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Entries Tagged as 'Buying Office Space'

Fed Reports a Pause in Credit Tightening... Except for Commercial Real Estate

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Most large banks have stopped tightening standards on a number of loan types, according to a new report from the Federal Reserve. But the central bank’s latest loan officer survey says that while it may not be getting tougherfor consumers to borrow, it’s not getting any easier yet either because financial institutions have yet to unwind the considerable contraction that has built up over the past two years.

Market observers continue to lament the lack of financing available in the commercial sector, particularly with an estimated 1 in 5 commercial mortgages maturing over the next two years. If property owners are unable to roll this debt into new loans, analysts fear another real estate calamity could be on the horizon.

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Buying Office Space , Office Building Sales , Office Space , Office Space Negotiations

Worst to come in U.S. commercial real estate

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NEW YORK, Feb 1 (Reuters) - The worst may not be over for commercial real estate loans as vacancies remain high and rents decline, threatening the financial system with substantial losses, Standard & Poor's said on Monday.

"The fallout from commercial real estate exposures for banks has yet to run its course, in our opinion," S&P said in a report.

Although problems are already evident in the homebuilding and commercial construction sectors, they have yet to be felt in the larger mortgage lending and multifamily sectors because interest rates are low and cash flows are adequate to service debt, the rating agency said.

However, as interest rates rise and rent rolls decline further, delinquencies will rise and prices will fall further in these sectors as well, S&P said.

"Even though most highly exposed banks with weaker balance sheets are already rated below investment grade, more downgrades are possible," S&P said. Indeed, S&P already has negative outlooks on about 75 percent of the rated banks with the largest commercial real estate exposures, indicating they are at risk of a downgrade.

Despite the potential for heavy losses, however, most banks' capital is sufficient for them to pull through as long as the losses are realized over a few years and liquidity is maintained.

"Commercial real estate exposure generally tends to represent a higher proportion of smaller, largely unrated community banks' exposures," S&P said. "Therefore, there is a greater proportion of risks in the unrated banking sector.

Buying Office Space , Office Building Sales , Office Space , Office Space Negotiations , Office Vacancy Rate

CBRE Econometric Advisors Sees Q3 2009 as Market Bottom for U.S. Commercial Real Estate Total Returns

Returns are Expected to Remain Negative in 2010, With Positive Value Growth Foreseen in 2011  

Boston – January 11, 2010 – The downward slide in total returns from U.S. commercial real estate reached bottom in Q3 2009, but returns will remain in negative territory for most of 2010 before resuming positive growth in 2011, according to a new analysis from CBRE Econometric Advisors (CBRE-EA, formerly CBRE Torto Wheaton).

As measured by the NCREIF1 Property Index, total returns have declined 23% for office, 21% for industrial, 15% for retail, and 23% for multifamily compared with peak levels in 2007. CBRE-EA believes that these declines constitute the bottom of the current cycle across all property sectors, and in the firm’s base-case (most likely) scenario, returns are expected to improve, but remain in negative territory throughout 2010.  By the end of 2011, CBRE-EA sees commercial property producing total returns of 3% to 11%.

Total returns comprise the change in the market value of commercial property (appreciation or depreciation), plus cash yields (income)

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Buying Office Space , Office Space , Office Space Negotiations

Commercial Real Estate Crash Begins with Dubai

Dubai World's credit problems are not going to seriously affect the economy of the US, but are they a forewarning of things to come? We have been hearing about the coming Commercial Real Estate Crash in the US. Well, it has happened in Dubai where overbuilding has led to a glut of space and no money to pay the mortgages. While the government of Dubai could step in and take responsibility for the debt, it appears they are unwilling to do so.

What are the risks to the US economy?

From WSJ - The (US's) $3.4 trillion outstanding in debt backed by office buildings, shopping malls and other commercial real estate is easily large enough to pose a real threat to the recovery.

The Moody's/REAL Commercial Property Price Index has lost 43% of its value since peaking in 2007, recently falling to its lowest level since 2002. As commercial property values fall, debt defaults rise.

This problem has been well-telegraphed and will likely take a long time to unwind—through 2012, according to Guy LeBas, fixed-income strategist at Janney Capital Markets. That might lessen the impact on financial markets.

But much commercial real-estate debt is held by regional banks that aren't too big to fail and that, during this slow unwinding, might be hesitant to lend more money. That should, at the very least, keep the brakes on the economic recovery.

From Bizjournals - The commercial mortgage-backed securities market has collapsed – there has not been a single issuance since mid-2008. If this huge monster lumbers unchecked, it has the potential of massive portfolio destruction, devaluation and crumbled investor confidence in the capital markets, and in any hope for rebound of commercial real estate any time soon. Our industry agrees this must not happen and looks for the Fed to exhibit strength and competence in the form of meaningful legislative rescue driven by private sector ideas.

Let's hope we can all hang on for the ride.

Buying Office Space , Commercial Real Estate , Office Space , Office Vacancy Rate

Commercial Property Prices Continue to Decline

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According to Loopnet "Commercial property prices, as measured by the Moody's/Real Commercial Property Price Indices, or CPPI, are now 40.6% down from their October 2007 peaks.

The all property-type index fell 3% in August to 114.06, which is down 32.8% from a year ago.

The national office index value actually increased in the second quarter by 4.1% from the first quarter to 128.96. But it's down 27.4% from two years ago.

Each of the remaining property sectors - industrial, multifamily and retail - saw declines in the second quarter when compared to the first. Industrial values were down a whopping 20.4% from the first quarter to 131.3; multifamily was down 16.3% to 131.93, and retail was down 7.9% to 138.3."

What does all this mean to the office tenant? According to the report, Landlords have lost over 27% of the value of their buildings over the past 2 years.  As I mentioned in a previous post, it is imperative for the prospective tenant to know what the financial situation is for the building that they are considering occupying. An average loss in value of over 27% means that some have lost more while other less. This is a situation that can be compared to that of residential short sale, where the value of the building is less than the mortgage outstanding. Many owners just walk away in these situations and it can happen with office buildings as well.

The key for the prospective tenant is to make sure that they have a non-disturbance clause in their lease agreed to by the Lender, not just the Landlord. The last thing you want to have happen is to be evicted without notice. Tenants and prospective Tenants need to know what is going on with building financing.  It is not always easy to find out. This is another good reason to work with a tenant representaive who knows your market.


Buying Office Space , Lease Negotiations , Office Rental , Office Space , Office Space Negotiations