Buyers Wary of Building Bubble

From WSJ.com
Some of the nation's largest pension funds are starting to back away from trophy properties in the most expensive real-estate markets over concerns a new bubble is inflating.

After property prices crashed during the financial crisis, pension funds—among the biggest investors in commercial real estate—turned their investment strategies away from risky speculative projects and toward properties considered "core," well-leased buildings that are seen as low risk due to their stable income, in cities such as New York, Washington and San Francisco.

Investors Have Been Moving Into Secondary Markets

Investors have been moving into secondary markets such as Dallas and Minneapolis amid growing confidence in the recovery and soaring prices that drove down yields on office buildings, shopping malls and apartments in prime cities including New York, San Francisco and Washington.

The trend may be cut short. Turmoil in financial markets over the past three weeks -- triggered by concern that Spain and Italy will struggle to pay off their debts, signs that the U.S. will remain mired in sluggish growth through next year and Standard & Poor’s downgrade of the U.S. credit rating -- may send buyers back to prime cities and push prices even higher, as long as the economy doesn’t deteriorate so much that trophy properties suffer.

Investors willing to Step Into Distressed Situations

Investors willing to step into distressed situations with fresh capital are seeing a surge in business now that lenders are showing a greater willingness to rework deals.

Take the case of Mesa West Capital. The Los Angeles-based private lender this year has originated about $600 million in loans, already topping its previous record year in 2007, when its volume hit $498 million. The firm is on pace to hit $1 billion by the end of December, according to Jeff Friedman, the company's co-founder and co-chief executive.

Part of the new business comes from rising sales volume in the commercial-real-estate market.

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Market Turmoil Stings Commercial Sector

Tremors in the market for commercial-mortgage-backed securities are hindering the recovery of the commercial-property sector.
Over the past 18 months, values nationally have been rising, thanks in part to Wall Street's success in rekindling the business of pooling together commercial mortgages and selling them to investors as bonds. This has provided a critical source of deal financing for property buyers.
But the new-issue market for these securities has hit a speed bump amid turmoil in the capital markets, causing a key set of lenders to back off from making new loans. The result is that deal activity has fallen, putting the brakes on the rise in values.

"Lending has clearly slowed significantly," said Richard Parkus, an analyst at Morgan Stanley.

Real-estate companies have clearly noticed. Late last month, for example, Hotel chain Strategic Hotels & Resorts Inc. obtained a $145 million loan for its InterContinental Hotel in Chicago from J.P. Morgan Chase & Co. But the closing of the mortgage, which J.P. Morgan plans to securitize, was delayed for days because of uncertainty in the markets, said Laurence Geller, Strategic Hotels' chief executive. A representative for J.P. Morgan declined to comment


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Chicago-based investment firm closes on mixed-use building at 862 Broadway

Chicago-based real estate investment firm L3 Capital has closed on the purchase of a mixed-use buidling at 862 Broadway in the Flatiron District, from shoe store David Z., for $11 million, according to a deed filed with the city this past Friday.

As The Real Deal previously reported, the four-story building was originally put on the market by David Z. for $12 million in 2010. Built in 1900 and completely renovated in 2004, the 5,100-square-foot walk-up building has 11,682 square feet of additional air rights, plus a basement. A store on the first floor is occupied by the GEOX footwear company. Retail space on the second floor is occupied by the Boston-based Prana yoga, and there are residential loft apartments on the third and fourth floors.


http://therealdeal.com

Tall Order in the Big Easy

A 25-year-old real-estate investment trust, which has sparked some criticism for its strong appetite for acquisitions, has agreed to buy New Orleans's tallest skyscraper for $107 million, according to people familiar with the property.

CommonWealth REIT, of Newton, Mass., is buying the 51-story office building named One Shell Square from MetLife Inc., the people said. CommonWealth and MetLife declined to comment on the deal.

The deal reflects the pressure many buyers are facing to push into new territories for buildings as competition has made major market bargains scarcer. "Things have been getting a little more challenging," John Popeo, CommonWealth's chief ...

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Brookfield Office Beats Estimates After Commercial-Property Revenue Climbs

New York Commercial Property Revenue Climbs Up 30%

The company is seeing “steady demand and controlled supply within our primary markets,” Chief Executive Officer Ric Clark said in the statement. “We remain optimistic about our performance over the balance of the year and the next few years to come.”

Brookfield Office Properties Inc., owner of Manhattan’s World Financial Center, reported funds from operations that beat analyst estimates after increasing revenue and adding income from Australian properties acquired last year.
Revenue Up 30%
FFO, a gauge of a property company’s ability to generate cash, was $152 million, or 30 cents a share, in the second quarter, the New York-based landlord said today in a statement. Analysts expected 26 cents a share, the average of 14 estimates in a Bloomberg survey. FFO was $201 million, or 40 cents, a year earlier, when results included a $53 million gain from the repayment of a loaThe companywide occupancy rate was 93.3 percent, down from 95 percent at the end of last year and 94.8 percent a year earlier, according to the supplemental report.

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