Archive for December, 2008
by David Bodamer December 30th, 2008
General Growth Properties Inc., a publicly traded real estate investment trust that owns more than 200 shopping malls in the U.S., signed forbearance agreements temporarily protecting the company against defaults.
The senior credit lenders agreed to take no action until Jan. 30 in return for General Growth’s consent to allowing no change in control or sale of assets without their consent. General Growth also will not incur debt or buy subordinated debt without the lenders’ consent.
The holders of $900 million in matured mortgages agreed to waive non-payment until Feb. 12.
Link.
Past links and stories:
- December 19, GGP Puts Centers on the Block
- December 18, General Growth Extension Comes Through
- December 15, GGP “Continuing its Discussions with Lenders”
- December 15, Breaking: GGP Refinances
- December 5, Citi Plays Hardball With GGP
- December 3, Centro, GGP Find Ways to Hang On
- December 1, GGP Gets Two Week Extension
- November 25, Ackman Builds Stake in GGP
- November 20, General Growth Hires Bankruptcy Advisor
- November 17, General Growth Downgraded; Feldman to Stop Filing Public Reports
- November 12, General Growth Roundup
- November 11, General Growth Warns of Default
- November 5, GGP, Kimco Fall After Cutting Forecasts
- November 2, General Growth “Almost Literally Worth Nothing”
- October 17, Management Changes at GGP
- October 15, Margin Calls Hit Two More Retail REITs
- October 7, General Growth Near Bankruptcy?
- October 3, General Growth CFO Steps Down; Company Suspends Dividend
- October 2, GGP Under Fire for Inclusion on Short-Sell Ban List
- October 1, Could General Growth Be Sold?
- September 23, Short Selling Banned on General Growth
- September 22, General Growth Strikes Back
- September 16, General Growth Offers More Recourse
- August 12, Another Look at GGP’s Debt
- August 6, Analysis of GGP’s Debt
- July 25, Stories With Bigger Implications?
- July 14, GGP Lines Up New Financing
- April 16, GGP’s Growing Debt Problem
Related Topics: Finance, News, REITs, Retail Real Estate |
by David Bodamer December 30th, 2008
This from the Boston Herald–analyst Burt Flickinger says that up to 3,000 retail properties could close in March and April. That sounds like a massive, massive number. We haven’t heard anyone else make that kind of projection. We haven’t heard about many actual mall closings at all to date. There’s certainly a lot of properties hurting. But could that projection possibly be right?
The current spate of retailer bankruptcies and those expected in the new year – along with still-healthy companies limiting or stopping their expansions – could have a ripple effect on the commercial real estate market.
Burt P. Flickinger, managing director of New York consulting firm Strategic Resource Group, expects 2,000 to 3,000 U.S. malls and shopping centers to close in March and April.
…
Normally, the large banks and financing companies would have adequate funds to “backstop” the REITs and other retail center owners. But so many retailers and property owners are either “retracting or collapsing” at the same time that there’s insufficient credit to save every one, according to Flickinger.
“It’s a natural falling out,” he said.
Related Topics: News, REITs, Research, Retail Real Estate |
by David Bodamer December 30th, 2008
“The leverage is what’s going to kill them,” said Bret Wilkerson, chief executive of Property & Portfolio Research.
That means that some malls will be grappling with less income while facing oppressive debt costs.
“You’ve got pressure from both sides here,” Calanog said.
Reis forecasts that the fourth-quarter mall vacancy rate could top 7 percent, the highest since Reis began tracking regional mall performance in the start of 2000.
It sees fourth-quarter mall rents falling by 0.1 to 0.4 percent.
All retail properties, not just large malls, may see their rents fall by an average of 3.5 percent in 2008 and 5.5 percent in 2009, according to Property & Portfolio Research.
The research firm tracks “economic vacancy,” or the amount of retail space that surpasses the amount that sales can support.
Economic vacancy now stands at about 13.5 percent and is expected to peak at 17.3 percent in the third quarter of 2009, “implying that one out of every six square feet needs to just go away,” Wilkerson said.
Link.
Related Topics: Finance, News, REITs, Retail Real Estate |
by David Bodamer December 29th, 2008
Our sister publication NREI posted a story before Christmas about the proposed bailout.
At the time the TALF facility was proposed last month, the government had also mentioned that it could be expanded to include commercial real estate mortgages, according to Grupe.
“Our sense is that they are predisposed to such a program. Whether it is implemented through the existing program or a new companion program would be something that the Treasury and the Federal Reserve would need to determine,” Grupe notes.
The trade groups would also like the government to provide liquidity to unsecured commercial real estate loans through the corporate bond market. It is not clear how this would be done, but unsecured loans would probably be subject to a bigger discount at the point they are purchased by the government, Grupe notes.
The ailing retail sector clearly favors government assistance. “What this letter is proposing is that the highest-quality mortgages be guaranteed by the federal government so that banks would start refinancing good loans again,” says Michael Kercheval, president and CEO of the International Council of Shopping Centers (ICSC).
ICSC has been in direct conversations with the Treasury department, legislators and the Obama transition team, says Kercheval. “What we’ve been told is that a decision on this could be made early in [2009].”
The problem in the retail sector is that the majority of mortgages on shopping centers are balloon mortgages, where most of the principal is due at maturity. “If there is nobody out there to refinance that mortgage, the loan is technically in default,” he says. In the case of default, in theory, banks could take back the property.
What happens if this doesn’t go through? “That’s our big concern,” says Kercheval. “We think that this will be unlike the heart attack or stroke that’s killing the auto industry, but rather like a slow, insidious cancer, with bits and pieces of the industry dying off.”
Yesterday, the New York Times also looked at the efforts.
“We have profound risk on our hands at the moment,” said Bruce Mosler, the president and chief executive of Cushman & Wakefield, a commercial brokerage firm.
Jeffrey DeBoer, the president and chief executive of the Real Estate Roundtable, an industry group based in Washington, agreed. “Commercial real estate debt will be the next major problem that policy makers need to address,” he said.
The commercial real estate industry relies on a steady stream of relatively short-term financing; loans are refinanced every several years or so. With the two main sources of commercial funding — bank lending and commercial mortgage-backed securities — effectively shut down, hundreds of billions of dollars worth of loans are in jeopardy of defaulting.
The bulk of the loans coming due, industry executives say, were originated two or more years ago to help finance a rash of deals in office towers, hotels and industrial buildings, many of which are generating healthy cash flow today. “We’re talking about performing loans — that’s the rub,” said Thomas J. Bisacquino, the president of the National Association of Industrial and Office Properties.
Related Topics: Development, Finance, Management & Leasing, News, REITs, Retail Real Estate, Trends |
by David Bodamer December 29th, 2008
Retailers will close 12,000 stores in 2009, according to Howard Davidowitz, chairman of retail consulting and investment- banking firm Davidowitz & Associates Inc. in New York. AnnTaylor Stores Corp., Talbots Inc. and Sears Holdings Corp. are among chains shuttering underperforming locations.
More than a dozen retailers, including Circuit City Stores Inc., Linens ‘n Things Inc., Sharper Image Corp. and Steve & Barry’s LLC, have sought bankruptcy protection this year as the credit squeeze and recession drained sales. Investors will start seeing a wide variety of chains seeking bankruptcy protection in February when they file financial reports, said Burt Flickinger.
“You’ll see department stores, specialty stores, discount stores, grocery stores, drugstores, major chains either multi- regionally or nationally go out,” Flickinger, managing director of Strategic Resource Group, a retail-industry consulting firm in New York, said today in a Bloomberg Radio interview. “There are a number that are real causes for concern.”
Sales at stores open at least a year probably dropped as much as 2 percent in November and December, the International Council of Shopping Centers said last week, more than the previously projected 1 percent decline. That would be largest drop since at least 1969, when the New York-based trade group started tracking data. Gap Inc. and Macy’s Inc. are among retailers will report December results on Jan. 8.
Link.
Related Topics: News, Retail |
by David Bodamer December 29th, 2008
It doesn’t look like Venezuela would be a very good bet if you’re a developer looking to expand internationally.
President Hugo Chavez ordered construction halted on a major shopping mall in Caracas on Sunday, saying the government will expropriate the unfinished building.
The Venezuelan leader said it would be out of line with his government’s socialist vision to allow the new Sambil mall to take up precious urban real estate — and that unbridled consumerism isn’t his idea of progress either.
Chavez said the mall, scheduled to open in La Candelaria district in downtown Caracas next year, would severely clog an area that already is so crowded “not a soul fits.”
The hulking concrete and brick structure takes up an entire city block and according to the Sambil Web site was to include 273 shops.
“We’re going to expropriate that and turn it into a hospital — I don’t know — a school, a university,” Chavez said to applause during his Sunday television and radio program, “Hello, President.”
Constructora Sambil, the company building the mall, did not immediately respond to requests for comment. It operates Sambil malls in cities across Venezuela, including another vast shopping center in Caracas.
Related Topics: Development, International, News, Quirky, Retail Real Estate |
by David Bodamer December 29th, 2008
ICSC doesn’t report the final weekly figures until tomorrow and the full December snapshot won’t come until January. Early indications are that a last-minute burst of shopping failed to materialize meaning it very likely will be another month of negative same-store sales figures.
According to ShopperTrak RCT U.S. store foot traffic fell 24 percent from a year ago in the final pre-Christmas weekend. Soon after Christmas, the Wall Street Journal did a report that retailers are bracing for major changes in the new year.
The first retail casualty of the weak holiday season could be Goody’s Family Clothing Inc., a Southeast apparel retailer. The 287-store chain emerged from bankruptcy court in October but its holiday sales were below plan and financing it was counting on didn’t materialize, according to a person familiar with the situation. The retailer is negotiating with lenders to avoid potential liquidation, say two people familiar with the matter.
A representative for Goody’s was unavailable to comment. But in October, Chief Executive Paul White was upbeat about its prospects, saying “we are energized by the opportunity in front of us and are focused on continuing to fulfill the Goody’s mission.”
Other retailers are saying they will trim inventory and reduce the number of suppliers. That, in turn, will cause a ripple effect, prompting a number of weaker manufacturers, small brands and underfunded fashion labels to fail. New retail formats and concepts stores are likely to be curtailed in the coming year. And luxury-goods makers already are working to cut the long lead times between orders and store delivery as a way to reduce risk.
“We will have a lot fewer stores by the middle of 2009,” says Nancy Koehn, professor of business administration at Harvard Business School. “It’s happening very, very quickly because of the financial crisis and the recession.”
Related Topics: News, Retail |
by David Bodamer December 23rd, 2008
First commercial real estate groups ask for a bailout. Now retailers want in on the action and are asking for a sales tax holiday.
Facing a disastrous holiday shopping season, the retail industry on Tuesday urged President-elect Barack Obama to incorporate three national tax-free shopping holidays in 2009.
The group wants the measure to be included in Obama’s stimulus efforts.
“The situation is critical,” the National Retail Federation (NRF) wrote in a letter to Obama. “In October, consumer confidence was at its lowest level in the 41 years. We urge you to act quickly on legislation to help stimulate consumer spending as one of the first priorities of your new administration,” the NRF said.
So far, most of the ideas under consideration as part of the stimulus package vary widely, but do not include a plan for a tax holiday.
Link.
Related Topics: News, Retail |
by David Bodamer December 23rd, 2008
REIT Wrecks has penned an excellent breakdown of the issues plaguing commercial real estate in a way of explaining why industry leaders have extended their hand to Washington in search of a rescue.
Here’s a taste. But you should go read the whole thing.
Clearly, huge demand for CMBS led to a decrease in underwriting standards, including (among other things), a relaxing of traditional loan-to-value criteria. Moody’s estimated that the gap between the Moodys LTV and underwritten LTVs reached record in the first quarter of 2007 (nearly 45%). The Moody’s estimate of actual LTV also reached a record of 106.5%.
These poorly underwritten loans are still out there and in a few of short years, many of them will start to mature. Unfortunately, no lender will touch them now because they are practically radioactive. At the same time that a huge source of capital has disappeared from the market, borrowing costs have soared, making whatever capital there is out there relatively expensive. You can enlarge the chart a bit by clicking on it. Nevertheless, the lines going up and to the right tell the story: money is more much more expensive.
This is happening at the same time that cap rates, which were compressed down around that 6% mark, are now correcting. Cap rates averaged 8.3% between 1986 and 2008, but they fell below 6% in the first quarter of 2007.
This is a toxic mix for those New York City real estate tycoons, and the reason they made the trip to see Chuck Schumer from Brooklyn is simple: they are all about to lose a TON of money.
Related Topics: Finance, News, Trends |
The Push for the Bailout Continues
by David Bodamer December 30th, 2008
Grubb & Ellis president David Arena took the case for the commercial real estate bailout to the airwaves and appeared on Fox Business to discuss the particulars. The industry doesn’t seem to want to use the word bailout. That makes sense. It’s become a loaded word. Instead, Arena uses the word “backstop.” On one hand, what groups are asking for isn’t that complicated. The groups are simply asking for inclusion in an existing program. On the other hand, I think the general public is going to have a hard time accepting the notion that the commercial real estate industry needs help from the government. It will be fascinating to see how this continues to play out.
(Spotted at Square Feet Commercial Real Estate Blog.)
Previous bailout posts:
No Comments Related Topics: Commentary, Finance, Management & Leasing, News, Trends |