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Los Angeles Luxury Rental Pains Accelerate As REIT BRE Properties Continues Feeling Goldman Anger (And Underperforming)

Tyler Durden's picture
Submitted by Tyler Durden on 11/04/2009 18:29 -0500



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).

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by anynonmous
on Wed, 11/04/2009 - 18:45
#120377

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)

To keep fueling the real estate rebound, the legislation would extend the $8,000 tax credit for first-time home buyers to April 30. It now is set expire at the end of the month. More importantly, it also would provide a new $6,500 tax break for existing homeowners who want to move up to a new home, as long as they have lived in their current residence for five consecutive years out of the last eight.

The bill also would increase the level of qualifying incomes to $125,000 for individual tax filers and $225,000 for joint filers. Those earning up to $145,000 individually or up to $245,000 jointly would get a smaller credit that decreases as income rises.

The tax credits apply to home purchases of $800,000 or less.

 

http://www.latimes.com/business/la-fi-tax-credit5-2009nov05,0,1817786.story

 

by anynonmous
on Wed, 11/04/2009 - 18:52
#120385

and this footnote (from the AP)

Expanded tax breaks for (any and all) money-losing companies

The Senate bill would allow companies of any size to use net operating losses in either 2008 or 2009, but not both years, to offset taxable profits from the previous five years. The provision would allow all profits in the previous four years to be offset, while only half the profits from five years ago could be offset.

http://www.startribune.com/business/69191427.html?elr=KArks:DCiU1OiP:Dii...

 

 

 

by deadhead
on Wed, 11/04/2009 - 18:43
#120379

will dave bianco lead the krawchek thundering herd in a strong buy on the reit sector to counter?

 

by Rainman
on Wed, 11/04/2009 - 18:59
#120390

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.

by Johnny G.
on Wed, 11/04/2009 - 18:59
#120391

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.

by Careless Whisper
on Wed, 11/04/2009 - 19:23
#120414

Johnny how is the market in Santa Monica?

by Johnny G.
on Wed, 11/04/2009 - 19:33
#120425

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.

 

by Careless Whisper
on Wed, 11/04/2009 - 20:24
#120476

Thanks man. When we hit bottom that's where I want to buy.

by Bubby BankenStein
on Wed, 11/04/2009 - 20:07
#120458

Johnny,

Born and lived in Northridge for 14 Years.  Moved to MS 1970.

Any thoughts about RE in Northridge today?

by Johnny G.
on Wed, 11/04/2009 - 20:20
#120470

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).

by Bubby BankenStein
on Wed, 11/04/2009 - 20:36
#120484

A parking lot at CSUN is where my K-6 was.

Thanks for your thoughts.

by chet
on Wed, 11/04/2009 - 19:03
#120394

"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.

by Anonymous
on Wed, 11/04/2009 - 19:05
#120398

"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.

by Miles Kendig
on Wed, 11/04/2009 - 20:22
#120473

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....

by Anonymous
on Wed, 11/04/2009 - 19:24
#120415

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.

by Johnny G.
on Wed, 11/04/2009 - 19:54
#120442

+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.

by Strom
on Thu, 11/05/2009 - 00:01
#120611

Is Father's Office still as busy as it used to be?

by Miles Kendig
on Wed, 11/04/2009 - 20:13
#120463

Reminds me of 250 Montgomery in San Francisco and the efforts of the fed through Yellen in that sale.

by Rainman
on Wed, 11/04/2009 - 20:20
#120474

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.

by Johnny G.
on Wed, 11/04/2009 - 20:34
#120482

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.

by Anonymous
on Wed, 11/04/2009 - 21:44
#120528

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....

by Anonymous
on Wed, 11/04/2009 - 22:11
#120548

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

by Anonymous
on Wed, 11/04/2009 - 22:26
#120563

Tell that to slick Jimmy, it'll be news to him.

http://www.bubbleinfo.com

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