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Roubini: Without Stimulus, Another Great Depression
Bloomberg News :: September 11, 2011
The slowdown in the world economy has accelerated the timing and likelihood of a new global financial crisis, gloom-and-doom economist Nouriel Roubini said last week. “I thought a few months ago that the perfect storm would be 2013, but now, the economic weakness in the U.S., eurozone and U.K. is front-loaded,” he said. “So we're going to double-dip earlier. The climax of it could be 2013 or it could be already earlier,” said Mr. Roubini, co-founder and chairman of Roubini Global Economics LLC, and a professor of economics at New York University's Leonard N. Stern School of Business. “It depends on what policy tools are available,” he said. With the eurozone in crisis, facing a record-high cost for insuring bank debt, there is a 60% probability that most advanced economies will fall into a recession, Mr. Roubini said. Meanwhile, authorities are running out of options to provide emergency support, Mr. Roubini said. “You need to restore economic growth, not five years from now. You need to restore it today,” he said.
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CBRE Report: Retailers Cautious But Confident About the Future
RetailTraffic :: September 15, 2011
A new survey by CB Richard Ellis shows that although U.S. retailers are generally more cautious about the current market environment, 59 percent plan to expand their stores due to lower rental rates. CBRE’s second annual Shop Talk: A Retailer’s Perspective survey, which was conducted during June and July of this year, asked retailers across the country about expansion plans, lessons learned from the recession, ongoing concerns and what they foresee for the future. The survey’s participants were mostly national (58 percent), followed by global (26 percent), regional (15 percent) and local (1 percent). The retailers surveyed cover the full range of retail real estate, including urban, lifestyle center, regional/power centers, strip/in-line and neighborhood/community tenants. The survey also covered major retailer categories including apparel, banks, books and music, general merchandise, grocery, restaurant, sporting goods and personal services. According to the survey, only 27 percent of retailers currently view the economy as improving, compared to 35 percent last year. However, looking ahead, retailers are more optimistic: 45 percent see the economy as stable compared to 35 percent last year; and 27 percent of retailers feel that recovery has already occurred within their specific market. Only 25 percent see the recovery as taking 18 months or longer, and just 17 percent see the economy as having weakened further.
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Mom-and-Pop Woes Slow Shopping Center Occupancy
Investors Business Daily :: September 15, 2011
With the economy still tough, mom-and-pop stores are failing to fill all the space they could in shopping centers. Fewer such businesses are starting up or expanding, leading to high vacancy rates that are now holding back a retail real estate recovery. August's flat retail sales growth hasn't helped, stoking renewed recession worries. Shopping center construction has all but ceased, and big national retailers have gobbled up large blocks of vacant space to secure prime locations. But small independent retailers continue to struggle with access to capital and are losing what little confidence they had earlier this year for the economic recovery, said RBC Capital Markets analyst Richard Moore, who covers retail real estate investment trusts. The disappearance of mom-and-pop stores from shopping centers, from grocery-anchored centers to lifestyle centers, has been under way for years, as landlords have favored national tenants with good credit. But tight credit and a sluggish economy exacerbate the trend.
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On and Off the Rails
Site Selection :: September 2011
Say what you will about intermodal freight's ability to help regional economies. One thing's for sure: It helps railroads' economies. Union Pacific's intermodal revenue grew 30 percent in 2010 to $3.2 billion. Accounting for nearly 35 percent of CSX's business, intermodal showed a 24-percent year-over-year quarterly increase in revenues in the second quarter of 2011. At Norfolk Southern, second-quarter intermodal revenues were $540 million, 20 percent higher than last year's second quarter. Those figures only figure to improve as the inland port concept proliferates. A report issued in July by Jones Lang LaSalle called inland ports "a critical component in the supply chain," though it is quick to differentiate them from the hundreds of simple intermodal hub projects arising across the U.S. The map the firm created (below) depicts its view on how current and future ports and inland ports connect.
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Stocking Up on Warehouse Properties
The New York Times :: September 13, 2011
Developers and investors are starting to make big bets on industrial real estate, following signs that consumers may be starting to spend again. Sales of such properties have jumped nearly threefold from last year, according to figures from commercial real estate companies, and the vacancy rate has fallen for three consecutive quarters. The industrial market is often a leading indicator for commercial real estate, improving before the office market. This is because when companies begin seeing increased demand from consumers their first steps are to increase production and ramp up inventory. “Only then do they hire new employees and look to grow their offices,” said Robert C. Kossar, a managing director and the head of the industrial real estate group for New York and New Jersey at Jones Lang LaSalle.
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Lehman Still Looms Large in Commercial Real Estate
The Wall Street Journal :: September 13, 2011
Lehman Brothers Holdings Inc. was one of the biggest players in commercial property before it collapsed. With the third anniversary of its bankruptcy filing set to be marked on Thursday, it still plays a big role in the industry as a major owner and seller. When it failed, the estate of the collapsed investment bank listed its real estate holdings as valued at $23 billion. Since that time, the bank has reinvested in certain properties, sold some and been foreclosed out of others. But generally, the Lehman estate, managed by restructuring firm Alvarez & Marsal, has held onto its largest holdings, reworking most of them in the economic downturn that followed the bank’s fall, mostly with the intent of selling in the months and years to come. The $23 billion has been written down substantially. In all, Lehman expects to receive some $13.2 billion between 2011 and 2014, after having received returns of $3 billion between the bankruptcy filing and 2011.
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Hotel Values Catching Up to Replacement Cost
National Real Estate Investor:: September 12, 2011
Every so often I like to look at the current relationship between a hotel’s market value and its replacement cost. This information is useful in setting strategies for new hotel development, acquisitions, when to buy and when to sell. It can also forecast volatility. A hotel’s market value is the price at which it will sell in an open market where buyers and sellers are acting in their own self-interest without any pressure to buy and sell, and with full knowledge of the market. Market value for a hotel is generally estimated through an income valuation model where future net income is capitalized into value. Replacement cost is the total development cost to build a hotel including the acquisition of the land, construction of the improvements and furnishing the property with furniture fixture and equipment. I have been tracking the relationship between a hotel’s market value and its replacement cost since 1987 for two different classes of hotels: Luxury Hotels and Mid-Price Hotels. The following graphs show the change in market value and replacement cost over this period of time.
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