting properties.
Multi-family sector: Increasing interest rates will result in a decline in values.
BY TAMIRRA STEWART
Published: March 03, 2010 03:20 PM
Time is of the essence for sellers: That was the mantra that emerged from a commercial real estate forecast delivered online Wednesday by CB Richard Ellis and the Allen Matkins law firm.
The conference covered the office, industrial, retail and multi-family sectors, as well as retail investment and capital markets in Orange County and the greater Southern California region.
“Landlords need to streamline,” says Martin Togni, a partner in Allen Matkins’ San Diego office. “By the time third-party approvals are received, the deal is gone. Landlords need to be nimble.”
Industry executives who spoke during the event, which was viewed via the Internet by about 1,000 commercial real estate owners, developers, investors and tenants, encouraged quick closings and the need for sellers to "bend" to buyers' requests.
"It's not just about rent," especially in Orange County's tenant-driven office market, notes Natalie Bazarevitsch, senior vice president of CB Richard Ellis. “Buildings are competing for tenants at the same time, and tenants are carefully studying landlords.”
Orange County’s office sector can expect flat or negative absorption, with no rent growth expected until the end of this year or the beginning of 2011 – which falls in line with a number of recent reports.
But the region's quality of life, entrepreneurial spirit and proximity to major airports draws buyers in, notes Dave Desper, senior vice president of CB Richard Ellis' Newport Beach office.
“We expect price decline in leases and sales in the next couple of quarters, with recovery expected in the third and fourth quarters,” he says.
Speakers noted a number of trends to expect in Southern California's commercial real estate sector this year. Here's a breakdown of the highlights:
Office sector: Rental and vacancy rates will fall in the first half of the year, with rent growth at the end of 2010 or early 2011.
Industrial sector: Though activity has been rising, recovery is expected toward the end of the year and into 2011.
Retail sector: Rent is stabilizing, though the year will be tough. The speakers project slow growth over a long period of time.
Retail investment: Executives expect large declines in defaulting properties.
Multi-family sector: Increasing interest rates will result in a decline in values.
San Diego economic indicators up again
By Dean Calbreath, UNION-TRIBUNE STAFF WRITER
Friday, February 26, 2010 at 12:04 a.m.
Despite public skepticism over the strength of the economy, San Diego County’s leading economic indicators continue to suggest that the long-troubled employment and housing markets are on the mend and that a recovery is in the offing, according to a report released yesterday by the University of San Diego.
Economist Alan Gin, who compiles the index for USD’s Burnham-Moores Center for Real Estate, said the numbers indicate that the decline in local economic activity has either bottomed out or will probably bottom out by June. But he warned that the jobless rate, which has been in the double digits since last June, is likely to stay high even after the economy sputters back to life.
“Employment is typically a lagging indicator, as firms usually wait until they are sure that a recovery has taken hold before they make the big commitment to add permanent staff,” Gin said. “The situation will probably be more difficult in this recovery, because many firms took steps to be much more efficient and are unlikely to hire back as many employees as they let go during the downturn.”
The USD index has been rising steadily for the past 10 months and now stands at 107.9 points, up from an all-time low of 100.7 in March. Its all-time high was 144.2 in March 2006, when the real estate market was peaking.
Gin’s conclusions were echoed by a Southern California index of leading economic indicators released yesterday by California State University Fullerton. Like the USD index, the Fullerton index has been rising steadily since last spring.
Fullerton economist Adrian Fleissig, who compiles the index, said it suggests that Southern California will begin to have positive economic growth in the next three to six months, “although it may be a jobless recovery.”
Fleissig cautions that even though the economy is showing signs of recovery, he does not forecast much growth in Southern California this year or next, partly because of the continuing economic sluggishness in San Bernardino and Riverside counties.
“Although some parts of the region are doing better than others, for the region as a whole it’s going to be a long and slow recovery that will probably continue to lag the U.S. economy,” he said.
Five out of the six standards that USD uses to evaluate the economy improved in January:
Home construction. After the two worst years for home building in San Diego County since the Great Depression, construction has been inching up in recent months. In January, the county issued 282 permits for residential units.
That’s very low by historical standards, but it’s more than three times the volume of the year before, when 87 units were authorized. That was the first time since record-keeping began in the late 1970s that the county OK’d fewer than 100 units during a month.
Unemployment. Initial claims for unemployment insurance dropped during the month, which Gin describes as “very positive news.” January is usually one of the worst months of the year for employment because retailers lay off their seasonal staff after the holidays.
Hiring. Even in the best of economies, January is a bad month for job openings, coming after the holiday-related burst of hiring by retailers and others. Last month was no different, but Gin said that after adjusting for such seasonal changes, job postings held up pretty well between December and January, though they are below where they were last year at this time.
An index of online want ads issued by Monster.com that Gin uses to compile his index shows that the strongest areas for job postings in San Diego are for military-related employment, security guards, and community and social workers, while the lowest demand is in the sciences. Even though biotech is seen as one of the driving forces of the local economy, there were half as many postings for scientists last month as in the previous January.
Stock prices. Like much of the stock market, most San Diego stock prices ended January lower than where they began. But Gin evaluates the market using a monthly average of each day’s closing, and by that definition, the month was positive. After the Dow Jones industrial average dropped below 10,000 in early February, stocks have been on the rise for most of this month.
The national economy. The national index of leading economic indicators maintained by The Conference Board in New York rose last month for the 10th month in a row, which Gin says reflects well on the San Diego economy.
The only negative on Gin’s list was consumer confidence, as measured by monthly polls conducted by The San Diego Union-Tribune. The polls show that confidence actually rose slightly in January, but Gin’s index uses a moving average of several months’ data.
Friday, February 26, 2010 at 12:04 a.m.
Despite public skepticism over the strength of the economy, San Diego County’s leading economic indicators continue to suggest that the long-troubled employment and housing markets are on the mend and that a recovery is in the offing, according to a report released yesterday by the University of San Diego.
Economist Alan Gin, who compiles the index for USD’s Burnham-Moores Center for Real Estate, said the numbers indicate that the decline in local economic activity has either bottomed out or will probably bottom out by June. But he warned that the jobless rate, which has been in the double digits since last June, is likely to stay high even after the economy sputters back to life.
“Employment is typically a lagging indicator, as firms usually wait until they are sure that a recovery has taken hold before they make the big commitment to add permanent staff,” Gin said. “The situation will probably be more difficult in this recovery, because many firms took steps to be much more efficient and are unlikely to hire back as many employees as they let go during the downturn.”
The USD index has been rising steadily for the past 10 months and now stands at 107.9 points, up from an all-time low of 100.7 in March. Its all-time high was 144.2 in March 2006, when the real estate market was peaking.
Gin’s conclusions were echoed by a Southern California index of leading economic indicators released yesterday by California State University Fullerton. Like the USD index, the Fullerton index has been rising steadily since last spring.
Fullerton economist Adrian Fleissig, who compiles the index, said it suggests that Southern California will begin to have positive economic growth in the next three to six months, “although it may be a jobless recovery.”
Fleissig cautions that even though the economy is showing signs of recovery, he does not forecast much growth in Southern California this year or next, partly because of the continuing economic sluggishness in San Bernardino and Riverside counties.
“Although some parts of the region are doing better than others, for the region as a whole it’s going to be a long and slow recovery that will probably continue to lag the U.S. economy,” he said.
Five out of the six standards that USD uses to evaluate the economy improved in January:
Home construction. After the two worst years for home building in San Diego County since the Great Depression, construction has been inching up in recent months. In January, the county issued 282 permits for residential units.
That’s very low by historical standards, but it’s more than three times the volume of the year before, when 87 units were authorized. That was the first time since record-keeping began in the late 1970s that the county OK’d fewer than 100 units during a month.
Unemployment. Initial claims for unemployment insurance dropped during the month, which Gin describes as “very positive news.” January is usually one of the worst months of the year for employment because retailers lay off their seasonal staff after the holidays.
Hiring. Even in the best of economies, January is a bad month for job openings, coming after the holiday-related burst of hiring by retailers and others. Last month was no different, but Gin said that after adjusting for such seasonal changes, job postings held up pretty well between December and January, though they are below where they were last year at this time.
An index of online want ads issued by Monster.com that Gin uses to compile his index shows that the strongest areas for job postings in San Diego are for military-related employment, security guards, and community and social workers, while the lowest demand is in the sciences. Even though biotech is seen as one of the driving forces of the local economy, there were half as many postings for scientists last month as in the previous January.
Stock prices. Like much of the stock market, most San Diego stock prices ended January lower than where they began. But Gin evaluates the market using a monthly average of each day’s closing, and by that definition, the month was positive. After the Dow Jones industrial average dropped below 10,000 in early February, stocks have been on the rise for most of this month.
The national economy. The national index of leading economic indicators maintained by The Conference Board in New York rose last month for the 10th month in a row, which Gin says reflects well on the San Diego economy.
The only negative on Gin’s list was consumer confidence, as measured by monthly polls conducted by The San Diego Union-Tribune. The polls show that confidence actually rose slightly in January, but Gin’s index uses a moving average of several months’ data.
LOS ANGELES MULTIUNIT PROPERTY SNAPSHOT – MARCH 2010
LOS ANGELES MULTIUNIT PROPERTY SNAPSHOT – MARCH 2010
March 1, 2010 on 5:42 pm
By Jodi Summers
And the good news is – research is indicating that the Los Angeles employment market is expected to stabilize in the second half of 2010. Following a loss of 115,000 jobs in 2009, payrolls are forecast to expand by 0.3 percent this year, with the addition of 13,000 positions, observes the 2010 National Apartment Index Report by Marcus & Millichap. The lack of job growth is hurting demand in the multifamily market, confirms Reis Research. “It is only when labor markets stabilize and recover that we will see a ramp-up in household formation that represents the greatest driver for rental apartments,” observes Victor Calanog, Reis research director.
Investors obviously feel that the Los Angeles market is stabilizing. Comparing February 2008 to February 2010, the number of under contract multiunit properties in Los Angeles is up 148%, according to Clarus Market metrics.
In 2009, the national vacancy rate for apartment properties rose 1.3 percentage points to 8%, the highest level since t in 1980. Average asking rents in the sector dropped 2.9% to $1,026/unit last year. Rents fell or held flat in 69 of the 79 markets tracked by Reis.
For years, Los Angeles has had low, low, low vacancy rates, hovering between 2-3 percent – making it a very attractive market. Even with the recession making higher priced units on the West Side less desirable, vacancy rates are still hovering between 5-6%. The National Apartment Index Report notes that the lingering high unemployment will continue to pressure owners to lower rents. Asking rents are expected to fall to $1,335 per month in 2010, while effective rents will slip to $1,263 per month, respective declines of 2.8 percent and 3.6 percent annually.
Now that the economy is coming back, Los Angeles multiunts are still attractive. Between Feb-08 vs. Feb-10, the number of for sale properties is down 44% and the number of sold properties is up 53%.
According to Realpoint, 6.53% of securitized loans backed by multifamily properties are delinquent, which is the CMBS market’s second-highest delinquency rate behind the hotel sector’s 8.09% rate.
Investors realize the current value of the Los Angeles, and there is a trend of cash-rich buyers shifting money out of the stock market and buying multiunit property with the intent of holding it for future generations. This is why the average months supply of inventory is down -79.8%
March 1, 2010 on 5:42 pm
By Jodi Summers
And the good news is – research is indicating that the Los Angeles employment market is expected to stabilize in the second half of 2010. Following a loss of 115,000 jobs in 2009, payrolls are forecast to expand by 0.3 percent this year, with the addition of 13,000 positions, observes the 2010 National Apartment Index Report by Marcus & Millichap. The lack of job growth is hurting demand in the multifamily market, confirms Reis Research. “It is only when labor markets stabilize and recover that we will see a ramp-up in household formation that represents the greatest driver for rental apartments,” observes Victor Calanog, Reis research director.
Investors obviously feel that the Los Angeles market is stabilizing. Comparing February 2008 to February 2010, the number of under contract multiunit properties in Los Angeles is up 148%, according to Clarus Market metrics.
In 2009, the national vacancy rate for apartment properties rose 1.3 percentage points to 8%, the highest level since t in 1980. Average asking rents in the sector dropped 2.9% to $1,026/unit last year. Rents fell or held flat in 69 of the 79 markets tracked by Reis.
For years, Los Angeles has had low, low, low vacancy rates, hovering between 2-3 percent – making it a very attractive market. Even with the recession making higher priced units on the West Side less desirable, vacancy rates are still hovering between 5-6%. The National Apartment Index Report notes that the lingering high unemployment will continue to pressure owners to lower rents. Asking rents are expected to fall to $1,335 per month in 2010, while effective rents will slip to $1,263 per month, respective declines of 2.8 percent and 3.6 percent annually.
Now that the economy is coming back, Los Angeles multiunts are still attractive. Between Feb-08 vs. Feb-10, the number of for sale properties is down 44% and the number of sold properties is up 53%.
According to Realpoint, 6.53% of securitized loans backed by multifamily properties are delinquent, which is the CMBS market’s second-highest delinquency rate behind the hotel sector’s 8.09% rate.
Investors realize the current value of the Los Angeles, and there is a trend of cash-rich buyers shifting money out of the stock market and buying multiunit property with the intent of holding it for future generations. This is why the average months supply of inventory is down -79.8%
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