Two weeks ago, I posted when Time, MSNBC and Fortune almost simultaneously looked at aspects of commercial real estate and proclaimed signs of recovery.
In the latest dispatches, however, we’re back to commercial real estate being doomed again–at least according to this segment on CNBC.
The lesson, again, is that commercial real estate is a complex business with lots of moving parts. We’re going to have crisis alongside recovery. There’s no simple narrative to be had here. We’re not going to see a clear commercial real estate recovery nor are we going to come upon a moment where all is collapsing. So let’s stop looking for the one-line takeaways about commercial real estate.
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Archive for July, 2010
Now CRE is Doomed Again
New CMBS Deal in the Works (Wednesday’s News & Notes)
Good news for commercial real estate borrowers: there is another CMBS issue in the works. Put together by Goldman Sachs and Citigroup, the new issue will mark the third multi-borrower CMBS deal this year after the industry saw zero multi-borrower deals in 2009. Industry sources have told Retail Traffic, however, that the banks are being extremely careful about these new issues. Rather than putting them together and then selling the bonds, the banks secure the bond buyers ahead of time. So while things are improving on the CMBS front, the market is still very, very shaky. For this and other stories on retail and retail real estate, follow the links below:
- Goldman, Citigroup to Sell Real Estate Securities (Bloomberg Businessweek)
- Deutsche Bank Shutting Commercial Real Estate Adviser Group (Bloomberg)
- Movie-rental Stores are Next Retail Backfill Opportunity (Indianapolis Business Journal)
- Winn-Dixie to Close 30 Stores (Supermarket News)
- Why Dollar General Deal is Proving a Tough Sale (The Wall Street Journal)
- Chicago Aldermen Approve City’s 3rd Wal-Mart Store (The Associated Press)
- Ick! Bedbug Invasion Hits Stores, Offices (Crain’s New York Business)
Consumer Confidence Fades (Tuesday’s News & Notes)
I wonder if retailers are going to regret the fact that they have gotten more aggressive about opening new stores. After a tough few years, the healthy same-store sales numbers in the early parts of 2010 brought retailers out of hibernation and ready to talk to landlords about expansion plans.
But now the consumer picture is getting increasingly bleak. The latest consumer confidence figures show continued deterioration. And every day we hear “double-dip recession” mentioned more.
The Conference Board, a private research group, said Tuesday that its Consumer Confidence Index slipped to 50.4 in July, down from the revised 54.3 in June. Economists surveyed by Thomson Reuters expected a reading of 51.0. The decline follows last month’s nearly 10-point drop, from 62.7 in May, which marked the biggest since February, when the measure also fell 10 points.
The survey was taken July 1-21, beginning just as the Standard & Poor’s 500 index was falling to a nine-month low of 1,022.58 on July 2. It had risen 4.5 percent by July 21 and has since climbed an additional 4 percent.
The second straight month of declining confidence follows three months of increases.
“It’s all about jobs. That’s still the primary source of income,” said Lynn Frnaco, director of The Conference Board Consumer Research Center. “Until we see the pace of job growth pick up and consumers are confident that this is sustainable, we are not likely to see a significant pickup in confidence.”
I feel like I’m beginning to beat a dead horse here, but I can’t see how we have a real recovery in retail and retail real estate until a job recovery occurs. And on that front, there’s not much to be happy about either.
Ugh.
Aside from that, here are some other news and notes from the retail real estate world.
- The 10 Most Innovative Retailers (Fast Company)
- Commercial Property Loan Disposals `Anemic,’ Credit Suisse Says, (Bloomberg)
- Why Pop-Up Shops Make Sense (Llenrock Blog)
- Creativity Is Needed to Fill Vacant Stores (New York Times)
- Sears to split space with Forever 21 in Calif. mall (Chicago Breaking Business)
Brookfield CFO Jumps to General Growth
Brookfield Properties Corp. CFO Stephen J. Douglas resigned to take the same position with General Growth Properties.
Brookfield, of course, is working quite closely with General Growth on the regional mall REIT’s recapitalization and reorganization.
GGP CEO Adam Metz said in a statement, “We are extremely pleased to welcome Steve to our management team. His financial expertise and industry experience make him well qualified to lead GGP’s finance operations as we enter a new stage in the company’s history. We are nearing completion of our restructuring and emergence process and adding Steve to our team further enhances our position for long-term success.”
Brookfield CEO Rick Clark said in statement, “We thank Steve for his invaluable contributions to the success of Brookfield Properties and wish him well as he joins General Growth which is being recapitalized by our principal shareholder, Brookfield Asset Management.”
Ed Hoyt, who had been GGP’s interim CFO since 2008, will continue to serve as senior vice president, chief accounting officer for GGP.
Is the FDIC Doing the Right Thing? (Thursday’s News & Notes)
The debate continues to rage on whether the FDIC’s current policies regarding commercial real estate assets constitute the right approach to the downturn. Some industry insiders maintain that holding onto assets as long as possible will help preserve their value. Others argue that the lack of fire sales in today’s market is responsible for the industry not being able to find a clear bottom for prices. Today, Zach Weiss, of the Llenrock Blog, gives his take on this debate. To read more about Weiss’ view on the FDIC and about other news on retail and retail real estate, follow the links below:
- RTC vs. FDIC: Learning from Our Mistakes (Llenrock Blog)
- RadioShack Suitors Reportedly Drop Out (The Dallas Morning News)
- Liz Claiborne Plans to Exit 87 Outlet Stores (RTT News)
- Teen Wasteland (The New York Post)
- How Walmart Won Chicago (Business Week)
- Microsoft Plans “Dozens” of Retail Stores (Dealerscope)
Lee & Associates Survey Finds Private Investors Cautious But Optimistic
Los Angeles-based brokerage firm Lee & Associates Investment Services Group has allowed us to share the results of a short investor sentiment survey it recently compiled. The respondents included high-net-worth individuals, partnerships and other groups specializing in commercial real estate deals valued in the range of $2 million to $20 million.
Overall, the survey finds investors beginning to become more active with deal activity slowly rising. But commercial real estate investors also remain cautious about the sector’s outlook.
Based on responses to the survey, Lee & Associates’ outlined several key themes.
- Most think we are starting to see commercial real estate strengthen.
- Sellers still need to be more realistic, however, the great news is that there are buyers who are ready, willing, anxious and have capital.
- Lenders have to start making loans
- Government involvement has been too slow to assist in lending and job creation
- The commercial real estate market will become the robust economic generator we have seen in the past
- As institutions are on the sidelines for the most part, now is the best time for private investors to buy
You can read the full report in as a Scribd document below. Among the responses to the questions, this one jumped out at me in particular. It indicates that investors think the recovery in commercial real estate is slowly unfolding.
5. How long until the commercial real estate market begins to strengthen?
At last there is some optimism in the commercial real estate market. Last quarter, 82 percent of the respondents did not think the market had started to strengthen yet. This past quarter, that number went down to 63 percent, a reduction of 30 percent. For the first time in two years, over one-half of the respondents believe the market will be strengthening in less than 18 months. About one-fourth were still pessimistic that we still have over 24 months before the market shows signs of getting stronger.
Moody’s: CRE Prices Rose 3.6% in May
The latest numbers from the Moody’s/REAL Commercial Property Price Index (CPPI) show that prices bounced up for the second straight month as CRE values slowly recover. The results have not yet been posted to the MIT site linked above. Moody’s put out a press release this morning with the advance results of the index. The Wall Street Journal has a brief write-up on the results. The forecast remains choppy. So don’t expect the index to repeat the pattern of growth exhibited from 2001 through 2007. It seems more likely we’ll see fits and starts as values bounce along near the bottom that has now formed in prices barring some cataclysm that perpetuates a new drop.
U.S. commercial real estate prices rose 3.6% from a month earlier in May, the second-straight increase, but prices are expected to remain “choppy” near-term, according to Moody’s Investors Service.
Prices in the sector have stabilized somewhat after slumping nearly 40% from the highs of several years ago as the credit crunch and falling occupancy rates and rents hurt the ability of property owners to deal with their mortgages. Meanwhile, demand for space in offices and malls and rooms in hotels and apartment complexes remains far below pre-recession levels.
“The positive news of increasing prices over the past two months is tempered by low transaction volumes, forecasts for slowing macroeconomic growth and the rising risk of a double dip recession,” said Moody’s managing director Nick Levidy.
Transaction volume nearly doubled from a month earlier in May to $1.5 billion, but the number of sales was 6.1% lower.
Click for larger image.
New York’s Brand Conscious Bed Bugs Now at Victoria’s Secret
New York’s retail-happy bed bugs first struck Abercrombie & Fitch and this weekend Victoria’s Secret got hit as well.
Victoria’s Secret had to close for a few hours this week after a bed bug sighting in the store on Lexington Avenue at 58th Street.
The lingerie retailer released a statement on Friday saying: “As a proactive measure, we tested our Manhattan stores. When we found small, isolated areas that may have been impacted, we immediately took action to resolve the situation.”
The buggy discovery at this underwear retailer follows recent exterminations at Manhattan locations of Abercrombie and Fitch and Hollister. Not to mention thousands of complaints from New York City residents that these little nocturnal pests have been creeping around with increasing regularity.
How To Be a Social Success
Madison Marquette, one of the pioneers in the use of social media to promote malls and shopping centers, has launched a site dedicated to best industry practices. You can check out the site, called Center Social, here. It has a section dedicated to surveys and reports outlining who is using social media and how, as well as sections on best social media practices for the retail real estate industry, case studies and expert advice on the topic (as of now, most of the experts appear to be Madison Marquette executives).
Since Madison Marquette does seem to be successful in using social media to promote its centers (for example, it shares its RetailStar competitions on YouTube), this might turn out to be a valuable resource for other landlords. The key would be to offer information that is very concrete and tailored for the industry. In reading advice on how businesses can best take advantage of social networking sites, I often see very generic advice along the lines of “Engage with your Customer.” But my guess would be that landlords are looking for more concrete examples of how they can get shoppers to become their center’s devoted Facebook and Twitter fans and then make those fans want to come in for a visit. A story we ran last year detailed some successful strategies, including Facebook contests that held the promise of thousands of dollars in free goodies and called for familiarity with the center in question.
How about you? Have you found expert advice on using social media for retail properties useful? What kind of information would you like to see on Madison Marquette’s new site?
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Pontius Now Overseeing Marcus & Millichap’s National Retail Group
by David Bodamer July 30th, 2010
Marcus & Millichap Real Estate Investment Services continues to shake up its executive ranks.
Last month the firm promoted John Kerin to the positions of president and CEO to replace Harvey Green, who retired. Kerin officially took over those posts on July 1.
Today the firm has announced a second big move with the the promotion of Alan N. Pontius to the new position of national director of commercial leased investment properties. Pontius was previously the national director of the firm’s National Office and Industrial Properties Group and the promotion means he will now also oversee the National Retail Group. Pontius replaces Bernie Haddigan, who also oversaw the firm’s Special Assets Services division. According to Marcus & Millichap’s release, Haddigan retired from the firm.
It’s a big change given Haddigan’s prominence in the retail real estate sector. Haddigan has been a fixture at industry events for years and often spoke on panels representing the firm. And he was a key part of the company’s annual Retail Trends event in Las Vegas at ICSC’s RECon–a meeting he hosted and moderated for 12 years. In all, Haddigan had been with Marcus & Millichap for nearly 30 years in various ranks. He began his career as an associate in the Encino, Calif., office. He was appointed regional manager of the Encino office in 1986, then elected as a managing director and a member of the firm’s board of directors in 1994. In 1995 he relocated to Atlanta as a division manager to lead the firm’s East Coast expansion.
For his part, Pontius has been with Marcus & Millichap since 1985. Pontius began his career with Marcus & Millichap as a sales associate, and in this capacity he consistently ranked among the firm’s top 25 investment specialists. In 1993, he was appointed regional manager of the Palo Alto office, where he led that office to consistently rank among the top offices company-wide. Pontius was promoted to first vice president in 2000 and to senior vice president in 2002. Also in 2002, he was promoted to national director of the NOIPG. He was elected to managing director in 2007.
Kerin, meanwhile, has been with the firm since 1981. In 1987, he was promoted to regional manager of the Los Angeles office. He was elected first vice president in 1994 and managing director in 1996.
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