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commercial real estate
- Thread starter dividend
- Start date
Commercial RE is the next trainwreck coming. A slowing in the economy will touch it off.
In the case of big biz, the cheap money and securitization caused overbuilt conditions - like what we have in housing. In the case of small/micro biz and the smaller loans, it's the opposite problem - the outrageously high prime rate coupled with inflated purchase prices - there's just no breathing room in the business plans. Also, drastically higher input and/or operating costs are crushing margins.
In the case of big biz, the cheap money and securitization caused overbuilt conditions - like what we have in housing. In the case of small/micro biz and the smaller loans, it's the opposite problem - the outrageously high prime rate coupled with inflated purchase prices - there's just no breathing room in the business plans. Also, drastically higher input and/or operating costs are crushing margins.
I apologize for pimping my blog, but I laid out the short case for REITs here and here.
Historically, the dividend yield for REITs has averaged somewhere around +1.75% above the 10 Year Tbond. If you apply that metric on the IYR, it trades at $47. Today it is at $73.
Cap rates are averaging ~6% nationwide for all properties, an all-time low. Unless you believe we are in a new paradigm, then property prices will correct.
Historically, the dividend yield for REITs has averaged somewhere around +1.75% above the 10 Year Tbond. If you apply that metric on the IYR, it trades at $47. Today it is at $73.
Cap rates are averaging ~6% nationwide for all properties, an all-time low. Unless you believe we are in a new paradigm, then property prices will correct.
commercial historically lags residential by a few quarters
layoffs
citi -17,000 long term layoff plan
jpm -100
bsc -240
cs -220
db -?
hsbc -750
leh -2,500
mer -?
ms -600
ubs -1,500
src: ft.com http://ftalphaville.ft.com/blog/2007/10/12/8030/great-prune-update-citi-and-jpmorgan-start-cutting?
so what happens now to all the vacant space?
citi -17,000 long term layoff plan
jpm -100
bsc -240
cs -220
db -?
hsbc -750
leh -2,500
mer -?
ms -600
ubs -1,500
src: ft.com http://ftalphaville.ft.com/blog/2007/10/12/8030/great-prune-update-citi-and-jpmorgan-start-cutting?
so what happens now to all the vacant space?
Quote from dividend:
layoffs
citi -17,000 long term layoff plan
jpm -100
bsc -240
cs -220
db -?
hsbc -750
leh -2,500
mer -?
ms -600
ubs -1,500
src: ft.com http://ftalphaville.ft.com/blog/2007/10/12/8030/great-prune-update-citi-and-jpmorgan-start-cutting?
so what happens now to all the vacant space?
It becomes sublet, offered out to all those "smaller" companies who were ignored by the brokers who wanted to close 50k+ spaces, like it did in 2001-2003 after the dot com implosion. Hopefully for those of us looking to get more/better space, prices will not be reflective of current market rents, but I ain't holding my breath.
Prices in institutional commercial property deals that closed during the fourth quarter [2007] for properties such as office buildings, warehouses and apartment complexes are now 22 percent below their peak values attained in the second quarter of 2007. The index has fallen in five of the past six quarters, but the recent drop is by far the steepest.
http://web.mit.edu/newsoffice/2009/mit-cre-tt0204.html
http://web.mit.edu/newsoffice/2009/mit-cre-tt0204.html
This happens to be an area that I actually do know a lot about, from % default rates, to prices per square feet on leasing and purchasing, availability and types of financing, and a variety of other technical details...
...well, you didn't expect sunshine and cookies from the likes of me? Commercial real estate is taking some serious hits right now.
I attended a zoning board of appeals meeting last night, and a national mall company was on the agenda ahead of our issue, and they were crying poverty in order to obtain a variance from the city.
I won't disclose the name of the company, but they had an arrogance in past years that was unmatched, and it was bizarre seeing them grovel over a monetary number that they wouldn't have batted an eye at just last year.
Mark my words - national RE firms are going to be next in line talking up the threat of job cuts in retail if they don't get a bailout.
...well, you didn't expect sunshine and cookies from the likes of me? Commercial real estate is taking some serious hits right now.
I attended a zoning board of appeals meeting last night, and a national mall company was on the agenda ahead of our issue, and they were crying poverty in order to obtain a variance from the city.
I won't disclose the name of the company, but they had an arrogance in past years that was unmatched, and it was bizarre seeing them grovel over a monetary number that they wouldn't have batted an eye at just last year.
Mark my words - national RE firms are going to be next in line talking up the threat of job cuts in retail if they don't get a bailout.
Quote from ByLoSellHi:
This happens to be an area that I actually do know a lot about, from % default rates, to prices per square feet on leasing and purchasing, availability and types of financing, and a variety of other technical details...
...well, you didn't expect sunshine and cookies from the likes of me? Commercial real estate is taking some serious hits right now.
I attended a zoning board of appeals meeting last night, and a national mall company was on the agenda ahead of our issue, and they were crying poverty in order to obtain a variance from the city.
I won't disclose the name of the company, but they had an arrogance in past years that was unmatched, and it was bizarre seeing them grovel over a monetary number that they wouldn't have batted an eye at just last year.
Mark my words - national RE firms are going to be next in line talking up the threat of job cuts in retail if they don't get a bailout.
Absolutely correct, nice post.