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We are all waiting for spring … when all things are born anew!

AND before you can get green shoots like these in the commercial real estate markets … the first step is the market fundamentals have to stabilize. At some point rent and occupancy simply must stop falling and enter the category of “No Change” as the analysts in our industry survey the national markets. Only then can the turnaround … and those little shoots … begin to emerge.

Here’s a sign we may be seeing some stabilization sooner than most pundits had predicted.

Most of the national “experts” reported in the press over the last several months have gone on record predicting it will not be until the 3rd quarter (and most then say “at the earliest”) until we see the Commercial Real Estate Markets recover.

Here is a report showing 16 of 28 major markets in the US where multifamily rents are NO CHANGE in the fourth quarter of 2009. See the report at this link …

Could this be the first sign that some “green shoots” are on the way – might they be curled up under the surface yearning to emerge when the sun comes out all the way? Stay tuned …

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The Wall Street Journal ran a lead article yesterday on the tight link between the current apartment lending market and our crippled friend Fannie Mae. Here are some interesting stats …

• In 2006 Fannie Mae originated  just 34% of apartment loans
• In 2008 that share rose to 84% !! – my oh my
• Current delinquencies are at only 1.6% on the $4.5B of apartment loans that mature in 2010 – good
• Fannie and Freddie only back $300B in apartment loans … as opposed to the $5 Trillion in SFR loans they hold – good
• $180B of Fannie’s apartment loans were originated at the top of the market in 2007 – not so good

So riddle me this …

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How is the apartment market looking in Los Angeles? Here is a pretty darn good video interview with Kitty Wallace of Sperry VanNess on just that topic.

She reports that her contents are pointing to the 3rd quarter of 2010 as the expected time when sales volumes will pick up. We’ll see …

There it was in the Wall Street Journal last week. The headline in the Real Estate Section blared,

“Apartment Vacancy Rate Hits 22-Year High !” and I murmured to myself … here we go again.

It just reminded me why newspapermen are NOT Real Estate Investors … they are just out to sell papers and a sensational headline will always beat out a rational article.

But wait … there’s more …

If you read the last line of paragraph three you found that, “Of the 79 Markets tracked by REIS, 45 showed an increase in Vacancies.” That sounds really BAD now doesn’t it? We should panic … right? Hmmmm … Remember now, this is coming from a newspaper and there is most certainly more to this story. Hold on just a minute …

As an Investor, what I find MOST interesting in this article is this.

• In the face of the worst economic downturn since the great Depression.
• In the face of the worst residential housing market in anyone’s living memory
• In the face of hundreds of thousands of foreclosed / vacant / rental single family homes competing with apartments for renters
• In the face of ALL of this …

43% of the markets tracked by REIS showed STABLE OR DECREASING VACANCIES !!

That’s right 34 of those same 79 Markets preserved or decreased their vacancy rates. That statistic is truly amazing given the national economic circumstances. And that’s not all … In the next to the last paragraph we learn that suburban Maryland and Washington, D.C. even saw a 0.3% rent increase in the second quarter. WOW.

What is the Press Missing here?

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Despite what the stock market has done since October of last year … and recent proclaimations of “The Recession Has Ended” … many of us with real estate connections on both the Residential and Commercial side Know Different.

This Recession is FAR from over
The PAIN in Real Estate is FAR from Over

AND I think I have found some really good reasons to back that up from two different articles in the last week in the Wall Street Journal. Both report on the Massive Job Losses this Recession has caused and why even with rapid economic growth it may be nearly 10 years until we are out of the woods.

1) Start Ups and Employment
Here’s a stat for you … Did You Know That Businesses in the first 90 days of their existence account for 14% of the new hiring in the US economy? Fascinating!
AND in the third quarter of 2008 the number of new businesses launched was the lowest in a quarter since 1995.

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Today Globe Street reported on a “Meet the Experts” panel discussion in Century City California … and what they had to say augurs well for smaller commercial investors in the months ahead.

All the experts lamented the puny deal volumes this year and none of them seem to have a clear prediction of when deal flow will pick up however …

When asked, “How would you invest $3M in this Market?” Here is what they said … Read the rest of this entry »

Here is a very cool little page on CNN/Money giving you the ability to see current Foreclosure and Unemployment rates for each state. Just mouse over your state and voila … nice.

This is a very basic screening for potential warm multifamily markets … ones with lower levels of both rates. AND remember, just because state level statistics are negative does not mean there are no local markets in the same state that show promise … all real estate is very, very local.

Here is the map … enjoy…

The recent lifting of  State Specific foreclosure moratoriums this month has opened the floodgates again. This is the third month in the last five to set the record for foreclosures.

This month there were more than 360,000 properties with foreclosure filings — including default notices, scheduled auctions and bank repossessions — an increase of 7% from June 2009 and 32% from July 2008, according to RealtyTrac, an online marketer of foreclosed homes.

This is the Double Dip we have been anticipating … release the moratoria and open the floodgates.

AND don’t forget the “Double Double Dip” …

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What happens when over 70% of a nation’s economy is built on Consumer Spending … and the consumer runs out of money to spend?  We are about to find out !

Turns out the worst thing that could happen to our already punch drunk economy is for people to start saving money. Our national savings rate has been a negative number – meaning we spent more than we earned – for years now … until last quarter. Here’s how frugal we have become …

• In the third quarter of 2008 consumer debt fell for the first time SINCE 1952 !
• Consumer spending fell for the first time in 17 years !
• Goldman Sachs is predicting a 2009 savings rate of 6% – 10% ….. YIKES

This new trend is incredibly important if we are thinking Economic Recovery means a return to the boom economy of 2000- 2008, powered by consumers spending home equity withdrawals. If “Recovery” means a return to those “spend the money you don’t have” days, I have news for you – IT AINT GONNA HAPPEN.

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Globe Street today released commentary on the S&P/GRA national composite for September 2008. Here is information to back up our continued confidence in selected Multifamily Markets.

Here are selected comments: (view the full article here)

“For the second straight month, and the second time in the history of the index, the national composite recorded a negative annual growth rate, but there are some potential signs of improvement in commercial real estate prices,” 

“”In the property sector, three of the four sectors had negative returns for the month and year-over-year period. Office recorded its lowest annual return in its history, -3.1%.”

“On the positive side, Blitzer notes that apartments recorded positive returns for the one-month and 12-month periods, with indices up 1.6% and 1.7% respectively. ”

Note that these positive results are for one and twelve month periods in what has been an absolutely horrible year for every other category of real estate.

Keep your lead generators out in selected apartment markets. Look for areas of continued job and population growth – we like Dallas, Austin, San Antonio and Salt Lake City.