Retailers Drag on Commercial Real Estate - Housing Tracker

Commercial Real Estate and Real Estate Investment Trusts

Good Enough Equals Great in Real Estate. “Several commercial real estate industry observers… found in general: Chicago real estate markets may not be outperforming, but neither are they in distress. Studley, which specializes in representing tenants in commercial real estate transactions, found the overall Chicago market for office space to be healthy for landlords but, in recent months, beginning to tilt in favor of tenants. For Class A office properties, "total rent, $42.11 [per-sf], posted its fourth consecutive year of increase (Studley)…Owners asked for higher rates in 2007 during the peak of the investment sales market.” (Chicago Tribune, Apr. 16th)

U.S. Institutions Face Weakness In Commercial Mortgage Market: Fitch. Fitch Ratings: Losses on commercial mortgage-backed security (CMBS) collateral are likely to increase as the credit cycle progresses. CMBS delinquencies [should] double, and perhaps triple, by the end of the year. [However,] these exposures are unlikely to be a primary ratings driver for most U.S. large banks and brokers. Fitch: “Most banks have fairly well-diversified portfolios and have avoided the excessive concentration in commercial real estate assets that plagued the industry during the 1988-1992 real estate lending crisis. Additionally, many firms with greater levels of exposure have already taken steps to reduce their holdings, while some brokerage firms have been able to successfully hedge exposures.” (Investment Executives, Apr. 15th)

Real Estate Tucson's Recent Commercial Sales And Leases. Arizona: “Allied Barton Security Services LLC leased 1,108-sq.ft 5210 E. Williams Circle from WC Partners... Leslie's Poolmart Inc. has leased 10,000-sf at 1959 W. McMillan St. from the Reis Family Revocable Trust… Heating & Cooling Supply Inc. has leased 27,000-sf at 2301 S. Friebus Ave… Tin Cup Properties LLC of Tucson has purchased commercial property at 1780 E. Benson Highway from Web Garrison Inc. of Florida. The price was about $1.5 million.” (AZ Starnet, Apr. 15th)

Merrill Lynch Plans $3B Asian Property Fund. “Merrill Lynch (MER) has announced that it will target the Pacific Rim in a new fund that will be valued at an estimated $2.5B-$3 billion. Reuters: The investment banking concern plans to target a range of commercial real estate properties in Australia, India, Japan and other areas with the fund. Cushman & Wakefield: Asia has good fundamentals due to account surpluses in most countries, and the freedom to take on fiscal policies that would boost domestic demand when necessary.” (Commercial Property News, Apr. 15th)

Palazzo Named Largest LEED Certified Building, Sands Plans New Convention Center. “While projects across the country move to the back burner while waiting for the economy to turn around, in Las Vegas development continues to move forward. The December opening of the eco-friendly Palazzo Las Vegas yielded the project a Silver LEED certification on the heels of the Las Vegas Review-Journal’s story that the Palazzo’s developer, Las Vegas Sands Corp. (LVS), plans to replace its existing convention center with a $680 million facility.” (CPN, Apr. 15th)

Retailers Dealing with Woes Through Bankruptcy, Cutbacks. “A variety of retail chains [have] filed for bankruptcy protection in the wake of debts that are hard to refinance, slumping sales or both. Furniture stores Levitz and Wickes, the upscale electronics chain Shaper Image, houseware seller Fortunoff, and the catalog retailer Lillian Vernon are among the recent wave of belly-up retailers… The last time there was such a high number of retailer bankruptcies in such a short period was during the recession of the early 1990s... The International Council of Shopping Centers estimates there will be 25% more store closings among retailers in 2008 than 2007--5,770 this year, compared with 4,603 last year.” (CPN, Apr. 15th)

Shorenstein Originates $125M Office Mezz Loan. “Shorenstein Properties LLC has provided a $125 million junior mezzanine loan to finance a portion of the purchase of 650 Madison Ave., a 601,604-sf trophy class A office and retail building located in the Plaza District of Manhattan. The loan is part of a larger financing package made to the buyers of the property… a joint venture between the Carlyle Group and Ashkenazy Acquisition Corp. The building is adjacent to 660 Madison Ave., on which Shorenstein holds a similar mezzanine loan purchased last year.” (Globe St., Apr. 15th)

Crate & Barrel Consolidating Distribution in Tracy. California: “Crate & Barrel is consolidating its Northern California distribution operations here with two new facilities totaling 1.3 million sf. The home furnishings retailer has inked two build-to-suit agreements with ProLogis (PLD). One of the buildings will total 827,000 sf and be used by Crate and Barrel to store its furniture products. The second building will be 398,000 sf and used as a distribution center for its housewares products. ProLogis will own the buildings and the land.” (Globe St., Apr. 15th)

Urdang Closes $463M Value-Added Fund Targeting U.S. Commercial Real Estate. Urdang Capital Management said today it has raised $463 million in equity for its Urdang Value-Added Fund II L.P. and has already acquired eight properties across the U.S. with an aggregate capitalization of $400M. “With approximately $1.4 billion in leveraged purchasing power, this is the firm’s second value-added closed-end fund, primarily targeting office, retail, multifamily and industrial properties,” Richard Ferst, Urdang president and CEO, said. Ferst said the capitalization of these properties ranges from $20M-$75M.” (Commercial Property News, Apr. 15th)

Wal-Mart Left With Pricey Property. Delaware: “Wal-Mart closed the books on its planned gateway store to Delaware last week with a resounding thud, perplexing city officials who had worked hard with the company to approve a store at Rt. 23 and Cheshire Road… Wal-Mart paid $5.7 million, about $259,000 per acre, for the land… Developer Matt Stavroff: "Getting a Wal-Mart through zoning in a municipality like Delaware is very hard, and they accomplished that. To walk away from that, they'd lose a lot of money on the sale.” (Columbus Dispatch, Apr. 14th)

Omega Executes Letter of Intent With Commercial Real Estate Developer; With Assets of $1 Billion. “Omega Commercial Finance Corporation (OCFN) has executed a Letter of Intent for a "Plan and Agreement of Merger" with a major owner and development company in California. Present assets under consideration for the transaction are estimated at $1 billion.” (CNN Money, Apr. 14th)

Commercial Real Estate Imploding. “Research firm Reis: The vacancy rate at U.S. strip malls rose to the highest level since 1996 in Q1’08, while that for big malls reached levels unseen since 2002. The amount of space occupied by retailers fell for the first time since Reis began tracking the sector in 1980. Reis chief economist Sam Chandan: "Retail sector fundamentals -- occupancy and rent levels -- are being strained by anemic demand for space.” Strip mall vacancies rose 0.2 percentage points from the preceding quarter to 7.7%. By the end of the year, the rate likely will reach or surpass 8%, Reis said. The vacancy rate for big regional malls was the highest since Q4’02.” (Mish’s Global and Economic Trend Analysis, Apr. 13th)

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