Housing Market Tracker - Commercial Real Estate/REITs Outlook

Quote of the Day

"The market isn't saying that [SL Green CEO Marc] Holliday is stupid, it's saying that Manhattan has further to correct." - Mike Kirby, chairman and research chief for REIT specialists Green Street Advisors, on why office REIT SL Green's share values are so low. (MarketWatch, Jan. 28th)

Commercial Real Estate and Real Estate Investment Trusts (REITs)

First Horizon To End National Home Builder, Commercial Real Estate Lending "First Horizon National Corp. (FHN) Monday said it plans to discontinue national home builder and commercial real estate lending through its First Horizon construction lending office. The company will focus construction lending through First Tennessee Bank primarily in Tennessee and the southeast. The move is part of First Horizon's strategy to reduce its national real estate portfolio. The company said winding down its national builder and real estate construction lending would accelerate its attaining the $2 billion targeted reduction in its national real estate portfolio through 2008. First Horizon shares closed at $19.57 on Friday." (CNN Money, Jan. 28th)

Why Office Real Estate Is Headed Lower "REIT shares have a remarkable track record when it comes to predicting what will happen to the prices of commercial real estate... Commercial real estate prices across the country [are] down 5% from last year's highs... [Generally,] six months after REITs start trading at premiums or discounts to their net assets or underlying values [NAV], commercial real estate typically turns in robust or dismal returns over the subsequent 12 months. Mike Kirby, chairman of REIT specialists Green Street Advisors: REITs are trading at 14% below their NAV. Office REITs... at an 18% discount... NY Office REIT SL Green Realty Corp. (SLG) is [at a] 23% discount... For current REIT pricing to make sense, real-estate values need to fall another 15% nationally. New York [should] drop 25%." (MarketWatch, Jan. 28th)

Mystery Buyer Obtains Former Storagetek Campus Colorado: "The 432-acre former campus of Storage Technology in Louisville has been bought by an unnamed purchaser. The Rocky Mountain News, which reported the sale, said the name of the buyer was not released. Kristi Rawlinson, spokeswoman for Sun Microsystems, said she did not know who bought the land or how much was paid. Sun owned the land. Real estate agents had earlier speculated the land could be worth as much as $60 million and might be sought by a high-tech company." (CBS4 Denver, Jan. 27th)

Shareholder Blasts Great Neck REIT "ROCA Real Estate Securities Fund LP blasted the One Liberty Properties Inc REIT for spending too much on overhead while acting as a passive caretaker of its portfolio. If One Liberty's financial condition has not improved by June 30, ROCA [said] the REIT should explore alternatives including selling off its properties... Roy Wirta of ROCA: One Liberty "has assembled an outstanding portfolio of net leased properties" but "their value is not reflected in the Company's share price." ROCA owns 563,235 shares of One Liberty, or about 5.6% of the total." (Newsday, Jan. 25th)

ROCA Fund Pushes Cedar for 'Strategic Review' "ROCA Real Estate Securities Fund... has notified Cedar Shopping Centers that the REIT should “seek strategic alternatives to maximize stockholder value” in light of the REIT's decline in share value and other factors. ROCA owns 1.1 million or approximately 2.5% of Cedar's shares... CEO Ray Wirta: The net asset value of the REIT's holdings are almost 50% higher than recent share prices. Additionally, Cedar's FFO multiple is “among the lowest of all equity REITs. In our opinion the public markets either do not understand (Cedar) or have lost patience trying. Regardless, we strongly feel that it is time for a change." (Globe St., Jan. 25th)

Canadian Commercial Real Estate Continues To Show Strength - Moody's "Moody's Investors Service said Canadian commercial real estate remains strong and continues to outperform commercial real estate in the U.S... Moody's said there are no weak markets in Canada, compared to a small number of weak markets in US office, industrial and multifamily markets... In suburban office space, Moody's said falling national vacancy rates supported demand, although the national score dropped marginally... But, it said some industrial markets in turn are under pressure, although nationally the market remains [strong.]" (Forbes, Jan. 25th)

Close Freezes Property Fund "Commercial property fund Close Investments was forced to last night suspend trading in an open-ended property fund owned purely by retail investors... A number of funds have implemented similar emergency measures in the past few weeks, but to date these either been retail pension funds or institutional funds. Close Investments' Property Investment Portfolio is a £125m property fund of funds that invests in UK and European property though a range of specialist "sub-funds". It includes both commercial and residential property. About 16.3% of the fund's value has been wiped out since November because of redemptions." (Financial Times, Jan. 26th)

Fantini & Gorga Reports Key Trends In Commercial Real Estate Lending "Fantini & Gorga consultants quarterly survey: During Q4'07... fixed-rate spreads - the difference between mortgage rates and Treasuries with the same maturity – continued to increase. But Treasury rates dropped, so that actual mortgage rates rose only modestly, remaining mostly in the 5.80%-6.25% range. Spreads on full-leverage loans increased 60-70 bps for office, industrial, and retail; only 35 bps on apartments, still considered the lowest-risk asset class; and 40-50 bps on hotels and self-storage, where spreads had already adjusted upward in the previous quarter... The spread difference between full-leverage loans and low LTV loans offered by life companies is only 20-30 bps. In the current risk-averse lending market, we would expect the difference to be greater, but lenders are seeking a minimum spread on any mortgage." (Boston SF, Jan. 27th)

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