In announcing its second best quarterly earnings since its IPO in 1997, it appears that Goldman Sachs (GS) will have the resources to fight the lawsuit filed by the SEC last Friday which is becoming more obvious by the day as a political ploy to staunch opposition to pending financial regulation reform.
Given all of the ex-Goldies in D.C., this seems as if it could start to look like an episode of the “Family Feud” TV show but that’s a story for another day.
Morgan Stanley (MS) is not currently being harried by Uncle Sam (US) at the moment but does seem to be dealing with a slightly more persistent pest and that is its portfolio of property holdings.
At the most expansive point of the credit bubble, a real estate fund run by MS (Msref VI International) was worth $8.8BN but in recent communications to investors, that value was reduced to $3.45BN making the $5.4BN loss the largest in the history of private equity real estate investing.
Unlike the unemployed beauticians buying $1MM properties with little more than a signature, MS has 20 years of experience in real estate and has consummated deals totaling $174BN since 1991, possibly making this loss smart that much more.
In general, commercial real estate, like its residential cousin, appears to have found somewhat of a bottom. The Commercial Property Price Index (CPPI) produced by Moody’s and REAL Indexes, and derived from data compiled by Real Capital Analytics on transactions of $5MM or more increased 1% and 4.1% in November and December of last year respectively and another 1% this past January.
A more narrowly focused Transaction Based Index (TBI) constructed and maintained by MIT from property sales within the NCREIF (National Council of Real Estate Investment Fiduciaries) Property Index rose 4% in 3Q09 and then fell 4.9% in 4Q09 giving the impression more of a bottoming process than an established bottom.
Commercial rents support the “bottoming” theory as Reis Inc., a New York research firm, said recently that average net rents in the office sector fell 0.8% nationwide in 1Q10 and were down 7.4% for the same period YoY.
Twenty-three out of 79 markets tracked by Reis showed stable or rising rents which was a notable improvement over 4Q09 when 70/79 of those same markets reported rents falling. “The numbers are starting to show that they’re steadying”, was Raymond Torto’s impression. As global chief economist for CB Richard Ellis, we have to figure Ray’s got a pretty good handle on all things commercial real estate.
On the residential side Reis said that rents rose in 60/79 of the markets it tracks in 1Q10. It was good that the vacancy rate held steady at 8% from 4Q09 but bad that that number is also the highest seen by Reis since it began collecting data in 1980.
Miami and New York saw the largest rent gains posting a 1.6% and 0.9% increase respectively. “Deterioration seems not to have just been arrested but reversed” said Victor Canalog, director of research for Reis, adding, “Several markets have bottomed and may be on track to recovery.”
With rents moving up, we can only hope that Washington concentrates on the real problem of job creation and leaves the quixotic quest of placing blame for the mortgage market mess on everyone but themselves. Go Goldie!
