Posts Tagged ‘vacancies’

Commercial Real Estate (CRE): The Slow-Mo Cliff-Dive Gathers Speed

Commercial Real Estate (CRE): The Slow-Mo Cliff-Dive Gathers Speed

cre marketCourtesy of Charles Hugh Smith, Of Two Minds

Commercial real estate is in a structural cliff-dive, currently in slow-motion but soon to gather momentum.

With all the hub-bub about the foreclosure crisis in residential real estate, commercial real estate (CRE) has fallen off the radar screen of crises. Don’t worry, it’s still careening off the cliff; the fall is just in slow motion.

No need for a fancy report to see the signs of decay in CRE. Signs of the ongoing CRE meltdown are everywhere--empty storefronts, mall shops and vacant office complexes abound.

The causes are all too familiar: lending standards went out the window, banks loaned too much, buyers paid too much, lousy deals were avidly securitized, cash flow projections entered Fantasyland and unhealthy speculation fed widespread fraud.

Since boom-and-bust cycles of overbuilding and retrenchment are endemic to commercial real estate, it’s tempting to view this as just another post-expansion trough. Since prices have already slipped a staggering 40% from the 2006 peak, those calling this the bottom of the current cycle have some history on their side.

But beneath what appears to be a standard-issue retrenchment--a glut of inventory to work through, lenders avoiding risk instead of embracing it, and so on--structural changes in the U.S. economy are changing the CRE landscape for good--and not in a positive direction.

A long-term structural decline in CRE is not just a real estate industry concern. With some $1.7 trillion in CRE loans needing to be refinanced in the next few years, a continuing decline in CRE values could push the still-fragile banking system into a new crisis and the economy back into recession as early as next year.

The extremes reached in the boom were certainly epic: investors paid $800,000 per resort hotel room and over $500 per square foot for Class A office space, numbers which no terrestrial cash flow could possibly justify. Retail centers sprouted alongside every new exurb subdivision.

cre - commercial real estate

By this logic, an unprecedented boom requires an equally unprecedented bust to work through the excesses in price, debt and risk. So far so good, but there is an anecdotal body of evidence which suggests that profound systemic changes are taking place in the U.S. economy which will structurally reduce the demand for commercial real estate--not for a few years, but permanently.

1. A significant portion of CRE
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Demand For Loans Weakens Again In Fed Senior Loan Survey

Demand For Loans Weakens Again In Fed Senior Loan Survey

Courtesy of Mish

While the incessant drumbeat that "banks aren’t lending" continues, the real story once again is that demand for loans continues to drop. Please consider the January 2010 Senior Loan Officer Opinion Survey on Bank Lending Practices.

The January survey indicated that commercial banks generally ceased tightening standards on many loan types in the fourth quarter of last year but have yet to unwind the considerable tightening that has occurred over the past two years. The net percentages of banks reporting tighter loan terms continued to trend lower. Banks reported that loan demand from both businesses and households weakened further, on net, over the survey period.

For many major loan categories covered by the survey, the net percentages of respondents that tightened standards in the fourth quarter of 2009 were close to zero. However, banks continued to tighten a number of terms on loans to both businesses and households, although the net fractions of banks that reported doing so in the January survey generally stepped down again. Banks’ policies on CRE lending were an exception, as large net fractions of respondents further tightened their credit standards during the final quarter of last year. In addition, banks reported that they had tightened terms on CRE loans substantially over the past year.

Demand from both businesses and households for all major categories of loans weakened further, on net, over the past three months. The net fractions of banks that reported weaker demand for business loans continued to decline, while changes in the comparable readings on demand for loans to households were mixed.

Other than Commercial Real Estate, which is plagued by vacancies and falling rents, there was no change in lending standards. With that fact in mind, let’s once again investigate the charge "banks aren’t lending".

Here is the survey question on page 23: "4. Apart from normal seasonal variation, how has demand for C&I loans changed over the past three months?" followed by the table of responses.

Demand for C&I loans from large and middle-market firms

click on chart for sharper image

Demand for C&I loans from small firms (annual sales of less than $50 million)

click on chart for sharper image

Please look at that last chart carefully. It represents demand for


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What’s Really Happening in Real Estate

See also my recent interview with a real estate developer whose thoughts are similar to those expressed in Michael’s article below. - Ilene

What’s Really Happening in Real Estate

Courtesy of Michael Panzner at Financial Armageddon

Vacancy Rates On Manhattan Commercial Space Rise Sharply

My friend George Ure, publisher of Urban Survival (and a related blog of the same name), as well as the Peoplenomics subscription newsletter, has posted an eye-opening commentary, "Coping: With What No One Wants To Say" (excerpted below), detailing industry insiders’ perspectives on what is really happening in the real estate market.

While the news that things aren’t getting any better in CRE and RRE won’t be much of a surprise to those who’ve actually been paying attention, it would seem to represent further evidence that the "experts" and powers that be in Washington and on Wall Street (along with their enablers in the mainstream media) are either liars, fools, or crack addicts — or some combination of all three:

Every so often, a group of major real estate developers get together for a conference where folks try to look ahead. In order to protect my source, I won’t tell you which real estate/developer conference it was, but I’ve been given permission by my source to post this high-level view of what the people who put up real dough to develop properties are seeing.  This is the info that I talked about with Jeff Rense on his radio program last night — Read it and weep:

"This week I attended the [serious players] fall conference. [serious players] is the top real estate industry group in the world. All the most senior people in the industry.

1. Not one expert was willing to predict what things will look like in 3 years other than they think it will be better.

2. One top economist said if you are a developer find another career for the next 3 years-there is nothing to do and it may be 5 years.

3. Recovery will be slow. Unemployment will not drop back to more normal levels until 2014. First they will bring back people on 4 day weeks to 5 days, then they will increase hours form the


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Commercial Real Estate Musical Chairs, With Chairs Added Each Round

Commercial Real Estate Musical Chairs, With Chairs Added Each Round

Surf Culture

Courtesy of Mish

Commercial real estate vacancies hit nearly 25% in Phoenix Valley area. Scottsdale and Southeast Valley vacancies are even higher. Please consider Office vacancy rates in Valley hit record.

Nearly 1 out of every 4 square feet of Valley office space was vacant in the third quarter ending Sept. 30, commercial-real-estate experts said.

That’s about 28 million square feet of empty space, according to Phoenix commercial-realty brokerage Colliers International, one of several Valley firms tracking the progress of sales and the leasing of office, industrial and retail buildings.

Within the next few months, about 2 million more square feet of office space will open, and less than 20 percent of it has been reported as spoken for by a future tenant.

One of the soon-to-open buildings, the 400,000-square-foot One Central Park East office tower in downtown Phoenix [at left], has yet to announce a lease agreement despite plans to open by the end of the year.

"Actually, leasing agents are optimistic," said Broker Mindy Korth of Phoenix-based CB Richard Ellis.

Korth said One Central Park is a desirable location that ultimately will find its audience. But she agreed with other experts that the high prices paid by companies such as One Central Park developer Mesirow Financial Real Estate Inc. could make it difficult to pay the bills, based on today’s lower lease rates.

More than 2,200 commercial properties in Maricopa County have received 90-day foreclosure notices since Jan. 1, representing more than $7 billion in real-estate loans on which the borrowers have failed to make payments.

commercial real estateValley Vacancies

  • Overall vacancies – 24.2 percent
  • Scottsdale vacancies – 29.1 percent
  • Downtown Phoenix vacancies – 15.7 percent
  • Southeast Valley vacancies – 30.5 percent

Musical Chairs, With "Desirable Chairs" Added Each Round

Arizona leasing agents are optimistic because the "real-estate crash positions Phoenix as an attractive relocation area for companies in more expensive states, such as California".

Let’s assume for a moment that businesses transfer to Arizona from California. What would that do to California jobs and California commercial real estate prices? How many tax breaks will Phoenix give to get corporations to relocate? Will California, Illinois, New York, and other places quietly let businesses leave?

Without new business expansion, this setup is nothing


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Phil's Favorites

Staggering

 

Staggering

Courtesy of 

We now have data for last week’s initial jobless claims. The number is staggering. 6.6 million filed for unemployment insurance for the first time last week. During the prior week it was 3.28 million. These numbers take your breath away.

Chart via WSJ

Here’s the even worse news – this only records the people who have successfully filed. Many, many more have been locked out of the system so far due to the overwhelmi...



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Biotech/COVID-19

Antibodies in the blood of COVID-19 survivors know how to beat coronavirus - and researchers are already testing new treatments that harness them

 

Antibodies in the blood of COVID-19 survivors know how to beat coronavirus – and researchers are already testing new treatments that harness them

A person who has recovered from COVID-19 donates plasma in Shandong, China. STR/AFP via Getty Images

Ann Sheehy, College of the Holy Cross

Amid the chaos of an epidemic, those who survive a disease like COVID-19 carry within their bodies the secrets of an effective immune response. Virologists like me...



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Zero Hedge

Instead Of Firing Everyone, Boeing Offers "Voluntary Buyouts" To Its Entire Workforce Of 161,000

Courtesy of ZeroHedge View original post here.

When Boeing requested a $60 billion bailout from the US government a few weeks ago, the implicit assumption was that the company may get some of this funding as long as the chronic buyer back of its own stock did not engage in layoffs. That, however, did not stop the brilliant financial engineers at the aerospace giant who for the past 7 years learned how to turn debt lead into buyback gold, and instead of issuing a record amount of pink slips, Boeing instead offered voluntary buyouts to its entire staff of 161,000, in a bid to shed costs and adapt ...



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The Technical Traders

Founder of TradersWorld Magazine Issued Special Report for Free

Courtesy of Technical Traders

Larry Jacobs owner and editor of TradersWorld magazine published a free special report with his top article and market forecast to his readers yesterday.

What is really exciting is that this forecast for all assets has played out exactly as expected from the stock market crash within his time window to the gold rally, and sharp sell-off. These forecasts have just gotten started the recent moves were only the first part of his price forecasts.

There is only one article in this special supplement, click on the image or link below to download and read it today!

...

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ValueWalk

Paycheck Protection Program: Not Enough To Help Restaurant Industry

By Jacob Wolinsky. Originally published at ValueWalk.

Below is a statement from the Independent Restaurant Coalition on the start of the Paycheck Protection Program, which comes a day after the Department of Labor announced a historic surge in unemployment claims. In the last week, over 6.6 million Americans filed for unemployment bringing the total people out of work to over 10 million.

“The short-term relief made available through the Paycheck Protection Program in the CARES ...



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Kimble Charting Solutions

S&P 500 Price Pattern Similar to 2008 Market Crash?

Courtesy of Chris Kimble

Last week’s sharp rally off the lows, gave bulls some relief.

But if the bulls are going to have reason to cheer, they will need to see another move higher… and fast!

Why? Just look at today’s “weekly” price chart of the S&P 500 Index. 

This key broad-based index broke a 10-year bull market trend line in March. And it’s now kissing the underside of the trend line at (2).

The last stock market crash saw a similar pattern in 2008. And after a failed “...



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Insider Scoop

Nestle CEO Says Snack Foods 'Just As Important As Essential Nutrients'

Courtesy of Benzinga

Global food behemoth Nestle (OTC: NSRGY) is "scrambling to meet demand" to keep the world fed, but doesn't want to take much credit, as "this is our main purpose at this hour," CEO Mark Schneider said Wednesday during a "Mad Money" interview with Jim Cramer.

Nestle...

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Chart School

Big moving Averages and macro investment decisions

Courtesy of Read the Ticker

When price is falling every one wonders where demand will come in.


RTT black screen Tv videos study the simplest measure of price (simple moving average). What has happen before guides us now. 














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Members' Corner

10 ways to spot online misinformation

 

10 ways to spot online misinformation

When you share information online, do it responsibly. Sitthiphong/Getty Images

Courtesy of H. Colleen Sinclair, Mississippi State University

Propagandists are already working to sow disinformation and social discord in the run-up to the November elections.

Many of their efforts have focused on social media, where people’s limited attention spans push them to ...



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Digital Currencies

While coronavirus rages, bitcoin has made a leap towards the mainstream

 

While coronavirus rages, bitcoin has made a leap towards the mainstream

Get used to it. Anastasiia Bakai

Courtesy of Iwa Salami, University of East London

Anyone holding bitcoin would have watched the market with alarm in recent weeks. The virtual currency, whose price other cryptocurrencies like ethereum and litecoin largely follow, plummeted from more than US$10,000 (£8,206) in mid-February to briefly below US$4,000 on March 13. Despite recovering to the mid-US$6,000s at the time of writin...



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Promotions

Free, Live Webinar on Stocks, Options and Trading Strategies

TODAY's LIVE webinar on stocks, options and trading strategy is open to all!

Feb. 26, 1pm EST

Click HERE to join the PSW weekly webinar at 1 pm EST.

Phil will discuss positions, COVID-19, market volatility -- the selloff -- and more! 

This week, we also have a special presentation from Mike Anton of TradeExchange.com. It's a new service that we're excited to be a part of! 

Mike will show off the TradeExchange's new platform which you can try for free.  

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Lee's Free Thinking

Why Blaming the Repo Market is Like Blaming the Australian Bush Fires

 

Why Blaming the Repo Market is Like Blaming the Australian Bush Fires

Courtesy of  

The repo market problem isn’t the problem. It’s a sideshow, a diversion, and a joke. It’s a symptom of the problem.

Today, I got a note from Liquidity Trader subscriber David, a professional investor, and it got me to thinking. Here’s what David wrote:

Lee,

The ‘experts’ I hear from keep saying that once 300B more in reserves have ...



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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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About Ilene:

Ilene is editor and affiliate program coordinator for PSW. Contact Ilene to learn about our affiliate and content sharing programs.