Archive for December 9th, 2008
by David Bodamer December 9th, 2008
It’s the worst of times for real estate money managers.
Properties with purchase offers are not closing; transactions are down; and managers are going hat in hand to their investors for cash to prop up properties they do own.
“There’s no light, no tunnel, no liquidity, no equity,” said Jeff Barclay, managing director and head of acquisitions and development at real estate investment firm ING Clarion Partners, New York.
“Some people are being wiped out,” said Claudia Faust, co-founder and managing partner at Hawkeye Partners LP, a real estate private equity firm in Austin, Texas. Hawkeye takes stakes in real estate money managers
Deals are being broken at historically high rates.
Some buyers are reneging on deals struck just a month or two ago. Others have walked out on deals or “shamelessly” renegotiated deals after they have been struck, Mr. Barclay said.
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Related Topics: Investment, News, Trends |
by David Bodamer December 9th, 2008
Some of the largest U.S. and international banks may face billions of dollars in fourth quarter write-downs from commercial mortgage- backed securities, whose values took a nosedive in November.
According to data from Standard & Poor’s, nine large banks hold a total of about $121.1 billion in commercial real estate loan assets that must be marked to market. The group is led by Citigroup Inc. (C), Merrill Lynch & Co. (MER) and Barclays PLC (BCS), which each hold more than $20 billion in commercial mortgage-related securities and investments.
The banks hold these assets separately from their traditional loans, which banks typically hold to maturity. That means the firms must generally adjust the values of these non-traditional assets to reflect current values – hence the specter of write-downs.
Stocks of major life insurance companies have been hurt in the past month over concerns about their exposure to commercial mortgage-backed securities. At banks, by contrast, residential mortgages – which triggered the broad financial crisis now enveloping the globe – have been the principal source of losses and write-downs.
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Thoughts from ICSC New York
by David Bodamer December 9th, 2008
The Retail Traffic staff has spent the past two days at ICSC’s New York National Conference and Dealmaking–the second largest event ICSC holds in the U.S. after the big Las Vegas show. We’ve spent most of the time really trying to get a read of the mood and of what kinds of deals are happening. For the most part, the mood is right in line with our December cover story, The Lost Year.
Attendance is down. I’m not sure by how much. Estimates are that attendance is down somewhere between 15 and 30 percent from last year. That still means there’s several thousand retail real estate pros. Most firms have cut back on how many team members made the trek in. So the corridors are noticeably less jammed. The Hilton had grown notorious for how hard it was to maneuver between the various exhibition halls to see all the booths. There has been a lot more breathing room this year.
By and large, everyone expects 2009 to be quiet as various issues get resolved. On the leasing front, retailers have become incredibly cautious. Even retailers that are looking to expand–and I’ve been assured there are many of those that still exist–are doing so very conservatively. Most do not want to open many (or any) stores in 2009. Instead, they are looking at 2010 in the hopes that the economic malaise lifts by the end of 2009 and positions 2010 for growth. As a result, the developments being pitched are largely projected to open in 2010 or 2011. In short, the new projects will be few and far between for the next 12 months.
At the same time, retailers are being aggressive in the kinds of concessions they’re asking for on new leases and renewals. In some cases, we’ve heard that retailers are asking for up to two years of free rent and just paying CAM fees in the interim. Rental rates are flat or dropping, but it’s hard to tell by how much. And retailers don’t want to open stores based on projected population or income growth. They want to know how many bodies are in place now and what current incomes are. They want real, existing customers, not projected customers.
On the investment sales side, prices are falling, but are not low enough for buyers to come back in. A lot of companies have cash are or lowly leveraged. So there are firms that will buy when the price is right. The big question, though, is what is the right price? No one has a clue yet. All anyone knows is that current prices are too high and current cap rates are too low. So there will need to be more movement before deal volume picks up. Also, many are waiting for increased defaults and, delinquencies or waiting for buyers coming up for refinance. Everyone expects distressed deals to pick up markedly in 2010. When they do, many of these cash-rich buyers will pounce.
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