FoxBusiness chimed in this morning on the outlook for commercial real estate with Ardsley Advisors Managing Partner Peter Avalone. Is there really $7 trillion in commercial real estate debt out there, as Avalone says? The MBA’s stats (based on Fed Reserve numbers) show $3.5 trillion in debt. Avalone says there’s a lot out there and that $3.5 trillion just represents what commercial banks hold and refers to CMBS and insurance companies as holding the rest. But I thought the $3.5 trillion figure included all that. According to MBA’s data, commercial banks have $1.55 trillion in outstanding commercial real estate debt. Anyone have a source on the $7 trillion figure?
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Archive for July, 2009
New Wal-Mart Prototype; Banks’ Worry Over CRE; Mall of America’s Marketing Strategies (Monday’s News & Notes)
A story from the Tri-County Times about a new Wal-Mart Supercenter opening includes an interesting little nugget. The store is a new prototype for the Bentonville Behemoth.
The Fenton location, according to Venezia, is a prototype for stores to come. He noted the wider aisles and lower shelves, and the improved layout of the store.
“We’ve done a lot of things that are great for customers, and great for sustainability,” he said, noting that the store’s new LED lighting and skylights save 75 percent of lighting costs, and low-flow sinks and toilets save about 70 percent of the store’s water usage.
Additionally, the store will participate in the company’s Feeding America program, donating food that has not yet expired to food banks, in an effort to become a zero-waste facility, Venezia said.
Here are some other news and notes on retail and retail real estate from around the Web today.
- Investor’s Business Daily looks at banks’ concerns over commercial real estate. This sums up a lot of data that’s come out in recent weeks–on CMBS delinquencies particularly–and really focuses on the banks’ perspective on how this will play out. It bolsters the notion that banks are taking an “extend and pretend” mentality. They are extending problem loans rather than foreclosing. In other cases, they’re just outright ignoring problem loans. But this can’t go on forever. At some point, problem loans will have to be dealt with.
- The Mall of America is trying everything it can to boost traffic at the property. The story from the Star Tribune says mall personnel are trying everything they can think of to promote the property including “traveling to book expos, meeting with Hollywood producers and planning back-to-school promotions for Facebook and Twitter.”
- The Associated Press has a story about “ghostboxes”, i.e. vacant big box retail sites and how cities are dealing with them.
Crabtree & Evelyn Files for Bankruptcy
Crabtree & Evelyn, the maker of soaps, gifts and toiletries sold in 126 stores in 34 states, filed for bankruptcy protection in New York, citing a decline in consumer spending.
The company, based in Woodstock, Conn., reported $46.2 million in assets and $33.2 million in liabilities in Wednesday’s bankruptcy petition.
”We are confident that Chapter 11 gives us the opportunity to restructure the company with a business model that will be sustainable for long-term growth,” Stephen Bestwick, the retailer’s acting president, said in a statement.
Crabtree & Evelyn is wholly owned by Kuala Lumpur Kepong Bhd., a Malaysian company that also owns palm oil and rubber plantations. The company is Malaysia’s third-largest palm oil producer.
Retail sales accounted for 56 percent of the Crabtree & Evelyn’s $107.5 million in revenue in the fiscal year ended Sept. 30, 2008, it said in court papers. The company had operating losses in each of the past several years and projects it will lose $13.3 million this year, it said.
Link.
NRF’s Retailer Ranking; Trepp Data; Pier 1’s Outlook; Challenges at Landmark Mall (Holiday Weekend Wrap-Up)
Coming back from the long holiday, here are some of news and notes from the past few days. Overall, it was pretty quiet.
- The Llenrock Blog argues that developers deserve the next bailout considering the treatment that other borrowers have gotten from the government.
- New data from Trepp LLC shows that there is now $40 billion bad commercial real estate debt. Altogether, Trepp says that at the end of June, 5.39 percent of the total balance of securitized commercial mortgages was under the control of special servicers, up from 4.92 percent at the end of May.
- The National Retail Federation released its annual ranking of the largest retailers as ranked by 2008 revenue. A story and links to the rankings can be found here. An analysis of the list shows that discounters continue to gain ground while conventional department stores continue to slip.
- Pier 1 CEO Alex Smith told shareholders that he sees“light at the end of the tunnel.” The retailer’s strategy of selling real estate and renegotiating rents has helped it emerge from financial troubles. And despite the difficult economic climate, Smith believes the company will return to profitability.
- The Wall Street Journal looked at how some bold investors are venturing back into REITs. It’s a look at how some groups, including private-equity giant Apollo Management LP and distressed-investment specialist Angelo, Gordon & Co., are contemplating REIT IPOs.
- In a story that encapsulates the challenges many malls are facing, the Washington Post looks at the struggling Landmark Mall in Alexandria, Va. Like many other dated malls, the property was slated for a massive update and redevelopment to convert it to a mixed-use center. But those plans have been shelved. In the meantime, vacancies are rising and the mall’s fate is in doubt.
- Lastly, in international news, BR Malls raised $433 million from the combined sale of common shares in a public offering.
Dollar Stores Rise; Blockbuster Quarter for REITs, In-Store Shops (Wednesday’s News & Notes)
There were two stories in the past three days looking at grocery stores and prices. Reuters has a piece up about how grocers are on the defensive because of dollar stores. Such chains are expanding rapidly and capitalizing on consumers’ frugality in the face of the difficult economic conditions. Meanwhile, the Wall Street Journal today had a piece about the positives of low grocery prices. That story’s position is that deflation in food prices has made supermarkets more competitive with discounters and warehouse clubs.
So I’m confused. Are supermarkets doing better or worse?
Here are some other news and notes on retail and retail real estate from around the Web today.
- Another WSJ piece looked at the record quarter turned in by REITs. After several quarters of steep declines, REITs turned it around in the last three months. In the end, the quarter proved to be the best in the industry’s history.
- There were two interesting RetailWire threads today. One looked at the Sears new buyer protection program, which we blogged yesterday. The other thread examined whether in-store shops are a problem for department stores.
- Retail Chatr asks,”How Long Until We See A Steady Stream of Distressed Real Estate Assets For Sale and How Hammered Will Non-Distressed Properties Get?”
- Calculated Risk posted its monthly Economic Summary in Graphs.
Comment on Concessions
I found this comment–in response to our “Retail Landlords Grant Temporary Deferments, Come Up with Barter System to Set Off Rent Declines” news analysis to be very interesting. I have put it here to see if there are additional thoughts on this topic.
Only a greedy, stupid lender would force a Landlord to hold rents, when a Landlord deems it necessary to help a tenant, and the Landlord that agrees to such language in a lending document must be weak to begin with. Who knows the business of shopping centers better than the people who have to lease them? An accountant only knows how to add up the numbers, and has no clue what needs to be done to keep a shopping center full with the right kind of tenant mix. Sure there’s a market out there if you want your center to have H & R Block on the mall, or some Temp operating because Gap couldn’t catch a break from the Landlord, but what is better for the mall is to have that Gap store operating. I’m not promoting a total collapse of a rent roll, but reasonable treatment should be the norm, and not something that anyone needs to boast about or hide. That is how this industry became an industry, and that is the way it will get back to profitability.
The whole industry went haywire 10 – 15 years ago when the accountants and the SEC took the business from the real estate/leasing teams, who were the entrepreneurs that made centers work in the first place. The “Trend” began when companies going “Public” had to figure out how to sell their companies for more than they were actually worth, which is pretty close to the definition of Greed. All this to guarantee that every dime of rent that was promised was paid. Now all you have is REITS and public companies that do business based on getting more rent every time they have a chance, which leads to market values (rent costs) that are not realistic. A good Leasing rep knows when a tenant needs help, and should always be free to make something work for, or with, the landlord and the tenant’s long term best interest in mind. If the tenant is strong enough to make it in the mall in the first place, then some day this tenant will return the favor when the LL needs it.
Sometimes trends lead us in the wrong direction, and the REITs, and SEC, have all fallen into this trap of hardball negotiations. When the trend finally reverses itself, landlords who bend a little, without breaking, will come out on top. Those who succumb to the greed, and are blind to those needing help, will be gone. Likewise, lenders who break a tenant or a landlord to keep their balance sheet clean should be hung out to dry, which is what is happening to them right now also.
Originally posted as a comment by Jim Donofrio on Retail Traffic using Disqus.
McDonald’s Adds Angus
McDonald’s is adding some pricier Angus burgers to its menus nationwide. It’s had these in test markets–including New York and Los Angeles. Now it’s taking them nationwide.
NRF “Flabbergasted” By Wal-Mart’s Support of Obama Health Plan
Given that many retailers don’t supply employees with health care, it’s no big surprise that the National Retail Federation is against any legislation that would require companies to supply insurance to employees. It would raise costs at companies that are already under a lot of strain. The federation, however, has found itself at odds with the biggest retailer in the country. Wal-Mart has come out in support of the drive to make companies provide insurance. It’s the lead story in today’s Wall Street Journal.
Of course, Wal-Mart has a very clear motive for backing this legislation that has nothing to do with it caring about improving the health care situation for Americans, of which something like 50 million have no health insurance. Wal-Mart may support this effort because it will affect its competitors more than it will affect Wal-Mart, which already offers some coverage to employees. It could see this as a way of driving up the costs at companies that are trying to compete with it.
NRF’s position on health care can be viewed in this letter, dated January 2008. Its federation doesn’t believe companies should be mandated to provide insurance. It also is against the idea of a value-added tax to fund health care reform. Both of those tactics would hurt its members. The first would raise costs for retailers directly. The second could hurt sales by cutting back on how much consumers spend. Instead, the NRF recommends that the U.S. “consider requiring individuals to obtain insurance coverage.” Essentially, it wants the burden to fall on individuals rather than companies.
The NRF also supports implementation of health information technology–digitizing medical records–as a way of saving costs. It supports tax credits for individuals or small businesses to make coverage more affordable. There are other bullet points in the letter as well.
At any rate, NRF’s Neil Trautwein appeared this morning on CNBC to argue against the Obama plan. Trautwein never directly answers the question about who should pay for expanding coverage in this segment–not coming out in support of government-sponsored or employee-sponsored health care. The NRF letter seems to come down on the side of what’s being done in Massachusetts–with residents being mandated to buy insurance.
William Rudin on the State of Commercial Real Estate
William Rudin, president of Rudin Management, discusses the future of the commercial real estate market with CNBC.
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How Banks May Handle CRE; GGP Updates; IKEA Sours on Russia (Tuesday’s News & Notes)
by David Bodamer July 7th, 2009
American Banker looks at what banks should expect as they come to increasingly own commercial real estate. Many banks may want to sell rather than dealing with the headaches of being landlords–especially given the volume of properties we may end up seeing default.
As the story explains:
The problem is that with values so depressed, banks selling assets in this climate risk taking huge losses. So banks face a tough choice. You can sell now and take bargain-basement pricing. Or you can gut it out–perhaps by bringing in a third-party manager to help keep the asset going–and wait until you can sell into a better investment sales climate.
Here are some other news and notes on retail and retail real estate from around the Web today.
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