UPDATED
Interesting things have been happening in the real estate markets.
Residential
The home sales index spike from the home buyer tax credit has almost run out. If you didn’t have a deal in escrow by April 30, you didn’t get the credit. The time to close a deal was extended to September 30. The predictions were that we’d see a fall in July activity which is exactly what is occurring.
The reports that are currently coming in don’t yet reflect July sales which will show a drop in sales. For example, the Case-Shiller report came in today for May, 2010, but that report is a three-month average of prices. The report said prices were up 1.2% MoM, and 5.4% YoY. That was the peak of housing credit driven sales. According to S&P which publishes the index:
“While May’s report on its own looks somewhat positive, a broader look at home price levels over the past year” doesn’t show that the housing market “is in any form of sustained recovery,” said David M. Blitzer, chairman of S&P’s index committee. “Since reaching its recent trough in April 2009, the housing market has really only stabilized at this lower level.”
Last week the National Association of Realtors reported that June sales of existing homes declined 5.1% from May but up 9.8% YoY. Sales declined 9.3% in the west. Inventory rose in June:
The supply of homes available for sale in 27 major metropolitan areas at the end of June was up 3.7% from one month earlier, according to figures compiled by ZipRealty Inc., a real-estate brokerage firm based in Emeryville, Calif.
Ivy Zelman of Zelman Associates says for the past 27 years inventories have declined in June by 0.5%.
… Continue reading Is The Real Estate Market Turning Around?
Fitch reported today that commercial real estate (CRE) values continue to decline giving rise to greater loan losses on CRE. On the average throughout 2009, lenders recovered 43 cents on the dollar on distressed loans. They see the loss rate only going up.
The average loss severity rate or the ratio of realized loss to liquidation balance for U.S. commercial mortgaged-backed securities (CMBS) loans resolved with losses in 2009 was 57% compared to the 43% rate in 2008, according to new data from Fitch Ratings. Those losses outpace the cumulative historical average of 37.2%.
“Loss severities are expected to remain above the current cumulative average through 2011,” said Fitch managing director Mary MacNeill. “Assets liquidated in the current economic environment will be those not likely to see cash flow improvement from an extension or modification.”
“Assets will take longer to resolve as special servicers continue to see high volumes of underperforming loans,” added Fitch senior director Richard Carlson. “Continued high inventory and the declining frequency of modifications means there is no relief is in sight.” …
“Property value is the barometer of potential losses for CRE debt,” [Xiaojing Li, senior debt analyst for CoStar Group] said. “In the first quarter of 2010, there were already $270 million in losses via liquidation. Among the $17.7 billion in loans newly added to special servicers this year, 7% have already had appraisal reductions, threatening a new wave of losses.”
Losses by property type were:
* Hotel: 81.9%.
* Multifamily: 58%
* Office: 56.9%
* Industrial: 48.8% and
* Retail: 48.2%.
I am reprinting this refi timeline chart to give you a better idea of the problem: … Continue reading The Latest Data On Commercial Real Estate Loan Losses
Here’s a story for the decade. Morgan Stanley’s Msref VI, an $8.8 billion real estate fund, lost $5.4 billion, the biggest loss in the history of private real estate equity investing. This story is just out from the Wall Street Journal and it is worth a read.
It isn’t clear from the article, but they bought many of their properties in 2007. I don’t have to tell you how insane of a move that was when the U.S. housing market was collapsing. One of their big misses was the Eurotower in Franfurt which, ironically, is the home of the European Central Bank.
I’ll give you a hint what may have motivated Morgan; according to the article:
When times were good, the fund generated fat fees for various segments of the bank. In 2007 alone, Morgan Stanley earned $104 million in acquisition fees, $22 million in fund-management fees, $13 million in financing fees, $36 million in real-estate-management fees, and $21 million in financial-advisory fees, according to fund documents reviewed by the Journal.
Here are some highlights of the article:
The soured investments made by the $8.8 billion fund, Msref VI International, continue to be a distraction for Morgan Stanley as it tries to extricate the fund from complex deals around the world. In many cases, the company can’t walk away from foundering investments because the fund made billions of dollars in guarantees.
Morgan Stanley now is negotiating with lenders to reduce the fund’s obligations on the money it borrowed, its interest payments, renovation costs and other expenses. …
As credit conditions worsened, Morgan Stanley executives had to spend increasing amounts of their time disentangling the fund’s complex deals. About 20% of the $8.8 billion raised for the fund came out of the pockets of Morgan Stanley and its employees. … Continue reading Morgan Stanley Loses $5.4B In RE Fund: Biggest Loss In History!
It didn’t take long for the Wall Street Journal and the government to catch up with The Daily Capitalist, which surprises me since they usually take much longer.
But here’s yesterday’s headline, which came out after I published Part II of my “State of the Economy Part II” article on real estate, banking, and credit liquidity: [...]
Four hotels owned by Beanie Baby tycoon and Montecito resident, Ty Warner have a $425 million loan due in January, 2010. S&P just put the bond that the loan backs on “credit watch.” The loans are on the Four Seasons in New York, the Four Seasons Biltmore Resort and the San Ysidro Ranch, a 38-room [...]
The FDIC is proposing new rules that will allow banks to lower underwriting standards and capital requirements in order to encourage them to rewrite commercial real estate loans. This will cause more deflation, stagnation, and tightening of credit and lengthen the recession/depression. [...]
By Jeff Harding.
My company has been looking for real estate deals and we have been frustrated finding deals we can live with. We have researched the Southern California market with which we are familiar and find either banks are holding on to bad deals or that , once they foreclose, they are asking more than [...]
|
