Investment in Brazil

Forbes reports that New York-based real estate investment firm GTIS Partners (Golden Tree InSite Partners) has brought in a total of $810.2 million from 24 institutional investors to put toward real estate projects in São Paulo and Rio de Janeiro states. The GTIS Brazil Real Estate Fund II closed on February 24 and it includes many of the same investors that bought into GTIS Brazil Real Estate Fund I, which raised $510 million in 2008-2009.

This latest fund has spent about 30 percent of its commitments on a warehouse and residential project in São Paulo and on one new office building (pictured below). GTIS is also planning to build about 400,000sf of Class A office space near Rio’s port at an expected cost of $150 million and more projects are in the planning phase. According to Tom Shapiro, president and founder of GTIS, the firm is offering its investors cap rates beyond 16 percent.

Brazil’s major cities lack the volume of Class A office space that we see in Europe, North America and Asia, according to the report. The country is growing and developing rapidly and vacancy rates are low. As more business expands or moves into Brazil, there is likely to be increasing demand for higher quality commercial property.

New CRE Search Engine

42Floors is a new free search engine for commercial property. It compiles data from multiple sources (brokerages, landlords, craigslist etc…) and provides the public with direct access to these listings so that their first point of contact does not necessarily have to be a broker. Furthermore, the company will provide photos of both the inside and outside of profiled buildings.

For brokers, 42Floors currently offers a free listing service. If there is an interest in the property, the company will – depending on the nature of the inquiry – refer the client to a tenant rep or to the listing agent. 42Floors also assists in scheduling the appointments for viewings. For the time being, there is no referral fee associated with the service.

42Floors launched today and offers coverage in the San Francisco Bay Area. The company intends to expand in subsequent years to other tech-savvy markets.

Distressed and Stressed Commercial Properties

Mike Donnelly writes in The Washington Post that distressed commercial real estate in the United States totaled $166.9 billion in January 2012 – down $4.7 billion since October 2011. Divided by sector the numbers are:

  • Office: $41 billion (decrease of $829 million or two percent).
  • Multi-family: $35.2 Billion (decrease of $0.3 billion or 0.9 percent).
  • Land/other properties: $29.5 billion (decrease of $0.3 billion or 1 percent).
  • Retail: $27.9 billion (decrease of $0.7 billion or 2.4 percent).
  • Hospitality: $21.1 billion (decrease of $3.1 billion or 12.8 percent).
  • Industrial: $12 billion (increase of $435 million or 3.8 percent).

Stressed properties are those properties that have characteristics of concern in the short term such as maturing loans, bankrupt tenants, financially troubled owners or under-performance.

LA – Orange County has the highest volume of stressed real estate at $4.5 billion followed by Manhattan with $4 billion.

3001 Washington

Commercial Property Executive reports that research and analysis firm CNA has preleased 173,000sf at 3001 Washington in Arlington VA. Construction is yet to commence on the 200,000sf office building. The ten-story, LEED-certified structure will be one block away from the Clarendon Metro station and adjacent to 3003 Washington – another project that will bring 70,000sf of office space to Arlington.

Upon completion in 2014, CNA will transfer its 600 employees from Alexandria to the new Arlington building. The article states that with the vacancy rate for class A office having dropped from 7 percent in Q4 2010 to 4 percent in Q4 2011, it is likely that the newly vacant space in Alexandria will be absorbed within a couple of years.

Exit

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.

Miami

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.

Foreign Investment in Guangzhou

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.

The Market for Nonperforming CRE Loans

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.

Overvalued Sears Property

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.