The full effects of the residential RE slump on the larger economy haven't materialized yet. When they do we'll see how "decoupled" commercial is from residential.
What I see on my street: long-established businesses pushed out of retail spaces to make way for chain stores and high-end boutiques paying much higher rents. At least 70% of the new commercial space here is retail.
How many people will be shopping for $12 candles and $500 prams once the housing ATM permanently shuts down?
I sure see a lot of "space available" signs near my office in Phoenix.
Part of this may be due to the volatility of the current environment. Lots of people going out of business and lots of people starting new businesses that won't necessarily succeed. I suspect new leases get reported a lot faster than unexpected mid-lease vacancies.
Follow-up point: do these figures account for buildings going condo? Lots of office condo conversions near here look totally dead and will probably be added back to the leasing inventory soon.
albrt, there are plenty of "For Lease" signs in Orange County, CA - and also plenty of new buildings going up. Maybe this is a local problem due to all the mortgage companies headquartered here (or until they went out of business recently!).
I would take almost all REIS data with a grain of salt....In fact, I wouldn't even use it. The reason -
I had about 3M sf listed in office buildings. A rep who is paid very little and understands very little about the data they are compiling would call everyday for a few weeks until I gave them an answer....any answer. The questions were - total sf, vacancy, new deal rates, TI, length, free rent, and average lease length, and oh yeah avg commission. Now to go through 3M sf split between 10-15 buildings for my group could take easily 30min or more. So, knowing that no one ever really references REIS' data I would give whatever was relatively close. The only data that we really took time with were the local databases, but since there were/are a few you had to pick and chose who to spend time with to get the numbers right....It usually took a while. Nothing is more frustrating than trying to go through a lot of data with someone who really doesn't know what you are talking about and doesn't care. I would go so far as to say that their numbers are off 10-15% (conservative). You really won't start to see rates come down, or space go up, until we get a few months of weak labor numbers and then a couple months after that you will see office space softening.
Also, I would be careful with CoStar's national numbers as well....They are definitely much better than REIS', but they will still have a fairly high error factor.
Maybe the economy is kinda like Eclyse a little of this and a little of that.
Eclyse, a crossbreed between a zebra and a horse, standing in an enclosure at the zoo Safaripark Stukenbrock. Eclyse was born in a horse ranch in Italy, her mother is a chapmann-zebra, her father a brown-white horse.(AFP/HO)
If this is an average and not a median - then the dense urban markets may be more of a factor in the stat. then the suburbs and exurbs. Worse yet - if it is a median, then the stat. is particularly worthless without definition.
In my area, I've heard from a couple of lenders that the Fast Foods and Advance Auto type real estate deals are getting put off. It's not lack of perceived need for space, but pricing. You can only raise prices on a sandwhich so much to make a deal work. And these were 5% cap rate deals before the increase in increase deal costs.
I've read this now twice and I'm still trying to fit it into an overall economic framework. Is it possible that rents are being driven up in newer, more desireable buildings while older stuff gets torn down and leaves the market? Is there enough of that to drive the overall numbers? This just seems strange to me. I get why owners are trying to make this happen, but why are renters agreeing? Just struggling with tis particular report.
My neighbor does alarm systems for big boxes, DC's and big malls in southern Arizona. He says he's busier than ever as there are so many new constructions of that type coming up. From that perspective, no bust in CRE in sight here.
personal observation. Building I work in was recently purchased at a very high price by a major REIT. Lease rates were increased to justify puchase price. Occupancy has dropped like a rock as most tenants up for renewal moved out rather than pay higher price. So yes, rents are "up" in this building, but not for a sustainable reason.
I posted this a while ago at the bottom of an old tread....
There is inane amounts of space being built in San Diego. With in a 10 mile radius I can name no less that 2.5MM Sf of new office space. Some is leased (Intuit .5MM), some is owner developed (Sony .4MM), and from the signs in from I gather the remainder is spec. It is absolutely unbelievable. A new office building just broke ground last week a quarter mile away. I didnt include the recent Qualcom construction in that number because it was over a year ago. I think they built .9MM Sf. I wonder if there is going to be a massive glut of space if there is a contraction or even with out it. Keep in mind that the population growth for San Diego was negative last year and it wasnt because people were passing or not having kids, it is because so many leave.
The real kicker is the owner of the complex I work in just put a sign out front because the space isn't fully leased. The subs are starting to slow down tho. I always ask how much they are bidding. For the time being they are slow, however interestingly enough many have large backlogs still. My guess is some of those projects will push out or not get built....
Markets like NY,Chicago, and DC are seeing strong rent increases like any other normal growth period. However, the rest of the tier 1 markets are experiencing reasonable absorption but new properties are coming on so fast that absortion actually looks flatish. Another thing that is causing a lot of rents to climb without some fundamental backing is all the money flooding the market....that is, new owners coming to town saying I can't make this purchase work at these cap rates unless you can get these higher rents next year....So, you say....hey we'll go after the higher rents with some hefty free rent packages outside the term and put a little moeny in the tenant's pocket from the TI. This way the effective rent is the same but the rent roll rate is higher....These guy just want to flip it in a year and a half anyway. By that time the free rent is gone and the only thing showing is the higher rates which the next guy is willing to buy up.
By the way, this is one reason why FFO is a total crock of s*@t!
Just as an FYI, if you see a for lease sign in front of a building....it could mean 300,000sf available or 350sf available....You will never know until you talk to the person...and if the sign has a range..they are right about half the time(office buildings). Industrial is usually more accurate.
A very good descripition on how investment banks and hedge funds stowked the housing bubble. Taken from a posting in the comment section to an editoral on CDO's from the London Telegraph. A nice explanation for novice readers like myself.
Yesterday I talked to a friend that is a commercial lender here in Phoenix. Has a couple projects that were fully leased before ground-breaking, but now half of the leases have cancelled. They had already started building, so they'll keep going and hope for the best. He also said a couple office loans his bank had made in Texas had gone belly up.
I agree with albrt's observation that it seems like there are "for lease" or "space available" signs all over the place.
OT: Last time we had such large move in the Bond (selling the 10Yr) TNX up to 5.14% - last time it was due to margin calls and the selling was to raise cash.
OT: I don't know if this has been posted before, and if it is a double I apologize. I ran across this Financial Times article mentioned on the Housing Panic blog site. The article is by Charles Dumas of Lombard Street Research and is on the probability of banking issues due to the subprime/CDO crisis ruining capital reserves just as default rates are spiking.
"A bunch of hedge funds may have problems, but that is the tip of the iceberg for "Titanic" Wall Street. Who holds the toxic tranches? Answer: the originating banks and syndicating investment banks for the most part."
...
"The toxic tranches have been valued in recent days at prices as low as 60 per cent of face value.
If a fair proportion of $750bn is wiped out by mark-to-market - or the simple incidence of losses - that will be a fair proportion too of the commercial banks' $875bn of capital. And how good are the balance sheets of the major investment banks?"
...
"With this mortgage-backed crisis we could simultaneously see market-price liquidity implode just as banks are forced to shrink their books by capital losses. It was always likely that the chief source of problems (as in any downswing) would be the chief area of excess in the previous boom - in this case the mortgage market and mortgage-backed securities.
Defaults are at their highest in the 37 years records have been kept; adjustable interest rates and withdrawal of "teaser" start-up rates on recent mortgages are still largely to come. It could be a long, hot summer. Any major non-Fed rescue operation or cover-up adds to the risk: rumours without solid information make fertile ground for panic."
rumor has it that the Chinese have begun their fundraising to create their new state enterprise fund- of course they might just use that to prop their own equity markets....
Someday this war's gonna end...but gas is $2.99 a gallon- just under $3-wahoo...the thrills are just magnificent with my mew shutdown...
you said: So, you say....hey we'll go after the higher rents with some hefty free rent packages outside the term and put a little moeny in the tenant's pocket from the TI.
Can you explain exactly how this works without jargon please? It sounds like many of us can learn regarding the tricks employed by CRE flippers...
Dfrmflorida, your recommended link to the Investment Landfill article is actually chock full of inaccuracies. Not only are the descriptions incorrect, but the vernacular used makes it obvious the author knows nothing about the market. Even his stats and comments on the broader market are off. Finally, you should note that he is trying to sale you gold (see his link) as a safe alternative to the rest of the market, so his only goal is to give you a good scare so you'll move your money into gold.
You are doing yourself a great disservice by taking this as gospel.
Commercial leases can include a lot of tricks to meet the revenue goals of the lessor.
TI means tenant improvements. This is usually not a cash kickback, but the tenant gets extra remodeling paid for.
Square footage of commercial premises can also be subject to negotiation, even if the size of the actual premises does not change. Square footage typically includes a "load factor" to account for common areas. If the parties negotiate down the load factor, the rent per square foot increases.
I've read this now twice and I'm still trying to fit it into an overall economic framework. Is it possible that rents are being driven up in newer, more desireable buildings while older stuff gets torn down and leaves the market? - Banker
B, I think that is happening in a LOT of places but I can't speak for the swankier major market locals but have seen a lot anecdotal evidence its happening in mid-sized cities like KC, Minneapolis, Milwaukee, etc.
In general I believe bankers guess is accurate but would love to see affirming or contradictory data... if anyone has a link. Just curious.
You are doing yourself a great disservice by taking this as gospel.
Charlatan - I think everyone has a dog in this fight. Kasriel's Northern Trust (if I'm not mistaken) is a bond house so his take is likely to be different than say a Cramer, no?
And the gold bugs have their own spin for sure.
With all that in mind its good to not take any of them as gospel - including ourselves.
I hope you guys are still here....may be a few threads up.
Prob,
What all the jargon meant was big institutional owners would want to come in and see if our team could get higher rates..rents...same thing, but the only way we could justify it to the market (tenants and their brokers) was by soft selling the situation and saying...."look, we know it is $2.00/rsf higher than market but here is how we can make you whole....instead of one or two months free, how about we give you 7 months free and do a 67 month deal...we will also give you an extra $2.50/sf to spend on moving expenses, installations, etc. The new owner could say ok all we need is 1/4 extra budgeted for capex up front and we can sell down the road with higher rates and of course lower cap rates (much higher exit price)....In essence, the new owner was juicing the market--raising rates and building prices (lower cap rates) although the tenant really doesn't see problem five years out. Then again nor does he care he might not be a C level with that company when the renewal comes around. It is very similar to the residential issue right now.
The issues are most definitely there for the CRE owners and tenants....It just won't be discovered and unwound until the labor numbers start showing real declines. The lag is almost 6 months.
I think the banker sees it fairly close to what is going on, but I don't think the % of total buildings being rehab or totally rebuilt is high enough to justify hefty price increases over the past 2.5 years....I really think money bidding down cap rates and along with mez financing and all sorts financial manipulation has been pushing the rates up....Also, 50% of the increases is due to recovery from the last recession as well. CRE got hit fairly badly because it was a corporate recession more than anything.
I will call some of the Capital Markets guys tomorrow or Monday and let you know what the latest is.....these guys broker some big damn deals and they will know immediately when the institutional players are getting scared. My bet is that these guys are starting to see the writing on the walls and it is exit strategy time.
On this downside ride you will see how gutsy it really is to be a CRE developer. It truly is the ultimately game, or top of top, when it comes to "musical chairs" or "hot potatoe." I now fuly understand why Tom Wolfe wrote a book about it......
In SF bay area, there are still lots of For Lease signs all over the place (left over from the last bubble). Yet new building activity is also proceeding.
And on the office rental front, I had this weird experience recently. We had our lease (not in Palo Alto, where I rent a house) up for renewal, and our landlord wanted a fairly stiff raise (we had sublet it before, and that sublease expired, going back to original owner). We pointed out there was lots and lots of vacant buildings around (true), but he dared us to compare. We did, and it seemed like no one wanted to cut any kind of deal - so we had to eat humble pie and accept our landlord's increase.
It is as if all of those guys with vacant buildings would much rather not have any tenant at all than a low paying one. Some of these buildings have been empty for years ... they must all think a big boom is coming.
Of course, my house rents also went up substantially, but Palo Alto housing market is still too hot to touch (homes still sell in days).
I have struggled with the same problem observing many markets in many countries.
I have arrived to the conclusion that there are two parallel economic systems:
One for the rich, well to do and one for the others. In Moscow some poeple bearly have a place to stay and others pay thousands of Euros for a haircut for their dog. If you are a dog hair dresser in Moscow there are places you can set shop (expensive part of town) and there are places you would not set foot. Maybe Moscow is not a good example since now everything goes up there but the idea of separate markets in places we see as one is still valid.
Same make takes place in commercial r/e: some biz needs space any space and others would only use some type of space - the expansive one.
maybe the choice at the expensive end is limited ?
Dryfly,
I think you misunderstood me. The descriptions by that writer are grossly inaccurate, and should be not be relied upon. The fact that the writer is also selling gold is just icing on the cake, but the crux of my comment was to not read the inaccurate description that the novice commenter earlier recommended.
Obviously you did not go read it yourself, or you would not have found it necessary to pick one small sentence of my comment out to harp on out of context. I have a fly-swatter right next to me.
12.7% vacancy is not a good thing. Tells me that we have too much speculative pressure in that segment of the real estate market.
Several sharp investors I know, who made a bundle on single family rental properties over the past ten plus years, swaped out, ahead of the hurd, into commercial properties.
Very good points about lease cancellations and developers continuing due to sunk costs. That factor often means CRE busts are more savage than Residential.
The full effects of the residential RE slump on the larger economy haven't materialized yet. When they do we'll see how "decoupled" commercial is from residential.
What I see on my street: long-established businesses pushed out of retail spaces to make way for chain stores and high-end boutiques paying much higher rents. At least 70% of the new commercial space here is retail.
How many people will be shopping for $12 candles and $500 prams once the housing ATM permanently shuts down?
I sure see a lot of "space available" signs near my office in Phoenix.
Part of this may be due to the volatility of the current environment. Lots of people going out of business and lots of people starting new businesses that won't necessarily succeed. I suspect new leases get reported a lot faster than unexpected mid-lease vacancies.
Follow-up point: do these figures account for buildings going condo? Lots of office condo conversions near here look totally dead and will probably be added back to the leasing inventory soon.
albrt, there are plenty of "For Lease" signs in Orange County, CA - and also plenty of new buildings going up. Maybe this is a local problem due to all the mortgage companies headquartered here (or until they went out of business recently!).
Best Wishes.
Kasriel is bearish
http://web-xp2a-pws.ntrs.com/content//media/attachment/data/econ_research/0707/document/dd070507.pdf
In St. Pete and Tampa, I see "For Lease" signs on most office and retail buildings around.
We didn't have near as many signs out last summer, but I guess everything is "contained" to Florida!
I would take almost all REIS data with a grain of salt....In fact, I wouldn't even use it. The reason -
I had about 3M sf listed in office buildings. A rep who is paid very little and understands very little about the data they are compiling would call everyday for a few weeks until I gave them an answer....any answer. The questions were - total sf, vacancy, new deal rates, TI, length, free rent, and average lease length, and oh yeah avg commission. Now to go through 3M sf split between 10-15 buildings for my group could take easily 30min or more. So, knowing that no one ever really references REIS' data I would give whatever was relatively close. The only data that we really took time with were the local databases, but since there were/are a few you had to pick and chose who to spend time with to get the numbers right....It usually took a while. Nothing is more frustrating than trying to go through a lot of data with someone who really doesn't know what you are talking about and doesn't care. I would go so far as to say that their numbers are off 10-15% (conservative). You really won't start to see rates come down, or space go up, until we get a few months of weak labor numbers and then a couple months after that you will see office space softening.
Also, I would be careful with CoStar's national numbers as well....They are definitely much better than REIS', but they will still have a fairly high error factor.
Maybe the economy is kinda like Eclyse a little of this and a little of that.
Eclyse, a crossbreed between a zebra and a horse, standing in an enclosure at the zoo Safaripark Stukenbrock. Eclyse was born in a horse ranch in Italy, her mother is a chapmann-zebra, her father a brown-white horse.(AFP/HO)
Note that the report said "major markets."
If this is an average and not a median - then the dense urban markets may be more of a factor in the stat. then the suburbs and exurbs. Worse yet - if it is a median, then the stat. is particularly worthless without definition.
Albrt,
I am fairly positive they haven't captured condo conversions in their numbers.
And, I doubt retail is part of the survey referenced.
In my area, I've heard from a couple of lenders that the Fast Foods and Advance Auto type real estate deals are getting put off. It's not lack of perceived need for space, but pricing. You can only raise prices on a sandwhich so much to make a deal work. And these were 5% cap rate deals before the increase in increase deal costs.
I've read this now twice and I'm still trying to fit it into an overall economic framework. Is it possible that rents are being driven up in newer, more desireable buildings while older stuff gets torn down and leaves the market? Is there enough of that to drive the overall numbers? This just seems strange to me. I get why owners are trying to make this happen, but why are renters agreeing? Just struggling with tis particular report.
My neighbor does alarm systems for big boxes, DC's and big malls in southern Arizona. He says he's busier than ever as there are so many new constructions of that type coming up. From that perspective, no bust in CRE in sight here.
Joe
personal observation. Building I work in was recently purchased at a very high price by a major REIT. Lease rates were increased to justify puchase price. Occupancy has dropped like a rock as most tenants up for renewal moved out rather than pay higher price. So yes, rents are "up" in this building, but not for a sustainable reason.
I posted this a while ago at the bottom of an old tread....
There is inane amounts of space being built in San Diego. With in a 10 mile radius I can name no less that 2.5MM Sf of new office space. Some is leased (Intuit .5MM), some is owner developed (Sony .4MM), and from the signs in from I gather the remainder is spec. It is absolutely unbelievable. A new office building just broke ground last week a quarter mile away. I didnt include the recent Qualcom construction in that number because it was over a year ago. I think they built .9MM Sf. I wonder if there is going to be a massive glut of space if there is a contraction or even with out it. Keep in mind that the population growth for San Diego was negative last year and it wasnt because people were passing or not having kids, it is because so many leave.
The real kicker is the owner of the complex I work in just put a sign out front because the space isn't fully leased. The subs are starting to slow down tho. I always ask how much they are bidding. For the time being they are slow, however interestingly enough many have large backlogs still. My guess is some of those projects will push out or not get built....
We'll see....
Business Magazine Articles - Your Business Magazine - bizSanDiego
Qualcomm researchers move into new campus buildings. | Building Design & Construction | Find Articles at BNET
CakePHP(tm) : 404 Not found
The Summit Rancho Bernardo
Santa Fe Summit
In the northwest suburbs of Chicago there is vacant office space galore.
Banker,
Markets like NY,Chicago, and DC are seeing strong rent increases like any other normal growth period. However, the rest of the tier 1 markets are experiencing reasonable absorption but new properties are coming on so fast that absortion actually looks flatish. Another thing that is causing a lot of rents to climb without some fundamental backing is all the money flooding the market....that is, new owners coming to town saying I can't make this purchase work at these cap rates unless you can get these higher rents next year....So, you say....hey we'll go after the higher rents with some hefty free rent packages outside the term and put a little moeny in the tenant's pocket from the TI. This way the effective rent is the same but the rent roll rate is higher....These guy just want to flip it in a year and a half anyway. By that time the free rent is gone and the only thing showing is the higher rates which the next guy is willing to buy up.
By the way, this is one reason why FFO is a total crock of s*@t!
Guest,
Just read your post....you are exactly right.
Just as an FYI, if you see a for lease sign in front of a building....it could mean 300,000sf available or 350sf available....You will never know until you talk to the person...and if the sign has a range..they are right about half the time(office buildings). Industrial is usually more accurate.
Kasriel is bearish
Yow... he's starting to sound like Roubini.
A very good descripition on how investment banks and hedge funds stowked the housing bubble. Taken from a posting in the comment section to an editoral on CDO's from the London Telegraph. A nice explanation for novice readers like myself.
Investment Landfill: How Professionals Dump Their Toxic Waste on You
Yesterday I talked to a friend that is a commercial lender here in Phoenix. Has a couple projects that were fully leased before ground-breaking, but now half of the leases have cancelled. They had already started building, so they'll keep going and hope for the best. He also said a couple office loans his bank had made in Texas had gone belly up.
I agree with albrt's observation that it seems like there are "for lease" or "space available" signs all over the place.
OT: Last time we had such large move in the Bond (selling the 10Yr) TNX up to 5.14% - last time it was due to margin calls and the selling was to raise cash.
is there a new round of margin calls ?
OT: I don't know if this has been posted before, and if it is a double I apologize. I ran across this Financial Times article mentioned on the Housing Panic blog site. The article is by Charles Dumas of Lombard Street Research and is on the probability of banking issues due to the subprime/CDO crisis ruining capital reserves just as default rates are spiking.
FT.com / UK - Liquidity underthreat as banks' capital is about to be slashed
"A bunch of hedge funds may have problems, but that is the tip of the iceberg for "Titanic" Wall Street. Who holds the toxic tranches? Answer: the originating banks and syndicating investment banks for the most part."
...
"The toxic tranches have been valued in recent days at prices as low as 60 per cent of face value.
If a fair proportion of $750bn is wiped out by mark-to-market - or the simple incidence of losses - that will be a fair proportion too of the commercial banks' $875bn of capital. And how good are the balance sheets of the major investment banks?"
...
"With this mortgage-backed crisis we could simultaneously see market-price liquidity implode just as banks are forced to shrink their books by capital losses. It was always likely that the chief source of problems (as in any downswing) would be the chief area of excess in the previous boom - in this case the mortgage market and mortgage-backed securities.
Defaults are at their highest in the 37 years records have been kept; adjustable interest rates and withdrawal of "teaser" start-up rates on recent mortgages are still largely to come. It could be a long, hot summer. Any major non-Fed rescue operation or cover-up adds to the risk: rumours without solid information make fertile ground for panic."
"is there a new round of margin calls ?"
Possibly, but mainly interest rate hikes overseas and the waning terror threat in the UK.
rumor has it that the Chinese have begun their fundraising to create their new state enterprise fund- of course they might just use that to prop their own equity markets....
Someday this war's gonna end...but gas is $2.99 a gallon- just under $3-wahoo...the thrills are just magnificent with my mew shutdown...
Miguela,
you said:
So, you say....hey we'll go after the higher rents with some hefty free rent packages outside the term and put a little moeny in the tenant's pocket from the TI.
Can you explain exactly how this works without jargon please?
It sounds like many of us can learn regarding the tricks employed by CRE flippers...
Miguela,
That's a pretty good explanation, thanks.
Dfrmflorida, your recommended link to the Investment Landfill article is actually chock full of inaccuracies. Not only are the descriptions incorrect, but the vernacular used makes it obvious the author knows nothing about the market. Even his stats and comments on the broader market are off. Finally, you should note that he is trying to sale you gold (see his link) as a safe alternative to the rest of the market, so his only goal is to give you a good scare so you'll move your money into gold.
You are doing yourself a great disservice by taking this as gospel.
Probert:
Commercial leases can include a lot of tricks to meet the revenue goals of the lessor.
TI means tenant improvements. This is usually not a cash kickback, but the tenant gets extra remodeling paid for.
Square footage of commercial premises can also be subject to negotiation, even if the size of the actual premises does not change. Square footage typically includes a "load factor" to account for common areas. If the parties negotiate down the load factor, the rent per square foot increases.
etc.
I've read this now twice and I'm still trying to fit it into an overall economic framework. Is it possible that rents are being driven up in newer, more desireable buildings while older stuff gets torn down and leaves the market? - Banker
B, I think that is happening in a LOT of places but I can't speak for the swankier major market locals but have seen a lot anecdotal evidence its happening in mid-sized cities like KC, Minneapolis, Milwaukee, etc.
In general I believe bankers guess is accurate but would love to see affirming or contradictory data... if anyone has a link. Just curious.
You are doing yourself a great disservice by taking this as gospel.
Charlatan - I think everyone has a dog in this fight. Kasriel's Northern Trust (if I'm not mistaken) is a bond house so his take is likely to be different than say a Cramer, no?
And the gold bugs have their own spin for sure.
With all that in mind its good to not take any of them as gospel - including ourselves.
I hope you guys are still here....may be a few threads up.
Prob,
What all the jargon meant was big institutional owners would want to come in and see if our team could get higher rates..rents...same thing, but the only way we could justify it to the market (tenants and their brokers) was by soft selling the situation and saying...."look, we know it is $2.00/rsf higher than market but here is how we can make you whole....instead of one or two months free, how about we give you 7 months free and do a 67 month deal...we will also give you an extra $2.50/sf to spend on moving expenses, installations, etc. The new owner could say ok all we need is 1/4 extra budgeted for capex up front and we can sell down the road with higher rates and of course lower cap rates (much higher exit price)....In essence, the new owner was juicing the market--raising rates and building prices (lower cap rates) although the tenant really doesn't see problem five years out. Then again nor does he care he might not be a C level with that company when the renewal comes around. It is very similar to the residential issue right now.
The issues are most definitely there for the CRE owners and tenants....It just won't be discovered and unwound until the labor numbers start showing real declines. The lag is almost 6 months.
Hope that helps....
Dryfly,
I think the banker sees it fairly close to what is going on, but I don't think the % of total buildings being rehab or totally rebuilt is high enough to justify hefty price increases over the past 2.5 years....I really think money bidding down cap rates and along with mez financing and all sorts financial manipulation has been pushing the rates up....Also, 50% of the increases is due to recovery from the last recession as well. CRE got hit fairly badly because it was a corporate recession more than anything.
Miguela,
More good insights, keep'em coming!
Banker,
I will call some of the Capital Markets guys tomorrow or Monday and let you know what the latest is.....these guys broker some big damn deals and they will know immediately when the institutional players are getting scared. My bet is that these guys are starting to see the writing on the walls and it is exit strategy time.
On this downside ride you will see how gutsy it really is to be a CRE developer. It truly is the ultimately game, or top of top, when it comes to "musical chairs" or "hot potatoe." I now fuly understand why Tom Wolfe wrote a book about it......
Miguela,
Wasn't that some book? Thanks for the data.
In SF bay area, there are still lots of For Lease signs all over the place (left over from the last bubble). Yet new building activity is also proceeding.
And on the office rental front, I had this weird experience recently. We had our lease (not in Palo Alto, where I rent a house) up for renewal, and our landlord wanted a fairly stiff raise (we had sublet it before, and that sublease expired, going back to original owner). We pointed out there was lots and lots of vacant buildings around (true), but he dared us to compare. We did, and it seemed like no one wanted to cut any kind of deal - so we had to eat humble pie and accept our landlord's increase.
It is as if all of those guys with vacant buildings would much rather not have any tenant at all than a low paying one. Some of these buildings have been empty for years ... they must all think a big boom is coming.
Of course, my house rents also went up substantially, but Palo Alto housing market is still too hot to touch (homes still sell in days).
Banker,
I have struggled with the same problem observing many markets in many countries.
I have arrived to the conclusion that there are two parallel economic systems:
One for the rich, well to do and one for the others. In Moscow some poeple bearly have a place to stay and others pay thousands of Euros for a haircut for their dog. If you are a dog hair dresser in Moscow there are places you can set shop (expensive part of town) and there are places you would not set foot. Maybe Moscow is not a good example since now everything goes up there but the idea of separate markets in places we see as one is still valid.
Same make takes place in commercial r/e: some biz needs space any space and others would only use some type of space - the expansive one.
maybe the choice at the expensive end is limited ?
Dryfly,
I think you misunderstood me. The descriptions by that writer are grossly inaccurate, and should be not be relied upon. The fact that the writer is also selling gold is just icing on the cake, but the crux of my comment was to not read the inaccurate description that the novice commenter earlier recommended.
Obviously you did not go read it yourself, or you would not have found it necessary to pick one small sentence of my comment out to harp on out of context. I have a fly-swatter right next to me.
Uh, I hate to be really stupid, but can you explain this:
and this
together?
Are we talking about two different nations?? When I learned math, many years ago, 12.6% was less than 12.7%.
12.7% vacancy is not a good thing. Tells me that we have too much speculative pressure in that segment of the real estate market.
Several sharp investors I know, who made a bundle on single family rental properties over the past ten plus years, swaped out, ahead of the hurd, into commercial properties.
Lee
AZ_Cowboy,
Very good points about lease cancellations and developers continuing due to sunk costs. That factor often means CRE busts are more savage than Residential.
low interest credit card for debt consolidation low interest credit card for debt consolidation low interest credit card for debt consolidation. find debt consolidation help find debt consolidation help find debt consolidation help.