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The Commerce Department released its latest results and they’re not good.

Retail sales dived by 1.2% last month, the Commerce Department said Wednesday.

It was a broad decrease and the third drop in a row. Sales in August decreased 0.4%, revised down from an originally estimated 0.3% decline. July sales fell 0.6%.

Economists expected a 0.7% drop in sales during September, the final month of the third quarter. The 1.2% drop was the biggest since 1.4% in August 2005.

The retail sales report illustrates where Americans are spending their money. Consumer spending is a big part of the economy. It makes up about 70% of gross domestic product, which is the scoreboard for the economy.

The drab readings over the summer on retail sales argue the case of many analysts: the U.S. is in a recession or heading for one.

Link.

Even though the broader stock market is relatively flat–the Dow is down about 1 percent as I’m typing this–REIT stocks are getting killed. The Morgan Stanley REIT index is down 8 percent right now. I have no idea why REITs are down so much. Any thoughts? I mean, I did link to two possible reasons earlier today, but that can’t be the only explanation. … I don’t think.

For example, the owners of the 1,200-unit Riverton apartment complex in upper Manhattan had counted on converting deregulated apartments to market-rate rentals at a faster pace. But when that didn’t pan out, they had trouble servicing their debt and were recently in danger of defaulting on their $225 million mortgage.

Trepp has uncovered 1,385 of these thorny commercial loans, totaling some $45 billion. The biggest portion is office properties (31%), followed by retail (25%).

General Growth needs $1.7 billion in the next six months to service its debt, much of it highly leveraged buys made during the boom. The company might be forced to put itself up for sale.

Finding loans to buy or develop a property is just as tough as refinancing one. Wide bond spreads mean that the source of funding that commercial real estate firms have used for the last decade — investment banks — “are more or less off the table,” Clancy says.

Sales volume in commercial real estate is down over 70% from last year, RCA says. A growing number of properties changing hands are distressed, if not in default.

Link.

“For institutional investors, even if you’re an all-cash buyer you’re probably going to want to remain on the sidelines because the conventional wisdom is that we still have a ways to go before we bottom out on the pricing in the industry,” says Steve Pumper, executive managing director of Transwestern’s investment services group in Dallas. “There is still a bid/ask spread and people are going to hold off.”

One glimmer of hope is the latest Congressional action, which has institutional investors learning a whole new set of acronyms when it comes to commercial real estate investing. Thanks to the new Emergency Economic Stabilization Act of 2008 (EESA) signed into law on Friday, Oct. 3, the Troubled Asset Relief Program (TARP) is quickly gearing up to buy billions of dollars in toxic assets from financial institutions to help unfreeze the credit markets.

While the legislation is designed to prop up strained balance sheets of Wall Street investment banks and Main Street commercial banks alike, many industry observers believe the legislation will do little in the short term to quell continued tight credit issues and stem falling property values.

“When I made a prediction earlier this year that the values would fall by as much as 30%, people thought I was off-base,” said Mike Kirby, director of research for Green Street Advisors. “The latest predictions are more than this.” Kirby made his point during a panel discussion at last month’s annual Pension Real Estate Association conference.

Link.

This is one of the examples of the credit crunch affecting the “real” economy.

Apparel and home furnishings retailer Bon-Ton Stores Inc is facing tightened credit for inventory deliveries as the crucial holiday season approaches, the New York Post reported, citing sources.

Big clothing manufacturers have tightened terms on shipments and are demanding quicker payments from Bon-Ton but are expected to ship orders through Christmas, the paper said.

“We have plenty of cash on hand to get us through the holiday season without any issues,” Bon-Ton spokeswoman Mary Kerr told the paper, noting the retailer had $241 million available on a revolving credit line on Sept 30.

Small suppliers to the York, Pennsylvania-based retailer, in recent weeks, have said credit to make deliveries is drying up as lenders have all but stopped extending credit for deliveries during November and December, the paper said.

Link.

Nine new delinquent loans led to the third straight monthly increase in the U.S. commercial real estate loan (CREL) CDO delinquency rate to 2.39% for September 2008, according to the latest CREL CDO Delinquency Index (CREL DI) from Fitch Ratings.

‘Although this delinquency rate remains relatively low and many CREL CDOs are adequately cushioned to absorb some credit deterioration, some CDOs are experiencing more distress than others,’ said Senior Director Karen Trebach. CREL CDO delinquency rates range from 0% to 14%. Fitch recently downgraded the below investment grade classes of one CREL CDO, and within the past three months, Fitch has also placed classes from two other CREL CDOs on Rating Watch Negative. Fitch anticipates that more CREL CDOs will be placed on Rating Watch Negative or downgraded as further problem loans come to the surface.

Link.

Updated at 4:53 PM

Wow. What a day. The Dow was doing well all day and then at the end it really took off. The net result is a gain of more than 900 points. That’s the largest one-day move in either direction. Percentage-wise it went up more than 11 percent, ranking it as one of the top five days of all time.

Just about every retail REIT gained ground today as well with about half a dozen or so gaining 10 percent or more. PREIT was the biggest gainer, jumping 19 percent today. General Growth was also up big gaining 17 percent and moving from $4.82 per share to about $5.60 per share.

The results were similar around the globe with stock markets in many countries posting huge gains. I guess people really like the plan that the G7 and that Secretary Paulson have come up with to finally stabilize the financial markets. We can only hope that these gains hold and that things continue moving up. Given how volatile things have been, however, I have a bad feeling that we’re not quite out of the woods just yet. Most alarmingly, the TED Spread, the difference between the interest rates for three-month U.S. Treasuries contracts and the three month Eurodollars contract, didn’t move much today and remains at 4.57. In normal times that spread is less than 50 basis points.

Update: It occurred to me that even though the stock market was open today, the bond market was not. That could be a reason the TED spread didn’t move as much. We’ll have to keep an eye on it tomorrow. If there’s signs of relief there, perhaps we’ll get over the hump in the credit crunch and things will begin easing a bit.

Torto Wheaton Research has put a special section on its site exploring the ramifications of the financial crisis on the commercial real estate industry.

For years, REITs were considered a safe investment and less volatile than other stocks. During the bull run in recent years when REIT valuations rose considerably, the sector became prone to wider swings in stock prices. Today, however, the New York Times has a piece illustrating that declines in the REIT sector are now less than the broader market. REIT stocks are way down from their 52-week and all-time peaks. But what the experts in this story are arguing is that within the stock universe, REIT stocks–namely self-storage and apartment companies–may represent a safer bet than other sectors.

But the analysts offered another simple answer as well: safety. “They want to hide there right now,” Louis W. Taylor, a managing director at Deutsche Bank Securities, said of investors’ mind-set.

REITs — publicly traded companies that disburse most of their income as dividends — are often considered a good portfolio diversifier, and a haven in turbulent times, because they typically have a “low correlation” with broader markets. In other words, REITs might rise as the overall stock market declines, as happened in the third quarter, or not fall as precipitously.

But investors also see the problems in the housing and mortgage markets, which helped prompt the recent burnout on Wall Street, as particularly beneficial for self-storage and apartment companies, analysts say.

“A lot of households are really concerned about the future of housing prices and mortgage interest rates, so they’re going to wait it out and rent,” said Brad Case, the vice president for research and industry information at the REIT trade association, “and while they’re renting, they need a place to store their extra stuff.”