I posted about REITs sliding yesterday. It’s happening again today. The news about Macerich and Developers Diversified doesn’t seem to be helping. DDR is down almost 12 percent and Macerich down nearly 16 percent as I write this. But the declines are across the board. General Growth is the only retail REIT in positive territory up 3.3 percent for the day. The losses are not isolated to retail REITs. The Morgan Stanley REIT index is down 9 percent today. But the losses do seem to be more acute at many retail REITs.

I imagine the grim retail sales figures are playing into this. But is there more at work?

Update: I just did a little math. The Morgan Stanley REIT index closed on Friday, Sept. 19 at 913.61–it’s highest point since June. That weekend, of course, was when the credit crunch morphed into full-fledged crisis mode. It was the weekend Lehman wasn’t bailed out, Bank of America agreed to buy Merrill and just a couple of days before the government nationalized AIG. Since that point, the Morgan Stanley index has lost about 34 percent of its value. (It’s now down about 7.4 percent for the day, up a bit from its session lows). In that same time period, the Dow Jones Industrial Average has dropped 22 percent.

The question is, does that make sense?

Update 2: The market ended the day on a major down note. The Dow Jones Industrial Average fell 7.9 percent. The Morgan Stanley REIT Index ended up down 12.9 percent. The Morgan Stanley REIT index had its highest ever close on February 7, 2007 at 1,233.66. At today’s close it stands at 565.42. That means its dropped 54.1 percent.

If REIT values are a proxy for commercial real estate values–which is something I’ve heard argued–than that would mean commercial real estate values have been cut in half in the past 18 months. But, I don’t think that makes much sense.

Part of the problem at General Growth was that the firm had asked its way on to the short-sell ban list and then saw its executives sell shares. That created the appearance of impropriety. It made it seem like the company was protecting its share price while executives dumped stock. That’s not necessarily what was going on, but it certainly didn’t look good and is one of the reasons General Growth’s share price has tumbled so much.

That’s not the case at Macerich or Developers Diversified. Instead, the problem here seems to be that the share prices have fallen by so much that they forced margin calls. In Macerich’s case, according to a company SEC filing, Coppola had no choice in the matter.

There’s one other interesting tidbit on the Macerich front, however, which is that even before the margin call, several Macerich executives sold about $20 million in shares in recent weeks, most of which were held by the executives in custodianships for their minor children. At Developers Diversified, meanwhile, a company executive vice president was also forced to sell shares worth $600,000 because of a margin call.

Arthur Coppola, Macerich’s chairman and chief executive, unloaded 345,173 Macerich shares on Thursday and Friday for nearly $13.9 million to cover a collateral requirement on his line of credit with his broker, according to Securities and Exchange Commission filings. The sales amounted to 44% of the Macerich common shares held by Mr. Coppola.

Also last week, Scott Wolstein, chairman and chief executive of Developers Diversified, sold more than 1.2 million shares for roughly $20.1 million to cover margin calls, SEC filings show. The sales cut Mr. Wolstein’s holdings by 45%.

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.

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.

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.

But with the stock market now showing some life is it time to buy these real estate-related firms?

No, says Michael Kirby, director of research Green St. Advisors. Green St. follows real estate investment trusts exclusively so when Kirby says ‘don’t buy them’ it means something. Overall his buy recommendations have returned 27% annually since 1993. His sell recommendations have appreciated .3%. The average REIT returned 12% on average over that time, according to the National Association of Real Estate Investment Trusts.

Kirby’s beef is that relative to corporate bonds; REITs still don’t look like a good deal. REITs are presently yielding 5.5% versus 7.8% for corporate debt. Moreover, REITs look expensive on a price to earnings basis, trading at 18 times earnings versus 12 times for the S&P 500.

Danger looms, particularly for office REITs, as some $185 billion in mortgage debt will need to get financed in 2010-12. It could trigger massive defaults, similar to what happened in the housing market.

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.