This page has been archived and commenting is disabled.
Los Angeles Luxury Rental Pains Accelerate As REIT BRE Properties Continues Feeling Goldman Anger (And Underperforming)
If multi-apartment REIT BRE Properties is any indication of the housing "recovery" that is currently occurring on the West Coast, then look for several more decades of "exceptional" interest rates (when the exception is the norm, will any future rate hike be announced as exceptional as well... some time in 2020?). BRE, which together with REIT Duke Realty, is one of the few REITs that seem to have pissed Goldman off at some point, likely refusing corporate finance advisory services to the hedge fund with just one trading day loss in Q3, and as such merit a Sell recommendation, announced earnings today which demonstrate ongoing pain in such key housing markets as Los Angeles and Seattle. As Goldman points out, "Los Angeles and Seattle remained the weakest markets with rental rate declines of -11.5% and -8.5%, respectively."
BRE, which owns 90 properties with over 23,000 apartment units mostly in the bubble cesspool of California, Phoenix and Seattle, is known for catering to slightly higher than mid-level tenants, with such properties as Tiffany Court along the La Brea tar pits, and 5600 Wilshire. If the pain at these presumably better than average properties is so acute, one can only wonder how rentals are faring in such middle-class enclaves as Brentwood (south of Sunset), Westwood, never mind getting closer to the apocalypse that is downtown LA.
And if one assumes that BRE is a good proxy for an extended universe of multi-apartment REITs, investors should heed Goldman's warning for shares of BRE (which by implication is likely quite applicable to most if not all other comparable REITs).
We reiterate our Sell rating on BRE Properties, based on our view that rising job losses across the company’s core markets in California and Seattle should drive lower NOI growth and pose a risk to expected development yields and lease-up. We modestly revise our 2009 estimates to $2.48 from $2.47 based on 1c/shr gain included in 3Q result. Our 2010/11 estimates remains unchanged.
As for hotel REITs, our advice is to enjoy the Underbar at the Union Square W soon. It will likely not be there long (not that the too are directly linked).
- 4379 reads
- Printer-friendly version
- Send to friend
- advertisements -


Breaking:
Senate approves extension of Home Tax Credit program until the Spring and expands it to just about everybody
and not to leave out those without jobs - unemployment benefits will also be extended (note the language the LA Times uses to describe this)
http://www.latimes.com/business/la-fi-tax-credit5-2009nov05,0,1817786.story
and this footnote (from the AP)
Expanded tax breaks for (any and all) money-losing companieshttp://www.startribune.com/business/69191427.html?elr=KArks:DCiU1OiP:Dii...
will dave bianco lead the krawchek thundering herd in a strong buy on the reit sector to counter?
Speaking of the luxuryend upside down, I walked past the massive City Center project in Vegas last weekend. It was a maze of wires, boards and open steel beams. No way that baby will open its first hotel there by December 1.
Good thing Vegas eventually never loses. But somebody better hope the Saudis have a sense of humor about this particular high-odds hardway bet.
Next door, Bellagio had $ 10/min blackjack tables everywhere. A sure sign the economy sux for the high rollers.
fyi - Brentwood and Westwood are the most expensive zip codes in L.A. There are almost no apartments north of Sunset in either city; and unfortunately, rents are still stable in both cities. The BRE Los Angeles portfolio is steps from the hood (I try to never go east of La Cienega), and is far below average. Their garbage in Northridge can't even be considered Los Angeles. And Santa Clarita still has hundreds of thousands of undeveloped acres. One has to agree with GS.
Another failed secondary with TPGI yesterday. It's only a matter of time now.
Johnny how is the market in Santa Monica?
Santa Monica has three markets. The rent controlled market which is always full and 80% below market. The market north of Colorado (which supposedly has been unaffected) and the Southern portion of the city. Anecdotally, my friend owns buildings in the southern portion of the city and complains of significant vacancies and rents down about 30% (as insurance and prop tax increases). He's been able to get a few Section 8 tenants, but apparently the inspections are a total pain in the butt.
Thanks man. When we hit bottom that's where I want to buy.
Johnny,
Born and lived in Northridge for 14 Years. Moved to MS 1970.
Any thoughts about RE in Northridge today?
A lot of newer buildings (from the earthquake) and newer shopping centers (it's not like Reseda anymore but it's still helpful if you speak Spanish). I bet you wouldn't recognize it. Monstrous traffic from CSUN last time I was out there (probably a year ago).
A parking lot at CSUN is where my K-6 was.
Thanks for your thoughts.
"If the pain at these presumably better than average properties is so acute, one can only wonder how rentals are faring in such middle-class enclaves"
Actually the high end is where you'd expect it to be most acute, just like the for-sale market. Or were you being facetious? Can't tell sometimes.
"Los Angeles and Seattle remained the weakest markets with rental rate declines of -11.5% and -8.5%, respectively."
So like.... what happened. Did the respective populations stop renting? They didn't rush out and buy homes, right?
So these REIT's are misstating their true rental incomes? No that would never happen.
I bet 11.5% of their rental income was from Sugar Daddy's putting their little chippies into a nice rental love shack.
As an old time Seattle home boy I can tell you that REITs there are soon to collapse without a substantial rebound in global trade especially within the Pacific Rim. Seattle is always late entering and departing hard times and this time is no exception.
Those that wait or especially refuse to reno their leases are gonna lose big time and if I traded I would take that one. A first for me folks....
Westwood rents are down 10-20%, yet some landlords still allowed tenants with leases expiring to move instead of cutting their rent to current market rates. Brentwood rents are always slightly cheaper than Westwood. Even Marina Del Rey rents are down big just blocks from Venice Beach. The upper middle class job market in LA (let's say jobs paying over $80K a year) has completely disappeared. It's tough to rationalize paying over $2,000 for a one bedroom if you are making less than $80k. Finance jobs have disappeared in LA at a far greater rate than in NY and you add all of the entertainment workers getting crushed and you have a recipe for disaster.
Westwood has a shocking amount of empty retail space, I would guess rents need to fall 50% before most of the space becomes viable for tenants.
+1 "I would guess rents need to fall 50% before most of the space becomes viable for tenants."
Montana retail is nearly half empty, but Anderson (of Topa) owns the whole street. From what I've heard, he's not budging off the $40psf number. When was the last time you could easily find a parking space on Montana? There's nobody shopping.
Is Father's Office still as busy as it used to be?
Reminds me of 250 Montgomery in San Francisco and the efforts of the fed through Yellen in that sale.
Noticed Gucci moved to much smaller quarters in the LV Ceasar's Forum. Used to be in the corner Parthenon space. I guess the high-end retailers are searching out less spacious digs. Not an encouraging sign for rents when they wouldn't work a deal to keep them in their premier traffic spot and let it sit empty.
Thank god. I hope Gucci decides to quit paying rent :). I've been short SPG for the last 20 points (against me). I keep doubling and doubling. Pretty soon I'm gonna get backgammoned.
With states like Ohio approving a referendum to allow casinos in the state you have to wonder(it was voted in last night). Other states will follow. Vegas will get diluted.
What happens in Cleveland stays in Cleveland....
CA real estate is toast. There is no recovery. None. The next leg down will be in everything above 600K.
By next year, Case and Schiller will be back on the air explaining why CA never recovered.
G
Tell that to slick Jimmy, it'll be news to him.
http://www.bubbleinfo.com