The Federal Reserve says it's “cautiously positive” about the economy in its widely watched regular report called the Beige Book.Eleven of the Fed’s 12 regions called economic activity in the area “stable,” “showing sings of stabilization,” or “firmed.”
Analysts said the economy is growing in the third quarter at an annual rate of 3 percent to 4 percent because businesses are spending more.
But the market for homes continues to be weak. In most areas, buyers are first timers and others purchasing the lowest-cost properties. Philadelphia was an exception: Sales there are up even for expensive homes.
In the commercial real estate market, sales were down, and construction was off in all parts of the country.
The Feds are seeing a light when in the depth of the tunnel and think it is daylight...those of us who are living in this environment see the light and know it is someone's candle flickering before going out....In what world can you look at increasing unemployment, significant underemployment a multi-billion dollar commercial mortgage liquidity crisis yet to happen and homes selling for $9,000 (that is not a typo) are things improving?! This is further evidence that the powers that be do not know any more now than they did two years ago when we were told that the sub-prime crisis was contained....in the end, we, the public, will get an education that we will be paying for through taxes for many moons to come....welcome to the 21st century!
Thursday, September 10, 2009
Wednesday, September 2, 2009
US commercial property boom decades away - JLL
The end of summer is always slow...but in the Summer of '09, that is business as usual. If a recent report by Jones Lang LaSalle (JLL) is correct, our summer of discontent will last long into the next decade. Unless and until we are able to restructure and resurrect or replace the CMBS and RBS investment vehicles, liquidity will not return to the market and we will see continued declines in property pricing and no significant momentum in the market.
As reported today by Reuters, JLL recently issued a report that concluded the "level of U.S. commercialreal estate deals seen in the boom years of 2005 through 2007may take a generation to return."
It comes as no surprise to real estate practitioners that US commercial property sales in the first half of 2009 were down 80% from the same period in 2008 to $16 billion which is a whopping 93% decrease in volume from the $231.4 billion recorded in the first half of 2007 according to JLL's US Mid-Year Capital Markets bulletin. Of course, without momentum and cheap debt, prices are off 30 to 55% from prior periods.
- At just $5.2 billion, the second quarter sales activity was the lowest in recent years and down from $30.7 billion in 2Q08 and $114.7 billion in 2Q07 (an incredible 95% reduction in volume - no wonder appraisers are having trouble finding comps). With no CMBS market to turn to for cheap capital -and prospects for a quick recovery not promising, sales or properties are not expected to be robust anytime soon. Jones Lang LaSalle predicts that U.S. investors will slowlybegin to return to the market by mid-2010, though a return tothe boom years of 2005 through 2007 will take a generation orlonger. Instead of $231 billion a year in deals, U.S. commercialreal estate sales are likely to hover around $100 million onaverage for the first several years of the next decade.
JLL reports that cap rates have moved up a full 2.5 percentage points. Based on where cap rates were, this means that a property generating the same NOI could be worth up to one-third less. My opinion is that with increasing expensive capital being the only source and with the on-going perceived risk in the asset class, cap rates can be expected to increase until the rental market shows sign of recovery.
NOTE: the effects of the recession is being felt in the rental market as well as from the peak of the market to the end of the second quarter 2009, U.S. office asking rents fell on average 10% to 25%. Office leasing is down 25% to 50%.
Given all this, JLL predicts that prices for office buildings are not expected to begin to recover until at least 2012 because commercial real estate performance, which is based on job growth, lags the economy. The retail and lodging markets also will need additional time to recover as they depend on consumer spending and business travel.
This is an important point...demand for real estate lags the demand for the goods and services it houses as firms need to expand and employ to fill up their current space which typically is underutilized in a recession before they lease new space....
Be well and God-speed my friends...
As reported today by Reuters, JLL recently issued a report that concluded the "level of U.S. commercialreal estate deals seen in the boom years of 2005 through 2007may take a generation to return."
It comes as no surprise to real estate practitioners that US commercial property sales in the first half of 2009 were down 80% from the same period in 2008 to $16 billion which is a whopping 93% decrease in volume from the $231.4 billion recorded in the first half of 2007 according to JLL's US Mid-Year Capital Markets bulletin. Of course, without momentum and cheap debt, prices are off 30 to 55% from prior periods.
- At just $5.2 billion, the second quarter sales activity was the lowest in recent years and down from $30.7 billion in 2Q08 and $114.7 billion in 2Q07 (an incredible 95% reduction in volume - no wonder appraisers are having trouble finding comps). With no CMBS market to turn to for cheap capital -and prospects for a quick recovery not promising, sales or properties are not expected to be robust anytime soon. Jones Lang LaSalle predicts that U.S. investors will slowlybegin to return to the market by mid-2010, though a return tothe boom years of 2005 through 2007 will take a generation orlonger. Instead of $231 billion a year in deals, U.S. commercialreal estate sales are likely to hover around $100 million onaverage for the first several years of the next decade.
JLL reports that cap rates have moved up a full 2.5 percentage points. Based on where cap rates were, this means that a property generating the same NOI could be worth up to one-third less. My opinion is that with increasing expensive capital being the only source and with the on-going perceived risk in the asset class, cap rates can be expected to increase until the rental market shows sign of recovery.
NOTE: the effects of the recession is being felt in the rental market as well as from the peak of the market to the end of the second quarter 2009, U.S. office asking rents fell on average 10% to 25%. Office leasing is down 25% to 50%.
Given all this, JLL predicts that prices for office buildings are not expected to begin to recover until at least 2012 because commercial real estate performance, which is based on job growth, lags the economy. The retail and lodging markets also will need additional time to recover as they depend on consumer spending and business travel.
This is an important point...demand for real estate lags the demand for the goods and services it houses as firms need to expand and employ to fill up their current space which typically is underutilized in a recession before they lease new space....
Be well and God-speed my friends...
Thursday, August 27, 2009
Fed Agencies seek comments on proposed accounting standards
As previously highlighted, the FASB (Financial Accounting Standards Board) has drafted updated accounting standards affecting how financial institutions account for CMBS transactions. Since these changes will significantly affect regulated institutions, Fed Agencies like the FDIC have proposed modifications and are seeking comments from interested parties. Here is the text of their request for comment and a link to their analysis....
Agencies Seek Comment on Proposed Regulatory Capital Standards Related to Adoption of Statements of Financial Accounting Standards No. 166 and 167
The federal banking and thrift regulatory agencies are seeking comment on a proposed regulatory capital rule related to the Financial Accounting Standards Board's adoption of Statements of Financial Accounting Standards Nos. 166 and 167. Beginning in 2010, these accounting standards will make substantive changes to how banking organizations account for many items, including securitized assets, that are currently excluded from these organizations' balance sheets.
The agencies are issuing the proposal to better align regulatory capital requirements with the actual risks of certain exposures. Banking organizations affected by the new accounting standards generally will be subject to higher minimum regulatory capital requirements. The agencies’ proposal seeks comment and supporting data on whether a phase-in of the increase in regulatory capital requirements is needed. It also seeks comment and supporting data on the features and characteristics of transactions that, although consolidated under the new accounting standards, might merit an alternative capital treatment, as well as on the potential impact of the new accounting standards on lending, provisioning, and other activities.
Comments on all aspects of the proposed rule are due within 30 days after its publication in the Federal Register, which is expected shortly. ###
Attachment: Notice of Proposed Rulemaking Regarding Risk-Based Capital Guidelines; Impact of Modifications to Generally Accepted Accounting Principles; Consolidation of Asset-Backed Commercial Paper Programs; and Other Related Issues - PDF (PDF Help)
FDIC-PR-151-2009
Media Contacts:
Federal Reserve
Barbara Hagenbaugh
(202) 452-2955
OCC
Dean DeBuck
(202) 874-5770
FDIC
Greg Hernandez
(202) 898-6984
OTS
William Ruberry
(202) 906-6677
Agencies Seek Comment on Proposed Regulatory Capital Standards Related to Adoption of Statements of Financial Accounting Standards No. 166 and 167
The federal banking and thrift regulatory agencies are seeking comment on a proposed regulatory capital rule related to the Financial Accounting Standards Board's adoption of Statements of Financial Accounting Standards Nos. 166 and 167. Beginning in 2010, these accounting standards will make substantive changes to how banking organizations account for many items, including securitized assets, that are currently excluded from these organizations' balance sheets.
The agencies are issuing the proposal to better align regulatory capital requirements with the actual risks of certain exposures. Banking organizations affected by the new accounting standards generally will be subject to higher minimum regulatory capital requirements. The agencies’ proposal seeks comment and supporting data on whether a phase-in of the increase in regulatory capital requirements is needed. It also seeks comment and supporting data on the features and characteristics of transactions that, although consolidated under the new accounting standards, might merit an alternative capital treatment, as well as on the potential impact of the new accounting standards on lending, provisioning, and other activities.
Comments on all aspects of the proposed rule are due within 30 days after its publication in the Federal Register, which is expected shortly. ###
Attachment: Notice of Proposed Rulemaking Regarding Risk-Based Capital Guidelines; Impact of Modifications to Generally Accepted Accounting Principles; Consolidation of Asset-Backed Commercial Paper Programs; and Other Related Issues - PDF (PDF Help)
FDIC-PR-151-2009
Media Contacts:
Federal Reserve
Barbara Hagenbaugh
(202) 452-2955
OCC
Dean DeBuck
(202) 874-5770
FDIC
Greg Hernandez
(202) 898-6984
OTS
William Ruberry
(202) 906-6677
Thursday, August 20, 2009
CRE deleveraging - a preview of coming attractions
We all know that the prices paid for commercial real estate in the past reflected a premium for the cheap non-recourse debt available at high LTVs....and that the upcoming cycle of maturing and defaulting loans will reflect significant "deleveraging." In article he wrote for CRE Direct.com, a email news service focusing on commercial real estate and structured finance, my friend, Orest Mandzy, its managing editor, used a recent example of a the sale of Hawthorne Works Shopping Center located in Cicero, IL. The property was sold for $30 million to the Sterling Organization. Prudential had recently sold a $36 million mortgage secured by the property which was "performing" at the time it was offered for sale. The estimate is that the loan traded at a 30% to 35% discount from face.....The property purchase was financed in part with a new $19 million mortgage provided by Unum Group.....As Mr. Mandzy observes: " the transaction is a strong example of the deleveraging taking place in the commercial real estate market. The loan that Pru sold had been performing. But it clearly represented a very high level of leverage for the property, part of a former manufacturing facility that was redeveloped into a shopping center in the late 1980s. What had previously supported $36 million of debt now supports only $19 million." OR JUST OVER HALF THE PRIOR PRINCIPAL BALANCE....This is a preview of things to come....
To access the full article, go to:
http://www.crenews.com/index.php?option=com_content&task=view&id=62515&Itemid= or send me an email at pjones@pyramidrealty.com
To access the full article, go to:
http://www.crenews.com/index.php?option=com_content&task=view&id=62515&Itemid= or send me an email at pjones@pyramidrealty.com
Monday, August 17, 2009
From Reuters....Sun 16 Aug, 2009...a view of the week ahead....and possibly the next quarter....
GLOBAL ECONOMY WEEKAHEAD-Cheer the recovery, mind the setback
By Emily Kaiser
WASHINGTON (Reuters) – Japan could very well become the third major developed country to pull out of this global recession and, as happened in Germany and France, it may be investors rather than policymakers cheering the loudest.
Japan’s preliminary look at second-quarter gross domestic product is due on Monday morning Japan time, Sunday in the United States (2350 GMT on Aug 16), and is expected to show the economy grew by 1 percent in the April-to-June period.
That would be the strongest advance in two years, and the first positive reading in five quarters.
Yet the Bank of Japan kept its benchmark interest rate barely above zero last week and cautioned that a recent pickup in demand may fade once government stimulus programs end.
Barclays Capital economist Kyohei Morita thinks Japan’s economy will hit a “temporary soft patch” at the start of 2010, a payback from this year’s stimulus efforts. While they temporarily helped to lift demand for items such as eco-friendly appliances and fuel-efficient cars, they did not boost household income, which means demand will stay subdued.
“Without an improvement in purchasing power, we have to expect a reactionary decline in consumption in the first half of 2010,” he wrote in a note to clients.
It is a similar story in Germany and France where reports last week showed GDP turned positive in the second quarter, sparking stock market rallies around the globe. Yet some government officials warned against getting overly enthusiastic because the economy remained far below pre-crisis levels.
TJ Marta, founder of research firm Marta on the Markets in Scotch Plains, New Jersey, thinks the U.S. economy could also return to growth in the current July-to-September period. But he worries that the recovery is resting almost entirely on government supports, such as the $3 billion “cash for clunkers” program that offers incentives to buy new cars.
“We can get a positive GDP print but that’s just the morphine talking. That’s ‘cash for clunkers’ and stimulus coming through,” he said. “There is still no underlying U.S. consumer to support this economy.”
The concern about sustainable growth helps explain why central bankers don’t seem to share the stock market’s confidence in the economic recovery. The U.S. Federal Reserve said last week the economy was “leveling out” but stopped well short of declaring an end to the recession.
Fed Chairman Ben Bernanke is scheduled to give a speech on Friday at the central bank’s annual economic symposium in Jackson Hole, Wyoming. Judging from the title — “Reflections on a Year of Crisis” — the speech will be largely retrospective, but he will probably offer up at least some sense of where he thinks the economy is headed.
TRADE, BUT WHO IS BUYING?
Disappointing reports on U.S. retail sales and consumer confidence last week added to concern that consumption — which accounts for about 70 percent of the country’s economy — remained quite weak. British retail sales data for July, due on Tuesday, are likely to look lackluster as well.
The message is that consumer spending probably won’t be the driving force behind the recovery.
What will be is unclear. President Barack Obama wants the U.S. economy to be more export-driven, something economists have been advocating for many years.
But in the short term, that poses a problem. Domestic demand is weak in most major economies, including Britain, Germany and Japan, which means many countries are also looking to exports to compensate for poor demand at home.
Obama has told the world not to count on the “voracious” U.S. consumer to propel the global economy, yet there is no obvious choice to replace that demand.
Eurostat trade data on Monday will provide some insight into how Europe’s exporters are coping with weak U.S. demand. Germany, by far Europe’s biggest exporter, got an economic boost from trade last quarter but only because imports fell even faster than exports.
While it is highly unlikely that U.S. consumers will bounce back quickly after losing trillions of dollars in real estate and investment wealth, a pickup in the housing market would certainly go a long way toward repairing household balance sheets and restoring confidence.
A string of reports on the housing sector this week, starting with a survey of home builders on Monday, housing starts on Tuesday, and existing home sales on Friday, will be key for gauging whether the market is on the mend.
Still, a full recovery is probably a long way off. Sal Guatieri, a senior economist with BMO Capital Markets, pointed out that home foreclosures reached new highs in July.
“It goes without saying that until savings, unemployment and foreclosures stop climbing, credit-constrained consumers will retain a bunker mentality,” he said.
“While the Great Recession may be history — thanks to inventory rebuilding, renewed export growth and pulled-forward demand — a not-so-great recovery is likely the offspring.”(Editing by Kenneth Barry).
For all news, data, research and analytics, go to www.reutersrealestate.com
GLOBAL ECONOMY WEEKAHEAD-Cheer the recovery, mind the setback
By Emily Kaiser
WASHINGTON (Reuters) – Japan could very well become the third major developed country to pull out of this global recession and, as happened in Germany and France, it may be investors rather than policymakers cheering the loudest.
Japan’s preliminary look at second-quarter gross domestic product is due on Monday morning Japan time, Sunday in the United States (2350 GMT on Aug 16), and is expected to show the economy grew by 1 percent in the April-to-June period.
That would be the strongest advance in two years, and the first positive reading in five quarters.
Yet the Bank of Japan kept its benchmark interest rate barely above zero last week and cautioned that a recent pickup in demand may fade once government stimulus programs end.
Barclays Capital economist Kyohei Morita thinks Japan’s economy will hit a “temporary soft patch” at the start of 2010, a payback from this year’s stimulus efforts. While they temporarily helped to lift demand for items such as eco-friendly appliances and fuel-efficient cars, they did not boost household income, which means demand will stay subdued.
“Without an improvement in purchasing power, we have to expect a reactionary decline in consumption in the first half of 2010,” he wrote in a note to clients.
It is a similar story in Germany and France where reports last week showed GDP turned positive in the second quarter, sparking stock market rallies around the globe. Yet some government officials warned against getting overly enthusiastic because the economy remained far below pre-crisis levels.
TJ Marta, founder of research firm Marta on the Markets in Scotch Plains, New Jersey, thinks the U.S. economy could also return to growth in the current July-to-September period. But he worries that the recovery is resting almost entirely on government supports, such as the $3 billion “cash for clunkers” program that offers incentives to buy new cars.
“We can get a positive GDP print but that’s just the morphine talking. That’s ‘cash for clunkers’ and stimulus coming through,” he said. “There is still no underlying U.S. consumer to support this economy.”
The concern about sustainable growth helps explain why central bankers don’t seem to share the stock market’s confidence in the economic recovery. The U.S. Federal Reserve said last week the economy was “leveling out” but stopped well short of declaring an end to the recession.
Fed Chairman Ben Bernanke is scheduled to give a speech on Friday at the central bank’s annual economic symposium in Jackson Hole, Wyoming. Judging from the title — “Reflections on a Year of Crisis” — the speech will be largely retrospective, but he will probably offer up at least some sense of where he thinks the economy is headed.
TRADE, BUT WHO IS BUYING?
Disappointing reports on U.S. retail sales and consumer confidence last week added to concern that consumption — which accounts for about 70 percent of the country’s economy — remained quite weak. British retail sales data for July, due on Tuesday, are likely to look lackluster as well.
The message is that consumer spending probably won’t be the driving force behind the recovery.
What will be is unclear. President Barack Obama wants the U.S. economy to be more export-driven, something economists have been advocating for many years.
But in the short term, that poses a problem. Domestic demand is weak in most major economies, including Britain, Germany and Japan, which means many countries are also looking to exports to compensate for poor demand at home.
Obama has told the world not to count on the “voracious” U.S. consumer to propel the global economy, yet there is no obvious choice to replace that demand.
Eurostat trade data on Monday will provide some insight into how Europe’s exporters are coping with weak U.S. demand. Germany, by far Europe’s biggest exporter, got an economic boost from trade last quarter but only because imports fell even faster than exports.
While it is highly unlikely that U.S. consumers will bounce back quickly after losing trillions of dollars in real estate and investment wealth, a pickup in the housing market would certainly go a long way toward repairing household balance sheets and restoring confidence.
A string of reports on the housing sector this week, starting with a survey of home builders on Monday, housing starts on Tuesday, and existing home sales on Friday, will be key for gauging whether the market is on the mend.
Still, a full recovery is probably a long way off. Sal Guatieri, a senior economist with BMO Capital Markets, pointed out that home foreclosures reached new highs in July.
“It goes without saying that until savings, unemployment and foreclosures stop climbing, credit-constrained consumers will retain a bunker mentality,” he said.
“While the Great Recession may be history — thanks to inventory rebuilding, renewed export growth and pulled-forward demand — a not-so-great recovery is likely the offspring.”(Editing by Kenneth Barry).
For all news, data, research and analytics, go to www.reutersrealestate.com
Wednesday, August 12, 2009
"Hold the celebrations and put the champagne away. A sustained recovery in the UK commercial property market is likely more distant than it might seem, as lingering economic hazards threaten a long-awaited rebound." That is the warning from Reuters Real Estate writers Sinead Cruise and Daryl Loo as certain economic indicators paint a picture of recovery in the United Kingdom...the one everyone around the Globe are anxious to witness....This warning is true in the US as well - where the spin doctors put the con into consumer confidence. Heed the advices of the experts quoted in this article:
“People need to be wary of getting too carried away with the potential of the upturn, because the problems of refinancing are lurking over the rest of this year and into 2010,” Ed Stansfield, property economist at Capital Economics, said.
Keith Steventon, head of research at BNP Paribas Real Estate UK, told Reuters: “We’ve been here before. We know it takes time. It’s not zeal we want, but patience.”
FYI: The risk of a double dip recession is increasing on the lips of noted economists around the world....Hold onto the bar, we are in for a long, turbulent ride....
For a complete copy of the referenced article, go to http://www.reutersrealestate.com/monitor/story/152922/1368 or contact me at pjones@pyramidrealty.com with the request.
“People need to be wary of getting too carried away with the potential of the upturn, because the problems of refinancing are lurking over the rest of this year and into 2010,” Ed Stansfield, property economist at Capital Economics, said.
Keith Steventon, head of research at BNP Paribas Real Estate UK, told Reuters: “We’ve been here before. We know it takes time. It’s not zeal we want, but patience.”
FYI: The risk of a double dip recession is increasing on the lips of noted economists around the world....Hold onto the bar, we are in for a long, turbulent ride....
For a complete copy of the referenced article, go to http://www.reutersrealestate.com/monitor/story/152922/1368 or contact me at pjones@pyramidrealty.com with the request.
Monday, August 10, 2009
Last week we had two views of the world appear...first, we had a Deutsche Bank economist predict that the residential real estate market was going to have another, more severe, decline in value while the Feds reported that the unemployment rate fell .01 percent...As my colleague, Steve Felix noted in his weekly On the Road series..."More than not, our colleagues’ feel that another shoe is yet to drop in the commercial real estate industry. With the stock market having had a very good week (although the conversion rate of Canadian to U.S. dollars dropping which is pissing me off) perhaps things are picking up. However, as a taxi driver reminded me this week, “There are still more and more jobs being lost, more and more people losing their homes and more and more people struggling to get by.” So I guess there are two stories in this naked country; those promulgated by the media and our elected officials and those that are the grassroots truth. No one I know is adding to their wardrobe these days, even with ‘sale’ signs as plentiful as weeds in flowerbeds where the gardener has been cut back from every week to every month. This business with the car industry I just don’t know how I feel about it. What makes them so special that they deserve this kind of incentivization just so they can make sales? How about all the other businesses, those owned by individuals (not individuals owning stock but individuals owning and operating the actual business). How about all those businesses closing? Don’t those folks deserve the same help that these characters in Detroit and elsewhere are getting? I just don’t get it. I must be missing something." We do have a dichotomy....and I contend that the unemployment rate is understated are the independent business operators, contractors, brokers and agents who do not qualify for unemployment benefits but are not employed plus those whose benefits have expired and still cannot find a job are no longer considered unemployed.....Talking up the economy may help consumer confidence but when you look at your bank balance and your work in process, it is hard to get encouragement from the statistics and the pundits....what we need is to continue the process of putting a floor to this recession....and the floor is open for ideas.....
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