Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Commercial Real Estate No Longer the U.S. Economy's Achilles Heel

Housing-Market / US Housing Feb 08, 2011 - 06:44 AM GMT

By: Money_Morning

Housing-Market

Best Financial Markets Analysis ArticleDavid Zeiler writes: While many analysts had it pegged as the next big threat to the U.S. economic recovery, the commercial real estate (CRE) market is actually on the mend.

No doubt, fallout from bad loans will continue to pose challenges to banks for the next several years. But on the whole, commercial real estate seems to have finally found a bottom.


"Balance sheets are firming up, interest rates still are near historic lows and the fundamentals of commercial real estate are improving," Susan Wachter, a finance professor at the University of Pennsylvania's Wharton School in Philadelphia, told Bloomberg News.

Commercial real estate prices plunged for some two years as the financial crisis reached its apex, putting pressure on commercial mortgage-backed securities (CMBS) - many of which are held by the same institutional investors whose balance sheets were eviscerated by the collapse of the housing market.

However, banks last year made significant headway in whittling down the bad commercial real estate loans on their books. Banks had $126.2 billion in nonperforming CRE mortgages and construction loans in early 2010. But that number had fallen to $115.7 billion by September, helping to allay concerns that weakness in the commercial real estate market would trigger another financial meltdown.

"The large commercial property owners and major financiers are no longer fearful of a total meltdown in CMBS, so they have come out from under their beds," said Andrew Waite, publisher of the Personal Real Estate Investor.

Brightening market conditions already have helped several companies dependent upon the health of the commercial real estate market.

Jones Lang LaSalle Incorporated (NYSE: JLL), one of the world's largest real estate companies, last week reported a 62% increase in fourth-quarter profit. U.S. commercial property sales more than doubled to $134 billion, the strongest showing in three years, the company said.

Meanwhile, private equity firm Blackstone Group LP (NYSE: BX) said its real estate unit contributed to a 56% increase in its fourth-quarter earnings. For all of 2010, Blackstone said its real estate segment had revenue of $1 billion, compared to negative revenue of $13.6 million in 2009. The firm reported a fivefold increase in fourth-quarter profit, which climbed to $280.8 million.

Moody's Investors Service (NYSE: MCO) noted in its quarterly report last month that CRE markets were either stable or seeing modest improvements. Moody's scored 55% of U.S. markets with its middle "yellow" ranking, the same percentage as in the third quarter. But "red" markets dropped to 12% from 18%, and "green" markets rose to 33% from 27%.

"The commercial real estate markets are continuing down the road to recovery, though the fact that most markets remain yellow indicates that a comfortable point of stability has not yet been reached," said Moody's Vice President Keith Banhazl.

Even the U.S. Federal Reserve has breathed a sigh of relief.

"While we expect significant ongoing CRE-related problems, it appears that worst-case scenarios are becoming increasingly unlikely," Patrick Parkinson, director of banking supervision and regulation at the Fed, testified at a Congressional hearing Friday.

Parkinson noted that most of the banks struggling with bad commercial loans are small and medium sized with assets of $10 billion or less.

"We do not see CRE losses as a threat to systemically important financial institutions," he said.

Commercial real estate investors and developers have been encouraged by the low interest rates, a slowly healing economy and a gradual improvement in capital markets.

"Investors are seeing this as the bottom of the market, and seeing this as an opportunity to get back into commercial real estate more aggressively," said Hessam Nadji, senior vice president and managing director at Marcus & Millichap, in its most recent quarterly Real Estate Investment Outlook.

The Real Estate Investment Outlook's Investor Sentiment Index hit 152 in the fourth quarter, up from 119 in the third quarter and a low of 91 in 2009. The index measures investors' anticipated changes in property values as well as whether they expect to add to their holdings in the coming year. According to the survey, 69% of the respondents planned to add to their property portfolios in the year ahead.

The degree and speed of the recovery depends on the behavior of commercial banks, however.

"If we start to see commercial banks move back into the market and more willing to lend, that will be a big positive for commercial real estate," Nadji said.

Not all segments of the commercial real estate market are improving at an equal rate. Apartments and hotels are leading the recovery, owing their advantage to leases with far shorter terms than other property types. Apartment sales volume soared 96% year-over-year in 2010, according to Real Capital Analytics. Apartment vacancy rates have declined from 8% in 2009 to 7.1% in the third quarter of 2010.

And while vacancy rates for office space have been stuck at just under 18%, transaction volume doubled from November to December.

"Investors are beginning to anticipate a recovery in the leasing markets," Robert Bach, chief economist for national real estate brokerage services firm Grubb & Ellis, told National Real Estate Investor. "It's encouraging that we're heading in the right direction. The pickup seems to be real."

The retail segment hasn't fared as well, but could be poised for far more progress in 2011. Slightly more than half of the $52 billion worth of retail properties that were in default have completed workouts, the first CRE segment to get over 50% of its distressed properties resolved.

"The dark horse in this race could be retail," Nadji said. "Retail is actually recovering much faster than anyone anticipated."

Make no mistake, it will take financial institutions years to resolve all the nonperforming loans that piled up during the recession. But there's no question the CRE market is on the right track.

"Give a little credit to the strategy put forward by the government: keeping interest rates low and giving lenders some flexibility to hold these troubled assets on their books for a while,"Dan Fasulo, managing director at New York-based Real Capital, told Bloomberg. "Now that values are on the upswing, it's given owners and lenders more wiggle room to work out these troubled situations."

Source : http://moneymorning.com/2011/02/08/commercial-real-estate-no-longer-the-economys-achilles-heal/

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules