Real Estate Journal Online

The wealthiest investors in the country are targeting commercial real estate for their high-yield investments, sinking more than 3 times the amount of money into commercial real estate in 2010 as they did in 2009[1]. And they have focus; nearly a third of all deals last year were apartment buildings of some kind, reported Real Capital Analytics yesterday. Dan Fasulo, Real Capital’s managing director, pulled no punches: “Commercial property looks damn attractive versus other asset classes right now,” he stated, observing that commercial property has “inflation protection characteristics, plus it gives you a check every month.” He compared commercial property investments to investments in gold.

Multifamily housing is extremely attractive to high-net-worth investors, explained Robert Knackal, chairman of Massey Knackal Realty Services, because this type of large-scale investment offers “higher returns without the onus of managing a property.” Also, he pointed out, other types of investment options like CDs simply are offering yields that are too low to be attractive. Commercial real estate investing is also relatively straightforward compared to hedge funds and other structured investment products, say experts, making this type of investment particularly appealing to investors who want to keep a close eye on their money.

All the signs point to commercial real estate as the place to invest in 2011. Are you going to “follow the money” in this direction or are you interested in other real estate venues?

Thank you for reading REJournalOnline’s Commercial Real Estate Letter!

Let us know what you think of multifamily housing opportunities in today’s market below.

Also, consider checking out this last-chance offer (ends today) to get involved in commercial real estate deals with virtually no money down and access amazing, attorney-verified real estate retirement planning strategies and forced appreciation on commercial properties by clicking here.

---

[1] http://www.bloomberg.com/news/2011-03-10/wealthy-u-s-individuals-invest-in-commercial-property-in-quest-for-yield.html

As Bank of America struggles – successfully, according to its executives – to once again become a “growth company,” one way that it is limiting its losses is by selling off commercial real estate[1]. The lender, which has been hit hard by litigation associated with its acquisition of Countrywide and by the robo-signer scandal hopes to decrease the chance of write-downs on commercial loans by selling off those assets now. Given that commercial property prices have fallen 40 percent since their 2007 peak and the bank’s core portfolio fell 28 percent in 2010 alone, this seems like a wise decision in order to limit loss. However, BofA is not exiting the commercial real estate business completely, says its head of commercial banking division David Darnell, but will remain active and involved in a “very disciplined way.” Chief executive officer Brian Moynihan hopes that this move will help the lender continue to expand without acquisitions like those of Countrywide and Merrill Lynch & Company, which led to litigation and serious losses in real estate and mortgage securities.

The lender said in an official statement that although “credit quality for commercial real estate is showing sign of stabilization,” it expects that “elevated unemployment and ongoing pressure on vacancy and rental rates will continue to affect primarily the non-homebuilder portfolio”[2]. By shedding some of its “excess weight” in commercial loans, BofA may be able to reduce its “legacy assets” left behind by other CEOs and limit losses on the books. Do you think that BofA’s actions are a sign that commercial real estate is not done heading down, or does this make you want to buy?

Thank you for reading REJournalOnline’s Commercial Real Estate Letter!

Let us know what you think of BofA’s continuing troubles below.

---

[1] http://www.businessweek.com/news/2011-03-08/bofa-selling-commercial-real-estate-assets-risk-chief-says.html

[2]http://www.streetinsider.com/Corporate+News/Bank+of+America+%28BAC%29+Slashing+its+Commercial+Real+Estate+Assets/6353289.html

Since 2008, not much has happened on the commercial real estate retail front in southern California, but Rick Caruso, president and CEO of Caruso Affiliated and mall magnate, believes that he can change that with a new retail/luxury residential model of shopping center[1]. The apartment and retail development, projected at $60 million, will be located near another one of Caruso’s properties, LA’s Grove shopping center.

The complex will be eight stories and consist of 88 apartments over a Trader Joe’s grocery. While smaller than many of Caruso’s other projects, it will play a significant role in the return of development to the area. Caruso, who is “committed…to pushing the bounds of the industry” through the development of high-quality retail centers[2], started the new project after a similar project quickly leased nearly to capacity – and 30 percent above the local average – within a short period after completion.

All over the country, the “right products” are moving in the real estate industry even while others struggle to stay afloat. It looks like new construction – carefully thought-out and designed new construction – could be the key to the elusive element of building that fuels most recoveries and has been notably absent from this one. Do you think that there is a place for new construction in today’s economy, or is there too much old construction for new construction to flourish on a wide scale?

Thank you for reading REJournalOnline’s Commercial Real Estate Letter!

Let us know what you think of building in today’s market below.

---

[1] http://www.latimes.com/business/realestate/la-fi-caruso-development-20110308,0,7462076.story

[2] http://www.carusoaffiliated.com/companyProfile/bios/rickc.shtml

Banks that restructured commercial real estate loans to make them appear more attractive are now facing an SEC investigation[1]. Lenders around the country have been using “creative” methods to try and keep their commercial loan portfolios from turning toxic, but now the SEC is questioning “extend and pretend” and other debt restructuring strategies which may involve modifying the terms of existing commercial loans or breaking a commercial loan into pieces. These practices are legal, but the SEC fears that they may be being abused in order to reduce requirements on the volumes of reserves a bank has to set aside.

According to a report by Trepp, LLC, a data firm specializing in commercial data, non-performing commercial real estate loans make up 72 percent of the $320 million in non-performing loans reported by banks in February[2]. They are also being credited with the failure of 12 banks last month. In comparison, residential real estate loans comprised 20 percent of the non-performing loans in February. It should be noted that the Mortgage Bankers Association (MBA) reports that commercial and multifamily loans did have the lowest delinquencies “across the board” in 2010.

Do you think this is a bad sign for commercial real estate in 2011? What do you make of this in light of the positive press coverage and appearance of a slow but steady rebound in the commercial industry?

Thank you for reading REJournalOnline’s Commercial Real Estate Letter!

Let us know what you think below.

---

[1] http://www.zacks.com/research/get_news.php?id=062l7984

[2] http://www.dsnews.com/articles/home-loans-now-less-of-toxic-threat-than-commercial-real-estate-2011-03-03

Thanks to a planned $9.4 billion purchase by Blackstone Group LP, commercial buyers could be back in droves, say analysts[1]. While Blackstone takes over 588 of Australian Centro Properties Group’s U.S. malls[2], Ventas Inc., one of the nation’s leading health care real estate investment trusts (REIT) plans to buy out another healthcare REIT to the tune of $5.7 billion, making Ventas the largest U.S. owner of senior housing in the country. This is great news for U.S. commercial property, says managing director of Real Capital Analytics Dan Fasulo. “Both…deals are a great signal that liquidity has returned to the commercial real estate space,” he explained, adding that the two deals occurring in such a short period of time are likely to “have ripple effects on the entire industry.”

At this point in time, most analysts agree that a commercial double-dip is unlikely, though many housing experts do not feel able to say the same for the housing market. However, confidence in the market is, as always, still critical to recovery and growth. An increase in the volumes of deals and takeovers helps investor have confidence in the market, said Christopher Macke, a CoStar Group senior real estate strategist. When that confidence is combined with low interest rates, investors find it difficult to resist “the prospect of cheaper financing and higher returns.”

Are you feeling optimistic about commercial real estate? This could be the year that the experts have been waiting for. Let us know how you plan to make your move in 2011.

Thank you for reading REJournalOnline’s Commercial Real Estate Letter!

Please leave comments and questions below.

---

[1] http://www.bloomberg.com/news/2011-03-01/commercial-property-deals-may-double-in-u-s-as-blackstone-bets-on-rebound.html

[2] http://online.wsj.com/article/SB10001424052748703409904576174931824620662.html

According to Jones Lang LaSalle Hotels, a hotel investment firm, Miami area hotel investing is about to take off[1]. Over the past 12 months the hotel industry has begun to show signs of recovery in many areas around the country, with real estate investment trusts (REITs) and foreign investors showing renewed interest in the industry. Now, Jones Lang LaSalle predicts that “deal volume in the area could reach $750 million in 2011.” This would be a 250 percent increase over the previous year.

While not everywhere in the country is projected to experience such a dramatic comeback as Miami, executive vice president of Jones Lang LaSalle Hotels Fernando Garcia-Chacon predicts that Miami is definitely going to be a hot spot because of the high number of distressed properties currently controlled by lenders and “ripe for investment” in the area. Garcia-Chacon predicts that not only are investors ready to take advantage of low prices – and to snap up deals in a market that is not currently producing new-hotel construction – but that brand hotels like Marriott will also be looking to buy up previously-private properties and convert them. Short sales on hotels, already somewhat common in the area, could rise as well, showing that “these hotel experts do have a lot of confidence in South Beach,” he said.

Last year, many experts predicted that the hotel industry might not recover until late 2011 or even 2012 and beyond. Do you think news like this indicates that they were wrong, or is Miami an isolated example of resort property recovery?

Thank you for reading REJournalOnline’s Commercial Real Estate Letter.

Let us know if you plan to invest in hotels or other resort property in 2011 by leaving a comment below.

---

[1] http://www.miamiherald.com/2011/02/24/2084083/increase-in-hotel-investment-expected.html

Starting at the end of February, small business owners with balloon payments due before December 31, 2012 can refinance their commercial mortgages using the Small Business Administration (SBA)’s 504 program[1]. Historically, 504 loans have been used for real estate or refinancing only if a business was expanding. However, since many small business owners are no longer able to refinance using conventional methods in time to avoid balloon payments, this “gap in the lending market” will be filled with “$15 billion worth of refinancing available through the 504 program.” SBA predicts that the program will generate nearly $34 billion in total project refinancing in the next two years.

SBA administrator Karen Mills described the need and the program to fill it in this way: “The economic downturn of recent years and the declining value of real estate have had a significant, negative impact on many small businesses with mortgages maturing within the next few years.” She predicts that the rescue program, which is temporary, will help the small businesses that take advantage of it remain afloat and continue to provide and protect jobs. Under the current program terms, borrowers must put up 10 percent of the equity of the property to qualify for the refinance. They can refinance 90 percent of the current appraised property value or 100 percent of the outstanding mortgage – whichever is lower. The 504 loans cannot be used for any other business expenses, and applicants must be current on existing loans.

Other businesses may be able to take advantage of this offer in the future, but, for now, SBA’s associate administrator of capital access, Steve Smits, says that “we are making this initial restriction to make sure our funding goes first to small businesses with the most need.” Do you think that this program is a good idea? Will it “rescue” small businesses?

Thank you for reading REJournalOnline’s Commercial Real Estate Letter.

Let us know how you feel about the SBA and its rescue programs below.

---

[1] http://www.bizjournals.com/wichita/news/2011/02/21/sba-program-helps-with-real-estate-debt.html

Many commercial real estate investors are reeling right now from miscalculations made in past years about what the future would hold in commercial real estate. Senior-living developers are working on innovative solutions to turn struggling communities that were predicted to fill with baby-boomers into viable businesses (read that article here), and while everyone agrees that a double-dip is unlikely, many commercial analysts are having trouble determining just when the market will overcome high unemployment and massive uncertainty to really bounce back. So it’s not particularly surprising that a niche of commercial investing that offers “recession resistant” payoffs and may actually grow in the face of budget cuts is starting to gain attention[1]. This specialized area of growth will not work for every city, but its proponents recommend getting in where you can because student housing is the next big thing in commercial real estate.

Here are several trends that Charlotte-based real estate developer Ted Rollins, who owns Campus Crest, a now-public company generating strong results ($382 million in the initial public offering), believes indicate that student housing is a great way to stay involved in commercial real estate and in new construction during difficult times:

1. College enrollment is up and off-campus housing is still relatively new. The National Multi Housing Council (NMHC) called the business “recession-resistant.”

2. Campus Crest communities reported in a recent op-ed piece in the Coloradoan that occupancy is right around 90 percent in its existing communities[2].

3. More foreigners are enrolling in U.S. universities, which increases the need for student housing.

4. Students are taking longer to graduate, increasing the need for student housing.

5. Budget cuts are likely to compel states to turn to private developers in order to create adequate volumes of student housing.

Of course, Campus Crest is just one developer, and admittedly they have faced some serious criticism for the way that they lease and run their operations and apartment complexes. However, regardless of this particular developer’s issues (which Rollins adamantly contests), the argument for student housing is looking good. Is this an area in which you would be interested in investing?

Thank you for reading REJournalOnline’s Commercial Real Estate Letter!

Your comments and questions are welcomed below.

---

[1] http://www.kansascity.com/2011/02/17/2662014/student-housing-developer-flourishes.html

[2] http://www.coloradoan.com/article/20110217/OPINION04/102170336

According to the fourth annual Sustainability Survey conducted by CoreNet Global and Jones Lang, LaSalle, half of corporate real estate executives will “pay extra for space in green buildings”[1]. The survey also indicated that “sustainability” plays a major role in how businesses select office space, with 64 percent of respondents saying that this factor is a “critical business issue” and 92 percent citing it as criteria in location decisions. Fully 50 percent were willing to pay more for green leased space in 2010 – a 13 percent jump from 2009.

Interestingly, the perspective on green office space has changed as well. Dan Probst, Jones Lang LaSalle’s chairman of energy and sustainability services, says that just a few years ago, sustainability would have been viewed in many cases as a “costly way to make the company look good.” Even as recently as two years ago, it might have been viewed as a way to save money in the short run, but now “pursuing green strategies [can] enhance employee productivity,” he said.

Interestingly, green strategies are being viewed as a way to actually stabilize budgets and the economy this year. 23 percent of respondents (on top of the original 50 percent) said that more rent would be acceptable if it were offset by lower energy costs. Furthermore, the strategies are increasingly being viewed as a way to pay for ownership of space rather than leasing, and green spaces may ultimately tend toward longer, more stable ownership trends than other types of retail and commercial space simply because they enable a company to “pay itself” for a real estate investment while also demonstrating a commitment to sustainability.

Are you investing in green real estate? Please leave a comment below if you would be interested in learning more about legitimate, simple ways to go green that can immediately impact your bottom line.

Thank you for reading REJournalOnline’s Commercial Real Estate Letter!

---

[1] http://www.prnewswire.com/news-releases/corporate-sustainability-programs-focus-on-employee-productivity-and-health-as-more-companies-say-they-will-pay-extra-for-green-leased-space-115618834.html

While many would think that severe commercial losses might threaten the security and stability of lenders, according to one Federal Reserve official, “losses in the commercial real estate industry do not pose a threat to large banks”[1]. Patrick Parkinson, the Fed’s director of the division of banking supervision and regulation, said in prepared testimony yesterday that “while problems in the commercial real estate market will be an ongoing concern for a number of banking organizations and a negative factor for economic growth and lending, we do not see commercial real estate losses as a threat to systemically important financial institutions.”

Parkinson’s testimony was part of a hearing before the TARP oversight panel in congress designed to analyze the role of the commercial real estate market in bank stability. David Wilson, deputy comptroller for credit and market risk at the Office of the Comptroller of the Currency, did point out that “there are a number of severely distressed community banks that probably won’t make it.” However, “it appears that worst-case scenarios [such as the failure of lenders and banks considered “too big to fail”] are becoming increasingly unlikely,” Parkinson told the panel, adding that according to his numbers, banks have already taken nearly half of the losses that they will incur over this business cycle[2].

Do you think that the Fed is wearing rose-colored glasses?

Thank you for reading REJournalOnline’s Commercial Real Estate Letter!

Please leave comments and questions below.

---

[1] http://blogs.abcnews.com/thenote/2011/02/fed-official-losses-in-commercial-loans-dont-pose-threat-to-big-banks.html

[2] http://www.reuters.com/article/2011/02/04/financial-cre-idUKN0419111820110204