Dec

18

Standard & Poor's View of CMBS

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Excerpt from recent S&P press release:

It’s become clear during the past few months–and especially in the past few weeks–that the problems facing the global financial markets and the U.S. economy have left the commercial mortgage-backed securities (CMBS) sector in a fundamentally weaker credit position. As a result, Standard & Poor’s Ratings Services is expecting an increase in the number and severity of CMBS downgrades in 2009 …

"Now that the U.S. is officially in a recession, and since commercial real estate performance typically tends to lag U.S. economic developments, we’re expecting property values to continue to drop and loans with marginal cash flow to default with increasing frequency," said credit analyst James Manzi. "We believe that borrowers with negative equity have little incentive to come ‘out of pocket’ to bring their payments current," he said.

Evidence of this malaise appears to be mounting: The delinquency rate has been increasing significantly, and Standard & Poor’s internal reporting measures show an acceleration in the volume of troubled loans, especially large loans. "Any current change in property prices is hard to measure accurately because of the marked reduction in transaction volume during 2008, but estimates we’ve seen indicate a decline of roughly 10%-15% from the peaks of early 2007. And the gap between offered prices and asking prices, in our view, signals that valuations must decline further to restart any meaningful trading activity," said credit analyst Barbara Duka.

Nov

7

5 Real Estate Investment Strategies for Success in a Volatile Market

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  1. Solutions Create Opportunity

    Solving problems for distressed investors will create prime investment opportunities.  Look for ways to provide workouts for distressed investments.  As loan terms mature, many properties will be unable to cover the debt service associated with new loans. Financing criteria has changed dramatically and will surprise many investors as they look to re-finance.  Large “vulture” funds are being formed for the sole purpose of raising capital to profit from distressed institutional grade investments.  On a smaller scale, attentive investors can capitalize on opportunities by providing solutions in their local market.

  2. Cash is King

    Investors who have been disciplined and kept a healthy amount of liquid assets are now in a favorable position.Kelly Hugh, a well respected real estate economist says “There is such a volume of capital out there. I have three pictures I use in my talks, one is of Niagara Falls, one is the Sahara Desert and the third is the Hoover Dam. The argument is that for a long time we had a Niagara of capital, now people think we have a Sahara but we don’t. It’s a Hoover Dam. It’s all sitting back there. The question is; when does it get released?”

    Those investors who can move quickly and provide interim resolutions will come out ahead

  3. Change Strategy from Growth Investing to Value Investing

    In recent years past, investors had a buffer that alleviated bad investment decisions.  Rent growth and appreciation seemed to remedy any ill-advised acquisitions.Now with rent growth and appreciation absent, property owners are forced to find new ways to produce the yield desired.  Strong asset management combined with tenant retention will help drive yield in existing properties.  New acquisition investments can take advantage of the upward trend in CAP rates.

  4. Avoid Lowering Rents

    Commercial real estate values are tied to the income the property produces.  As retailers are struggling we will see more and more vacancies in the market.  Existing property owners should strive to minimize down time and re-tenant quickly.  Up-front incentives such as free rent and tenant allowances will help entice new tenants while maintaining your property value for the long-term.

  5. “Buy into Fear, Sell into Greed”

    There is no arguing we are in a slowing market, however investors that seize the opportunity can turn this into a wealth-creation market. While the masses are standing on the sidelines there are unbelievable opportunities for a knowledgeable investor.

Jul

22

Keeping Nationwide Store Closures in Perspective

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The International Council of Shopping Centers estimates nationwide retail store closures will total 144,000 in 2007, a 7 percent increase from 2006.  Although this a large number, in 2006 123,000 new stores opened and 139,000 closed.  New store opening have helped soften the effects of nationwide store closures.

There is no arguing that retail is presently a troubled sector with consumer confidence dropping and consumer disposable spending in negative double digits for 50 straight weeks.  The confidence confidence index serves as an important bellwether of consumer spending, which accounts for two-thirds of the U.S. economy and an essential economic driver for the retail sector.

Nationwide retail properties reported a vacancy rate of 7.8 percent in the Reis Inc. second quarter 2008 survey.  Locally we have seen a number of store closures, but nothing close to other troubled markets around the United States.  Starbucks recently posted the final list of approximately 600 company-operated stores in 45 states scheduled to close beginning this month through next March.  Our MSA has only one store scheduled for closure, the Starbucks located off Market and Garland in Spokane.

Jul

3

Commercial Property Prices Still Gaining

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A recent article in National Real Estate Investor gives insight on Standard & Poor’s March GRA Commercial Real Estate Indices.  Overall, national commercial property prices have risen over 5% from March 2007 to March 2008.  The strongest performing region in the month-over-month indice was the Pacific West region.  For more details, click on the link below.

Commercial Property Prices Still Gaining

May

7

Sam Zell Predicts Commercial Real Estate Resurgence

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Sam Zell, chairman of Equity Residential, predicts more capital will begin flowing to commercial real estate investments and commercial mortgage backed securities in the near future. If his outlook is correct we could begin to see some much needed liquidity in the financing realm.

For the first time since July, when credit markets froze in reaction to rising home-loan defaults, investors are starting to move their money from Treasury bonds, whose returns are below the inflation rate, and into commercial mortgage-backed securities. Insurance companies and pension funds need to earn at least 6 percent to cover their liabilities, Zell said.

A 10 year Treasury note ended at 3.875% today, up 20 basis point from Tuesday. We have seen slight upward movement in the 10 year note, however the rate has dramatically changed from the 5% plus rates last summer.

Sam Zell – Bloomberg Article

May

1

Is Coeur d'Alene Recession Proof?

Filed Under Coeur d'Alene, Economy | Leave a Comment

A recent article in the Spokesman Review detailed Coeur d’Alene’s unique ability to potentially beat a national recession. Business consultant Mark Hovind has identified 27 “recession proof” cities. He bases this list off of data from the U.S. Bureau of Labor Statistics.

In my own personal opinion, Coeur d’Alene is definitely not immune to the national trends, however we have a unique area with an increasingly diverse economy. Our area has continued a positive influx of immigration from neighboring states. What is for certain, Coeur d’Alene will continue to be a highly desirable area that will continue to grow despite problems in the national economy.