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Commercial Real Estate Delinquencies Rise

July 9, 2010 By Chuck Leave a Comment

Over the past 18 months or so I have discussed the commercial real estate market and how it would be the next ‘big problem’.

Today we learn the latest commercial real estate delinquency statistics and it continues to look bad.

According to Fitch Ratings the delinquency rate in commercial mortgage backed securities (CMBS) has risen to 8.14% in June.

Fitch states that the number of distressed properties continues to grow.

‘The number of distressed properties continues to grow,’ said Managing Director Mary MacNeill. ‘If borrowers are unable to access capital for leasing costs or are unable to restructure their loans to a leverage level commensurate with sustainable property values, they may stop subsidizing debt service payments.’ (Reuters)

June delinquency rates by property type, as compared with May, are as follows:

  • Hotel: to 18.62% from 18.63%;
  • Multifamily: to 13.82% from 13.65%;
  • Retail: to 6.19% from 6.03%;
  • Industrial: to 5.48% from 5.07%;
  • Office: to 4.84% from 4.59%.

These statistics suggests that the economic growth that is being touted by Washington is not what they say it is. I continue to expect further declines in both residential and commercial real estate markets for at least another year.

More on this topic (What's this?)
Getting Ugly on the Commercial Real Estate Front (naked capitalism, 8/1/10)
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Filed Under: Market Updates Tagged With: , ,

Delinquencies in the Commercial Real Estate Market Reaches Another High

May 4, 2010 By Chuck

In the April 2010 report just released by Realpoint Research we learn that delinquencies are up 268% from just one year ago. These delinquent payments now total $51.05 Billion and was $47.82 Billion just one month prior.

This of course is a disturbing trend, and it reveals just how bad the underlying commercial real estate mortgage market is. The distressed 90+ day foreclosure and REO categories grew in aggregate for the 27th straight month, up 7% from the previous month.

Additionally:

The total unpaid balance for CMBS pools reviewed by Realpoint for the March 2010  remittance was $798.22 billion, up slightly from $797.06 billion in February 2010. Both the delinquent unpaid balance and delinquency percentage over the trailing twelve months are shown in Charts 1 and 2, clearly trending upward. The resultant delinquency ratio for March 2010 of 6.4% (up from the 6% reported one month prior) is nearly four times the 1.66% reported one-year prior in March 2009 and over 22 times the Realpoint recorded low point of 0.283% from June 2007. The increase in both delinquent unpaid balance and percentage reflects a steady increase from historic lows in mid-2007.

cmbs delinquency balance compared to percentage

CMBS delinquency data

There is much more in the April 2010 report from Realpoint Research.

More on this topic (What's this?)
Getting Ugly on the Commercial Real Estate Front (naked capitalism, 8/1/10)
Still Here (Financial Armageddon, 5/10/10)
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Filed Under: Market Updates, Real Estate Tagged With: , ,

Shopping Malls – All Dressed Up But No Where To Go

April 7, 2010 By Chuck

Do you get an empty feeling when you walk into your local shopping mall? That empty feeling may be more than just the money being sucked away from you to fund bailouts, healthcare reform, and other government programs aimed at making you feel better about your life. No, the empty feeling is probably coming from the stark picture you see upon entering the mall, more and more stores are closing up.

[…] Vacancies at the biggest malls, known as regional and super-regional centers, increased to 8.9 percent in the first quarter from 8.8 percent in the previous three months and 7.9 percent a year earlier, the real estate research company said in a statement. The rate was the highest since 2000, when New York- based Reis began tracking the data. […]

[…] Actual rents retail tenants paid, known as effective rents, declined in the first quarter in all 77 cities tracked by Reis, the company said.

Landlords’ asking rents at regional and super-regional malls dropped to $38.79 a square foot, down 3 percent from a year earlier and 0.6 percent from the fourth quarter, Reis said. Rents declined for the sixth straight quarter, the longest streak in the 10 years that the company has kept track. […]

[…] Vacancies at smaller neighborhood and community centers rose to 10.8 percent, the highest since 1991, from 9.5 percent a year earlier and 10.6 percent in the fourth quarter, Reis said. Effective rents fell to $16.62 a square foot, down 3.4 percent from a year earlier and 0.8 percent from the fourth quarter. […] (BusinessWeek)

Last week Mrs. Rebel and I went to our local mall to find a pair of Rockport brand shoes for her work in the EMT field. The mall, once home to many fine shoe stores, was instead lined with more and more stores with the security gates drawn and all signs removed. You could say we were all dressed up to go shopping, but had no where to go.

Filed Under: Bankruptcy, Commercial Real Estate, Economic Impact, Market Updates Tagged With:

Atlantic City Casino Project Hits Morgan Stanley With $1 Billion Loss

April 1, 2010 By Chuck

From the FT

Morgan Stanley is to suffer a loss estimated at around $1bn on a troubled Atlantic City casino project in the latest setback for the Wall Street bank’s property investments.

The US firm said on Thursday it would put up for sale its majority stake in Revel Entertainment, the developer of a 47-story casino and hotel in Atlantic City, New Jersey’s answer to Las Vegas. People close to the situation said Morgan Stanley was already in talks with potential buyers and a deal was expected in the next few months.

In a regulatory filing, Morgan Stanley said the sale of Revel, “would result in a substantial loss of that investment” to be recognized in its first quarter results out later this month. The bank declined to specify the size of the loss on its initial investment of $1.2bn but analysts said it could be around $1bn. […] (FT)

I wonder how Morgan Stanley was marking this in their books. My guess is they were holding it at a high level on the dollar, now when it comes time to sell the stake they have to take the “real” marks and it does not look pretty.

Don’t worry though, commercial real estate is doing just fine. laughingmouse thumb Atlantic City Casino Project Hits Morgan Stanley With $1 Billion Loss

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Morgan Stanley: Strategic Defaults Reach 12% (naked capitalism, 4/29/10)
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Filed Under: Market Updates, Real Estate Tagged With: , ,

Seattle’s Columbia Center Owners Face Possible Default

March 25, 2010 By Chuck

The owner of Seattle’s 76 story Columbia Center faces imminent default due to cash flow issues. According to the Seattle Times, the owner is Beacon Capital Partners based in Boston. Beacon Capital failed to make a scheduled payment of $1.65 million on the $380 million loan which it initiated three years ago when it acquired the property.

The 1.5-million-square-foot Columbia Center appears to have been especiallyColumbia-Center-EXT hard-hit by the recession, which has pushed rents down and vacancies up all over downtown.

Downtown’s overall vacancy rate is at or above 20 percent, according to brokerage reports. At the Columbia Center, however, almost 600,000 square feet — nearly 40 percent of the building — is listed as "available" on online commercial real-estate database Officespace.com.

That includes space that is vacant now and space expected to be emptied in the next year or so, including 177,000 square feet leased by Amazon.com, which is moving to a new headquarters complex now under construction in South Lake Union.

When Beacon bought the Columbia Center in April 2007 it was 89 percent leased. The firm paid $621 million, according to county records, and borrowed a total of $480 million to help pay for the tower.

Its assessed value now is $380 million.

"There are many buildings in a similar position where the loan is greater than the value of the building," said Craig Kinzer of Seattle-based Kinzer Real Estate Services. […] H/T Butch (Seattle Times)

Commercial real estate is expected to be under pressure for a considerable period of time.

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Filed Under: Market Updates, Real Estate Tagged With: ,

Coming To A Strip Mall Near You – Nothing!

January 6, 2010 By Chuck

Highlights of the most recent report from Reis Inc, Real Estate Research -

According to data from Reis Inc, in Q4 strip mall vacancies rose to an 18-yr high of 10.6%
  • In Q4, the vacancy rate for large regional malls rose to an at least 10 year high of 8.8% v 8.6% q/q
  • In Q4, asking rents at US strip malls declined by 0.5% q/q and dropped by 2.1% y/y to $19.12/square foot
  • According to Reis, its outlook for retail properties as a whole is bleak, does not foresee a recovery in the retail sector until late 2012, at the earliest.
  • Of note, for the first time in Reis’ 29 year history, effective rent in all of the 77 markets covered declined.
More on this topic (What's this?)
Office Vacancies Rise to 17.4% (Expected Returns, 7/6/10)
U.S. Shopping Mall Vacancies Reach 10-Year High as Stores Fail (The Cynical Economist, 1/7/09)
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Filed Under: Market Updates Tagged With: , ,

An Illusion Of Profitability

January 4, 2010 By Chuck

“There’s something of an illusion of profitability”, says Kenneth Rogoff, Harvard economist. At a gathering of the American Economic Association’s yearly meeting held in Atlanta. Economists from a wide range of backgrounds mulled over the prospects of growth in the United States for the next decade.

[...] experts from a range of political leanings were in surprising agreement when it came to the chances for a robust and sustained expansion:  They are slim.

Many predicted U.S. gross domestic product would expand less than 2 percent per year over the next 10 years. That stands in sharp contrast to the immediate aftermath of other steep economic downturns, which have usually elicited a growth surge in their wake.

“It will be difficult to have a robust recovery while housing and commercial real estate are depressed,” said Martin Feldstein, a Harvard University professor and former head of the National Bureau of Economic Research.

Housing was at the heart of the nation’s worst recession since the 1930s, with median home values falling over 30 percent from their 2005 peaks, and even more sharply in heavily affected states like California and Nevada.

The decline has sapped a principal source of wealth for U.S. consumers, whose spending is the key driver of the country’s growth pattern. The steep drop in home prices has also boosted their propensity to save.

“It’s very hard to see what will replace it,” said Joseph Stiglitz, Nobel laureate and professor of economics at Columbia University. “It’s going to take a number of years.”

One reason is that U.S. consumers remain heavily indebted. Consumer credit outstanding has fallen from its mid-2008 records, but still stands at some $2.5 trillion, or nearly one-fifth of total yearly spending in the U.S. economy.

Another is that many of the country’s largest banks are still largely dependent on funding from the U.S. Federal Reserve and the implicit backing of the Treasury Department.

Kenneth Rogoff, also of Harvard, argued that if the U.S. government ever “credibly” pulled away from its backing of the financial system, then a renewed collapse would likely ensue.

He cited government programs giving large financial institutions access to zero-cost borrowing as artificially padding their bottom lines.

“There’s something of an illusion of profitability,” he said. (Source: Reuters) H/T butch (emphasis mine)

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Filed Under: Market Updates Tagged With: , , ,

Commercial Real Estate Continues To Falter

December 22, 2009 By Chuck

The Bloomberg article says it all -

Dec. 21 (Bloomberg) — Commercial property values in the U.S. declined in October to the lowest level in more than seven years as unemployment reduced demand for apartments, offices and retail space. [...]

[...]Values are dropping as U.S. unemployment climbs and consumers cut spending. Office vacancies may approach 20 percent next year as employers hold off hiring, commercial property brokers Jones Lang LaSalle Inc. and Grubb & Ellis Co. said last month. [...]

[...]An estimated $1.4 trillion of commercial real estate debt is scheduled to mature over the next five years and Foresight estimates that 53 percent of it is “underwater,” meaning the value of the property is less than the mortgage, Anderson said.

[...]The delinquency rate for U.S. commercial mortgage-backed securities rose to 4.47 percent as of the end of November, Moody’s Investors Service said on Dec. 10. That’s almost six times the year-ago rate of 0.75 percent. (emphasis added)

Delinquencies for commercial real estate mortgages held by banks may rise to 5.6 percent in the fourth quarter and reach as much as 8 percent next year, Anderson said. [...]

Filed Under: Market Updates Tagged With: , ,
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