Housing Market Tracker - Commercial Real Estate: Tanking or Revving?

 |  Includes: BXP, QRR, UDR
by: Judy Weil

Quote of the Day

"There's plenty of money out there. But capital is on strike." - Dr. Peter Linneman, respected real estate economist for the Wharton School at the University of Pennsylvania, on the freeze in commercial real estate lending. (Dallas News, Jan. 28th)

Commercial Real Estate and Real Estate Investment Trusts (REITs)

Global Commercial Property Sales Hit $759 Bln – Report. "Real estate research firm Jones Lang LaSalle: Commercial real estate sales worldwide last year rose to a record $759 billion but slackened in H2'07, as the credit crisis crimped transactions... Sales are expected to be lower this year than in 2007, which was $59B higher than in 2006. In H1'07, real estate investment globally reached $394B... But H2'07 saw investment slow to $365B, as activity dimmed in the U.S. and the U.K., which comprise more than half of global real estate sales." (Reuters Africa, Jan. 31st)

Boston Properties Sees Qtr, '08 FFO Below Street. "Boston Properties Inc (NYSE:BXP), which owns and develops office buildings, on Tuesday forecast first-quarter and 2008 funds from operations [FFO] below Wall Street estimates after posting a 4% rise in quarterly FFO. Fourth-quarter funds from FFO, a measure of REIT performance, were $147.5 million, or $1.22 a diluted share, up from $141.9M, or $1.18, a year earlier. The results exceeded the company's FFO forecast of $1.18 to $1.19/share and were in line with the average analyst estimate of $1.20." (Reuters, Jan. 30th)

Real Estate Not Without Bright Spots. "Real estate funds tracked by Morningstar Inc. were down 19.74% for the 12 months ended Monday. It was the worst performing domestic equity fund group. But so far this year, its -1.12% return was second best behind bear funds' 11.33% gain. IBD's REIT industry group ranks No. 63 of 197 groups, up from No. 141 four weeks ago. Real estate developers and real estate operations also have rallied off recent lows. The Dow Jones Wilshire Residential Real Estate Index is at 116, down 32% from a high of 171 over the past year. But it rallied 15% in the past month after troughing out at 101." (CNN Money, Jan. 30th)

Halted Project May Resume. "Gainesville, Florida: Developers of the stalled Main Street Landing project have been discussing with city officials plans to resume construction, possibly by late summer. Developer Ken McGurn said the idea, which is in its infancy, is to complete the commercial portion of the mixed-use complex in phases: "Our hope is that we can eventually figure out a way to make the numbers work and get buildings one and two completed." Originally, Main Street Landing called for 55 condos in addition to the commercial space. McGurn said those residential units are off the table." (Tampa Bay Online, Jan. 30th)

Good Fundamentals Buoy Real Estate Execs. "The Real Estate Roundtable and the FPL Advisory Group report, Leading the Enterprise 2008, surveyed nearly 200 CEOs and other senior executives in real estate and related industries on their expectations for 2008. According to the report, 69% of the respondents forecast increases in revenues during 2008 and 71% expect profitability to increase. By contrast, 85% predicted increased revenues and 80% predicted increased profits in last year’s survey." (Commercial Property News, Jan. 30th)

Market Continues To Slow. Arizona: "The commercial sector... has cooled significantly. John DiVall, SVP at Liberty Property Trust: "We're seeing leasing and investment activity slow right now, and we have for the last several months, to be perfectly candid... One of the reasons that we're not buying is that . . . we don't believe that prices have shaken out yet in terms of where they're going to end up..." CB Richard Ellis: Investments in industrial properties jumped from $311 million to $1 billion between 2003-2007... While retail activity peaked at $1.5B in 2005 and fell to $679M last year." (AZ Central, Jan. 30th)

Largest Office Tower In R.I. Sells For $33.2 Million. "Providence, Rhode Island: The tallest office tower in Rhode Island, known locally as the Superman building, has been sold for $33.2 million. Bank of America is the sole tenant of the building. The bank holds the lease for another six years. The Inland Real Estate Exchange Corporation sold the building to High Rock Westminster Street... The tower is known as the Superman building because of its resemblance to the Daily Planet headquarters in the old Superman comics." (Daily News Tribune, Jan. 30th)

Zell Sells 2: Ready For His Close-Up? "Real estate titan Sam Zell will soon sell the storied 10.5-acre Tribune Studios in Hollywood for $130 million to Hudson Capital LLC, a private equity real estate house... The closely watched sale is the first disposition of real estate for Tribune Co. under its new owner, Sam Zell. It is the second studio buy in five months for Victor Coleman, managing partner at Hudson... .Only last September, Coleman and Hudson Capital grabbed the 16-acre Sunset-Gower Studio lot (the old Columbia Pictures studio), in a $200 million transaction." (Slatin Report, Jan. 29th)

Virginia REIT Relocates Headquarters To Denver Suburb. "After calling Highlands Ranch home to its executive offices since 2001, UDR Inc. said Tuesday it will make the suburban Denver community its headquarters as well. The REIT was founded in 1972 and has been based in Richmond, Va. UDR (NYSE:UDR) employs about 55 people in Highlands Ranch. A spokeswoman for the company said it hasn't been determined how many employees will make the move from Virginia." (MSN Money, Jan. 29th)

Hypo Real Estate To Acquire US REIT Quadra Realty Trust For 179 Mln Usd. "Hypo Real Estate Holdings AG said its US subsidiary Hypo Real Estate Capital [HRECC] Corporation is making an offer to fully acquire New York-based commercial mortgage REIT Quadra Realty Trust (QRR). HRECC is offering $10.6506/share for the 65.3% in Quadra shares it does not currently own. This corresponds to an offer price of about $179 million. The deal is expected to close in March." (CNN Money, Jan. 29th)

$55M Financing Will Pay Down Revolving Credit. "Preit has picked up a $55-million supplemental financing of its one-million-sf Cherry Hill Mall here, the proceeds of which will be used to pay down part of the Philadelphia-based company’s revolving credit facility and for general corporate purposes. The loan was provided by Prudential Mortgage Capital Co. and Northwestern Mutual. According to details released by Preit, the loan has a fixed interest rate of 5.5% and will mature in October 2012." (Globe St., Jan. 29th)

Silverstein, Four Seasons Team for Downtown Hotel. "Silverstein Properties has partnered with Four Seasons Hotels and Resorts to bring one more project to the area: a hotel and condo development at 99 Church St. Located between Barclay and Park Place, Moody’s called the site home before moving to 600,000 sf at 7 World Trade Center. As a result of the move, Silverstein and CalSTRS bought 99 Church St. in late 2006 for $170 million... Metro Fund LLC, a joint venture between the two owners, is redeveloping the property." (Globe St., Jan. 29th)

Commercial Real Estate Lending Close To A Standstill. "The credit crunch... has increased the cost and underwriting standards for commercial loans. The result has been higher borrowing costs, greater equity requirements and... a decline in transactions. Dr. Peter Linneman, real estate economist for the Wharton School of the University of Pennsylvania: "Nobody really knows what pricing is right now because very little is selling." Linneman estimates that the average commercial property in the U.S. has lost up to 12% of its value in the last year: "The typical buyer's cost of capital is up 15%... [but] a stock market correction could spark more interest in institutional real estate investment." (Dallas News, Jan. 28th)

Battered Builders Retrench. "F.C. Tucker Co.’s Residential Real Estate Services Division: In September, HSBC Mortgage and NovaStar Mortgage laid off a total of 631 employees from separate offices in Carmel, dumping more than 100,000-sf on the office market. Both blamed the layoffs on the housing slump... The uncertainty is putting downward pressure on construction prices, making it a great time for companies to build, said John Andrews, director of business development for locally-based Shiel Sexton Construction... Shiel recently won contracts to work on the $275 million expansion of the Indiana Convention Center and a $37M renovation of the Birch Bayh Federal Courthouse." (Indianapolis Business Journal, Jan. 26th)

Get Seeking Alpha's housing market coverage by email -- it's free and takes only seconds to sign up.