Funding Noose Tightens On Commercial Real Estate [Housing Tracker]

Includes: BAM, BPR, LXP
by: Judy Weil

Commercial Real Estate and Real Estate Investment Trusts [REITs] 

The July 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices. “About 80% of domestic banks—a fraction similar to that in the April survey—reported having tightened their lending standards on commercial real estate loans over the past three months. About 35% of foreign banks—down from roughly 55% in the April survey—also indicated that they had tightened their lending standards on commercial real estate loans. Regarding demand for these types of loans, about 30% of domestic banks and 45% of foreign institutions—fractions somewhat smaller than those in the April survey—reported weaker demand for commercial real estate loans over the survey period on net.” (Federal Reserve Board, Aug. 11) 

Office Building Deals Drop Off. “Real Capital Analytics: In Washington D.C., $1.4 billion worth of office space traded hands in H1’08, a 61% drop from the $3.6B sold by mid-2007. In Northern Virginia, building sales plummeted 87%, to $914 million from $6.8B. In Maryland's suburbs, building sales fell 13%, to $459M from $527M… About 8.1 million-sf of D.C. office space remains in development… CoStar: In emerging neighborhoods such as NoMa (north of Massachusetts Avenue)… about 880,000-sf of office space, or about 10.4% of the total market, sits vacant… An additional 2.7 million-sf of office space are on their way… A completed, 326,000-sf project by Brookfield Properties (NYSE:BAM)… has yet to land tenants.” (Washington Post, Aug. 11) 

Commercial Market Strong. Pennsylvania: “Had the commercial real estate market in Scranton not been so strong, Mark Cooper said he probably wouldn’t have sold the four-story Courthouse Square building that houses Tink’s nightclub. The Cooper family recently sold the building for $788,699. Mr. Cooper sensed more interest in downtown real estate before putting it on the market. He sold it to a partnership that will improve the building and the business.” (Times Tribune, Aug. 10) 

JV Shells Out $40M for LA-Area Business Park. “The joint venture buyer has agreed to purchase College Business Park in Upland, Calif., just east of Los Angeles. The 314,000-square-foot business park sold for $39.9 million to Koll/PER, a limited liability company owned by Koll and the Public Employee Retirement System of Idaho. The building is situated in Upland, which is on the border between Los Angeles and San Bernardino Counties.” (Commercial Property News, Aug. 8) 

Equity Completes Fund With $991M Proceeds. “Equity International announced that it has completed its first fund. The company, which was co-created by Sam Zell and Gary Garrabrant, [says it] achieved a 24.4% annual return on investment over nine years… The fund was created in 1999 and had a focus on real estate-related businesses based outside of the US. The fund had a concentration of investments in Mexico, including investments in Mexican homebuilder Homex, Mexico Retail Properties, Mexican industrial property company Corporate Properties of the Americas and Credito Inmobiliario. The fund also invested in Spain’s NH Hotels. The fund generated total gross proceeds of $991 million.” (Globe St., Aug. 8)

Bankruptcy Court Signs Off on Boscov's First-Day Motions. “Sidelined by a souring economy that has put a damper on retail sales, Boscov's Department Store L.L.C. filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code earlier this week. As part of its restructuring effort, the company plans shutter the doors of 10 of its 49 stores. Paving the way for Boscov's to return to a healthy relationship with its vendors and keep the merchandise rolling in, the court granted interim approval for the retailer to access its $250 million Debtor-in-Possession financing.” (Commercial Property News, Aug. 7) 

GGP Delays Summerlin Centre Opening. Las Vegas:“General Growth Properties (GGP) will delay the opening of the 1.4-million-sf Shops at Summerlin Centre in order to ensure it opens more fully leased. Company executives told analysts last week that construction financing played an important role in the decision but so, too, did the consumer environment.” (Globe St., Aug. 7) 

Lexington Poised to Become ‘More Active’. New York City:“Lexington Realty Trust (NYSE:LXP) expects to become “a more active acquirer of properties” in the remaining months of 2008, mainly through joint ventures. “We believe our JV capital and our own financial resources put us in a strong position relative to our competition,” said T. Wilson Eglin, president and CEO of the locally-based REIT.” (Globe St., Aug. 7) 

Meruelo Maddux Closes $84M Construction Loan. Los Angeles, Calif.:Meruelo Maddux Properties has closed on an $84 million construction loan for the locally based development firm's 35-story, 214-unit multifamily project at 717 W. Ninth St. The project, due to be completed in September 2009, is under way near the Staples Center and L.A. Live projects. The loan proceeds will be used primarily to fund the remaining development on the 717 W. Ninth St. project, fund an interest payment reserve and fund a real estate tax and insurance reserve. Meruelo Maddux says that no additional borrowings are projected to be needed to complete the 717 W. Ninth St. project.” (Globe St., Aug. 7) 

Investcorp Forms $1B Entity to Acquire RE Debt. “Investcorp’s U.S.-based real estate group formed… Investcorp Real Estate Credit Fund L.P., to acquire real estate debt… Recently it closed on real estate debt valued at $210 million for an undisclosed price... The acquisition involved several mezzanine loans collateralized by various single-asset properties and multiple-asset hotel portfolios across the U.S.... Investcorp completed these transactions using capital from Investcorp Real Estate Credit Fund L.P., [and] from the group’s first mezzanine fund. The credit fund is a $1 billion vehicle funded with capital raised from Investcorp, its clients, and a Persian Gulf sovereign wealth investor. It was formed to acquire whole loans, mezzanine loans and CMBS collateralized by well-performing U.S. commercial and residential real estate assets.” (CPN, Aug. 7)


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