I can tell you guys from personal experience that commercial real estate is starting to come down the cliff. The most apparent pain now is being felt in secondary and outlining markets (central valley california, oregon, phoenix, las vegas, texas, etc) and it won’t be long before it spreads to the high dense areas like downtown LA, West LA, SF, Seattle, etc. Here are some interesting articles that provide some more clarity of what I’m talking about…
Retail is getting clobbered. Apartment owners who thought that people getting foreclosed would mean their vacancies would go down are finding vacancies at a near all time high. Rents will be forced down. We just signed a deal in Corona our light industrial that lowered our rent from 1.05 to .65 per square foot. I thought I would get ahead of the market istead of chasing it down with a vacancy. Other landlords looking at the comps must hate me. Don’t even talk to me about office space right now. In fact you should be able to lease office space and just move in and live there to save money compared to apartment space. People have been doing the same thing with light industrial space for years.
Retail Blowing Out too Fast to Record - Ontario Mills
Is the worst over?
I think Ontario Mills also got hurt because of Victoria Gardens.
Ontario Mills got hurt because it’s in Ontario.
haha Well that is obvious, but it is an aging retail center and when Victoria Gardens opened a few years back it was another death blow to the Mills. In today’s retail market, it is the malls that are suffering the worst. I work across the street from the Brea Mall and when I go in there for lunch to the food court I can see how dead it really is. Neigbhorhood grocery/WalMart anchored retail centers will fair the best in the retail sector.
I went to a Christmas party for a So. Cal. Structural Engineers association. One of the senior board members sat next to me at lunch, and was telling me his customers were not planning on even looking at doing any new development untill 2010. He asked my opinion, and I told him I thought we were just getting started in the downslide. I think we have enough slack capacity to house retail needs for at least 15 years, assuming that the structures last that long.
Strip malls don’t stand up very well without tennants because stuff like roof leaks don’t get addressed if the space is vacant.
I disagree about Victoria Gardens. The mall is upscale (OM isn’t) and the parking sucks. I went there once when it opened, and won’t return. Ever.
I went to a Christmas party for a So. Cal. Structural Engineers association. One of the senior board members sat next to me at lunch, and was telling me his customers were not planning on even looking at doing any new development untill 2010. He asked my opinion, and I told him I thought we were just getting started in the downslide. I think we have enough slack capacity to house retail needs for at least 15 years, assuming that the structures last that long.
Strip malls don’t stand up very well without tennants because stuff like roof leaks don’t get addressed if the space is vacant.
I disagree about Victoria Gardens. The mall is upscale (OM isn’t) and the parking sucks. I went there once when it opened, and won’t return. Ever.
Yeah, whoever came up with the parking design and the ones who approved the site plan at the city/county level need to be kicked in the nuts. I think they were going for that “main street” type of theme through the main part of the mall. It’s like they couldn’t decide whether to design a mall or a power center and came up with a mutant hybrid. You can thank Lewis Retail for VG.
I like Victoria Gardens. I never had issue with parking either, then again I’m willing to walk 50 yards.
Go when they are busy sometime. We went to the Yard House, and wound up walking for a good 10-15 minutes just to learn that there was a line of another 45 to get in. We thought about it for thrity seconds, and bailed. It took another 10 to get back to the car and another 10 to get out of the parking lot.
I like Victoria Gardens. I never had issue with parking either, then again I’m willing to walk 50 yards.
Go when they are busy sometime. We went to the Yard House, and wound up walking for a good 10-15 minutes just to learn that there was a line of another 45 to get in. We thought about it for thrity seconds, and bailed. It took another 10 to get back to the car and another 10 to get out of the parking lot.
I hope you are not actually driving through VG, I don’t think you are though. I did that once, and nearly lost it.
I agree with you completely, however perhaps I should have noted that if you use the back entrance and park there you’ll have a much much easier time getting around. I find the back parking pretty empty compared to the front one. It’s the area by that big outdoor sporting goods store and Lucilles BBQ. The yardhouse/crate n barrell entrance can be a pain. The only time I found it to be a pain was during X-mas time, but kinda worth it. I liked their x-mas decorations and ambiance. That place definately belongs to OC not IE.
But perhaps we are going different times and had different experiences. My wife and I still go there about once a month, but when we lived in the IE it was quite often as it was about the only place that felt half normal other than going to OC.
I habitually avoid malls, chain resurants, department stores so I’m not exactly the demographic. Mostly because I don’t stand in lines and don’t like crowds. Somebody told me they have meds for this…........
The trend in retail seems to favor open air “lifestyle” centers like VG over the more traditional enclosed malls (Ontario Mills).
The Grove in LA is extremely popular and taken a lot of traffic and people away from the Beverly Center.
Never been to VG.
Places like Ontario, west of the 15 in the IE seem to be desirable and have appeal.
I’ve just finished an analysis for the upper management, just 2009 YTD CMBS downgrades totaled $80bn, RMBS $60bn…...
For all life insurance companies, the downgrades reduced their RBC (risk based captial) by $1.2bn/1.5bn, good luck raising money to fill that hole…. here comes TARP II
I’ve just finished an analysis for the upper management, just 2009 YTD CMBS downgrades totaled $80bn, RMBS $60bn…...
For all life insurance companies, the downgrades reduced their RBC (risk based captial) by $1.2bn/1.5bn, good luck raising money to fill that hole…. here comes TARP II
Everything becomes a bank holding company and has access to FED window.
Commercial real estate is nothing more than a proxy for the intersection of the two historically core driving forces in the U.S. economy: real estate values and business conditions. And as the facts above indicate, the deterioration is only starting to pick up.
But what about all the stimulus programs skeptics will ask? The bail out packages? The constant funneling of taxpayer money into every underperforming segment of economy?
The truth is that the more taxpayer money is dumped to try to fill the abyss, it may become marginally shallower, but only at the expense of it getting wider. At some point soon (if not already), the U.S. economy will be unweenable from the trillions and trillions of taxpayer subsidies all the while it becomes more indebted to both its investors and taxpayers, further exacerbating the abovementioned paradox (presumably not without a motive). As the multi-trillion CRE crash continues to deplete the left side of the financials’ balance sheet with an exponentially growing pace (and I have not even touched on the credit card topic), the banks will be left scratching their heads what accounting rules to bend, which insurance companies to implode and get another AIG-like piggybank, how to break REG-FD more and more creatively with select memo leaks, how to manipulate the market, and how to make the Tsy curve becomes even more upward sloping with the compliments of the Fed and the Treasury. In the meantime the disinformation rift between the American taxpayers and investors will keep growing until inevitably, one day, it will escalate to the point where empty promises on prime time TV by the administration’s photogenic representatives will not suffice, and real actions that benefit future American generations will be demanded… What happens after I have no idea.
Even as conditions in many parts of the credit markets have improved, a big question mark hangs over one large part of the market that is still dysfunctional: the market for securities backed by commercial mortgages.
Behind the scenes, regulators are acutely aware that the commercial real estate market is one of the few potential remaining sources of systemic risk if the financing problems cannot be fixed.
William Dudley, president of the Federal Reserve Bank of New York, highlighted this this month: “The revival of the commercial mortgage-backed security market is essential to stabilising the commercial real estate market.
“If the availability of funding for this market is not restored, the downturn in commercial real estate valuation and the losses for the holders of these assets will be greater. This will, in turn, likely further constrain credit availability. That’s the vicious cycle we want to lean against.”
The clock is ticking with some of the $3,400bn of loans made to property developers for anything from urban office tower blocks to shopping malls across the US due for payment.
Although the CMBS sector faces a series of downgrades – bringing echoes of subprime mortgage-backed securities – there are important differences.
First of all, only a quarter of commercial mortgages are securitised – the proportion was much higher for subprime mortgages. Also, there was not the same amount of derivatives and securities linked to commercial mortgages.
The subprime mortgage collapse was so damaging because billions of dollars of securities were linked to their value through derivatives. The commercial mortgage issue is vital for US banks, which have much reduced capacity on their balance sheets, meaning they are not as able to roll over and refinance maturing loans. In addition, there are concerns about losses once properties that are not in a good state have to be refinanced.
In other words, there will be properties where the value is far less than the loan, and additional equity has to be found.
“At least two-thirds of the loans maturing between 2009 and 2018 ($410bn) are unlikely to qualify for refinancing at maturity without significant equity infusions from borrowers,” says Richard Parkus, analyst at Deutsche Bank.
“Bank and life companies, which make up approximately 50 per cent and 10 per cent of the [$3,400bn commercial real estate] market, respectively, must also be considered,” said Mr Parkus. “The same combination of deteriorating underwriting standards and excessive price inflation were operating in bank and life company lending [as in the CMBS market].”
The Fed’s initial plans are aimed at funding new securities backed by new mortgage loans. The complication is that the decision to lend commercial mortgages, unlike credit card or auto loan backed securities, is very closely linked to the interest rates available on existing CMBS. The collapse of the sector and the departure of numerous buyers of CMBS led to a huge increase in interest rates, and these remain high.
Where are all those people from 06 and 07, who thought I was nuts the CRE would collapse? I would sincerely like to ask them how they feel about CRE now. I tried to warn them, you need jobs to fill office space and for consumers to spend money. I hope some at least listened a little, and did some deeper research than the crap they got from CBRE and Voit, because man… were they wrong.
The LA Times just wrote a piece about the struggles of luxury hotels (specifically Four Seasons). I’m wondering how long Pelican Hill can survive without some serious rethinking of their model. My husband played a round there yesterday and said that the hotel, restaurant and course were like a ghost town. I think we’ve discussed this somewhere else in the forum, but seriously, how long can they hold on?
TIC has pockets deeper than we could imagine. They spent a Billion building this resort and I am sure, more than willing to let it sit on their balance sheet for a long time to come. The loss is just an entry on a sheet of paper to them.
I have a friend thats a Caddy. He tells me its so slow. But every once in awhile they get up to 20-30% occupancy. The 3 times I have been ther for a meeting or drinks. Its been very slow
as well.
The real question about these 5 Star Mega Resorts is what about St. Regis ?
And it looks really ugly for California Hotels in the near term
If anyone really cares about the economy anymore (the damn TICrolls in the WE thread waste everyone’s time), then I will post some stats from CBRE. It ain’t pretty. But since what is more important to discuss are the dumb foreign buyers, who failed econ 101 and rely on info from the press (Bren knows to publish in the Asian papers), then I am a bit reluctant to waste my time in putting in the effort of such a post. I’m still waiting for someone to answer what year the article I posted is from.
If anyone really cares about the economy anymore (the damn TICrolls in the WE thread waste everyone’s time), then I will post some stats from CBRE. It ain’t pretty. But since what is more important to discuss are the dumb foreign buyers, who failed econ 101 and rely on info from the press (Bren knows to publish in the Asian papers), then I am a bit reluctant to waste my time in putting in the effort of such a post. I’m still waiting for someone to answer what year the article I posted is from.
I think I’m gonna go take a peak to see who the lenders were for both properties.
