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

Tsunami Warning

 

Tsunami Warning

Courtesy of John Mauldin, Thoughts from the Frontline

A tsunami is a wall of water that wipes out everything in its path, typically caused by earthquakes. But first, the water actually disappears from the usual shoreline, leaving land where there should be sea.

If you are on the shore and see that happen, the correct response is to run for high ground. Tragically, though, people often rush toward this new and unusual sight. It’s hard to blame them; we humans are drawn to the unknown. This impulse explains much of our progress, but it has costs, too.

Right now, the stock market is in the land-where-there-should-be-sea phase. What we don’t know is when the wave is coming. Maybe th...



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Biotech/COVID-19

No, vaccine side effects don't tell you how well your immune system will protect you from COVID-19

 

No, vaccine side effects don't tell you how well your immune system will protect you from COVID-19

It’s not a bad sign if you feel fine after your COVID-19 shot. Luis Alvarez/DigitalVision via Getty Images

Courtesy of Robert Finberg, University of Massachusetts Medical School

If someone gets a headache or feels a bit under the weather after receiving a COVID-19 vaccine, it’s become common to hear them say something like “Oh, it just means my immune system is really working hard.” On the flip side...



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Zero Hedge

Shares Of Chinese Battery Maker CATL Surge As Company Said To Be Considered For Apple's EV Project

Courtesy of ZeroHedge View original post here.

Shares of Contemporary Amperex Technology were up as much as 9% in Shenzhen overnight on news that it could be the company involved in supplying batteries for Apple's electric vehicle project.

The jump in shares marks the best day for the company's stock in four months, Bloomberg reported Monday morning.

The report, which appears to be unconfirmed for the time being, was published in Xuangubao.cn, a Chinese online stock news platform. That platform did not report a source for the informati...



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Digital Currencies

A Unifying Theory of Everything

 

A Unifying Theory of Everything

Courtesy of Scott Galloway, No Mercy/No Malice@profgalloway

This week, New York Magazine let me go full stream of consciousness on … everything. Their editor pitched me the idea to articulate a unifying theory on “this whole crazy techno-fiscal moment.” Problem is, while I understand crypto better than 99 percent of people, I do not understand crypto.

On Wednesday, crypto pioneer Coinbase listed shares on the NASDAQ, and closed the day at an almost $100 billion valuation, making it nearly as valuable as Goldman Sachs. Coinbase’s big day made a bunch of wealthy people wealthier, but it also poked several bears — ...



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ValueWalk

Managing Investments As A Charity Or Nonprofit

By Anna Peel. Originally published at ValueWalk.

Maintaining financial viability is a constant challenge for charities and nonprofit organizations.

Q4 2020 hedge fund letters, conferences and more

The past year has underscored that challenge. The pandemic has not just affected investment returns – it’s also had serious implications for charitable activities and the ability to fundraise. For some organizations, it’s even raised doubts about whether they can continue to operate.

Finding ways to generate long-term, sustainable returns for ...



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Chart School

Money Printing Asset Price Targets

Courtesy of Read the Ticker

The FED giveth and the FED taketh away. Right now the FED is giving a lot into 2022 US Mid Terms. 

Unless the FED breaks the market, here are some BRRRRR asset price targets, not normal price targets but money printing adjusted price targets. 


BITCOIN 175,000 to 500,000 USD

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DOW to 40,000 to 50,000

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More DOW

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Politics

Colombia gives nearly 1 million Venezuelan migrants legal status and right to work

 

Colombia gives nearly 1 million Venezuelan migrants legal status and right to work

Venezuelans wait at the Colombian border to be processed and housed in tents in 2020. All Venezuelans now in Colombia will receive a 10-year residency permit. Schneyder Mendoza/AFP via Getty Images

Courtesy of Erika Frydenlund, Old Dominion University; Jose J. Padilla, Old Dominion University...



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Kimble Charting Solutions

Will Historic Selloff In Treasury Bonds Turn Into Opportunity?

Courtesy of Chris Kimble

Long-dated treasury bonds have been crushed over the past year, sending ETFs like TLT (20+ Year US Treasury Bond ETF) spiraling over 20%.

Improving economy? Inflation concerns? Perhaps a combination of both… interest rates have risen sharply and thus bond prices have fallen in historic fashion.

Today’s chart looks at $TLT over the past 20 years. As you can see, the recent decline has truly been historic. $TLT’s price has swung from historically overbought highs to oversold lows.

At present, the long-dated bond ETF ($TLT) is trading 7.8% below its 200-...



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Mapping The Market

Suez Canal: Critical Waterway Comes to a Halt

 

Suez Canal: Critical Waterway Comes to a Halt

Courtesy of Marcus Lu, Visual Capitalist

The Suez Canal: A Critical Waterway Comes to a Halt

On March 23, 2021, a massive ship named Ever Given became lodged in the Suez Canal, completely blocking traffic in both directions. According to the Suez Canal Authority, the 1,312 foot long (400 m) container ship ran aground during a sandstorm that caused low visibility, impacting the ship’s navigation. The vessel is owned by Taiwanese shipping firm, Evergreen Marine.

With over 2...



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Promotions

Phil's Stock World's Weekly Webinar - March 10, 2021

Don't miss our latest weekly webinar! 

Join us at PSW for LIVE Webinars every Wednesday afternoon at 1:00 PM EST.

Phil's Stock World's Weekly Webinar – March 10, 2021

 

Major Topics:

00:00:01 - EIA Petroleum Status Report
00:04:42 - Crude Oil WTI
00:12:52 - COVID-19 Update
00:22:08 - Bonds and Borrowed Funds | S&P 500
00:45:28 - COVID-19 Vaccination
00:48:32 - Trading Techniques
00:50:34 - PBR
00:50:43 - LYG
00:50:48 - More Trading Techniques
00:52:59 - Chinese Hacks Microsoft's E...



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The Technical Traders

Adaptive Fibonacci Price Modeling System Suggests Market Peak May Be Near

Courtesy of Technical Traders

Our Adaptive Fibonacci Price Modeling system is suggesting a moderate price peak may be already setting up in the NASDAQ while the Dow Jones, S&P500, and Transportation Index continue to rally beyond the projected Fibonacci Price Expansion Levels.  This indicates that capital may be shifting away from the already lofty Technology sector and into Basic Materials, Financials, Energy, Consumer Staples, Utilities, as well as other sectors.

This type of a structural market shift indicates a move away from speculation and towards Blue Chip returns. It suggests traders and investors are expecting the US consumer to come back strong (or at least hold up the market at...



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Lee's Free Thinking

Texas, Florida, Arizona, Georgia - The Branch COVIDIANS Are Still Burning Down the House

 

Texas, Florida, Arizona, Georgia – The Branch COVIDIANS Are Still Burning Down the House

Courtesy of Lee Adler, WallStreetExaminer 

The numbers of new cases in some of the hardest hit COVID19 states have started to plateau, or even decline, over the past few days. A few pundits have noted it and concluded that it was a hopeful sign. 

Is it real or is something else going on? Like a restriction in the numbers of tests, or simply the inability to test enough, or are some people simply giving up on getting tested? Because as we all know from our dear leader, the less testing, the less...



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Insider Scoop

Economic Data Scheduled For Friday

Courtesy of Benzinga

  • Data on nonfarm payrolls and unemployment rate for March will be released at 8:30 a.m. ET.
  • US Services Purchasing Managers' Index for March is scheduled for release at 9:45 a.m. ET.
  • The ISM's non-manufacturing index for March will be released at 10:00 a.m. ET.
  • The Baker Hughes North American rig count report for the latest week is scheduled for release at 1:00 p.m. ET.
...

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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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