Archive for April 15th, 2009

Beige Book Reports More Weakness in Commercial Real Estate

by David Bodamer April 15th, 2009

The latest Federal Reserve Beige Book is out. Here is what it has to say about commercial real estate:

Nonresidential real estate conditions continued to deteriorate over the past six weeks. Demand for office, industrial and retail space continued to fall, and there were reports of increases in sublease space. Rental concessions were rising. Property values moved lower as reality “set in.” Construction activity continues to slow, and several Districts noted increased postponement of both private and public projects. Nonresidential construction is expected to decline through year-end, although there were some hopeful reports that the stimulus package may lead to some improvement.

Commercial real estate investment activity weakened further. Contacts said a decline in credit availability and markdowns on commercial property were keeping buyers and sellers on the sidelines.

No Comments Related Topics: Commentary, News, Research, Retail Real Estate |

Rouse CDS Worth 28.25% of the Debt They Insure

by David Bodamer April 15th, 2009

Some news on the GGP debt front. It looks like those that issued credit default swaps on Rouse Co. debt will be on the hook for a hefty chunk of cash–$7.2 million per $10 million of insurance sold.

Credit default swaps insuring the debt of The Rouse Company, a subsidiary of General Growth Properties Inc., are worth around 28.25 percent of the debt they insure, based on initial results of an auction on Tuesday to determine the contracts’ value, said auction administrators Creditex and Markit.

That means that sellers of protection will need to pay out around 71.75 percent of the value of the bonds they insured, or $7.17 million per $10 million of insurance sold. Credit default swaps are used to insure against a borrower defaulting.

Payments on the contracts were triggered after the company failed to pay more than $2 billion in debt due on March 16.

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Big Portfolio Hits the Market

by David Bodamer April 15th, 2009

The investment sales market on retail real estate has been frozen for a while. Sales volumes are down in 2009 from 2008. During the first quarter, $1.8 billion in transactions occurred on retail properties, a drop from the year earlier. Overall in 2008, $20 billion in transactions occurred on properties worth $5 million or greater–down 70 percent from 2007.

But could things turn now that a very large portfolio is hitting the market? Macquarie DDR Trust, a joint venture between Aussie-based Macquarie and U.S. retail REIT, Developers Diversified Realty Corporation has put a portfolio of 52 U.S. shopping centers up for sale.

As of Dec. 31, 2008, MDT said the portfolio of assets were valued at $1.9 billion, which accounts for 70.4% of the Trust’s total asset value. MDT first foreshadowed this portfolio listing when on Mar. 19, it said MDT’s intentions were to “reorganize and simplify” its ownership in certain joint venture interests. The trust is considering purchasers interested in a limited 85.5% ownership interest or 100% interest in the portfolio.

The big question: Will the portfolio actually fetch $1.9 billion or will it get less than that? For example, the recent forced sale of John Hancock Tower wasn’t very encouraging. The building changed hands for 50 percent discount on what the same property fetched in 2006.

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