Commercial Property Values Gain More Than 30% From ’09 Lows


Green Street Advisors Marks 25th Anniversary with November Property Index Report

NEWPORT BEACH, Calif., Dec. 2, 2010 /PRNewswire/ — Green Street Advisors reported that the firm’s Commercial Property Price Index (CPPI) rose by 2% in November.

Commercial property values are up over 30% from the 2009 trough,” said Mike Kirby, director of research for Green Street Advisors.  “Half of the decline in values that occurred from 2007 to 2009 has been eradicated.  Nevertheless, values remain roughly 20% shy of their peak.”

Said Kirby, “We are continuing to see positive momentum on the pricing of transactions that have recently closed or that are in the works.  As well, several recent large transactions corroborate the trends that are taking place on a broader level in the $300 billion asset base behind our index.”

Green Street Advisors’ Commercial Property Price Index (GSA CPPI) is a real-time series of unleveraged U.S. commercial property values.  The key feature differentiating this index from others is its timeliness.  The GSA CPPI captures the prices at which commercial real estate transactions are currently being negotiated and put under contract.  Other indices are based on closed transactions and therefore convey information about prices from several months earlier.  Lastly, the Green Street index is value-weighted, and therefore provides a gauge of changes in aggregate values.  Most other indices are equal-weighted, meaning equal weight is given to properties, regardless of size.

Coinciding with publication of its November Commercial Property Price Index, Green Street Advisors marks its 25th year in business.  The firm, which focuses on public and private real estate, is the industry’s leading independent research firm.  The quality of the firm’s research can be seen in the performance of its investment recommendations.  The Green Street Advisors’ team of 24 experienced analysts has delivered investment recommendations that have consistently outperformed the market index over time.  

Past performance cannot be used to predict future performance.  Additional information on Green Street Advisors and a complete disclosure statement are available online at www.greenstreetadvisors.com.

About Green Street Advisors, Inc.

Founded in 1985, Green Street Advisors is the preeminent independent research, trading, and consulting firm concentrating on Real Estate Investment Trusts (REITs), other publicly-traded real estate securities, and the private commercial real estate markets in North America and Europe.  

SOURCE Green Street Advisors, Inc.

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US. Commercial Properties Rise 2% in November.


NEW YORK, Dec 2 (Reuters) – U.S. commercial real estate prices rose 2 percent in November and are up 32 percent from their recent lows as investors flock to higher-yield investments, according to independent research firm Green Street Advisors.

That means about half the value that was wiped out from 2007 to 2009 has been restored, leaving prices 19 percent shy of their peak, according to The Green Street Advisors Commercial Property Price Index. Prices peaked in August 2007 and fell as much as 38.3 percent by May 2009.

During the boom years of 2005 through much of 2007, investors were attracted to commercial real estate because prices were appreciating wildly and much money could be made in a quick sale. Today they are drawn to commercial real estate because it offers higher yields when yields on fixed-income investments are so low.

Commercial real estate investments are riskier than the comparative moderate-risk corporate bonds because real estate cannot be sold quickly and the sales price is unknown, said Michael Knott, Green Street managing director. So it must offer higher yields.

“Even though real estate values have appreciated considerably from the bottom, we still think it’s priced attractively compared to its historical valuation relationship from moderate-risk corporate bonds,” Knott said.

The index was flat in October.

Source: REUTERS

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Percentage Rents to Rise for Retail Properties.


Retail Property REITs like Kite Realty Group (NYSE:KRG) for the past 3 years have been thunderstruck with an increase in vacancy and decrease in percentage rents.  While vacancy rates have been stabalizing, Percentage Rents may be on the rise as shoppers spend more this holiday season.

Costco Wholesale posted a 9 percent rise in November sales at store open at least a year, helped by higher gasoline prices and strengthening foreign currencies.

The largest US warehouse club company, which operates 582 warehouses across the world, recorded 13 percent same-store sales growth at its international segment in the month.

Analysts were expecting same-store sales to rise 6.2 percent, according to Thomson Reuters data.

For the four weeks ended Nov.28, net sales at Issaquah, Washington-based Costco // [COST  68.31    0.70  (+1.04%)   ] // rose 12 percent to $6.78 billion.

The holiday shopping season is off to a “solid start” across most retail categories, according to a report released on Wednesday that offers some hope that consumer spending is starting to bounce back.

The retail sales growth in November, which includes the crucial Black Friday weekend sales, was particularly strong for apparel and for online sales, according to research from MasterCard Advisors’ SpendingPulse, which estimates total retail sales across all payment forms.

“Household wallets are pointing a little bit more toward retail,” said Michael McNamara, MasterCard’s vice president, Research and Analysis.

No doubt strong promotions—some offered as early as Halloween—helped to encourage consumers to shop. Retailers such as Sears Holdings // [SHLD  67.58    2.08  (+3.18%)   ] // advertised Black Friday-style doorbuster deals each weekend of the month. Store hours were extended for the Thanksgiving weekend, and retailers made a big push online around Cyber Monday, with some—including Wal-Mart Stores // [WMT  54.70    0.61  (+1.13%)   ] // and Target // [TGT  58.02    1.08  (+1.9%)   ] // —extending those discounts for an entire week.

McNamara was encouraged by a 9.6 percent gain in apparel sales, which was fueled by a 3.9 percent increase in sales of women’s clothing and a 7.2 percent gain for men’s apparel.

This was the second month in a row that women’s apparel sales recorded a gain, and the increase in men’s apparel reversed a sales decline in October.

The women’s category is likely benefiting from some pent-up demand, McNamara said. Women’s apparel retailers have suffered with anemic sales for the past two years as women tend to cut back spending on themselves when times get tough. Seeing some signs of life in this important category is an encouraging sign that consumer spending could be picking up.

The growth in online sales accelerated in the latest month, rising 12 percent from the year-ago period, according to SpendingPulse.

“Online sales have just been killing it this year,” McNamara said.

Sales of furniture rose 2.8 percent, which was the best showing for that category in quite some time. Sales of luxury items rose 1.6 percent, but the overall electronics category fell 1 percent, hurt by sharp price declines of popular electronics items such as LCD televisions.

According to McNamara, television prices have fallen between 10 to 15 percent from last year, and it is difficult to offset such steep price declines.

Still, the sales trends in November were generally positive.

“When you take a step back and see the bigger picture, it is turning into a pretty solid season in most areas,” he said.

The Thomson Reuters Same-Store Sales Index is expected to post 3.6 percent growth in November 201, considerably higher than the 0.5 percent gain last year.

According to analysts surveyed by Thomson Reuters, all retail sectors are expected post gains.

However, anecdotal evidence suggests there could be strong gains posted by teen apparel retailers. In a research note, Thomson Reuters analyst Jharonne Martis-Olivo said there were long lines at both Aeropostale // [ARO  26.80    -0.23  (-0.85%)   ] // , which was offering discounts of as much as 70 percent off, and even longer lines at American Eagle // [AEO  16.84    0.34  (+2.06%)   ] // and Hollister, which weren’t offering such steep discounts.

“Teen spending is a good proxy of discretionary spending, and teenagers are paying higher prices now,” Martis-Olivo said.

Online sales also have been strong. Cyber Monday sales topped $1 billion, making it the busiest online shopping day ever, research firm ComScore said.

There also have been reports that shoppers were beginning to treat themselves while they shopped. If this is true it bodes well for the retail sector.

Still, there remain concerns that the early promotions could have shifted some of the holiday sales into November at the expense of December. It is hoped that some of the retailers will provide some insight into these trends when they release their monthly sales reports on Thursday.

A breakdown of the estimates follows:

//

  November Same-Store Sales Estimates
Retailers November 2010 Estimates November 2009 Actuals
Costco 6.2% 6.0%
BJ Wholesale 3.9% 1.0%
Target 3.7% (1.5%)
JC Penney 3.1% (5.9%)
Kohl’s Department Store 2.8% 3.3%
Dillards Department Store 3.0% (11.0%)
JW Nordstrom 3.8% 2.2%
Saks Department Store 9.5% (26.1%)
Stage Stores 2.8% (12.5%)
Macy’s 5.0% 4.3%
Gap 2.6% 0.0%
TJX 2.9% 2.0%
Limited 4.0% 3.0%
Ross Stores 2.8% 8.0%
Stein Mart 0.5% (7.2%)
Abercrombie 6.8% (17%)
American Eagle 1.4% (2.0%)
Aeropostale 0.9% 7.0%
Hot Topic (4.6%) (11.7%)
Wet Seal 0.8% (5.0%)
The Buckle 3.8% 1.4%
Zumiez 12.6% (8.5%)
Walgreen 2.9% 3.9%
Rite Aid (1.0%) (0.8%)
Source: Thomson Reuters; Figures in parenthesis are losses.

“This should result in better returns for the Retail REIT’s as percentage rents add profits back to their bottom line” says Charles Rankin, of Rankin Commercial Properties.

Percentage Rents are a calculation of gross sales over a pre-determined or natural breakpoint.  If the sales exceed the natural breakpoint, the landlord or property owner recieves additional rent.  Increased rents lead to increased income and an increase in property valuations.

According to Coremetrics, a research tool by IBM consumer spending over the November holiday’s rose as much as 24%.  Department stoes rose 38% and jewelry stores nearly doubled their sales.

Preliminary sales reports and data show shoppers spent more in November, responding to “Black Friday” deals and promotions that began early in the month.

MasterCard Advisors’ SpendingPulse, which tracks spending across all transactions including cash, reported spending on family and children’s clothing rose more than 10 percent in November. Teen clothing was particularly strong, up 12 percent.

Spending on luxury goods rose 1.6 percent. Electronics fell 1 percent as flat-screen TV prices fell.

Overall online sales rose 12 percent during the month.

Most retailers were set to report revenue in stores open at least a year on Thursday but some teen stores reported on Wednesday. Aeropostale, Zumiez and Hot Topic all reported November revenue in stores open at least a year that beat expectations.

Teen retailer Zumiez // [ZUMZ  31.57  —  UNCH  (0)   ] // posted a 20.7 percent same-store sales increase in November, topping estimates that called for a 12.6 percent gain, while rival the Buckle // [BKE  36.13  —  UNCH  (0)   ] // saw a 7.9 percent gain, solidly ahead of the 3.6 percent analyst estimate published by Thomson Reuters.

Limited // [LTD  34.64  —  UNCH  (0)   ] // turned in another month of strong results, with its same-store sales riseing 10.0 percent, compared with a 4.0 percent estimate.

Still, there were a few disappointments. Aeropostale // [ARO  26.80  —  UNCH  (0)   ] // , which had advertised steep markdowns during the Black Friday weekend, said same-store sales declined 1.0 percent. Analysts estimated a 0.9 percent same-store sales gain.

Hot Topic // [HOTT  6.13  —  UNCH  (0)   ] // posted a 2.1 percent decline in same-stores sale, but the loss was narrower than analysts wer expecting. They had forecast a 4.6 percent decline.

A complete summary of the results follows:

//

  November 2010 Same-Store Sales
Retailers November 2010 Estimates November 2010 Actuals
Costco Wholesale 6.2% 9.0%
BJ Wholesale 3.9% 3.8%
Target 3.7% 5.5%
JC Penney 3.1% 9.2%
Kohl’s Department Store 2.8% 6.1%
Dillards Department Store 3.0% 8%
JW Nordstrom 3.8% 5.1%
Saks Department Store 9.5% 5.3%
Stage Stores 2.8% 2.4%
Macy’s 5.0% 6.1%
Gap 2.6% 4%
TJX 2.9% 3.0%
Limited 4.0% 10.0%
Ross Stores 2.8% 6.0%
Stein Mart 0.5% Flat
Abercrombie 6.8% 22%
American Eagle 1.4% Flat
Aeropostale 0.9% (1.0%)
Hot Topic (4.6%) (2.1%)
Wet Seal 0.8% 7.0%
The Buckle 3.6% 7.9%
Zumiez 12.6% 20.7%
Walgreen 2.9%  
Rite Aid (1.0%) (1.3%)
Source: Thomson Reuters,company reports. Figures in parenthesis are losses.

 

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Commercial Real Estate Vacancies Peaking: Realtors


WASHINGTON (Reuters) – Commercial real estate vacancy rates have already peaked or will soon top out, though rents are likely to continue to fall, a realtors group said on Monday.

The National Association of Realtors said it expects the vacancy rate for office space to rise a tick to 16.7 percent this quarter and gradually decline to 16.4 percent in the final three months of next year.

“Still, high vacancy rates imply falling rents,” said NAR chief economist Lawrence Yun.

An index measuring conditions in the commercial real estate sector rose 1.6 percentage points to 42.6 in the third quarter, well below a level of 100 that represents a balanced marketplace. The last time the commercial market was in equilibrium was in the third quarter of 2007.

Although the index remains weak, this marked the fourth straight quarterly rise.

“The outlook for the office and industrial markets has moderated with modestly declining vacancy rates expected as 2011 progresses, while the retail sector should hold fairly steady,” Yun said.

The weak commercial real estate market has been a drag on economic growth in the past two and half years, subtracting from gross domestic product in nine of the past ten quarters.

Vacancy rates for apartment rental buildings, which have been one of the few bright spots in the hard-hit commercial real estate sector, are expected to fall to 5.8 percent in the fourth quarter of next year after rising to 6.4 percent in the final three months of 2010.

Source: ABC News

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Commercial Property Vacancy Near Peak as U.S. Economy Grows, Realtors Say


Commercial Property Vacancy Near Peak as U.S. Economy Grows, Realtors Say

U.S. commercial property vacancies may have peaked, led by a rebound in apartment buildings, as an improving economy spurs more demand for space, according to the National Association of Realtors.

“The basic fundamental of rising commercial leasing demand, resulting from a steadily improving economy, means overall vacancy rates have already peaked or will soon top out,” Lawrence Yun, chief economist of the real estate group, said in a statement today. “Multifamily housing is the one commercial sector that has held on relatively well in the past year, and can expect the best performance in 2011.”

U.S. gross domestic product grew by 2.5 percent in the third quarter, more than a previous estimate of 2 percent, the Commerce Department said last week. An improving economy increases commercial real estate occupancies as employers expand their businesses and add jobs.

The vacancy rate for apartment buildings will decline to 5.8 percent by the end of next year from 6.4 percent in the current quarter, according to the Realtors group’s forecast. Apartment rents may increase 1 percent to 2 percent in 2011, after no growth this year, Yun said in the statement.

The Realtors association predicts office vacancy rates will fall to 16.4 percent in the fourth quarter of 2011 from 16.7 percent at the end of 2010. Industrial vacancies may drop to 13.2 percent from 13.9 percent.

Retail Little Changed

Retail space may have the smallest decline in vacancies, with the rate slipping to 13 percent at the end of 2011 from 13.1 percent this quarter, the group said.

U.S. commercial real estate is showing signs of recovery as delinquencies on commercial mortgage-backed securities rise at a slower pace, Standard & Poor’s said in a statement today. The delinquency rate on loans packaged and sold as bonds climbed 3 percent in the third quarter, compared with a 14 percent increase in the second quarter and a 30 percent jump in the first three months of the year, Standard & Poor’s said Nov. 23.

Property fundamentals are improving, investment capital is slowly flowing back into the sector, commercial mortgage originations are increasing, and demand for CMBS issuance is gaining traction,” Standard & Poor’s said in the report today.

U.S. commercial real estate prices gained 4.3 percent in September from the previous month, the biggest increase in a decade of records, Moody’s Investors Service said Nov. 22. The Moody’s/REAL Commercial Property Price Index rose 0.3 percent from a year earlier as a small number of high-priced deals drove up values, Moody’s said. The measure had fallen to an eight-year low in August.

Source: Bloomberg

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Finally a stock analyst with some sense…


Doug Thomas of JET Investment Research placed this mocking disclaimer on the top of his latest research note on Wabtec [WAB  46.65    -0.03  (-0.06%)   ] , a maker of brakes, switchers and other equipment for the rail industry. It has to be presented in its complete form to be fully appreciated:

Note: To the FBI, SEC, IRS, TSA and any other government organization it may concern (before you decide to raid the JET offices): This report is based 100 percent entirely on pure guesswork. The author used absolutely no channel checks in its preparation, unless you include the time he stood outside the PF Chang’s in Homestead (PA) counting the CSX freight trains roll by. In fact, our stock-picking methods rely exclusively on that old, tried-and-true strategy of throwing a dart (while blindfolded) at the stock quotes section of the local newspaper. From the day the firm was founded, we have consistently shied away from the use of any and all meaningful data points in favor of far better analytical methods, such as astrology. Any reliance on insider information (any kind of useful information, really) or even the surreptitious reading of management’s body language (the CEO grinning like a Cheshire Cat or the CFO repeatedly winking at me on my way out) is purely coincidental and played absolutely no role in our recommendation or opinion. At JET, we have never let the facts get in the way of a good story, and have always encouraged our clients not only to take our work with a big fat grain of salt but also to remember that, as a colleague once reminded me, “sometimes your best shorts are your longs.”]

Source: CNBC

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Commercial Property Prices in U.S. Rose 4.3% in September, Most on Record


Commercial Property Prices in U.S. Rose 4.3% in September, Most on Record

U.S. commercial property prices rose 4.3 percent in September from the previous month, the biggest gain in a decade of records, Moody’s Investors Service said.

The Moody’s/REAL Commercial Property Price Index climbed 0.3 percent from a year earlier as a small number of high-priced deals drove up values, Moody’s said in a statement today. The measure had fallen to an eight-year low in August.

“Each of the summer months this year recorded declines in the 3 percent to 4 percent range, followed by this month’s sizeable uptick,” Nick Levidy, a Moody’s managing director in New York, said in the statement. “The relatively large swings seen in the index recently are due in part to the uncertain macroeconomic environment and the effects of a thin market with low transaction volumes.”

Demand is rising for the best office buildings in major markets such as New York and Washington as investors seek returns higher than fixed income. Interest in well-leased commercial properties in smaller markets may also be starting to increase, according to Robert Bach, chief economist for Grubb & Ellis Co., a Santa Ana, California-based commercial broker.

“The demand is still focused at the core end of the spectrum,” Bach said before the report. “Investors may be broadening their parameters just a little bit.”

43% Below Peak

The Moody’s/REAL index is still 43 percent below its October 2007 peak. The gauge measures overall commercial property values on a monthly basis and breaks the numbers down by property type once each quarter. The changes are based on repeat sales transactions.

While the number of repeat sales had only a “slight uptick” in September, the dollar volume of those transactions doubled from August to $3.7 billion, according to Moody’s. That was the largest volume since January 2008, the company said.

The biggest single-property sale to close in September was a $208 million deal for Union Bank Plaza, a 627,000 square-foot (58,250 square-meter) office building on South Figueroa Street in Los Angeles, according to Real Capital Analytics Inc., a New York-based firm that tracks commercial real estate sales.

Apartment buildings have led prices higher, rising almost 16 percent in the third quarter from a year earlier, Moody’s reported. An index of retail properties fell about 12 percent in that time, while industrial buildings dropped 1.2 percent. Office property values increased 4.4 percent.

Top 10 Areas

Office prices in the top 10 metropolitan areas jumped 22 percent in the third quarter from a year earlier, the most of any property type in major cities. Prices gained 9.4 percent from the previous three months.

Moody’s defines the top 10 metropolitan areas as the ones with the most transactions by dollar volume. New York, Los Angeles, Washington, San Francisco, Atlanta and Chicago are included in the rankings for all four property types.

Two competing indexes show national commercial property prices rising at a faster rate. Green Street Advisors, a real estate research company in Newport Beach, California, reported Nov. 2 that values are up 24 percent in the 12 months through October. Its property index is 21 percent below its 2007 peak.

CoStar Group Inc., a real estate data service based in Bethesda, Maryland, found that prices for investment-grade properties in the U.S. rose 5.5 percent in September. Values are down 4.9 percent from a year earlier and 29 percent from two years ago, according to the company.

CoStar, unlike Moody’s, tracks transactions below $2.5 million. CoStar also limits its index to Class A and B offices, the highest-quality buildings; retail and industrial properties built since 1990; and multifamily buildings of 30 units or more.

Green Street’s index includes deals that are in negotiation or under contract, while Moody’s tracks only closed sales.

Source: Bloomberg

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U.S. CRE Prices Up 4.3% in September Largest Rise in 10 Years.


U.S. CRE Prices Up 4.3% in September
U.S. commercial real estate prices experienced a record 4.3% increase from August to September, according to data compiled by the Moody’s/REAL All Property Type Aggregate Index. This increase is the first monthly rise since May and the largest single monthly rise in 10 years.

While prices in the index are up 0.3% from the same period in 2009, they are 43% below their 2007 peak.

“The relatively large swings in the index in recent months are due, in part, to the uncertain macroeconomic environment and the low number of repeat-sale transactions,” says Nick Levidy, managing director at Moody’s.

Source: MortgageOrb.com

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Commercial Real-Estate Market Improving, Economists Say


Commercial Real-Estate Market Improving, Economists Say

NEW ORLEANS — While still experiencing challenges, the commercial real-estate market could see signs of steady improvement in the near future, specifically concerning lending, according to two economists addressing the 2010 REALTORS Conference & Expo here.

National Association of REALTORS (NAR) Chief Economist Lawrence Yun and Hugh Kelly, clinical professor of real estate at New York University Schack Institute of Real Estate, shared their predictions surrounding the commercial market, indicating a slight improvement in commercial lending.

“Banks’ profits have returned to healthy levels,” says Yun. “As a result, it is inevitable they will return to the business they were created for, which is lending. Commercial real estate has experienced a sharp price correction, but there is still a shortage of buyers because of lack of adequate capital resources.”

Kelly says the banks are in the driver’s seat, meaning they can cherry-pick deals and there is no stigma to turning away business. “The capital flow in the commercial real-estate market has been very selective. To achieve full recovery, lending practices must improve.”

The commercial market also depends largely on job creation, Yun adds. According to Yun, the country needs to create much more than 100,000 jobs per month to have a meaningful impact on vacancy rates.

Yun’s 2011 commercial forecast shows steady improvement in the market with rents stabilizing and net absorption slowly improving. Yun also predicts a moderate GDP expansion of 2% to 2.5% in the next two years and an unemployment rate of 8% in 2012 and 6% in 2015.

The NAR represents 1.1 million members involved in all aspects of the residential and commercial real-estate industries.

Source: American Coin-Op

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Commercial Property Prices Post Record Rise


US Commercial Property Prices Post Record Rise

US commercial property prices recorded their biggest monthly gains on record in September, offering hope that the troubled market is bottoming out.

According to the Moody’s/Real commercial property price index, prices rose by 4.3 percent from August to September, lifted by increases in the apartment and retail sectors.

That was the largest rise in the 10-year history of the index after a summer when prices fell for three consecutive months.

Prices are up 0.3 percent compared with September a year ago.

In spite of the rebound, commercial property prices have been volatile and the sector’s path to recovery remains steep.

Across the US, prices are off by 42.7 percent from their peak in October 2007, when the market began to slide.

“The relatively large swings in the index in recent months are due in part to the uncertain macroeconomic environment and the low number of repeat-sale transactions,” said Nick Levidy, managing director at Moody’s.

Mr Levidy was cautious on whether September was bottom of the market but said it appeared to be nearing an “inflection” point.

He noted that dominant mall spaces and “trophy” assets in top markets such as New York were outperforming the rest of the commercial property sector.

Renewed strength in retail property, where prices were up by 5.7 percent in the last quarter, gave a boost for the wider commercial sector.

A small rise in apartment prices provided a lift but there was continued weakness in demand for office and industrial buildings.

Commercial real estate was among the hardest-hit sectors during the recession, as waves of job cuts and weaker output reduced demand for office spaceretail space and warehouse space.

Source: CNBC via Financial Times

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