Fear and Hoping in Commercial Real Estate

Hope and fear are overlapping in the commercial real estate industry on this eve of a new decade. The industry doesn't know whether to look out for it or look forward to it.

On the one hand, the industry is grateful that 2009 is coming at long last to an end. It was by many accounts the worst year in its history as values and incomes shrunk at precipitous rates. Whether that comment can be backed up by statistics is debatable, but few would argue that the hurt was deep and widespread.

On the other hand, much of the bad from 2009 will carry over into 2010. Investors are saddled with troublesome debt and weak fundamentals and 2010 presents very few elixirs for the pains of 2009.

Go back in time one year and remember that the industry felt it was chronologically closer to the beginning of a recovery than the beginning of the downturn. The industry may seem a long way from those sentiments now. However, 2009 did give us surprises it never expected. REITs proved far more resilient than feared and even managed to raise abundant more capital and experience a mini bull market.

Still going into 2010, there is a sense the industry could mangle Franklin Roosevelt's famous quote: We have nothing to fear but fear itself. This year, the saying might go: We have nothing to fear but those things for which we hope.

"Most exciting about 2010? Unprecedented low priced buying opportunities," said Andrew Segal, president of Boxer Property in Houston. "Worries about 2010? Unprecedented low priced selling opportunities."

While that remark may come off sounding a bit contrived, it's not. We received many similar paralleled phrases in responses to our query of industry executives for this story.

"What most excites me [about 2010] is the prospect that commercial real estate may find its inflection point and start to turn upward in 2010," said Paul N. Arena, president of Venturi Capital Advisors Inc. in New York. "The last month of the year has brought greater optimism, and the investors with whom we have relationships are preparing to underwrite and invest in 2010. I'm further excited by a return to basics that we are witnessing-a move away from chasing vague or general opportunistic strategies, in favor of generous but realistic returns generated by specific, focused strategies that are; preferably, hard asset backed, and that can pay some form of current return."

Then Arena continued: "I am concerned that one, the commercial lending market will be slow to react to the increase in activity and to accommodate it, and two, that managers won't recall the restraint and lack of underwriting standards that got them in trouble in the first place."

And there in a nutshell is the irony that we are at a point in this recession where the dichotomy between hope and fear is so narrow that the two seem as one.

What follows are comments from industry executives and observers first about what excites them about 2010 and second what worries them about 2010.

CLICK HERE TO VIEW COMMENTS

Source: CoStar
By Mark Heschmeyer

In The Pipeline: 2009's Top Construction and Development Stories

A Month-By-Month Look Back at Projects and Developments -- and in Many Cases, Postponements and Cancellations - In Commercial Construction and Development Over the Past 12 Months

December 29, 2009
For most commercial real estate developers, 2009 can't end soon enough. In the tight financing market, credit was available for only the most fail-safe construction and development projects. Many planned developments fell out of the pipeline as plunging demand for office, industrial, retail, multifamily and hotel properties forced some builders into default and caused others to delay or scrap their projects and development programs. Record or near-record negative net absorption and rising vacancies in most property categories recorded by CoStar Group virtually paralyzed business expansion and property development. Amid the development gloom and doom, however, were tendrils of activity in certain property niches: medical office buildings, hospitals, data centers, government buildings, and student and senior housing. Over the last 12 months, CoStar's In The Pipeline has provided a window into the trends affecting office, industrial, flex, multifamily, mixed-use, hotel and public works developers. Let's look back at some of the most widely viewed columns and items of 2009.


FOR A COMPLETE LEASE OF THE TOP STORIES
Source: CoStar
By Randyl Drummer

2009's Top Stories in Retail Real Estate

The Retail Year in Review: CoStar Shines a Spotlight on the Year's Most Popular Stories in Retail Real Estate


December 29, 2009
The CoStar Group News Department covered a plentiful basket of major national retail news during 2009. CoStar covered it all during 2009 -- from the most interesting trends in retail real estate, to continued mass store closures and bankruptcies, and the major retail sale transactions that were few and far between while the industry grappled with recession. In this year-end issue, we provide a rundown of the CoStar articles covering national retail news affecting the commercial real estate industry that garnered the most attention by readers each month during 2009.

CLICK HERE FOR COMPLETE LIST OF TOP ARTICLES

Source: CoStar
Article By Sasha M Pardy

Commercial Real Estate: Now Is the Perfect Time to Invest

by David Fessler, Energy & Infrastructure Expert

Back in April, I wrote a column detailing the looming train wreck in the commercial real estate market.

It turned out to be a rather controversial piece.

How controversial? You can judge for yourself here in my April column: The Commercial Real Estate Sector: As The Other Shoe Drops – Be Wary of Bank Stocks. It was groundbreaking enough to land me a spot on Glenn Beck’s show on Fox News.

Virtually nobody else was talking about the topic and a number of readers e-mailed to tell me how daft I was for even mentioning it. But I sensed the mess coming a mile away.

Right now, commercial real estate is in the gutter. It’s where the banks were last March. No one wants to touch the sector in any form.

But I think it’s time to jump back in.

And before you think I’ve sucked down a little too much holiday eggnog, hear me out…
A Contrarian Bet Worth $9.5 Billion

I’m in good company with my projection here.

During last February and March, a hedge fund called Appaloosa Management was busy buying up shares of Bank of America (NYSE: BAC) and Citigroup (NYSE: C).

And the guy calling the shots was a man named David Tepper, who runs the fund.

At the time, investors, colleagues and even his friends thought he was nuts – a move akin to lounging on the deck of the Titanic while everyone else was abandons ship.

But in yet another example of how it’s often wise to take a contrarian investment stance, the bet not only paid off handsomely for Tepper’s firm, but for Tepper personally. Appaloosa is up nearly $7 billion on the trade, while Tepper stands to pocket a very cool $2.5 billion in profit for himself.

READ THE REST OF THIS ARTICLE AND VIEW RELATED VIDEOS

Winter Holiday Drive Success

NAI True's Holiday Hope Winter Drive was a huge success.

This was NAI True's first time hosting any sort of drive, but it wont be our last. We were able to pair up with the American Red Cross, Central Illinois Food Bank, and Toys For Tots this year to host one outstanding drive in the time when people seem to need help the most.

We gathered 17 pints of blood, a box full of toys, and many bags filled of food for our local charities. We would like to thank those who took the time to come out and give us their support. It was a tremendous effort from the local Springfield Community.

You can guarantee this will not be our last drive that we will be hosting at the office. We plan to host at least 2 drive a year. One during the Winter Holidays and we will be working on getting another drive ready by time school is out.

You can look for updates on our drives on our website at http://www.naitrue.com/

How to Benefit from the Commercial Real Estate Revolution

The world of real estate is constantly changing, so it should come as no surprise that new trends have been introduced over the past few years. One of the more common trends that we are now seeing is a lack of need for commercial property, as countless offices are now laying vacant. It is believed that the vacancies in commercial properties will continue to increase moving forward and, as a result, rent prices will drop for all sectors of real estate. The number of distressed sellers on the market is created a great situation, however, for liquid investors who can pay cash for these properties.

The bargains that are currently available for people who can afford to sit on a property for a few years are absolutely amazing and should turn some of the deals that are currently taking place into life changers in the near future. The rebound is expected to take place before 2012, which will leave these liquid buyers in great shape long term. By the end of 2010, we should see more capital going back into the commercial market, but it will continue to slow down for the time being because of high interest rates.

There are always going to be differences in real estate trends that are specific to geographic location. For instance, while much of the country’s commercial real estate market is being battered, the negative effects are less noticeable in Washington, DC and surrounding communities. While not immune to the higher vacancy count, this region’s market has been helped by medical and government spending which made it easier for businesses to weather the recession. Some other top cities around the country have also experienced changes in price and demand for real estate. You need to be able to look at the trends to understand whether you should be buying or selling. One example of a buyer’s market is San Francisco. The City by the Bay has had some marked decreases in property values that now make real estate in this coastal community an ideal investment option.

For someone involved in sales of commercial property an appealing city is that of Austin, Texas. Unlike many similar sized communities this one has a stable business base and shows steady real estate valuation during the past decade. This makes it less vulnerable to the real estate market’s recent downward trends. The stability, and expected future growth, of this southwestern town means that sellers have the upper hand. The vacancy rate in Boston has managed to remain less than 10% during the recent upheavals and economic woes. Most experts regard this as indicative of the fact that the city’s real estate industry will escape the recession relatively unscathed. The story changes when you look at the real estate market in New York. Vacancy rates have climbed and office space rentals have dropped by almost 50%. You might expect all property owners to be searching for buyers, but savvier investors are content to wait out the downturn.

This trend towards dropping commercial properties and an increase in vacancies is not good news for those who are currently sitting on this property, but will definitely be good news for people who can afford to buy right now and wait this downturn out. There are good deals to be found right now, as long as the investor is not relying on rental income to drive the property for the next few years.

by Karen Lissack
Source: NAI_NP_Dodge

Prices for Construction Materials Bottom Out and Begin To Rise Despite Dim Prospects for Near-Term Building

Increases in Materials and Supply Costs Complicate Recovery For Nonresidential Building Sector

Prices of construction materials and supplies edged higher in November, likely foreshadowing future hikes in nonresidential construction costs, according to figures released by the Labor Department this week.

At the same time, the tight credit market continues to chill all but the faintest demand for commercial and other nonresidential construction, with the Architectural Billings Index, a leading indicator of future construction spending, falling again in November after hitting its highest point in more than a year, according to a report just released by the American Institute of Architects.

In the strongest evidence yet that construction costs are heading back up after a year of decline, the new November producer price index (PPI) report from the Bureau of Labor Statistics showed sharp increases in the prices of key materials such as diesel, copper and brass mill shapes.

The overall index for inputs to construction industries, a weighted average of all materials used by contractors, rose 0.6% in November compared with the previous month after falling 2.3% over the past 12 months. Certain key materials prices increased sharply on a month-over-month and three-month basis, including diesel fuel, up 6.3% over the previous month and 6.4% over three months; copper and brass mill shapes, 4.6% and 11.3%, and steel mill products, down slightly in November but up 4.1% over three months.

"All of these items had dropped in price compared to a year ago but the declines have bottomed-out or reversed," noted Ken Simonson, chief economist for the Associated General Contractors of America. "More increases are likely soon, as the dollar loses value and construction picks up in key foreign markets."

The Architecture Billings Index, which tracks demand for architects and other design services, fell 3.3 points in November to 42.8, the lowest level in three months, according to the American Institute of Architects. The index, which tracks the approximately nine- to 12-month lag time between architecture billings and construction spending, has been below 50 since January 2008.

The November index erases gains made in October, which posted the highest number since August 2008.

"There continues to be a lot of uncertainty in the construction industry that likely will delay new projects in the near future," said AIA Chief Economist Kermit Baker.

Construction analysts have speculated that lower prices would eventually prompt more projects to move forward, helping fuel the recovery of the nonresidential sector, said Associated Builders and Contractors (ABC) Chief Economist Anirban Basu. Unfortunately, rising materials prices are instead likely to delay the segment’s ultimate recovery, Basu said.

"Public agencies and private owners contemplating construction projects should treat today's figures as a warning shot," said Simonson. "Prices for many materials have stopped falling and are poised for increases."

Simonson noted that major steel mills have already announced January price increases for construction products. Owners that have been holding back in the hope of lower prices could see major price spikes and fewer contractors bidding on projects over the next few months. Rising prices reflect increasing demand for materials in the U.S., China, India and Brazil, Basu said.

By: Randyl Drummer
Source: CoStar Group

Tree of Lights Campaign

Please support your local Salvation Army.

The Springfield Illinois Salvation Army's current goal is: $450,000.00

They have currently raised: $205,000.00

All donations stay in Sangamon County and help fund programs such as:

• Food Pantry- Gives out an average of $3,000 of groceries a week.
• Safe Shelter- Allows 40 people per night, all year around, to sleep in a safe environment.
• Summer Camp- 85 days of summer camp for needy children

It is with your donation that these programs and more are able to help those in need. Donations are being accepted at any Red Kettle Site or Online at www.tsaspringfield.org

Commercial Real Estate Still in Troubl

A recovery in the commercial real estate market still seems unlikely in the short term, say industry experts who examined the issue last week during a conference sponsored by The Wharton School of business at the University of Pennsylvania.

Billionaire investor Sam Zell predicted that it will be three to four years before the 7 million jobs lost during the recession are regained. Zell said there hasn’t been substantial new commercial development since July 2007. As a result, vacant properties will be leased, but at 35 percent lower than current rents, he says.

Barry Sternlicht, chairman and chief executive of Starwood Capital Group, said the U.S. is in serious trouble because the regional banking system is nearly bankrupt and short selling is fueling any rally in real estate investment trusts.“I’m not at all bullish on the U.S.,” Sternlicht said

Source: Dow Jones Newswires, A.D. Pruit (12/11/2009)

1038 & 1036 Pasfield

Jason Evers has a new listing with NAI True.

Jason has recently listed a Office space and Vacant land located at 1038 and 1036 Pasfield in Springfield Illinois.

The property is zoned R3B with Variance.Variance allows for retail sales, offices, bicycle repairs and storage or improved lot and offices and parking on unimproved lot.

Total SF: 1,440
Land area for 1038: 2,400 SF
Land area for 1036: 3,360 SF

This property is for Sale or Lease:
$67,900 or $600/month


Please visit www.naitrue.com for a full brochure on this property as well as many others.


Jason Evers
217-787-2800 Office
217-899-8864 Cell
217-787-2802 Fax
Jason@naitrue.com E-mail

GIVE HOPE THIS HOLIDAY SEASON

NAI True's Holiday Blood Drive is just around the corner, and we are still looking for those to volunteer their time and donate blood from the hours of 1:15pm to 2:15pm.

If you or anyone you know would like to sign up to donate blood, please give us a call at 217-787-2800 as soon as possible. We have seven more spots that we would love to fill.

NAI True and its Staff is also very aware that there are a lot of people that would love to donate this Holiday Season, but are unable to donate blood due to medical, travel, or other deferment reasons. That is why we would like to extend our Holiday Drive to not only blood, but NAI True is also accepting donations for Toys for Tots and for the Central Illinois Food Bank

Come on our this Friday and give HOPE to someone this Holiday Season.

WE HOPE TO SEE YOU THERE!