Quote:
Originally Posted by the urban politician
^ Sure about that?
March 03, 2008
Only modest rise forecast in downtown office vacancy
By Thomas A. Corfman
(Crain’s — The downtown vacancy rate is predicted to rise only moderately by 2010, despite the expected construction of more than 5.6 million square feet of downtown office space, according to a new report by Jones Lang LaSalle Inc.
The vacancy rate, including sublease space, will rise to 14.3% by 2010, compared to 11.4% during the fourth quarter of 2007, which was the lowest level since 2000, the Chicago-based commercial real estate firm says.
Crains |
Well Jones Lang LaSalle is a real estate broker and it is in their interest to paint as bright of a picture as possible to prevent as much as they can the doom and gloom from spreading. If they don't find tenants and make real estate transactions they don't get paid. Thus like any good salesman they need to talk things up.
No one knows what is going to happen in the real estate market in the near term. The last 3-4 years have generally been years of excess and irrational exuberance in both the commercial and residential real estate markets; making it hard to value real estate assets accurately and objectively. In addition there has been a disconnect b/t underlying asset prices and cash flow they can generate. The GM skyscraper in NYC is an example of that. It was sold by GM for about $500 million in early 90s, then bought by Trump and Conseco for $800 mil in 1998. Trump and his buddy Hilbert sold it in '03 for $1.4 billion. Now it is up for sale for over $3 billion. Has anything changed to increase its value so much b/t 2003 and now. It is still the same pile of steel and glass, with the same tenants paying the same rent. It is more about perception and confidence about long term prospects of this asset. In a recent WSJ article one can find such a comment:
WSJ- "For most buyers of the GM Building, the dream has been to hold it long enough to turn over the many floors being
occupied by long-term tenants paying below-market rents. (The asking rate is now at more than $200 per square foot.) That's the plan Mr. Cayre has in mind. "It's going to be a
long while before any investor in this building will see any cash flow of consequence," he says. "It's something you buy if you believe in the world, and you believe in the U.S. and New York." But, like Mr. Macklowe, many owners were forced to put it up for sale before they were ready."
So bottom line is we need to look at both the long term and short term. Long term this most recent boom will be nothing more than another episode in the real estate drama that has been playing since people invented the concept of private property. Think back to the early 1990s when it seemed the sky was falling and office buildings were in abundant oversupply. We got over it and same is going to happen with today’s boom, even if there is some pain in the short term. And in the near term there can indeed be some trouble:
WSJ- "Goldman analysts predicts the
financial damage from commercial real estate could last as long as two years, which would mean "a significantly longer tail than subprime." That is because only 28% of commercial-real-estate loans have been packaged into securities since 1995, while about 80% of subprime loans have been securitized; the
higher level of securitization subjects the subprime assets to more-immediate mark-to-market accounting, which is playing out in the form of the write-downs that are dominating headlines"
At the same the same time:
WSJ-"If there is a silver lining, it is that the
excesses that overtook the U.S. housing market aren't as prevalent in commercial real estate. Overbuilding of shopping malls, office parks and other commercial property hasn't been rampant, although vacancy rates are climbing in such markets as Orange County, Calif., and Las Vegas, which have been hit by the weak housing market.
Market values of commercial-mortgage-backed securities, which are pools of mortgages that are sliced up and sold to investors as bonds, are down about 5% since late last year, compared
with declines of roughly 50% or more last year for some collateralized debt obligations. "
To sum up, even people who have been in the industry for a long time are none the wiser how it all will play out. If the economy goes into a tailspin and nosedives we will see massive problems in both the residential and commercial real estate. If the downturn isn't very severe we will still see lots of trouble with residential real estate but much less for commercial. We just have to wait and see.
Articles:
Malls, Offices May Slump
Less Steeply Than Homes
By PETER GRANT
March 10, 2008; Page A1
Wall Street Gears for Its New Pain
Commercial Real Estate
To Yield Write-Downs;
Defaults Slim So Far
By LINGLING WEI and RANDALL SMITH
March 3, 2008; Page C1
Carlyle Capital strives
to fend off a meltdown
By PETER LATTMAN and RANDALL SMITH
THE WALL STREET JOURNAL ASIA
March 10, 2008
Building Slowdown Goes Commercial
By SCOTT PATTERSON and KRIS HUDSON
March 4, 2008; Page C1
Mr. Macklowe's $3 Billion Life Raft?
Developer Hopes Record Bids
For Tower Help Save Empire
By JENNIFER S. FORSYTH
February 20, 2008; Page B1
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