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.
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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.
Stuyvesant Town/Peter Cooper Village apartments (StuyTown) is a sprawling collection of 56 buildings 11,250 apartments and more than 25,000 residents. It is located on the East Side of Manhattan. Metlife sold the complex to Tishman Speyer Properties for $5.4 billion in 2006. The Tenants Association for this complex has been involved in a lawsuit against the landlord over rent increases.
A 2009 New York Appellate ruling prevented the units from being moved out of rent control because the property was part of a city program that provides tax breaks to landlords if they rehabilitate property and keep rents stable. A 2011 Appellate decision ruled that the 2009 judgment could be applied retroactively, meaning that tenants can claim overpayments in rent from past years.
Metlife states that they have already allocated funds to support the costs of the settlement. In the meantime, StuyTown’s tenant association is looking to convert the complex into condominium units or coops but at the same time, allowing current renters to continue to rent if the choose to do so. The complex, by the way, serves as collateral for $3 billion of CMBS that has been in default since 2010.
Santa Ana, CA – based Grubb and Ellis filed for Chapter 11 bankruptcy on February 20. BCG Partners, Inc. holds the bulk of Grubb and Ellis’s debt and is looking to buy out the company for $30 million in a 363 bankruptcy sale intended to expedite the process so as to prevent more of the brokers from leaving. BCG plans to integrate the remaining talent from Grubb and Ellis with Newmark Knight Frank’s – a brokerage firm that BCG acquired last year.
In an effort to stem the departures of producing brokers from Grubb, BCG is offering to pay the commission due to the current Grubb brokers in the form of loans. They cannot be direct payments because such payments would constitute interference with the bankruptcy process. The loans will be forgiven only if the Grubb brokers stay for a certain amount of time. If they leave too soon, they will have to return their commission payments/loans along with interest.
In the meantime, a group of unsecured investors has petitioned to block the $30 million sale to BCG because they believe that the bankruptcy auction process was conducted too swiftly and it did not allow adequate time to attract competitive bids.
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A new $320 million project is moving forward on 53 acres of coveted commercial property in upscale North Bethesda, MD. Rock Spring Centre will have 210,000sf of retail, 550,000sf of offices, a hotel and 90,000sf of entertainment, possibly including a cinema. National Harbor developer, The Peterson Cos. and DRI are partners in the development of this project. Peterson will own 90 percent of the retail and entertainment and 10 percent of the rest.
Construction is expected to begin this spring with completion of the retail and housing portions expected in 2014. The location is adjacent to I-270 and close to the Capital Beltway. The Grosvenor Metro Station is about 2.5 miles away.