You all should see all the empty office space in downtown Kansas City, Mo. It is the only downtown that I've seen without Starbucks on every other corner.
115 million American households are the engine that drives everything. Sure, there might be enough energy stored in the battery to turn the lights on, listen to the radio or make the electric windows go up and down, but after the engine stops, it's only a matter of time before everything stops.
I don't know how commercial office square footage is measured. Are hallways, aisles, storage closets, break rooms, etc included? A quick pen to paper division reveals 190,000 sq ft is roughly 34 rooms 75' X 75' in dimension. Is the addition of 34 rooms this size in San Diego County that large of an increase in vacancy over a three month period?
The article at least implies that scaling back of real estate related companies (i.e. mortgage/escrow companies) is the cause.
Its probably accurate, since there is just 1/2 to 1/3 of the amount of real estate transactions from peak.
Question is if the trend continues- if vacancies keep going up, its going to be because companies outside real estate are scaling back as well.
Today, the office towers in central Irvine that used to house lenders like New Century and Option One have floor after floor of empty offices. The Chamber of Commerce estimates that 20% of the city's Class A office space is empty, a record high."
U.S. consumer food prices normally rise by about 2.5 percent annually, but they increased by 4 percent in 2007 -- the biggest increase in 17 years, according to U.S. Agriculture Department data.
Prices continue to rise. A survey conducted by the American Farm Bureau Federation in February showed that in the beginning months of this year, the cost of 16 grocery items, including flour and cheddar cheese, was $45.03, up $3.42, or 8 percent, from the fourth quarter
You all should see all the empty office space in downtown Kansas City, Mo. It is the only downtown that I've seen without Starbucks on every other corner.
GrandOldTurkey | 04.04.08 - 2:01 pm | #
Its getting pretty empty out by the airport too...
Moody's Investors Service late Thursday cut the rating on the bank owned by Countrywide Financial Corp. to D, or default, because the bank has substantial liquidity issues.
It's mostly ad sales, and the 1s round mostly goes for office space. Since i's mostly sales, should we even bother with office space and just go virtual? Or do we go to one of those biz centers where 1 sec. works for a bunch of different companies and share conf. rooms.
A transgendered man's announcement that he is six months pregnant has rocked the online world.
Re: This type of news, makes more news, more impact than economics, so is there any wonder at all why this attention deficit world is unable to come to terms with denial or reality? The casino is on fire, and that's good!
The more Big Bone Ben and his merry makers cut, the worse it will get but then again US corporations will have a lot of low cost debt slaves to chose from.
barley > not that I am aware of. But a Bank in the UK just rec'd a patent on a smart debit card.
O/T
Maybe this is going to offset bad CRE loans:
April 4 (Bloomberg) -- Citigroup Inc., the largest U.S. bank by assets, plans to sell $4.5 billion of five-year notes by giving investors the highest yields over benchmark rates it has offered on debt of similar maturity
"The Dow Jones U.S. Real Estate Index measures the performance of the real estate industry of the U.S. equity market. Component companies include those that invest directly or indirectly through development, management or ownership of shopping malls, apartment buildings and housing developments; and real estate investment trusts ("REITs") that invest in apartments, office and retail properties. REITs are passive investment vehicles that invest primarily in income-producing real estate or real estate related loans or interests. It is not possible to invest directly in an index."
I think that commercial real estate is just beginning to soften (on the way to falling hard), and while not being guilty of the same crazy run-up in prices residential RE was, prices per sq ft, development and timing of top given recessionary-like consumer spending will be its downfall
Dont see why optimism should be even be connected with anythng real estate right now, if there were optimism, then home building stocks would rally i'd think (considering they look ahead 6- 9 months)
Although I will agree that most residential REIT's (part of the index) have been beaten down pretty hard...
FWIW, I live in SD and there are very nice and very new office buildings built all over. Most notable two buildings right off the 805 near Sorrento Valley. Truth be told, SD has had a glut of Commercial RE space since I arrived here back in late 04.
steve duncan - square footage is measured by rentable area (so hallways/lobby/etc don't count).
I was in downtown san diego in January and am surprised vacancy is up that much. Maybe it is hitting some of the burbs harder.
A significant portion of this vacancy increase was due to the 2.5 million square feet of office construction that completed during 2007 (2.5m = ~4.1% of total inventory, source CBRE). San Diego has been in the "top 10 overbuilding watchlist" reports for several months now (Emerging Markets 2008, REIS, TWR). While I agree the housing->commercial spillover is happening, I am hesitant to use this as an indicator of timing/magnitude/etc yet. When do the other city CBRE vacancy numbers get released? CBRE always seems inconsistent.
People in Asia are cutting their food expenses day by day thanking to the crazy ag prices. The current ag prices are driven by biofuels and hot money and unsustainable in long term.
tj & the bear writes:
Fitch downgraded MBIA? AWESOME
Press Release: The Federal Resere has now set up a program for increased liquidity for Insurers. The program is called Anti-RISK (Reduced Inventory of Statutory Kapitial). The amounts available will be determined once the IRS has proceeded to estimate the 2009 - 2010 taxable earnings of Jo6Pak.
The only thing you need to know about SRS is that what goes up like a rocket usually comes down like one.
SRS is the double inverse of the U.S. Dow Jones Real Estate Index, which mainly tracks U.S. REITs. I don't have historic performance of the benchmark, but NAREIT provides a good summary of historic REIT performance that you can download here in Excel:
Look at the price data on the "all REIT Index", which is the second column. This strips out the REIT yield, which tends to be fairly constant at around 5-6%. Here's the data:
REIT share prices (ex-yield) went up by more than 20% per year over a four-year run. They were probably mildly over-valued going into that run. And since then, they've only come off the high by less than 20% (counting last few days).
Now, we are heading into the worst commercial real estate slump in 25 years.
REITs have at least 25-35% more downside in price from here before they would revert back to historical mean return of about 10-12% per year.
After adding back yield, that would be -20-30%. So, the upside left in SRS should be at least about double that. If prices overshoot on the downside, SRS upside would be even more.
In Carlsbad (North San Diego), they haven't stopped building more office buildings since 2002/3. There are buildings that are un-rented, untouched since completion, some often with only one or two tenants renting a very small portion.
Everywhere I drive, there are new buildings with "Ellis&Grubb" signs but no sign of the buildings being rented out. Empty parking lots.
Is anyone has any info on interest rate swaps? Since no one would have expected the FED to cut rates aggressively, some one would be loosing hell a lot of money. May be they need to pay in coming months and every month as part of underlying monthly receipt.
It's mostly ad sales, and the 1s round mostly goes for office space. Since i's mostly sales, should we even bother with office space and just go virtual? Or do we go to one of those biz centers where 1 sec. works for a bunch of different companies and share conf. rooms.
Alec | 04.04.08 - 2:44 pm | #
Alec - I do B2B sales in industrial/mfg... I completely operate 'virtual'... have a small home office but mostly tell customers I'll conference w/ them at their place or meet them for lunch. I tell them my 'office is wherever my mobile phone & laptop is' - they love it.
Not bullish for CRE I know but it works for a lot of folks who used to have offices (I used to but dumped it and never looked back).
If we go virtual our biggest expense becomes becruiting salesmen and secure servers; with the ad recession around the corner we can get quality talent on 92% commish.
The hard part is financing; The principal has zero assets, my assets & sig are a no go zone but I'm settibg up a nevada corp to provide enough cash for a barebones 1st rd.
I can pull off a reverse shell and share issuance to cover early going if need be, the weird thing is selling ad space.
Pricing per view is a bargain, our potential clients are into the concept.
This CRE story is not even in the first inning...we're just warming up on the mound. The fun is about to start people. I remember doing deals in san diego at a 3% cap rate on shitty retail.
Please don't feed the trolls.
First?
You all should see all the empty office space in downtown Kansas City, Mo. It is the only downtown that I've seen without Starbucks on every other corner.
The dominoes continue to fall
This was almost unavoidable.
115 million American households are the engine that drives everything. Sure, there might be enough energy stored in the battery to turn the lights on, listen to the radio or make the electric windows go up and down, but after the engine stops, it's only a matter of time before everything stops.
SD has been a greating leading indicator for all of CA, they were the first to decline on the residential side...
does this bode well for for the fortunes of people holding SRS?
I wonder what the highest vacancy rate was in SD?
Uh, yeah.
I don't know how commercial office square footage is measured. Are hallways, aisles, storage closets, break rooms, etc included? A quick pen to paper division reveals 190,000 sq ft is roughly 34 rooms 75' X 75' in dimension. Is the addition of 34 rooms this size in San Diego County that large of an increase in vacancy over a three month period?
The article at least implies that scaling back of real estate related companies (i.e. mortgage/escrow companies) is the cause.
Its probably accurate, since there is just 1/2 to 1/3 of the amount of real estate transactions from peak.
Question is if the trend continues- if vacancies keep going up, its going to be because companies outside real estate are scaling back as well.
CR, Please get the "dancing" add off your webpage--it is so annoying, thanks.
anyone knows what took place in the market today at 1:30 (Eastren time) that everything started to drop ?????
Nothing bodes well for the fortunes people hold in SRS.
Irvine, Former Subprime Capital, Struggles in Wake of Meltdown
Irvine, Former Subprime Capital, Struggles in Wake of Meltdown | Planetizen
Today, the office towers in central Irvine that used to house lenders like New Century and Option One have floor after floor of empty offices. The Chamber of Commerce estimates that 20% of the city's Class A office space is empty, a record high."
O/T
FOOD PRICES JUMP MOST IN 17 YEARS
U.S. consumer food prices normally rise by about 2.5 percent annually, but they increased by 4 percent in 2007 -- the biggest increase in 17 years, according to U.S. Agriculture Department data.
Prices continue to rise. A survey conducted by the American Farm Bureau Federation in February showed that in the beginning months of this year, the cost of 16 grocery items, including flour and cheddar cheese, was $45.03, up $3.42, or 8 percent, from the fourth quarter
Shoppers scrimp as food prices rise
| Reuters
Awesome! Obviously, the DJUSRE Index (a commercial reit index) should rally hard on this news.
You all should see all the empty office space in downtown Kansas City, Mo. It is the only downtown that I've seen without Starbucks on every other corner.
GrandOldTurkey | 04.04.08 - 2:01 pm | #
Its getting pretty empty out by the airport too...
We are entering the greek tragedy phase of american history ... who is the modern day Homer? ... Doh!
Barley,
That is a bit boggling - that is around 36% annualized!
Oops! A little bit of reality just intruded into fantasyland.
*DJ Fitch: MBIA Inc. Long-Term Rating Cut To A From AA
April 04, 2008 14:23 ET (18:23 GMT)
02 23 PM EDT 04-04-
*DJ Fitch Cuts MBIA's IFS To 'AA'; Outlook Negative>MBI
More office space in CA?
Moody's Investors Service late Thursday cut the rating on the bank owned by Countrywide Financial Corp. to D, or default, because the bank has substantial liquidity issues.
Are commercial real estate slowdowns CONTAINED yet?
Another PE deal is undone - Appollosa walks away from deal...
energyecon > many said oil would never reach 100 and Au would never trade at 1k.
I think wheat will double again in the next 4-8 months. Beef and poultry have to double from todays prices because feed costs are up 86%.
What's it gunna feel like paying $8.00 for a loaf of breaf, $7.00 of a single chicken breast and $9.00 for a box of Corn Flakes?
Barley,
Prices would come down eventuly.
This inasnity can not go on.
people will plant more and harvest more and hord less...
I'm involved in a new biz based in Chicago.
It's mostly ad sales, and the 1s round mostly goes for office space. Since i's mostly sales, should we even bother with office space and just go virtual? Or do we go to one of those biz centers where 1 sec. works for a bunch of different companies and share conf. rooms.
If you don't believe, the trrrst win.
Any food would be greatly appreciated:
A transgendered man's announcement that he is six months pregnant has rocked the online world.
Re: This type of news, makes more news, more impact than economics, so is there any wonder at all why this attention deficit world is unable to come to terms with denial or reality? The casino is on fire, and that's good!
No one works in this town anyway they're all down at Lahaina's (bar opens at 9AM.)
Lahaina Beach House - San Diego Entertainment Guide at SignOnSanDiego.com
Barley,
Don't forget about dirt futures!
Looks like Fitch is the only honest ratings game out there.
Yal writes:
Barley,
Prices would come down eventuly.
Zimbabwe just issued a $50,000,000.00 currency note--good for 3 loaves of bread.
The more Big Bone Ben and his merry makers cut, the worse it will get but then again US corporations will have a lot of low cost debt slaves to chose from.
SRS appears to be reflecting commercial real estate optimism. @ 80 vs 140 a couple of months ago.
Yal - Yes, I agree. But the timeline will be long indeed.
Day by day tens of thousands in South Asia and China are changing their diets - more dairy, meat, bread.
Just wonderin'... Do the IBs get patents for financial innovation?
barley > not that I am aware of. But a Bank in the UK just rec'd a patent on a smart debit card.
O/T
Maybe this is going to offset bad CRE loans:
April 4 (Bloomberg) -- Citigroup Inc., the largest U.S. bank by assets, plans to sell $4.5 billion of five-year notes by giving investors the highest yields over benchmark rates it has offered on debt of similar maturity
SRS is 2x the inverse of:
"The Dow Jones U.S. Real Estate Index measures the performance of the real estate industry of the U.S. equity market. Component companies include those that invest directly or indirectly through development, management or ownership of shopping malls, apartment buildings and housing developments; and real estate investment trusts ("REITs") that invest in apartments, office and retail properties. REITs are passive investment vehicles that invest primarily in income-producing real estate or real estate related loans or interests. It is not possible to invest directly in an index."
I think that commercial real estate is just beginning to soften (on the way to falling hard), and while not being guilty of the same crazy run-up in prices residential RE was, prices per sq ft, development and timing of top given recessionary-like consumer spending will be its downfall
Dont see why optimism should be even be connected with anythng real estate right now, if there were optimism, then home building stocks would rally i'd think (considering they look ahead 6- 9 months)
Although I will agree that most residential REIT's (part of the index) have been beaten down pretty hard...
FWIW, I live in SD and there are very nice and very new office buildings built all over. Most notable two buildings right off the 805 near Sorrento Valley. Truth be told, SD has had a glut of Commercial RE space since I arrived here back in late 04.
steve duncan - square footage is measured by rentable area (so hallways/lobby/etc don't count).
I was in downtown san diego in January and am surprised vacancy is up that much. Maybe it is hitting some of the burbs harder.
A significant portion of this vacancy increase was due to the 2.5 million square feet of office construction that completed during 2007 (2.5m = ~4.1% of total inventory, source CBRE). San Diego has been in the "top 10 overbuilding watchlist" reports for several months now (Emerging Markets 2008, REIS, TWR). While I agree the housing->commercial spillover is happening, I am hesitant to use this as an indicator of timing/magnitude/etc yet. When do the other city CBRE vacancy numbers get released? CBRE always seems inconsistent.
Fitch downgraded MBIA? AWESOME!!!
They didn't even wait until after the bell, too.
@Barley,
People in Asia are cutting their food expenses day by day thanking to the crazy ag prices. The current ag prices are driven by biofuels and hot money and unsustainable in long term.
tj & the bear writes:
Fitch downgraded MBIA? AWESOME
Press Release: The Federal Resere has now set up a program for increased liquidity for Insurers. The program is called Anti-RISK (Reduced Inventory of Statutory Kapitial). The amounts available will be determined once the IRS has proceeded to estimate the 2009 - 2010 taxable earnings of Jo6Pak.
jin - Yes I know the Philipine Govt has asked all fast food sellors to offer 1/2 portion of rice.
Barley,
See Farmer brown post a few threads back on non-farm payrolls; just posted
MBIA Loses AAA Insurer Rating From Fitch Over Capital (Update2)
MBIA Loses AAA Insurer Rating From Fitch Over Capital (Update5) - Bloomberg.com
The only thing you need to know about SRS is that what goes up like a rocket usually comes down like one.
SRS is the double inverse of the U.S. Dow Jones Real Estate Index, which mainly tracks U.S. REITs. I don't have historic performance of the benchmark, but NAREIT provides a good summary of historic REIT performance that you can download here in Excel:
http://www.nareit.com/library/performance/sum0803.xls
Look at the price data on the "all REIT Index", which is the second column. This strips out the REIT yield, which tends to be fairly constant at around 5-6%. Here's the data:
2003: 29.34%
2004 22.87%
2005 2.51%
2006 28.31%
2007 -21.39%
2008 through 3/31/ -1.65%
REIT share prices (ex-yield) went up by more than 20% per year over a four-year run. They were probably mildly over-valued going into that run. And since then, they've only come off the high by less than 20% (counting last few days).
Now, we are heading into the worst commercial real estate slump in 25 years.
REITs have at least 25-35% more downside in price from here before they would revert back to historical mean return of about 10-12% per year.
After adding back yield, that would be -20-30%. So, the upside left in SRS should be at least about double that. If prices overshoot on the downside, SRS upside would be even more.
Ever notice how, when you are buying, high prices are "unsustainable" and when you are selling high prices are merely "market forces"?
Journeyman - low prices are also "unsustainable" if there is a market need still lingering in the system.
In Carlsbad (North San Diego), they haven't stopped building more office buildings since 2002/3. There are buildings that are un-rented, untouched since completion, some often with only one or two tenants renting a very small portion.
Everywhere I drive, there are new buildings with "Ellis&Grubb" signs but no sign of the buildings being rented out. Empty parking lots.
Overbuilding is an understatement.
OT
Is anyone has any info on interest rate swaps? Since no one would have expected the FED to cut rates aggressively, some one would be loosing hell a lot of money. May be they need to pay in coming months and every month as part of underlying monthly receipt.
This is another tsuamy no one is talking about.
It's mostly ad sales, and the 1s round mostly goes for office space. Since i's mostly sales, should we even bother with office space and just go virtual? Or do we go to one of those biz centers where 1 sec. works for a bunch of different companies and share conf. rooms.
Alec | 04.04.08 - 2:44 pm | #
Alec - I do B2B sales in industrial/mfg... I completely operate 'virtual'... have a small home office but mostly tell customers I'll conference w/ them at their place or meet them for lunch. I tell them my 'office is wherever my mobile phone & laptop is' - they love it.
Not bullish for CRE I know but it works for a lot of folks who used to have offices (I used to but dumped it and never looked back).
Barley writes: What's it gunna feel like paying $8.00 for a loaf of bread, $7.00 for a single chicken breast and $9.00 for a box of Corn Flakes?
Guess you've never shopped at Whole Foods Market...
I moved to San Diego in August 2007.
In that short time to now, I've seen CRE "Space Available" signs go from extremely rare to on every street corner.
I took some rushed, crude pictures on the way to a store one day. Maybe I'll bother to put some of them online.
Anyway, its anecdotal, but the CRE picture here looks pretty dire so far.
Dryfly,
Thanxs for the input.
If we go virtual our biggest expense becomes becruiting salesmen and secure servers; with the ad recession around the corner we can get quality talent on 92% commish.
The hard part is financing; The principal has zero assets, my assets & sig are a no go zone but I'm settibg up a nevada corp to provide enough cash for a barebones 1st rd.
I can pull off a reverse shell and share issuance to cover early going if need be, the weird thing is selling ad space.
Pricing per view is a bargain, our potential clients are into the concept.
Price of coconuts have doubled in six months here in Saigon. What with the Dong linked to the Yankee $ something's got to give.
This CRE story is not even in the first inning...we're just warming up on the mound. The fun is about to start people. I remember doing deals in san diego at a 3% cap rate on shitty retail.
a 3% cap on retail? Yowza! Was that in 2006?