Bubblenomics

Life insurers, who after the real estate collapse of 2008 were counted on to provide a financing lifeline for commercial real estate deals when banks wouldn't touch them anymore, are again showing some faith in the recently maligned investments.

Like many working-class towns in the Midwest, the Chicago suburb of Maywood has been on the cusp of better times for decades, Andrew Martin reports in The New York Times.

Like 70 percent of Las Vegas homeowners who are upside-down on home values, anyone who bought raw land in the last decade as an investment is probably thinking about letting it go back to the bank, if they haven’t already done so.

Distressed land sales have become the standard in Las Vegas, resetting price levels to 10 or more years ago and influencing appraisers to be ultraconservative with their valuations.

Commercial real estate was the looming problem that everybody seemed to forget about in early 2010. New delinquency data from the first quarter shows that it's time for a reminder. Delinquencies soared in the early part of the year, according to the Mortgage Bankers Association. Loans contained in commercial mortgage-backed securities (CMBS) 30-or-more days delinquent reached a new high of 7.24% last quarter -- up substantially from 5.70% in the fourth quarter of 2009. This marks another sobering economic indicator.

Here's a chart based on some figures the MBA's report provides:

Show me the buildings! That’s the resounding cry of many commercial real estate investors hungry to feast on the spoils of the recent downturn. But, much to their chagrin, they’re not finding much in the way of compelling buying opportunities in the property market, according to PricewaterhouseCoopers’ Korpacz Real Estate Investor Survey released Friday.

The rate of commercial mortgage delinquencies ballooned more than 25% in the first quarter of 2010.

New numbers from the Mortgage Bankers Association reveal the commercial real estate problem has not gone away…it’s just being swept under the rug. Still, this is hard to ignore: 5.7% of loans contained in commercial mortgage-backed securities were at least 30 days in arrears during Q4 2009. And the number exploded to over 7.2% in Q1 2010. That’s the blue line in this chart…

Although commercial real estate, a lagging indicator of the overall economy, is looking at a slow recovery, there isn’t as much panic anymore that the industry will create a catastrophe for the rest of the economy.

“I do not believe it will be a crisis of epic proportions,” said Sam Cummings, managing partner at CWD Real Estate Investment. “A lot of people are claiming it’s the next shoe to drop and that it’s going to cause a deep problem like residential real estate. I simply don’t agree with that.”

To have and to hold, for better or worse, for richer or poorer, in sickness and in health? This familiar marriage vow now may ring true with many commercial real estate owners. Should I hold? Should I sell? What does the future hold?

There are a variety of investment vehicles available, including stocks, bonds and real estate (hard assets). Historically, commercial real estate investment has experienced high demand because of the ability to leverage and market-value appreciation.

U.S. commercial property values are rebounding slowly and may remain as much as 40 percent below their 2007 peak levels, Pacific Investment Management Co. said.

More than $500 billion of real estate will hit the market as lenders dispose assets or restructure debt on properties where valuations have dropped below loan levels, keeping "general" prices down for three to five years, Newport Beach, California-based Pimco, which runs the world's biggest bond fund, said today on its website.

Financial institutions that have lent money to real estate investors are starting to loosen their hold on these properties, potentially putting more real estate into play, real estate insiders said this week.

Multifamily real estate is an area where is happening, with relatively strong demand and banks more willing to move properties off their books, one top executive said at the Reuters Global Real Estate and Infrastructure Summit in New York.

Financial institutions that have lent money to real estate investors are starting to loosen their hold on these properties, potentially putting more real estate into play, real estate insiders said this week.

Multifamily real estate is an area where is happening, with relatively strong demand and banks more willing to move properties off their books, one top executive said at the Reuters Global Real Estate and Infrastructure Summit in New York.

U.S. commercial real estate lenders are starting to loosen standards on loans hoping to win deals, setting up a potential clash in the market still besieged by falling values and property revenue, an insurance executive said on Tuesday.

The intense competition between insurance companies and investment banks to make loans may soon lead to a decline in loan quality, Mark Davis, a senior managing director at Allstate Investments LLC, told Reuters after a panel sponsored by the Commercial Real Estate Finance Council.

Travelers Insurance scored a huge marketing success recently by using Ray LaMontagne's song "Trouble" in a commercial about a dog that can't rest because it's worried about where to hide its bone.

For different reasons, just about anyone involved in commercial real estate over the past few years can relate to the song on a personal level.

It's particularly relevant to several life insurance companies that faced recent downgrades by Standard and Poor's Rating Service because of their exposure to commercial real estate.

DOW JONES NEWSWIRES

Delinquencies on U.S. commercial real-estate collateralized debt obligations declined in April amid signs investors are selling troubled loans rather than working them out.

The CREL CDO delinquency rate slid to 12.1% last month from 12.8% in March. Including loans removed at a loss over the last year, the rate rose to 16.9%. Realized losses rose for the third straight month, reaching $153.5 million in April.

"Resolving credit-impaired assets at a loss to the CDO has become a consistent trend among asset managers," said Fitch director Stacey McGovern.

By Tiernan Ray
Commercial real estate delinquencies are unlikely to “moderate” to the extent originally expected, reports Moody’s Investor Services commercial mortgage analyst Nick Levidy in a report this afternoon.

Levidy notes that 4,000 commercial property loans are delinquent in the U.S., up 349 in May, representing $48.8 billion of loans delinquent.

The jump in the firm’s delinquency tracker, 48 basis points from April’s level, to 7.5% of all commercial loans delinquent, is a smaller rise than the prior two months, but it’s still a bigger jump than any month in all of last year.

By ANUSHA SHRIVASTAVA

Just as they did two decades ago, U.S. banking regulators are holding a mountain of assets seized from failed banks. This time, though, the government is leaning harder on the private sector to hold and sell more of the $600 billion in dud loans, foreclosed buildings and other assets.

After the savings-and-loan crisis, Resolution Trust Corp. sold 89% of the $453 billion in assets it got from 747 failed financial institutions in the late 1980s and early 1990s.

—Peter Eavis

If 2008 was the year of sheer panic, 2010 is shaping up into one of stubborn, slow-burning angst.

There is a feeling that a lot remains unfixed in the economy, even though governments have spent heavily and central banks have flooded their economies with easy money. If the forces of deflation and deleveraging still aren't neutralized, what can be done to stop them? Indeed, might the only workable economic approach be to let these forces play themselves out?

By Jia Lynn Yang

For three years in a row, many of the country's wealthiest financiers have held on to what critics call an enormous tax break for Wall Street. The story is the same every time: A measure that would change the tax treatment of "carried interest" passes the House, only to hit a wall in the Senate.

It's back, this time in the jobs bill approved by the House last month. And if ever there were a time to pass a tax increase on billionaire money managers -- between public anger at Wall Street and lawmakers grasping for revenue anywhere they can find it -- this would be it.

posted by Jeff Collins

A panel of commercial real estate experts predicted a “double dip” recession triggered by growing defaults of commercial loans.

The experts were speakers at the National Association of Real Estate Editors conference in Austin, Texas, this week’s gathering of real estate news writers from across the country.

Values on commercial real estate in the U.S. has fallen by at least 40% — and by perhaps as much as 80% to 90% on hotel properties, said Mitch Siegler of San Diego-based Pathfinder Partners, which buys loans on distressed properties.

By Sarah Mulholland

June 3 (Bloomberg) -- Guggenheim Structured Real Estate replaced Bank of America Corp. as the servicer on debt tied to hotel company MeriStar Hospitality Corp. as investors seek to gain control of loan restructurings amid surging defaults.

By William Spain

CHICAGO (MarketWatch) -- Already reeling from a real-estate crisis and deep economic slump, Florida faces yet another financial cataclysm if oil from the Gulf spill mars its famous shores, scaring away crucial tourist traffic and wreaking havoc on its fisheries.

Beaches are big business in the Sunshine State. At stake there alone are hundreds of thousands of jobs and perhaps billions of dollars in revenue, depending on when and where the oil from BP PLC's /quotes/comstock/13*!bp/quotes/nls/bp (BP 33.97, +1.19, +3.63%) runaway well makes landfall.

FREDERICKSBURG, Va., June 2 /PRNewswire/ -- Nicholls Auction Marketing Group, Inc., (www.nichollsauction.com) announces the absolute auction of 15 acres of prime Stafford County real estate - the former WL Allen Concrete works real estate - according to John Nicholls, president of the company.

"This acreage is well located with road frontage on bustling U.S. Highway 1 and is convenient to Northern Virginia, Washington, DC, and military facilities," said Nicholls. "It is an incredible opportunity to purchase this amount of acreage with this road frontage so close to Washington, DC."

by Douglas Sams

Several high-powered Atlanta investment funds have hundreds of millions of dollars waiting to buy prime commercial real estate at bargain prices.

But there’s almost nothing to buy.

Investors expected a tidal wave of opportunities with potentially giant returns. But, as banks continue holding onto distressed real estate loans longer than expected, the wave hasn’t come.

Some investors aren’t sure it ever will.

By Andy Miller

I had lunch with our property manager today – he’s a sharp guy with hooks into much of the local (Sacramento) commercial real estate market. The development company he manages and leases property for is one of the prominent developers in town…they are still doing OK, but have certainly fallen on tougher times since 2007.

When I asked if prospective deal flow had improved – ie. prospective tenants looking to rent office space – I was surprised by his reply.

“No…actually, it’s getting worse. It’s even slower now than it was 6 months ago.”

By JOHN G. EDWARDS

LAS VEGAS REVIEW-JOURNAL
A customer is seen Friday at an ATM at Sun West Bank at 5830 W. Flamingo Road in Las Vegas. Regulators shut the bank Friday. Customers may continue using bank automated teller machines and making payments with their checking accounts.
John Gurzinski/LAS VEGAS REVIEW-JOURNAL

Regulators late Friday seized Sun West Bank, and City National Bank of Los Angeles took over deposits.

By Sam Chandan

Executive Summary
➤ The F.D.I.C.’s list of problem banks reaches 775, almost one in 10 banks nationally.
➤ In a new study, the Office of the Inspector General determines that commercial real estate is a contributing factor in bank failure in 36 of the 56 cases analyzed; construction loans, in 49 of the 56 cases.
➤ For failed banks where commercial real estate was cited, the average CRE default rate was 11.4 percent, three times that for all active banks as of December 2009.

BY ANDREW TANGEL

The strong pace of commercial real estate foreclosures in New Jersey did not abate in the first quarter, in a sign of continuing distress facing income-producing properties, according to newly released state data.

There have been 499 commercial foreclosures filed statewide in the first four months of this year — including one involving a prominent Hackensack office complex, according to data compiled by the New Jersey Judiciary. There were 503 commercial foreclosures in New Jersey in the first quarter of 2009.

By Karen Rivedal

It could be seven months or more before rising vacancy rates begin to level out in most commercial sectors nationwide.

That's according to research released this week by the National Association of Realtors. The NAR's chief economist, Lawrence Yun, could point to only one bright spot in commercial real estate --apartments.

By Jonathan Stempel

(Reuters) - Lehman Brothers Holdings Inc (LEHMQ.PK) on Wednesday sued JPMorgan Chase & Co (JPM.N), accusing the second-largest U.S. bank of illegally siphoning billions of dollars of desperately-needed assets in the days leading up to its record bankruptcy.

Hot Stocks

By JULIE SATOW

Despite rosy news about job growth in New York and the prospect of a rebound in commercial real estate, the market’s recovery could be delayed by a large amount of vacant office space that would normally be sublet or otherwise absorbed in a healthy market, new data show.