Could General Growth Be Sold?

As the credit crisis drags on, debt-ladened General Growth Properties, the nation’s second largest regional mall REIT, may have no other choice than to sell the company. That move, according to some observers, could even happen before the end of the year.

Last week, the Chicago-based firm announced it was exploring financial and strategic alternatives, including possible sale of the company, as it races to retire all of its 2008 loan maturities, which total $2.8 billion. Beyond that, as of Aug. 29, the company had a total long-term debt load of about $27 billion, according to Columbia Capital Services, Inc. Its long-term debt to capitalization ratio is at 72 percent, according to a report from Wachovia Capital Markets.
On Monday, Standard & Poor’s downgraded General Growth’s corporate credit rating to BB from BB+ and put the company on the watch list for further downgrades.

General Growth has already adopted several extraordinary measures as it tries to work with debtors and calm investors. On Sept. 2, it added seven of its properties to the collateral pool to repay $391 million in near term mortgage maturities. On Sept. 17, it increased the initial repayment guarantee to 50 percent of its outstanding $1.5 billion credit facility. On Sept. 20, two days after the company’s stock plummeted to a 52-week low of $19.50, General Growth was added to the short sell ban list by the Securities and Exchange Commission (SEC). It has also doubled its recourse levels with lenders to 50 percent. . . . more

Ciena Capital Declares Bankruptcy

NEW YORK CITY-Ciena Capital, a local provider of commercial real estate financing and factoring services, has filed for chapter 11 relief in the US Bankruptcy Court for the Southern District of New York, according to a statement by its major investor, Washington, DC-based Allied Capital. Although it will continue to operate its servicing business and, shielded by bankruptcy will be able to dispose of its assets in an orderly fashion when the markets improve, Ciena Capital joins the growing credit-market-freeze body count--and by extension, Allied Capital will be feeling some heat as well. Ciena did not return a call to GlobeSt.com in time for publication. Allied Capital declined to comment beyond its press release.

Allied Capital’s "unconditional guaranty of the obligations outstanding under Ciena's revolving credit facility may become due," it said in the release. The company intends to pay approximately $320 million to the lenders in connection with Ciena's revolving credit facility and will continue to guarantee a remaining balance of approximately $10 million. To fund the payment, Allied Capital will tap some $150 million it has in cash and may borrow an additional $170 million on its unsecured revolving line of credit. In essence, Allied Capital will become a senior secured lender to Ciena. . . . more

Commercial-Property Players Find Their Pressures Growing

As Crisis Spreads, Market Seizes Up; Capital Preservation

For the commercial-real-estate players that were in hot water before the capital-markets crisis of the past two weeks, the temperature is rising.

Retail giant Centro Properties Group, New York developer Macklowe Properties, office-building investor Broadway Real Estate Partners LLC and others are now facing an even rougher ride in the wake of Lehman Brothers Holdings Inc.'s bankruptcy, the collapse of American International Group Inc. and the buyout of Merrill Lynch & Co. by Bank of America Corp.

After these and other market crises, cash-flow projections for properties are being scaled back in anticipation of a greater economic slowdown. The sales market -- long considered the last hope of many distressed players -- has virtually ground to a halt.

Even creditors that were willing to make real-estate loans before the upheaval are pulling back, having witnessed the spectacle of some of the biggest names in finance and banking vanishing in a period of days. . . . more

Lehman, Merrill Assets Expected To Be Sold

With the credit markets seized, the avalanche of bad news surrounding investment banking giants Lehman Brothers and Merrill Lynch and insurance provider AIG has caused a state of panic in the commercial real estate industry.

Merrill was exposed to about $18 billion between whole loans, conduits and direct real estate investments. Lehman, meanwhile, continues to hold $32.6 billion in commercial real estate between whole loans and CMBS bonds. About 11 percent of its portfolio is devoted to retail. AIG’s exposure is harder to pin down. The company built up a $60 billion position in the credit default swaps market—some of which is tied to CMBS. The company also has $16 billion in international real estate assets.

The question now is, with Lehman in bankruptcy, Merrill Lynch in the process of being acquired by Bank of America and AIG sold off in parts by the government, what’s going to happen to all those holdings?

In the case of Lehman and Merrill Lynch, their commercial real estate assets will likely end up on the auction block, according to David Akeman, director in the capital markets group of Stan Johnson Company, a Tulsa, Okla.-based commercial real estate investment firm. Before filing for bankruptcy last week, Lehman had planned to spin off its commercial real estate portfolio into a stand-alone, publicly-traded entity, Real Estate Investments Global, which would allow the bank to avoid a forced fire sale. But after its September 14 bankruptcy filing, Lehman will not likely be allowed to spin off one of its divisions, says Adam B. Weissburg, partner with Cox Castle Nicholson LLP, a Los Angeles-based real estate law firm. . . . more

General Growth reviews alternatives after stock plunge

NEW YORK (MarketWatch) -- Debt-laden mall operator General Growth Properties Inc. (GGP:

General Growth Properties, Inc. said Monday it is considering asset sales and mergers after its stock price received a serious bruising last week.

Fretful about the fate of highly-leveraged companies, investors frowned on the news, causing General Growth's shares to tumble 19% in recent trading.

General Growth, the second-largest U.S. mall owner and operator by market value, said it should be able to offer long-term fixed-rate portfolio mortgage financing to lenders in November and is pursuing other financing for debt maturing soon. In addition, various capital-raising efforts are being explored - including divestitures, preferred-stock sales and mergers.

The move comes after the real-estate investment trust's share price slumped 34% on Thursday, forcing General Growth executives to sell more than 2.4 million shares to cover margin calls. The stock slide was prompted by disclosures that it granted a concession in a $1.5 billion loan it will use to replace other debt. . . . more

After Lehman, Banks Jettison Commercial Real Estate Debt

The bankruptcy of Lehman Brothers Holdings Inc. is adding pressure on banks and other financial institutions to sell off their holdings of commercial real-estate debt, as they try to stay out ahead of the Wall Street firm's expected liquidation of its $30 billion portfolio.

The likely rush to sell is driving down the already battered market, forcing financial firms to take additional losses on the estimated $150 billion worth of commercial real-estate debt on their books as the once relatively resilient pocket of the property sector now comes under heavy fire.

"As a result of Lehman's bankruptcy, other financial institutions will feel more pressure to sell assets at deeper discounts sought by investors," said Spencer Garfield, a managing director of Hudson Realty Capital, a New York-based real-estate fund manager.

Goldman Sachs Group Inc. on Tuesday said it had reduced its portfolio of commercial mortgages and securities by about $2 billion to $14.7 billion as of the end of its third quarter, which ended Aug. 29, taking a $325 million loss.

"It sure doesn't feel like the real-estate markets are improving anytime soon, and we will reduce that class going forward even if we think they are good assets," said Goldman Sachs Chief Financial Officer David Viniar. "Those assets are marked where they can be sold."

. . . more

How Lehman Hurts Commercial Real Estate

I’m still trying to get my head around the implications that Lehman’s collapse has on the commercial real estate sector. As I see it, there are a handful of ways this is negative or potentially negative for the sector. If you’ve got any feedback or disagreements, let me know in the comments section.

I. Values: Lehman’s sitting on $32.6 billion in commercial real estate investments in the form of loans and equities. It was a big investor in commercial mortgage-backed securities. What’s it going to do with that? Will it still roll those holdings into the bank it talked about last week? Or will it try to sell this stuff on the market. Right now, investors are so skittish about any kind of securitized debt, Lehman may have to sell at deep losses. That, in turn, will force other holders of CMBS bonds to “mark to market” based on Lehman’s precedent. So we’re looking at a real potential drop in perceived values of CMBS bonds. That could also have effects on determining the value of actual real estate. If the CMBS valuations are to be believed, it would imply deep discounts on actual property values. The industry, I think, had been hoping that the correction in prices would be something like 10 to 15 percent. Now it’s looking like it may be a steeper drop than that.

A perceived drop in values of real estate is also going to hurt retail REITs. The correction in REIT stock prices had settled in at a 10 percent to 20 percent drop from 52-week highs. Now it’s looking like REITs are going head lower again. . . . more

U.S. real estate hasn't hit the bottom yet

U.S. commercial real estate prices are likely to tumble over the next 12 to 18 months as more borrowers default on their loans and regulators crack down on banks, pushing even more properties onto the market.

Since the market's peak in 2007, the availability of debt - the lifeblood of commercial real estate - has dried up and choked off sales. Borrowers have resisted selling because of falling prices. Banks have not sold off their troubled loans, fearing a huge write-down of all commercial real estate loans. But it looks as if the clock is running down.

"We're going to see a whole lot more trouble going forward," said Peter Steier, vice president of Inland Mortgage Capital in New York.

Steier was speaking at the Distressed Commercial Real Estate Summit East, where about 200 investors, lenders and buyers recently gathered to discuss how to capitalize on the distress of the commercial real estate sector, as signaled by the growing number of foreclosures, sick banks and distressed loans. . . more

Lehman Spins Off CRE Into Publicly Traded Firm

NEW YORK CITY-Management of troubled investment bank Lehman Brothers plans to spin off the $25 billion to $30 billion of the firm’s commercial real estate into its own public company. The entity, called Real Estate Investments Global [REI Global], will debut during next year’s first quarter.

According to the firm’s third-quarter financial report, REI plans to hold onto the assets to maximize shareholder value and not sell them based on pressure in a volatile market. However, REI will sell some properties if they provide favorable returns.

Though the new entity will be a long-term holder of commercial real estate, management said during its earnings call this morning that it does not expect it to be structured as a REIT.

GlobeSt.com reported last month that Lehman was in talks to spin off its commercial real estate portfolio. Reports at that time said Lehman could sell off the portfolio to BlackRock Inc., Blackstone Group or other firms.

Source: GlobeSt.

Real Estate Investors Turn To Traditional Banks For Financing

The commercial mortgage-backed securities market came to a screeching halt in early 2008, forcing real estate investors to scramble for alternative financing sources. The disappearance of CMBS vehicles, which had dominated the market in recent years, left borrowers with three financing options: life insurance companies, traditional banks, and agencies such as Fannie Mae and Freddie Mac, which focus on multifamily financing.

In the first quarter of 2008, CMBS originations were down 95 percent compared to the volume of deals closed in the fourth quarter of 2007. During the same time period, loan originations through traditional banks were down 56 percent, and financing provided by life insurance companies had fallen by 27 percent.

Buyers are seeking ways to compensate for the lack of financing options. Life insurance companies only finance a certain amount of product each year, and many of them have already completed their allocations for the year. The insurers that are still issuing debt are cherry picking the best deals with terms that are not overly competitive.

A select few of the big Wall Street banks are offering on-balance sheet financing to key clients with the assumption that the CMBS market will reopen for business sometime in the near future. They hope to take the loans they are originating now and refinance those loans in the CMBS market when it returns. Most of the loans being originated by the big banks are 3- to 5-year term loans with some including interest-only terms.

Many buyers and investors have turned to traditional banks for financing. Some banks are actively lending, some are not providing any debt at all, and others are in and out of the market.

The traditional banks that are offering financing are being inundated with loan applications. At the same time, federal regulators are examining the banks, carefully scrutinizing all of the loans on their books. Many banks have no choice but to take write-downs on bad loans and shrink their balance sheets. Others are trying to raise more capital to offset the bad loans and issue new ones. The banks actively lending, however, are demanding more from their borrowers than they did just a few months ago.

One of the many attractive features of CMBS financing was that it offered borrowers non-recourse debt. Under the CMBS structure, the loan was secured by the real estate, but the loan issuer could not go after the borrower for repayment in the event that the borrower defaulted, with the exception of intentional bad acts by the borrower.

Not surprisingly, traditional banks are balking at providing non-recourse debt. Many of them are requiring at least some recourse — typically ranging from 35 percent recourse to full recourse. This can be a serious issue for buyers and investors, depending upon how the equity portion of the transaction was structured.

Given the structure of the deals DBSI completes and the due diligence it performs, the company has not asked investors to provide recourse. DBSI takes on the burden itself as the majority of its 1031 exchange deals are sold with a master lease. The company is already responsible for the management and operation of the property, so DBSI is willing to take the recourse position.

Many tenant-in-common investors are unwilling to agree to financing that includes recourse. Each TIC investor owns a separate and distinct share of the property and, in many cases, does not interact with other investors in a meaningful manner. With some TIC properties having as many as 35 co-owners, individual TIC co-owners are often not comfortable signing for recourse debt with other investors they do not know. The sponsors selling these transactions are being forced to consider taking on the recourse debt themselves, even though they are selling the property.

When the CMBS market was in full swing, borrowers were able to originate long-term (up to 10 years), interest-only debt. Now that banks are originating shorter-term loans with required amortization, equity returns have been squeezed. Real estate sellers are slower to adjust pricing than are the capital markets. Cap rates are rising at a slower pace than the cost debt funds are increasing, which results in a lower equity yield to the investors.

Real estate prices are also declining, which results in cap rates increasing. This trend has caused potential sellers that do not have to dispose of their real estate to reconsider selling in the current market. Some owners must sell, due to maturing loans and the inability to obtain sufficient loan proceeds to refinance.

Buyers and investors that are completing 1031 exchanges must find a replacement property within 45 days of selling their property or they will be required to pay capital gains taxes. Depending upon their tax basis in the relinquished property and the tax consequences of not completing an exchange, many investors are accepting recourse debt and current market debt terms when faced with paying the taxes as the alternative. With many potential exchangers sitting on their current real estate investments, the number of 1031 exchanges being completed is significantly reduced compared to the volume of deals closed in 2007.

It will take some time for the turmoil within the financial markets to quiet, but things will eventually settle down. Financing is still available, albeit more expensive and more difficult to obtain. Nonetheless, profitable deals are still being completed by Spectrus and many other companies. Real estate runs in cycles and many players are waiting to see more stability before diving back into the markets.

Source: Northeast Real Estate Business

Centro Clears Minor Hurdle With First Asset Sale

As it continues to wrestle with a mountain of debt, Centro Properties Group, a poster-child of the credit crunch, on Tuesday announced the sale of the first piece of its 106.5-million-square-foot U.S. portfolio for $714 million to an unnamed private real estate investment advisor.

Though the deal itself represents just a small portion of the Melbourne-based listed property trust's portfolio--29 of its more than 665 centers in the U.S.--it has broader implications for the company and for the U.S. retail real estate investment market. The assets were all from Centro America Fund--one of Centro Properties Group's many funds under management.

For one, Centro sold the properties--covering 5.1 million square feet in 15 states--to a private real estate advisor rather than to a public or private retail REIT. (Some reports indicate that New York City-based DRA Advisors LLC closed the deal.) Jason Lail, senior real estate analyst with SNL Financial, a Charlottesville, Va.-based research firm, thinks that despite the deal's relatively small size, it is at least reflective of "Centro really pushing hard to get their balance sheet into shape."

The deal also sheds a little light on retail real estate pricing in the current climate. Retail real estate investment sales volume has dropped considerably because of the credit crunch. In May, the most recent month for which statistics are available, investment sales of retail properties totaled $1.3 billion, down 70 percent compared to the same period a year ago, reports Real Capital Analytics. Prices have dropped as well and the bid/ask gap between buyers and sellers means there is little consensus on where property values should be. Some estimates are that prices are down 5 percent to 10 percent for prime assets and up to 20 percent for lower quality assets, according to Bernie Haddigan, national director of the retail group with the brokerage firm Marcus & Millichap Real Estate Investment Service.

In Centro's case, the company estimated the sale price represents a 10 percent discount to what the company had originally paid for the assets, indicating that the properties are probably some of the firm’s best assets, Haddigan says.

The pricing “seems about right,” agrees Merrie Frankel, vice president and senior credit officer with Moody’s Investors Service, a New York City-based credit rating agency. The 10 percent discount is in line with what should be expected from a company in Centro’s position. Frankel added that Centro has direct ownership of just 46.65 percent of the Centro America Fund. Centro’s net proceeds from the sale are projected to bring in approximately $250 million.

However, some real estate watchers caution that too much should not be read into the deal. Suzanne Mulvee, senior real estate economist with Property & Portfolio Research, a Boston-based real estate research and portfolio strategy firm, says there could be deeper discounts on retail properties if credit tightens and real estate fundamentals continue to slip.

“People that are selling today are stressed sellers, not necessarily distressed sellers,” Mulvee says. “More distressed properties may come to market later.”

The deal is expected to close in late September/early October, subject to approval from Centro’s lenders. Centro declined to comment on the transaction. The company has been able to obtain a series of extensions on nearly $4 billion of debt to both U.S. and Australian lenders that it is supposed to pay back by December 15. More on Centro's debt

Overall, Centro's shareholders took the news in stride. The company's shares on the Australian Stock Exchange closed Wednesday at A$0.26 per share, up slightly from A$0.24 per share the day prior.

Source: Retail Traffic

$1B in Loans on 6 Retail Properties for Macerich

The unfavorable lending market is not holding everyone back. The Macerich Co. recently closed $895 million in financing on five retail properties and secured a commitment for a $150 million loan on a sixth asset.

The properties, save for one, are all located in California.

Santa Monica, Calif.-based Macerich has been hard at work over the last couple of months. Just last week, the REIT closed a $170 million loan on Fresno Fair, a super regional mall in Fresno, Calif.; completed a $300 million construction/permanent loan on super regional mall The Oaks in Thousand Oaks, Calif.; and entered into an agreement for $150 million in financing for Broadway Plaza in Walnut Creek, Calif. The months of May and June were no less busy. Macerich wrapped up a $100 million loan on Victorville, Calif.-based regional mall The Mall of Victor Valley in May. And last month, the company closed on a $150 million loan on the newly completed SanTan Village regional shopping center in the Phoenix suburb of Gilbert, Ariz., and concluded a $175 million refinancing deal for the prestigious Westside Pavilion regional mall in West Los Angeles.

Macerich is a fully integrated self-managed REIT that engages in the acquisition, development, leasing and management of regional malls across the United States. The company's portfolio encompasses 72 properties totaling 77 million square feet of gross leasable space. Macerich stock opened today at $53.64.

Source: Commercial Property News

Pension Funds Scale Back Outside Real Estate Advisors

In a world of daily cutbacks on everything but the price of oil, perhaps it was inevitable that the nation’s leading pension funds would find themselves in the same dilemma when it comes to their real estate investments.

As the investment markets in general have become more bearish — particularly stocks, which have hammered fund returns this year — internal fund managers are closely inspecting their real estate strategies, and for good reason.

According to a recent study of 50 of the nation’s top pension funds by Chicago-based financial services firm Northern Trust, U.S. and foreign stock performance produced negative 7% returns over the 11 months ended June 30. During the same period pension funds saw their real estate assets produce an 11% return.

Real estate stocks have been another drag. The Dow Jones Equity All REIT Total Return index, which tracks 118 equity real estate investment trusts, fell 4.9% in the second quarter compared with a 1.4% gain in the first quarter. That second-quarter performance lagged behind the broader S&P 500 index, which saw a 2.7% decline.

At the nation’s largest pension fund, the California Public Employees’ Retirement System, or CalPERS, some 80 outside managers oversee the fund’s $19.6 billion real estate portfolio. But last year San Francisco-based PCA Real Estate Advisors Inc. pitched CalPERS’ board of directors on the idea of investing more money with fewer advisors, an approach that was ratified in the plan’s 2008 budgeting.

The Oregon Investment Council, which manages $77 billion in assets for various entities of the State of Oregon, recently increased its real estate allocation from 8% to 11%. The council employs 39 real estate managers, up from 30 last year. Now with guidance from PCA, the council is looking to take an approach similar to CalPERS and use fewer outside real estate investment managers in the future.

The council’s $5 billion real estate portfolio has returned a paltry 2.95% through May of this year, but has yielded 21.76% over the past five years.

Given the lower returns of late, every manager’s performance is under closer scrutiny, and top performers will likely rise to the top of the funds’ short lists. Still, finding investments suitable for the funds’ money is a tougher task than ever. Certainly the office markets, which account for the bulk of institutional buying, have remained moribund in 2008. Sales of significant office buildings totaled just $2.6 billion in May, about half the volume posted in April and 87% lower than in May 2007, according to New York-based researcher Real Capital Analytics.

There are a few signs of life. Monthly office sales volume reported in contract doubled in May to $15 billion, a sum that compares favorably to the $23 billion of office sales reported closed so far this year.

“The spike in deal making, rumors of 100 bidders for Pool 1 of the former EOP/Macklowe assets and even a slight improvement in pricing on a national level are certainly positive news,” says Robert White, president of Real Capital Analytics. “A recent spate of acquisitions by foreign investors has also contributed to the positive momentum. However, it is still unclear if this really is the start of a recovery or just a dead cat bounce.”

Mark Vitner, senior economist with Wachovia, expects commercial property prices to fall 15% to 20% nationwide by year’s end. “Higher borrowing costs have led to a modest increase in cap rates and vacancy levels have edged up,” says Vitner. “Moreover, transaction volumes are falling as investors become more risk averse and lending becomes more restrictive. Both the NCREIF and Moody’s/Real Commercial Property Price Indexes have declined recently, indicating some softening in the deal pipeline. There is no question that deal flow and property values will slow further this year, the only question is the pace of change.”

Source: National Real Estate Investor

General Growth Closes Part 1 of $1.8B Loan

Chicago-based General Growth Properties Inc. has wrapped up the initial phase of a new secured mortgage loan facility that is expected to total $1.75 billion.

The retail REIT pocketed $875 million with the closing of the first segment of the loan.

General Growth's loan facility is for an initial three-year term and allows for two one-year extensions. The funds the company just borrowed carry an annual interest rate of 5.64 percent. With the closing of the first part of the transaction, General Growth repaid all but one of its remaining loans scheduled to mature in the third quarter of this year. Repayment of the outstanding $73 million property loan before its September due date would have resulted in a prepayment charge. However, the company plans to rid itself of that debt, too, if all goes as expected with the second part of the loan facility, which would also provide funds for the repayment of soon-to-mature loans on up to six additional properties, and for other general corporate purposes.

General Growth has a portfolio of 200 owned and managed regional shopping centers spanning 44 states, and despite the damper the downturn in the economy has put on the retail market, the REIT's assets continue to thrive. The company's portfolio had an average occupancy level of 92.9 percent at the close of the first quarter, just a negligible decline from the 92.7 percent level at the close of the first quarter of 2007. The average national occupancy level for shopping centers was 90.8 percent in the first quarter of this year, according to a report by real estate services firm Colliers International. Additionally, with rents still on the rise for shopping center properties and the average vacancy rate expected to remain under 10 percent, General Growth properties may be able to weather the economic storm.

Additional financing transactions may be on the horizon for General Growth in the near future. Last month, the company announced that it was working on two financial deals to accommodate debt maturities scheduled for this year and next. In addition to the $1.75 billion term loan, a deal for a private commercial mortgage backed securities issuance ranging from $1.5 billion to $3 billion was also in the works.

General Growth stock opened today at $30.36.

Source: Commercial Property News

Apollo Closes $758M Investment Fund

NEW YORK CITY-Locally based Apollo Real Estate Advisors has closed Apollo Value Enhancement Fund VII LP, with a total of $758 million. The flexible investment strategy of Apollo's Value Enhancement Funds is to focus on existing, income-producing US properties which present opportunities to increase value.

Apollo Value Enhancement Fund VII will continue Apollo's value-added strategy of investing in real estate assets primarily in major markets in the US. The fund will seek to create a diversified portfolio across major property types, according to Steven Wolf, Apollo, a partner who oversees the firm's Value Enhancement Funds. The fund was formed in August 2007, Wolf tells GlobeSt.com, and the initial target was $750 million, which Apollo achieved.

Fund investments include 500 1st St. NW in Washington, DC, a 129,000-sf office building. The nine-story building, which also has two underground parking levels, is located on 1st St. NW and East Street NW, just two blocks from Union Station and four blocks from the US Capitol. Apollo plans approximately $7 million in building improvements in conjunction with the lease renewal of the current tenant, the US General Services Administration on behalf of the Department of Justice, which currently has a 10-year lease, Wolf says in a prepared statement.

Apollo Value Enhancement Fund VII also purchased the 500-room Hilton Dallas Lincoln Centre, as GlobeSt.com recently reported, for $102 million from Ashford Hospitality Trust Inc. The $72-million sale was been bundled with a $30-million cap-ex plan for the 3.2-acre hotel component of the landmark 1.6-million-sf office complex. The 20-story glass curtained hotel tower is located prominently within Lincoln Centre, a premier class A complex in North Dallas encompassing 1.6 million sf.

"We are very gratified with the response from our investors to the new Value Enhancement Fund," Wolf said. "We continue to see compelling opportunities where our team can apply its deep real estate expertise to add value in the current environment." Wolf said Apollo plans approximately $30 million in hotel renovations that will include renovated guest rooms and bathrooms; the construction of 13,000 sf of additional ballroom, meeting and pre-function space; and the reconfiguration and rebranding of the existing food and beverage outlets.

Apollo acquired the Value Enhancement Funds in 2004. Since the inception of the first fund in 1993, Value Enhancement Fund I through VI have invested in more than 140 transactions with an aggregate value of $5.9 billion. According to the company's website, its investment approach uses a bottom-up real estate analysis but considers factors such as the macroeconomic environment, the direction of the business cycle and local real estate market conditions. The firm, which pursues assets that are held by a variety of holder-types, notes that its objective it to create a balanced portfolio of opportunistic assets as far as geographical spread and asset class is concerned.

Source: Globe St.

Six Months into 2008, the CMBS Market Has Failed to Recover

When the credit crunch first broke in earnest last fall and froze the U.S. commercial mortgage-backed securities (CMBS) market in its tracks, the most bullish prognosticators predicted a mere blip. Many expected issuance in the U.S. to be down from $237 billion in 2007, but thought it could reach $150 billion. The conservative estimates put the expected 2008 volume at $100 billion.

Today, those worst-case scenarios are looking wildly optimistic.

Through the end of June, U.S. CMBS issuance had reached just $12.1 billion according to Commercial Mortgage Alert, an industry newsletter. Overall, that's a 91 percent drop compared with the first six months of 2007. In June itself, $1.3 billion of CMBS bonds were sold. That was up slightly from the $900 million in May, but down more than 96 percent from the record $37.4 billion in June 2007.

In all, analysts are no longer calling for any kind of rebound this year. Analysts from J.P. Morgan Chase & Co., in fact, expect the second half of 2008 to be even quieter than the first, with full-year CMBS issuance volume totaling $20 billion.

What's the upshot of all this? Since CMBS loans accounted for about 70 percent of all commercial real estate financing in 2007, it means prospective borrowers still have no place to turn and the slowdown in investment sales that has plagued the sector won't be resolved any time soon, according to Sam Chandan, chief economist with REIS, Inc., a New York City-based provider of commercial real estate information.

The fundamental problem is the wild uncertainty within credit markets. CMBS spreads to 10-year Treasuries have not only widened considerably from a year ago, but continue to fluctuate from month to month. As a result, it’s more difficult for borrowers to decide whether or not to take conduit loans. Further, alternative sources of funding, such as banks and life insurance companies, aren't offering the same generous terms CMBS lenders did in the past, nor are they greatly increasing their allocations to commercial real estate. Lending on commercial real estate is down across the board from 2007.

Within the CMBS sector, spreads have begun to widen once again. As of June 25, spreads over Treasuries on five-year, fixed-rate AAA conduit loans stood at 165 basis points, above the 52-week average of 147 basis points, reports Commercial Mortgage Alert. Spreads on 10-year, AA loans were at 475 basis points, above the 52-week average of 370 basis points, and spreads on 10-year BBB loans were at 1,250 basis points, compared to a 52-week average of 931 basis points. For borrowers, those rates are simply too high. Moreover, loans from other sources offer competitive pricing--an area where previously CMBS loans had an edge.

"With spreads as wide as they are, loans that are destined for securitized pools are not as competitive,” Chandan notes. “Investors are demanding extraordinary premiums as opposed to the types of spreads we’ve observed in recent memory.”

With CMBS out of the picture, the retail real estate sector saw a 53 percent drop in overall lending activity in the first quarter of 2008, according to data released last month by the Mortgage Bankers Association (MBA), an industry organization. Commercial bank originations in the commercial/multifamily sector fell 28 percent in the first quarter of the year, according to the MBA, to $228 billion. Originations by life insurance companies decreased 25 percent, to $119 billion.

All of that means that it continues to be difficult to complete investment sales deals on properties that don’t include in-place financing, says Philip D. Voorhees, senior vice president of retail investments with the Newport Beach, Calif.-based office of global brokerage firm CB Richard Ellis. Life insurance companies and regional banks tend to be much more selective in the kinds of properties they will finance, Voorhees notes. The life insurance firms, for example, require that a property feature a location in a major metro market, a vacancy rate lower than 5 percent and credit tenants before agreeing to issue a loan. They also insist on loan-to-value ratios of 60 percent to 65 percent, lower than most investors feel comfortable with.

“They’ve only got so much to lend out and that is drying up. Similarly, the local banks are reportedly approaching capacity,” Voorhees adds. “We lost one of our biggest sources of debt in the conduit market and nobody is there to replace that.”

As a result, the volume of sales transactions closed by Voorhees’ team year-to-date has been about 30 percent off compared to the same period in 2007. Voorhees has some hope the situation will improve by the fourth quarter. But with more than $11 billion worth of securitized loans becoming eligible for refinancing in the next six months, Chandan says it’s not likely.

“There are concerns about limited liquidity in the market,” he says. “We don’t expect to see significant gains in transaction volumes in the summer or early fall.”

Source: Retail Traffic

Centro is Thrown a Lifeline

Struggling shopping center operator Centro Properties Group, one of the most high-profile victims of the credit crunch, remains afloat as its creditors this week extended the Melbourne-based listed property trust a lifeline by giving the firm a six-month extension to pay down $2.5 billion in debt. It now has until December 15 to come up with the funds.

On Monday, Centro announced it had finalized a $95 million liquidity facility, what it described as “certain inter creditor arrangements between its financiers.” Centro, which ran into major financial trouble last year because of the huge amount of debt it took on to fund its $6.2 billion acquisition of New York-based REIT New Plan, owes its Australian lending group approximately $2.1 billion and its U.S.-based creditors $450 million.

The extension comes amid speculation that Centro which controls properties containing 106.5 million square feet of space in the U.S. and 22.6 million square feet internationally, is close to selling part of its U.S.-based portfolio to an anonymous buyer, improving the firm’s chances of surviving its current crisis.

“They are trying hard and the banks seem to be playing ball, so I hope that they are going to make it happen,” says Merrie Frankel, vice president and senior credit officer with Moody’s Investors Service, a New York-based credit rating agency.

Centro’s domestic lenders include the National Australia Bank, the Commonwealth Bank of Australia and Australia & New Zealand Banking. Its bankers in the U.S. are J.P. Morgan Chase and the Bank of America.

To maintain the extension, Centro will have to meet three additional conditions by Sept. 30, including satisfying its lenders that it is executing a viable strategic plan, getting the U.S.-based lenders on the New Plan merger, owed $1.1 billion in September, to sign off on the extension and having all of its lenders agree to the terms of any asset sale.

The extension doesn't mean Centro is on terra firma, according to Macquarie Research Equities analyst Callum Bramah. “Given the massive refinancing currently under extension and the variable interest rate exposure, Centro’s cost of debt and therefore interest expense is at risk of blowing out,” he wrote on May 9.

Centro did not respond to requests for comment.

The developments come as Centro is said to be close to selling part of its U.S.-based portfolio to an un-named buyer. REIT Zone Publications editor, Barry Vinocur, says DRA Advisors LLC, a New York-based registered investment advisor was among the bidders, but the portfolio will likely go to another entity.

A week ago, Bloomberg reported the firm was in negotiations to sell 95 percent, or $1.16 billion worth of assets, from its Centro America Fund, which contains properties acquired through its $3.2 billion purchase of Boston-based REIT Heritage Property Trust in June 2006. At the time, the Heritage's U.S. portfolio included 157 grocery-anchored centers totaling 28.7 million square feet, primarily in the Northeast and Midwest. While Heritage properties were considered second-tier when Centro bought them, they are well regarded among U.S. investors and still attract a lot of interest, according to Frankel.

“There are always people looking to buy good product; maybe they will renovate and reposition those properties,” she says. “The Heritage assets are in the Northeast and you may have somebody who wants more properties [there]. I am sure that everybody is taking a look. Whether they put in a bid is another story.”

While Centro works to resolve its financial problems, it also has to deal with a number of legal issues. On May 27, it was slammed with a second class-action lawsuit from its shareholders—one that extends over a longer time period than a lawsuit filed earlier last month. The lawsuit, backed by U.S.-based funding equity Commonwealth Legal Funding, alleges Centro misled shareholders about its financial position and seeks damages on behalf of people who bought Centro stock between Apr. 5, 2007 and Feb. 28, 2008. The lawsuit, which Centro has vowed to fight, seeks $190 million in damages.

Centro faces a similar lawsuit filed by its domestic litigation funding firm IMF Australia Ltd., which represents shareholders who purchased the company’s stock between Aug. 7, 2007, when the New Plan deal closed, and Feb. 15, 2008. That lawsuit seeks $95 million in damages.

Since Centro’s troubles became public in December, its stock has plunged more than 80 percent. As of Tuesday afternoon, it was trading at (U.S.) $0.35 per share.

Source: Retail Traffic

Property Pain Past, Present And Future For U.S. Banks

When the chairman of the Federal Deposit Insurance Company says, "Its the kind of thing that gives regulators heartburn", it is time for investors, too, to reach for the antacids.

The "kind of thing" that the FDIC's Sheila C. Bair was referring to was the continuing erosion of commercial banks and savings institutions' coverage ratio -- their loss reserves as a percentage of non-performing loans, and an important benchmark within the industry of a bank's health.

According to the FDIC latest Quarterly Banking Report, released Thursday, loan loss reserves increased by $18.5 billion or 18.1% in the first quarter of this year, their largest quarterly increase in more than two decades. But non-current (i.e. 90 days or more past due) loans increased by an even larger percentage -- 24% or $26 billion to $136 billion. The coverage ratio fell from 93 cents of reserves for every $1 of non-current loans to 89 cents per $1.

That is its lowest level since the property slump-induced downturn in the early 1990s. "This is a worrisome trend." says Bair, whose agency oversees the insured deposits, now totaling $150.4 billion, at banks and savings institutions.

No surprises about the financial institutions that most concern her: "The banks and thrifts we're keeping an eye on most are those with high levels of exposure to sub-prime and nontraditional mortgages, with concentrations of construction loans in overbuilt markets, and institutions that get a large share of their revenues from market-related activities, such as from securities trading."

The number of institutions on the FDIC’s Problem List -- banks facing potential failure -- increased from 76 to 90 in the first quarter, or 1.1% of the total (see: "Bad News Banks"). Total assets of those on the list rose from $22.2 billion to $26.3 billion, or 0.2% of industry assets.

This is the sixth consecutive quarter that the number of Problem Listers has increased, from a low of 47 institutions at the end of third quarter 2006. It is, however, a far cry from the days of the savings and loans crisis a decade and a half ago when institutions on the Problem List accounted for, at their peak in 1993, 9.9% of banks and thrifts and 18.4% of industry assets.

That year, 181 banks failed, following 271 and 382 failures in the previous two years. Since then, bank failures have been relatively rare -- none in 2005 and 2006, three in 2007 and two so far this year.

The FDIC doesn't name publicly its Problem Listers and they are likely to be scattered across the U.S. though concentrated in areas hardest hit by the housing slump. Forthcoming data on banks with high concentrations of commercial real estate and construction and development loans may provide more clues.

As well as leading to higher provisions, today's troubled real estate loans have also hit the financial institutions' profits. Commercial banks and savings institutions insured by the FDIC reported net income of $19.3 billion in the first quarter of 2008, a decline of $16.3 billion, or 45.7% from the $35.6 billion that the industry earned in the corresponding quarter a year earlier.

Half of all insured institutions reported lower net income in the first quarter. In addition to the sharp increase in loan-loss provisions, non-interest revenues fell on a year-over-year basis for a second consecutive quarter, declining by $1.7 billion (2.8%). Income from trading was $4.8 billion (67.8%) lower than in first quarter 2007, while sales of loans yielded $1.7 billion in losses, compared to $2.0 billion in gains a year earlier.

Sales of real estate acquired through foreclosure, which produced $3 million in gains a year ago, resulted in losses of $310 million in the first quarter. Other market-related sources of non-interest income, such as investment banking fees and venture capital revenue, were also lower than a year ago.

"While we may be past the worst of the turmoil in financial markets, we're still in the early stages of the traditional credit stress you typically see during an economic downturn," said Bair, somewhat ambiguously. She urged banks to beef up their capital cushions beyond regulatory minimums given the uncertainties about the housing markets and the economy.

Almost 90% of the increase in non-current loans in the first quarter consisted of real estate loans, but non-current levels increased across board, including credit card loans and home equity lines of credit. At the end of the first quarter, 1.7% of the industry's loans and leases were non-current.

Loss provisions totaled $37.1 billion, more than four times the $9.2 billion the industry set aside in the first quarter of 2007. Almost a quarter of the industry's net operating revenue (net interest income plus total non-interest income) went to building up loan-loss reserves. Bair expects banks' loan loss provisions to keep going up for the next few quarters.

Investors also took a $12.2 billion hit from a reduction in dividend payments. Of the 3,776 insured institutions that paid common stock dividends in the first quarter of 2007, 48% paid lower dividends in the first quarter of 2008, with 666 institutions paying no dividend at all. That translated into a aggregate pay-out of $14.0 billion in total dividends in the first quarter, down 46.5% from $26.2 billion a year earlier.

Pain shared is still pain.

Source: Forbes

Pension Fund Cuts New Real Estate Money by 73%

SAN FRANCISCO-The City and County of San Francisco Employees’ Retirement System has signed off on an expected 73% reduction in its new capital investment in real estate for the next fiscal year. SFER’s real estate consultant, the Townsend Group, recommended the pension fund allocate no more than $200 million toward real estate, down from $750 million in the previous fiscal year, and invest all of it in Non-Core assets as opposed to Core assets.

“The broad real estate markets are in transition,” says Townsend Group principal Micolyn Yalonis in an executive summary of the revised investment strategy, a five-year planning document that is reviewed annually. “Re-pricing is expected but has not begun to clear within market transactions or asset valuations.”

Given that the Core portfolio is projected to be 49% at the end of 2010 and the longer-term goal is 30%, “Townsend does not recommend new Core allocations and will instead continue to focus new allocations in the non-core strategies,” states an executive summary of its real estate investment recently approved by the SFERS’ Board of Retirement. Specific strategies will be reviewed by the Board later this year.

In the Non-Core sector, Townsend says it will focus its due diligence efforts and resulting recommendations on niche strategies (e.g. non-traditional property types, unique market opportunities) and international opportunities for excess returns. More specifically, Townsend says it will look for “Value and High Return pooled funds capable of providing unique access to opportunities (property type, platform, property life cycle) and advantageous funding capabilities (pre-specified pools and/or short investment windows) to facilitate maintaining the funded status of the program.”

As part of that effort, Townsend is recommending two new commitments to Capmark Investments—a $25-million allocation to Capmark Apartment Income and Growth Fund and a $37.5-million investment in Capmark High Return Fund. In late 2006, SFERS committed $25 million and $75 million to the two funds, respectively.

Capmark and SFERS are 50-50 owners of the Apartment Income and Growth Fund, which focuses on value-add and higher-return strategies in the US apartment market, including niche products like student housing. The High Return Fund will invest in all property types and credit enhancement opportunities with a return goal of net 15% IRR to the investor.

As for the rest of this fiscal year, SFERS likely will invest $100 million less than projected ($1.27 billion) in Core investments and approximately $100 million more than projected ($486 million) in Non-Core investments, according to Townsend.

The Board also made moves earlier this year to balance its portfolio, which became overweight in Core last year after its 80% interest in AMB Partners II was transferred from the Value sector to the Core sector after that fund’s development piece had matured and the other fund assets had stabilized to the point where their returns would be lower.

To shift some of the funds back to the Value sector, SFERS decided in March to transfer its interest in AMB Partners II to AMB Institutional Alliance Fund III. The move also will give it more flexibility to liquidate its interest and shift some of its interest away from Industrial, giving the portfolio more balance in that respect as well.

Also that month the Board committed $25 million to the Fidelity Real Estate Opportunistic Income Fund LP, a new funds that will invest primarily in high yield real estate debt securities and instruments backed (directly and indirectly) by commercial property. Some of the capital will be invested in residential mortgage-backed securities and subordinated securities of real estate CDOs, according to staff and advisor memos.

Source: GlobeSt.

RECon panel: End to credit crunch in sight?

ICSC RECon attendees at today's capital-markets session, appropriately named "The End of Free Money," got a sobering view of the turbulent retail-financing world, but left on an upbeat note: Panelists opined that the worst may already be behind the still-constricted commercial-lending industry.

Just a year ago in Las Vegas, the retail real estate world was told that CMBS lending volume stood at $80 billion for the first four months of 2007 and that multiple deals were still getting inked. The tally for the first four months of 2008: just $9.9 billion, said panel head John Levy, chairman of John Levy & Co., a real estate investment bank. "The numbers look like they fell of a cliff," he said.

Center owners have yet to make realistic price adjustments that would spur additional lending activity, Levy said. "Buyers want a price that the property is going to sell for in nine months while sellers want the price that it was nine months ago."

To adjust, institutional investment fund TIAA-CREF is purchasing more top-flight community grocery-anchored centers because they are more likely to hold their occupancy in the current mercurial market, said the fund's managing director, Rick Coppolla. Ron Lubin, managing director of Crystal Capital, said his firm has also seen a flight to quality. "A lot of the money out there is going to trophy properties," he said.

Retail developers and investors still face a lack of affordable senior-financing products and have been forced to seek out more expensive intermediary sources that make many projects not "pencil," panelists agreed.

"The main problem is that none of us is smart enough to estimate a property's value right now," said Adam Raboy, managing director of the Credit Suisse Real Estate Finance and Securitization Group, in New York City. Flush-with-cash institutional investors have much more leverage than other lenders at present, panelists said. "It seems like life-insurance companies are now the prettiest girls at the dance," Levy observed.

Retail sales per square foot are more likely to be negatively affected going forward by a continuing housing crisis in states such as Florida and California and parts of Nevada (including Las Vegas), where housing accounts for 20 percent or more of the economy, in contrast to the customary 10 percent impact in most of the U.S., said Coppolla. Smaller community banks have been forced to the lending sidelines because of bad loans to home builders, said Raba.

At present, Shopping Centers are routinely being underwritten at 80 percent occupancy in contrast to 90 percent occupancy a year ago, said Raboy. Coppolla concurred: "We are definitely paring back our growth-rate assumptions."

However, Raba said he is heartened by small improvements in capital-lending markets in the last 45 to 60 days. "The light at the end of the tunnel is no longer an oncoming train," he said. "By this time next year, the business should be back on its way to normalcy." Lubin agreed, but added that all bets are off if the economy worsens dramatically. "Prospects will hinge,” he said, “on whether we go into a deep recession."

Source: ICSC

Markland Acquires 47 Citibank Branches in $100M Sale-Leaseback

An Irish investment group, which market sources have pegged as Markland Holdings Ltd., has acquired 47 Citibank branches in the New York City metropolitan area for $100 million.

The portfolio includes a 156,300-square-foot combination of bank branches and offices, and is leased to Citigroup Global Markets Inc. for 15 years. The properties range in size from 2,000 to 8,000 square feet and are located in Manhattan, The Bronx, Brooklyn, Queens and Staten Island, as well as Westchester, Suffolk (pictured) and Nassau counties.

“These were triple-net leases with annual increases, and investors want safety, security and good credit,” Ken Zakin, senior managing director with Newmark Knight Frank’s capital group, told CPN. “We don’t see a lot of high-quality net lease product in the New York metropolitan region. The dispersion of risk across the portfolio was also very attractive.”

That said, the portfolio garnered a lot of interest from different investment groups, including international buyers, 1031 and net lease investors, New York-based investors and unsuccessful bidders in Citigroup’s last disposition of 23 New York metropolitan assets in June 2007.

Borja Sierra, executive managing director of Savills Granite, said that the deal also reinforces how offshore investors are still eyeing large-scale deals in the United States. Savills Granite represented the buyer, while Newmark Knight Frank represented Citigroup in the transaction.

The portfolio disposition is the latest in Citigroup’s efforts to sell off its real estate assets and redeploy its capital into its operating business.

Source: Commercial Property News

Capital Crisis Nearly Done, Recession Just Getting Started

Jamie Dimon, the chairman and CEO of JPMorgan Chase & Co told bank investors this week that a recession in the U.S. is just getting started and could be deeper and worse than capital markets crisis the country has experienced since August.

While the current credit market crunch may soon be over, the U.S. economy could still face a deep and extended recession, Dimon said.

Dimon suggested that the slump in mortgage and corporate loan markets could bottom out this year, but the economy may face a longer-term challenge even as financial markets begin to function again. The "slower burn" of a recession may rival the severity of the 1982 contraction, he said.

Dimon said the capital markets crisis is possibly 75% done based on the observation that most lenders and structured finance investors have taken their losses and raised additional capital. Dimon added that there are still problems yet to be recognized and there has been little new asset generation.

As for the impact of the recession, Dimon said the outcome couldn't be predicted. The longer and deeper it runs, the more de-leveraging banks will do and the more losses they will take.

Source: CoStar

Centro Obtains a Reprieve on Debt Shopping Mall Owner Gets 7-month Extension on $2.6 Billion

Centro Properties Group, one of the highest-profile Australian casualties of the global credit crunch, said Thursday that banks had agreed to a seven-month extension on about 2.8 billion Australian dollars of maturing debt. Centro, which owns around 700 shopping malls in the United States, borrowed heavily last year to finance a rapid expansion there. But the company ran into trouble in December after credit markets dried up, losing its usual avenues of borrowing and putting it under pressure to sell assets to raise cash. Analysts said that the extension gave Centro a reprieve to push on with a planned restructuring but warned that the risks were still high.

"Nothing has changed in the fundamental view," said Justin Blaess, director of property securities for ING Investment Management. "The company is highly geared, it's in a distressed state, and it's got deadlines looming which could decide the fate of the company, at a time when markets are weak, debt costs are high and there are more sellers than buyers in real estate markets."

The maturing debt extended to Dec. 15 consists of 2.3 billion dollars, or about $2.17 billion owed to Australian banks and $450 million owed to U.S. private note holders. The extension is subject to a number of conditions, including finalizing certain arrangements between creditors by May 30. The deal also triggers an extension to Sept. 30 of 2.5 billion dollars of U.S. bank debt associated with the Centro affiliate Centro Retail Trust, which had been subject to the Australian portion of debt getting an extension. Centro, which had faced a Wednesday refinancing deadline after getting only a seven-day extension last week, also said it continued to pursue a number of previously announced initiatives. Those include seeking buyers for its unlisted funds, Centro Australia Wholesale Fund and Centro America Fund. The company also said indicative proposals had been received from a number of investment groups relating to a recapitalization of the group, some of which it would continue to work on.

About two-thirds of Centro's shopping malls are in the United States, with the remainder in Australia and New Zealand. It holds the assets through a complex network of managed funds.
The main Australian bankers handling Centro's debt are Australia & New Zealand Banking Group, Commonwealth Bank of Australia, National Australia Bank and St. George Bank. It is also dealing with JPMorgan and Bank of America. Centro Properties shares last traded at 47 cents, 95 percent below the high of 10.06 dollars reached May 7, 2007. They were due to resume trading Friday after being halted Wednesday, the day before the deadline for the debt extension.

Source: Plain Vanilla Shell

Retail to Residential

Boston-based Abbott Real Estate Development has secured a bridge loan for its planned conversion of a former Wal-Mart store in Weymouth, Mass., into a 150-unit apartment complex. Equibase Capital Group L.L.C. provided the financing, which will be utilized for acquisition and redevelopment purposes, as well as for zoning of the nearly six-acre site located about 40 miles from Boston. The project, Abbott Residences at Cordage Park, will be a transit-oriented development.

Source: Commercial Property News

Sale-Leasebacks Pick up With Slower Economy

NEW YORK CITY-"I would say that we will be better off next year than we are now," said Bruce McDonald, president and cofounder of Net Lease Capital Advisors, during Real Estate Media's sixth annual RealShare Net Lease conference. As moderator of the "Town Hall Meeting: State of the Net Lease Market," McDonald focused on how the credit crunch's hit pulled reins in on a market that had been moving at a gallop, and asked panelists what their outlook is now and for next year.

"We will see a return to fundamentals with strong tenants and strong locations," said Andrew Kroll, a director of the investment banking group at SunTrust Equity Funding. "We should see some improvement."

Robert Micera, SVP and national head of net lease investments at First Industrial Realty Trust, agreed with McDonald and Kroll, noting that "the slower the economy, the more sale-leasebacks pick up, so I think you will see more opportunities going forward." Micera said that cap rates will creep up and those who have resources will get things done. "I don't think we are in a recession," he said. "There is a ton of money sitting on the sidelines and it will be back."

Larissa Belova, a VP at Lexington Realty Trust, said that this has been a liquidity crisis and disagreed with the other panelists regarding next year's forecast, saying that "looking ahead one year from now, I still don't thing we are going to be smiling. I think we will be the same."

When looking at the current market, as it is now, Kroll said that from a debt perspective, he is seeing stress on the CTL market given the credit turmoil. "We are seeing some opportunity, but also see a lot of risk." He did note, however, that "we are better than we were back in December because there is more certainty," adding that he is seeing some movement in the CMBS market.

Micera agreed with Kroll, noting that it is not as bad as December. "We are a lot more selective. We aren't out of the woods yet, but I do see a light at the end of the tunnel." Micera noted that fundamentals are much more important. "We see a change in the capital markets and I think spreads have begun to come in on the CMBS side."

Belova concurred with Micera in that her firm is focusing on fundamentals at the moment and taking its time. She continues that "although we see opportunities out there, lenders are more picky right now, so we are going with the flow and are waiting." Belova explained that the firm is inundated with sale-leaseback activity right now. "Things are also strong in the build-to-suit markets."

Micera also thinks that there will be more sale-leaseback opportunities in terms of supply. "I think you will see more secondary and tertiary supply." He explained that on the demand side, "REITS, pension funds and institutional players are in the game."

Randy Blankstein, president of Boulder Net Lease Funds, said that he sees change happening in the last quarter of the year, but not in the near future. He explains that "key data points investors should look at are the number of properties that have been on the market for three months."

Belova explained that "we are hoping to be buying a lot more this year. Opportunity for us is 20-year sale-leasebacks when debt comes due." She also said that foreign money is still out there on trophy assets. She did agree with Micera that institutional players and pension funds are definitely in the game right now.

Source: GlobeSt.