Philip Blumberg Blog

Expectations for Recovery in '09 Drop

LoopNet conducted a Pulse Poll of its members, a community of commercial real estate and investment professionals, which showed that only 10% of the respondents believe an economic recovery will come in 2009, a noticeable decline from the 33% of last quarter. According to the Birmingham Business Journal, more than 30% believe recovery will come in 2011, up from 25% in May, and 56% expect it to come in 2010, up from 42% in the previous poll.

LoopNet goes on to explain that while the expectations for an increase in transaction volumes have shifted, the shift appears to be driven more by pessimism about 2009 than a long term reassessment. A solid majority of 56% now believe that 2010 will see an uptick in volume, and increase of 14 points from Q2. There is, however, a significant contingent that does not expect recovery until 2011.

For more news and information, visit Blumberg Capital Partners.

AZ State May Unload Buildings with Sale-Leasback Deals

Arizona legislators are entertaining the idea of selling government owned buildings through a sale-leaseback arrangement according to a GlobeSt report. While the state has rarely entered into sale-leaseback deals in the past, this strategy would be the first time they've sold properties with the intent of using the revenue to fund operations instead of particular projects. The Arizona Republic reports that the proposed transaction could provide the state with a "fast infusion" of funds totaling as much as $735 million, allowing government services to continue without interruption.

"We've mortgaged the legislative halls," said an exasperated state Rep. Steve Yarbrough, a Chandler Republican. "That just tells you how extraordinary the times are. To me, it's something we're going to have to do no matter how much we find it undesirable." Gov. Jan Brewer spokesman Paul Senseman called sale/leaseback deals "one of the governor's least favorite options," he conceded the likelihood that they'll play a key role in any plan to close a state shortfall estimated at $3.4 billion.

For more news and information, visit Blumberg Capital Partners.

Blumberg Capital Partners in the News

Reuters spoke with Philip Blumberg in an article titled "Equity in US commercial property may evaporate" about US commercial real estate at risk of being completely wiped out by price collapses. An excerpt:

"By the end of 2010 you'll have begun to see terrible, terrible capital structure disintegration," said Philip Blumberg, chairman and chief executive of Blumberg Capital Partners. "The first thing to go is the equity."

About $165 billion of commercial mortgages this year will mature and need to be refinanced or sold. Some $11.8 billion matured in June, according to mortgage data analysis provider First American CoreLogic.

The number of distressed properties in the top 10 markets topped 5,000 in March, the most recent recording period, for the first time since CoreLogic began keeping record in January 2003.

"The maturities haven't really gotten into full play yet," Blumberg said. "We are seeing the early edge of the hurricane of debt in real estate."

To read the full article, visit Blumberg Capital Partners.

Fitch Ratings Puts 238 CMBS Bonds on Rating Watch Negative

With 54% of delinquent loans in Fitch-rated transactions moving from 30 days to 60 days in the last month, Fitch Ratings has placed 238 commercial mortgage backed security (CMBS) bonds — valued at $9 billion — on Rating Watch Negative (RWN) as part of its ongoing review of the CMBS portfolio according to a CPN article. The downgrades are the result of loss expectations and reflect Fitch's prospective views regarding commercial real estate market value and cash flow declines.

"Fitch believes that the global economic downturn is now close to its trough," Bridget Gandy, managing director of Fitch Ratings' financial institutions team, said in a statement. "Nevertheless, banks globally will continue to operate in a tough environment, as loan impairment charges rise as more companies default and unemployment rates continue to worsen," she continued.

For more news and information, visit Blumberg Capital Partners.

Blumberg Capital Partners in the News

Philip Blumberg was interviewed by Nikkei Veritas in a piece titled "Still early to buy U.S. commercial real estate" and expressed his view that the U.S. commercial real estate market still has a way to go before bottoming out. An excerpt:

It seems you earned 17.6% in profits last year.

"Our past three years of devoting ourselves to sales, without buying, bore fruit. We built up cash savings and released ourselves from the need to rely on debt. We made sure that buildings we own or manage are fully set up, with gyms and cafeterias, which kept rents from going down."

"I've been predicting the confidence collapse for more than two years. With so much risk investment, which relied on cheap leverage, prices went up to an unrealistic level."

To read the full article, click here.

HN Gorin Secures $25M Refinance Loan

H. N. Gorin, Inc. has secured $25 million in financing for 101 Merrimac St. in the Bullfinch Triangle of Boston according to a GlobeSt article. The Boston office of Holliday Fenoglio Fowler LP worked on behalf of Gorin to secure the loan, which will be used to refinance an existing first mortgage on the 19 year old building. The 10-story, 159,173-square-foot class A building is 95% leased by multiple tenants.

HFF said it placed the loan with Unum Group, a provider of employee benefits including disability, long-term care, life and voluntary insurance. "Unum was able to provide a 15-year, fixed-rate financing at a competitive rate, which fit both the building profile and HN Gorin's strategy for the asset," says Greg Labine, director of HFF. The "strategy," he tells GlobeSt.com, is for HN Gorin to have a long-term hold on the property.

For more news and information, visit Blumberg Capital Partners.

REIT Secures 16-Property Portfolio in $162M Cash Deal

Grubb & Ellis Healthcare REIT (to be renamed Healthcare Trust of America) has purchased a 16 building portfolio from Greenville Hospital System (GHS) in a $162M cash deal, or approximately $189 per square foot. All 16 properties are within the Greenville, South Carolina metropolitan area and total over 855,000 square feet of medical office and related space. Greenville Hospital System will continue to occupy approximately 83% of the portfolio under a long-term lease arrangement. The deal is expected to close by September 15.

"We are proud to enter into a strategic partnership with GHS," said Scott D. Peters, chief executive officer and president of the REIT. "This major transaction is part of a strategic long term relationship. It provides us with high quality performing assets, and in addition provides us with the opportunity to develop and/or acquire additional medical buildings as Greenville expands its first class health system."

"GHS has a significant market share, it has 70 percent of its market, so it's a dominant provider and that will allow us to go forward with new real estate developments in the future," Mark D. Engstrom, executive vice president for acquisitions, told CPN. "We'll be in a position to help them deliver those new developments as they need them."

For more news and information, visit Blumberg Capital Partners.

CDC Moves Forward with $93M Office Complex

The Centers for Disease Control and Prevention have selected Turner Construction Company to help expand its current headquarters with a new $93 million office complex. The project, "Building 24", is expected to be completed in 2012 and will sit adjacent to the CDC headquarters in Atlanta, adding 311,000 square feet of space. Building 24 is targeted to achieve a LEED Gold Certification from the US Green Building Council with designs to include featured natural lighting and the utilization of low-emitting paints and flooring materials.

Turner will provide design/build services for the project, to include careful phasing, staging and logistics to provide high levels of security and minimal disruption to ongoing operations on the CDC campus. "Turner is proud to be a partner with the CDC as part of the design/build team for Building 24 to benefit the employees and public served by the CDC," said Dave Butler, VP and GM of Turner's Atlanta office in a CPN article.

For more news and information, visit Blumberg Capital Partners.

Sale of LA's One California Plaza in Negotiations

Metropolitan Real Estate Investors LLC has put forth an offer reportedly in the range of $200 to $240 million dollars for the landmark One California Plaza building, according to Loopnet.com. The 52 story office tower in Los Angeles's Bunker Hill area was purchased for $255 million in 2003 by Maguire Properties. However, LA based DowntownNews.com reported the deal was initiated by Australia-based Macquarie Office Trust which entered into a joint partnership venture with Maguire in 2006 and holds an 80% share of the property. The property houses 991,836-square feet of office and retail space and was completed in 1985. 

The 1.5 acre open-air plaza outside of the property known as the California Plaza has become a cultural destination in downtown Los Angeles. Free artistic performances are sponsored on summer weekends by Maguire and the Omni Los Angeles Hotel. The area is also home to notable restaurants Noé and Medocino Farms. 

For more news and information, visit Blumberg Capital Partners.

FDIC to Move Into Empire State Building

Facing the expiration of its lease in 2010, the Federal Deposit Insurance Corporation is moving its New York City regional office. The government corporation that guarantees the safety of deposits will be moving from their current location at 20 Exchange Place in Lower Manhattan to the iconic Empire State Building during next year's first quarter. The 102 story office building is located in the Garment District. According to Globest.com's Paul Bubny, officials at the FDIC chose the 2.8 million square foot location after feedback from employees and noted the building's proximity to major transportation hubs. The FDIC's 250 employees will be occupying 102,960 square feet for an initial lease period of 10 years. 

CoStar.com reported Joel Wechsler, Michael Gottlieb, Howard Grufferman and Joe Harkins of Grubb & Ellis represented FDIC. Daniel Bodner, Stephen Eynon and Daniel Rodriguez-Sains represented the landlord, Peter Malkin. Reporter Christina Mckinnon also noted recent plans by Jones Lang Lasalle to reduce energy consumption by 40% over the next four years. 

For more news and information, visit Blumberg Capital Partners.