Housing Market Tracker - CMBS and Vanishing REITs

Quote of the Day

“The oxygen, the mother’s milk of commercial real estate, is capital. Try to get a construction loan now — it’s virtually impossible.” - David M. Fick, managing director of Stifel Nicolaus, a company that provides financial services for large corporate clients. (Maryland Daily Record, Apr. 9th)

Commercial Real Estate and Real Estate Investment Trusts (REITs)

Manhattan Offices Q1: Rents, Inventory Grow. CB Richard Ellis’s April 2008 Manhattan market report: “Manhattan office rents increased during Q1, despite slowing growth. Midtown rents increased the most, with March asking rents at $85.61/sf, up from $84.27 in February and $72.25 a year ago. Midtown South rents went up at $53.31/sf, compared with $52.94 in February and $41.43 a year ago. Downtown asking rates held steady at $49/sf versus $48.91 and $42.76 a year ago. Overall Manhattan asking office rents were at $70.72/sf, up slightly from $69.56 in February and $58.88 a year ago. Overall availability of office space currently and coming on the market in the next 12 months increased month-over-month to 8.7% from 8.3% in February.” (Crain’s NY, Apr. 9th)

Ashkenazy, Carlyle JV Complete $680M Buy. “New York: Ashkenazy Acquisition Corp. and the Carlyle Group have closed on its acquisition of 650 Madison Ave., an approximately 600,000-sf trophy office and retail tower. The property was acquired from Hiro Real Estate Co. for $680 million. The property is well positioned at one of Midtown Manhattan’s premier locations--the block spanning 59th and 60th streets on Madison Avenue--across from the GM Building in the heart of the city’s Plaza District with views of Central Park and in the immediate vicinity of Barney’s. The property’s square footage includes approximately 90,000 sf of retail space.” (Globe St., Apr. 9th)

GM Building Lawsuit to be Heard. “A legal challenge to Harry Macklowe's ownership of the General Motors Building will be heard Thursday as lawyers for developer Leslie Dick appeal his fraud and conspiracy case to New York State Supreme Court. The suit alleges the 2003 sale of the GM Building to Macklowe Properties Inc. was rigged, and that Macklowe was a front man for billionaire investor George Soros, who Dick alleges masterminded the entire auction.” (The Real Deal, Apr. 9th)

Despite Upbeat Real Estate Report, Experts Worried. “David M. Fick, managing director of Stifel Nicolaus: [Some] $236 billion in equity investments have already been written off as a result of the subprime mortgage crisis, and that most of that investment has been in the commercial, rather than the residential, market… Fick expects to see at least $400 billion in write-offs. Fick said that more 10-year, commercial mortgage-backed securities were issued in 1998 and 1999 than ever before, and that most of them would not be financed. The result, he predicted, will be the demise of many of the region’s existing REITs within the year.” (Maryland Daily Record, Apr. 9th)

Grubb & Ellis Realty Investors Acquires Enclave on Golden Triangle in Keller, Texas. “Grubb & Ellis Realty Investors, LLC has acquired Enclave on Golden Triangle, a 273-unit multifamily community [near] Dallas, Texas, on behalf of tenant-in-common investors. Located at 5001 Golden Triangle Blvd., Enclave on Golden Triangle totals more than 285,000 rentable sf on approximately 16.7 acres. Built in 2007, the Class A institutional asset consists of one clubhouse and 29 two-story apartment buildings, offering 12 different one-, two-, three- and four-bedroom floor plans ranging in size from 689-1,557-sf. The property is 97% leased.” (Press Release, Apr. 8th)

Starwood To Open 54 New Sheraton Hotels by 2009. “Starwood Hotels & Resorts Worldwide Inc. (HOT) will open 54 new Sheraton hotels in North America totaling approximately 20,000 new rooms. Company officials say that in 2008 a Sheraton hotel will open every 12 days, which calculates out to approximately 30 hotel openings this year. The $2-billion expansion includes new facilities planned for Dallas, Denver, Minneapolis, New York, Phoenix, and metro Washington, DC. Internationally, Starwood says it plans to open new Sheratons in Ireland, Argentina, Egypt and China as well as two new resorts in China and one in Carlsbad, CA.” (Globe St., Apr. 8th)

ProLogis, Arcapita Form $1B Middle East JV. “ProLogis (PLD), the international distribution REIT has formed a joint venture with Arcapita, a Bahrain-based investment company, which will develop and acquire advanced logistics warehouse space in the Middle East. Known as ProLogis Middle East, the equal partnership expects to create a US$1 billion portfolio in the six Arab states of the Persian Gulf, Saudi Arabia, Kuwait, Bahrain, Oman, Kuwait and Qatar, known as the Gulf Cooperation Council region. The venture will initially focus on Saudi Arabia, with further developments to follow in the rest of the GCC region. The JV expects to commence construction of its first sites during H2’08.” (Globe St., Apr. 8th)

7 Macklowe Office Buildings On The Block. The seven midtown office buildings that Harry Macklowe bought last year for $7 billion—using the GM tower as collateral—are being put up for sale, and they should provide an even better perspective on office building values [as] the purchase price of these seven properties will be determined by market fundamentals… A group of Deutsche Bank-led lenders is selling them to recoup the $5.8B loan made to the developer. Clearly, one of those lenders, Vornado Realty Trust, doesn't believe that the buildings will generate that much money. In Q4, it wrote down $57 million of its $66M of risky debt on the Macklowe properties.” (Crain’s NY Business, Apr. 5th)

Rooms With a Bubble View. “Many buyers purchased hotel rooms from developers hoping to get paid every time the room was rented. But condo hotels, which account for as much as 10% of all hotel rooms under construction and a much greater percentage in resort markets such as Orlando, Fla., and Las Vegas, are [hurting] the [buyers], the developers that constructed the buildings, and the operators hired to run the hotels. Some projects also are being brought to the attention of regulators by investors… One issue could be whether developers sold these units as investments, which should have been registered with the SEC or other regulators.” (Wall St. Journal, Apr. 5th)

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Comments

[johnthebear:]

Mr. Fick: "$236 billion in equity investments have already been written off as a result of the subprime mortgage crisis, and that most of that investment has been in the commercial, rather than the residential, market…"

I have to question that statement. I doubt that commercial REITs have marked to market their overvalued office buildings, retail and development property. Most of the publicity so far deals with failure of Thornburg, Washington Mutual, Countrywide, etc. I did not think any of these biggies specialize in commercial real estate.

The prices reflected by the Dow Jones Real Estate Index (IYR) are down some, but the bubble in IYR is comparable in size to the NASDAQ bubble in 2000. The downturn so far is only a small percentage down of what is coming, IMO.

May start seeing that reflected by IYR the first week of May.

2008 Apr 10 05:23 PM