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Tag >> commercial real estate
Let's face it. Unless you are in the real estate business, CFOs like high vacancy rates and declining rents.
It enables them to lower costs and retain the leverage during rent negotiations.
The US commercial real estate market continues to struggle but Wall Street is already betting on a resurgence of the commercial mortgage-backed securities market.
US commercial real estate prices declined by 4 percent in June after two months of price increases and are still 41.4 percent below the peak recorded in October 2007, according to data from Moody's Investors Service. Delinquencies on loans in CMBS also continued to rise in July, though at a slower pace, according to Fitch Ratings.
Small and medium-sized banks will suffer through another year or so of pressure related to commercial real estate. Even as prices slowly approach a bottom, prompting investors to gear up to grab distressed assets and revive the industry, it will take some time before banks see any benefits.
The implications are largest for community banks, whose concentrated exposure to this segment is pushing up their nonperforming loan ratios and pushing down their regulatory risk-adjusted capital, according to a report published by Standard & Poor's Tuesday.
Companies that have obsessively squeezed every last penny out of labor costs have another big source of expenses to shake-down—their monthly rent bill.
A Financial Times report that US regulators are telling banks to hold onto their cash until the economy is further along on the path to recovery is hardly surprising.
How can banks instead spend it on stock buybacks or dividend payments when the sector is still getting hit by woes in commercial real estate, which could lead to significant write-offs and a need to raise more equity capital.
Is Eddie Lampert gearing up for a major liquidation sale at Sears? It sure seems like it. However, in this case I am referring to the real estate underneath the embattled retailer's stores.
Sears Monday said it closed 27 "underperforming stores" during the fourth quarter of 2009 and 62 altogether in fiscal year 2009. This came on top of 46 closures in fiscal 2008.
J.P. Morgan Chase chief executive Jamie Dimon raised eyebrows on Monday with remarks describing commercial real estate as a "train wreck" but one that has "already happened."
That certainly runs counter to most people's outlooks, including FDIC Chairman Sheila Bair, who warned in October that, "The most prominent area of risk for rising credit losses at FDIC-insured institutions during the next several quarters is in [commercial real estate] lending."
But, if research released Tuesday is correct, Dimon might have simply been referring to how commercial real estate will impact his own bank and others of its size.
Some Credit Suisse strategists told Bloomberg on Tuesday that securitization is coming back and that the strong areas outnumber the weak .
Such comments aren't exactly going out on a limb since it's pretty obvious that the securitization market has come a long way from a year ago when there was no activity at all. Sales of new U.S. automobile-loan and credit-card securities increased 5.6 percent last year to $113 billion, according to data compiled by Bloomberg.
Still, I remain skeptical and even find these rather benign comments a little too optimistic. Let's not forget that securities backed by auto loans, credit card loans and mortgages have all been supported by the government. That support isn't going to last forever.
As expected, the woes of the commercial real estate sector are accelerating.
The Moody's/REAL Commercial Property Price Indices fell 1.5 percent in October from September, bringing them to their lowest level since August 2002, Moody's Investors Service said on Monday.
Commercial property prices were down 36 percent from a year earlier and are 44 percent below the peak in October 2007, according to Moody's. Things are particularly bad in the New York area where prices have fallen more than 38 percent over the past four quarters.
I hate to rain on the parade celebrating signs of the recession's easing, but there's more evidence that the other shoe--commercial real estate--is about to drop.
I point to figures from Foresight Analytics, a real estate market consulting firm. First, recently released data on the second quarter shows that outstanding commercial construction loans--the amount of money being borrowed for construction--contracted by 2.2% from the previous quarter. That's compared to a modest increase of .3% in the first quarter. Foresight predicts that downward trend will continue, thanks to a lack of new construction starts. It also is the first major contraction since 2003.