CPN - January 2009 - (Page 6) BUZZWORTHY NEWS TREND Opportunities in Distressed Sales It may seem counterintuitive to view the state of the economy and the resultant sluggishness of the commercial real estate market as an opportunity, but firms have identified distressed sales as a growth area. As the number of defaults and commercial foreclosures has spiked over the past few months, CB Richard Ellis Inc., Cushman & Wakefield Inc., Jones Lang LaSalle Inc. and Cassidy & Pinkard Colliers are among the industry heavyweights that have recently hung out their shingles in the distressedsale business. And the new entities are finding no shortage of business to go around. Real Capital Analytics Inc. reported that $25.7 billion worth of commercial property is considered to be distressed, meaning that the mortgage is in default, the owner is bankrupt or the asset has already been foreclosed on. In addition, $80.9 billion in commercial assets is Visit www.cpnonline.com for the latest news affecting commercial real estate. considered “potentially troubled,” meaning they have maturing loans, owners known to be in tough financial shape or bankrupt tenants. Indeed, Marcus & Millichap Real Estate Investment Services Inc., which already operates an established distressed-sales group, ON THE had completed 1,000 distressedasset valuations in 2008 by the middle of December, the highest amount since 1993. The firm expected that number to reach 1,500 by year-end. While the economic downturn has hit all commercial real estate sectors hard, distressed situations are especially prevalent in the retail sector,which has been battered by a sharp decline in consumer spending and by a number of major retailers that have recently filed for bankruptcy protection. Accordingly, the sector has the largest number of potentially distressed properties; $23.5 billion, according to Real Capital Analytics. —Reach news writer & economic editor Adam Perrotta at adam.perrotta@nielsen.com. RADAR Shot in the Arm for Boston Development? Boston’s commercial real estate development market,which has seen many projects stall over the past few years, may be getting a shot in the arm in the form of several high-profile project approvals, as well as a plan to dole out millions of dollars in loans to stalled developments. In early December, the Boston Redevelopment Authority signed off on two large-scale projects for the Prudential Center area of Downtown: a 17-story, 422,000square-foot office tower from Boston Properties Inc. and a 27-story apartment complex planned by AvalonBay Communities Inc. Both projects are expected to break ground in 2009. Meanwhile, on Dec. 9, Mayor Thomas Menino unveiled a plan to extend $40 million in loans, provided by federal grants, to development projects that have been hung up, most of which have been delayed by the credit crunch and the faltering economy. There should be no shortage of takers for the financing. In November,the $700 million redevelopment of the former Filene’s department store was shelved due to developers John Hynes and Vornado Realty non-housing and non-automobile related firms are relatively lean. s Commodity prices have fallen sharply. Oil prices are below $50 a barrel, down from a peak of $147. Falling oil and commodity prices are equivalent to a tax cut for consumers. s Learning from past mistakes, government authorities have been aggressive in cutting interest rates and injecting liquidity into a credit-seized market. s Inflation rates have fallen sharply as commodity prices have declined and the slowdown in growth has curbed aggregate global demand.With an easing in nearterm inflationary pressures, more interest rate cuts are on the way. s We are all Keynesians now, as it seems that each time the U.S.economic downturn intensifies, a newer and larger fiscal stimulus package is announced. Such drivers should support a mild economic recovery by 2010. —Asieh Mansour is chief economist & strategist for RREEF. The stalled One Franklin St. may benefit from $40 million in federal grant money that is about to flow into Boston. ECONOMIST’S OUTLOOK Lost Decade Looming? As the U.S. economy has continued to deteriorate and concerns about the possibility of deflation have increased, some pundits are comparing the United States’ situation to Japan’s lost decade. The Japanese recession was also characterized by weak growth, deflation, high unemployment rates, impaired and insolvent banks, a “liquidity trap,” collapsing commercial real estate values and massive fiscal deficits. Comparisons to Japan are greatly exaggerated, however, even though the United States will likely experience one of the sharpest and longest recessions since the early 1980s. The current recession will last through next year, and many more job losses are on the horizon. This will not bode well for commercial real estate, in which demandside fundamentals rely heavily on jobs and people to fill space. 6 The fact is that Japanese banks did not write down bad loans as rapidly as those in the United States have been doing. In Japan, it took close to a decade before banks By Asieh Mansour, Ph.D. cleared up their balance sheets. Also, monetary and fiscal policy measures were not as aggressive as those that U.S. policymakers have launched this time.During a liquidity trap and period of massive de-leveraging, economic recovery requires the combination of aggressive monetary and fiscal expansionary policies. Amid all the gloom, remember that the business cycle is not dead. After a recessionary pe-riod,we shall experience a recovery.Furthermore, some degree of rebound is not that far away. Consider the following: s Corporations have not built up excess inventories. Non-financial, Trust’s inability to line up sufficient funding. Other stalled developments that the loans could aid include Kensington Place, a 457,000-square-foot mixed-use project in Boston’s Chinatown, which has yet to move forward after being approved in 2003, and Joseph Fallon’s planned office tower on the South Boston Waterfront. —Adam Perrotta Deal Trends Faced with declining fundamentals in the United States, several hotel developers are looking to expand their brands oversees. Vietnam: MGM MIRAGE and Asian Coast Development Ltd. plan to build a $4.2 billion MGM Grand complex along the shores of the South China Sea, some 80 miles from Ho Chi Minh City, Vietnam. Guatemala: An affiliate of Seattlebased Alekson Development Group L.L.C. has signed an agreement with the Guatemalan Gaming Agency that will allow the company to build six casino/hotel/golf destination resorts over the next 10 years in Guatemala. France: The Rezidor Hotel Group continues to expand its portfolio in Paris, introducing two properties. The 296room Radisson Ambassador Hotel, Paris Opera, formerly known as the Hotel Ambassador, is set to open in early 2009. And the 343-room Radisson Hotel Paris La Defense is slated to open in 2011. —Reach staff writer Elena Gontar at Elena.gontar@nielsen.com COMMERCIAL PROPERTY NEWS • January 2009 • www.cpnonline.com http://www.cpnonline.com http://www.cpnonline.com
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