Is NYC Commercial RE Loan Default Just The Beginning? [Housing Tracker]

Commercial Real Estate and Real Estate Investment Trusts [REITs] 

Some Fear Commercial Property Loans Will Be Next Stage in Downturn. “As the value of home mortgages crumbles by the day, Wall Street has hoped that commercial real estate loans would stay clear of the storm. But bankers believe the headwinds may be shifting after a large apartment complex in Harlem warned last week that it might not be able to make good on a $225 million mortgage payment by September. A default by the complex, the rent-regulated Riverton Apartments… would be New York’s largest in the current housing crisis. For Wall Street banks, which hold about $100 billion of commercial mortgage-backed securities, the prospect has fanned new worries that a deterioration of the overall commercial property market could prompt more write-downs in the coming quarter, on top of losses already expected from their distressed mortgage securities holdings.” (NY Times, Aug. 21)

Apartment Buildings Lose Their Immunity To Housing's Chill. “Apartment owner Equity Residential: For the past year, apartment buildings have been one of the few bright spots in the real-estate industry as people forced out of the home-buying market by foreclosures or the credit crunch have turned to renting. But now the specter of job losses is beginning to spread the gloom into that sector as well. As would-be renters are doubling up in apartments or moving in with friends and families, rents and occupancy rates are beginning to fall in many cities… Equity Residential, one of the largest in the U.S. apartment owners, reported an increase in funds from operations of 1.5% last quarter, it lowered its estimates for comparable-property revenue growth.” (WSJ, Aug. 20)

Retail Fundamentals Look Solid for Second Half 2008. “Wachovia Securities: Retail REITs are heading into H2’08 with their fundamentals still on solid ground. Wachovia Equity Analyst Jeff Donnelly: The sector is largely unaffected in the short-term by changes in consumer confidence and spending, both of which have been slowly receding since last summer. Retailing is a constant. The average lease is four to seven years, and there are still positive earnings. Retailers are still paying the rent.”  Retailers are paying the rent, but they are shopping for bargains. This represents a role reversal compared with the scenario in recent years, Donnelly notes. “In the past two years, retail REITs have benefited from being able to push rents,” he says. “This year, they cannot be as aggressive as leases expire.” (NAREIT, July/Aug. report)

Poll: Commercial Values Stalled. “U.S. commercial property values may drop or remain little changed in the next 12 months as banks constrain lending, according to executives surveyed by the Real Estate Roundtable. Prices will be "somewhat" lower, according to 44% of executives polled by the Washington-based trade group. Thirty-eight percent said prices will be "about the same" and 5% said they would be "much" lower… Moody’s: Commercial property values have declined as the market for securities backed by loans, until last year a principal source of real estate capital, has dried up; it's down 91% in H1’08.” (Chicago Tribune, Aug. 17)

 

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Comments

[fatcat:]

Great article...apparently the Wacovia analyst is out of touch with reality,or he just doesn't see what others are seeing.I've been watching price action in a few financials with heavy commercial exposure,like BBT.They are not exactly following the trends.Next shoe?

2008 Aug 22 12:36 PM

[t-bird:]

I agree with the poster above about WB's rosy commercial r.e. assessment. My background was in home furnishings. Now retired.

Have heard from many of my old retail customers and they are ALL having a difficult time keeping the doors open.

With the consumer disappearing, sales decline but fixed cost remain the same or are increasing... The result is obvious. If this is the norm in other areas of retailing it does not bode well for the commercial r.e. sector...

2008 Aug 23 02:27 PM

[bill d:]

Remember the 90's ?
Japanese investors took a real bath in NYC.
Beside, Obama will never let that happen.

2008 Aug 23 02:51 PM

[neeb??:]

I seem to recall that in the mid-70's NYC went financially kaput. OOOPPS.

2008 Aug 24 07:06 PM

[neeb??:]

...and didn't Cleveland OH take a nose skid then too? OOOPPS pt. 2.

2008 Aug 24 07:07 PM