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Promus Commercial Real Estate NewsSeptember 2010This Month's Stories:
Let’s Be Cautiously OptimisticA CoStar Group report shows bullish attitudes towards commercial real estate despite concerns over jobs, deflation, and low government stimulus. And while jobs are being created in the broader economy, it’s not as fast as most people would like. As a result, the pace of growth has to pick up greatly before real estate fundamentals can improve significantly. There is good news to hang onto from all this. There’s an ongoing (and growing) flow of capital to the commercial real estate market, and Prudential Real Investors reports in its latest U.S. Quarterly Market Perspective that these funds are coming from an expanding range of sources, such as institutions, foreign investors, private equity and REITs. Investors are increasingly being attracted by the improved outlook of the commercial real estate sector, solid indications that prices have bottomed out, and, with lenders more wiling to take a “Pretend and Extend” philosophy towards the properties in their portfolio, appearances that the commercial foreclosure crisis will not be as widespread as was previously feared. Prospects for more-attractive returns relative to other investment options don’t hurt either. What The Future Holds
Recognizing that more jobs will eventually come, office property values are expected to have a 25% growth rate from where they bottomed out. However, CoStar expects San Diego ’s market to have a drawn-out recovery back to the peak values experienced prior to 2007. Those values may not be reached until 2019, according to debt analyst Tiandan Wu. Owners with large balloon payments within that timeframe may have refinancing issues that are best worked out sooner, rather than later. Senior real estate executives also express concern about unstable market fundamentals and government policy when reviewing the economy's tepid performance and the commercial real estate sector's outlook for recovery. "Uncertainty reigns. Whether it is job creation, unstable capital markets or a volatile mix of current policy and the upcoming mid-term elections -- investors and businesses are skittish, causing the commercial real estate outlook to be flat," said Jeffrey DeBoer, Real Estate Roundtable president and CEO. "The good news is that last quarter's view that commercial real estate markets have stopped falling has been confirmed this quarter and values for high quality assets show strength. But the overall sentiment is that the industry is in for a long slow recovery characterized by extreme caution." Despite Mr. DeBoer’s comments, his second quarter Real Estate Roundtable Sentiment Index report also indicated the following:
62% of the survey participants reported real estate market conditions today as "somewhat better" than a year ago. 19% said conditions are "much better". 79% of respondents predicted conditions one year from now will be "somewhat better" or "much better". Local Market Better Than Most
Sorry to disappoint you, guys. Numerous indications of commercial real estate’s financial health have been popping up for San Diego ’s market. Several big name analysts have deemed San Diego County among the least distressed major markets, relative to its overall property loan volume. Hotel sales alone are up 68% in the first half of the year, providing solid evidence that the bottom of the trough is behind us. Citing data gathered by Investcap Advisors and QuantumRisk, CoStar Group’s June 16 report showed hard-hit metro areas – Las Vegas, Phoenix, Detroit, Orlando, Tampa and Atlanta – all show “probability of default” ratios, or the percentage of property loans to be foreclosed on, of 10-14%. Overall loan values ranged from 8.6 - 15.4 %. In both instances, San Diego ’s rates remained below 4%. Add to this lower vacancy rates than last year, little new construction (beyond military and education-related projects) to swell the overbuilt market, and a positive absorption of vacant space and there’s reason to be positive about San Diego ’s short-term outlook. New construction isn’t expected to increase for the next year or so. CoStar’s report also showed a capitalization rate of almost 10% for San Diego ’s retail centers, compared to under 9% nationally. San Diego ’s cap rate is typically lower than the nation as a whole. This makes our local commercial real estate market among the least distressed in the US , according to Lou Hirsh, real estate reporter for the San Diego Business Journal. Buying More and Spending Less
No matter what condition the economy is in, these are the kinds of services that you must provide. And when times are tough, there’s no doubt it’s a squeeze to part with the cash. Which is why we set up the Promus Bulk Bidding Program. It provides bulk buying opportunities for all the key services your tenants insist upon using the buying power available through Promus’ services buying team. Putting our Bulk Bidding Program is as easy as contacting Scott Cook (scott@promuscommercial.com) at 858-751-6324. Or visit the forms page at promuscommercial.com. Because Promus professionals understand what it takes to make the most of every opportunity on your behalf. Helping Those Most in Need
“The question” says REstart co-founder (and Promus Commercial president) Lauri Greenblatt Hines “was how do you help homeless families, bring quality people into the real estate management field, and make it work to everyone’s advantage – all at the same time?” The answer was San Diego ’s REstart program. Non-profit REstart trains disadvantaged parents to work in the property management industry through a 10-week course that teaches the fundamentals of apartment management. After completing their coursework and a one-month, unpaid fulltime internship, these newly-minted graduates become eligible to apply for jobs that can provide them with free housing, a career, or both. The first program of its type to combine education, training and networking to guide disadvantaged single parents to a new start in life through real estate, REstart focuses on assisting single parents who would otherwise be homeless, jobless, and trying to raise a family without the basic necessities of life. “Their ruin may be caused by substance abuse, domestic violence or poor life choices, but these unfortunates have all landed in the same place” Ms. Hines says. It is this ability to help troubled families hit the RESET button that recently caught the attention of Casey Gwinn, founder and CEO of the National Center for Family Justice. His program has dedicated itself to bringing a wide range of domestic violence service providers under one roof to effectively deliver a “one-stop shop” to DV survivors. Mr. Gwinn is now in serious discussions to incorporate the REstart program as an integral portion of the 40 NCFJ offices scattered throughout the US . His interest is understandable. Since giving birth to this novel idea, the founders, trainers, and generous supporters of REstart have helped train hundreds of single parents to become more productive members of our local society. Others around the country are also starting to follow REstart’s example, finding other unique ways of:
Promus Commercial is pleased to be a leader in this very successful 12-year old program that consistently breaks the cycle of poverty, drugs, alcohol, and spousal abuse by teaching marketable skills, instilling a sense of pride in single parents, and providing training, mentoring and job placement assistance as apartment building resident managers. We invite you to join us in helping someone in need REstart a life.
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Market outlooks vary by segment, per Prudential’s report. Short-term growth will probably be strongest in apartments and hotels due to their short-term leases and ability to react quickly to economic growth. Industrial, retail and suburban offices will be a bit slower on the rebound because of their reliance on job growth. And while 600,000 jobs have been added to the economy since January 1, 2010, millions of jobs were lost in the recession.
For months we’ve been hearing fear-mongers threaten a crashing tidal wave of commercial property foreclosures.
There are certain products and services that almost every property requires, including:
REstart is all about providing a fresh start to those who have nothing. |
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