2011-Q4 Average Cap Rates in DC:
Office: 6.5 Retail: 11.25
2011-Q4 Average Cap Rates in DC:
Office: 6.5 Retail: 11.25
Bloomberg Businessweek reports that BOS International of Lloyds Banking Group Plc is selling its distressed loans with the intention of leaving the commercial property market. The distressed loans are worth $2.2billion (A$2.1 billion) at face value. The sale will take several months to complete.
BOS International also sold real estate loans last November in New Zealand and Queensland with a face value of A$1.7 billion ($1.79 billion). Buyers included the Morgan Stanley Real Estate Fund and a venture between Goldman Sachs Group Inc. and Brookfield Asset Management Ltd.
According to Peter Shear of Lloyds International, BOSI is looking to deleverage its non-core businesses and focus more on its core businesses.
Michael Gerrity reports for the World Property Channel that the commercial real estate market is recovering at a robust pace in Miami. The article – citing the National Association of Realtors February Commercial Real Estate Outlook – states that CRE vacancy rates in Miami will be lower than the national average in all four sectors.
The city’s vacancy rate for industrial property is predicted to be at 7.6 percent, compared to a national average of 11.7 percent and retail property vacancy is expected to be at 7.3 percent versus a national average of 11.9 percent.
John Dohm of RCA Miami cites the following reasons for the low vacancy rates: No overbuilding in South Florida, very little new construction over the past three years, pent-up demand due to expiring leases, the improving economy and Miami’s position as a gateway to the Southern Hemisphere.
The Wall Street Journal reports that officials in the southern Chinese city of Guangzhou are being more aggressive in enforcing laws that prohibit foreign individuals (including residents of Honk Kong, Macau and Taiwan) from buying commercial real estate. Retail property prices in Guangzhou have increased 30 percent in 2011 from the year before, outpacing Beijing and Shanghai.
The concern is that investment-driven growth in the retail market will lead to a bubble. However, analysts quoted in the article note that the rise in prices is due to legitimate growth ant not speculative investing. Furthermore, many of the speculative traders are in fact from mainland China and are not affected by the restrictions.
Foreign enterprises will still be able to buy and develop retail businesses.
Business Wire reports – referring to data from an Ernst & Young survey – that investors believe the nonperforming CRE loan market will remain active for two to four more years. Last year saw investment activity at its highest level since the aforementioned survey began and the expectation is that sales volume will remain high in 2012. The reasons cited are:
1. The high volume of CRE loans maturing in the next five years (close to $1 trillion).
2. The existence of more than $100 billion nonperforming loans (NPLs) on the banks’ books.
3. The high number of FDIC- designated “problem banks” and their potential for selling off both individual NPLs and NPL portfolios.
4. The construction loans and development and acquisition loans held by regional and local banks. These loans constitute both a significant portion of the CRE loan market and a significant portion of the distressed loan market and they are attracting the attention of investors.
5. The probability that European banks will restructure their balance sheets and place NPL portfolios on the market – portfolios that may be attractive to US investors because of high returns.
6. A higher success rate in purchasing NPLs and NPL portfolios.
Paulo Santos makes the case that Sears real estate is carried on the books at or above market values, dispelling the notion that Sears has a lot of undervalued real estate. Santos notes that Sears wrote up its real estate to its fair market value as of March 24, 2005. The recession that followed diminished property values across the board. Using Moodys/REAL commercial property index (CPPI) he shows that Retail property values are 18.8 percent lower today than they were in March 2005 and despite some correction be Sears in the form of depreciation, Santos argues that Sears property remains overvalued today.
With respect to hidden positive value in long-term leases, Santos cites the most recent 10-K to show that Sears also wrote up the leases and despite the fact that the write-ups took place at a time of higher interest rates, correcting for the rates is insufficient to compensate for the changes in the market since then. Furthermore, there is also some hidden negative value in leases of unattractive property that would currently rent for less.
Property Magazine reports that UK commercial property values were weaker in February. All property total returns were 0.1 percent with capital values down 0.4 percent. The retail sector had a total return of -0.1 percent. Office space was at 0.2 percent and industrial space was at 0.4 percent. The office sector in Central London was the only exception to the corrections. Office sector values increased by 0.1% in February – an improvement over January’s -0.1 percent decline.
The article notes that foreign investors find the UK (and London in particular) to be a more stable alternative to Euorpe and it quotes a CBRE survey which indicates an overall desire by investors to increase purchase activity this year. Therefore, the UK commercial property market looks more positive moving further into this year.
A new mixed-use development at 3336 Wisconsin Avenue NW will bring new retail, a renovated Giant supermarket, residential units and covered parking to the Cleveland Park neighborhood of Washington. The efforts to replace the current structures began in 2000. The delays were due to a change of ownership at Giant as well as to opposition (and ultimately a lawsuit) from some local residents.
All of the retail stores in the current triangular building across Newark Street have already closed and the Giant will likely close soon to allow for demolition and construction. Attorney Phil Feola of Goulston & Storrs talked about the efforts to bring this plan to fruition at a ULI event on March 7. In response to a question, Feola noted that the city government is generally expedient with and supportive of new projects that seek to bring business and development into the District.
The Bradenton Herald reports that Avison Young – Canada’s largest independently-owned commercial real estate services company – has acquired Bethesda-based Realty Management Company expanding further in the Washington DC metropolitan area. The acquisition brings an additional 37 employees and a third office to Avison Young’s DC operations as well as 2 million square feet to Avison Young’s approximately 50 million square feet of retail, industrial and office properties under management in Canada and the U.S.
Donna B. Kay, President of Realty Management Company will become a Principal of Avison Young. She brings with her 24 years of commercial and property management experience. Over the past three years, Avison Young has grown from 11 to 28 offices in 25 markets and from 300 to more than 900 real estate professionals in Canada and the U.S.
See full article at:
Bloomberg, citing analysis from Chandan Economics, reports that in the fourth quarter of 2011, US banks increased funding for commercial real estate for the first time in almost two years.
Loan balances for properties including office buildings and shopping malls rose by $3.69 billion from the prior quarter to $1.06 trillion, after having fallen for six consecutive quarters. Also in the fourth quarter, the default rate on commercial real estate loans fell to 3.8 percent of total loan balances, down from 4.3 percent a year earlier and 3.9 percent in the third quarter. This was the lowest since the 3.4 percent default rate in the third quarter of 2009.
The default rate on apartment-property loans fell to 2.5 percent (the lowest since the first quarter of 2009) from 3.8 percent a year earlier and 2.9 percent in the third quarter. Banks also reduced their holdings of repossessed commercial properties from $10.9 billion in the third quarter to $10.5 billion. Furthermore, holdings of foreclosed apartment buildings fell to $1.45 billion from $2.55 billion in the third quarter and $2.59 billion a year earlier according to the Chandan Economics analysis.