Philip Blumberg’s blog

BRAC Program Spurring Commercial Development in Northern Maryland

nobody@vox.com(Philip Blumberg) — Thu, 05 Nov 2009 07:55:46 -0800

The Defense Department's Base Realignment and Closure program has created a flurry of development around the Aberdeen Proving Ground in North-Eastern Maryland. The Department of Defense C4ISR Mission (Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance) is relocating from Fort Monmouth, bringing approximately 8,200 jobs. St. John Properties recently broke ground for a 75,000 sq ft office building for defense contractor Raytheon. According to The Gazette, St. John Properties expects to develop 380,000 sq ft inside the base for the Government and Technology Enterprise, a research and development and technology business park for the government sector and private contractors.

Seeking to meet the increased need for contractor space around the Army base, Corporate Office Properties Trust broke ground in November for a second Class A office building at its North Gate Business Park, near Interstate 95. The first building under development totals 80,000 square feet with an anticipated completion date of fourth quarter 2009. The newest project will reach 85,000 square feet with an anticipated completion date of second quarter 2010. Construction is expected to cost more than $64.8 million and will include about 290,000 square feet of office space. The complex is designed to meet expectations of 3 million square feet of new office space that will be needed for military and private contractors under BRAC.

For more news and information visit Blumberg Capital Partners.

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LoopNet Q4 Poll: When will the Market Recover?

nobody@vox.com(Philip Blumberg) — Wed, 04 Nov 2009 05:25:04 -0800

LoopNet conducted a poll of its members -- groups of investors, brokers and owners -- last month and asked where they thought the commercial real estate market was headed in the coming year. Optimism for 2010 may have broken as respondents seem to have grown somewhat pessimistic about the timing of recovery, continued price declines, and access to affordable debt financing. Expectations for the timing of a market recovery continue to drift with nearly half of the respondents expecting improvement in 2011 or later.

Transaction Timing

"Despite the declines in pricing seen over the past quarter, respondents’ expectations for future pricing declines remain almost unchanged from the last survey," LoopNet expounded in their CRE blog. At the beginning of Q3, 52% of respondents expected to see future declines of 11% or more. At the beginning of Q4, that number is 53%. This suggests that future expectations of cash flow and value have continued to deteriorate, preventing pricing from stabilizing even after the declines in Q3.

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Groundbreaking in Santa Barbara for Largest Ever South Coast Development

nobody@vox.com(Philip Blumberg) — Tue, 03 Nov 2009 11:51:15 -0800

Executives from Sares-Regis Group and Pacifica Commercial Real Estate gathered on Sunday to break ground for a new office and retail development next to Santa Barbara's Municipal Airport. The 14-acre first phase of the 96-acre Cabrillo Business Park will include 175,000 square feet of office, 72,000 square feet of self-storage and 17,500 square feet of retail space. Globest.com reported the full plan calls for development of 956,000 square feet of research-and-development facilities in 12 one- and two-story flex buildings of up to 80,000 square feet, making it the largest commercial development ever proposed on the South Coast. The project is being marketed by Mark Mattingly and Greg Bartholomew of the Santa Barbara office of Pacifica Commercial Realty.

According to the Santa Barbara & Goleta Newzhawk, "Sares-Regis has already renovated three principal buildings on the west end of the park, totaling 170,000 square feet. Fedde (Vice-President of Sares-Regis) said plans include a site build-out of roughly 70,000 square feet a year for 10 years. As part of the development agreement, Sares-Regis will contribute more than $7 million in traffic mitigation fees to Goleta." In 2007 the Santa Barbara Newsroom reported the development is expected to bring $2 billion in revenue to the area, including property taxes of $8 million and sales tax revenues of $48 million. The town of Goleta operates on a budget of roughly $14.7 million.

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$250 Million Mixed-Use Development on Track in DC

nobody@vox.com(Philip Blumberg) — Mon, 02 Nov 2009 20:16:54 -0800

Construction continues on a $250 million mixed-use development in Washington, DC's Foggy Bottom neighborhood. Dubbed "Square 54", the development sits on 2.4 acres of land owned by the George Washington University adjacent to Washington Circle and was been rented to Boston Properties in a 60 year lease for $9.1 million annually and will be managed by local firm Kettler.

According to the structural designer for the project, Thornton Tomasetti, "the office portion consists of a pair of 12-story office buildings totaling 439,500 square feet, over 565,500 square feet of below-grade parking, and will include 27,243 square feet of street-level retail... The residential element is made up of two concrete-framed apartment buildings totaling 328,000 square feet. The 12-story structures will be situated over six levels of below-grade parking and will contain a total of 29,483 square feet of retail." Architects for 2200 Pennsylvania Ave are Connecticut-based Pelli Clarke Pelli Architects (Design) & Hickok Cole Architects (Executive), located in Washington, DC. Construction is expected to be completed in 2011.

For more news and information visit Blumberg Capital Partners.

Square 54

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New Federal Guidance on Prudent Commercial Real Estate Loan Workouts

nobody@vox.com(Philip Blumberg) — Fri, 30 Oct 2009 07:24:14 -0700

The Federal Deposit Insurance Corp., the Federal Reserve, the Office of Thrift Supervision and the Office of the Comptroller of the Currency released a new policy statement to assist examiners in evaluating institutions' efforts to renew or restructure loans to creditworthy CRE borrowers. The statement supports prudent commercial real estate loan workouts, stressing that performing loans, including those renewed or restructured on reasonable modified terms, will not be subject to adverse classification solely because the value of the underlying collateral declined.

An excerpt from the 33 page statement:

The regulators have found that prudent CRE loan workouts are often in the best interest of the financial institution and the borrower. Examiners are expected to take a balanced approach in assessing the adequacy of an institution's risk management practices for loan workout activity. Financial institutions that implement prudent CRE loan workout arrangements after performing a comprehensive review of a borrower's financial condition will not be subject to criticism for engaging in these efforts even if the restructured loans have weaknesses that result in adverse credit classification. In addition, renewed or restructured loans to borrowers who have the ability to repay their debts according to reasonable modified terms will not be subject to adverse classification solely because the value of the underlying collateral has declined to an amount that is less than the loan balance.

For more news and information, visit Blumberg Capital Partners.

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Beige Book Shows Scattered Bright Spots

nobody@vox.com(Philip Blumberg) — Thu, 29 Oct 2009 07:36:50 -0700

The Federal Reserve Board released the latest Beige Book this week showing either stabilization or modest improvements in many sectors, but still finding commercial real estate on shaky legs with conditions described as either weak or deteriorating. An excerpt:

Commercial real estate continued to weaken across the 12 Districts, although even this sector had scattered bright spots. Each District indicated that demand for private commercial real estate was weak, with New York, Philadelphia, Cleveland, Atlanta, Chicago, St. Louis, Kansas City, and San Francisco all characterizing activity as declining further since the last report. An inability to obtain credit was often cited as a problem for businesses that wanted to purchase or build space. High vacancy rates were noted as a key concern especially for landlords who were not offering concessions. And, while industrial real estate in the Richmond District was generally weak, renewed interest by retailers to revisit postponed expansion plans was also noted. Finally, public nonresidential construction activity funded by federal stimulus projects was a source of strength in the Cleveland, Chicago, Minneapolis, and Dallas Districts, but gains were often offset by state and local government cutbacks.

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Landlords Cut Rent and Raise Incentives for Office Buildings

nobody@vox.com(Philip Blumberg) — Wed, 28 Oct 2009 07:28:48 -0700

The Wall Street Journal published an article examining the current climate for office building owners who are looking to keep the tenants they have in the face of one of the worst commercial real estate markets in decades. It's noted that while businesses are struggling they're also delaying property decisions and, in some cases, forced to move to cheaper spaces. As leases expire, property owners have to invest -- through rent reductions, building improvements and incentives -- to retain those tenants. "While competitive market occupancies continue to erode, we may be seeing the first signs of what will, with no doubt, be a slow market recovery," said Bill Hankowsky, Liberty Property Trust's chief executive.

Boston Properties Inc. reported this week that new tenants are paying 17% less in gross rents than prior tenants in the same space. SL Green Realty Corp. saw their revenue decline 7% in the third quarter to $249.6 million after adding nearly an extra month of free rent as a tenant incentive; the company said the current average starting rents in Manhattan were $47.31 per square foot, down from $66.78 during the same period last year.

For more news and information visit Blumberg Capital Partners.

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MBA Commentary: Mortgage Slump, More Changes to Come

nobody@vox.com(Philip Blumberg) — Tue, 27 Oct 2009 17:10:16 -0700

Mortgage applications slumped again last week marking the third decline in three weeks, despite the slight dip in rates moving from 5.07% two weeks ago to 5.04% last week, reports the Mortgage Bankers Association (MBA). The association also released its forecast for 2010, summarized in CPE, "the good news is that the recession is over; the bad news is that the country will continue to reel from the ramifications next year."

And according to the Outlook for the Industry report by The Council to Shape Change, the real estate finance industry will face dramatic changes in the economy over the next five to ten years: in capital markets, in borrowers, products and processes, and in technology. The Council, an independent group of 19 real estate finance industry leaders, was created by the Mortgage Bankers Association as a means of helping the Association and its members better identify and prepare for the changes that the $12 trillion real estate finance industry will likely face in the next five to ten years.

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Capmark Financial Files for Bankruptcy Protection

nobody@vox.com(Philip Blumberg) — Mon, 26 Oct 2009 20:02:28 -0700

Capmark Financial Group, the commercial real estate finance company, filed a voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware on Sunday. In the filing, Capmark listed assets of $20.1 billion and debts of $21 billion. "The Capmark bankruptcy reinforces that, in the case of institutions with large concentrations in commercial real estate, current disruptions to the market have the potential to impact their viability," said Sam Chandan, president and chief economist of Real Estate Econometrics, a commercial real estate consulting firm in Manhattan. "It's not a turning point. The problems are only starting," Dennis Yeskey, a senior adviser at AlixPartners L.L.P., a business-advisory firm in New York, said in a Philadelphia Inquirer article today.

Jay Levine, president and chief executive officer of Capmark, said: "We view this reorganization process as an unfortunate but necessary response to recent unprecedented conditions in financial and commercial real estate markets, which presented a significant challenge for Capmark and similarly situated finance companies. By constraining the availability of capital, these difficult market conditions had a negative effect on all our core businesses."

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Wall Street Journal Tracks Failed Banks

nobody@vox.com(Philip Blumberg) — Fri, 23 Oct 2009 16:15:02 -0700

U.S. Bank failures for 2009 have passed the 100 mark, with 106 counted banks having fallen by market's close on October 23, the largest number since 181 collapsed in 1992 during the savings-and-loan crisis. The pace of the failures has been slowed, however, with 24 seizures in July, 11 in September and 11 in October, as regulators are being selective and electing to immediately close those institutions that pose an immediate danger to customers or the immediate financial system, while other banks flagged for risk of failure are left operational and thus possibly able to prevent their own closure.

The Wall Street Journal has created an interactive Google map and corresponding data chart detailing each of the bank closures since 2008. The map is interactive, allowing you to adjust the time period represented and illustrates the size of the bank's assets at the time of failure with scaled circles.

For more news and information visit Blumberg Capital Partners.

Failed US Banks

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