make realistic offers on their debt, if
you are comfortable with that space, or
any REO they may have on their radar
screen. It’s hard to find deals right now,
and it takes a lot of elbow grease. Don’t
waste time chasing special servicers because they must take everything to market
to satisfy the pooling and servicing agreements; no sweetheart deals there. And
owners who are hanging on are generally
under water so that’s typically a dead end.
For me, I would be patient. I would back
up my $100-million equity with another
$100-million credit facility to create $200
million in buying power. I’d assemble a
top management team with experience repositioning distressed assets. It’s all about
sponsorship right now. Finally, I’d focus
on secondary and tertiary markets with
assets that can be repositioned to appropriate limited and select service brands.
Contrary to popular belief, it’s the tertiary
markets that pose the least risk. The big
sexy high-end assets may soar the highest
when times are good, but they crash the
hardest when they aren’t—and this time is
no exception.—Natalie Dolce
For the complete interview, please visit
http://www.globest.com/california/.
EXPERTS: GOING GREEN EQUALS
FINANCIAL SURVIVAL
“When we talk about green, it’s not just
about polar bears; it’s about people as
well.” So said guest speaker Melissa Bradley-Burns, senior strategist of the Capital
Access Program “Green for All,” at a recent International Council of Shopping
Centers 2009 RetailGreen conference
event. Bradley-Burns explained that
“There are opportunities for going green
within the retail space that supports a financial return and the preservation of the
environment.”
For example, she pointed to Kohl’s,
which is “the No. 1 purchaser of green
power in this country.” She explained that
the retailer isn’t doing it for publicity, but
instead because it is saving millions of dollars. “It is having an impact on the environment and on the bottom line.”
And the business community is getting
on board. “Timberland, Gap, Ford, DOW
Chemical, the Bicep Coalition, Alcoa and
so many more are going green and making
money,” she noted. “This is a huge opportunity and it’s a necessity. It makes sense to
figure out how to do this that makes sense
financially and helps the environment.”
In “Green Recovery: Get Lean, Get
Smart and Emerge From the Downturn
on Top,” Andrew Winston, founder of
Winston Eco-Strategies, reinforced much
of what Bradley-Burns said. He discussed
the importance of environmental strategy in hard times. “The discussion has
shifted,” he said. “It really isn’t about polar
bears anymore; it’s about solar panels.”
There is no better time than now to
take action, to have what he calls a green
recovery, adding that “companies have relied too long on thinking that letting go of
jobs is a way to get lean.”
The pressure that is coming from businesses now is really the driver. GE now sells
more wind turbines than gas turbines, he
said. “It is a new business world.”
Demand is not coming just from businesses, he said. Nearly 1,000 mayors have
set goals. States have set LEED standards.
Some cities have tax incentives and permits, all helping the green movement.
“Communities are pressuring as well”, he
noted. “Classic shopping bags are being
phased out around the world.”
According to a recent survey, Winston
noted, the next generation has an attitudinal change, saying that “corporate social
responsibility makes good business sense
because it leads to financial profits, not
just intangible value.”—Natalie Dolce
JOBS, LOANS LOOM LARGE
FOR OFFICE MARKET
Job losses here and in the rest of the US
remain one of the biggest obstacles for
the office market, and office construction
loans promise to produce more problems
for banks. These are some of the conclusions in two recent reports, one by Marcus & Millichap Real Estate Investment
Services Inc. and the other from CBRE
Econometric Advisors, regarding the
forces shaping and being shaped by the
US office market.
The Marcus & Millichap report is a
study of the Los Angeles office market that
points out that office-using employment
in the LA market has contracted by more
than 8% with the loss of nearly 90,000 positions since the onset of the recession, and
that employers are forecast to thin payrolls
by 3.4% for the full year in 2009, cutting
135,000 jobs. Last year, 138,700 workers
were let go, the report points out.
Among other points, Marcus & Millichap notes that office completions will slow
to 1. 2 million square feet by the end of this
year, down from nearly 1. 4 million square
feet last year, which itself was a modest year
in terms of new completions in the LA market. “Negative net absorption is expected
to total 4. 7 million square feet this year,
after tenants returned 4. 6 million square
feet of space to the market in 2008,” the
study says. As a result, vacancy is forecast
to rise 2.5% to 13.4% by year end.
Among the effects of the rising vacancy
will be a further decline in asking rents.
The report forecasts that asking rents will
retreat 5.6% to $32.52 per square foot per
year by the end of this year, while effective
rents will fall 9.2% to $26.60 per square
foot per year.
The CBRE Econometric Advisors report, by principal and director of forecasting Jon Southard, focuses on the problems
in store for banks that have office construction loans outstanding. “In the office
sector, the first area of distress is likely to
be completing and recently completed
construction,” the report points out. New
construction is the area in which a pull-back in demand for office space matters
the most, and most construction financing
is done by banks, the report explains.
The Econometric Advisors analysis emphasizes that there is not as much new construction today as there was in the 1990s,
but “what construction there is today is
just as distressed.” Among the statistical
comparisons in the report: Nineteen years
ago, more of the overall vacancy was in
buildings that were more than 20% vacant
and therefore likely distressed in their inability to service debt.
Despite the differences between this
recession and the previous downturn, the
report states: In short, there will be plenty
of distressed borrowers—and therefore
distressed loans—due to income shortfalls
alone. Write-downs resulting from these
problems “will likely push some additional
banks into failure, as many smaller banks
are highly concentrated in commercial
real estate loans,” the report says.
The CBRE Econometric Advisors
study points out that bank analysis “is not
something we do here.” However, it concludes, “It would not be surprising if the
number of additional failures matched
