Tag Archives: commercial real estate

Real Estate

Reagan Office Building for Sale

I guess if you need money you sell your real estate? How about the State of California selling some of their real estate to raise money?  Do you think that’s a great idea?  In the bottom of the real estate market, the State is selling two dozen buildings in order to raise $2 billion to pay off some of their long term debt.

Included in the sale is the Ronald Reagan building, which they will then lease back for the next twenty years.

According to the Los Angeles Times:

“Under the proposal, for example, the twin-towered Reagan state office building at 3rd and Spring streets would be purchased by an investor who would in turn lease it to the state. The state would pay the new owner an estimated $12.2 million a year in rent, according to the plan.

State officials will now accept bids on 24 office buildings on 11 sites in Los Angeles, Sacramento, San Francisco, Oakland and Santa Rosa. Investors may buy the properties en masse or individually.

The planned sale comes during one of the worst real estate markets since the Great Depression. Commercial property values have fallen as much as 40% from their 2007 peak, according to industry analysts. Although the depressed market may hold sales prices down, it may also help the state as it negotiates how much to pay in rent after it leases back the buildings.

The recession drove up vacancy rates in many privately owned office buildings as white-collar companies contracted through layoffs or closed their doors. Landlords in most of the country’s major office markets have been forced to reduce rents to attract or keep tenants.”

Talk about a study in mismanagement, the State of California is one for the text books.

John J. O’Dell
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Call today 530-263-1091

Real Estate

Commercial Property Values Continues Downward

According to commercial real estate brokerage Grubb&Ellis, the commercial real estate market will not start coming back until 2011. They are forecasting that the banks are holding back on foreclosures of commercial property and may spread them over a three or four year period   Read Grubb&Ellis report for the 2010 Forecast today for Northern California and the Central Valley’s office, commercial and retail environment. The common prognosis is: the decline continues, but not as fast as last year. Look for a recovery starting in early 2011. Until then rents keep falling.

” While we expect real estate sales to pick up during the year, banks have delayed selling their REO properties in order to protect their capital reserves. As a result, distressed assets will likely come to market over the next two, three or even four years. CMBS will provide opportunities for investors to acquire distressed debt in 2010, but the structure of the original agreements often makes the process more arduous than buying a property or a whole loan from a bank.”

Source: Grubb&Ellis
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Real Estate

Vultures are Coming to the Real Estate Market

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vultures

I have said many times on this site, now is the time to buy real estate if you have the money and can wait for the market to change. Now REITs (real estate investment trusts) with stronger balance sheets are building billion-dollar war chests to fund acquisitions of troubled properties on the cheap. They’re raising the money to fund acquisitions of distressed commercial properties.

REITs are more then ready, having raised over $12 billion by issuing stock in recent months. There’s an estimated $90 billion in the U.S. that is “distressed” according to New York based real estate research firm Real Capital Analytics.

These are properties that have been foreclosed on, or whose owners are in default on their loans or in bankruptcy. “On top of those properties, there is hundreds of billions more in debt coming due in the next few years,” says Peter Slatin, editorial director at Real Capital. “Some REITs are getting prepared for that.”
The four blue-chip REITs cited above represent a fairly conservative way for individual investors to profit from the (hoped-for) real estate rebound. The fact that they have the resources to exploit today’s weak market may set them up for years of healthy cash flows. “These are the commercial real estate companies that are going to survive,” says Jim Sullivan, senior REIT analyst with Green Street Advisors. “They all have balance sheets that are stronger than average and management teams that have proven their ability to take advantage of downturns.”

Anyone who goes bargain hunting in real estate today has to be patient. REITs fell earlier and harder than the broader real estate market. In the two years from March 2007 to March 2009, REIT stocks fell a stunning 75% on average. Lately, however, REITs have been on a roll, with the MSCI U.S. REIT index gaining more than 45% since the March low. Does this spurt mean that REITs are foreshadowing a sharp rise in real estate values? Some experts caution that there is more pain to come. “Prices have gotten ahead of the fundamentals in real estate,” says Kenneth Rosen, chairman of the Fisher Center for Real Estate and a professor emeritus at the University of California at Berkeley. “It has gone too far, too fast.” Rosen expects a correction in the coming months.

But many analysts like the longer-term outlook. “The underpinnings of the commercial real estate market are really in pretty good shape,” says Philip Martin, a senior vice president of Golub & Co., a Chicago-based real estate investment and development firm. He notes that there isn’t the kind of massive oversupply of commercial properties that existed during the slump of the late 1980s and early 1990s. “So when we do recover, you are likely to see a pretty healthy snap-back in real estate prices,” he says. “This is an excellent environment for those REITs with the right combination of knowledge and capital. They are going to have an opportunity to make some great deals, and the risk-adjusted returns at this point in the real estate cycle are going to be pretty darn good.”

Source: CNN Fortune