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OMERS Grants Nomura Six Years Free Rent!
Submitted by Leo Kolivakis, publisher of Pension Pulse.
Global Pensions reports that OMERS grants Nomura six-year rent holiday as part of office lease deal (HT Greg):
Nomura
has secured a six-year rent holiday after signing a 20 year lease in a
new office development owned by Oxford Properties Group, a subsidiary
of the Ontario Municipal Employees Retirement System (Omers).
The
investment bank - which was advised by Drivers Jonas - said the move
into Watermark Place, located on Angel Lane in the City Riverside
district, will complement Nomura's current European headquarters in St.
Pauls.
Nomura said that the deal is believed to be the largest ever non pre-let leasing transaction in the UK office market.
Drivers
Jonas partner Mark Lethbridge said: "We've got what's probably a record
breaking deal of almost six years. It's fantastic timing - this is a
historic opportunity, to get this kind of quality of building on these
kinds of terms, which is something you see once in a generation."
However, he conceded that the situation was worse for Omers - which is letting this property on a rent-free basis for six years.
Yet
he said: "On the other hand, to secure any tenant in today's market
would require a substantial rent-free period to be granted, although
probably not as long as six years."He added: "We were able to
squeeze that bit extra because it's Nomura, which has taken the whole
building for 20 years. For Omers, they wanted to secure this deal
rather than go through a two-year painful period of letting the
building."
Nomura will start paying
rent in 2015 after a six-year holiday. Lethbridge said that although
the base rent is £40 per square foot, this will rise to the mid-forties
by 2015.
Nomura will begin fitting out the office immediately, and will start to occupy the premises in 2010.
WHOA! Did you get that? Six years free rent for prime commercial real estate on Angel Lane in the City Riverside district.
Elsewhere, Reuters reports that U.S. property recession through 2011:
Most
of the U.S. commercial real estate industry is expected to remain in
recession through 2011 with an industry-wide recovery not expected to
begin until 2012, according to a quarterly survey commissioned by
PricewaterhouseCoopers.
The apartment sector is expected lead the industry from recession with
a recovery expected to start sometime next year and continue through
2012, said the third-quarter
Korpacz Real Estate Investor Survey
released on Tuesday. About 115 real estate investors were surveyed.
Investors expect the industrial and office sectors to begin to recover
in 2011 but not dominate the sector until 2012. Washington D.C., San
Francisco, Philadelphia and Long Island are the office markets expected
to recover ahead of the overall national market.
In the warehouse sector, West Coast cities are expected to lead the
recovery charge, including the cities of Oakland, Portland, Salt Lake
City and Orange County, investors said.
But
they do not expect the retail real estate sector to show even a slight
recovery until 2012, according to the survey of investors in 28
markets. The Oakland-East Bay, Fort Lauderdale, Nashville and Houston
markets are expected to recover first, according to the survey.
Overall, investors expect the U.S. commercial real estate market to
continue to deteriorate throughout this year and the next, the survey
said. They see rents and occupancy rates falling in the first year of
new property investment.
The outlook for first-year cash flow is an important factor in prices offered for new properties.
In the national suburban office market, investors said they expect
market rent to drop by as much as 20 percent in the coming months, the
survey said. Central business district office rents are expected to be
off 10 percent.
Investors
also expect national power centers, developments anchored by major
chain stores, and warehouse rents to decline by 10 percent.
Investors expect the biggest near-term market commercial rent declines
to be in Manhattan and San Francisco -- as much as 20 percent. Those
poor outlooks are followed by a 15 percent drop for Phoenix and 10
percent for Boston, Chicago, Denver, Los Angeles and San Diego.
U.S.
commercial real estate sales remain at a near stand-still, as equity
investors remain on the sidelines waiting to capitalize on forced sales
and more motivated selling on the part of distressed owners, the survey
said.
Despite falling
cash flows and a drought of available financing for sales, owners are
still hanging onto their properties as banks extend fixed-rate loans
and floating rate loans remain manageable.
"Investors seem surprised at the lack of quality buying opportunities
given the problems in the financial markets and the continued weakening
of the industry's fundamentals," said Susan Smith, director of the real
estate advisory practice at PricewaterhouseCoopers, and editor-in-chief
of the survey.
The WSJ reports that Treasury, responding to the growing pain in the commercial real-estate
industry, released new tax rules that make it easier for distressed
property owners to restructure CMBS loans:
The new guidance from the Treasury makes it clear discussions
involving lowering the interest rate or stretching out the loan term
"may occur at any time" without triggering tax consequences. In
addition, the guidance allows servicers to modify loans regardless of
when they mature. The servicer only has to believe there is "a
significant risk of default" even if the loan is performing, the
guidance states.
"A stalemate now exists on CMBS loans that are not currently in
default but need modification," said Jeffrey DeBoer, chief executive of
the Real Estate Roundtable, a lobbying body for property owners and
investors. "Today's announcement should help break the stalemate."
But some investors holding CMBS bonds are watching nervously because
loan modifications, known as "mods," mightn't always be in their best
interest. CMBS have junior and senior pieces, and the senior holders
may be in a better position, when a borrower defaults, to foreclose and
liquidate the property rather than modify the loan. Junior holders, on
the other hand, might benefit from a mod because they mightn't get
their money back in a forced sale.
"The standards of care for services are to all bondholders," says
Patrick Sargent, president of the Commercial Mortgage Securities
Association, a trade group.In general, servicers are required by their contracts to act in the
interests of the investors and modify loans only when that can be
expected to reduce losses. That puts servicers in the tricky position
of trying to figure out which borrowers are basically sound and when it
makes more sense to foreclose quickly.
"The biggest concern is that the guidance could open the floodgate
for everyone to try to get some sort of loan modifications," said Aaron
Bryson, a CMBS analyst at Barclays Capital. "There is a tremendous
burden on the servicers to uphold their end of the bargain."
The news in commercial real estate keeps
getting grimmer by the day. This crisis will have severe implications
for pension funds that are carrying these properties on their books and
banks that are exposed to commercial real estate loans. In other words,
the commercial real estate crisis isn't over - not by a long shot.
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Whatever you gotta do to keep the cash flowing, ya gotta do!
The news must sit even better at the insurance companies and with those that have an annuity or interest rate swaps from these firms, especially annuities and swaps indexed to inflation. The plot thickens like a stew or pot roast whose flavor can only be expected to blossom over subsequent servings. I have to wonder if the Nomura deal is indexed to the potential of deflation as well as inflation and how and if the funding and acillary accounting aspects are countered by some of Nomura's Japanese clients and if there is a history of counterparty dealings between OMERS and these Asian clients of Nomura's with Nomura at the crossroads.
Note the unquestioned assumption that Nomura will exist 6 years from now. Note too that Taxcheatgeithner is allowing moguls to modify before defaults, but homeowners calling their banks pro-actively to modify are told to shove off until they have missed some payments.
I nominate Zero Hedge for Treasury Secy.
This is seriously crazy. Not just regular crazy. Crazy with nut toppings and flaked choclate.
And the deflation wave continues....
Mechanized Farming : Depression Era Small Farms ::
Internet : Commercial Real Estate (Retail then Office; Industrial and Multi-Family survive)
not to down play this, but this is a once in a market deal. a couple years free for a 20 year term can be feasible. the questions that need to be answered are, what is the lease rate for the rest of the term? and is the 6 years free up front? it sounds that way, but that is a terrible way to give out free rent. the free rent should be given out piecemeal, to make sure the tenant is still in the building after the 6 year period. also, what kind of TI's are being shifted to the tenant? id like to see a real analysis of what nomura is getting and how OMERS is able to say "ok, well pay out our asses for 6 years on this asset".
+2
+1
here's the building: http://www.watermarkplace.co.uk/
Thanks Chuck, I edited my pic.