Real Talk with Adam Perrotta - Could Fannie Mae Program Save Condo Markets?

Before the widespread economic downturn took across nearly all sectors of the commercial property industry, the condo market acted as something of the canary in the proverbial coal mine, especially in overbuilt markets in the West and Southeast. Several years before the industry ground to its current near-halt, condo developers in those areas were having trouble selling units, and many projects wound up getting converted to rentals, or stalled entirely. And the current economic malaise has only made matters worse.

Now though, a new Fannie Mae program aimed at aiding condo buyers in those sagging market could give developers a leg up in trying to offload units. DYL Group recently received approval by Fannie for its new 52-story Infinity at Brickell condo project in Miami. By opening up funding options and providing more security to buyers, DYL is hoping that the approval will grease the wheels in finding buyers.

It remains to be seen, though, if the Fannie program will be a panacea for Miami and other condo markets. For one thing, the agency is quite selective in doling out approvals. Furthermore, even with approval, the buyer pool for any given property is sure to remain far shallower than it was before the downturn hit.

Will Fannie Mae's and other programs like it have a measurable effect at the market level? Or will their effectiveness be limited to a property-by-property basis?

As Employment Sags, RE Firms Still Adding Execs

 As the difficult economic times continue, the unemployment rate keeps on the increase. Still, new hire announcements hit my inbox every day and I'm writing news briefs for CPN’s People on the Move section on an almost daily basis. One thing that has caught my attention is that many firms are busy tapping new managing directors, senior vice presidents and other high-level executive postitions. Just yesterday, Canyon Capital Realty Advisors announced the hiring of David Ridini to serve as managing director with responsibility for identifying and overseeing investment in the Northeast. And Trammell Crow Co. recently appointed David Stahl as senior vice president with the firm’s real estate acquisition group. Also, Mike Neal joined Colliers Spectrum Cauble as senior vice president of retail. Last week, Susan Carras joined Cushman & Wakefield Sonnenblick Goldman as senior managing director, based in the firm's Washington, D.C. office. Also last week, Rockwood Capital L.L.C. announced that veteran real estate investment professional Frank Orioli had joined the firm as managing director of transactions. Finally, Jones Lang LaSalle just hired Terry Darrow as a managing director to lead its Dallas/Fort Worth industrial practice. And these are just a few examples of what I receive in my inbox on the daily basis.

    

    As the nationwide unemployment rate continues to march upward, will real estate firms continue to make new executive hires? Or could the employment slowdown reach the upper management levels?

REal Talk with Adam Perrotta - Monday

As the stock market has sprung back to life as of late--a trend industry observers are hoping will continue--commercial real estate firms have seen their shares among the highest gainers, rallying an average of 20 percent in April, according to a report by ING Clarion Real Estate Securities. However, considering the moribund states that those stocks were in before the rally, even that sizable gain is leaving prices well below the levels of just a few years ago. 

Where things go from here is--like many things in what is starting to seem like some sort of economic tipping point--is anybody's guess. Will real estate stock prices continue their upward march? Or were April's gains a mere "sucker's rally," as some are terming the general stock market uptick of late? And what factors will determine how real estate stocks do? Will it depend mostly on the general market's direction? Or will RE stocks prove to be more autonomous?

CPN Fast Poll: Recovery in Motion?

How much promise do you see in recent positive economic signs, such as REITs' ability to raise capital and generally sustained positive performance in the stock market? Give us your thoughts!

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Economic Update - Wal-Mart Sees Flat Profits, but Still Looks to Global Growth

By Dees Stribling, Contributing Editor

First-quarter numbers are in from Wal-Mart Stores Inc., and they show that the retail giant continues to attract recession-weary U.S. consumers, but other factors beyond its control have been keeping the retail behemoth from posting higher profits.

According to the company, profit in its first fiscal quarter, which ended April 30, was about the same as a year earlier, $3.02 billion, or 77 cents a share. Not shabby, but not what Wall Street expected. The main drag on company profits was the fact that sales internationally were down 11 percent during the first quarter, affected by that curiously strong U.S. dollar, though income in the United States was up 3.6 percent for the retailer.

That doesn't mean that Wal-Mart isn't still interested in international growth. In a move that could mean that Lenin would need to be tied down in his mausoleum to keep him from rolling over, the world's largest retailer is actively planning to open stores in the Russian Federation, according to Bloomberg.

A Russian newspaper has reported that Wal-Mart is in talks to buy a Russian supermarket chain, OOO Lenta, though Wal-Mart is still mum on that aspect of expansion into Russia. Executives at the Bentonville, Ark.-based company did, however, cite the current fragmented nature of Russian retailing as an impetus for growing its kind of retailing in that country. In other words, in that respect, Russia is something like rural America before Wal-Mart entered the picture decades ago.

As part of its bankruptcy reorganization, Chrysler L.L.C. wants to show the door to 789 of its roughly 3,180 retail outlets by terminating their dealership agreements. Some or even most of those former Chrysler dealerships might survive on selling used cars and maintenance services--usually a sweet profit center for dealerships--but the termination of the dealership agreements might push some of them over the edge.

The real estate result would be either short-term blight, since few vacant properties are less appealing than an empty car lot some acres in size, or a long-term redevelopment opportunity, depending on how one looks at it. But Chrysler's former deals would be small in number compared to those of General Motors Corp., which reportedly wants to cut its number of dealerships from 6,200 to 3,600, or even fewer. Perhaps some of those very large, empty lots will be Wal-Marts someday.

After the mixed bag of financial news, stocks managed a moderate uptick on Thursday, with the Dow Jones index jumping 46.43 points, while the Nasdaq and S&P saw 25.02- and 9.15-point gains, respectively.

REal Talk with Adam Perrotta - Thursday

In the wake of the news that the Port Authority of New York and New Jersey is looking to reduce the scale of the planned World Trade Center redevelopment in Lower Manhattan, it now looks as though the agency is interested in replacing at least some of that office space with a hotel. This is somewhat interesting, as one of the Port Authority's major reasons for its proposal to cut back the amount office space at the project was the fact that the demand-supply ratio in the office sector has been thrown for a loop by the current economic turmoil--an imbalance that could have a ripple effect in the market for some time.

But the Lower Manhattan hospitality sector is also experiencing its own supply-demand gap. While not nearly as densely-populated with hotels as the Midtown submarket, Downtown has over the last few years seen a spike in new hotel development, and there are currently several projects planned for the area. Should the city still be feeling lingering effects of the current dip in tourism and business travel when the prospective hotel opens, the property could have its hands full fighting for occupancies with the other area competition. All of this, of course, is not to say that a hotel couldn't work as part of the WTC plan. Manhattan remains, after all, one of the most popular travel destinations in the world--and that isn't likely to change anytime soon.

What are you feelings on the Port Authority's idea to develop a hotel at the WTC site? Is making the redevelopment a mixed-use project a good idea? Or should it remain office-only?

Most Bang for the Buck?

The Obama Administration's housing policy is taking shape, and one of its central tenets is to provide federally-assisted housing with a qreener future. Another step was taken in that direction today, as the Department of Housing and Urban Development announced that it will offer approximately $250 million in grants and loans to make approximately 25,000 apartment units more energy efficient. The funding, made available through the American Recovery and Reinvestment Act, is designed to create thousands of "green collar" jobs, as federally-assisted multi-family apartment developments are updated with the next Getting Started generation of energy efficient technologies. Grants and loans, up to $15,000 per residential unit, will assist landlords and property management companies cut their heating and air conditioning costs by installing more efficient heating and cooling systems, and to reduce water use by replacing faucets and toilets. Eligible applicants must already be HUD assisted,either through Section 8 project-based rental assistance, or the Department's Section 202 (elderly) and Section 811 (disabled) programs. The government clearly sees multiple benefits in this housing strategy, namely, job generation, help for the environment, and modernization of the nation's federally assisted housing stock. Is this the right path for the Administration to travel down, or are there better methods to improve and modernize the nation's federally assisted housing stock?

Economic Update - Spooked by Economy, Consumers Consume Less

By Dees Stribling, Contributing Editor

The U.S. Department of Commerce reported that retail sales dropped by 0.4 percent in April, compared with the previous month. The decline was a little more than expected, but less than the revised March drop of 1.3 percent. The recent two months of decline followed unexpected increases in consumer spending in January and February.

Gasoline sales, which sagged 2.3 percent in April as gas prices rose somewhat (and reminded drivers of the gas-price bubble of last summer), accounted for a fair chunk of the total decline. But for gas sales, the overall decline in retail sales would have been 0.2 percent in April. Sales were also down at clothing stores (0.5 percent), food stores (1 percent), and electronic stores (2.8 percent). Drug stores and the like eked out a 0.4 percent increase, and restaurants and other eateries saw a 0.2 percent increase.

Concurrent with the retail sales drop, Commerce reported that U.S. business inventories fell 1 percent in March, but nevertheless the inventory-to-sales ratio among U.S. businesses remained high--1.44--because both sales to consumers and business-to-business sales shrank so much. The inventory-to-sales ratio was 1.28 this time last year.

Retail Forward, a Columbus, Ohio-based consultancy, posited that there's been a change in the way shoppers shop, women in particular, at least for now. According to a recent survey by the company, eight of 10 women have changed the way they shop for clothing, accessories and shoes. Respondents said they are both cutting the amount they buy, and "trading down" in terms of brands.

“The largest shares of female shoppers are engaging in ways to limit spending,” said Kelly Tackett, senior consultant at the company and author of the report. She added that among the behavioral shifts among women shoppers, the one most likely to persist after the recession ends will be trading down, which, if true, would represent a signal change from recent years.

On the other hand, two-thirds of those women surveyed--it was a group of women in about 4,000 households nationally--expected that retail penny-pinching strategies not to be permanent. However, the length and depth of the recession, which is still an open question, could conceivably move more shoppers into a more permanent budget mentality. This year's response to job-loss nervousness and cut credit lines could echo down the years.

According to RealtyTrac, home foreclosures reached 342,000 nationwide in April, representing those homeowners who have received notices of default, auction notices or whose houses are undergoing repossession. The total was up 1 percent from March, and was 32 percent more than in April 2008.

California accounted for some 96,560 of these filings, and the usual-suspect states of Nevada, Arizona and Florida also saw a lot of this kind of thing in April. But there are foreclosures in plenty of other places as well, such as Michigan, Ohio, Georgia and Texas. Metro Las Vegas is still tops in foreclosures among metro areas, with 14,000 in April, or one out of every 56 houses.

After weeks of boldly going into positive territory, the equity indices have decided to skedaddle back down again, at least for now. The Dow Jones Industrial Average lost 184.22 points on Wednesday, or 2.18 percent, while the S&P 500 lost 2.69 percent and the Nasdaq retreated 3.01 percent.

REal Talk with Adam Perrotta - Wednesday

It's no secret that Manhattan's office leasing market has taken its share of lumps as the economy has soured; and considering the island's status as a global center of the crippled financial industry, that's a pretty big share. With vacancies up across all submarkets, landlords are finding themselves being forced to lower rents and/or offer concessions to draw new tenants and hold onto the ones they already have.

But if you're looking for signs of life, law firm Marcum & Kliegman's 67,200-square-foot deal at SL Green's 750 Third Avenue is a good place to start. The lease is the largest in Midtown so far this year--which is of course a far lesser title than it would have been a year or two ago, but is still certainly a noteworthy transaction in any market.

Also notable, I think, is the fact that the tenant is a law firm. As financial companies continue to buckle as a result of the economic tumult, the legal sector could step in, to an extent, to fill some of the void. The financial chaos that has laid low so many other industries has not had nearly as extreme an effect on law firms--and in some ways has even helped the sector, as firms are called in to deal with bankruptcies, restructurings, etc.

What do you think? To what extent can law firms pick up the slack for Manhattan's flagging financial tenants? And are there any other types of businesses that could also increase in prominence as a source of demand for space?

Economic Update - Commercial, Residential Prices Deflate Like Stuck Balloon

By Dees Stribling, Contributing Editor

Commercial property prices sank by 5.8 percent in 1Q09, according to the MIT Center for Real Estate's Transactions-Based Index, which saw its fourth quarterly drop in a row during the quarter. The index is now 21 percent lower than in 1Q08, and fully 26 percent below its peak in mid-2007. According to MIT, that drop is similar to the index's 27 percent drop during the commercial property slump of the early 1990s.

"It's possible that the first quarter of 2009 was the nadir in market sentiment," said David Geltner, director of research at the MIT Center for Real Estate, in a statement. "Sales volume is down almost to nothing, as reflected in our demand index. The prices buyers are willing to pay fell a record 12 percent in the first quarter and is now 28 percent below a year ago and 39 percent below its mid-2007 peak."

On the residential side of the real estate aisle, the National Association of Realtors confirmed on Tuesday an unsurprising downward slide of U.S. home prices in 1Q09, noting the median home price was down 14 percent compared with the same quarter last year. Currently the median is $169,000, with prices down almost everywhere, but especially some markets in California and Florida, where foreclosures and short sales have put enormous downward pressure on prices.

Though not up nationally, the volume of home sales was up sharply in some states in 1Q09, said the NAR--such as Nevada, which saw more than a doubling of sales compared with 1Q08, up 117 percent. Sales in California spiked 81 percent over the same period, while Arizona saw a 50 percent increase.

People are buying, lured by lower prices, lower interest rates, a temporary $8,000 tax break for first-timers, and an enormous stock of bank-owned houses, which tend to be seriously discounted. According to the Federal Deposit Insurance Corp., U.S. banks had $26.6 billion worth of repossessed properties on their books at the end of 2008.

Former U.S. Federal Reserve Chairman Alan Greenspan, speaking at a NAR conference on Tuesday, said that he's seeing "seeds of bottoming" in the housing market. At least he didn't say anything about "green shoots." But it could have been that he's striving to shore up his image in the history books, further asserting that the housing bubble wasn't the Fed's (that is, his) fault. "There is a recalibration of financial history that I find very puzzling," the Wall Street Journal reported him as saying at the conference.

Wall Street spent most of Tuesday in negative territory, but the Dow Jones Industrial Average managed to end positive, with a 50.35-point, or 0.6 percent, gain. The S&P 500 dropped a slight 0.1 percent, and the Nasdaq was down a more substantial 0.88 percent.