Philip Blumberg Blog

CRE Loan Default Rates Expected to Hit 4% By New Year's Day

Real Estate Econometrics released fourth quarter projections for bank-held commercial mortgages and the outlook isn't great. The New York-based firm expects rates to reach 4% at year end 2009, down slightly from a possible 4.1%, which can be attributed to "FDIC’s policy changes that will give lenders the ability to keep performing underwater loans on their books have impacted the forecasted default rate slightly," according to NREOnline.com. 

In its announcement of the report, reeconometrics noted "the default rate will peak in 2011. The largest losses will occur at regional and community banks, principally due to higher concentrations in commercial real estate. At 28.4 percent, commercial real estate concentrations are greatest among banks with $100 million and $1 billion in assets." However, during an interview with Reuters, Chief Economist Sam Chandan cautioned commercial real estate lending should not be generalized. "Don't say it's a regional bank problem," he said. "The conditions of each bank need to be evaluated on their own merit."

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Atlantic Yards Gets Greenlight

New York's Court of Appeals dismissed a challenge over the use of eminent domain in constructing the long-planned and long-delayed Atlantic Yards project near Brooklyn's downtown according to a CoStar article. The decision removes the last legal hurdle for New York's largest single-source development project in history, a 22-acre $4.9 billion asset. The proposed development includes apartments, office towers and Barclays Arena, a new venue for the NBA's New Jersey Nets.

"Once again the courts have made it clear that this project represents a significant public benefit for the people of Brooklyn and the entire City," said Bruce Ratner, the project's developer.

"The state court ruled in favor of the city because this is a project that the city really needs," New York Mayor Michael Bloomberg said in a media briefing. "It gives us another great venue for the big events which define New York and for sports, which the public loves. And it's also going to catalyze development in a part of Brooklyn that has been underused for an awful long time."

For more news and information visit Blumberg Capital Partners.

Baystate Financial Services Moving to Boston's John Hancock Tower

Normandy Real Estate Partners announced it has signed Baystate Financial Services to occupy the 19th floor of the John Hancock Tower. Baystate will lease 28,852 sq ft starting early next year. GlobeSt.com reported Class A office space goes for roughly $35.78 per square foot in Boston. The John Hancock Tower stands at 60 stories and is made up of 1.7 million square feet of office space. The building, a Class A office tower located at 200 Clarendon St is the tallest in Boston. Normandy Real Estate Partners acquired the building for $20.1 million, as well as an assumption of $640.5 million in debt from Broadway Partners after the building decreased in value from $1.3 billion to $700 million and Broadway became over-leveraged. 

According to EnterpriseNews.com, Cushman & Wakefield represented Normandy Real Estate Partners in the transaction, and CB Richard Ellis represented Baystate. 

For more news and information visit Blumberg Capital Partners.

Financing Secured for $100M National Archives Facility

The $100 million new facility for the National Archives and Records Administration’s (NARA) National Personnel Records Center in St. Louis, MO has secured financing and is expected to complete the first phase of construction in May 2011 according to a CoStar article. The National Personnel Records Center will be the largest national archives facility outside of the greater Washington, D.C. area, with a central repository of personnel-related records for both military and civil service employees, and is expected to keep 800 jobs in the region. The majority of NARA operations will relocate from the Federal Records Center at 9700 Page Avenue to the new building, which will be located on land previously owned by North County automotive dealer Johnny Londoff.

"We are thrilled that construction of this building will soon be under way. The cooperation and support of St. Louis County, the State of Missouri and congressional delegation have helped us overcome tough economic times and put a great project back on track," said GSA Acting Regional Administrator Michael Brincks. The Molasky Group of Companies, a real estate and development management company, is the project’s owner and developer.

For more news and information visit Blumberg Capital Partners.

RTC Leases Crossroads 5 in Chicago Metro

RTC Industries Inc. has signed a 12 year lease for the 503,200 square foot Crossroads 5 building in Romeoville according to a CoStar report. RTC, a company providing store-ready solutions to the retail industry including planning and design, manufacturing, program management, global logistics, and retail technology, will relocated to 3101 Kedzie Avenue next spring. The terms of the deal were not disclosed.

"When we started this building in early 2008, it wasn't clear how drastically the market was going to change," said Steve Schnur, senior vice president of Duke Realty's Chicago operations. "We certainly feel fortunate to attract such a strong company as RTC to this building. The location works well for them, and we were able to structure an attractive long-term deal. I applaud them for their foresight to capitalize on today's marketplace and make a move that will improve their efficiencies and work to their advantage." RTC was represented by Bill Frain, Todd Lippman and Jim Whalen with CB Richard Ellis, while Larry Johnson and Mike Mangan of CB Richard Ellis represented Duke Realty in the transaction.

For more news and information visit Blumberg Capital Partners.

Barclays Capital Acquires Crescent from Morgan Stanley

Barclays Capital has formed Crescent Real Estate Holdings LLC, a joint venture with Goff Capital, Inc., to acquire Crescent Real Estate Equities Limited Partnership from Morgan Stanley Real Estate Funding II. Crescent, a real estate investment company, owns more than 17 million square feet of office towers as well as investments in resorts and hotels according to a Wall Street Journal article. Barclay's also announced the appointment of John C. Goff as Chairman and Chief Executive Officer of Crescent. The appointment marks Mr. Goff’s return to Crescent, a firm he formerly led as Vice Chairman & CEO until its sale to Morgan Stanley in 2007 for $6.5 billion.

"Our first order of business right now is focusing on improving existing properties," said Mr. Goff. "We have plenty of capital to deploy towards that. I have been buying a substantial amount of real-estate debt. This is the first big asset acquisition that I have found compelling." Other properties in Crescent’s portfolio include Houston Center, Fulbright Tower and Post Oak Central, all of which are owned through various joint ventures according to the Houston Business Journal. The terms of the deal were not disclosed.

For more news and information visit Blumberg Capital Partners.

Station House Office Building Sells for $2.6M

The Station House Office Building, part of an office complex in Collingswood, NJ, sold for $2.6 million in a deal coordinated by Colliers Lanard & Axibund's South Jersey office according to GlobeSt. Station House Office Associates sold the property to 900 Haddon Avenue LLC who is said to be planning capital upgrades to the property. CL&A has been retained to lease the property's vacancies.

The Station House Office Building is an 83,000 SF, five-story facility situated at the Collingswood PATCO stop along Haddon Avenue built in 1975. The fifth floor, 16,000 square feet, remains vacant and is immediately available for a full floor user or divisible to suites of +/- 2,000 square feet. McMunn Associates, Community Health Law Project and County Council on Economic Opportunity renewed leases totaling more than 14,000 square feet in the Station House in October.

For more news and information visit Blumberg Capital Partners.

Stamford's Harbor Point Secures Another Tenant

After more than three years of negotiations, Starwood Hotels and Resorts announced it will be moving its headquarters to a redeveloped area in Stamford, CT. Harbor Point, which the Wall Street Journal described as a "large mixed-use real estate development under construction in Stamford's south end" also houses the corporate offices of Pitney Bowes and Deloitte & Touche. 

The landlord, a local firm called Building & Land Technologies will contribute to the estimated $40 million renovation of the 250,000-square-foot space. Starwood expects to bring 800 employees into the new headquarters. According to the Stamford Advocate, Newmark Knight Frank's Neal Golden, Ross Perlman and John Goodkind represented Starwood Hotels in the transaction.

For more news and information visit Blumberg Capital Partners.

Bernanke On the Outlook for the Economy and CRE

Federal Reserve Chairman Ben Bernanke addressed the Economic Club of New York earlier of this week and spoke about the current financial climate and its trajectory. In his speech, Bernanke expected to see a slow economic recovery as demand for commercial property is down but said that he did not agree with economists bracing for another slip into recession next year. An excerpt:

Demand for commercial property has dropped as the economy has weakened, leading to significant declines in property values, increased vacancy rates, and falling rents. These poor fundamentals have caused a sharp deterioration in the credit quality of CRE loans on banks' books and of the loans that back commercial mortgage-backed securities (CMBS). Pressures may be particularly acute at smaller regional and community banks that entered the crisis with high concentrations of CRE loans. In response, banks have been reducing their exposure to these loans quite rapidly in recent months. Meanwhile, the market for securitizations backed by these loans remains all but closed. With nearly $500 billion of CRE loans scheduled to mature annually over the next few years, the performance of this sector depends critically on the ability of borrowers to refinance many of those loans. Especially if CMBS financing remains unavailable, banks will face the tough decision of whether to roll over maturing debt or to foreclose.

Recognizing the importance of this sector for the economic recovery, the Federal Reserve has extended the TALF programs for existing CMBS through March 2010 and newly structured CMBS through June. Moreover, the banking agencies recently encouraged banks to work with their creditworthy borrowers to restructure troubled CRE loans in a prudent manner, and reminded examiners that--absent other adverse factors--a loan should not be classified as impaired based solely on a decline in collateral value.

For more news and information visit Blumberg Capital Partners.

NYC Office Building Trades for $29.5 Million Cash

Savanna Investment Management recently announced the sale of 63 West 38th St in New York City's Garment District. The building, a 12 story  office building contains 144,000 sq feet and is only 15% occupied. Savanna initiated its investment in the property in May 2008. According to GlobeSt.com, "Savanna and a hedge fund partner initially invested in the property by originating a senior loan 18 months ago to the prior owners, the release states. Savanna subsequently bought out its hedge fund partner and then negotiated a deed in lieu of foreclosure with their borrower. Once Savanna owned the asset outright, the company then embarked on a two-pronged business plan of repositioning the building and launching an 'aggressive' marketing program to sell it, the release states." 

Savanna declined to disclose the name of the buyer, a joint venture between two local entrepreneurs, which acquired the property in an all cash deal for $29.5 million. 

For more news and information visit Blumberg Capital Partners.