I just ran across this article from the National Real Estate Investor – and it illustrates a few great points.
In our brokerage, we are hearing more reports of investors organizing funds to acquire distressed commercial real estate. I’ve felt for a couple of years now that this will mark the bottom of the market, when investors feel that that prices have stabilized, credit is fully tightened, and cap rates are at their peak. We have buyers on hand right now, with a standing offer to purchase property at a 12% cap, based on the current income, at its current occupancy level. Before you scream how low that is – keep in mind this is a standing offer, cash, close in less than 30 days.
Its extreme pricing – but its real. It is the bottom dollar – and it is real money that you can have in 30 days, if your property is truly distressed. When you have a market conditions such as ours, this is encouraging. An investment group has stepped up and is willing to draw a line in the sand declaring that “X” is the minimum price for income producing property, and they will purchase anything that reaches that low price.
So, the shorthand version of the below story is as follows -
NREI surveyed 521 Commercial Real Estate investors – and from that data the assumption is that we are at the bottom of the commercial real estate market – or close enough to see it anyways. Of the respondents in this survey
56% of them planned to purchase commercial real esate inside of the next 12 month period
46% of them planned to purchase inside of the next 6 months
23% are actively looking to purchase of commercial property. NOW.
The one theme through the article is that leading economic indicator the investors were looking to was a stabilization of job losses. When job losses reverse and show some gains, even slightly – all areas of the economy stabilize.
Now that the housing market has stabilized and prices are beginning to rise, attention is turning to what is often called the next big crisis: commercial real estate.
Mortgage-backed securities helped sink the residential market, and worries are widespread that the $700 billion in such securities backed by commercial mortgages will lead to similar problems in that sector.
The traditional, core commercial holdings of banks also are under suspicion. Deutsche Bank estimates losses will amount to 11 percent to 15 percent on the $1 trillion in such mortgages held by banks.
A commercial version of the real estate meltdown, however, may turn out to be a calamity that is more anticipated than experienced.
And while the southern New Jersey commercial market is weak, it’s also showing signs of what may be the start of a rebound.
No surprise
J. William Mills, president of PNC Bank’s Philadelphia and southern New Jersey region, thinks a true crisis is more of a surprise. Read more of this article »
With credit still tight for investors in commercial real estate, CNBC sat down with real estate moguls Bill Rudin and Steven Roth to discuss the sector and the pace of recovery.
“What’s happened is after a vicious, very sharp down draft, we are now in a process of seeking a bottom. And that bottoming process can probably go on for two years, maybe even longer.”
—Steven Roth, chairm
an of Vornado Realty Trust
“In terms of commercial real estate in New York, we’re seeing activity. That’s the positive sign; that there’re people now as opposed to six months ago when there was no commercial leasing. In the third quarter of ‘09, there were 12 major leases signed over a hundred thousand feet in New York City.”
The economy is not out of the woods yet—at least from the perspective of Peter Roberts, chief executive officer for commercial real estate firm Jones Lang Lasalle.
Roberts said he’s not very bullish on the economy right now.
“Commercial real estate lags the economy. We’ve got to get the economy off its back and going before commercial real estate follows,” Roberts said in an interview with FOX Business Network Anchor, Brian Sullivan. “Because commercial real estate lags, that’s why we’re not that optimistic.”
Roberts expects office vacancy rates to peak near 20% sometime in late 2010 or early 2011. Commercial real estate markets, which had a heavy concentration of financial services firms prior to the recession, will be the hardest hit, Roberts said, since the financial sector suffered the bulk of the pain. He noted that there was one pocket of strength.
“Washington DC is the one that is probably most immune to what we’re experiencing in most of the country,” Roberts said, due to the expansion in government employment since the onset of the financial crisis.
Roberts is also on the board of directors at Corus Bank, which held $5 billion in loans on condominiums and other commercial property before it was put in receivership. In response to a question about what to expect from the bank’s loan auction, Roberts said, “there are definitely interested parties going back to looking for opportunities…a bunch of debt purchasers are going into that sector—watch that space.”
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