Philip Blumberg Blog

Delinquencies and Foreclosures Continue to Climb

According the MBA's National Delinquency Survey, the delinquency rate for mortgage loans was 8.22% on a non-seasonally adjusted basis, down 41 basis points from 8.63% in the fourth quarter of 2008. Delinquency rates always decline in the first quarter of the year due to a variety of seasonal factors; after accounting for these factors, the seasonally adjusted delinquency rate was 9.12% of all loans outstanding as of the end of the first quarter of 2009, up 124 basis points from the fourth quarter of 2008, and up 277 basis points from one year ago.

"The increase in the foreclosure number is sobering but not unexpected. The rate of foreclosure starts remained essentially flat for the last three quarters of 2008 and we suspected that the numbers were artificially low due to various state and local moratoria, the Fannie Mae and Freddie Mac halt on foreclosures, and various company-level moratoria," said Jay Brinkmann, chief economist at Mortgage Bankers Association. "Now that the guidelines of the administration's loan modification programs are known, combined with the large number of vacant homes with past due mortgages, the pace of foreclosures has stepped up considerably."

For more news and information, visit Blumberg Capital Partners.

Commercial Real Estate Market Participants See Recovery Beginning In 2010

LoopNet, the largest commercial real estate listing service online, conducted a survey of more than 1,500 members asking when they expected commercial real estate sale market to bounce back. The respondents, including commercial real estate investors, brokers, and owners, logged their thoughts from May 7 to May 21 and only 33% expect Commercial Real Estate sales transaction activity to recover in 2009. "A significant contingency, about one-quarter, don't think the recovery will come until 2011 or later," Mike Manning, LoopNet’s vice president of marketing, told CPN.

According to LoopNet, nearly half (46%) of respondents see access to capital as the most significant obstacle to recovery. Economic uncertainty, which in turn significantly influences asset pricing, was the second most cited obstacle, at 29% of respondents. Close to a quarter (23%) of respondents explicitly cited differences in pricing expectations between buyers and sellers as the most important obstacle. While the results were largely consistent across all three major participant segments, owners rate the importance of access to capital slightly higher, and differing price expectations slightly lower, than brokers or investors.

For more news and information, visit Blumberg Capital Partners.

Sublets on the Rise in Midtown Manhattan

Three out of every four office towers in New York's Midtown Manhattan now have sublet space available, according to a New York Times article. Colliers ABR, a CRE services company, reports that sublets now account for roughly 40% of the space available in Midtown, a measured increase from the 30% available in a smaller market a year ago.

Real estate experts suggest that sublandlords are able to compete with building owners by slashing rental prices. Robert Sammons, the managing director in charge of research at Colliers ABR, said that sublet space in trophy office towers along Madison Avenue and Park Avenue has been leasing for as little as one-third of what that space might have commanded in early 2008, at the height of the roaring market. "A year and a half ago, this space might have leased for $150 per square foot," Mr. Sammons said, while he has heard of recent sublets in high-end buildings in this office corridor with annual rents of as little as $40 to $50 a square foot. "This is the most remarkable turnaround in pricing that I've ever seen in such a short period of time."

For more news and information, visit Blumberg Capital Partners.

Hampshire Companies Nabs Siemens Office

The Hampshire Companies has purchased a 98,459-square-foot four-story office building located at 186 Wood Avenue in Iselin, New Jersey from Siemens Corporation, according to a crefeed.com article. The Hampshire Companies plan to redevelop the site, taking the existing building down to the steel and completely renovating it, while also adding a new second building. The expansion of the existing building will create a 110,000-square-foot, four-story, Class A office building.

"The high tenant demand for the area is evident in the exceptional base of Fortune 500 corporations located within Metropark," said Todd Anderson, a Principal of The Hampshire Companies. Jeffrey Dunne and Kevin Welsh of CB Richard Ellis' New York Institutional Group collaborated with Jeffrey Babikian on behalf of Siemens Corporation.

For more news and information, visit Blumberg Capital Partners.

CBRE Duke Joint Venture Buys $41M Portfolio

A joint venture between CB Richard Ellis Realty Trust and Duke Realty Corp. acquired three fully-leased office buildings in Orlando and Houston for $41 million. Prior to the transaction, Duke owned the newly constructed portfolio, totaling nearly 327,000 square feet. In Texas, the venture acquired the 89,750-square-foot office building at 22535 Colonial Parkway in Katy, a property fully occupied by Det Norske Veritas, a Norwegian risk management firm. The Florida properties include 1390 Celebration Blvd., a 101,000-square-foot office building leased to Disney Vacation Development, and Fairfield Distribution Center IX, a 136,200-square-foot warehouse at 4543-4561 Oak Fair Blvd. leased to Iron Mountain, a records storage and protection firm.

The CBRE Duke joint venture plans to acquire up to $800 million of newly developed build-to-suit projects over a three-year period. "There is always an interest in finding good yielding properties with good cash flow and high quality tenants," Jack Cuneo, president & CEO of CB Richard Ellis Realty Trust, told CPN. "The sellers may not get the pricing they had projected in the past, but certainly there are buyers and cash around for good quality properties. The buyer has to be willing to not be dependant upon leverage to be successful in the market today, though."

For more news and information, visit Blumberg Capital Partners.

Blumberg Capital Partners in the News

Blumberg Capital Partners was featured today in a New York Post article, "Banks Worry About Next Wave of Loan Defaults".

An excerpt:

Phillip F. Blumberg, chairman of Blumberg Capital Partners, thinks banks are really worried about the commercial real estate loans they issued during the orgasmic 2000s. That’s the reason, says Blumberg, banks are remaining conservative in their lending.

Credit cards may be bad but commercial real estate is worse.

"It’s absolutely frightening," says Blumberg, who adds that he sold most of his real estate holders before the bust. And the most dangerous time for banks will be 2010 to 2013 when $1 trillion in commercial real estate loans will mature and — like homeowners before them — owners of commercial properties will need to refinance.

To read the rest of this article, click here.

Blumberg Capital Partners in the News

Blumberg Capital Partners was recently featured in a Real Estate Channel article by Alex Finkelstein titled "Blumberg and Maguire See Nothing but Gloom Ahead for Commercial Real Estate Markets".

An excerpt:

Despite some recent highly publicized signs of economic improvement, two of the savviest commercial real estate strategists in the U.S. today see nothing but gloom ahead for the commercial real estate markets.

Phillip F. Blumberg, chairman and CEO of 30-year-old Blumberg Capital Partners in Coral Gables, FL, and Robert F. Maguire III, chairman and CEO of 29-year-old Maguire Investments in Santa Monica, CA, agree that burgeoning debt is the killer in the commercial market and will remain that way until 2013.

Blumberg says he is certain the commercial real estate market will be "getting significantly worse. Every job layoff pegs to our commercial real estate market. It's a contraction in tenant space. The real story isn't the performance in the market--it's the debt.

"Think about this: in the next three years, 2010, which is when it really starts, to 2013, we've got about 300 million CMBS, of which 70 to 100 billion is not refinanceable."

To read the rest of this article, click here.

Small Banks Face CRE Losses

The Wall Street Journal conducted a survey of 940 lenders finding that CRE loans could create losses in excess of $100 billion for the industry by the end of the year. The Journal collected data from each of the banks' Federal Reserve findings to assess their health, applying the loan-loss criteria used in the federal stress tests of the largest banks. 923 of the banks' estimated losses would exceed bank revenue (as projected by the analysis), and at 634 banks the gap would be wide enough to reduce capital below the level considered comfortable by regulators.

"They are in just much worse shape" than the big banks, says Terry McEvoy, an Oppenheimer & Co. analyst who reviewed the Journal's analysis. "There is a lot less earnings power at these banks." The survey suggests that the potential losses from commercial real estate at these small and midsize banks could easily be double the writedowns that the banks face on residential properties.

For more news and information, visit Blumberg Capital Partners.

Hawaii Asks for Office Rent Reduction

The State of Hawaii is asking its landlords to consider lowering their rents after the Department of Accounting and General Services, responsible for negotiating leases, cut their budget for leases by $1.36 million in the upcoming fiscal year. "We're sending letters to landlords explaining the situation that we're in, asking them if they're willing to consider lowering the lease rents," said state Comptroller Russ Saito. "The people that we're talking to, we're getting a sense that most of them, half or more, would be willing to negotiate something lower, but it's all playing out right now."

The budget cut amounts to a 14.5% reduction from the annual lease budget, part of an overall $800 million budget cut from the Legislature; in an effort to not cut personnel, Hawaii hopes to instead find a break in their lease agreements, according to a Pacific Business News article. "We find that troubling when most of the state leases are below market rent already," said Steven Sofos, president of Sofos Realty Corp., who rents space to state agencies but declined to say whether any of his client landlords planned to cut their rent.

For more news and information, visit Blumberg Capital Partners.

Philip Blumberg on CNBC's Squawk Box 5/14

Philip Blumberg appeared on CNBC's Squawk Box today to discuss the current state of the commercial real estate market, property values, REITs, investment, and what to expect in the coming years.

To read the full transcript of this segment, visit Blumberg Capital Partners.