Nomura Gets 6 Years Free Rent For London HQ - Canadian Pensioners Probably Not Happy......

The landlord is Oxford Properties ( the property arm of the Ontario pension fund in combination with UBS )....The 365,000 active and retired members of one of the biggest Canadian pension funds are probably not happy....... The unfavourable CAD/GBP Chart isn´t making things better..... And with stories like this it is only going to get worse...... For more "good" news on the pension front i recommend the blog Pension Pulse.....Unfortunately the situation in Germany isn´t any better.....I have listened to the latest conference call from Thyssen Krupp ( one of the largest steel producers and close to a junk rating ) & the CFO ( former CFO from überlevereged CONTI..... ) said the ( analogous ) following ( and he was not kidding! )..... "Good that our pension plan is still underfunded by over € 6 billions..... If we would have funded it in the past few years the deficit would be much bigger".... Probably the best spin attempt i´ve heard so far... CHUZPAH!

Der Vermieter ist in Kombination mit der UBS der Immobilienarm des Pensionsfonds von Ontario.....Keine guten Nachrichten für 365,000 Mitglieder einer der größten kanadischen Pensionskasse...... Wenn man jetzt auch noch die nicht gerade vorteilhafte Währungsentwicklung hinzunimmnt ( siehe CAD/GBP Chart ) dürfte der Ärger nicht geringer werden..... Und dank Nachrichten wie diesen ist eine Besserung nicht in Sicht...... Wer mehr "gute" Nachrichten zum Thema Pensionskassen hören möchte dem empfehle ich Pension Pulse oder die letzte Telefonkonferenz von Thyssen Krupp ( demnächst höchstwahrscheinlich mit einem Junkrating )..... Sinngemäßes Zitat CFO ( kommt von Conti.....) " Gut das wir zur Zeit mit über 6 Mrd unterfinanziert sind ...." Nach dem Motto je größer das Defizit desto weniger können wir mit unseren Einlagen verlieren..... So verkauft man grotesk schlechte Nachrichten noch als Erfolg.....PS: Überflüssig zu erwähnen das solch geringe Summen in der Präsentation die fleißig den Aufbau der flüssigen Mittel abfeiert vollkommen fehlt....CHUZPE!

Let´s at least hope they have viewed this deal from the start as "opportunistic"........

Bleibt zu hoffen das der Deal von Anfang an als "Opportunistisch" angesehen worden ist........

> From the 2007 press release when the deal was anounced......

> Aus der Pressemitteilung vom Sommer 2007

"The Watermark Place development is another important step in the expansion of Oxford's global investment platform,demonstrating the skills, capabilities, and reach of Oxford and its investment professionals. We are excited about our relationship with UBS - a world-class investment manager and a great like-minded partner." Andrew Trickett, Vice President of Corporate Development & Investment, added "this development represents a unique investment opportunity for Oxford and an outstanding addition to London's office market.

LONDON, Aug 31 (Reuters) -

Japanese investment bank Nomura has secured a rental deal on its new London headquarters allowing free rent for almost six years, the Financial Times reported, citing the terms of a deal to be announced on Tuesday.

The FT said the bank will confirm plans to move its UK business, including the staff taken on as part of the Lehman Brothers acquisition, into a new office development on the Thames.

Up to 4,000 banking staff will move into the 12-storey Watermark Place next year, many relocating from the former Lehman Brothers building in Canary Wharf.

The landlord, Oxford Properties, is the property arm of an Ontario pension fund and UBS

UPDATE via German FT Mietfrei im Londoner Hybrisbau

The term of the leasing contract is 20 years and the price is 40 british pound per square meter ( peak boomtimes 70 british pounds )

Der über 20 Jahre laufende Mietvertrag sieht nämlich vor, dass die Japaner in den ersten sechs Jahren kostenlos (!) in dem Glaspalast an der Themse residieren dürfen. Für die verbleibende Zeit verlangen die Eigentümer - ein Konsortium aus der Schweizer UBS und einem kanadischen Pensionsfonds - 40 Pfund je Monat und Quadratmeter. Zu Boomzeiten waren 70 Pfund üblich.

> With news like this no wonder Canary Warf needs a bailout......

> Dank solcher Nachrichten ist es wenig verwunderlich das Canary Warf in extremer Schieflage ist......

China invests in Canary Wharf with £880m bail-out of Songbird Telegraph

China is set to become the joint-largest shareholder in the owner of Canary Wharf after joining an £880m bail-out of Songbird Estates with its first major investment in UK property.

UK CRE Now Off 45 Percent From The Peak.......

According to IFD, UK commercial properties values have been declining fast with peak to current declines of around 45%, with major declines noted in all major segments - retail, offices and industrials

At the same time the amount of available floor space for occupation increased at the fastest pace since 1999 in all regions with the exception of London (Chart 2) and thevalues of inducements rose at its fastest pace since the survey’s history in 1999. Collectively this implies that an upward correction in prices in the foreseeable future is unlikely.

> I still would almost die to see a similar stat for Dubai ( see The Upcoming Skyscraper Tsunami..... )

> Ich würde immer noch liebend gerne eine ähnliche Statistik für den Markt in Dubai sehen ( siehe The Upcoming Skyscraper Tsunami..... )

> Only 6 years of free rent.......Cleary a sign that the bottom is near....... ;-)

> Lediglich 6 Jahre Mietfrei in einer Top Lage Londons......Klares Anzeichen das der Boden wie tagtäglich propagiert inzwischen erreicht ist.... ;-)

Update:

Stuy Town, Which Is On Verge Of Default, Costs Florida's Pension Fund Entire $250 Million Investment

For Commercial Real Estate, Hard Times Have Just Begun

Corporate Pension Fund shortfalls weigh on recovery

UK CRE Now Off 45 Percent From The Peak.......

Could be worse if you are a foreign investor..... The British Pound is 20 percent off against all other major currencies over the past 12-18 months.....

Wenn man jetzt noch bedenkt das das britische Pfund gegenüber allen relevanten Währungen auf Jahressicht über 20% verloren hat sieht die Lage für ausländische Investoren noch düsterer aus...... Der Sektor der gewerblichen Immobilien dürfte schon sehr bald die Schlagzeilen mit spektakulären Pleiten dominieren..... Mich wundert das die in Deutschland dominierenden offenen Immobilienfonds ( etliche mit signifikanten UK Exposure siehe Chart Geographische Verteilung der Objekte In Offenen Immobilienfonds via FAZ/Scope ) trotz einer regelrechten Implosion im gesamten Sektor ( plus der teilweise drastische Währungseffekt in UK & Osteuropa ) querbeet über alle Regionen es noch immer schaffen keine Verluste auszuweisen...... Denke das spätestens wenn die Mieterneuerungen anstehen die ein oder andere Überraschung "droht".....

“Losses on UK commercial real estate could equal subprime” FT Alphaville BNP Paribas analysts are worried about the health of the UK’s commercial real estate sector. In a note released on Friday, they warned that a “combination of rising vacancy rates, falling rentals and extraordinarily difficult financing conditions will almost certainly drive UK CRE losses higher.”

Analysts Vivek Tawadey and Olivia Frieser contend that CRE is the “next leg of the credit story” in both the US and the UK, which they believe could see a major CMBS default.

From the note (any emphasis FT Alphaville’s):

Bonds backing CRE assets of a UK property investor (Simon Halabi) are likely to default on £1.15bn of debt. In this particular case, the values of the nine “prime” London office buildings (included the offices of JPM, the UK headquarters of Aviva, the Naval and Military Club amongst others) that were securitised have fallen from £1.8bn in November 2006 to £929mn as of 8 June, a reduction of almost 50%.

According to IFD, UK commercial properties values have been declining fast with peak to current declines of around 45%, with major declines noted in all major segments - retail, offices and industrials

At the same time the amount of available floor space for occupation increased at the fastest pace since 1999 in all regions with the exception of London (Chart 2) and thevalues of inducements rose at its fastest pace since the survey’s history in 1999. Collectively this implies that an upward correction in prices in the foreseeable future is unlikely.

> I would love to see a similar stat for Dubai ( see The Upcoming Skyscraper Tsunami..... )

> Ich würde liebend gerne eine ähnliche Statistik für den Markt in Dubai sehen ( siehe The Upcoming Skyscraper Tsunami..... )

Tawadey and Frieser also point to the refinancing risk ahead:

Around £43bn (or 19%) of all CRE loans comes due for repayment in 2009. A further 14% matures per year annually in 2010 and 2011 (Chart 3) or in excess of £100bn over the next 3 years, implying very significant refinancing risk inevitably leading to higher defaults.

The fact that only 10% of CRE loans are securitised in Europe (US: 30%), also underscores that more of these loans are held on bank books, leading to potential write-downs down the line.

S&P On US CMBS / CRE FT Alphaville

The agency wants CMBS credit enhancement levels sufficient for AAA-rated tranches to be able to withstand some pretty severe declines (40 to 50 per cent) in the value of commercial property.

> So it looks like 50 percent off is the new normal...... And watching the next graph ( HT Zero Hedge ! ) i´m not sure if this will be enough..... Needless to say that the Fed just a few weeks ago has proposed a CRE TALF program to buy tons of this crap ( No Kidding..... S&P Is Acting Responsible & Threatens To Blow Up Fed´s CRE Bailout Stunt Via TALF ). It will be fun to watch how they will go along with the collateral criteria..... They already have loosened it once ( see ( see Fed Bends Over Backward For CMSA, Will Feed Inflation Capacitor With More Toxic Garbage via Zero Hedge ). .....

> Sieht ganz so aus als wenn eine coole Halbierung vom Top in den ehemals heißgelaufenen Märkten eher die Regel als die Ausnahme ist....... Bin mir sicher das Banken in Ihrer bekanntermaßen vorausschauenden Weitsicht hierfür ausreichend "Vorsorge" getroffen haben..... Wenn man sich jetzt die nächste Grafik ( Dank an Zero Hedge ) ansieht dürfte klar werden was sich für ein Debakel zusammenbraut....... Möchte nur noch mal zur Belustigung darauf hinweisen das die Fed vor wenigen Wochen extra ein TALF Programm gestartet hat um für wahrscheinlich bis zu 100 Mrd $ den Giftmüll zu kaufen ( siehe No Kidding..... S&P Is Acting Responsible & Threatens To Blow Up Fed´s CRE Bailout Stunt Via TALF ) ...... Bin gespannt wie weit die Fed noch sinken kann....Bisher hat Sie bereits einmal die Bedingungen für die Sicherheiten gelockert ( siehe ( see Fed Bends Over Backward For CMSA, Will Feed Inflation Capacitor With More Toxic Garbage via Zero Hedge ).......

UPDATE :

Graph
European Top 20 From JPM’s CRE Risk List

( Note: Data from end of 2008! )

Another Private Equity Deal That Went Bust Within 24 Months

Commercial Real Estate (CRE) & Private Equity...... When ever you hear this combination during the next few years it will be almost to 100 percent in connection with disastrous deals...... No surprise that Blackstone & Fortress are involved once again....... :-) The enitire CRE complex will be the next very very big headache for the balance sheets from banks...... It´s a safe bet that we will hear similar stories also from the LBO front on a regularly basis ( see Tribune Co. Could Be Flirting With Bankruptcy NYT) ......

Wann immer in den nächsten Monaten die Begriffe Commercial Real Estate & Private Equity im Zusammenhang auftauchen kann man sicher sein das es sich fast zu 100% um das implodieren von Mrdschweren Deals handelt...... Sicher auch kein Zufall das die Namen Blackstone und Fortress in schöner Regelmäßigkeit auftauchen..... Der gesamte Bereich der gewerblichen Immobilien wird noch für extrem große Kopfschmerzen bei den Bänkern und entsprechend große Löcher in den Bilanzen der Banken sorgen...... Wir werden uns an ähnliche Schlagzeilen vor allem auch im Zusammenhang mit den berühmt berüchtigen LBO´s von "Pirate " Equity sowie fremdfinanzierten Übernahmen im allgemeinen ( z.B. CONTI/SCHAEFFER..... ) gewöhnen müssen..... UPDATE: Erster großer Autozulieferer meldet Insolvenz an Manager Magazin

WSJ Extended Stay Could Transfer Chain to Lenders
Extended Stay Hotels Inc. is in early talks that could result in turning the hotel chain over to its lenders, a sign of the deep trouble awaiting the commercial real-estate business.

Extended Stay's difficulties signal a new phase of distress in commercial real estate, because they arise directly from the weakening economy. Until now, problems have mostly involved developers unable to obtain refinancing for otherwise healthy operations.

Lightstone Group LLC, Lakewood, N.J., bought Extended Stay from Blackstone Group LP for $8 billion in April 2007. The deal was highly leveraged, hastening Extended Stay's troubles. The chain has no major debt expirations due soon

But Extended Stay's cash flow is crashing, as business activity across the country contracts. That is putting fewer people in its 684 U.S. and Canadian hotels, used by corporate travelers on long assignments. Extended Stay has 13,000 employees. It is too soon to say if a takeover by lenders would result in layoffs or hotel closings, according to people familiar with the matter.

As conditions deteriorate, Extended Stay has been forced into discussions with its lenders, and people involved in the talks say a transfer of ownership could come within a month or two. Extended Stay has recently hired Lazard Ltd. as financial adviser and New York law firm Weil Gotshal & Manges as bankruptcy counsel......

During the real-estate lending boom, Wall Street originated $600 billion of commercial mortgage-backed securities. The default rate on commercial mortgage debt has remained near historic lows, even while residential-related debt suffered a severe downturn.

But that is now beginning to change, sending new shock waves into much-battered banks, private-equity funds and other financial institutions that participate in the $1 trillion commercial real-estate debt market. Hotel landlords typically are the first to feel the pain in a downturn because hotels have the shortest leases in real estate -- one night at a time.

bigger/größer Thanks to Calculated Risk

> I just cannot wait for this deal Hilton's $20 Billion Sale to Blackstone Is Completed to blow up........

> Ich denke es wird nicht mehr lange dauern und der absolute Königsdeal unter den Hotelbuyouts ( Hilton's $20 Billion Sale to Blackstone Is Completed ) dürfte in ähnliches Fahrwasser geraten.....

( OKTOBER 2007 ) The sale, for $26 billion including debt, is a record for the hotel industry. New York-based Blackstone, which already owns the La Quinta lodging chain, joins Apollo Management LP and TPG Inc. in targeting hotel companies for their cash flow and real estate.

An Extended Stay failure reveals how a commercial real-estate downturn could ripple through the financial system.

When Lightstone Group and preferred equity partner Arbor Realty Trust bought Extended Stay from private-equity firm Blackstone Group in 2007, it borrowed more than $7.4 billion. Wachovia Corp., Bank of America Corp., Merrill Lynch & Co. and Fortress Investment Group put in $3.1 billion in so-called mezzanine financing, which isn't as highly secured as other types of debt. People involved in the transaction say an analysis of the company's value shows that much or all of the mezzanine debt could be wiped out in any renegotiated deal.

Bondholders have hired Houlihan Lokey Howard & Zukin for restructuring talks.

Extended Stay is still meeting its debt service, but people familiar with the matter say it could default within the next 60 days if the economic downturn continues as expected. Revenue per available room, or RevPar, a common hotel-industry measure, will be down more than 10% this year at Extended Stay, according to someone familiar with the matter. Much of that decline has come in the last two months.

But it was the Extended Stay deal that was Mr. Lichtenstein's biggest. Extended Stay has operations in 44 states and Canada. It was also among his riskiest deals, as

Lightstone, with help from Arbor Realty, arranged to put down just $600 million of equity, or 8% of the total price. (Blackstone, which made about $3 billion on the sale, kept an equity interest.)

Mr. Lichtenstein saw increasing demand from business travelers who needed hotel accommodations for weeks or even months at a time. He also believed he could unlock value at Extended Stay by taking advantage of the chain's size and paying more attention to management.

A couple of months after the deal closed, Mr. Lichtenstein acknowledged the easy money that helped him complete the deal had disappeared. "We were one of the last deals in," he said.

Troubles also have surfaced at Lightstone's Prime Retail division, which owns roughly 30 malls and shopping centers in the U.S. and Puerto Rico. Lightstone has sought to turn over at least six of its malls to lenders after falling behind on debt payments.

UPDATE via NYT:

Similar screenplays/attributes can be attached to almost every other deal from "pirate" equity since 2005....

Ähnlichen Drehbüchern dürften fast alle Übernahmen von "Pirate" Equity seit 2005 früher oder soäter folgen......

In a report by the ratings agency Standard & Poor’s, 86 companies weren’t meeting their debt obligations through mid-November of this year, with 53 of those, or 62 percent, having ties to private-equity firms at one point in their lives.

"Honey, I Shrunk The Company" Centro Properties Down 76 Per Cent

Another one in the series Honey, I Shrunk The Company"....

Ein weiterer Kandidat aus der Serie Honey, I Shrunk The Company".....

Flashback March 2007

Centro Properties of Australia is set to become the fifth-largest operator of shopping centres in the US after agreeing to buy New Plan Excel Realty Trust for $3.7bn in cash. The deal is the biggest acquisition to date by an Australian real estate investment trust in the US. Including debt, it amounts to $6.2bn. Centro said it would finance the takeover by issuing new shares worth A$1.25bn in both the company and the trust, as well as raising a further A$750m from fund inflows and hybrid financing. JPMorgan Chase will underwrite the share offering.

Shopping for subprime victims, down under FT Alphaville
Anyone still needing to be convinced that synthetic financial strife has real world consequences could look down under on Monday - to Centro Properties, the Australian shopping mall operator. A cut in its 2008 earnings forecast of 13.6 per cent caused a 76 per cent plunge in its share price - bringing Centro’s market cap down from A$4.82bn to A$1.15bn.

Bloomberg

Centro Properties Group, the owner of 700 U.S. shopping malls, slumped 76 percent in Sydney trading and said it's struggling to refinance debt because of the collapse in the U.S. subprime housing market.

With A$26.6bn of property on its books, the company is having to face up to sharply higher financing costs and is already looking at selling its US acquisitions to private equity buyers, although no names were mentioned. As recently as March it paid US$6.2bn to acquire New Plan Excel Realty Trust.

Taken from todays Centro Presentation

Centro said it had won an extension for all of its maturing debt - but only up until February 15. Refinancing talk continuing in the meantime. Chairman Brian Healey said:

Tightened credit conditions have…had the effect that negotiation of a comprehensive refinancing package of these short-term facilities has not yet occurred.“It has become clear that to secure longer term financing in the current illiquid credit market, Centro will need to reduce its gearing level significantly.

Last week, Merrill Lynch said that it had doubts about Centro’s business model and rating agency Standard & Poor’s put the group on credit watch, causing a temporary suspension of Centro’s shares.

> I assume they will have to update their statement on securitisation ( and others) from their euphoric annual 2007 review

> Sieht ganz so aus als wenn die Aussagen zum Verbriefungsmodell in dem rückblickend mehr als amüsanten Rückblick für das Jahr 2007 nicht mehr ganz aktuell sind

The 2007 financial year has seen retail property continue to deliver strong total returns to investors.”
Brian Healey, Chairman

The benefits of using a CMBS funding arrangement compared to traditional
bank debt are:

• It is more flexible;
• It involves less administration; and
• It has more generous loan covenants.

OUCH!

"poster child for what was not right in the underwriting"

Schadenfreude. The fact that the core tenant is Citigroup doesn´t make things better.....

Schadenfreude pur! Die Tatsache das der Hauptmieter Citigroup ist macht die Sache sicher nicht angenehmer...


NYT Financial Ground Has Shifted Under a Record Deal
The record price paid in January for the 41-story aluminum-clad office tower at 666 Fifth Avenue — $1.8 billion — was breathtaking, even by the standards of the heady Midtown Manhattan commercial real estate market.

Making its first major foray into the Manhattan office market, the buyer, the Kushner Companies of Florham Park, N.J., paid more than three times what the building fetched in 2000.

Today, however, some real estate specialists regard the 666 Fifth Avenue transaction as a textbook example of the risky practices that were prevalent before the current credit squeeze, when many loans were based not on the actual cash flow of the building from existing rents but rather on optimistic projections of what the space might command once those leases expired.

The deal for 666 Fifth “was the poster child for what was not right in the underwriting,”....

Although 666 Fifth Avenue commanded the highest price ever paid for a single building, it does not have quite the cachet of the top Midtown office towers like the Seagram Building. Still, it has a roster of brand-name tenants — one-quarter of the space is leased to Citigroup — and is in a desirable neighborhood, where rents were climbing steadily at the time of the sale.

What raised eyebrows was the financing of 666 Fifth and other buildings sold late last year and early this year, said Robert M. White Jr., the president of Real Capital Analytics, a New York research firm.

A group of lenders led by the real estate unit of Barclays Capital agreed to provide an interest-only first mortgage of $1.215 billion based on an annual cash flow of $114 million, or 1.5 times the debt service, according to a document filed with the Securities and Exchange Commission.

But a footnote pointed out that the cash flow from existing rents would actually cover only 0.65 percent of the debt service. Mr. White calculated that the building’s shortfall amounts to $5 million a month. A $100 million reserve fund was included in the debt package to cover the shortfall.



Underwriting standards have tightened considerably since the summer, and now investors like the Kushners who bought property early in the year are finding they have to invest more of their own money — and assume more of the risk — than they had expected.

Like many buyers, Kushner relied on high-cost short-term financing to make up most of the gap between the first mortgage and the purchase price for 666 Fifth.

By the time the bridge loans had to be paid off, the theory went, the building would be refinanced or the 80,000-square-feet of glassy retail space, most of which faces Fifth Avenue, would be sold as a condominium.

It has not worked out that way. In the spring, the company hired the Carlton Group, a New York investment bank, to help it restructure the deal. But in recent weeks, the company used its own cash to pay back one $200 million bridge loan, said Jared Kushner, the publisher of The New York Observer and a principal in Kushner’s New York office. Another repayment deadline is coming up soon.

Mr. Kushner said the company had a variety of options, including “writing a big check ourselves.” The cash-rich Kushners recently sold 17,500 apartments in five Eastern states for about $2 billion, according to a spokesman.

The Kushners are thought to be much better off than Harry Macklowe, the New York real estate investor who also faces a deadline for repaying a bridge loan. Many real estate professionals say Mr. Macklowe ( read So Many Deals, So Much Debt ) could lose control of the seven Midtown Manhattan office buildings he bought this year as part of the Blackstone Group’s purchase of Equity Office Properties as well as his prized General Motors Building on Fifth Avenue between 58th and 59th Streets. .....

Their broker, Howard L. Michaels, chief executive of the Carlton Group, said the building had generated a lot of interest from investors because of the prospects for rent growth over the next few years. Leases for more than 800,000 square feet of space (out of a total of 1.45 million — with rents far below today’s market rates — are scheduled to expire before 2011.

Annual asking rents for spaces that are currently available range from $92 to $118 a square foot, according to the CoStar Group, a research company in Bethesda, Md.

Commercial property "View from the top" / Economist

More on the topic Commercial property "Dizzying heights" UK / Economist , So Many Deals, So Much Debt ( The rise and possible fall from Harry Macklow in just 6 month) & Commercial Real Estate Prices May Drop 15% in Next Year

I also want highlight some excellent posts from Toro´s fine blog Am I Wrong About REITs? & REITs - What are Institutional CIOs Thinking? and from Mish Commercial Real Estate Abyss

Mehr zum Thema Commercial property "Dizzying heights" UK / Economist , So Many Deals, So Much Debt ( Die Geschichte eines Immobilienmoguls der binnen 6 Monaten alles zu verlieren droht) & Commercial Real Estate Prices May Drop 15% in Next Year

Zudem möchte ich noch auf diese beiden fundierten Posts von Toro hinweisen Am I Wrong About REITs? & REITs - What are Institutional CIOs Thinking? sowie von Mish Commercial Real Estate Abyss

View from the top It looks a long way down from the peak of the global market for office space

BANKING crises and property crashes often go hand in hand. That is one reason why America's housing bust has so troubled investors and policymakers recently. Commercial property, too, has a history of boom and bust that has brought havoc to the financial markets: think of the Japanese property slump during the 1990s, or Britain's secondary-banking crisis of 1973-74, when too much lending to property developers helped cause the London stockmarket's worst year of the 20th century.

Even though commercial and residential property do not necessarily move together, the same factors associated with the American housing market—tighter lending standards and slower economic growth—should hurt business demand for office and retail space as well. Like residential mortgages, loans for offices and shops have been bundled up and sold to investors. So could some swanky offices and shopping centres eventually suffer the subprime fate?

Until early this year there was plenty of evidence of hubris. In February the $39 billion paid by Blackstone, a private-equity firm, for Equity Office Properties, a big landlord, was a record price for a buy-out—and the seller, Sam Zell, has a reputation for shrewdly judging the top of the market.

> More details on the deal and why it is no wonder that this deal marked the top.....commercial property madness / numbers on the blackstone-eop manhatten sale

> Hier mehr Details zum Deal der gleichbedeutend mit dem Top gewesen ist.....commercial property madness / numbers on the blackstone-eop manhatten sale

In Britain, the share prices of property firms had surged ahead of the government's decision, after years of dithering, to introduce the tax-efficient Real Estate Investment Trust (REIT) structure in January. During part of 2006, more than half the money flowing into British mutual funds was invested in property.

For whatever reason, investors have since taken fright. “The market has had a bucket of cold water poured over it,” says Tony Horrell, head of European capital markets at Jones Lang LaSalle, a commercial agent. Shares in property companies took a battering over the summer, making the sector the worst performer in the American market in May, June and July, according to Lipper, an information group.

But is this really the start of another bust or simply some judicious profit-taking? Commercial property has been the asset to own this decade. Figures from the National Association of Real Estate Investment Trusts, an industry body, show that an investment in American property at the start of 2000 would have more than quadrupled in value by the end of last year. By comparison, the leading American share index, the S&P 500, returned just 8% over the same period.
This has not been just an American phenomenon. According to the Investment Property Databank, 16 out of the 21 national property markets it covers delivered double-digit returns last year. A global economic boom, allied with a desire by investors to diversify from equities and bonds, made property appealing.

Despite investors' enthusiasm, industry experts argue that the market has not seen some of the excesses that marked previous cycles. There has not been the kind of overbuilding of skyscrapers that usually spells severe trouble. The latest survey by Reis, a research firm, found that the vacancy rate in American offices was 12.5% in the third quarter, the lowest for six years. Rents grew by 2.4% between the second and third quarters, a slower rate than before but still a respectable one. Mr Horrell says that in most European markets the fundamentals for commercial property are good and that rents should continue to grow.

Andrew Jackson of Standard Life Investments, a fund-management firm, argues that commercial-property investors are not as dependent as their home-buying counterparts on borrowed money; the average gearing of the REITs he invests in is just 31%. As a result, tighter lending standards have not had the dramatic consequences that they have had in the residential sector. There has not, as yet, been the sharp rise in loan delinquencies that was seen in subprime mortgages.

The credit crunch has undoubtedly had an effect on confidence but so far it has not been catastrophic. “A number of transactions are on hold while investors wait to see how deals are repriced,” observes Jonathan Thompson, head of real estate at KPMG, an accountancy firm. “Debt is still available but the cost has gone up a bit and the loan-to-value ratio has fallen.”

Ken Cohen of Lehman Brothers says that the volume of new loans to finance property deals has fallen by half since May and June when credit was widely available. In turn, this has led to a sharp fall in the issuance of commercial mortgage-backed securities (CMBSs), the products that consist of repackaged loans which helped propel the structured-finance market before it seized up.

All spreads from B to AAA

That means property is likely to behave in a patchy fashion. Some markets that were overextended, such as Britain's, are already seeing a retreat for the first time in 15 years. Norwich Union, an insurance company, downgraded the valuation of one of its main property funds by 2-3% in September, while British Land, a leading property group, abandoned plans to sell a shopping centre in Sheffield in northern England. In other markets, investors may start to shun properties in poor locations or with low-quality tenants. But they will still be attracted by city-centre buildings that have been pre-let or by markets that are soaring, such as Asia's.

A lot may depend on whether the debt markets recover their confidence. In America, in particular, a healthy property market requires a revival in CMBS issuance. Mr Cohen of Lehman reckons that by the new year the market could be getting back to normal. Investors will be looking to make their allocations into property for next year, he believes, and it will help that they will not have been swamped with issuance in the second half of 2007.

Commercial property is no longer the bargain it seemed a few years ago, when rental yields were well above those on government bonds. But it will probably take a recession, in America and elsewhere, for the recent wobbles to turn into an outright crash.

> As my opening links suggest i´m more bearish than the Economist.....

> Wie Ihr evtl. anhand meiner Links feststellen könnt bin ich erheblich pessimistischer als der Autor vom Economist.....

Commercial property "Dizzying heights" UK / Economist

It looks like the commercial real estate sector in London is as mad as the residential sector. This also fits perfect with the latest news like So Many Deals, So Much Debt ( The rise and possible fall from Harry Macklow in just 6 month) & Commercial Real Estate Prices May Drop 15% in Next Year that are coming from the US commercial real estate sector

Es scheint fast so als wenn es der gewerbliche Immobilienmarkt dem Wohungsmarkt in nichts nachsteht..... Das reiht sich zudem nahtlos an die letzten Meldungen wie z.B.So Many Deals, So Much Debt ( Die Geschichte eines Immobilienmoguls der binnen 6 Monaten alles zu verlieren droht) & Commercial Real Estate Prices May Drop 15% in Next Year die wir aus den USA zu hören bekommen.

London's office prices are starting to decline
THE names of the streets that neatly divide Canary Wharf—West India Avenue, Heron Quays—point to the remarkable story of the rise and fall of London's docks, once the world's busiest, and their reinvention as a global financial centre. The towers that now soar above them provide more than a parable of capitalism's cycles of creation and destruction and the notorious booms and busts of London's commercial-property market, but may also carry a far older lesson: that the higher one climbs the farther one can fall.

For much of this year London's commercial-property market has been scaling new heights. In April HSBC, a British bank, sold its office tower in Canary Wharf to Metrovacesa, a Spanish firm, for £1.1 billion, the most ever for a British building.

From the FT

Experts said this trend will mean banks will have to lend at higher rates. It also means some lenders have been stuck with loans on balance sheets. They include HSBC, which provided £800m of debt for Metrovacesa, the Spanish group, to buy its headquarters for £1.1bn. That was in April but HSBC has been unable to complete a CMBS refinancing..

..RBS estimates that European issuance was just EU1.5bn (£1bn) in July, compared with EU14.6bn the previous month and EU11.3bn in July 2006 - and spreads have risen.

This topped the £690m that Citigroup's London office was worth when it was
bought as part of a package by Royal Bank of Scotland in 2003. IPD, a data provider, reckons that office prices rose at an average rate of 10% a year during 2004 and 2005 before jumping 17% in 2006.

One reason for this surge in prices is that a shortage of office space has pushed rents to record levels. Hedge funds and investment banks have added thousands of employees, while developers, stung by previous busts, have been slow to build new space. One hedge fund is understood to have recently agreed to pay as much as £135 per square foot for swanky offices in St James's, making its new pad the priciest office in the world.

> But for how long? See the image of the future "City" skyline and compare this to the current one "Old Vs New Skyline" ......

> Aber für wie lange noch?Vergleicht bitte wie die zukünftige Londoner "City" Sklyline aussieht "Alte vs neue Skyline"

Deals such as these are for the very best offices. But even including humbler accommodation, London's West End still has the world's most expensive office space, according to Jones Lang LaSalle (JLL), a consultancy. Rents for swish offices in the West End have climbed 25% in the past 12 months to £1,200 ($2,400) per square metre. This is far higher than in any other financial and political centre. In Moscow rents run to about $1,500, JLL reckons; $1,400 in Hong Kong and $770 in midtown Manhattan.

> What will happen when the "boom" in the financial markets will end or even worse will reverse..... Should be good news for the sector......

> Was wird wohl passieren wenn der "Boom" an den weltweiten Finanzmärkten abebbt oder was einige für unmöglich halten siech gar nis negative umkehrt...... Das dürfte dem Sektor besonders gut bekommen ......

But the boom is now ending. On August 16th Stephen Hester, the chief executive of British Land, said he expected a fall in office prices. His firm, the biggest landlord in the City of London, is now one of the capital's biggest sellers of property. CB Richard Ellis, a consultancy, has meanwhile warned its clients to expect the prices of offices, shops and factories to fall

This is because investors have driven prices too high, too fast. IPD reckons that yields on commercial property have fallen from 6.8% at the end of 2001 to 4.5% by the end of June, which means that they are now 1.7 percentage points below the cost of borrowing (see chart).

Making matters worse is the turmoil in credit markets. This has not just driven up the cost of money, it has also made banks choosier about whom they lend to. Alastair Hughes of JLL says deals are taking longer to complete and some are falling apart as banks become more cautious.

Prices of the most expensive offices have not started falling yet, but those of shops and factories started to slip in July, according to IPD. Analysts at HSBC note that five of Britain's biggest institutional investors have reduced their property exposure since the start of the year, reversing a five-year flow of money into the sector.

Whether office prices will have a hard or soft landing is unclear. In the past investors in commercial property were somewhat insulated from market fluctuations because most tenants were locked into long-term leases. But this is no longer the case.

Between 1995 and 2005 the average lease length declined from 13 years to less than 5 years. If demand falters, then rents, and property values, may tumble as quickly as they have climbed.

So Many Deals, So Much Debt

Schadenfreude ! When the deal was announced in February ( see commercial property madness / numbers on the blackstone-eop manhatten sale ) i wondered back then what the hell Macklowe, Fortress & creditors were thinking.

Schadenfreude ! Als der Deal im Februar angekündigt worden ( siehe commercial property madness / numbers on the blackstone-eop manhatten sale ) habe ich mich schon damals gefragt was sich der Käufer und die Kreditgeber wohl denken mögen.

From the link in February

This article gives some good insight on the latest commercial property deals and shows very clear that "ordinary" people can´t understand what is going on. we are not smart enough to understand why you buy a portfolio at record (maybe peak) prices with a starting yield of 3% and including costs close to zero...... the only assumption that makes this deal work is that you double the rents? looks like this should be no problem because already 41 tenants in entire Manhattan pay the needed rent.......

Harry Macklowe, the New York developer, was flying high in February when he decided to buy a portfolio of prime Midtown Manhattan office towers for nearly $7 billion, using only $50 million of his own money.

Mr. Macklowe was already well represented in the Midtown market, where rents were rising at a staggering rate. His 2003 purchase of the General Motors Building on 59th Street and Fifth Avenue for $1.4 billion, though derided at the time as reckless, had been vindicated as the value of the building soared, enhancing Mr. Macklowe’s reputation as a visionary tycoon.

But as the crisis over subprime residential mortgages spills over into other real estate sectors, causing a severe tightening of credit, there is widespread talk in the industry that Mr. Macklowe is in deep trouble — so much so that he could lose control not only of the newly acquired portfolio but also of the G.M. Building and other properties that were used as collateral for short-term debt that must be repaid six months from now.

bigger/größer

Some real estate specialists say that the February acquisition of the seven Manhattan buildings — a deal consummated in just 10 business days —will be remembered not just as a feat of financial derring-do but also as a watershed that ended two years of frenzy in the commercial real estate market.

“If you’re looking for a poster child for what’s been going on, it could well be that deal,” said Mike Kirby, a principal of Green Street Advisors, a research company in Newport Beach, Calif., that specializes in real estate investment funds. “It had all the elements of the froth in the market — assets flipping left and right at ever-higher prices and excessive amounts of debt at ultracheap prices.”

> Macklowe marked the peak....

But in other signs of how the credit squeeze is affecting sales transactions, Tishman Speyer and Lehman Brothers recently postponed the completion of their $22 billion acquisition of Archstone-Smith, a real estate investment trust that owns interests in nearly 88,000 apartments, from late this month until early October. (Shareholders approved the sale yesterday.)

And a REIT that specializes in office buildings in Silicon Valley, Mission West Properties of Cupertino, Calif., said last week that its planned $1.8 billion acquisition by a private equity company had fallen through because the buyer’s lender had withdrawn from the transaction and no substitute lender could be found.

To be sure, the leasing market in many cities has been strong, nowhere more so than in Midtown, where landlords are now asking an average annual rent of more than $81 a square foot, a record, according to the brokerage firm CB Richard Ellis. Few large blocks of space are available. The default rate for commercial buildings has remained low.

But for several months, bond ratings analysts and others have warned that competition among commercial lenders has become so feverish that many are willing to finance 90 percent or more of the cost of the transaction based on overly optimistic projections that rents will continue to rise at a furious pace. In recent transactions, including Mr. Macklowe’s, the expected initial income from the buildings was less than 4 percent a year, with cash flow projected to rise significantly as leases expired and rents reached market levels.
But in the recent hot market, said Adrian Zuckerman, a real estate lawyer at Epstein Becker & Green, “people were not buying the income stream; they were buying the building for what they could sell it for in a year or two years.”

> Too bad that he bought at this "discount" prices.....

> Dumm nur das er zu diesen Schnäppchenpreisen zugelangt hat.....

The purchase price worked out to an average of $1,142 a square foot, the highest ever for a single portfolio..... Only one building, 666 Fifth Avenue, has traded for a heftier price: $1,200.

The Blackstone Group, the private equity company that recently went public, played on an even bigger scale. It bought Equity Office Properties, the nation’s largest office landlord, for $39 billion in February, and simultaneously began to dismantle it.

> EOP/Blackstone takeover

Without even taking possession of the buildings, Blackstone sold most of Equity Office’s portfolio in Manhattan to Mr. Macklowe in the transaction that is now raising questions. (The portfolio originally included the office portion of an eighth building, but that was later dropped from the deal.)

The problem for Mr. Macklowe is that much of the debt — $3.4 billion, according to Commercial Mortgage Alert, a weekly trade publication — is in the form of a short-term investment known as a bridge loan or preferred equity that must be repaid in February. Of that amount, about $900 million came from the hedge fund Fortress Investment Group, with the rest supplied by Deutsche Bank, Mr. Macklowe’s longtime lender. Mr. Macklowe pledged the G.M. Building and other assets as collateral.

Disclosure: Still short REITs / IYR

REITs Chart Of The Day

The Blackstone / Equity Office deal marked the top.......

Zufälligerweise hat der Balckstoen / EOP Deal das Top markiert........

Overall, the US real estate market continues to struggle and investors are concerned. For some perspective, today's chart illustrates the current trend of the Dow Jones Wilshire REIT Index. While REITs have been trending up for several years,

REITs are down over 15% since reaching their peak in early February of this year. As today's chart illustrates, REITs have broken well below their long-term uptrend (solid green line) and are now trending lower (dashed lines). Stay tuned...

Disclosure: Short REITs Index

REITs vs Stocks / Chart Of The Day

If you want read more on REITs click on the label at the bottom of the post.

Für mehr Infos zu REIT´s bitte am Ende des Post auf Label klicken

Over the long-term REITs (real estate investment trusts) have actually outperformed stocks. Investors appear to have caught on to this fact and have bid up REITs in dramatic fashion. While today's chart illustrates that REITs are well within a long-term uptrend, REITs have struggled after hitting resistance (red line) earlier this year. In fact, REITs have dropped below an accelerated trend channel (gray dashed lines) that has been in existence since 2002.

> Make sure you also see the chart that Mike Larson has in his REITs report!

http://tinyurl.com/39ocn3

> Ihr solltet Euch ebenfalls den Chart von Mike Larson in seinem Bericht durchlesen

disclosure: short REITs (index)

More Proof That Private Equity Is "Frothy"

mhhhh.......

hat tip to Room305 from the http://forum.themarkettraders.com/

UK banks are taking the unprecedented step of lending to the private equity and hedge fund sector at below the official UK interest rate.

Experts said it was a sign of City institutions' growing desperation to buy into the booming alternative investments market.For the first time since comparable records began, the loans from banks to non-bank financial institutions are being charged at below the base rate, according to figures published by the Bank of England.....

The Bank said the rate at which banks lent to financial institutions outside the banking sector - which is dominated by private equity and hedge funds - dropped to 5.24pc in April, below the then base rate of 5.25pc.

The rate is even further below LIBOR - the London Interbank overnight rate, which measures how much money in the wider markets costs - of 5.58pc.

The phenomenon is known to be of concern to the Bank of England, which fears the wide availability of cheap money could contribute to higher inflation. It has said that the statistics may also reflect the fact that big banks are lending money to their subsidiaries at preferential rates.

here comes another eye opener via Regli http://tinyurl.com/yrt6qp

Archstone-Smith buyout a gigantic gamble: Barron's

Barron's said the buyout group is paying $60.75 a share for Archstone, or nearly $16 billion, and the company also has $6 billion of debt.

It said the buyers will borrow $17.1 billion to purchase the company and put up $5.1 billion of equity. But Barron's said the interest tab on the $17 billion of debt could top $1 billion, exceeding net operating income this year, which may total $800 million. A sale of assets might not cover the shortfall, the article said.

disclosure: short reits (index)

Reit Index rolling over...? / Chart

read some reit stories under the label and you know why the chart is suggesting trouble.......

lest am besten noch einige reit post unter dem label um zu erahnen warum der chart nichts gutes vorhersagt.....

Overall, the US real estate market has been struggling and investors are concerned. For some perspective, today's chart illustrates the current trend of the Dow Jones Wilshire REIT Index. While REITs have been trending up for several years, REITs are down over 14% since reaching their peak in early February of this year. As today's chart illustrates, REITs are now seriously challenging support (green line) of a long-term uptrend. Stay tuned...

disclosure: short reit index

A Warning on Risk in Commercial Mortgages / NYT

not a pretty picture....especially when the economy is slowing down and is close to a recession

kein schöner anblick...besonders wenn man bedenkt das die wirtschaft gearde in die rezession rutsch.

Spurred by the collapse of the subprime mortgage market, the leading bond rating agencies are beginning to crack down on what they see as risky lending practices in commercial real estate.

Low interest rates and an abundance of investment capital have led to heady times for buyers and sellers of office buildings, hotels and other income-producing property. Buildings have traded at record prices and loan terms have become increasingly generous, with many buyers putting little or no equity into the deals.

Like residential loans, commercial mortgages are pooled and packaged into bonds that are sliced up into portions carrying different degrees of risk. According to Moody’s, there were $769.6 billion in commercial mortgage-backed securities at the end of last year, representing 26.1 percent of all outstanding commercial mortgages, including apartment buildings.

The agencies that rate these bonds on behalf of bond dealers have issued warnings in the past, but last month they sounded a new note of urgency, saying for the first time that they would adjust their ratings to reflect their concerns.

“Underwriting has gotten so frothy that we have to take a stand,” said Jim Duca, a group managing director at Moody’s Investors Service. “The industry was heading to Niagara Falls.”

The readjustment is occurring just as signs are emerging that the office market is slowing down nationwide. Though rents continued to rise in the first quarter of this year, the average vacancy rate for 58 metropolitan markets across the country rose to 12.6 percent from 12.5 percent, the first increase for any quarter since 2004....

Cautioning that “a few months don’t represent a trend,” Mr. Steir said real estate was a cyclical business. “The key to success so far has been to be the high bidder on everything available,” he said. “At some point, that strategy stops working.”....

Standard & Poor’s said that in the first quarter of this year, the delinquency rate for such bonds fell to its lowest level since its delinquency index was created in 1999.

But many of the loans issued recently could result in problems down the road, the bond analysts said. As was the case in the overheated residential mortgage market, many loans for commercial transactions are interest-only for the first 10 years, with huge balloon payments at the end of the term. The agencies say lenders are not requiring landlords to set aside adequate reserves to cover taxes, insurance and other costs if things go wrong and are accepting projections for rent growth that may be too optimistic.

Fitch predicted a 15 percent increase in defaults of loans that are being written now.

Space in Manhattan that was leased a while back for an annual rent of $40 a square foot may reasonably be said to be worth $70 a square foot in today’s market, said Mr. Duca at Moody’s Investors Service. But he said some lenders were now claiming that space that was recently leased for $70 a square foot was actually worth $90 a square foot. “That’s how aggressive it is now,” he said. “We’re saying the lending environment doesn’t make any sense.”


In one spectacular example of a hastily concluded deal, Macklowe Properties, a Manhattan company, took only 10 business days to complete its $7.25 billion purchase of eight Midtown office buildings that had belonged to Equity Office Properties before Equity was sold to the Blackstone Group in what was then the largest leveraged buyout ever. The average annual rent for the buildings is $55 to $59 a square foot, but the deal was underwritten with projections of future rents of $100 a square foot or more.

>here are is one more detail of the deal!
>hier noch etwas um die zahl oben besser einzuordnen

Last year, 41 tenants in Manhattan agreed to pay that much or more, .(41 tenants in entire manhattan?! what a conservative concept......./ 41 mieter in gesamt manhattan..... klingt nach einem soliden concept)

http://tinyurl.com/25dbqf


While the agencies are just beginning to carry out their new credit-tightening standards, their warnings are already having repercussions in the bond market. Investors are demanding higher rates of return, making the bonds costlier for the dealers, said Rob Brennan, the global head of real estate financing for Credit Suisse. “The fact is that the marketplace forces the change immediately,” he said.

Last week, a new $4.2 billion commercial-mortgage-backed security offered by GE Capital had to be restructured after investors complained that the originators of several of the loans had relied too heavily on projected income increases from the buildings, according to Commercial Mortgage Alert, a weekly trade newsletter. Five loans totaling $226.7 million were removed from the offering, and the investment-grade portion of another loan was further trimmed by $50 million, the newsletter reported. Mr. Brennan said the proceeds from the bond could be reduced by as much as $8 million because the bonds with high yields sell for much less than the top-rated bonds.


Most of the loans removed from the offering were originated by Deutsche Bank, which also provided $6 billion in debt financing for the purchase by Macklowe Properties of nearly all the Manhattan portfolio of Equity Office Properties. .....

disclosure: short reit index