“The good news is, despite the reports in the newspapers, the world is not coming to an end,” said Phil Ehlinger, interim director of the county’s Economic Development Department.

Ehlinger and County Chairman Frank Bruno presented the county’s second-quarter economic development update Friday to a group of business and political leaders gathered at Daytona Beach International Airport.

Ehlinger said companies, such as Raydon Corp., Sparton Corp., AO Precision Manufacturing and KVar Energy Savings, are expanding their local operations and adding jobs.

Three new companies — Brothers Performance, AmeriBridge and CartTech — have opened in the county this year. And several others are considering Volusia for expansion or relocation, Ehlinger said.

Volusia’s work force grew 1 percent during the past year, ahead of the national and state growth rates, Ehlinger said. And the average wage for a Volusia County worker rose by $1,000, even as unemployment rose to 11.3 percent.

“We are seeing positive signs that we are coming out of this recession,” Bruno said.

Ehlinger said the real estate numbers are cause for optimism, too.

“Real estate and tourism will lead us out of recession, and construction will follow,” Ehlinger said.

Commercial construction permits went from 19 worth $27.2 million in the first quarter of this year to 20 worth $17.1 million in the second quarter. Ehlinger said the sagging economy prompted many companies to shelve projects, at least temporarily.

He said June was a good month for residential building permits, bringing the three-month total to 178 worth $41.1 million, compared to 124 worth $34.2 million in the first quarter. He also said the inventory of foreclosed homes is being reduced through sales.

“Hopefully, we are off the bottom,” Ehlinger said. “It is heartening that 178 homes are being built at that dollar value.”

But the numbers remain far short of the 375 residential permits issued in the second quarter of 2008. Those totaled $99.5 million.

In April, May and June, jobs in retail trade grew by 266, and hospitality grew by 167. But construction, manufacturing, professional and business services, education and health services, and local government/schools all lost 200 or more jobs.

Bruno praised the county’s efforts to retain and recruit businesses and jobs. But he said the best results will come from a combination of local and regional leaders. “We talk about being global, but we need to be thinking regionally and acting locally,” he said.

By JIM WITTERS
Senior Business Writer

Brody says even though there are some eager buyers, the market remains slow because buyers are holding out for better deals, and few sellers are willing to take lowball offers.

Richard Ziman, manager of a $630 million real estate investment fund, says waiting may be a good idea. But for those determined to buy, he suggests making a supportable offer. His advice: Calculate how much it would cost to build the target property – the replacement cost – and offering that. Ignore the value of the land, he says.

The kinds of properties on Ziman’s buy list include mobile home parks, industrial buildings, and small retail centers anchored by grocery or drug stores. He also warns investors away from mom-and-pop operations. “Mommas and poppas are dying,” Ziman says.

Source: Los Angeles Times, Roger Vincent

RISMEDIA,May 27, 2009-The general economic downturn, complicated by a severe credit crunch in commercial real estate, is dampening commercial real estate activity. In addition, a forward-looking index shows the forecast for commercial real estate sectors will remain weak for the remainder of the year, according to the National Association of Realtors (NAR). Lawrence Yun, NAR chief economist, said commercial real estate has been hit by a double whammy. “Significant job losses have reduced the demand for commercial space, while a lack of credit has stalled transactions and refinancing activity,” he said. “It is critical for the Federal Reserve to increase liquidity by purchasing commercial mortgage-backed securities. Because commercial real estate always lags an overall economic recovery, it will take some time for the commercial real estate market to rebound.”

The Commercial Leading Indicator for Brokerage Activity fell 4.8% to an index of 103.5 in the first quarter from a downwardly revised reading of 108.7 in the fourth quarter, and is 12.9% below the 118.8 recorded in the first quarter of 2008. NAR’s track of the commercial leading indicator dates back to 1990.

The weakening index means commercial real estate activity, as measured by net absorption and the completion of new commercial buildings, can be expected to decline over the next six to nine months.

The Society of Industrial and Office Realtors®, in its SIOR Commercial Real Estate Index, a separate attitudinal survey of more than 600 local market experts, also indicates a lower level of business activity in upcoming quarters. More than 90% of respondents believe it is a tenant’s market, with many tenants benefiting from moderate to deep discounts in office and industrial rental rates, as well as landlord concessions.

The SIOR index has declined for nine straight quarters and stood at 42.3 in the first quarter, well below the 100 point criteria that represents a balanced marketplace.

Realtors Commercial Alliance Committee chair Robert Toothaker said data for commercial mortgage-backed securities are very telling. “We went from $230 billion in CMBS issued in 2007 to only $12 billion in 2008,” he said. “Thus far in 2009 the number is essentially zero- liquidity in commercial credit is crucial to prevent damage to the broader economy. We need better policies and progress in accounting rules to facilitate lending.”

Overall, commercial vacancy rates are rising and rents are softening, according to NAR’s latest Commercial Real Estate Outlook. The NAR forecast for four major commercial sectors analyzes quarterly data in the office, industrial, retail and multifamily markets. Historic data were provided by Torto Wheaton Research.

The gross domestic product is expected to contract 2.9% this year, then grow 1.4% in 2010. Similarly, the consumer price index is forecast to decline 0.8% in 2009 before rising 1.7% next year.

The unemployment rate is projected to average 9.5% this year and 10.2% in 2010. Inflation-adjusted disposable income is likely to grow 1.3% in 2009 and 1.1%.

“Although we expect the economy to begin to stabilize later this year, unemployment will probably peak at about 10.5 percent around the end of 2009,” Yun said. “The job picture should gradually improve as 2010 progresses, but the fundamentals in commercial real estate won’t stabilize until somewhat later and will depend on the Fed’s actions.”

Multifamily Market
The apartment rental market-multifamily housing-has been doing better than other commercial sectors, but a gain in home sales during the second half of this year will modify demand. Multifamily vacancy rates are forecast to rise to 6.8% in 2009 and 6.7% next year from 5.7% in 2008.

Average rent should grow 1.5% this year and 2.5% in 2010, following a 2.9% gain in 2008. Multifamily net absorption is projected at 133,000 units in 59 tracked metro areas in 2009 and 89,700 next year.

It seems encouraging to me that US residents seem to think that real estate values are in trouble, but internationally people are being encouraged to to invest in our Commercial Real Estate?

JEDDAH, Saudi Arabia – May 26, 2009 – The benefits of investing in the U.S. real estate sector were in focus at a seminar held in Jeddah on Tuesday night. “The U.S. real estate sector has become an attractive buy for investors in Saudi Arabia and Gulf, in the context of the recent developments brought about by global economic downturn and weak U.S. currency,” Robert Koch, founder and chairman of the Florida-based Fugleberg Koch Inc., told a meeting attended by a large number of investors at Laylaty hall.

“In this phase, investing in the U.S. real estate offers a lot of opportunities, notwithstanding affordable prices, due to its incredibly sound investment policies,” he said and emphasized on strong returns and reduced risks in U.S. real estate investments even after correcting for the higher taxes, transaction costs and management fees.

Based on recent data, land, income property, and repositioned assets are the three preferred acquisitions in strategic markets in the U.S. now, according to Koch.

Copyright © 2009 Arab News, Jeddah, Saudi Arabia, K.S. Ramkumar.

That assessment came from leading forecasters in a survey by the National Association for Business Economics released Wednesday. It is generally in line with the outlook from Federal Reserve Chairman Ben Bernanke and his colleagues.

About 74% of the forecasters expect the recession — which started in December 2007 and is the longest since World War II — to end in the third quarter. Another 19% predict the turning point will come in the final three months of this year, and the remaining 7% believe the recession will end in the first quarter of 2010.

“While the overall tone remains soft, there are emerging signs that the economy is stabilizing,” said NABE President Chris Varvares, head of Macroeconomic Advisers. “The economic recovery is likely to be considerably more moderate than those typically experienced following steep declines.”

One of the major forces that plunged the economy into a recession was the financial crisis that struck with force last fall and was the worst since the 1930s. Economists say recoveries after financial crises tend to be slower.

Against that backdrop, unemployment will climb this year even if the economy is rebounding, the NABE forecasters predict. Companies won’t be in a rush to hire until they feel certain any recovery is firmly rooted.

For all of this year, the forecasters said the unemployment rate should average 9.1%, a big jump from 5.8% last year and up from its current quarter-century peak of 8.9%. If NABE forecasters are right, it would be the highest since a 9.6% rate in 1983, when the country was struggling to recover from a severe recession.

Some forecasters thought the unemployment rate could rise as high as 10.7% in the second quarter of next year. The NABE outlook from 45 economists was conducted April 27 through May 11.

General Motors, chemical company DuPont and Clear Channel Communications were among the companies announcing mass layoffs during the survey period.

With joblessness rising, consumers, — major shapers of overall economic activity, — will likely stay cautious, making for a tepid turnaround. And given the big bite the recession has taken out of household wealth, notably the values of homes and investment portfolios, consumers probably will stay subdued for some time.

Seventy-one percent of the forecasters believe a more thrifty consumer will be around for at least the next five years. Americans’ personal savings rate edged up to 4.2% in March, marking the first time in a decade that the savings rate has been above 4% for three straight months.

Even as the NABE forecasters believe the country will emerge from recession later this year, they also predict the economy’s overall performance in 2009 will be rotten.

The economy should contract 2.8% this year, the forecasters said in updated projections. That’s worse than the 1.9% drop they forecast in late February. If they are right, it would mark the worst annual contraction since 1946, when economic activity fell by 11%.

Still, the forecasters believe the worst is already behind the country in terms of lost economic activity.

The economy shrank at a 6.1% annualized pace in the first three months of this year, on top of a 6.3% decline in the final three months of last year, the worst six-month performance in 50 years.

For the current April-June quarter, the NABE forecasters believe the economy will shrink at a pace of 1.8%. After that, the economy should start growing again — at a 0.7% pace in the third quarter and a 1.8% pace in the fourth quarter.

NABE’s growth projections for the third and fourth quarters are lower than those made in late February. The downgrade was based on the expectation that businesses, whose profits and sales were hit hard by the recession, will remain wary of ramping up investment.

President Obama’s $787 billion stimulus package of increased government spending and tax cuts, near-zero interest rates ordered by the Fed and government programs to get banks to lend more freely again all factor into the expected economic revival.

Many forecasters also predict that home sales will hit bottom by the middle of this year, another stabilizing factor for the economy. A report on sales of previously owned homes will be released Wednesday, and data on new-home sales is due Thursday.

Next year, the economy should grow 2%, the forecasters said. That was lower than the 2.4% growth projected in February.

With a lethargic recovery expected, forecasters predict the Fed won’t start boosting interest rates until the second quarter of next year.

Because Fed policymakers expect credit and financial problems to ebb slowly, “the pace of the recovery would continue to be damped in 2010,” they said last week.

Credit markets seized up almost entirely in the days after Lehmann Brothers collapsed in September 2008 as lenders shifted to survival mode, Yun said. The economy has since shown signs of stabilizing, but credit availability for commercial real estate remains frozen.

The volume of commercial mortgage-backed security (CMBS) issuances so far in 2009 is essentially zero, Yun said, compared to just two years ago when $230 billion in loans were securitized.

Until investors show an appetite for commercial loans again, property owners face a severe credit crunch as hundreds of billions of debt comes due, he said.

In one bright spot, the federal government acknowledged the problem and the Federal Reserve plans to start buying commercial-backed securities within a few months.

In the meantime, commercial market fundamentals are eroding. With the exception of the multifamily sector, which benefits from the weak housing market, all major sectors of commercial real estate are seeing negative absorption, stagnant rents, increased vacancies, a drop in transactions and falling prices.

The multifamily sector is in only marginally better shape. Yun said net absorption for 2009 should be positive, at about 60,000 units a year. Vacancies will be about 6 percent, and rent growth a positive 2 percent.

In retail, with consumer confidence at its lowest level since tracking began in the 1950s, sales have fallen off a cliff. That’s led to a pounding in the retail property sector. Absorption for this year is expected to be a negative 15 million square feet, and vacancies are expected to be about 13 percent, up from roughly 7 percent just one year ago.

In the office sector, with unemployment growing dramatically among key segments of office workers, demand for space is declining. Absorption is expected to be roughly negative 20 million square feet and vacancies at about 16 percent, up from approximately 12 percent in 2007.

The industrial sector is seeing net absorption at a negative 40 million square feet and vacancies at about 12 percent, up from about 10 percent in 2007.

The huge infusion of stimulus money into the economy will eventually yield results, although how sustainable and robust the growth will be is uncertain, Yun said. He predicted GDP will shrink 2.9 percent this year and grow 1.4 percent in 2010.

Inflation remains less of a concern than deflation right now, despite the huge infusion of money by the government into the economy. Yun forecast the main consumer price gauge to drop 0.8 percent this year and rise 1.7 percent in 2010. But any consumer price prediction is fraught with uncertainty now because of the looming impact of the huge fiscal stimulus working its way through the economy.

Unemployment is expected to rise to 9.5 percent for the year and then rise further to 10.2 percent in 2010. That would be almost twice the 50-year average for unemployment, which is 5.9 percent.

There is one silver lining: Long-term growth, driven by favorable demographic trends, will lead to an improved economic outlook despite the pain in the short-term.

Distressed Deals Losing Luster

By W. Joseph Caton

A couple of significant news items came crashing onto the desks of industry execs recently. And these news items are swiftly bringing current market conditions into sharper focus. First, Normandy Real Estate Partners and Five Mile Capital Partners in late March bought the John Hancock Tower in Boston for $660.5 million, a far cry from the $1.3 billion paid three years ago by now defunct Broadway Partners.

The prized Class-A property was purchased from the trustees to manage the property back into an attractive, income-producing asset.

The absence of bidders underscores how risk-averse investors are when it comes to buying distressed properties. This stance is reflected by fund managers facing calls from investor clients to redeem holdings and as feasible exit strategies for troubled assets dwindle.

The second news headline to recently emerge was that research analysts at Clerestory Capital, a New York manager for a fund of funds, told its investor clients that over the past six months 32 real estate opportunity funds opted to stop or put fundraising efforts on hold. About $52 billion of potential opportunity funds were affected.

The primary reason offered was that general partners — the lead investors and fund sponsors — are finding few limited partners who are comfortable with market conditions surrounding the refinance or sale of troubled assets today. Another reason cited by Clerestory Capital was that fewer real opportunities exist in the face of many owners refusing to sell at scavenger prices.

Instead of chasing what has often turned out to be elusive deals for distressed properties and notes, lenders, investors and operators all are opting to focus on managing current loans on their books, or properties in their portfolios. And effective asset management is proving to be the strategy of choice, especially as investors watch developments like the fire sale of the John Hancock Tower.

The Netherlands-based ING Real Estate has indefinitely nixed a plan for its first-ever global opportunity fund. ING opted instead to focus on its massive €66.5 billion real estate asset management program. Due to fallout from the credit crunch, the global real estate giant’s current assets under management are significantly less than the €107.2 portfolio it held at the end of 2007.

Fund and portfolio managers are seeking to distance themselves from the rest of the pack by flexing their asset management muscles. Such capabilities are attracting yield-hungry investors weary of the high-risk returns.

Even the dormant lending business today is concentrating on the asset management aspect of real estate finance. A property that is a candidate for financing now must be a high-quality asset in a major metropolitan market. The borrower must have a stellar credit rating and in most cases be seeking low leverage of approximately 65% loan-to-value on purchases, and as low as 50% loan-to-value on refinancings.

Oakland, Calif.-based research firm Foresight Analytics recently issued a report in which it estimates $250 billion of commercial and multifamily mortgages are set to mature in the U.S. this year alone, and over $800 billion between 2009 and 2011. Even though the firm is predicting growth in loan originations will be “minimal” in the next decade, there will be ample lending and debt investment opportunities for prudent lenders and their investors in the coming months and years.

To be sure, property owners and asset managers are diligently seeking resolution to troubled assets today. Thus loan originations — particularly viable refinance activities — will become a pivotal turning point for the commercial real estate finance and investment business. And high-yield investors are seeking to capitalize on the current void in the debt finance marketplace.

As managers continue to halt plans for opportunity and distressed investment funds, the bid-ask price gap for both properties and mortgage notes presents opportunities. The time is fast approaching when lenders will once again emerge. For instance, Wrightwood Capital just announced it has closed its latest high-yield lending fund.

Well-capitalized lenders that can price new loans based on current market risk will likely emerge as the leaders of the next real estate cycle. And these lenders will have their pick of the highest quality transactions in the coming months.

To me, this is a great sign that some of this commercial debt is attractive to large investment banks – and that they are willing to put some of their cash on the street and at risk for the next 12-18 months.

Full News Release:HORSHAM, PA) — For Capmark Financial Group Inc. today, there was light at the end of the tunnel.

The Horsham, PA-based international commercial real estate lender and mortgage banker will be getting a $1.5 billion loan from an undisclosed banking consortium. The deal is expected to close May 21.

According to some industry sources, the financing is the largest loan of its kind made by private banks since President Barack Obama’s May 1 announcement. At that time, Obama urged lenders again to loosen the purse strings for commercial real estate players as well as for borrowers in the residential arena.

Today’s financing announcement also marks a new level of cooperation by lenders in agreeing to extend existing large loans coming due shortly at commercial real estate houses, industry sources point out.

The two-year term loan will mature March 23, 2011. However, if certain conditions on the restructuring of Capmark’s senior notes due 2010 have not been met, the maturity date will be accelerated to April 2010, according to Capmark’s prepared statement.

Capmark is putting up its US and Canadian non-bank mortgage loan assets as collateral for the loan.

Capmark plans to use the loan, along with $750 million in cash, to refinance a portion of  its bridge loan contract and senior credit facility that it has with other lenders. Those lenders have now extended the maturity date of about 94 percent of the company’s bridge loan contract to May 21 of this year.  The amount of the bridge loan and its balance was not disclosed.

Commercial mortgages are Capmark Financial’s core business. The company originates, services, and invests in mortgages for commercial real estate including retail, office, health care, hospitality, and multifamily properties. It also invests in real estate-related assets for institutional and high-net-worth investors.

Capmark Financial has  55 offices in North America, Europe, and Asia. The company originates more than $20 billion in commercial mortgages each year and its servicing portfolio is worth more than $300 billion. The investment business has more than $10.3 billion in assets under management.
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The company started in 1994 as GMAC Commercial Mortgage Corp. Affiliates of Kohlberg Kravis Roberts & Co. (”KKR”), Five Mile Capital Partners, LLC and Goldman Sachs Capital Partners jointly acquired Capmark on Aug. 3, 2005 for $16.8 billion. The book equity at closing on March 23, 2006 was listed as $2.1 billion.

If you are involved in the commercial real estate market in any capacity, it should be clear to you that the frothy market of 2006 and 2007 evaporated in 2008 and has yet to return. Volume in all property types is significantly off and cap rates are higher, meaning that property values have decreased.

Where are we going? 

The good news is that the Dallas-Fort Worth market has held up far better than the nation as a whole. North Texas did not have the rapid appreciation that other parts of the country enjoyed, so we do not have as far to fall. Our economy is still producing jobs, although at a greatly reduced rate. The recent modest positive job creation may actually cease before we are out of the current recession, but once again our local economy is faring much better than the national economy. North Texas also has a well documented history of leading the country out of recessions.

My best “crystal ball” prediction is that we have another 18 months to 24 months before we see significant economic improvements in the Dallas-Fort Worth economy. With the recent decline in energy prices, it is possible that we may experience modest deflation in 2009. I anticipate that the deflationary cycle will be short followed by an extended inflationary period in 2010 and beyond. I do not see how we can avoid inflation, which is typically the result of government deficit spending (that is currently at an all time high). The good news is that real estate generally does well during inflationary periods, especially in locations with increasing populations and expanding employment, such as our North Texas economy.

Comparison to the 1980s and 1990s

Those that follow the commercial real estate market and were around in the ‘80s and ‘90s are well aware of the “winners” and the “losers” in this type of real estate cycle. The “losers” were real estate investors that had notes due, or notes that were called, during an economic time when it was nearly impossible to obtain financing. Other “losers” were the commercial banks that folded. The “winners” were the buyers that purchased deeply discounted commercial properties from entities such as the RTC and FDIC, that were given the job of disposing of “problem” properties. Historically, this was one of the biggest transfers of wealth in our country’s history.

Buy or hold

While you do not want to be a seller in this market, if you must sell during the next 24 months, then evaluate your property and the submarket extensively. Price your property realistically, market the property aggressively and do not let a potential buyer get away from you. Research the commercial mortgage market and know what type of financing that your buyer will be able to obtain. You need to know your property, your marketplace and the available financing better than your buyer. If you do not need to sell, then I recommend that you hold your property for better times. Concentrate on maintaining tenants, keeping operating expenses in check and maximizing the net operating income. A stable and proven cash flow will be to your benefit when you market your property during the upcoming recovery.

I feel that this is the time to be purchasing commercial property in North Texas. Throughout my 30 year career in investment sales, I have seen many market cycles.  I have been rewarded by exercising discipline and buying aggressively in down markets, and selling when others are still aggressively buying. Having a “contrarian” investment philosophy is difficult for some investors to grasp. While it is much more popular to follow the mob and invest as the crowd does, I would encourage you to buck this trend and look for solid investments now. Keep in mind that there are motivated private sellers in the marketplace now and lender foreclosures with some outstanding opportunities.

As in all forms of investing, you must exercise discipline. Always carefully scrutinize the investment before pulling the trigger. Pay cash or secure prudent levels of debt and make sure that any financing does not mature until well after the economic recovery. Also, have proper reserves to weather the uncertainty still remaining over the next year or two. Finally, carefully evaluate the management and leasing needs of the property. Some investors hit the “home run” of finding a “steal” only to lose money due to ineffective management.

Throughout all of this, remember to keep a positive attitude. It is easy to get discouraged when all of the media reports are so negative. Focus on our local economy and what you know best, and you will see positive results as a commercial real estate investor.

Steve Fithian is managing director of Sperry Van Ness/Visions

Commercial in Fort Worth.

“A weak commercial real estate market is a near-term threat,” Bernanke said. “Financing commercial real estate is a problem now; because the market for commercial mortgage-backed securities is closed” he said. That’s the market in which real estate loans used to be packaged and sold to bond investors. “Because that market is not available now,” Bernanke said “real estate developers can’t refinance loans or obtain lending for new construction.”

So now that the most important figure concerning monetary policy has declared the commercial market as “weak” – can we all get back to business and move forward at these new prices?

Full story from the Chicago Tribune: HERE