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More Reggie Middleton on Commerical Real Estate

Submitted by Reggie Middleton on 11/27/2009 14:28 -0400

The TCO reports are now available. Here is an excerpt from the Professional level report:

The
following table summarizes the valuation of each property through
NOI-based and CFAT-based approaches. Individual property valuations
will be discussed in detail separately, and released to professional
subscribers.

Click to enlarge...

The
two deep underwater properties - The Piers Shops at Caesars and Regency
Square were written down to the fair value by recording impairment
charge in 3Q09. While the former is being handed over to the lenders
for auction proceedings, the latter still remains with the Company and
the Company continues to service its debt obligations. Additionally,
there are 5 more properties with LTV of more than 80%, making them
highly susceptible to reach the negative equity territory in case of
further declines in rentals or increase in cap rates.

It is noteworthy that properties with high LTV include a) the new
developments during 2005- 2008 phase and b) the existing properties
against which additional debt was raised during 2005-2008. Among the
properties with LTV of more than 80%, Northlake Mall was the new
development in 2005, The Piers Shops was acquired in 2007, while
additional debt was raised against International Plaza, The Mall at
Short Hills, The Mall at Wellington Green and Waterside Shops during
2005-2008.

Additionally,
there are four properties - MacArthur Center, The Mall at Partridge
Creek, Stony Point and Westfarms - with LTVs in the "immediately at
risk" zone.

So, I am sure
many are wondering if these properties are destined to be written off,
or what??? Well, let's look at the trend...

Sharply rising cap rates combined with...

Dramatically increasing mall vacancies.

Subscribers can download the full reports here:

TCO Report - Retail 2009-11-27 11:41:15 355.95 Kb

TCO Report - Professional 2009-11-27 11:42:05 663.14 Kb

I will probably be releasing the lenders to these properties in the
upcoming week. Any banks that have economic interests in these
properties, or others should feel free to reach out to me.

- advertisements -

Sat, 11/28/2009 - 06:23 | 144699 Anonymous

Once the Deflationary Spiral resumes full force there will be no doubt we are in a depression. Vacancy Rates for most commercial rates will skyrocket. Predictions for the peak: Offices 50%. Retail 50%. Industrial 25%. Apartments 15%. Put that in your pipes you stupid bulls. Long SRS.

Sun, 11/29/2009 - 00:57 | 145223 Zeppelin5637

Concur. BofA executives warned several top commercial real estate developers in the Charlotte area of the coming desperate situation a year and a half ago. We have yet to see the full effect of this problem.

Fri, 11/27/2009 - 18:29 | 144430 Anonymous

Citing CBRE on cap rates understates how low they went (into the mid-6's) and how high they are now. CBRE is a highly aggressive broker that shilled prices to their extremes in 2006 and can not be trusted to deliver any meaningful analysis that is not self-serving, imo.

Simply put, there are not enough transactions or liquidity to determine value.

I rank the following sources for CRE data, 1) Real Capital Analytics, 2) Korpacz reports, 3) CoStar.

Caveat emptor, indeed.

Fri, 11/27/2009 - 20:22 | 144516 Reggie Middleton

I agree that a diversity of sources are needed, which is why we have used all of the sources you have mentioned, save Korpacz, to feed the analysis. You sound like you would be happy with my work.

Sat, 11/28/2009 - 15:35 | 144906 Anonymous

Ask Tyler to forward Korpacz to you, or I could. It has some interesting comments.

Fri, 11/27/2009 - 17:00 | 144331 Anonymous

Reggie, Reggie. You and your

So what are you showing me here maybe 10 who are "far underwater". Out of how many nationwide please.

Robust context separates the good reports from the bad.

After the development boom during the decades of 1990 and 2000 and during the worst recession/depression that this country has ever experienced, we are only looking at 8.6/10.3% mall vacancy?

As the old Wendy's ad use to say: Where's the BEEF?

I know you love to deliver the shock value so I'm surprised to see so little. Too much tryptophan?

Fri, 11/27/2009 - 18:41 | 144447 Reggie Middleton

I don't see what the ambiguity is. You see all of the properties, nationwide, in the chart and you see what is underwater. You speak as if CRE is not trending downwards. We have a high vacancy rate that is trending higher in the face of deteriorating fundamentals and a horrible macro outlook. What makes you think things won't get considerably worse than they are now?

Fri, 11/27/2009 - 19:02 | 144458 Anonymous

I dunno, 90% occupancy rate at mid to late 2000 lease terms.

Usually if I want to make an educated appraisal of a marketplace I look at many more factors that you are looking at.

But I'm not a sensationalist with Zero skin in the game.

Correct me if I'm wrong but are you saying you have listed "all of the properties, nationwide, in the chart". All of them? Your chart looks really small to be listing all mall properties in the US.

Fri, 11/27/2009 - 20:18 | 144512 Reggie Middleton

I listed all the properties owned in whole and in part, by the subject of the analysis - and the anlaysis happens to be rather comprehensive. The company actually has a negative releasing spread (the opening rent on new leases lower than the closing rent on expiring leases), so those 2000 lease terms will be rolling over to 2010 lease terms that will look much less appetizing. If I was a sensationalist, I would have included more of the report here, but I didn't.

You "anonymous" guys are so negative, you don't even bother to completely read what it is you are bitching about. The post contained an excerpt from a forensic analysis of a specific REIT, but apparently you seemed to have read something else.

Fri, 11/27/2009 - 20:17 | 144511 Reggie Middleton

I listed all the properties owned in whole and in part, by the subject of the analysis - and the anlaysis happens to be rather comprehensive. The company actually has a

negative releasing spread (the opening rent on new leases lower than the closing rent on expiring leases), so those 2000 lease terms will be rolling over to 2010 lease terms that will look much less appetizing. If I was a sensationalist, I would have included more of the report here, but I didn't.

Fri, 11/27/2009 - 17:54 | 144402 Kevekev

So what are you saying anon 144331? CRE is not that bad and wont get worse? The problem is blown out of proportion? Rents are going to increase along with property values and vacancies will go down in our solid V shaped recovery? Well, maybe your right, after all, we are told that the recession is over! Are you Dennis Kneale? Keep up the good work Reggie.

Fri, 11/27/2009 - 18:14 | 144417 the phantom

I actually walked right past Dennis Kneale in my neighborhood and it took every last ounce of strength to not punch him in the face. That and the fact he was holding in little girls hand. God, I hope he doesn't live close... seeing him around would suck.

Fri, 11/27/2009 - 18:51 | 144453 Anonymous

I cannot believe he does not have a security detail. I wonder if "someone" saw that cuntface in the wild would they unleash a brutal superman punch in his talking head cuntface?? Hum, I wonder? (5th rule punishment averted).

Fri, 11/27/2009 - 17:45 | 144386 RockyRacoon

Excellent observations and questions. Myself, being afflicted with postprandial somnolence, I was unable to coherently formulate a question! You are either immune or a vegetarian...

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