Feb 12

Sam Goody´sGovernment intervention will cause more problems in the the real estate market, especially in commercial real estate.  When the government steps in with more regulations and oversight, it impedes competition and growth.

Elizabeth Warren Warns About Commercial Real Estate Crisis

Even as the economy shows signs of recovery, a government watchdog is warning that another financial crisis is coming round the bend — and that the Treasury Department and financial regulators are not prepared to deal with it.

“There is a commercial real estate crisis on the horizon, and there are no easy solutions to the risks commercial real estate may pose to the financial system and the public,” says a report issued Thursday by the Congressional Oversight Panel, the bailout watchdog led by Harvard Law professor and middle-class advocate Elizabeth Warren.

“The Panel is concerned that until Treasury and bank supervisors take coordinated action to address forthrightly and transparently the state of the commercial real estate markets — and the potential impact that a breakdown in those markets could have on local communities, small businesses, and individuals — the financial crisis will not end.”

Over the next five years, about $1.4 trillion in commercial real estate loans will reach the end of their terms and require new financing. Nearly half are “underwater,” meaning the borrower owes more than the property is worth. Commercial property values have fallen more than 40 percent nationally since their 2007 peak. Vacancy rates are up and rents are down, further driving down the value of these properties.

When the reckoning comes, it could threaten everyone from banks and pension funds to renters and small businesses — and small banks could be particularly vulnerable.

Warren warned against government inaction.    –more

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Jan 13

NYC - Midtown: Solow BuildingThere has been a lot of talk about commercial real estate lately. I thought these two articles had good perspectives on what is happening in the commercial real estate market.

Was There a Commercial Real Estate Bubble?

A few economists have likened the commercial real estate market of the 2000s to the housing cycle. In fact, the commercial and housing markets were fundamentally different.

As recently as last week (see also here), Paul Krugman had claimed that the commercial real estate market followed a “bubble” much like that of the housing market, and thereby concluded that the housing bubble could not be blamed on anything unique to the housing sector.

Mr. Krugman observed that real estate prices went up, and then came down, in both the residential and nonresidential sectors. For example, he has presented the chart below comparing the Case-Shiller index for housing prices with a commercial real estate price index from Moody’s.    –more

2010 REI Outlook: Real estate investors planning on buying commercial properties like it’s 2005

After a quiet year of investment sales, buyers are preparing to forge ahead with acquisitions in 2010. Two-thirds of investors (65 percent) who responded to the 6th Annual Investment Survey plan to boost their investment in commercial real estate over the next 12 months.

That figure is up from 56 percent in the third quarter and 51 percent a year ago. The exclusive survey is produced jointly by National Real Estate Investor and Marcus & Millichap. The fact that buyers are once again returning to the table is a huge vote of confidence for a commercial real estate industry that has been slammed in the past year by falling property values, occupancies and rents. Respondents to the annual survey who do plan to expand existing portfolios anticipate an average increase of 26 percent, up from 24 percent in the third quarter and 22 percent a year earlier.   –more

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Jan 05

While residential real estate is doing fine in the rental sector, commercial rentals are not thriving.  During the real estate  boom, many commercial buildings were built, but when the economy started to make a turn for the worse, many of those commercial spots went vacant.

Now investors are having to cut rents to attract business.

Tenants, Investors To Take the Reins in 2010

Commercial real estate markets around the world experienced the full impact of the global economic recession in 2009, according to the 24th annual Global Market Report released today by NAI Global. Rising vacancy rates and declining rental rates were evident in virtually every market sector and geography, with weak demand and a growing supply of sublease space further eroding market fundamentals.

After a turbulent 18-24 months since the market peaked, 2009 marked a year where transaction volume nearly came to a standstill as corporate tenants waited for clear signs of recovery and investors remained on the sidelines waiting for signs the bottomed has been reached. As the year progressed, government intervention in the form of stimulus packages in the U.S., Europe and parts of Asia took hold and by year’s end many markets had begun to stabilize. However, with U.S. unemployment topping 10%, consumer demand and spending power at their lowest levels in decades and international manufacturing and trade proceeding at a crawl, the global recovery will take some time to truly stimulate economic growth.

“The past year was extremely challenging for commercial real estate, and we don’t anticipate much new demand in 2010,” said Jeffrey M. Finn, President & CEO of NAI Global. “We’re working with our corporate clients to help them take advantage of the current tenants’ market to reduce their long-term occupancy costs. Many tenants are able to negotiate more favorable lease terms today in exchange for a longer commitment. This ‘extend and blend’ practice is a trend we see continuing well into the next 18-24 months.”    –more

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Jan 04
This is a photo showing the Burj Dubai and how...

Image via Wikipedia

Dubai is one of those things that I am still trying to figure out.  Billions of dollars have been spent trying to make the city the new must be place in the world.  I just can’t see why.

I have read many articles about all of the expensive office space going up and the tourist attractions.

Is there really that much demand to warrant a city being built up focusing on office space and tourist attractions?

Time will tell if the old adage,  build it and they will come, is true.

Dubai Inaugurates World’s Tallest Building

United Arab Emirates Benjamin Joffe-Walt and R – Dubai inaugurated Burj Dubai, the world’s tallest building, with a spectacular display of sound, light, water and fireworks on Monday.

Burj Dubai, a development of Emaar properties, stands at more than 800 meters (2,625 ft) high with 160 storeys, making it the tallest man-made structure ever built.

“This is not just a building that’s a little bit bigger than other buildings. It’s much bigger,” Christian Koch, Director of International Studies at the Gulf Research Center in Dubai told The Media Line. “Everybody will know about it. This is certainly going to represent the status of Dubai and the Arab Gulf as a whole for many years.”

Dubai’s government has been focusing its efforts on several grandiose construction initiatives, aiming to diversify the emirates’ oil-based economy towards real estate, services and tourism. It is hoped a project like Burj Dubai will help attract international attention and in turn, investment.

Construction of the Burj Dubai began in September 2004 and was completed in October at a cost of around $4.1 billion.

The tower breaks several world records, including the tallest skyscraper to the top of the spire, the tallest structure and the building with the most floors, a record that was previously held by the two World Trade Center buildings which had 110 floors each. It will also be the world’s tallest structure to include residential space.

“It just shows you that projects do get completed around here,” Koch said. “The idea that everything has ground to a halt here is just not true.”    –more

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Dec 17
Trinity church from Wall Street.

Image via Wikipedia

Commercial real estate is suffering along with the residential real estate market although not as severe.  Here are a couple articles that give some insight on the situation.

The Commercial Real Estate Default Wave is Here

What has been lost in the housing talk recovery is the grim statistics that commercial real estate has fallen 37 percent in value in the last year. This wouldn’t be such a big problem aside from the tiny detail that some $3 trillion in commercial real estate loans are still outstanding. The commercial real estate debacle is already happening with defaults reaching 16 year highs. This is already occurring before many of the commercial real estate loans reach their refinance dates. In some instances banks are simply ignoring non-payment and giving borrowers a few more months or even years. Why? Because they can still claim the note is current and claim the asset at inflated values.

Yet this is a game we are all familiar with. Suspending mark to market has always been a method for the U.S. Treasury and Federal Reserve to skirt any real accounting from Wall Street. If we look at the current FDIC insured bank balance sheet, we can see that many more problems lie ahead for commercial real estate:    –more

Greener Pastures for Commercial Real Estate

Good news about commercial real estate is in short supply these days, so it may be surprising to hear that going “green” can earn some “green.”

New research shows that green-certified buildings command substantially higher rents and selling prices. Economists Piet Eichholtz, Nils Kok, and John Quigley estimate just how much in a forthcoming paper in the American Economic Review. They consider the federal government’s Energy Star certification and the U.S. Green Building Council’s LEED certification.

The study is based on a statistical comparison of commercial buildings across the U.S. After closely matching buildings and controlling for important structural and location characteristics, they find that office space in green-certified buildings rents for a premium of 3% per square foot. And after adjusting for even higher occupancy rates in green buildings, the effective rental premium is closer to 6% per square foot. What is more, comparable results are found in significantly higher sale prices, from which the green rental premium is consistent with a capitalization rate of just over 6%.  –more

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