CPN - February 2009 - (Page 6)

BUZZW ORTHY NEWS TREND Industrial in Relatively Good Shape—for Now On the investment front, As the economic downCB Richard Ellis Realty Trust turn continues to ravage the and Duke completed a global economy and com$100 million acquisition of mercial property industry, an industrial portfolio. one sector has remained The relatively healthy notably active. As others state of the industrial sector have gone quiet, the industriowes largely to a more balal market has seen a spate of anced supply-demand ratio. leasing deals and even some Farley’s & Sathers Candy Co. leased the entire 1 million-square-foot Grand Lakes II, the largest speculaHowever, that is likely to investment of late. change in the near future, as That is not to say that the tive warehouse property ever developed in Texas. slowing global economies sector has escaped the economic turmoil unscathed. Rather, Corp.’s lease of the 1 million- and limited business spending it is a case of being the least hurt. square-foot Grand Lakes II facility hinder demand. On the domestic According to a mid-January to manufacturer Farley’s & front, 160 million square feet of RREEF report, the industrial sec- Sathers Candy Co. The property, new supply came online last year, tor managed returns from 1 to near Dallas, is Texas’ largest spec- though just 66 million square 3 percent in 2008, well off the ulative warehouse building ever. feet was absorbed. That gap is historical average of 10.7 percent Meanwhile, ProLogis in early Jan- only expected to grow larger but nonetheless outperforming uary leased a total of more than over 2009. —Reach news writer & 400,000 square feet in Charlotte, other property types. economic editor Adam Perrotta Recent notable industrial N.C., and Reno, among other at adam.perrotta@nielsen.com. transactions include Duke Realty recent deals across the globe. Deal Trends Store Closings Could Spell Opportunity for Buyers Richmond, VA—Within the past few months, a flurry of retailers struggling with the economic downturn have closed stores or ceased operations altogether. Most notably, electronics seller Circuit City Stores Inc. announced that it would liquidate all 567 of its remaining U.S. stores. Also closing locations are Macy’s, Sears, Office Depot, Steve & Barry’s and Linens-N-Things, among others. Many of the locations have yet to actually be shuttered, but the number of vacant properties coming online could be good news for those retailers looking to expand. Of course, given retail’s current struggles, there may not be many such firms. —Reach staff writer Elena Gontar at elena.gontar@nielsen.com. ON THE RADAR Sale-Leaseback Trend Reversing? Perhaps the most notable aspect of the recent sale of the 460,000square-foot Riverside Commons office complex in Irving, Texas, is not that a property of that size changed hands in today’s sluggish market, but rather who the buyer was: Research in Motion Ltd., maker of the BlackBerry and, more significant, the building’s tenant. Sale-leasebacks grew in popularity over the past few years as owner-occupiers attempted to reap the monetary rewards of the skyrocketing value of real estate by selling off properties for cash infusions and then remaining on as tenants. As the economy soured, though, sale-leasebacks slowed accordingly. The credit crunch has limited investors’ buying power, and prices have dropped, limiting the liquidity that can be extracted by owneroccupiers, even those cashstrapped firms that would otherwise welcome the windfall. However, for those tenant firms that have money to spend, now might be an opportune time to take advantage of the lower pricing and buy out the building ownership on the cheap, especially when the owner itself has run into credit troubles and has to sell at a distressed price. —Adam Perrotta ECONOMIST ’S VIEW The Good, the Bad & the Ugly Back in December 2005, I wrote that failed political leadership, Federal Reserve Board policy errors and private-sector hubris would cause a recession in 2009.Things went downhill faster than I expected, however,thanks to catastrophic political leadership that was far worse than anything I anticipated and to arrogance, primarily in the financial and housing sectors, that was greater than I imagined. The federal funds rate was held absurdly low for four years and then raised rapidly and excessively. In turn, investors used short-term debt and obscene amounts of leverage to purchase long-term illiquid assets. Congress and bank regulators allowed special carve-outs for financial institutions to legally hide structured investment vehicles and credit-default-swap exposure. Government subsidies forced Freddie Mac and Fannie Mae into risky residential mortgage lending activities. Congress created artificial incentives for many of those who would have been better off as renters to own homes.The Treasury Department, Congress and the Fed 6 made arbitrary and dithering decisions on bailouts and the Troubled Assets Relief Program, all with bipartisan support. By Peter Linneman, Ph.D. Taken in aggregate, all these missteps have resulted in a recession that rivals the one that occurred from 1973 to 1975. The governmentcreated panic will continue until the new administration replaces ad hoc deal making with economic policy. As a result, we expect further job losses in the first and second quarters,perhaps going as high as 900,000. The effect on real estate will vary by property type. The warehouse sector will hold up best, as boxes still have to be stored and construction lead times tend to be relatively short, although demand will be off. Demand for office space will soften dramatically for the next 12 to 18 months, and while the economy is likely to begin picking up slowly in late 2009 or early 2010, tenants will first fill empty .cpnonline.com desks before making new space commitments.The retail problem is not so much the acceleration in store closings but that there will be fewer store openings in the near term to offset the closings, as retailers hoard their capital. However, all is not doom and gloom for the U.S.economy.Housing inventories are slowly burning off, and most housing markets should be in balance by the middle of 2009. And the best news is that somewhere out there, a young person is working on the bare-bones way to remove wrinkles, restore knee cartilage non-invasively or defeat the ravages of Alzheimer’s disease. While economies need the lubrication of capital markets to move forward, entrepreneurs are the machinery of economic growth.For that reason, you should not bet against the U.S. economy in the long run. That has been—and remains—a sucker’s bet. —Peter Linneman is principal of Linneman Associates and is the Albert Sussman Professor of Real Estate, Finance and Public Policy for the Wharton School of Business at the University of Pennsylvania. COMMERCIAL PROPERTY NEWS • Februar y 2009 • www http://www.cpnonline.com

Table of Contents Feed for the Digital Edition of CPN - February 2009

CPN - February 2009 Contents Starting Line Buzzworthy Office Data/Analysis Washington, D.C., Market Profile Ranking: Mortgage Banks & Brokerage Firms Top Deals of 2008 Mortgage Banking Mexico Brokerage Sustainability CPN-Nielsen Claritas Special Report Resource Guide

CPN - February 2009

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