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?

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?

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?

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?

Universal Demand for Health Care

Speaker Nancy Pelosi announced today that the House of Representatives would have a healthcare bill ready by July. Now, the only thing that moves slower than a commercial real estate deal looking for financing is a Congressional vote on legislation, but this industry is all about staying a step ahead of the competition, so it's never too soon to pay the doctor's office a visit.

Considering that medical office has a rather clean bill of health compared with other sectors, investors should at least start a chart on opportunities for such properties. According to a recent medical office research report from Marcus & Millichap, people in the United States spend more than $2 trillion a year—17.7 percent of GDP—on health care, and those expenditures are expected to rise to $3 trillion by 2013.

We get sick, and we're aging; the American consumer may be changing its habits permanently, but the American patient remains an incredibly predictable demand indicator. And now the political momentum is heading toward universal health care, meaning more insured folks who will head to doctors' offices—maybe even for preventative care—rather than to hospitals for urgent and emergency care.

REal Talk with Adam Perrotta - Tuesday

An especially jarring example of just low the commercial property industry has been laid by the economic slump was made apparent with the news that the World Trade Center redevelopment in Lower Manhattan may be scaled back drastically, from five buildings to two. The downsizing of the project--proposed by the Port Authority of New York and New Jersey, which owns the redevelopment site--would cut in half the amount of proposed office space, from 10 million to 5 million square feet.

To many people, the WTC redevelopment holds just as much symbolic and emotional import as it does in a business sense. Towers rising up again from the rubble of the 9/11 attacks would be a major step in the city's--and nation's--continuing process of healing from that tragic day.

However, given the current economic realities, it might indeed be more prudent to rebuild on a smaller scale. Companies across the world have been stung badly by the economy's downturn, and the demand for office space has shrunk severely in turn. Of course, there have been recent indications that the picure may be getting a bit brighter, but what happens next is anyone's guess. Also worth nothing is the fact that financial firms--for many years Lower Manhattan's driving force--have been among the most affected by the turmoil, and it's a good bet that we haven't seen the last spasms in that sector. So is delivering 10 million square feet of new Downtown office space prudent?

Add in the yet-to-be-thawed credit markets that have stalled many projects of late, and the original WTC redevelopment plan might indeed seem a bit too ambitious for the current environment. However, there are plenty of high-powered supporters of the original five-tower plan, including NYC Mayor Michael Bloomberg, New York Governor David Paterson and WTC developer Larry Silverstein. That level of clout might be enough to overrule the Port Authority's suggestion...for better or for worse.

Where do you stand on this issue? Is scaling back the redevelopment plan a smart idea? Or should the original five-tower plan be kept in place?  

REal Talk with Adam Perrotta - Monday

Today brings yet another example of the fact that, despite credit being much harder to come by in the general sense these days--the right kind of properties are still able to attract lenders. Case in point; Kimco Realty just got its hands on $100 million to refinance the REIT's 360,000-square-foot Suburban Square retail complex in Pennsylvania. The financing adds to what has been an impressive year thus far for Kimco, which has altogether raised more than $1 billion in capital in 2009, via debt placement as well as a stock offering. And other REITs have also gotten in on the financing action as of late, with some very sizable lending deals going down over the past few weeks.

Can these financings be taken as evidence that the credit freeze is beginning to thaw? Or are they simply deals that made sense given the strength of the underlying properties and/or borrowers? Will REITs--with their large capital bases and ability to raise funds quickly via stock offerings--lead the charge to the restoration of credit for the industry at large? Or will the recovery be contained to the REIT sector for the foreseeable future?

REal Talk with Adam Perrotta - Friday

The CMBS market looks to be in for a tough few years as the number of defaults is likely to skyrocket in the coming years. It may not get as bad as predicted by a recent Deutsche Bank report that warns of a possibility that three fourths of the CMBS loans coming due over the next decade could default. However, should the market outperform this and other bleak predictions about its future, one recent development will likely get the lion's share of the credit. The Fed's opening the doors of the TALF assistance program to the CMBS market could prove an invaluable safety valve to the market by providing up to $100 billion in federal money for the purchase of commercial property-backed loans, starting in June.

Which begs the question, of course, of just effective the TALF opening its arms to the CMBS market will prove to be. Will the government pumping billions into the market be sufficient to get credit flowing again? If so, how long will it take before real progress is seen? Will additional steps need to be taken from the public sector, or will the industry begin working on its own again after getting a jump start from the TALF?

REal Talk with Adam Perrotta - Wednesday

In the past few months, we've seen a trend of those investors who do have cash to spend (a lot smaller group, of course, than it was a year or two ago) looking to make buys at bargain prices as property values decline. For the most part, such buyers have been eying the domestic market. Not so for LaSalle Investment Management, thought.  The firm is aiming to deploy the $300 million in capital in its latest fund south of the border in Mexico. The nation's CRE investment market does have some pretty convincing things going for it. Fundamentals remain pretty strong across all sectors, and the market there has not fallen off as high a cliff as did the U.S., due primarily to properties not having been as highly over-valued in previous years. Of course, this latter fact could limit the amount of distressed sellers in Mexico; if firms didn't have to shell out as much money to make acquisitions in the past, then they are less likely to now have debts burning through their ledgers. On the other hand, with less competition among buyers for Mexican properties, LaSalle might be able to command lower prices.

What do readers think about this move by LaSalle? Is Mexico a smart play? Or would investors looking to buy right now be better suited looking elsewhere?

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