Housing Market Tracker - U.S. Commercial Real Estate Consolidating

 |  Includes: AFR, AMB, DDR, GE, GPT, SPG, VNO
by: Judy Weil

Quote of the Day

“It’s just a different landscape. The rules have totally changed.” – Sources told Globe St. why one of the biggest commercial real estate deals of 2007, CrossPoint Towers purchase, has collapsed. (Globe St., Feb. 13th)

Commercial Real Estate and Real Estate Investment Trusts (REITs)

Survey: New York Office Space a Global Bargain. "Cushman & Wakefield's annual Office Space Across the World 2008 report: Among the world’s great headquarter markets, New York City’s Midtown Manhattan ranks tenth for office occupancy costs... New York’s occupancy costs--a combination of rent, taxes, and utility--at an average of about $100/sf, [is] a bargain according to Cushman & Wakefield. By comparison, London, which ranked first in the survey, averages $312/sf of office space. At $238.58, Hong Kong placed second and was followed by Tokyo ($210.12), Mumbai, India ($166.04) and Moscow ($158.72), to round out the top five." (Commercial Property News, Feb. 13th)

DDR Puts 37 Retail Centers Up for Sale. "Developer’s Diversified Realty (NYSE:DDR) is looking to sell 37 retail properties, as well as eight additional land sites. The properties are made up of about 25 retail centers that were acquired with the $6.2-billion takeover of Inland Retail Real Estate Trust Inc. in February 2007, and 12 centers that belong to a joint venture between DDR and Prudential Real Estate Investors. The 25 former Inland properties are located in 14 states." (Globe St., Feb. 13th)

Global Commercial Property Acquisitions Surpass $1 Trillion in 2007. "Real Capital Analytics Global Capital Trends report: The 2007 global commercial real estate market [had] more than $1 trillion in significant property sales across 75 countries and five continents. RCA only tracks sales greater than $10 million [so] the total size of the marketplace may be closer to $1.5T... Of the cities reported, 114 recorded more than $1 billion of commercial property sales, with 48 in North America, 35 in Europe and 21 in Asia... Commercial property sales volumes in Asia could surpass those in either Europe or the Americas in 2008... Sales activity has slowed considerably in both North America and Europe." (Commercial Property News, Feb. 13th)

Sources Say $180M CrossPoint Sale is Dead. "One of the biggest landmark deals left over from 2007 has apparently run out of steam, with sources claiming that Davis Marcus Partners has opted against buying the CrossPoint Towers. The three-building, 1.2-million-sf office complex was slated to trade in the $180-million range... Sources say the intemperate lending climate ultimately led to the deal’s demise... . CrossPoint is owned by a partnership of Yale Properties USA and DivcoWest Properties." (Globe St., Feb. 13th)

Gramercy Holders OK Amer. Financial Deal. "Shareholders of both Gramercy Capital Corp. (GKK), a commercial real estate finance company, and American Financial Realty Trust (AFR) on Wednesday approved Gramercy's $1.1 billion purchase of American Financial. American Financial, a REIT, owns bank branches and office buildings and is the main landlord to banks such as Bank of America (NYSE:BAC) and Wachovia Corp. (NASDAQ:WB). Following an expected March completion of the cash-and-stock deal, Gramercy expects to own about 27 million-sf of commercial real estate in 37 states, adding to its $4.2B portfolio of debt and commercial real estate securities investments, net lease properties and other assets." (CNN Money, Feb. 13th)

Vornado's Roth in Classic Fight With Macklowe. "After one of Vornado Realty Trust chairman Steven Roth's chief competitors, Harry Macklowe, scooped up seven high-end office buildings in Midtown that Mr. Roth had lost in an earlier bidding war, Mr. Roth bought a chunk of the loans that Mr. Macklowe had secured to acquire the properties. If Mr. Macklowe paid off the loans, Vornado could rake in a [10%] return on its investment... If not, the company would better position itself to buy the properties... [Macklowe defaulted] and the properties [are] up for sale... For four of the buildings, Vornado [is] turning its small investment into a powerful wedge." (NY Sun, Feb.13th)

Activists Come Back to REITs. "Since REITs' stock prices entered a prolonged tumble, operating weaknesses in companies became more exposed. That increased the likelihood that these weaker companies would face demands for change... Activists also are attracted to REITs because, thanks to the selloff in the sector, there is a discount between the prices where REITs are trading and the value of their underlying assets... ROCA Real Estate Securities Fund LP sent letters to Glimcher Realty Trust, Cedar Shopping Centers Inc. and One Liberty Properties Inc., all retail REITs... ROCA wanted Glimcher to sell the lowest-quality malls to pare its debt and advised the other REITs to seek buyouts." (Wall St. Journal, Feb. 13th)

Vornado Refinances Mall for $335M. "Valley Stream, NY: "Vornado Realty Trust has completed a $335-million refinancing of its 1.8-million-sf Green Acres Regional Mall located in this Long Island town. This interest-only loan has a rate of Libor plus 1.4%. The loan matures in February 2011 with two one-year extension options. After repaying the existing loan and closing costs, Vornado Realty realized net proceeds of approximately $193M. Tenants at the property... include JC Penney, H&M, Men's Wearhouse, Modell's Sporting Goods, New York & Co., Old Navy, Macy's, Sears, Aeropostale, American Eagle, and Best Buy." (Globe St., Feb. 13th)

GE Real Estate Takes Lead in $50 Million Refinancing to Vancouver Film Studios. "Vancouver, British Columbia: GE Real Estate announced today it was the lead partner for a $50 million refinancing of Vancouver Film Studios, a state-of-the art film and television studio complex." (CNW Telbec, Feb. 12th)

Uncertainty Figures Into Forecast For Denver Commercial Real Estate. "CB Richard Ellis Inc.'s Denver office: This year appears to be one of uncertainty for commercial real estate in metro Denver. Volatile capital markets, tougher lending standards and 2008 being a presidential election year are among the trends that will effect real estate this year. But even though sales of commercial properties won't be as robust as those of recent years, sales volume "should pick up again, as investors get comfortable with more conservative underwriting and pricing," the report said." (Denver Business Journal, Feb. 12th)

Health Care REITs Poised for Solid 2008. "As most REIT stocks plunged last year, health care REITs _ which invest in nursing homes, medical office properties and assisted living communities _ stayed above water, posting 2.1% in annual returns... Analysts believe these stocks will remain the industry's darling through 2008. Last week, Lehman Brothers analyst Kevin Fischbeck initiated coverage on the sector at "Neutral," but gave a seemingly bullish outlook... In the long-term, analysts say these REITs benefit from increasing demand and constrained supply. As the Baby Boomer population ages, its need for health care services grows." (CNN Money, Feb. 12th)

U.S. Commercial Real Estate "AAA" Bond Index Weaker. "Yield spreads on the highest-rated "AAA" tier of a key derivatives index tied to commercial mortgage loans weakened further Monday as investors bet on further weakness in commercial real estate. The "AAA" CMBX-4 index widened another 10 basis points to trade at a midpoint spread of 235 basis points in afternoon trade on Monday, compared with its record high 224 basis points close on Friday... The index, tied to bonds backed by office buildings, hotels and retail stores, is used by investors to hedge against commercial mortgage risks... Hedge funds have been... shorting the CMBX indexes since October." (Reuters, Feb. 11th)

Ken Heebner Buys Hess Corp., MEMC Electronic Materials Inc., Transocean Inc., Sells BHP Billiton Ltd., Toyota Motor Corp., Cisco Systems Inc. "Ken Heebner's CGM Focus Fund gained some 80% in 2007. Heebner's buys: AMB Property Corp. (NYSE:AMB), Simon Property Group Inc. (NYSE:SPG), Federal Realty Investment Trust, MasterCard Inc., Alexandria Real Estate Equities Inc., Entertainment Properties Trust, NVR Inc, Bank of America Corp.... Sells Citigroup Inc., Vornado Realty Trust, Boston Properties Inc.... during the 3-months ended 12/31/2007... Ken Heebner owns 90 stocks with a total value of $10 billion." (Guru Focus, Feb. 11th)

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