March 7, 2012

The Wednesday Wrap: March 7, 2012

Each Wednesday, The Wrap presents a compilation of recent noteworthy commercial real estate stories from a variety of publications. Here are five stories that caught our eyes in recent days:


“CMBS Delinquency Rate Drops in February but Outlook Unclear”– by Matt Valley of In February, the delinquency rate for commercial real estate loans in commercial-mortgage-backed securities (CMBS) fell to its lowest mark – 9.37 percent – since June 2011, according to New York-based Trepp LLC.

Whether the rate rises or falls in the months ahead will be determined in large part by the performance of CMBS loans that are past their balloon payment date but are current in their interest payments, Valley writes. These loans – which currently total about $900 million in value – are not classified as delinquent by Trepp.

“The rate should remain fairly stable if [the loans] are modified or refinanced but watch out if these loans slide into foreclosure,” said Manus Clancy, senior managing director at Trepp, in a statement. 

The value of delinquent loans is currently $56.4 billion.

“The Malaise Afflicting America’s Malls” – by Kris Hudson of The Wall Street Journal. Many high-end malls are thriving even in today’s halting economic recovery, but their mid-range counterparts continue to struggle. This performance gap likely will only widen in the future, “with major repercussions for shoppers, retailers and tax-hungry local governments,” according to Hudson.

Malls outside the high tier of properties “are getting slammed especially hard by online shopping, the spread of discount retailers and store closures by such mall stalwarts as Sears Holding Corp., Abercrombie & Fitch Co. and Gap Inc.,” Hudson writes. “These malls are suffering from high vacancy rates, declining numbers of shoppers or have had to shut down completely.”

“Builders Poised for Rental Rebound” – by Misty Williams of The Atlanta Journal-Constitution. With the homeownership rate tumbling in metro Atlanta, apartment builders in the area are slated to begin construction on 7,400 new apartment units this year, Williams reports. The number is a dramatic increase from the dog days of 2009, when work began on a measly 1,700 units.

However, even with a number of factors pushing many Atlantans away from single-family homes and into the multifamily market, construction financing is still difficult to obtain, making it uncertain how many of the units will actually be built, Williams writes. “This is not a runaway market,” Alan Wexler, president of the real estate tracking firm Databank Atlanta, told Williams.

“Developers Are Increasingly Pursuing Adaptive Reuse Opportunities” – by Jennifer Popovec for National Real Estate Investor. An ever-increasing desire to live and work in urban cores combined with the difficulty of pursuing new development and a burgeoning tax-credit market have sparked a wave of adaptive-reuse projects across the country, Popovec reports.

“During a recession, when real estate is slow, investors will sit on a greenfield site longer than an existing building,” said Bob Habeeb, president and COO of First Hospitality Group, in the article. “A building cries out: ‘I’m built. I’m here. I’m lonely. Do something with me.’”

Developers considering adaptive-reuse projects should be prepared for their complexity, Habeeb cautions.

“Economic Growth Resembles a Recovery, Not a Head Fake” – by Hessam Nadji of Marcus & Millichap for The U.S. economy is on the verge of “solid growth” this year and in 2013, Nadji writes, and that expansion will have an overall positive impact on the commercial real estate industry.

The multifamily sector should continue to sparkle in the months ahead, but the office sector is still a ways away from taking off, according to Nadji. “Companies simply have too much excess space, and those renewing leases are looking for efficiency and cost control,” he writes. “A broader and more robust level of net absorption will remain elusive until prosperity extends to small and mid-sized companies as much as it has to large multi-nationals.”

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