Housing Market Tracker - Commercial Real Estate: Deals Forming, Outlook Darkening

Includes: BX, BXP, CTX, EOP, PLD
by: Judy Weil

Quote of the Day

“They would be taking into account huge sales they’ve made — such as EOP. Those look right now to be reasonably brilliant.” - Michael Holland, chairman of private investment firm Holland & Company and a former partner at Blackstone (NYSE:BX), commenting on why investors would be interested in investing in Blackstone’s new real estate fund. (NY Times, Apr. 2nd)

Commercial Real Estate and Real Estate Investment Trusts [REITs]

Office Delinquencies Decrease, Multifamily, Retail, Hotels Go Up. “Fitch Ratings Loan Delinquency Index: February U.S. CMBS delinquencies rose to 0.30%, only slightly higher than the historic low of 0.27% despite another increase in delinquent multifamily loans. Fitch: "$130 million in newly delinquent multifamily loans were the major contributor to the slight rise in the delinquency index. Multifamily delinquencies continue to be overrepresented in the index, now comprising 60% of all delinquent loans, though they only represent 14.6% of the Fitch-rated universe." Delinquent multifamily loans reached $1 billion at the end of February, up by 14.5% compared to $894M at the end of January 2008.” (CoStar Group, Apr. 3rd)

Macklowe Debt Still a Good Deal. “Standard & Poor's Ratings Services affirmed its ratings on one commercial real estate collateralized debt obligation transaction with direct exposure to approximately $7 billion of financing to Macklowe Properties that matured on Feb. 9, 2008, and has not paid off. The affirmations affect 11 classes from CBRE Realty Finance CDO 2006-1 Ltd. The approximately $7.2 billion of financing to Macklowe Properties is part of a three-pool financing package (Macklowe/EOP Pool 1-3) that is secured directly and indirectly by seven Manhattan office properties… [purchased] from Equity Office Properties (EOP)… last year.” (CoStar Group, Apr. 3rd)

Blackstone’s Big Real-Estate Fund. “The Blackstone Group has closed a real estate fund with a whopping $10.9 billion in capital commitments, the buyout shop said Tuesday. Blackstone said in a statement that the new fund, Real Estate Partners VI, was the largest-ever fund of its kind. The buyout shop, whose real estate moves include deals for Equity Office Properties and Hilton Hotels, said it had raised a total of nine real estate funds with total capital commitments of $25.7B.”(NY Times, Apr. 2nd)

Equity One to Contribute $197M in Properties to JV. “Equity One announced today that it has agreed to contribute seven properties valued at $197.4 million to a joint venture formed in February with Global Retail Investors L.L.C., a shopping center investment entity formed by First Washington Realty Inc. and the California Public Employees’ Retirement System. Equity One will realize approximately $129.8M at the completion of the transaction. The company will use the money to fund existing development and redevelopment projects, pay down debts, fund acquisitions and support other corporate activities.” (Commercial Property News, Apr. 2nd)

Major North Carolina Commercial Real Estate Auction to be Held in Charlotte on May 21, 2008: Seven Properties to be Sold Absolute, Regardless of Price. “One of the largest commercial real estate auctions in North Carolina this year will take place May 21st in Charlotte. As many as seven parcels will be offered absolute, without reserve, and regardless of price… Rather than sell these assets slowly over a period of months, multiple ownerships have decided on this one-time-only sale, passing substantial savings to the successful bidder at auction.” (Press Release, Apr. 2nd)

$250M Refinancing Closes for Suburban D.C. Mall. “Fair Oaks Mall, a nearly 1.6 million-square-foot regional shopping center in Fairfax, Va., has just been refinanced [for] $250 million, [by] property owner Taubman Centers Inc… A total of nine banks participated in facilitating the financing package, including the New York branches of Eurohypo AG and Calyon… The nonrecourse loan has a three-year maturity with a single one-year extension option. In addition to paying down the $140 million debt on the property, Taubman used some of the funds to pay down its revolving credit facilities, while doling out the remaining proceeds to its joint venture partners.” (Commercial Property News, Apr. 2nd)

Northern Realty Closes Doors, Some Join CBRE. “Northern Realty Group Ltd. is closing its doors after 20 years in Chicago. Three of the firm’s principals – Bruce Kaplan, Michael Shields and Kim McGuire – will be joining CB Richard Ellis’ Chicago Retail Services Group as SVP. Leslie Mader will be joining the group as a vice president and Jim Tsevis will be joining the group as an associate… “Given the capital markets and the state of the development world as it stands right now…we decided what we would do is take our brokerage group and move it to another company,” Kaplan says.” (Globe St., Apr. 2nd)

Hirschfeld, Dubai Buy 544-Units in $100M Deal. “A joint venture of West Hartford, CT-based Hirschfeld Properties LLC and New York City-based Dubai Investment Group Real Estate, has acquired the Landmark Apartments here, in a deal exceeding $100 million. The JV is known as DIG-HP Cherry Hill Operating LLC. Property management is being provided by Hirschfeld Management Inc. The seller is NJ Cherry Hill LLC of New York City… Senior debt financing was provided by Eurohypo AG and Apollo Real Estate Advisors L.P… The Landmark Apartments is a 544-unit multifamily rental community comprising two 18-story high-rise buildings and 21,647 sf of commercial space.” (Globe St., Apr. 2nd)

Macfarlan Seeds $1B Plan With Centex Resorts. “Macfarlan Capital Partners LP, an industry-recognized contrarian, has cherry-picked five resorts and second-home communities in three states from Centex Destination Properties (CTX) and absorbed its 135-employee hospitality operating group to launch the TerraMesa Resorts brand. The buyer predicts the build-out value will top $1 billion in five years. "These are irreplaceable properties in unique mountain, lake and ocean locations. The market timing was right for us to make an investment in this space," Dean Macfarlan, of Macfarlan Capital Partners: More than $180 million will be invested into finishing resorts and upgrading existing amenities in the next 3-5 years.” (Globe St., Apr. 2nd)

RSF-Led JV Adding $200M Plus Into Centex Land. “In an opportunistic play, the joint venture buyers of Centex Corp.'s 27-property portfolio in 11 states already are huddling over opportunities to flip or possibly partner on finishing touches for their $161-million land purchase. At least $200M will be invested into finishing what Centex started. Centex placed a $528M book value on the properties, assessing its take-home pay would be $455M due to an anticipated tax refund of $294M... The 8,500 lots, in various development stages, are situated in Arizona, California, Delaware, Florida, Georgia, Illinois, Maryland, Minnesota, Nevada, Texas and Virginia.” (Globe St., Apr. 1st)

Commercial Real Estate: R.I.P.? Not So Fast. “Fitch Ratings issued a March 25 report examining the default rate of maturing CMBS deals [that have to] be refinanced on maturity. Fitch found that 99% of recently matured U.S. CMBS loans have been successfully refinanced. Broken down further, a total of 3,354 U.S. CMBS fixed rate loans with a balance of $21.4 billion have been refinanced successfully since the credit crunch began in August. The lenders were mostly insurance companies and regional banks.” (REIT Wrecks, Apr. 1st)

Is Mort Shorting Harry? “Billionaire media/real estate mogul Mort Zuckerman [of] Boston Properties (NYSE:BXP)… is likely "the last man standing" in the bidding over developer Harry Macklowe’s GM building… The deal could morph into a takeout of the entire disputed Mack Lowe 10-building portfolio... The rumored price for the GM Building? Just under $2.9 billion, well below the $3.5B Macklowe had floated as a target price [and] $200 million above the value of the $2.7B refinancing that Macklowe put on the property in 2007… By setting a lower bar than many had anticipated for the GM Building, the deal undercuts value assumptions at the other properties.” (Slatin Report, Apr. 1st)

Hartman Combines $230M of Assets to Form REIT. “A consolidation of four private investment programs has led to the Hartman Income REIT, which will manage and lease office, retail and industrial properties in Texas. The REIT has 25 properties, with a market capitalization of $230 million. A spokesman for the REIT says Hartman Income REIT president Allen R. Hartman believed combining four investment programs that had been in existence for several years would boost economies of scale and added clout in the marketplace… The REIT's portfolio is divided fairly evenly between industrial, office and retail product.” (Globe St., Apr. 1st)

Home Depot Abandons Plan to Build in San Francisco. “Home Depot (NYSE:HD) has walked away from a plan to open a store on San Francisco's Bayshore Boulevard -- a controversial proposal that has been in the works for nearly 10 years. The retailer cited a troubled home-improvement market as its reason for dropping the San Francisco store. Home Depot spokeswoman Kathryn Gallagher: "We've decided to focus on our existing stores rather than expanding.” (Commercial Property News, Apr. 1st) ProLogis Releases New Research Reports on Industrial Property Markets and U.S. Construction Pipeline. “Industrial REIT ProLogis’ (NYSE:PLD) U.S. Property Market Review indicates that conditions in the nation's top 30 leasing markets for bulk distribution facilities are holding steady throughout most of the U.S... The average vacancy rate for bulk distribution space across the country's top 30 markets increased to 7.8% at year-end 2007 from 7.6% at midyear 2007. ProLogis’ U.S. Construction Pipeline Report shows that new industrial construction activity surged [towards] year-end 2007. New starts of bulk distribution facilities totaled 79 million-sf during H2’07, vs. 66 million-sf in H1’07. In 2007, new starts amounted to 145 million-sf, equal to a 2.7% increase in the existing inventory.” (Fox Business, Mar. 31st)

City Seeks Hotel for Former Psych Hospital. New York City: “The city’s Economic Development Corporation is seeking bidders to turn the Bellevue Psychiatric Building on the East Side into a hotel. Developers could potentially add on to the 400,000-square-foot, nine-story building at 492 First Avenue, which was built in 1931.” (NY Observer, Mar. 31st)

Signs of Weakness in Office Market Multiply. Michigan: “Uncertainty is rising about the near future of the downtown office building market, as signs of weakness increase and concerns about 2009 grow…. The Aon Center's failed to get an acceptable bid [and was taken off the market]… Ernst & Young and Jones Lang LaSalle have both forecast weakness in downtown office space demand… Chicago's last crash in the market for downtown office space occurred in 1990. Cushman & Wakefield report: "Nearly 3.9 million-sf of new office space is currently under construction. Almost 3.5 million-sf of [it] is expected to deliver in 2009, the largest amount ... in one year since 1990." (Big Builder Online, Mar. 29th)

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