Property Grunt

Saturday, January 09, 2010

So what does this mean?

As many of you know, one of the things I like to do is look between the lines and to speculate. Above is an ad regarding two pieces of property that are up for sale. What struck me was that the two tenants are Dollar Stores. Dollar Stores are great tenants because no one can resist a bargain and they are pretty much recession proof. So why does the owner want to sell off these cash cows? The first location is surrounded by undeveloped land and in my opinion what happened was that there were plans to turn that land into some type of commercial strip using the Dollar store as an anchor.

3 years ago this would have been a great idea. But with the credit markets still frozen and the real estate market attempting to recover, no one is going to touch this idea with a ten foot pole. For whatever reason, the owners have no desire to ride it out until the next evolution. For whatever reason they need money.

Which bring me this series of articles regarding the commercial market.

The Biggest, Baddest Real-Estate Loan

Over the next two years, more than $1 trillion of commercial real-estate debt nationwide will mature, and many of these deals, completed during the middle of the last decade, are far underwater. “All of this debt is coming due,” a top real-estate lawyer explained. “And these are the bubble loans, and now cash flow is half of where it was two years ago.” This season’s hangover may take quite a long while to dissipate.

Further Slide Seen in Commercial Real Estate

There are 920 football fields of available office space in Manhattan. More than 180 major buildings totaling $12.5 billion in value — from Columbus Tower at 1775 Broadway to the office tower 400 Madison Avenue — are in trouble, meaning in many cases they face foreclosure or bankruptcy, or have had problems making mortgage payments. Rents for commercial office space fell faster over the past two years than in any such period in the last half century.

“I have been in the business for 12 years. I have never seen it this bad,” Peter Von Der Ahe, vice president of investments for the brokerage Marcus & Millichap, said of New York City’s commercial real estate market. According to more veteran colleagues, he said, things have not been so dire since at least the early 1990s.

And that is not the most sobering assessment.

“It hasn’t hit bottom,” Mr. Von Der Ahe added.

U.S. Now a Renters' Market
With Apartment-Vacancy Rate at 30-Year High, Landlords Cut Prices 3% in 2009

Apartment vacancies hit a 30-year high in the fourth quarter, and rents fell as landlords scrambled to retain existing tenants and attract new ones.

View Full Image
Seattle Average rent: $937
Getty Images

Seattle average rent: $937
Seattle Average rent: $937
Seattle Average rent: $937

The vacancy rate ended the year at 8%, the highest level since Reis Inc., a New York research firm that tracks vacancies and rents in the top 79 U.S. markets, began its tally in 1980.

Rents fell 3% last year, according to Reis, led by declines in San Jose, Calif., Seattle, San Francisco and other cities that had brisk growth until the recession.

Gains in home sales have been driven by government stimulus, leading some to wonder if the nascent housing recovery needs federal assistance to sustain, Nick Timiraos reports.

In New York City, the vacancy rate improved by 0.1 percentage point for the second straight quarter, but around 60% of rental buildings dropped their rents in the fourth quarter from the previous quarter. Effective rents -- which include concessions such as one month of free rent -- fell 5.6% in New York last year, the worst since Reis began tracking the data in 1990.

Landlords now must entice tenants to renew leases. "We'll shampoo their carpets. We'll paint accent walls. We'll add Starbucks cards," said Richard Campo, chief executive of Camden Property Trust, a Houston-based real-estate investment trust that owns 63,000 units. He said the first half of 2010 should be "pretty ugly," but was optimistic the sector would pick up later in the year.

It is no secret that I think 2010 is going to suck ass for real estate and our economy. However as the cliche goes, chaos equals opportunity and there is a lot of opportunity around us.

Last night I was at a social gathering where I spoke to one person who had a firend who bought a 2 bedroom condo in Florida. It cost him $60,000. The owners originally bought it for $200,000. This guy is already a head of the game because when the next cycle comes, his equity is going to through the ceiling.

Save your money, protect your credit score and look at the market closely. There are going to be a lot of deals out there in the near future and it is in your best interest to take advantage of the situation.

One place to observe closely is China.

Contrarian Investor Sees Economic Crash in China

I am not an expert in economics but if this scenario were to occur where do you think all that Chinese money is going? Chances are there will be a flight to quality and the usual destination is the USA. And what happens when you have a sudden influx of demand? The trick is to get there before demand hits.

So watch your 6 and keep your money and credit tight.