USA - National Debt Calculator

Just found this cool Real-time US National Debt calculator. Ready reckoner for how big the problem is...

Commercial Real Estate's Debt Issue

Is it a real estate problem or a debt problem?? Wells Real Estate Funds CEO on the crisis among other things...

Financial Crisis - Big Mortgage, small value

The last post was about American commercial real estate investors packing, folding, and moving house from their traditional investment back-office - Europe. Now, let’s take a glance at why these investors found no backers and shut operations.

To start off with rhetoric… did you good folks know that U.S. banks are holding about $1.7 trillion of mortgages backed by commercial property that is fast losing value? 1.7 TRILLION DOLLARS! For realtors and investors alike, this is certainly not good news.

According to new report by Deutsche Bank AG, as property value declines and scarce credit continue to drive commercial property developers and investors into default, total lifetime losses on banks’ $1 trillion “core” commercial-mortgage holdings, or those backed by income-producing properties, would reach between 11.6% and 15.3%, or $115 billion and $150 billion. Those expected losses would be at least as large as those on loans originated and bundled into commercial-mortgage-backed securities, from 2005 and 2008, a period of cheap and reckless credit, Deutsche Bank estimates.

Are you scared yet? Well, we all should be. What’s worrisome is the fact that this is not an area-centric issue. The repercussions of the American investor with an empty pocket could have a domino effect in the office space industry world over, the kind of which is unfathomable, and in a not-a-pretty-picture way.

Not that so far the problem is only restricted to the US. But yet it’s only ‘US puppet countries’ that are hit as of now. But if the dominos do tumble, then we’re talking about carnage as far as the Middle-East and Central Asia.

Financial Crisis - American investors retreat from Europe

The American Realty Industry’s woes are not limited to their home turf alone…

At the peak of the real-estate boom, U.S. investors dominated the game in European office space scene. Now, with the exception of a few deals, the Americans have retreated and are now net sellers of European commercial property.

In the first half of 2009, U.S. investors spent €407 million ($581.7 million) on office space assets in Europe, down 98% from the peak of U.S. involvement in the first half of 2007, when Americans invested €20.7 billion in European property, according to a report by property-services group CB Richard Ellis (CBRE).

Among the larger European sales by an American property investor this year is developer Tishman Speyer Properties' sale of the 182,000/ft² Centurium building in London, which it sold to German fund BVK International Immobilien-Spezialfonds for £128 million in an all-cash deal. Tishman bought the office building in 2005 for £100 million and sold it fully leased. With the recession looming over their heads, they aren’t interested in holding property anymore.

Wall Street Journal has made a few key observations regarding this. "What we're seeing is that the global investor, the American institutional investor, has pulled back dramatically," says Ray Torto, global chief economist for CBRE. "It is local and national investors who are buying space at the moment. The global buyers are not in the ball game."

In the first half of 2007, U.S. buyers accounted for about 16% of all transactions. By the first half of 2008, this fell to 9.1%. First half of 2009, U.S. investors accounted for just 1.6% of all commercial space transactions.

Wonder what happened to the trans-Atlantic love affair?!

Big Apple Crush - Pressure in Commercial Real Estate

Check out this Interview (August 20, 2009) on Bloomberg News of:

1. Sam Chandan - Chief Economist, Real Estate Econometrics and Adjunct Professor of Real Estate at the Wharton School

2. Robert Sammons - Colliers ABR

3. Lawrence Yun - National Association of Realtors

Big Apple Crush - Commercial Real Estate trends July 2009

This is a page from a recent report published by the Scotiabank Group on Real Estate Trends, July 2009, which shows some aspects of the current situation in the US commercial markets. Click to enlarge.

DISCLAIMER

The above embedded report is Copyrighted material of Scotiabank Group. We do not claim ownership over any information contained in it.

Big Apple Crush - Colliers highlights 2009 Second Quarter

Colliers Industrial Highlights Q2 2009 North America

DISCLAIMER

The above embedded report is Copyrighted material of Colliers International.

We do not claim ownership over any information contained in it.

Financial Crisis Series Part 1 - The Big Apple Crush

This is the first post in my ‘Crisis Series’, which will track how the global financial crisis is pounding the commercial office space industry.

So let’s start with Uncle Sam’s neighborhood… where it all started!

The recession is carpet-bombing the American Office Space sector. Just to put the issue in perspective, let’s look at the happenings in the 4 major commercial centers:

1. Office property rents in San Francisco witnessed a massive 24% decline in the Q1 2009 from a year earlier (the biggest decline since the dot-com bust in 2001). To top that, vacancy rates saw a scary increase from 10.1% in June 2008 to 14.1% in June 2009. In fact, commercial property purchases have come to a full screeching halt in San Francisco.

2. In Dallas, Class A office space dropped to $21.64 per SF and Class B office space fell to $17.38 per SF in June 2009. Class C buildings are thus caught in the domino effect, where Class A and Class B properties are lowering rates to stay competitive. The few successful businesses in Dallas are thus on a roll, being able to upgrade from Class C to B and B to A (almost as if Wal-Mart is selling office space).

3. The ‘Meltdown in Manhattan’ (New York), on the other hand, saw overall vacancy rate increasing to 0.9 % points during Q2 2009, compared to a 1.6% point increase during Q1 2009. Manhattan’s overall availability rate, which includes space available within the next 12 months, increased to 11.5 % in Q2 2009, up from 10.5% at the end of Q1 2009. The famous Madison Avenue experienced declines in average ground floor asking rents and a corresponding increase in availability. That means we’ll soon see retailers taking advantage of market opportunities that have not been present on Madison Avenue in several years.

4. Washington D.C., with its large governmental employment sector, still has its nose above water... but not for long! Vacancy rates in the capital jumped to 10.2% in Q2 2009 as compared to 8.5% in Q1 2009 due to the delivery of 2.6 million SF of vacant space. Nearby, in Northern Virginia, net absorption remained negative in Q2 2009 but did not drop as low as the previous two quarters, thanks to some government-related leasing activity and a huge deal by Raytheon for 602,790 SF. And in Suburban Maryland, Q2 2009 net absorption remained negative and vacancy rates increased to 13.9% from 13.1% in Q1 2009.

“No people, no space needed”:

Vacancy rates are soaring as a result of:

1. The new Central Business District deliveries totaling 3.2 million SF (but more than two-thirds of newly constructed area was vacant at the end of June 2009)

2. The current 26-year high unemployment rate (almost 10%) which has led to major lack of demand for available office space

3. The rising available sublease space and a 19% decline in overall office leasing activity

Happy hours months for tenants:

American landlords are getting jittery. In the worst recession seen in decades, ‘not-so-affected’ tenants have a major advantage as landlords desperately try to lure them with attractively low rents. Landlords have definitely been driven to the wall, because they do not usually compete on rents as that could bring down the valuation of a building. They offer other incentives, which they’ve apparently run short of. Furthermore, commercial real estate is not always a ‘real-time’ indicator of the health of an economy. There’s always a lag between the recovery of the economy as a whole and the recovery in this sector. So even if the economy starts to grow in Q1 2010, it doesn’t mean that landlords will feel any respite in the near future. The deeper-pocketed tenants will be able to strike some sweet deals soon...

Brief respite:

Projects that are already in the pipeline continue to move forward. A good 10 million square feet of office space is scheduled to be delivered in 2010. Though personally, I think this will just add more vacant space and slow down the initial recovery.

But crisis or no crisis, the Americans are putting their money and efforts in what they do best! Considering the fact that the development of the 1.7 million-square-foot office complex in Alexandria for the U.S. Department of Defence is going strong and will be complete in September 2011, as originally scheduled...