Hard To Tell Which Way Commercial RE Will Turn

Seeking Alpha's Housing Tracker is a collection of housing-related excerpts from various sources, grouped by topic. Feel free to post any interesting links on the subject in the comments section below.

The Commercial Real Estate Bust. “Residential has collapsed by about 50% (compared to GDP). Non-residential would have to decline to less than 2.0% of GDP (1.3% of GDP ex-power and petroleum) - the lowest level in history by far - to match the residential collapse in percentage terms. Also, the recent boom for CRE was much less than the S&L related boom in the '80s, and even less than the late '90s CRE boom…  I've forecast significant declines for investment in offices, malls, and lodging. But those looking for a collapse in CRE investment comparable to the current residential investment bust are wrong.” (Calculated Risk, Nov. 9) 

Market’s Collapse Echoes in a Manhattan Tower. New York: iStar Financial, a real estate finance company… Metropolitan Life Insurance… and Centerline Capital Group, a suddenly struggling commercial property finance and investment company, [are subletting or reducing] 100,000-sf leases [on a Times Square-area building] signed [with landlord the Blackstone Group (BX)] for as much as $132/sf, when the market was near its peak… Many brokers say they would be lucky to get $95 a square foot today… In Midtown… rents being asked have hardly moved, brokers say that landlords are providing a menu of concessions that are substantially reducing the effective price.” (NY Times, Nov. 9)

Commercial Real Estate Holds Steady. Tennessee: “CBRE Q3 Marketview report: From mid-year through the third quarter of 2008, little changed in the Memphis office market overall…Office vacancy remained mostly unchanged at 14.9%, up slightly from 14.6% mid-year. Rental rates wavered only slightly in the overall market at $17.83/sf. The overall office market suffered some slight negative absorption at negative 20,861-sf in Q3-- mostly in the Class B office sector. Over the next few quarters, an increase in sublease space due to rising unemployment and company consolidation can be expected.” (Memphis Commercial Appeal, Nov. 9)

Credit Crunch Gives Blue Chip Builders the Blues in Boston, Philadelphia. “Project backers in Boston and Philadelphia have acknowledged that the capital markets crisis is forcing them to put some of those cities’ showcase projects on hold.
The developers of the $700 million mixed-use redevelopment of the Filene’s department store site in Downtown Boston are calling a time-out on construction because they have been unable to secure the necessary debt.” (Commercial Property Online, Nov. 7)

Developers Diversified, Cole Form JV for Missouri Shopping Center.  “Developers Diversified Realty Corp. (DDR) has formed a $62 million joint venture with Cole Real Estate Investments for the ownership of Independence Commons, a 386,000-square-foot shopping center in Independence, Mo. The joint venture will be owned 85.5% by Cole Real Estate Investments, and 14.5% by DDR… DDR will receive leasing and property management fees. DDR previously owned Independence Commons through its joint venture with Macquarie DDR Trust (MDT). MDT will receive proceeds of more than $20 million from the sale of the property, based on its 85.5% interest in the shopping center.” (Commercial Property News, Nov. 7)

Real Estate Investment In Texas Is Down, But Not Out. “According to a recent report by the Federal Reserve Bank of Dallas, as of the end of August 2008, annualized sales for commercial properties in Texas stood at $14 billion — quite a drop from actual sales of $31.6 billion reported for the same period in 2007.” (Houston Business Journal, Nov. 5)

NYC Commercial Property Sales Plunge in Credit Freeze. “Real Capital Analytics: New York City commercial real estate transactions plunged 61% in 2008 through October… About $17 billion of transactions have closed so far and the market is headed for its worst year since 2004…  Sellers have made 237 deals of $5 million or more, a four-year low in a market that posted a record $51B in sales in 2007… Cushman & Wakefield Inc., the largest closely held commercial brokerage: “In all likelihood, you will see next to no transactions between now and the end of the year.” (Bloomberg, Nov. 4)

                                  

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Comments

[Consider_this:]

Commercial RE (CRE) lags Residential RE by up to 9 to 12 months.

CRE *JUST* started to drop, while Residential is still dropping with no recovery in sight.

It should be plenty clear that CRE has nowhere to go buy down, until RRE recovers. No magic here.

2008 Nov 11 04:14 PM