Investors Finding No Fire Sales In Commercial Property

The following article is from an interview between Jerry Anderson and Angela Pruitt of Dow Jones. This article also ran on wsj.com and smartmoney.com.

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By A.D. Pruitt, Of DOW JONES NEWSWIRES

NEW YORK: (Dow Jones) Investors looking for blue-light specials on distressed commercial property are finding the pickings surprisingly slim as banks refrain from holding fire sales on troubled assets.

Despite rising loan delinquencies and foreclosures on hotels and on retail, apartment and office buildings, banks are reluctant to unload troubled assets at bargain-basement prices amid a lack of transparency and agreement on fair valuations. This deepens an impasse with distressed investors who have been aggressively setting up funds and other vehicles to acquire assets for a song.

"Quite frankly, I had predicted that the waterfall would have started by now. I thought there would be a tremendous amount of properties that were distressed from the lending world that a bank would have foreclosed on," said Jerry Anderson, executive managing director of the asset recovery team at Sperry Van Ness, a commercial real estate advisory firm. "That has not happened.

"We got folks calling us to let them know when the bank is willing to dump ( assets) for 20 cents on the loan value," he said. "There's nothing for them to buy yet at that type of a deep discount."

There are expectations the commercial real estate market is in the clutches of a free-fall similar or worse than the crisis in the early 1990s. Troubled commercial properties have more than doubled this year with the value of assets in default, foreclosure or bankruptcy topping $108 billion, according to a recent report by Real Capital Analytics.

Investors are getting prepared to pounce on distressed deals. For instance, over the last couple of months more than six real-estate investment trusts filed paperwork to launch initial public offerings, including Starwood Property Trust Inc., managed by an affiliate of Starwood Capital Group; and Colony Financial Inc., spawned by Colony Capital LLC, the owner of casinos, hotels and the late Michael Jackson's Neverland Ranch.

"There's still about a 20% to 30% differential between what the banks are willing to sell the assets (for) and what the market is willing to pay," said Edward Mermelstein, a real estate attorney in New York.

"If (banks) actually marked assets down to levels where the market is right now, most of these major lenders would have a very...serious problem," he said.

Even if investors are able to buy an office or retail property on the cheap, if occupancy rates remain low, they aren't likely to see a decent return on their investment in the short to medium term, experts say.

An influx of distressed commercial assets isn't expected to hit the market until after the first quarter of 2010 amid expectations that the Federal Deposit Insurance Corp. will have to shed portfolios of failed banks that it has taken over. So far, that total has reached 64 this year.

Jay Leupp, the portfolio manager for Grubb & Ellis AGA Realty Income Fund, said investors are looking for the same level of real estate asset sales executed by the Resolution Trust Corp. after the savings and loan crisis of the 1980s.

"It was essentially the sale of the century in terms of commercial real estate and a lot investors...made millions of dollars buying the properties very inexpensively," he said. "It will be a very long time before" those types of opportunities arise.

— By A.D. Pruitt, Dow Jones Newswires

(Lynn Cowan contributed to this report)

Labor Forecast Predicts 22.2% Decrease in Demand for Temporary Workers In 2009 Third Quarter, Representing Tenth Consecutive Quarter of Declines

Industry Consulting Firm G. Palmer & Associates’ Quarterly Forecast Assists in Previewing Near-Term Hiring Patterns. Palmer & Associates is headed by Greg Palmer, who is also a member of the Sperry Van Ness Board of Directors.

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Newport Beach, Calif., July 7, 2009 — Demand for temporary workers in the United States is expected to fall 22.2% on a seasonally adjusted basis for the 2009 third quarter over the same period in 2008, according to the Palmer Forecast™, released today.

The Palmer Forecast™ indicated a 24.0% decline in temporary help for the just-ended 2009 second quarter, which came in at a 27.2 % decline—wider than anticipated, primarily because of higher than expected unemployment figures.

“Our 2009 third quarter forecast, as expected, shows another anticipated decline in demand for temporary workers—a trend marking ten consecutive quarters, that we now believe will continue through early 2010,” said Greg Palmer, founder and chief executive officer of G. Palmer & Associates, an Orange County, Calif.-based staffing industry consulting firm.

The Bureau of Labor Statistics (BLS) reported that seasonally adjusted temp jobs were down 27.2% year over year in June, deteriorating from May's 26.9% year-over-year decline. Temp jobs, seasonally adjusted, were down 2.1% sequentially, versus the normal 0.3% sequential increase from May to June.

The unemployment rate inched up to 9.5% in June from 9.4% in May, representing the highest jobless rate since August 1983. The Labor Department report also indicated that 467,000 non-farm jobs were eliminated in June, which was up from May’s loss of 322,000. For the first six months of 2009, the economy shed nearly 3.4 million jobs.

Palmer said unemployment during this recession has had wide reaching effects across a broad spectrum of workers. As reported by the BLS, workers with college degrees experienced a slight decrease in their rate of unemployment in June to 4.7% vs. 4.8% in May. Workers with less than high school degrees during the same period held their rate at 15.5%. The U6 unemployment rate, which tracks those who are unemployed, as well as those who are underemployed and are working part time for economic reasons, was 16.6%. The U6 rate is considered the rate that most clearly depicts those most affected by the downturn.

The next few quarters...

“We expect to see the unemployment rate continuing to increase, approaching 10%, but at the same time, we believe temp help declines are nearing the bottom and will likely turn positive by the second quarter of 2010,” Palmer said. “With temp help being a leading labor indicator, and unemployment a lagging barometer, we expect to see between a 1.2% - 1.7% improvement in temp labor demand from second quarter 2009 to third quarter 2009. While the economy has not yet turned the corner, there certainly are signs that we are likely nearing the bottom in the current economic cycle as it relates to temp labor. These views are predicated on generally anticipated GDP improvement for the 2009 fourth quarter, continuing into 2010,” Palmer added.

The Palmer Forecast™ is based, in part, on BLS and other key indicators. The model was initially developed by The A. Gary Anderson Center for Economic Research at Chapman University and serves as an indicator of economic activity. Companies that employ temporary staff use the forecast as a guide to navigate through fluctuating economic conditions in managing their workforce to meet business demands.

About G. Palmer & Associates

G. Palmer & Associates, founded in 2006, advises companies in the human capital sector with sales, operations and margin enhancement, and to explore strategic alternatives for increasing shareholder value. Founder Greg Palmer has served on the board of the American Staffing Association and was president and chief executive officer of RemedyTemp, Inc., one of the nation’s largest temporary staffing companies, prior to its sale in June 2006. For more information, visit www.GPalmerandAssociates.com.

Legacy Foundation Impacts Chicago

The Sperry Van Ness Legacy Foundation provided funds to The Chicago Community Loan Fund, which is a 501c3, providing low-cost, flexible financing to non- and for-profit community development organizations for the revitalization of low- and moderate-income neighborhoods throughout metropolitan Chicago.

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The Chicago Community Loan Fund (CCLF) is so grateful for the support we have received and we would like to share with you some highlights from the last fiscal year.  With all the economic concerns these days, I am sure that you welcome some good news.

The $5,515,000 in loans closed in 2008 served 15 low to moderate income communities.  This single year’s community impact was the most significant in our history.  To date, CCLF ‘s programs have impacted 4,996 units of affordable housing, 1,075 jobs and 1,724,235 square feet of commercial/retail space to serve the target areas.  As we have no doubt told you in the past, but it is always good to celebrate it again, CCLF loan dollars leveraged funds from other sources totaling $775,107,770.  This was all made possible by you, the investor.

CCLF has positive cash flow, return on investment and liquidity, all while maintaining expenses.  Management has been diligently monitoring reserve levels and applying a conservative methodology when reviewing them, leading to higher reserves, which we believe is appropriate in the current economic environment.  Further, several highly qualified and experienced staff joined the team to augment the existing, tenured leadership.  

At the writing of this letter, there is even more exciting news.  CCLF was honored with the MacArthur Award for Creative and Effective Institutions that will allow us to expand and strengthen our sustainable building programming.  CCLF was one of three organizations in the United States to receive this recognition.

Group Investing is now Hip!

The following article is from an article by Jerry Anderson, CCIM.

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By Jerry Anderson, CCIM

I am so tired of reading and hearing the bad news in the industry of my passion - commercial real estate, that I've stopped talking to nay sayers and am taking proactive aggressive action. We all know values have tanked, but how can we personally take advantage and help our clients through the maze? Lenders are not any fun to deal with these days. Any type of what we used to consider reasonable leverage seems impossible. What precious stash of cash we do have, we are not willing to risk on one particular deal, so forget 50%-60% down and borrowing the balance with unreasonable terms and high closing costs. Success in commercial real estate investment is usually a matter of how fast you can adapt to changes that create opportunity. The only position to occupy in today's market is that of buyer; a buyer with cash that can perform quickly. The answer lies not in borrowing to buy assets like in the past, but reversing the leverage scenario – yes, put in MORE cash. But diversification and partners is the key.

Group investing has been around a long time. I was a General Partner in many partnerships in the 70's and 80's and got away from it when money became so easy to borrow. The heck with borrowing from lenders, organize small groups and put a boatload of money down, if not pay all cash. Don't put too much in any one deal and raise enough to weather any storm on the horizon. If you are going to capitalize on the market we find ourselves in right now – adapt! More cash, less leverage and keep it simple without depending on the future - buy based on, quality of the asset and location, cash flow and a low % of what it would cost to replace the structure. I've preached that quality; quantity and durability of the income stream are the three legs of any commercial real estate investment for years. It is never truer than now.

For an overview of group investing visit www.groupsponsor.com I have no affiliation whatsoever with Gene Trowbridge, CCIM but have used his material and known he and his organization for over 25 years. His information is a good place to start and your local Commercial Real Estate advisor; local legal counsel and accounting professionals are the next step. Good luck. Go slow be deliberate. As a friend of mine says - Pigs get fat and hogs get slaughtered.