REal Talk with Adam Perrotta - Tuesday

While the sale-leaseback market has seen an even more drastic slowdown than the investment market in general as a result of the credit crunch and economic slump, some are saying that sale-leasebacks could be making a comeback soon. The main rationale seems to be that, as owner-occupiers deal with debt problems and refinancing options dry up, such firms can get a much-needed cash infusion by monetizing their real estate via a sale-leaseback. One company that pursued this strategy recently was the New York Times Co., which agreed to a $225 million sale-leaseback of half of its Manhattan headquarters with W.P. Carey & Co. in early March.

But will sale-leasebacks make sense for most firms? The same credit problems that would impel an owner-occupier to look to sell real estate, of course, would likely limit the number of interested buyers and thus the eventual sale price of the property. But it could be that many owner-occupiers are in dire enough financial straits that they are willing to accept even heavily-discounted sale prices for their real estate. Only time will tell. 

Canada Hotel Sector Sees Unexpected Dropoff

Last week I blogged about the Canadian leasing market and about increasing activity north of the border. I talked about the industrial sector as well as investment getting plenty of attention, but I haven’t talked about hotel sector. Later that same week I wrote a story about the global credit crunch and recession hampering Canada’s hotel sector. A new report by Colliers International indicated that the Canadian hospitality market experienced a 77 percent decline in investment activity over the past year, falling to $1.1 billion.  However, despite the downturn in activity, the report expressed optimism for the future.

Even though Canada in general is doing better than other hotel markets, the country’s economy has slowed and as a result has affected new hotel development to a degree. At the same time, Canada’s banking system has fared better than the United States’, as banks there largely avoided subprime mortgages. Thus lending for hotels in Canada is less constricted than in its neighbor to the south. But how long can this continue? Will Canada remain relatively insulated from the economic problems that have hampered the market here in the U.S.? Or could Canada's hotel market falter further in the coming months?

Economic Update - Obama Turns Up Heat on Detroit

By Adam Perrotta, News Writer

GM and Chrysler’s efforts so far to turn themselves around have proven to be lemons. That was the contention of the Obama administration as it gave failing grades to the automakers and vowed to perform a sweeping overhaul of both firms if they failed to get their financial ducks in a row soon.

Under the current plan, the federal government will foot the bill for GM and Chrysler to operate over the next several weeks--with plenty of strings attached. The companies will have to undergo major restructuring, said the administration, lest the government make good on its threats of a “structured bankruptcy,” which certainly sounds painful.

GM wasted little time in trying to make good with the administration, jettisoning CEO Rick Wagoner--at Team Obama’s request--on Monday. The companies, which have so far received $17.4 billion in government (read, taxpayer) aid, have just a matter of weeks to prove they can right their own ships before the government takes out the big guns. GM has been given a 60-day timeline, and Chrysler 30. No word on whether or not Chrysler is willing to ax an exec of its own to gain a few more weeks’ grace.

Meanwhile, the oil market took note of the scent of fear wafting out of Detroit. Prices fell nearly $4 per barrel to settle at $48.11, after pushing up last week as the stock market rallied. That should come as a silver lining to consumers who had been faced with both a still-crumbling economy, and also rising prices at the pump. If nothing else, Detroit’s struggles will alleviate some of the flashbacks to the $4-per-gallon days of last summer that many motorists were probably suffering as of late.

The tide of foreclosures in the single family housing market remains anything but stemmed, even as lenders have stepped up efforts to help borrowers stay in their homes. February saw nearly 250,000 homeowners get their mortgages modified or enroll in a repayment plan, according to Hope Now, a coalition of lenders, investors and community advocates. But these efforts may prove to be little more than a finger in the dyke; the number of foreclosures in February jumped to 243,000, from 217,000 in January. During the month, banks repossessed some 87,000 homes, a 28 percent uptick from January. The Obama administration’s efforts to prevent foreclosures are sure to help matters, but any improvement could take a few months; under the plan, mortgage modifications will take 90 days. By that time, we could be running out of fingers.

The stock market fell back to earth today after seeing a nice run over the past couple of weeks. The Dow Jones index dropped 254 points--its biggest single-day slump since March 5--while the S&P lost 28 points and the Nasdaq fell 43 ticks. Much of the losses can probably be attributed to a selloff after the 20 percent upswing in the major indexes over the past three weeks. But worries about the auto industry and continued malaise in the wider economy also certainly played a role.

Ups and Downs

A couple of weeks ago, I wrote about the relationship between the change of seasons and the shift in the Dow's direction. In fact, although I noted that the coming of spring alone won't solve our problems, the stock market continued its climb for the better part of the time since then. Of course, now it's down again. What does the current downward shift mean (besides the fact that I've had to take out my winter coat again)? The stock market sometimes seems like a living thing, perhaps more emotional as a collective force than any one individual investing in it. And there are many moving parts to today's economy, often going in different directions, sending that living entity on a roller coaster ride. Investors collectively can't decide whether to react positively to the stimulus plan or negatively to the performance of the auto industry--and every time the administration is deemed to have overstepped its bounds, the stock market throws a temper tantrum.

Given all this and the time it's likely to take for the pros and the cons of the current plan to prove out, there are likely to be many more downs as well as ups. But as someone recently pointed out to me, Americans are naturally an optimistic bunch, and always looking for opportunity. Hence, the American Dream, the Gold Rush and many other moments in history. That optimism eventually rises to the surface, no matter what buries it. Connect that with the many current research studies that relate positive thinking with human beings' good health and fast recovery from illness, and one has reason to hope for more positive momentum to come. Of course, many problems still need to be resolved at their roots, but the market also plays a role in the country's economic health. After all, when it performs positively, it tends to buoy investor confidence, which in turn should lead to greater investment in businesses and, while it's becoming tougher due to layoffs, consumer spending. And that in turn can only help the economy.

REal Talk with Adam Perrotta - Monday

Macklowe Properties' latest move to bring down its outstanding debt was a relatively small one--the $22 million sale of an 86,000-square-foot Irvine, Calif., office won't put much of a dent in the firm's red ink by itself. But given the current state of the investment market--where prices have fallen considerably--Macklowe and other companies looking to reduce debt have little choice but to take tiny bites out of that debt, rather than a few big chomps. As recently as last August, Macklowe was still able to complete sales of considerable magnitude--see the firm's $211 million sale of the 607,000-square-foot Main Plaza office building, also in Irivine--but as the global economic slump has continued and intensified, there just isn't the type of interest out there for deals of that size now, at least not unless distressed firms are willing to lower their asking prices even more than they already have. That is one option, of course. But the other is to focus on smaller sales, taking perhaps a bit of a hit on each transaction, but avoiding the massive loss that could come with selling off a major asset at a bargain basement price in a fire sale. And should Macklowe and other troubled firms be able to hold onto their real trophies through the current bad times, they will surely be happy to still have such properties in their portfolios when the indiustry and economy has returned to better health.  

Which strategy are debt-saddled firms such as Macklowe likely to pursue? Will most be willing to lower prices enough on major assets to find buyers? Or is a series of smaller selloffs a wiser option?

Economic Update - CityCenter Still On -- For Now

By Dees Stribling, Contributing Editor

For the moment, the CityCenter development in Las Vegas--lately bedeviled by a feud between co-owners MGM Mirage and Dubai World--is still an ongoing thing, thanks to a $200 million payment by MGM to the joint venture late last week. "It is as an acceptable, albeit temporary, solution to the liquidity issues that MGM Mirage is facing," Dubai World, which is owned by the emirate, said in a statement. Left unspoken was the fact that CityCenter's main problem seems to be the unlucky timing of getting under way just ahead of a severe recession, something not even $200 million is likely to fix in the long run.

TARP was back in the news over the weekend, at least to the extent that U.S. Secretary of the Treasury Timothy Geithner quantified "roughly" how much was left: $135 billion. On ABC's This Week, on Sunday, Geithner didn't rule out going back to Congress for more money eventually, a prospect that brings to mind the term "stir up a hornets' nest."

Still, $135 billion is a lot of money. But not quite enough to bail American International Group again, should it come to that.

The "bottom" of the economy may be elusive (unless Jim Cramer is to be taken seriously), but the bottom for mortgage rates might be here. On Friday, Freddie Mac noted that 30-year fixed rate mortgages have dropped to their lowest level since it began surveying the rate in 1971. For the week ending March 26, the 30-year, fixed rate averaged 4.85 percent, down from 4.98 percent the week before. As recently as last July, the rate averaged 6.63 percent.

That doesn't necessarily mean that the upfront costs of getting a mortgage will be particularly cheap, however, since banks are taking this opportunity to make some money off of originations. Data from the Federal Housing Finance Agency put the average cost of getting a mortgage in the United States at $640 per $100,000 in December and January, the highest price since 2000. In 2005, when the housing bubble was still more-or-less inflated, the cost was about $280 per $100,000.

After mostly upward momentum last week, Wall Street cooled off on Friday, with the Dow Jones Industrial Average dropping 148.38 points, or 1.87 percent. The S&P 500 lost 2.03 percent and the Nasdaq was down 2.63 percent.

Freedom Tower: What's in a Name?

Of all things, the ruckus that arose last week over the re-naming of Freedom Tower got me thinking about a train station.  Odder still, the station in question idisappeared long before I was old enough to appreciate it.  In the fall of 1963, when I was a toddler, demolition crews set to work taking apart Pennsylvania Station, the Beaux Arts masterpiece that had stood in Midtown Manhattan for half a century. The station was brought down to make way for a couple of workmanlike office buildings, the most recent incarnation of Madison Square Garden, and a dark, cramped commuter rail complex—also called Penn Station. Not so incidentally, the destruction of the original terminal galvanized New York City’s architectural preservation movement.

A sculpted eagle that once adorned the 1910 building is among the few traces of the old Penn Station on the site. But among the countless times I have walked through the current Penn Station during the past 40 years, there have still been many occasions when the name alone has been enough to make me think about its vanished predecessor. I’ve often wondered what it was like to experience the legendary grand spaces of the original Penn Station.

The naming of the tallest office building that will rise at the World Trade Center in Downtown Manhattan stirred up controversy last week because of a significant leasing milestone. Last week Vantone Industrial Corp., a Chinese company, signed a 20-year lease for 190,800 square feet. The deal encompasses part of the 64th floor and all of floors 65 through 69 in the 102-story building, which will be the home of a cultural and business center.

Almost overshadowing the deal, however, was the Port Authority’s confirmation that the building’s formal name will not be Freedom Tower, but One World Trade Center. The announcement drew disapprovals of varying volumes. New York City’s mayor, Michael Bloomberg, said that he would prefer that the Port Authority kept the “Freedom Tower” name. Then he added, “If they could rent the whole thing by changing the name, then they should do that.” The city’s tabloids weighed in, too, somewhat more loudly. The New York Post ran a front-page headline proclaiming, “FREE DUMB TOWER.”

One objection to calling the building One World Trade Center is that it was also the name of the Twin Tower attacked first on Sept. 11, 2001. Assuming the name of a structure where hundreds of martyrs died, the argument goes, is disrespectful to the point of sacrilege.

I wonder, though, if exactly the opposite argument might be made. A physical memorial will be a central feature of the World Trade Center when work on the site is finally complete sometime in the next decade.  Whether or not it was the Port Authority’s intention, the decision to bring back the “One World Trade Center” name would create another kind of  memorial. If the Port Authority sticks to its decision, every time its new building’s name is spoken or written will be a moment of quiet remembrance—and defiance.

Economic Update - Retail Deals Still Out There

By Dees Stribling, Contributing Editor

It isn't the best of times for retail or retail real estate owners and brokers, but the industry isn't at a complete standstill. That's the assessment of John Delatour, director of operations and leasing at Jacksonville-based Regency Centers, a specialist in developing and owning grocery-anchored shopping centers and community centers.

"There's no denying that some retailers are going dark, but leasing deals are still getting done," Delatour tells CPN. "That's especially the case with grocery-store anchored centers, and even some grocery stores are still expanding, though clearly at a much more modest pace than in recent years."

Among others, he added, local and regional banks (or credit unions), fast-casual restaurants, nail and hair shops, and liquor stores are still inking leases. This is even the case in markets that have been famously beaten up by the recession, such as metro Las Vegas. Nevada Federal Credit Union recently took space at Regency's 731,000-square-foot Deer Springs Town Center, a newly completed development in North Las Vegas anchored by Target, Home Depot and Toys R Us.

"The recession is having an impact, of course," Delatour said. In the case of Regency's portfolio, the difficult economy has driven occupancies from about 95 percent to about 93.5 percent. "Still, a lot of properties are still holding their own."

In other retail news, Best Buy Co. Inc., now the "last man standing" among giant big box electronics chains following the demise of Circuit City, has reported a better-than-expected fourth fiscal quarter, though that doesn't mean earnings or sales growth for the quarter ended February 28. Net income for the company fell 23 percent on restructuring charges, to $570 million, or $1.35 per share, while U.S. same-store sales dropped 4.9 percent for the quarter compared with the same period a year ago. The company stressed, however, that the same-store sales drop was only 2.5 percent in the January-February period, after a 6.8 percent drop in December.

If Best Buy's numbers are any indication, consumers haven't quite lost their taste for certain kinds of electronics. "A low double-digit comparable-store sales increase for notebook computers fueled the growth as customers increasingly view notebook computers as a necessary utility," the company posited in a statement on Thursday. "Mobile phones and accessories experienced a nearly triple-digit comparable store sales gain, reflecting significant market share gains."

Best Buy's share prices got a boost from the news to the tune of $4.21 a share, or about 12.58 percent, and the rest of Wall Street didn't do too badly on Thursday either. The Dow Jones Industrial Average was up 174.75 points, or 2.25 percent, while the S&P 500 was up 2.33 percent and the Nasdaq gained 3.8 percent--the highest the tech-heavy index has been all year.

Economic Update - Glimmers of Good News?

By Dees Stribling, Contributing Editor

Are the recent economic initiatives by the U.S. government putting the country on "the road to hell," to quote a certain Czech politician whose own government imploded recently? It is worth noting that good intentions are known to be a common paving material on the road to that unpleasant destination. Or will our ultimate destination be a little less dramatic?

The recently announced plan to get rid of toxic assets on the books of financial institutions through public-private action seems to be getting a positive, if cautious, reception. "We're still learning about the plan, pretty much like everyone else," Neil Freeman, chairman & CEO of Chicago-based Aries Capital, told CPN. "But it's encouraging. With the government as a partner, it seems to offer a mechanism that will encourage private investors to participate."

If it works as expected, Freeman noted, one strength of the plan would be that it would offer private investors--specialists who know their way around the complex financial structures, rather than the government--a relatively low-risk way to dig down into the assets and mine them for whatever value they may still have.

That said, he added, the "devil is still in the details. We're looking at it to see if it makes sense for us to put up some capital and participate, and we will make that determination before long."

New housing figures on Wednesday from the U.S. Department of Commerce about new housing sales were also positive. According to Commerce, February new home sales nationwide were up 4.7 percent compared with January, though that still represents a 41.1 percent decline from February 2008. An important factor in the uptick was a relatively low median sales price of $200,900, which is about the same as it was in late 2003.

Durable goods orders were also up 3.4 percent in February. The equity markets seemed to move upward early in the day on Wednesday in response to these glimmers of good news, but it moved into negative territory later and only emerged positive again toward the end of the day, lead by banks and homebuilders. The Dow Jones Industrial Average was up 89.6 points, or 1.17 percent, while the S&P 500 was up 0.95 precent and the Nasdaq was up 0.82 percent.

Vegas' Woes Continue

I'll try not to take it personally, but after my endorsement of Las Vegas in last week's blog, there has been more unsettling news.

A land parcel that was to be the site of an Asia-themed casino, The Dragon City Hotel and Resort, will instead be sold at a bankruptcy auction in May. This comes in the wake of Infinity World Development filing suit against MGM Mirage, its development partner on the $8.8 billion City Center mixed use project on the Strip. MGM expressed doubts about its future financial health in its annual report to the SEC, and Infinity World sued to protect its $4.3 billion investment in the massive development.

It will be interesting to see how City Center progresses, as the project is a major step in Las Vegas' continued evolution as a city that offers visitors and residents more than just gambling. Plans for City Center include a $40 million Public Fine Art program and  non-gaming luxury hotels.

MGM Mirage released a statement that said it was ready to work with Infinity to complete the project. But when City Center was being planned, the developers could not have foreseen the severe economic , which has cut deeply into Las Vegas' tourism and convention business.