Housing Market Tracker - Commercial Real Estate Uncertainty

Commercial Real Estate and Real Estate Investment Trusts (REITs)

New Green REIT Aims to Make Investing in Sustainable Retrofits Easier. "Green Realty Trust, a new project from real estate investor Rob Hannah, is a new kind of REIT... that hopes to make it easier to bring big money to green building retrofit projects. The REIT will be non-publicly-traded, and aims to raise at least $2 million in shares by the end of this year, which will be used to invest in green retrofit projects, a sector that has so far missed much of the limelight aimed at new construction projects." (Greener Buildings, Feb. 7th)

Goldman CFO Sees Less Risk In Commercial Mortgages. "Goldman Sachs Group Inc (GS) CFO David Viniar said Wednesday he expects commercial mortgage securities will hold up better than residential loans because the underlying properties are of higher quality. Following massive write-downs of leveraged corporate loans, residential mortgages and related securities by banks over the past year, there is growing concern that lenders will face losses from commercial mortgages and other securities. Viniar, though, said he does not expect a similar meltdown... NY City's General Motors building, for example, would very likely be worth more in five or 10 years than it is today, regardless of any near-term weakness in office towers, he said." (Reuters, Feb. 6th)

Tighter Standards For Commercial Real-estate Loans Hit REITs. "REITs traded lower Tuesday on predictions of slower construction spending and... tightened lending standards for commercial real estate loans in the latest quarter... The commercial real estate market has so far largely avoided the serious problems plaguing U.S. residential, but that may change as banks get stingier with loans. The Fed: More than 80% of banks -- the largest percentage ever -- said they had tightened lending standards for commercial real estate loans in response to a weaker economy... Nearly 60% of the banks reported falling demand for commercial real estate loans, and 87% expect the quality of such loans already made to worsen." (CNN Money, Feb. 6th)

US Reits Growth Prospects To Likely Decelerate In Near Term - S&P. "Standard & Poor's Ratings Services said growth prospects for rated US equity REITs and real estate operating companies will likely decelerate in the near term, citing the ongoing credit frost amid concerns of a possible recession. S&P, however, maintains a generally stable outlook for various property subsectors, but with a near-term negative outlook bias for the retail and office subsectors. The generally stable outlook on the REIT sector will depend on whether companies maintain adequate liquidity and stable coverage metrics, S&P said." (Interactive Investor, Feb. 6th)

Essex Announces Fourth Quarter 2007 and Annual Earnings Results. "Essex Property Trust, Inc. (ESS) announces its Q4'07 and annual earnings results: Fund from Operations [FFO] totaled $34.7 million, or $1.25/diluted share compared to $31.6M, or $1.19/diluted share for Q4'06. For 2007, FFO totaled $153.9M, or $5.58/diluted share compared to $130.5M or $5.01/diluted share... an 11.2% increase from 2006. The Company's FFO, excluding non-recurring items, increased 8.0% per diluted share or $4.2M for Q4'07 compared to Q4'06, and the Company's FFO, excluding non-recurring items, increased 12.7% per diluted share or $23.4M for 2007 compared to 2006." (CNN Money, Feb. 6th)

Real Estate Market Is Stable For Most Commercial Uses. Oregon: "Coldwell Banker Commercial Mountain West Real Estate agents: Salem area's commercial real estate market appears to be stable, even though the news about the national economy is mixed. "We're bucking the national trends," said Alex Rhoten, a principal broker with Coldwell's Salem office... Site preparation work has begun on a 49,000-square-foot distribution center for FedEx Freight in South Salem. It's the first earth-moving at the Mill Creek Corporate Center site." (Statesman Journal, Feb. 6th)

What the Zell? Has the Commerical Property Market Hit Bottom? "Is the end in sight for the current downturn in commerical property values? Chicago real estate billionaire Sam Zell may be thinking so. According to SEC filing... Zell has now amassed a 7.7% stake in Starwood Hotels & Resorts Worldwide Inc. (HOT) to become the company’s second-biggest shareholder... His interest in the company is [probably] piqued by its substantial global real estate holdings... While many hospitality industry analysts are predicting a slow down for the sector due to economic concerns in the U.S., one of the hidden values of Starwood is its ownership of prime commercial property in some of the world's biggest cities. The company currently has a market cap of around $9.3 billion." (BusinessWeek, Feb. 5th)

MIT Commercial Property Price Index Posts Second Straight Quarterly Decline. "MIT Center for Real Estate index: The value of U.S. commercial real estate owned by big pension funds fell another 5% in Q4'07.The drop in the quarterly transaction-based index, which tracks the price at which big pension funds buy and sell properties like shopping malls, apartment complexes and office towers, was the second straight quarterly decline... The cumulative fall since last year's midsummer peak is now more than 7%... The TBI, based on properties sold from the National Council of Real Estate Investment Fiduciaries [NCREIF] data base, grew 64% from 2004 through 2006, then had another 8% spurt in H1'07. The decline in H2'07 still leaves commercial property prices at their level of a year ago, a level that was considered historically high at the time." (MIT News, Feb. 5th)

BRE Properties Reports Fourth Quarter and Year 2007 Results. "BRE Properties Inc. today reported Q4 and 2007 operating results: Funds from operations... totaled $36.1 million, or $0.69/share, during Q4'07, as compared with $32.6M, or $0.62/share, for Q4'06. Year-over-year FFO per share growth for the quarter was 11.3%... Net Q4 income available to common shareholders... totaled $30.7M, or $0.59/share, as compared with $12.8M, or $0.25/share, for Q4'06. Earnings in Q4'07 included gains on sales of assets, which totaled $16.7M, or $0.32/share. Total revenues from continuing operations for the quarter were $88.9M, as compared with $81.7M a year ago, representing growth of 8.8%." (CNN Money, Feb. 5th)

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[nick gogerty]

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