The Economy
Posted: March 8, 2010
Federal Reserve Board Beige Book Economic report
Notwithstanding the blizzards that paralyzed parts of the nation in February, 9 of 12 Federal Reserve Districts reported that overall economic conditions expanded last month.
While noting that the labor markets remained weak across the country, the pace of layoffs appears to be declining in most districts. Manufacturing picked up as exports grew and companies finally had the courage to re-stock inventories they had depleted during the recession.
It was reported that commercial real estate markets continued to soften in February in nearly all districts as effective rents dropped in reaction to tenant demands for concessions; financing for commercial real estate remains problematic with reduced availability (or is it reduced interest by lenders).
Posted: September 14, 2009
Federal Reserve Beige Book Economic Survey
The following is a summary of select highlights from the Federal Reserve’s most recent Beige Book economic survey of economic conditions in the Fed’s 12 districts:
• All districts reported that the pace of economic contraction for August was lessening with most businesses surveyed reporting that they were “cautiously optimistic” about the future. [Note: many pundits are reporting that the “recession ended in August”; our take—does it matter if it’s August or September? Remember, no one rings a bell at the bottom of the market.]
• Consumers remain firmly rooted on the sidelines with retail sales x-autos limited to requirements rather than big ticket items.
• Commercial real estate remains under pressure with vacancy increasing, rents falling, and concessions becoming the new normal.
• Loan demand remains weak; credit conditions are obviously tight; lending standards continue to be strict.
• On the brighter side, manufacturing conditions improved in almost all districts.
Newsworthy Notes
Posted: February 16, 2010
They’re Back!
At least five*, and possibly more firms, are offering conduit-loan term sheets for loans they anticipate securitizing in the future. The following is a summary of the range of terms being discussed by the various firms as an entirety and does not represent what any one firm would offer a prospective borrower. Obviously the devil is in the details but at least we have a Devil to talk to again.
Collateral: Stabilized, income-producing, property
Property Type: All
Minimum/Maximum Loan: $1 million to $75 million
Loan Term/Maximum Amortization: 5, 7, or 10-years; 30-year schedule
Minimum Debt Service Coverage Ratio: 1.25x to 1.35x to 1.0
Minimum Debt Yield: 11% to 14%
Coupon: 6.75% to 8.50%
Origination Fee: 75 to 100 basis points
* The five firms include: Bank of America; Bridger; Citigroup; Goldman Sachs; and J.P. Morgan.
Posted: December 14, 2009
“What I learned at the ULI Fall Meeting 2009”
1. I continued to improve my vocabulary, adding more words starting with the letter “D” such as “de-lever” and “de-risk”. I also learned that financial institutions are trying to “distance” themselves from real estate.
2. I added to my “Myths Debunked” the following:
a. “Tails” on bell shaped curves predict occurrences too unlikely to require worrying about; sort of like a 1,000 year flood. Think about the 34 days between September 8 and October 12, 2008 when we endured a number of 1,000 year floods in rapid succession including: Lehman Brothers filing for bankruptcy; conservatorship of Fannie Mae and Freddie Mac; the acquisition of Washington Mutual and Merrill Lynch by Bank of America; the bailout of AIG; the conversion of Goldman Sachs and Morgan Stanley from investment to commercial banks; and the acquisition of Wachovia by Wells Fargo. [Did I miss any other 1,000 year floods?]
b. Risks of borrowing “short” and investing in illiquid assets can be hedged; ask anyone who was forced to sell their “illiquid assets” if they were effectively hedged against risk.
3. I learned we had entered a period of “Statistical Economic Recovery”; I guess that’s when the numbers look better even if your personal finances don’t.
4. The “era of the three earner family—husband, wife, and house” has ended as the house is “on strike”; consumers still don’t feel too good. And as always, the real estate economy requires job creation, period!
5. A new breed of mortgage REITs will add some much needed liquidity to the debt market.
6. Commercial Mortgage Securitization Version 2.0 is on the horizon. This has been a long time in coming but everything we hear says they have a very good working model.
7. In addition to additional words for my vocabulary, I now have a new set of one liners—all related to mortgage refinancing—including: “extend and pretend”; “delay and pray”; “a rolled loan gathers no loss”; “excessive forbearance”; and “foreclose and dispose”.
8. I learned that properties can be “unburdened” and “unencumbered” by leases and tenants.
9. “In foreclosure, no one is a winner”.
10. “The Lindsey Lohanization of the capital markets has ended”.
11. Reminder to self: real estate remains a lagging indicator.
12. There are still some “Black Holes” we need to worry about including: $300 billion +/- per year of commercial real estate loans requiring refinancing; construction loans that have no exit strategy; and condominium projects still under construction.
13. “Emerging Trends in Real Estate 2010”: read the book; it presents a clear road map for next year.
Public and Private Equity Capital Markets
Posted: March 9, 2010
Equity REITs Recovered Strongly in February, Increasing 5.3%
|
|
Total
Returns |
Dividend Yield |
|
|
February |
Year-to-Date |
February |
|
Industrial |
+1.86% |
-3.81% |
4.78% |
|
Office |
+3.69% |
-1.47% |
3.67% |
|
Office/Industrial |
+0.96% |
-4.53% |
5.95% |
|
Shopping Centers |
+8.94% |
+4.03% |
4.04% |
|
Regional Malls |
+11.92% |
+1.38% |
2.88% |
|
Free Standing Retail |
+2.65% |
+4.79% |
6.74% |
|
Multifamily |
+8.37% |
+2.45% |
4.20% |
|
Manufactured Homes |
+3.59% |
-1.00% |
4.46% |
|
Diversified |
+1.55% |
-3.84% |
4.19% |
|
Hospitality |
+6.24% |
+0.15% |
1.83% |
|
Healthcare |
+2.39% |
-2.15% |
6.00% |
|
Self-Storage |
+2.22% |
-0.76% |
2.97% |
|
Specialty |
+3.67% |
+0.16% |
4.61% |
|
Equity REIT Index |
+5.34% |
-0.15% |
4.16% |
|
Source: FTSE Group, National Association of Real Estate Investment Trusts. |
Posted: February 24, 2010
Are you interested in REITs? If so, go to REIT Café at
www.reitcafe.com for everything you need, from commentary to a centralized point for earnings calls to REIT news…you get the point.
"Welcome to the new look REIT Cafe website, the community site for REIT investors. Over the coming months, we'll be bringing you increased REIT coverage including quarterly earnings calls, podcast interviews, news, data, analysis and more.
Sign up here to receive the weekly REIT Cafe newsletter. You can also follow REIT Cafe on Twitter for news updates at
http://twitter.com/REITcafe."
Public and Private Debt Capital Markets
Posted: February 24, 2010
The Ackman-Ziff Real Estate Group has recently published its first quarter 2010 Joint Venture Equity Survey/Market Sentiment and Debt Market Sentiment and Lender Survey.
We believe you will find the information included in both surveys timely and insightful and thank The Ackman-Ziff Real Estate Group for allowing ULI to e-publish their surveys.
Sovereign Wealth Fund Eyes Huge U.S. Loan Platform
The Abu Dhabi Investment Authority is in the process of selecting an investment manager for an investment platform which will originate U.S. commercial real estate mortgages. Market sources state that the Authority is considering committing as much as $10 billion over three years.
While a drop in the bucket so to speak, every little bit helps and hopefully this will encourage other Sovereign Wealth Funds to consider commercial real estate mortgages as an investment alternative.
Responsible Property Investment/Green Building Finance Consortium
Posted February 25, 2010
Green Building Finance Consortium announces e-publication of the Consortium’s new book:
As you may be aware, ULI has been a member and financial supporter of the work of the Green Building Finance Consortium. We are pleased to announce that the Consortium’s highly anticipated new book,
Value Beyond Cost Savings: How to Underwrite Sustainable Properties as well as an updated website (
www.greenbuildingfc.com) containing an array of complementary resources that support improved valuation and underwriting of sustainable property, are now available.
The publication, as well as all other resources and tools developed by the Consortium, are available for download (and printing) from the Consortium’s web site as a free service of the Consortium. A printed hard-bound edition of the book will be available in March at a cost of $35 and may be ordered via the Consortium’s Web site.
In addition to
Value Beyond Cost Savings: How to Underwrite Sustainable Properties, the Consortium offers a number of additional resources including, but not limited to:
- Six "expanded chapter" publications offering further analysis and data;
- Special reports and articles on key sustainable investment topics;
- Presentations and recommended additional readings;
- Access to a uniquely-indexed finance-oriented searchable research library; and
- Industry links coordinated with the structure of the book and the research library.