Peter Pays Paul

CNBC has an interview with Barry Gosin from Newmark Knight Frank in Fear in Commercial Real Estate.

“The question really is how quickly will this adjust? When will rent come back, when will cap rates reduce and when will the fear be out of the market? Fear is a lot more of a powerful emotion than greed,” said Gosin. “You can control greed to a certain extent but you cannot control what you do under fear.”

Gosin also noted that banks have assets left on their balance sheets to refinance some of the loans, but the financial institutions are putting other concerns first.

“In addition to real estate, banks are concerned about consumer lending and they’re concerned about revolving credit,” he said. “With everything assaulting the banks, they are still hoarding cash and as a result they are not very easily going to roll over some of these loans.”

There is truth in Gosin’s statements. Investors are gripped  with fear.

Existing investors are frozen by the uncertain future for rents, vacancy, and interest rates. Many see the value of their property decreasing and they are uncertain of what to do.

Investors with capital are cautious and are only investing in projects that have very little downside.

Take for instance the Yellowstone Club in Montana. GlobeSt.com reports that the Yellowstone Club Trades for $115M.

The new owner is Boston-based CrossHarbor Capital Partners, a joint venture of Discovery Land Co. and members of the Yellowstone Club. Discovery Land Co., based in Scottsdale, AZ, developed the Kukio Resort, a private club on the Big Island of Hawaii in partnership with the Honolulu-based Kobayashi Group, according to published reports. CrossHarbor managing director Sam Byrne, who previously invested approximately $200 million in Yellowstone Club real estate, offered to buy the club last year for $470 million, according to reports.

Buying a property for 25% of what you offered last year is a pretty good deal.

CoStar reports that Macquarie Selling 75% Interest in 86 U.S. Centers for $1.3 Billion

CalPERS said that this portfolio is substantially comprised of the same shopping centers it sold to Macquarie in a 2005 portfolio transaction, under which Macquarie acquired a 75% interest in 100 centers from CalPERS/First Washington for an amount reflecting a total portfolio value of $2.74 billion.

The purchase is at a significant discount to what was paid in 2005 and reflects Macquarie’s desire to focus on Australia and New Zealand.

Unfortunately, government meddling only aggravates the uncertainty in the market. If the markets were left to correct on their own, investors could act based on historical trends. However, with Uncle Sam slapping the Invisible Hand of the market investors are unable to predict how long they will have to hold out.

Until the fear resides it is going to be a rough ride. Hold on to your hat.

Retail real estate had a great run up in value and rental rates in the past few years. Fueled by easy consumer credit retailers expanded at a furious pace. This demand spurred development of retail projects across the country.

Now, with consumer spending down and online purchases up, retailers are going under.This decrease in demand for retail space has retail real estate set for a bumpy road in 2009.

Advice for Retail Specialists

The Jacksonville Business Journal has some tips on how to get retail real estate deals done in this tough economic climate from a local ICSC event.

Rent concessions, local government assistance and reduced maintenance costs are going to be the new way to make retail real estate deals stick in 2009, according to panelists at an International Council of Shopping Centers event.

The ICSC Jacksonville Next Generation Program panel discussion on creative deal making strategies attracted nearly 100 young professionals Jan. 22.

Retail real estate pros have to get creative – Jacksonville Business Journal

A Doomsday Forecast

How bad could the situation get? James Quinn at Seeking Alpha has written an article titled Ghost Malls: Coming to Your Town (HT: Transparent Real Estate) that details how bad the situation could get.

The illustration of Old West ghost towns is something that every American can relate to. During the great gold rush of the mid 1800’s in California, Nevada, and Wyoming towns sprung up out of nowhere to support the gold mining efforts of those looking to strike it rich. General stores, bars, hotels, brothels, and jails appeared out of nowhere based on demand from delusional prospectors hoping to hit the jackpot. Thousands of malls emerged throughout suburban America in the last twenty years as delusional shoppers thought they could spend their way to prosperity and achievement. Both delusions will end in the same manner.

James speculates that gone are the days when American consumers attempted to spend their way to prosperity and predicts that this will have a drastic affect on malls.

A permanent psychological change has occurred in American consumers. They have lost $30 trillion in value from their homes and investments in the last few years. No amount of fiscal stimulation will reverse this psychological trauma. The savings rate will increase from 0% to at least 8%.

…

As Americans realize that they don’t “need” a $5 Starbucks latte, IKEA knickknacks, Jimmy Choo shoes, Rolex watches, granite counters, and stainless steel appliances, our mall centric world will end.

Uncertain Future

“Batten down the hatches boys, it’s going to be a wild one.”

Only time will tell how bad the situation will get. If James’ assumptions are true, it could be very bad. If retailers are able to trim their costs and survive, the bottom will be much softer than James predicts.

What are your thoughts? How far down will retail real estate go?

San Francisco Bay Area Commercial Real Estate Networking Events

As an aid to my San Francisco Bay Area readers I wanted to compile a resource of local events for commercial real estate brokers and agents, commercial mortgage brokers and bankers, and those interested in commercial real estate.

This not a comprehensive calendar but is a compilation from a variety of sources.

Organization Key

• 680 CIX – 680 Commercial Idea eXchange
• BAMA – Bay Area Mortgage Association
• BOMA – Building Owners and Managers Association
• CCIM – Certified Commercial Investment Member
• CREW – Commercial Real Estate Women
• ICSC – International Council of Shopping Centers
• IMF – Investment Marketing Forum
• IREM – Institute of Real Estate Management
• NAIOP – National Association of Industrial and Office Properties
• ULI – Urban Land Institute

EB = East Bay
SF = San Francisco
SV = Silicon Valley

NAIOP publishes a monthly trade organization calendar here: http://www.naiopsfba.org/pdf/MonthlyCalendar.pdf.

The New York Times is reporting on the spreading vacancy issues in commercial real estate. Office and retail sectors are being hit the worsth.

Much of this affect is due to the prediction that 2009 is going to see a contraction in the U.S. economy. Companies are not looking to expand into new office space. In fact most companies are cutting back on staff and are paring down the amount of office space they are willing to use.

Houston, like Dallas, held up while many other cities were showing the strains of an economic slowdown. But job growth and the brisk business of oil and gas exploration have come to an abrupt halt.

Vacant or unfinished shopping centers dot the highways. Among the 8.4 million square feet of office space under construction or recently completed in the metropolitan area, 80 percent has not been leased. As a result, the vacancy rate is 11 percent and rising.

This is a very well written article and paints a valid portrait of the situation commercial real estate owners are facing. It is well worth the read.

(HT: Calculated Risk)