5 Fastest-Growing Cities
City, Population change 2007–08 (%)
Round Rock, Texas,8.2
Source: U.S. Census Bureau
Stress Test Results
Losses for the next two years for the 19 largest banks in an estimated worst-case scenario
Investment sector, estimated two-year loss (in $ billions)
Residential real estate loans,185.5
Trading and counterparty investments,99.0
Credit card loans,82.4
Commercial real estate loans,53.0
Market Bottom in 2010?
“We believe that the fundamentals of real estate, in both the residential and commercial markets, are tied very closely to unemployment, and we don’t believe that unemployment is going to peak until sometime during the first half of 2010. It’s at that point, when the fundamentals will be their weakest, that value is likely to be at its low point and distress will be very, very acute.”
— Robert Knakal, chairman, Massey Knakal Realty Services
Hospitality — Midscale chains without food and beverage performed better than other hotel segments in the first half of 2009. Chains located in secondary and tertiary markets showed slight gains in demand and room revenue, while those in urban, suburban, interstate, airport, and resort locations experienced demand and revenue declines, according to Smith Travel Research.
Industrial — In terms of net absorption, warehouses 400,000 sf and larger are outperforming smaller warehouses, according to Torto Wheaton Research. Smaller warehouses had -49 million sf of net absorption in 1Q09, compared with only -3 million sf for large warehouses. In addition, the small-warehouse category started posting negative absorption in 2Q08; the 400,000+ sf category turned negative in 1Q09.
Multifamily — Freddie Mac is offering $1 billion in securitized multifamily loans through Deutsche Bank, the first CMBS issuance since the credit freeze. Another securitization may occur in the fall. By moving debt off its balance sheets, Freddie Mac frees up capital for new multifamily lending, says Marcus & Millichap.
Office — The average office lease term in 2Q09 is at its shortest length of the decade — 52.3 months — according to Grubb & Ellis. Tenants are opting for short-term extensions of existing leases despite the current renters’ market for office space.
Retail — Of the 93 retailers tracked by retail real estate investment company Madison Marquette, only 10 received a high-risk rating including five that already have filed for bankruptcy. As of midyear, retailers still on the edge include Chico’s, Cost Plus World Market, Dillard’s, Talbots, and Gold’s Gym.
Consumer Preferences to Change
Look for fewer PetSmarts and more GNCs in shopping centers in the next 10 years. The growth of older, low-income, and multicultural groups will reshape consumer preferences dramatically by 2020, according to consumer researcher Nielsen Co. Fewer households with children, aging baby boomers, and more low-income and ethnic consumers signal the end of youth-dominated marketing and a growing necessity to meet multicultural tastes.
2020 Consumer Profile
Top growth categories,declining consumer categories:
Ethnic health and beauty products;toys and sporting goods
Medications, health remedies, and vitamins;breakfast foods
Health aids;baby care products
Cooking essentials (flour, sugar, eggs, yeast, shortening);pet products
The next decade will provide multiple investment currents, says author Steve Bergsman, who looks at how the financial meltdown has altered the real estate investment landscape. After the Fall includes chapters on office, industrial, retail, and multifamily, as well as commercial debt and residential, that may provide some insight into when the market for each sector will return.
Author Auden Schendler says that old school practices from the 1970s “continue to hamper the environmental movement today.” In order to carry out lasting sustainability, companies need to make profit-driven decisions that provide rather than sacrifice return on investment. Getting Green Done “offers a perspective that is refreshingly realistic and pragmatic,” says Publishers Weekly.
Number of Distressed Hotel Assets
Total hotel distressed assets as of June 2009,1,060 worth $15.7 billion
Total hotel transactions as of May 2009,59 worth $999.6 million
Source: Real Capital Analytics
Least Expensive Cities for Parking
City,daily rate ($),Monthly rate ($)
Fort Lauderdale, Fla.,15.00,53.00
Walnut Creek, Calif.,10.00,57.50
Median U.S. rate15.96,154.23
Source: Colliers International
Capitalization Rates 2Q09
Sector,average overall cap rate (%),quarterly change in basis points
Strip shopping center,7.91,+28
Source: Korpacz Real Estate Investor Survey
Do New Businesses Really Create New Jobs?
The common wisdom is that startups can start up the economy: New businesses account for many of the new jobs created. Not true, says Scott Shane, author of The Illusions of Entrepreneurship and a professor at Case Western Reserve University. New companies that are less than two years old account for only 1 percent of all U.S employment, Shane says. In 2004 new companies created 7 percent of the total number of jobs. However, in follow-up years, new companies did not continue to create new jobs. In fact the number of jobs lost by companies that closed down in their second, third, and fourth years of operation exceeded the number of new jobs created, giving new companies a net job loss after their initial startup year.
Thinking Outside the Big Box
“Some 130 million square feet of big-box space has been shut in the U.S. since the start of the recession, according to Cushman & Wakefield. This is equivalent to nearly five square miles, or roughly the area of midtown Manhattan.” — Shopping Centers Today
“To fill all the [empty big-box] space, we have to start looking at tenants that may be more local or regional. We need to seek alternatives such as health services, wellness centers, entertainment uses, or government uses such as libraries. … [Or] perhaps the merging of two concepts such as electronics and home furnishings could fill the void.” — Chuck Taylor, senior vice president of leasing, Madison Marquette
What’s It Listed For?
Medical office properties,location, size, price, MLS ID, brokerage
Montclair Medical Office Building, Birmingham, Ala., 50,845 sf, two stories on 5-acre lot, 100% occupied, $7,150,000, ID# 15891624, Graham & Co.
SOCH Health Village, Manahawkin, N.J., 60,000 sf, three stories, 85% occupied, $10,500,000, ID# 15706077, NAI Atlantic Coast Realty
Lake Plaza Medical Office Building, Lincoln City, Ore., 14,291-sf building, two stories, four tenant suites,$2,100,000, ID# 16180102, Colliers International
Silver Lake Plaza, 4001 Stinson Blvd., Saint Anthony, Minn., 58,544 sf on 2.77 acres, 44% occupied,$4,200,000, ID# 16284131, Marcus & Millichap Real Estate Investment Services
Key Retail Markets
Market,year-end effective rent forecast ($psf),percentage change (%)
San Jose, Calif.,27.49,-3.6
Source: Marcus & Millichap
Top 5 Office Rent Growth Markets
as of June 30, 2009, YOY
Stamford, Conn., 41.87,9.0
Source: CB Richard Ellis
REITs Surge in 2Q
Sector,2Q09 total return (%), YTD total return (%)
Source: National Association of Real Estate Investment Trusts
California Class C Down
Stabilizing immigration trends or possibly increased reverse migration to Mexico could be leading to an uptick in class C multifamily vacancy rates, according to the California Real Estate Journal. Class C apartments often are considered recession proof since the lower rents appeal to price-conscious tenants, says Delores Conway, director of the Casden Real Estate Economic Forecast at the University of Southern California Lusk Center of Real Estate. However, vacancies in California class B and C properties have increased from 2.9 percent in 1Q07 to 4.4 percent in 1Q09, Casden says — citing Reis statistics — rates not seen since the mid-1990s, she adds.
Apartment occupancy is dropping faster in Hispanic neighborhoods than in the overall market, according to M/PF Yieldstar. For example, in Orange County, Calif., overall occupancy levels were down 1.8 percent in 1Q09, but the primarily Hispanic communities of Buena Park and Santa Ana saw declines of 2.9 percent and 2.5 percent, respectively. While anecdotal evidence indicates that return migration to Mexico is increasing, there is no data to support this view, says the Migration Policy Institute in Washington, D.C. Mexico’s statistical data shows that while the number of Mexicans leaving for another country declined from 2007 to 2008, the number of returning Mexicans remained stable.