The Moody's/REAL Commercial Property Index (CPPI) results are in for April, showing a return of negative 8.6% for the all properties national index. The index now sits 25.3% below its level from this time last year, and 29.5% below the peak prices measured in October 2007. "Unlike other areas where people are comfortable that the pace of change is positive, in commercial real estate pricing the pace of change is negative," Neal Elkin, REAL president, told CPN. "January was one of the largest changes in pricing ever seen before, but in April prices are deteriorating faster."
The CPPI is a periodic same-property round-trip investment price change index of the U.S. commercial investment property market based on data from MIT Center for Real Estate industry partner Real Capital Analytics, Inc (RCA). Moody's observes that April's negative return partly reflects that most deals closed during this time were negotiated at the end of 2008 and beginning of 2009 when securities markets plunged. "Primary markets are outperforming compared to the others. If you look at the Southern region, industrial properties are down 28.8 percent," said Elkin. "When you look into the numbers you see a return to the premium of primary markets. Prices are falling much faster and farther in secondary and tertiary markets and you're seeing that in other property types."
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NAI Welsh are marketing office space for lease in the Macy's Building in Downtown Minneapolis, marking the first time in the building's 107-year history that space has ever been available for lease according to a Business Journal article. Located at 700 Nicollet Mall in the heart of downtown Minneapolis, the iconic building dates back to 1902 when Dayton's first opened and has since served as the headquarters and regional office of Dayton's, Marshall Fields, Target, and Macy's. The site was largely emptied last fall when Cincinnati-based Macy's cut about 1,000 jobs in Minnesota, leaving 350,000 square feet on floors six through 10 above the Macy's store now up for lease.
"This space is main-on-main as far as Minneapolis office space goes," said Jim Damiani, Senior Vice President, NAI Welsh. "You couldn't ask for a more prominent location in this market." Damiani said Macy's would prefer to lease the entire space to one or more large tenants, but it is willing to cut up the space to accommodate smaller ones.
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The Sears Tower will be getting a $350 million retrofit, bringing the world's third tallest building to new heights of energy efficiency, exceeding its current LEED standing. The strategy, designed by Chicago-based Adrian Smith + Gordon Gill Architecture, will cut the building's electric consumption by 80% and water use by 40% according to a CoStar article. "The Sears Tower energy sustainability and environmental education project presents a tremendous opportunity for inspiring building owners and the public to aspire to the highest standards of energy-efficiency," said Charles Jackson, Illinois Environmental Council executive director.
Plans for the makeover include the addition of solar panels on the 90th floor roof to heat water, wind turbines that can be maneuvered to best capture the currents blowing through Chicago, a project to replace 16,000 tinted single-lane windows with energy efficient windows to create a "thermal break", revamping elevators to conserve energy and refitting bathrooms to reduce water use. More information on the sustainability plans for the building can be read here.
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Downtown Denver’s Seventeenth Street Plaza office building has been sold to HRPT Properties Trust who paid $135 million in cash, making it the largest real-estate deal done in Denver this year according to the Denver Post. Newton, MA-based HRPT, a real estate investment trust that owns and operates office and industrial buildings, bought the 666,653-square foot, 33-story building from JPMorgan Chase of New York, a deal brokered by CBRE.
JPMorgan put the property on the market in early 2008, asking $385 per square foot, or roughly $250 million, brokers familiar with the property said. Brookfield Properties had the building under contract last summer for $225 million, but the deal was not finalized because of the debt crisis' impact on Brookfield's lender. Current tenants include the U.S. Department of Justice (with 208,250 square feet of space leased), the U.S. Department of Treasury, Ballard Spahr Andrews & Ingersoll and Molson Coors Brewing Company.
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Philip Blumberg sat down with Jeanne Yurman of Reuters on June 23rd for a Commercial Real Estate report.
Blumberg Capital Partners says commercial real estate "will be another real stomach blow" to commercial banks where writedowns could be more than 50-percent.
Philip Blumberg, speaking at the 2009 Global Real Estate Summit in New York, says "it's no wonder why these commercial banks aren't lending." Separately, Blumberg says he expects to make some investments in the London property market where "they've taken writedowns and are closer to the bottom."
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Barry Sternlicht is starting a mortgage REIT in a time when credit is badly needed to restore market liquidity.
Sound familiar?
This new innovation in the debt markets, which provided high leverage at low rates, without recourse or risk to the borrowers, required other non-securitized loan providers, such as commercial banks, to be competitive and keep up or drop out, further rapidly expanding credit.
As the reaction to the overly abundant credit, initially in the sub-prime residential market, spread to other sectors, in the form of credit market contraction, a price/value decline was set off.
Lack of credit has also dried up capital for the purchase market, currently with transaction volumes at their lowest level in decades.
Historically, its almost always increased capital flows that induce the major crisis in real estate, not recessions.
And the re-establishment of prudent, patient capital flows that cures it.
When capital flows to real estate dramatically increase its often debt, abundant cheap debt, that starts the cycle.
A predictable cycle, that stops only when the effects of over-levered inflated investments are felt.
Those effects are usually in the form of too much capital fueling over building with eventually insufficient demand to keep up (eg the residential markets today),
Because real estate is a lagging re-actor (due primarily to the long time lag in development and the lease renewal lag in commercial assets) the supply/demand reaction is delayed, and the imbalance becomes dramatic.
So does the crash - typical of real estate.
These cyclical problems and solutions are very similar across time.
Barry Sternlicht is a very bright and experienced innovator to real estate structures and I'd give respect to his mortgage REIT direction as one means of restoring capital flows to real estate.
Philip Blumberg appeared on Reuters Video today in a segment titled "Relief Still Elusive in Real Estate".
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Representatives from various commercial real estate and community organizations and associations met on Thursday, brought together by the National Association of Realtors, to work together to provide policymakers with a package of principles and policy priorities to help their efforts in addressing the current CRE credit market crisis. Bob Toothaker, chair of NAR's Realtor Commercial Alliance and host of the meeting, said, "We face a liquidity crisis, the likes of which most of us have not seen in our lifetime. There is not one silver bullet to fix the huge problem, but we believe there are key steps that can be and should be taken to ensure the continued health and vitality of the commercial real estate industry."
NAR believes the success of programs and initiatives aimed at restoring liquidity and stability to the markets is intrinsically tied to and must work in conjunction with supportive federal tax policies and accounting principles that support commercial real estate lending. According to NAR Chief Economist Lawrence Yun commercial real estate is the hardest hit industry outside of the auto industry. "A recovery in commercial real estate always lags a general economic recovery, but with the right policy prescriptions we can recover more quickly," said Yun. Organizations involved in the meeting included the Building Owners and Managers Association, CB Richard Ellis, CCIM Institute, Coldwell Banker Commercial, Colliers International, Commercial Mortgage Securities Association, Grubb & Ellis, Institute of Real Estate Management, International Council of Shopping Centers, Mortgage Bankers Association, NAI Global, NAIOP, TCN Worldwide, The Real Estate Roundtable, and Transwestern.
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The Arlington County Department of Human Services will be moving from its current location at 3033 Wilson Blvd. to 2100 Washington Blvd., entering into a new 13-year lease at the building known as Sequoia Plaza One. The county's current lease expires in August 2010, at which point DHS will move into its new 144,740 square foot space -- a relocation that will save the county $22 million.
Mark Roberts with Studley represented Arlington County in the transaction and determined that relocating to the new office building would save the county $22.1 million in total occupancy costs over a projected 10-year period. "Studley started representing us after we had been through two rounds of direct negotiations with the current landlord to renew our existing lease," said Greg Emanuel, Arlington's capital projects director in a CoStar article. Under the lease terms, signed with the landlord, Foulger-Pratt Development Inc., Arlington will be able to grow up to 370,000 square feet at the three-building office park.
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Blumberg Capital Partners was featured today in an article on Commercial Real Estate Direct titled "Fund Managers Brace for Changes in Dealings with Investors". An excerpt:
Blumberg Capital Partners, a value-add debt and equity investor in Coral Gables, Fla., is launching a closed-end fund and its chairman, Phillip Blumberg, expects its limited partners to set restrictions on the use of debt financing. He also expects those co-investors to seek terms that would enable them to cash out of the fund early, even though closed-end funds typically require investors to commit for their full life cycle.
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