Today Bloomberg reports, The Federal Reserve, European Central Bank and four other central banks lowered interest rates in an unprecedented coordinated effort to ease the economic effects of the credit crunch. The Fed, ECB, Bank of England, Bank of Canada and Sweden's Riksbank each cut their benchmark rates by half a percentage point. The Bank of Japan, which didn't participate in the move, said it supported the action. Switzerland also took part. Separately, China's central bank lowered its key one-year lending rate by 0.27 percentage point.
The Commercial Mortgage Alert reports, “We estimate total commercial mortgage debt maturities for banks’ portfolios, insurance portfolios and CMBS to be $280 billion in 2009 and $320 billion in 2010. To date, CMBS credit performance (delinquencies) has outperformed bank portfolio loans.”
According to the MBA Databook, despite the malaise in new mortgage production, the data on the $3.4 trillion in outstanding commercial/multifamily mortgages show continued growth and relative strength. Despite the significant drop in mortgage originations, investors increased their holdings of commercial/multifamily mortgages during the quarter – as the relatively low level of originations exceeded an even lower level of portfolio run-offs. Between the first and second quarters, investors added $51 billion of commercial/multifamily mortgages (net) to their portfolios, a 1.5 percent increase.
Today Bloomberg stated, “Britain's banks will get an unprecedented 50 billion-pound ($87 billion) government lifeline and emergency loans from the central bank after the freeze in credit markets threatened to bring down the financial system. The government will offer to buy preference shares to help boost capital at Royal Bank of Scotland Group Plc, Barclays Plc and at least six other banks, the Treasury said in a statement today. The plan also guarantees about 250 billion pounds of loans and increases the amount the Bank of England makes available for banks to borrow to at least 200 billion pounds.”
Average retail capitalization rates in Southern California continue to rise in 2008, based on the CBRE Valuation & Advisory Services (VAS) database. Through 3Q 2008, the average cap rate was 6.13% in 2008, while the 2007 average was 5.95%, an increase of 18 b.p. The chart below contains the results from 2003 through Q3 2008.
The quarterly up-trend continues with increases that started in Q1 2008. The chart below summarizes the data.
SOUTHERN CALIFORNIA RETAIL
Avg. Cap Rate - Quarter
2006 Q4
2007 Q1
2007 Q2
2007 Q3
2007 Q4
2008 Q1
2008 Q2
2008 Q3
Cap Rate
5.96
5.90
6.11
5.93
5.77
5.90
6.31
6.38
Chg.
0.01
-0.06
0.21
-0.17
-0.16
0.13
0.41
0.07
Source: CBRE
The recent cap rate data (last few quarters) is based on a lower number of transactions and dollar volume as buyers and sellers try to wait out the market turmoil. Southern California retail listings over 50,000 SF have an average asking cap rate of 6.52%. We believe this indicates further potential for cap rate increases. The Inland Empire average was the highest, nearing 7%. The following chart summarizes the data.
| RETAIL CENTERS FOR SALE | |||
|
Market |
Average Cap Rate |
Total Asking |
# of Properties |
|
Los Angeles |
5.97 |
170.39 |
9 |
|
San Diego |
6.53 |
91.92 |
5 |
|
Orange |
6.68 |
100.23 |
3 |
|
Inland Empire |
6.93 |
334.62 |
11 |
|
Total |
6.52 |
697.15 |
28 |
| Properties over 50,000 SF | |||
Do you have an opinion on Southern California retail cap rates? Complete our survey here: So Cal Cap Rate Survey
CBRE reported the following today:
Today Bloomberg reports, Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson warned lawmakers that failure to pass a rescue plan to take over troubled assets from financial firms would threaten markets and the U.S. economy. “Action by the Congress is urgently required to stabilize the situation and avert what could otherwise be very serious consequences for our financial markets and for our economy,” Bernanke said in testimony prepared for delivery today to the Senate Banking Committee, “Global financial markets remain under extraordinary stress.” Bernanke and Paulson are pushing Congress to quickly approve a $700 billion plan to remove illiquid assets from the banking system.
Community and regional banks with a sizable amount of construction and land loans on their books are pushing for lawmakers to include them in the $700 billion bailout plan proposed by the federal government. Zelman & Associates says construction and land loans account for 9 percent of all loans at U.S. banks and thrifts, amounting to about $700 billion. Meanwhile, Foresight Analytics LLC reports a jump in construction loan delinquencies to 8.1 percent in the second quarter from 7.2 percent in the first quarter and 2.4 percent a year ago.
Commercial Real Estate Direct reported that spreads for cash CMBS ended last week wide by roughly 50 basis points, after a rollercoaster ride that saw them balloon as much as 100 bps during the week. Today they tightened by as much as 100 bps. Super-senior AAA bonds were quoted last Friday at an average of 325 bps over swaps, up from 277.5 bps over swaps a week earlier. That change, while dramatic in and of itself, belies the massive spread movements during the week.
According to this, CMBS continues to be priced out of the market.
From the CBRE Capital Markets eNews:
• Though small financial institutions with large holdings of Fannie Mae and Freddie Mac preferred stock could be hurt by a decline in share value, Federal Deposit Insurance Corp. Chairman Sheila Bair does not expect much of an impact through the banking system overall. There are no restrictions on the amount of preferred and common shares issued by Fannie Mae and Freddie Mac that can be held by banks, and the Office of Thrift Supervision reports that only 2 percent of thrifts hold Fannie Mae and Freddie Mac shares in amounts above 10 percent of their Tier 1 capital according to the MBA.
• Commercial Real Estate Direct reports, “While consumer spending is set to slow, business fixed investment looks like it will be a little more resilient during the second half of the year. Advance orders for durable goods rose 1.3 percent in July, following a similar-sized gain the previous month. Orders for non-defense capital goods, ex aircraft, which is the key component that tends to track business fixed investment, rose 2.6 percent and is up at a 13.5 percent annual rate over the past three months.”
• Crude oil and gasoline fell since Hurricane Gustav did not cause damage to platforms in the Gulf of Mexico. Oil fell 7.1 percent this week as the euro dropped to a seven-month low against the dollar. The dollar's recovery will cause the decline in oil prices to continue, OPEC President Chakib Khelil said today, adding that he expects supply to outstrip demand by as much as 1 million barrels a day in the first half of 2009.
• Nearly 40 percent of European buyers chose Florida in this year's Profile of International Home Buyers survey from the National Association of Realtors as their preference for townhouse/multifamily property locations. Meanwhile, 5 percent of European investors chose New York. The U.K., Germany and the rest of Europe account for more than $3.2 billion of foreign investment into U.S. commercial properties while the Middle East holds $2.96 billion year-to-date.
Posted by: Rich
Jeff Moore has started a blog and thinks "we probably have another 18-24 months left before things straighten out". I agree. Jeff is the Senior Managing Director of CBRE's Orange County office and he has access to a large amount of information.
August 15, 2008
Wal-Mart to Invest $1.1B in Expansion
Bentonville, Ark. (August 14, 2008) Wal-Mart plans to invest up to 1.8 billion reais ($1.1 billion) in Brazil to open 80 to 90 stores in 2009, the company said in a statement on Wednesday.
Wal-Mart is spending 1.2 billion reais to open 36 new stores in Brazil's fast-growing market in 2008, the statement said.
Netflix Suffers Shipment Issues
Los Angeles (August 14, 2008) DVD rental service Netflix Inc. said on Thursday the most severe system outage in its history was preventing shipments of discs to about a third of its 8.4 million customers. The company said it shipped no DVDs on Tuesday, some on Wednesday and none so far on Thursday.
Netflix spokesman Steve Swasey said the company would provide credits to affected customers and was working "feverishly" to determine the cause of the outage and fix the problem.
Fresh & Easy Sees More Than 10,000 Job Applications in July
El Segundo, Calif. (August 14, 2008) In response to opening six new stores in July, Fresh & Easy Neighborhood Market announced that it received more than 10,000 applications for jobs in the last month.
The number of people applying to work at Fresh & Easy has nearly quadrupled since May.
J.C. Penney Launches Solar- and Wind-Power Projects
Plano, Texas (August 14, 2008) J. C. Penney Co. announced plans for solar- and wind-power projects that will supply electricity to 10 stores and one distribution center. J.C. Penney also aims to obtain ENERGY STAR certification for at least 200 stores, the company said.
J.C. Penney has engaged SunPower to install solar-power systems at 10 J.C. Penney stores in California and New Jersey. According to the company, the solar systems will be financed, owned and operated by a third-party financier, from which J.C. Penney will purchase the solar-generated electricity under a SunPower Access power-purchase agreement. The rooftop installations are expected to be finished in November.
Urban Outfitters 2Q Profit Jumps 79%
Philadelphia (August 14, 2008) Urban Outfitters Inc. posted a 79% jump in quarterly profit, driven by strong same-store sales across all its branded stores and fewer markdowns that boosted gross-profit margins.
The specialty retailer reported net income of $57.0 million for the second quarter ended July 31, compared with $31.9 million a year earlier.
Wal-Mart 2Q Profit Up 17%
New York City (August 14, 2008) Wal-Mart Stores Inc. posted a 17% increase in its second-quarter profit Thursday, helped by cost cuts and a renewed focus on low prices to lure penny-pinching consumers.
However, Wal-Mart predicted slower sales growth at its established stores for the current quarter, saying it is seeing some volatility as customers find it difficult to stretch their paycheck to the next payday.
Kroger Reaches Tentative Deal With Union
Columbus, Ohio (August 13, 2008) The Kroger Co. said Wednesday it reached a tentative deal with the United Foods & Commercial Workers Union Local 1059 in Columbus, Ohio.
The agreement has not yet been ratified by union members.
Vornado, Reliance Form Retail Venture in India
Paramus, N.J. (August 13, 2008) Vornado Realty Trust said Wednesday it has formed a joint venture with India's Reliance Industries Ltd. to invest in shopping centers in India.
Vornado, a Paramus, N.J.-based real estate investment trust, and Reliance will each commit up to $250 million to the 50/50 venture to acquire, develop and operate shopping centers in key Indian cities.
Report: Retail Sales Rise 4.0% in July
Chicago (August 13, 2008) ShopperTrak RCT Corp.'s National Retail Sales Estimate reported Wednesday that July retail sales rose a steady 4.0%, while the company's Retail Traffic Index (SRTI) reported that total U.S. foot traffic slipped 2.2% for the same time period.
Both sales and traffic were slower in the beginning of July before the back-to-school shopping season picked up toward the end of the month.
Best Buy Becomes First Independent iPhone Retailer
Minneapolis (August 13, 2008) Best Buy Co. will start selling the iPhone on Sept. 7, becoming first U.S. chain to do so outside of Apple Inc.'s and AT&T Inc.'s own stores, according to a Reuters report.
The announcement expands the availability of Apple's phone to 970 full-size stores and 16 smaller Best Buy Mobile stores. It's also a coup for Best Buy, which has been upgrading its cell-phone departments.
Tween Brands Shifting to Low-Price Strategy
Chicago (August 13, 2008) In a move to drive growth and profitability, Tween Brands Inc. said Tuesday it will convert approximately 560 Limited Too stores to its lower-priced Justice brand and close 26 others. Both brands are targeted at 7-14 year-old girls, with Justice priced an average of 20% to 25% less than the more fashion-forward Limited Too.
Once the change over is complete, the company will no longer operate any Limited Too stores. It will, however, continue to sell Limited Too product in Justice stores.
China Retail Sales Up 23.3% in July
Beijing (August 13, 2008) China's retail sales rose by 23.3% in July from a year ago to 862.9 billion yuan ($126 billion), the government said Wednesday.
In the first seven months of the year, retail sales climbed 21.7% to 5.97 trillion yuan, the National Bureau of Statistics said in a statement.
CVS Buying Longs Drug for $2.7B
Woonsocket, R.I. (August 13, 2008) CVS Caremark Corp. said Tuesday that it is buying Longs Drug Stores Corp. in a deal valued at $2.7 billion. The $71.50 per-share cash offer, announced after the end of trading Tuesday, was a 32% premium over Walnut Creek, Calif.-based Longs' closing price of $54.04.
Longs operates 521 drug stores, mostly in California, and also has sites in Hawaii, Nevada and Arizona. Executives at CVS said the acquisition will give the chain a significant presence in fast-growing West Coast markets where property is often unavailable or expensive to acquire.
Linens 'n Things Sales Fall in 2Q
Clifton, N.J. (August 12, 2008) Linens Holding Co. said Tuesday its sales dropped 21% in its second quarter. The company, which filed for Chapter 11 bankruptcy protection in May, reported total sales of $504 million for the quarter and retail sales of $468.1 million.
Linens Holding said the retail sales figure does not include $35.9 million in liquidation sales related to the closing of 120 stores.
Circuit City Launches Fantasy Football Channel on YouTube
San Bruno, Calif. (August 12, 2008) Circuit City has launched a fantasy-football channel on YouTube. The YouTube FANalyst Channel, located at http://www.youtube.com/fanalysts, provides consumers with the latest analysis, tips and season predictions, the company said.
In addition to the channel, Circuit City is sponsoring the "Join The Squad Contest," which calls out fantasy-football fanatics all over the world to submit their own FANalyst video showcasing their football knowledge along with their player and team season predictions.
Report: Montgomery Ward May Bring Back Catalog
Milwaukee (August 12, 2008) Montgomery Ward may give its catalog business another shot, starting as soon as January, according to the Milwaukee Journal Sentinel.
Last week, Swiss Colony's Midwest Catalog Brands division bought the rights to the Montgomery Ward catalog and online business from Chicago-based Direct Marketing Services Inc. for $15.5 million, the report said. The price includes two other businesses: Charles Keath, a home-furnishings catalog and Internet business, and online retailer HomeVisions.
Ann Taylor Names New President
New York City (August 12, 2008) AnnTaylor Stores Corp. has appointed Christine M. Beauchamp to the position of president, Ann Taylor Stores, effective immediately. Beauchamp, who has been a strategic consultant to the company since earlier this year, succeeds Adrienne Lazarus, who is leaving the company.
Beauchamp was previously with Limited Brands, most recently as president and CEO of Victoria's Secret Beauty.
TJX Cos. Profit Jumps in 2Q
Framingham, Mass. (August 12, 2008) TJX Cos. Inc. posted a higher quarterly profit on Tuesday as shoppers headed to its stores for deals on clothes.
The company also is raising its profit outlook as it benefits from shoppers looking for cheaper alternatives.
Target Spent $870K Lobbying in 2Q
Minneapolis (August 12, 2008) Target Corp. spent $870,000 lobbying on consumer product safety standards and other issues in the second quarter, according to a recent disclosure report.
The company also lobbied on banking matters, crime enforcement and labor issues in the April-June period, according to the form filed July 21 with the House clerk's office.
Tesco to Expand in India
London (August 12, 2008) Tesco announced on Tuesday plans to open wholesale grocery stores in India that will supply goods to hypermarkets owned by Indian conglomerate Tata Group.
"This is another exciting development for Tesco," the group's chief executive Terry Leahy said in a statement. "It complements our entries into China and the United States, giving us access to another of the most important economies in the world. Our wholesale cash-and-carry format will bring improved value, range and service to thousands of Indian businesses."
Circuit City Stops Work on New DC
Richmond, Va. (August 11, 2008) Circuit City has halted construction of a new distribution center it was building in Pennsylvania. The $45 million facility in Covington Township, Pa., was due to open by the end of the year and replace two existing centers in Pennsylvania and Maryland.
Circuit City did not give a specific reason for the hold on construction, though a spokesman said the retailer has decided to "step back and take a look at it."
Tiffany Appeals eBay Internet Ruling
New York City (August 11, 2008) Tiffany & Co. on Monday appealed a federal ruling that largely absolved eBay Inc. of policing its auction site for counterfeit items, saying the judge was wrong to leave the primary burden to the jewelry maker. Tiffany filed the appeal with the United States Court of Appeals for the Second Circuit, the company said in a statement.
The jeweler sued eBay in 2004, alleging it turned a blind eye to the sale of fake Tiffany jewelry on its Web site. But in July, all of its trademark infringement claims were rejected, and a federal judge held that brand owners are ultimately responsible for protecting their own trademarks.
Nine West in RFID Pilot
New York City (August 11, 2008) Jones Apparel Group Monday announced that it has initiated a program to evaluate radio frequency identification (RFID) technology in select Nine West retail locations. The goal of the pilot program is to study the benefits that item-level RFID provides in the areas of enhanced productivity, customer service and inventory accuracy.
"RFID has interested us for some time, and we believe it has reached the point where launching a pilot program of this nature makes sense," said Norm Veit, executive VP, MIS at Jones.
E Com Changes Name to Perfumania
Sunrise, Fla. (August 11, 2008) E Com Ventures Inc., which owns Perfumania perfume shops, said Friday it is changing its name to Perfumania Holdings Inc.
The company's ticker symbol will be "PERF" starting at the opening of trading Monday, it said in a news release.
Canada's Supreme Court to Hear Wal-Mart Case
New York City (August 11, 2008) The Supreme Court of Canada has agreed to hear two cases stemming from Wal-Mart's controversial closing of a unionized store in Quebec.
The store, located in Jonquiere, closed in 2005 after workers had agreed to be represented by the United Food and Commercial Workers and were negotiating their first contract. Wal-Mart said the store was not profitable. The court agreed to hear the case after a Quebec court sided with Wal-Mart, according to reports.
Best Buy Launches Automated Kiosks in Airports
Minneapolis (August 11, 2008) Best Buy Co. Inc. plans to add a dozen automated vending kiosks inside major airports across the country as part of a new pilot program called "Best Buy Express," company executives said.
The retailer is partnering with ZoomSystems, a San Francisco-based vending-machine company, for the project that will install the small automated stores at eight airports.
Publix Spends $500M for Albertson's Florida Stores
Orlando, Fla. (August 8, 2008) The price tag for the 49 Albertson's LLC store locations in Florida being bought by Publix Super Markets is about $500 million, according to a filing with the Securities and Exchange Commission.
The deal, which is expected to finalize in September, includes stores owned by Albertson's and stores subject to ground leases and traditional leases, the filing said. Publix said it would finance the purchase with internally generated funds or liquid assets.
IKEA to Invest in Green Companies
New York City (August 8, 2008) IKEA plans to invest $77 million in start-up companies producing eco-friendly products with an eye to eventually adding solar panels and other green goods to its inventory.
The news was reported by Cleantech Group, which said Ikea plans to focus on five areas: solar panels, alternative light sources, product materials, energy efficiency, and water saving and purification. The investments will be made in companies that offer commercial prospects within a four-to-five year horizon, according to Cleantech.
Sears Holdings Cuts Jobs at Support Center
Dallas (August 8, 2008) Sears Holdings Corp. announced that it plans to cut approximately 50 jobs at its National Claims and National Support Center in Dallas, according to a report in the Dallas Business Journal. The company issued a letter stating the layoffs would involve primarily administrative positions and would begin next month. It noted that the entire service facility is not closing. The service center is one of six nationwide.
In other news, West Virginia Attorney General Darrell McGraw said yesterday that Sears Holdings subsidiaries agreed to improve customer-service operations in the state as a response to claims that the retailer failed to comply with consumer-protection laws, according to an Associated Press report.
Report: Wal-Mart Eyes $10 Billion in Sales for Marketside
New York City (August 8, 2008) Wal-Mart Stores Inc. said its new small-format Marketside grocery-store concept could expand to a chain of more than 1,000 stores with more than $10 billion in annual sales, the Financial Times reported on its Web site.
The retailer plans to open 10 stores initially, with four slated to open in the Phoenix area this fall.
Spartan Stores Names CEO
New York City (August 8, 2008) Spartan Stores Inc. said Thursday its board of directors has appointed current president and COO Dennis Eidson to serve as CEO, effective Oct. 15. Eidson will continue in his roles until then and retain the president title.
Publix to Increase Recycling Efforts
Pompano Beach, Fla. (August 8, 2008) Publix has partnered with Organic Recovery to increase its recycling rate by 25% to 30% in 33 stores. By the end of summer 2008, Organic Recovery said it aims to serve all 84 Publix stores in Broward County, Fla.
"Organic Recovery presents an opportunity in fulfilling our mission to be intolerant of waste by diverting food waste that would typically be sent to local landfills, thus reducing the greenhouse-gas emissions," said Publix VP of facility services, Dave Duncan. "We are pleased with the short-term results and look forward to long-term resolutions."
I saw a presentation using CBRE Capital Markets, Real Capital Analytics, and Commercial Mortgage Alert data. Here are the highlights:
- Retail US debt issuance: Q1 2007 $2.7 B, Q1 2008, down 77.8% to $0.6 B
- Overall (office, retail, industrial, multi family, hotels) US debt issuance: Q1 2007 $6.2 B, Q1 2008, down 59.7% to $2.5 B
- Multifamily and industrial are getting more of the shrinking pie. The big losers are office and retail. With the single family residential market issues, this makes sense.
- LTVs are back to 65% - 75% range, no more 90% - 95% deals
- Recourse is back, non-recourse is out. However, this is probably a by-product of the conduit market collapse.
- Lenders looking at trailing 12 Cash Flow, less at Pro-forma Cash Flow
Posted by: Richard
