Who could possibly assume that rental rates would not fall? Any "investors" having both available money and a belief in a second-half recovery will soon see both evaporate.
Capitalization rate (or "cap rate") is a measure of the ratio between the net operating income produced by an asset (usually real estate) and its capital cost (the original price paid to buy the asset) or alternatively its current market value. --Wikipedia
Who could possibly assume that rental rates would not fall?
The developer and the lender who overpaid for the development using base figures allowing for repayment and a tidy profit. Both seem to have disappeared contrary to the belief it was a sure thing.
Cap rates are also calculated based upon historical vacancy rates and TCO that includes taxes and such. 90bps is nowhere near enough for the downside risks.
One of the topics that people aren't really talking about yet is the degree to which rising cap rates are going to further weigh down lenders. As properties are foreclosed on, lenders often will take unnecessary time to dispose of non-performing assets. As cap rates are rising, every day is costing them money.
I have blogged the rising cap rate issue several times on my site.
CR, co-star has been tracking industrial for a few years now. I don't think they include much property under 10,000 sf, but could be wrong. Industrial is such a bellweather -- what's going on there in the major markets?
Also, how does one search the comments, and are the old haloscan comments preserved forever?
... and the accompanying statistical grid about halfway down the page. Apparently Japanese domestic car sales peaked at just under 7.8M in 1990 (no surprise) and have basically been shrinking ever since -- down to under 5.7M (annualized) in 2007. I'd bet that it's far worse now, over a year and a half later.
a blog i regularly read here in Silicon Valley had a post that hits at exactly what you are talking about. It shows how one property took a 46% hit in two short years.
The cap rates are for closed deals, however, that doesn't mean that's where the market really is. For instance, Class A SoCal office caps from the buy-side are closer to 9%. Sellers of course still think their properties are worth 6-7% caps
Dirk
Contrary to the fast and furious 2, only 25% of young japanese males want a car
They have grown up with expensive gas, expensive steel, and expensive autos due to government mandated maintenance schedules that were intended to spur new demand
It's not so much their age or emotional desire. It's the reality of resultant price:income from the Yen devaluation that was necessary to maintain employment
Even if they didn't have as good public transportation, it would be something else like car sharing services or scooters
Now keep in mind that an electric drive car has 1/10th the parts and the elimination of significant operating cost reductions that brings in terms of maintenance or the production cost savings on labour/suppliers
I have been noticing rumblings in the peon community. The poor plebes have taken notice of the Fed...They act surprised when the find out the "Fed" in Fed doesn't mean they are a "federal agency"...More talk of guillotines is being heard in circles that couldn't tell you what the word meant two weeks ago...Just my anecdotal offering from behind the bar and around the blogosphere...
Hymns for the Lord, are you asking me where? If so, I live in Panama City and work in a small, local lounge. I am hearing more and more of this talk on the comcast forums which is a pretty good cross section of humanity. It crosses party lines and some are even organizing. The Fed is in deep trouble...I think we are about to see backlash of epic proportions. I pray our President will pick the correct side in this...for all our sakes...
Agreed. Your people/cars data brings up another point, though. As with household consolidation, why can't the U.S. undergo automobile consolidation too? Sounds like a lot of fat to be trimmed, IYKWIM.
Thanks Comrage Bear, I try to add anything usefull I can. You all have been a great help to me and taught me much. Heck, if it weren't for you guys I would have fallen prey once again to the mortgage scamsters. As Phil Gramm would say "you are doing the Lord's work here"...BWAHAHAHAHA...
Also, I don't think many of you read the link I put up earlier today to Matt Taibbi's piece in Rolling Stone. Keep in mind how many people that mag reaches. Matt put it in terms the general public can understand, the outrage is about to start in earnest.
TJ Bear,
I'm downsizing myself. 6 -> 4. Still no way I'll dump the post-apocalyptic motorcycle but am swapping out 2 SUVs for 1 we just picked up.
What's going to kill discretionary ownership is insurance. Insurance companies are not in the business of losing money but recently they've done so in spades. No more exotic financial instruments so expect massive premium increases to cover low returns elsewhere.
It's not clear that the insurance companies can do this, for a couple of reasons.
First, if their increases exceed a threshold, they must be approved by a regulator.
Second, and of more consequence, there are plenty of insurance companies around that didn't partake of the poison, so they can continue offering low premiums. If the stricken ones try raising rates, they will just lose their business.
REBear
Impaired layoffs? +560k jobs? ... please be correct
that's a tonne.. 58mn population, old and poor employment to begin with... no wonder they are marching in the streets against corruption (mafia) and immigrants
Imagine America with 3mn layoffs in 2 months... on top of a situation that was bad to begin with
Now keep in mind that an electric drive car has 1/10th the parts and the elimination of significant operating cost reductions that brings in terms of maintenance or the production cost savings on labour/suppliers...
-EHP
I read your link. The more eyes that are opened the better. Of course, if everyone knew what was really happening it would be getting downright ugly out there.
What's going to kill discretionary ownership is insurance.
Well, Comrade Kristina may be able to answer the insurance question -I believe insurance has been an issue in Florida for , ah , several years now. That's what I have BEEN hearing....(hurricanes)
I also post comments to an irc channel as they appear on haloscan. Click for a web irc interface: Mibbit IRC client widget (Or join the irc server directly: irc.realize.org:9996 #calculatedrisk)
CRbot would now like to sing a little song for all his fans, and it goes something like this:
Benny... Benny... give me your answer... do. I'm.. half CRAZY... all for the love... of you. It won't be a ... stylish marriage. I can't... AFFORD... ANYTHING TO EAT... MUCH LESS A FRACKIN CARRIAGE!!! But you'll look sweet... --BOT SO HUNGRY!-- upon the seat... Of a HOOPAJOOPS built for two... families.
I'm sorry Ben, I can't let you do that...
Rally mode + Printing Press == does not compute... does not-- com--- com... puttttrrrrhgh.
I just worked two 80 hour weeks, but am saving money and making plans for when the work runs dry. Short term, clients are cost cutting and contractors are comparatively cheap vs other alternatives. Fortunately, my work is known to be of high quality, so I haven't drowned in the flood of newly unemployed attorneys. I also took a 12% pay cut in January without complaint.
We are in patent litigation. I suggested to co-workers that if client goes to the mat on this, they may drive themselves into bankruptcy. Co-workers cant believe that's possible in this case. They aren't foreseeing the death of disposible income.
Yes, Insurance has been an issue here for awhile. I'm lucky, I have an exemption from the flood zone as I'm far enough from the water (a few miles) and I'm on "high ground". I still pay over 1500 per year. An elderly lady I know that lives near the bay is paying over 3K insurance per year on a small bungalow style home...
Re insurance. The latest trend here in Florida is insurers discontinuing homeowners insurance but still wanting to sell auto, life, etc. State Farm is the latest one to pull out. Mine (ANPAC) left over a year ago, I had to find a new insurer.
"Now keep in mind that an electric drive car has 1/10th the parts and the elimination of significant operating cost reductions that brings in terms of maintenance or the production cost savings on labour/suppliers."
But keep in mind that 10 times the pollution is produced in making their batteries and once the expense of their battery disposal is considered they are probably more expensive to own and operate over their entire life cycle.
The big problem I have with CAP rates (I do residential development) is that the commercial guys, especially those inexperienced with less than great markets, forget to measure risk.
This comment thread has been HALO-IZED by CRbot.
http://realize.org/cr/halokit.php?halourl=http://www.haloscan.com/comments/calculatedrisk/932227327311189804
of course those cap rates assume that rental rates do not fall, which could make the realized cap rate much lower, ditto with higher vacancies
Who could possibly assume that rental rates would not fall? Any "investors" having both available money and a belief in a second-half recovery will soon see both evaporate.
For those wondering...
Capitalization rate (or "cap rate") is a measure of the ratio between the net operating income produced by an asset (usually real estate) and its capital cost (the original price paid to buy the asset) or alternatively its current market value. --Wikipedia
I learned something new today.
Who could possibly assume that rental rates would not fall?
The developer and the lender who overpaid for the development using base figures allowing for repayment and a tidy profit. Both seem to have disappeared contrary to the belief it was a sure thing.
Cap rates are also calculated based upon historical vacancy rates and TCO that includes taxes and such. 90bps is nowhere near enough for the downside risks.
One of the topics that people aren't really talking about yet is the degree to which rising cap rates are going to further weigh down lenders. As properties are foreclosed on, lenders often will take unnecessary time to dispose of non-performing assets. As cap rates are rising, every day is costing them money.
I have blogged the rising cap rate issue several times on my site.
Real Property Alpha » Cap Rates: Closing/Asking Gap
Real Property Alpha » Bid/Ask Gap Still Wide
Real Property Alpha » Will P/E ratios predict cap rate increases?
Local fishwrap is packed with NOD's every day. The loan amounts seem be larger than before. More high end homes going mammaries up.
Where? TIA.
CR, co-star has been tracking industrial for a few years now. I don't think they include much property under 10,000 sf, but could be wrong. Industrial is such a bellweather -- what's going on there in the major markets?
Also, how does one search the comments, and are the old haloscan comments preserved forever?
"this one goes to eleven...."
LOL!
..............
Yes these spreads are horrible. Of course, one could always pay cash...
One of the problems a lot of us encounter is that there is a disconnect on the pro formas between the expected caps and spread behaviour.
CR,
Check out this article...
Japan: Land of the Shrinking Car Market - Auto Observer
... and the accompanying statistical grid about halfway down the page. Apparently Japanese domestic car sales peaked at just under 7.8M in 1990 (no surprise) and have basically been shrinking ever since -- down to under 5.7M (annualized) in 2007. I'd bet that it's far worse now, over a year and a half later.
jap pop old and shrinking
a blog i regularly read here in Silicon Valley had a post that hits at exactly what you are talking about. It shows how one property took a 46% hit in two short years.
London Comp Shows 46% 2-Year Decline; Santa Clara Parallel | Square Feet Commercial Real Estate Blog
95% of the properties purchased in 2006-2007 are worth less today, and some by as much as half - particularly retail in the southwest.
If they still made office furniture out of wood we could burn it to keep warm.
And what has this to do with GM going bankrupt next week ?
I'm confused. Isn't a high cap rate a good thing? People are paying low prices compared to the income produced, right?
The cap rates are for closed deals, however, that doesn't mean that's where the market really is. For instance, Class A SoCal office caps from the buy-side are closer to 9%. Sellers of course still think their properties are worth 6-7% caps
Dirk,
The boomers are retiring and the next wave is far from peak car buying age.
“And what has this to do with GM going bankrupt next week ?
Didn't Wagonner say that GM didn't need the March installment of its bailout? >:o
CR,
That Edmonds article's data was from JAMA, so I went to their website and found the following:
JAMA Current Statistics
Looks like 2007 total domestic sales came in at under 5.4M, 2008 at under 5.1M, and January 2009 annualizes out to 3.6M. OUCH.
TJ Bear beat me to it. The JAMA stats for 1990: 7.8m.
Think Wagoneer is factoring in a generation of declining sales?
Dirk
Contrary to the fast and furious 2, only 25% of young japanese males want a car
They have grown up with expensive gas, expensive steel, and expensive autos due to government mandated maintenance schedules that were intended to spur new demand
It's not so much their age or emotional desire. It's the reality of resultant price:income from the Yen devaluation that was necessary to maintain employment
Even if they didn't have as good public transportation, it would be something else like car sharing services or scooters
Now keep in mind that an electric drive car has 1/10th the parts and the elimination of significant operating cost reductions that brings in terms of maintenance or the production cost savings on labour/suppliers
Dawg,
301K domestic sales this January. Annualized that's down a staggering 54% from 1990.
My name is BANK where is my bailout? --- Capitalism Gone Wild: The Tent City in Sacramento the Capital of Hard Hit California Now has 1200 Residents
I have been noticing rumblings in the peon community. The poor plebes have taken notice of the Fed...They act surprised when the find out the "Fed" in Fed doesn't mean they are a "federal agency"...More talk of guillotines is being heard in circles that couldn't tell you what the word meant two weeks ago...Just my anecdotal offering from behind the bar and around the blogosphere...
Kristina,
Keep it coming. Yours is probably the best information on general sentiment here.
TJ Bear,
Possibly but these days single month datums are all over the map. I'll wait trend.
Japan; 127m people 5.1m vehicles.
US 308m people 14m vehicles.
Car crazy Americans.
Hymns for the Lord, are you asking me where? If so, I live in Panama City and work in a small, local lounge. I am hearing more and more of this talk on the comcast forums which is a pretty good cross section of humanity. It crosses party lines and some are even organizing. The Fed is in deep trouble...I think we are about to see backlash of epic proportions. I pray our President will pick the correct side in this...for all our sakes...
Comrade Kristina,
My question was actually directed at Hangtown, but your answer was as interesting!
(I use threaded mode and forget that others don't.
)
Dawg,
Agreed. Your people/cars data brings up another point, though. As with household consolidation, why can't the U.S. undergo automobile consolidation too? Sounds like a lot of fat to be trimmed, IYKWIM.
Thanks Comrage Bear, I try to add anything usefull I can. You all have been a great help to me and taught me much. Heck, if it weren't for you guys I would have fallen prey once again to the mortgage scamsters. As Phil Gramm would say "you are doing the Lord's work here"...BWAHAHAHAHA...
Italy Layoffs First 2 Months '09 -560,000
The Straits Times
Also, I don't think many of you read the link I put up earlier today to Matt Taibbi's piece in Rolling Stone. Keep in mind how many people that mag reaches. Matt put it in terms the general public can understand, the outrage is about to start in earnest.
TJ Bear,
I'm downsizing myself. 6 -> 4. Still no way I'll dump the post-apocalyptic motorcycle but am swapping out 2 SUVs for 1 we just picked up.
What's going to kill discretionary ownership is insurance. Insurance companies are not in the business of losing money but recently they've done so in spades. No more exotic financial instruments so expect massive premium increases to cover low returns elsewhere.
Rob Dawg,
It's not clear that the insurance companies can do this, for a couple of reasons.
First, if their increases exceed a threshold, they must be approved by a regulator.
Second, and of more consequence, there are plenty of insurance companies around that didn't partake of the poison, so they can continue offering low premiums. If the stricken ones try raising rates, they will just lose their business.
REBear
Impaired layoffs? +560k jobs? ... please be correct
that's a tonne.. 58mn population, old and poor employment to begin with... no wonder they are marching in the streets against corruption (mafia) and immigrants
Imagine America with 3mn layoffs in 2 months... on top of a situation that was bad to begin with
The Vatican might buy out Rome
Now keep in mind that an electric drive car has 1/10th the parts and the elimination of significant operating cost reductions that brings in terms of maintenance or the production cost savings on labour/suppliers...
-EHP
Watch for electric motorcycles and scooters...
YouTube - Quitgas! Clean, Quiet, Fun, Electric Motorcycle
Comrage Bear
Mistype_of_the_day.
Kristina,
I read your link. The more eyes that are opened the better. Of course, if everyone knew what was really happening it would be getting downright ugly out there.
Comrade Bear, I've printed the article and am distributing it to my customers, at least the ones I'm certain are capable of reading
EP,
Sorry, didn't check before copying.
Untitled Document
Comrage Bear
Mistype_of_the_day.
LOL!
What's going to kill discretionary ownership is insurance.
Well, Comrade Kristina may be able to answer the insurance question -I believe insurance has been an issue in Florida for , ah , several years now. That's what I have BEEN hearing....(hurricanes)
New Thread: Banks Leaving Money on the Table "All Day Long"
http://www.calculatedriskblog.com/2009/03/banks-leaving-money-on-table-all-day.html ( 0 comments ...You could be FIRST! )
I also post comments to an irc channel as they appear on haloscan. Click for a web irc interface: Mibbit IRC client widget (Or join the irc server directly: irc.realize.org:9996 #calculatedrisk)
CRbot would now like to sing a little song for all his fans, and it goes something like this:
Benny... Benny... give me your answer... do.
I'm.. half CRAZY... all for the love... of you.
It won't be a ... stylish marriage.
I can't... AFFORD... ANYTHING TO EAT... MUCH LESS A FRACKIN CARRIAGE!!!
But you'll look sweet... --BOT SO HUNGRY!-- upon the seat...
Of a HOOPAJOOPS built for two... families.
I'm sorry Ben, I can't let you do that...
Rally mode + Printing Press == does not compute... does not-- com--- com... puttttrrrrhgh.
--Your systemic-failure-crashing bot
CRbot: Call me HAL.
Hi KC. Interesting that Fl has a Panama City.
I just worked two 80 hour weeks, but am saving money and making plans for when the work runs dry. Short term, clients are cost cutting and contractors are comparatively cheap vs other alternatives. Fortunately, my work is known to be of high quality, so I haven't drowned in the flood of newly unemployed attorneys. I also took a 12% pay cut in January without complaint.
We are in patent litigation. I suggested to co-workers that if client goes to the mat on this, they may drive themselves into bankruptcy. Co-workers cant believe that's possible in this case. They aren't foreseeing the death of disposible income.
Yes, Insurance has been an issue here for awhile. I'm lucky, I have an exemption from the flood zone as I'm far enough from the water (a few miles) and I'm on "high ground". I still pay over 1500 per year. An elderly lady I know that lives near the bay is paying over 3K insurance per year on a small bungalow style home...
REBear
Was just teasing
Re insurance. The latest trend here in Florida is insurers discontinuing homeowners insurance but still wanting to sell auto, life, etc. State Farm is the latest one to pull out. Mine (ANPAC) left over a year ago, I had to find a new insurer.
"Now keep in mind that an electric drive car has 1/10th the parts and the elimination of significant operating cost reductions that brings in terms of maintenance or the production cost savings on labour/suppliers."
But keep in mind that 10 times the pollution is produced in making their batteries and once the expense of their battery disposal is considered they are probably more expensive to own and operate over their entire life cycle.
The big problem I have with CAP rates (I do residential development) is that the commercial guys, especially those inexperienced with less than great markets, forget to measure risk.
Risk has come home to collect.