Peter Pays Paul

When you take a piece of frozen meat out of the freezer generally the meat needs to thaw out before you throw it on the grill. Just because the meat has started to thaw doesn’t mean that it is ready to be consumed.

News around the nation indicates that capital markets for commercial real estate indicate that things are beginning to thaw.

First, the Wall Street Journal is reporting that Harvard Tests Market for Its Property Bets.

Harvard University’s $26 billion endowment is looking to unload a chunk of its $5 billion real-estate portfolio as it seeks better investment opportunities and to reduce its exposure to the troubled property market.

The folks at Harvard Management Company must think that now is a better time to market this opportunity than in the past two years. Stanford tried this approach last year and was offered between 80 and 85 cents on the dollar for their investments.

Second, Simon Property Offers $10 Billion for General Growth. Simon is the nation’s largest mall owner. The majority of their offer, $9 billion, was in cash. Simon would not put $10 billion on the line if they didn’t see commercial real estate markets improving.

Finally, GlobeSt.com is reporting Cautious Optimism for Finance at the 2010 MBA CREF Conference.

Unlike 2009 when the majority of lenders were out of the market, over 90% of the lenders surveyed by the MBA have indicated they have or plan to return to market to lend in 2010.

A good friend told me that while attending the conference, he was surprised by the optimism and the amount of funds available for investment. His concern was that there may be an abundance of optimism that would lead to a repeat of the folly at the height of the real estate cycle.

While none of these items make a case for a hot capital market, collectively they do indicate that markets are changing. By no means are the markets functioning at full speed, but they do seem to be thawing.

What do you think are markets thawing out?

Photo credit: Frozen Steak by stevendepolo.

Here are a few tidbits from around the web.

• The WSJ covers the Treasuries new plan in: Treasury Releases Details on Program to Buy Troubled Assets
• Calculated risk writes CRE: Cap Rate Expansion
• Retail News Blog explains: The Role Of An Appraiser
• CoStar warns of: The Return of the Miserly Lender
• Square Feet informs us that Moody’s Commercial Property Price Index Posts Large Declines
• Bloomberg. com is reporting that Defaulting Commercial Properties Hit Banks on Vacancy-Rate Rise

I’m taking a few things home to read this weekend. Here they are if you want to print them out and read them too.

• Marcus & Millichap 2009 Real Estate Investment Outlook – Marcus & Millichap provides 12 pages of data for you to chew on.
  
• Everything You Wanted to Know about Credit Default Swaps–but Were Never Told – More than a 5 minute read from RGE Monitor – Home of “Dr. Doom” Nouriel Roubini.
• Putting Office Rent Declines into Historical Perspective – Torto Wheaton Research gives there thoughts on the direction of office rents are headed.

See you on Monday!

WSJ.com is reporting that GE recently took ownership of a an apartment portfolio in Alabama in Risky GE Apartment Loan:

General Electric’s massive real-estate operation likes to brag about how its lending business is among the most conservative around. That isn’t the case in at least one deal.

GE Real Estate, a unit of GE Finance, foreclosed Jan. 6 on a portfolio of 2,284 apartments in Alabama. Brooklyn, N.Y.-based Collins Group LLC with backing from New Jersey-based Lightstone Group bought the apartments in late 2006 for $155 million. GE lent Collins $148 million in a two-year bridge loan, according to several people familiar with the matter. That would put the original loan-to-value ratio at 95%, not very conservative.

As this deal demonstrates, the purchase price and rent assumptions made by the borrower were not feasible to support the debt load on the property.

This is an example of some of the wild deals that were done in 2006 and 2007. Many smart investors are going to sit on the sidelines until these deals are cleared out of the market.