| IN THE November
18, 2009 ISSUE |
Vulture Funds Lie Low as REITs Move in to Nab Hotel
Deals
The U.S. economy has been downright inhospitable to the
hospitality industry. Not only have hotel sales plunged to a fraction
of last year’s deals, but the sector has also been whiplashed by
declining occupancy levels and room rates.
In 2008, the volume of hotel sales reached $10.7 billion for the year,
but by the end of September 2009, sales totaled just $2 billion,
according to New York research firm Real Capital Analytics. By
comparison, at the peak of transactions in 2007, annual sales totaled a
lofty $77.4 billion.
So dire has the financial status of the hospitality industry become as a
result of the recession and scarcity of credit, that it has led to an
upheaval among the hotel investment giants and a reversal of financial
power — at least for now.
Despite Slower Deal Volume, Commercial Banks Continue to Lend,
Reis Reports
While sagging credit conditions were initially responsible
for the weakened commercial real estate capital markets, today poor and
declining fundamentals are adding to the problem, according to Reis
economist Ryan Severino.
“The decline in transaction volume and transaction prices is
broad-based, consistent with continuing weakness in property
fundamentals as well as little improvement in credit availability,”
said Severino during the New York-based research firm’s third-quarter
capital markets briefing today. “Neither of these is likely to improve
in the immediate future so we should expect volumes and prices to remain
depressed for some time, even if the pace of decline slows.”
Moody’s Economy.com projects unemployment to peak at 10.6% in 2010.
The impact on demand for commercial real estate space will result in
peak vacancy rates of 18% for the office sector and 8.3% for apartments
in 2010, according to Reis. Retail vacancies are not expected to peak
until 2011 when they reach 12.5%, but Reis anticipates no recovery for
the sector until 2012 “at the earliest.”
U.S. Life Insurers Can Endure CMBS Delinquencies, Fitch
Reports
Although delinquency rates for property types underwritten
by commercial mortgage-backed securities rose to 3.96% at the end of
October, the life insurance sector should be able to manage its
near-term exposure to losses related to commercial real estate, Fitch
Ratings reports.
While life insurers may be able to withstand such losses related to
commercial real estate in the short-to-intermediate term, in some cases
their ratings may be downgraded when because of pressure from other
asset classes and products.
Doubling Down on Green
The past two years have been brutal for U.S. businesses
and their employees. That reality has trickled down to commercial real
estate owners and landlords who have been grappling with how to pay debt
service on properties with rising vacancies and falling rents. Against
such a bleak economic backdrop, green building has not retreated, but in
fact sunk its roots even deeper into the commercial real estate
industry’s psyche and practices.
“We see an increase in awareness and activity, particularly on
existing buildings and retrofitting of existing buildings,” says Marc
Heisterkamp, director of commercial real estate for the U.S. Green
Building Council based in Washington, D.C. “It is in a tough economy
that top companies rise to the occasion and find ways to save money and
position their real estate for the future.”
|
