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| Friday, November 20, 2009 |
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ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
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October 15, 2007 12:01 AM ET
It looks like the credit crunch, which continues to savage residential real estate, was just a speed bump for much of the commercial real estate market, as sales volumes for 2007 have already set an annual record and market observers expect most sectors of the industry to return to relatively normal and stable levels of activity in the fourth quarter. But that’s not to say the skyscraper-flipping zaniness of the last few years will be seen again anytime soon. Rather, real estate analysts expect that continued economic strength should support commercial market fundamentals, particularly for office space in the nation’s major urban areas, where lease rates are at or near record levels. And banks and life insurance companies “didn’t skip a beat” as property lenders or investors during the summer’s credit crunch. In fact many viewed it as an opportunity to increase their business, and that helped provide support to pricing and activity, according to Tad Philipp, a managing director for Moody’s Investors Service, while limited speculative building kept a lid on supply. Demand has been so strong that commercial real estate is not likely to be hit hard unless the economy goes into a recession, said Mr. Philipp, whose firm in fact does see growing prospects for a slowdown, replete with slackening job growth. That’s because “commercial real estate generally starts from a position of relative strength,” said Moody’s in a report on the commercial mortgage-backed securities (CMBS) market last week. It noted that office vacancies in central business districts dropped to an average 9.9% in the third quarter, the first time vacancies have been in the single-digit range since the fourth quarter of 2001. Still, continued tightness in the credit markets will keep commercial real estate from accelerating rapidly, analysts said. But they note that much depends on investor confidence, and that it’s improving, albeit slowly. “The credit crunch is far from over” in the structured finance markets, Mr. Philipp said, explaining that there is still a backup in the commercial mortgage-backed securities (CMBS) market from this summer. CMBS origination was off 75% over the past month or so due to lack of investor demand, while collateralized debt obligations (CDOs), which are riskier forms of debt, were dead in the water, he said. That means some investment bankers who created those securities are still holding them and trying to sell them, even at a loss, to keep from having to continue to take write-downs on them on their books. As a result, the CMBS market—and by default highly-leveraged commercial real estate deals—will be stuck at a slow growth pace for a while. “Investors want to see spreads stabilize” before they are willing to be active in the markets again, and that will take some time, Mr. Philipp said. In fact, because of the lackluster CMBS market, so few property deals closed in September that it will probably be one of the slowest months in several years, according to Dan Fasulo, director of market analysis for Real Capital Analytics, which tracks commercial market transactions. But because of the heavy deal-making over the first eight months of the year, annual sales have already reached record territory. Year to date through Oct. 1, commercial property sales totaled $370 billion vs. $350 billion in all of 2006. So it’s a good bet that by year-end, sales will top $400 billion and perhaps approach $420 billion, Mr. Fasulo predicted. He added that the completion earlier this month of the $22.2 billion Tishman Speyer/Lehman Brothers acquisition of the Archstone-Smith REIT—albeit with the aid of an odd lot of financiers including Fannie Mae and Freddie Mac—will help boost investor confidence. “That’s a real bullish sign for the whole commercial sector that a transaction of that size went through even during the credit crunch,” he said. “It was a shot of adrenaline” for the marketplace. The question is whether one shot is enough. FW
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