• Steve H. Hanke
    05/04/2016 - 08:00
    Authored by Steve H. Hanke of The Johns Hopkins University. Follow him on Twitter @Steve_Hanke. A few weeks ago, the Monetary Authority of Singapore (MAS) sprang a surprise. It announced that a...

Slumping Commercial Real Estate Sales Are Latest Flashing Red Non-Recovery Indicator

Tyler Durden's picture


Real Capital Analytics (RCA) released their US commercial real estate transaction data for July last night. The only way to interpret the data is - ugly. After a dismal June (down 33% YoY), July did not see any bounce and in fact plunged 20% YoY with transactions totaling $14.6bn. As Barclays notes, the takeaway is generally negative, as the growth trend has weakened considerably since March ( which was +62% YoY). What is interesting to us is that with Treasury yields so low, the cap-rate 'spread' makes commercial real estate relatively attractive and yet no-one's buying.



Chart: Barclays

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Thu, 08/23/2012 - 11:54 | 2730506 Hype Alert
Hype Alert's picture

Can we just skip all this crap and just start analyzing data from Weimar Republic and Zimbabwe stock markets and see which sectors perform best in centrally planned economies?

Thu, 08/23/2012 - 12:02 | 2730540 NotApplicable
NotApplicable's picture

I'm still amazed at the number of new restaurants being built, only to be abandoned when the note comes due. There's obviously still too many stupid people with access to credit.

But the times, they are a changin'.

Thu, 08/23/2012 - 12:08 | 2730559 Hype Alert
Hype Alert's picture

That's the plan and the poison.  Ever expanding growth, ever expanding competition.  What no one wants to admit is we have too much global capacity, everywhere and cheap credit to create more.

Thu, 08/23/2012 - 12:39 | 2730658 ZerOhead
ZerOhead's picture

And too much capacity can lead to ugly things like this...


46 storey, 1 million sqft Penobscot Building built in 1928 sells for $5MM.

That's $5 per square foot, but it's in Detroit. Of course there's no chance of other cities falling on hard times like Detroit right? Right?

Thu, 08/23/2012 - 12:44 | 2730746 Turin Turambar
Turin Turambar's picture

$5/ft is still overpriced.  It's in DETROIT.

Thu, 08/23/2012 - 13:24 | 2730910 blunderdog
blunderdog's picture

I dunno, seems like a good spot to open a HUGE crack manufactury and distributorship.

Thu, 08/23/2012 - 13:28 | 2730932 eatthebanksters
eatthebanksters's picture

A while back smart real estate guy in Oakland bought the old Tribune Building for $1.0m complete with all the old presses.  A new paper came to town and, behold, the perfect place to set up shop was already there.  I heard they struck a deal which was great for the tenant and unbelievable for the new owner...$1.0m/year in rent.  That's my kind of deal.

Thu, 08/23/2012 - 14:40 | 2731244 ZerOhead
ZerOhead's picture

The larger vacant properties often sell cheap and offer some of the best ROI's in the game.

Thu, 08/23/2012 - 16:57 | 2731667 Bicycle Repairman
Bicycle Repairman's picture

I went down to the local Piss-ghettis.  The bitches closed it.

Thu, 08/23/2012 - 12:04 | 2730549 AldousHuxley
AldousHuxley's picture

warlords and gold hoarders did well....toxic gas industry too.


everyone else had to deal with breaking down systems.



Thu, 08/23/2012 - 12:14 | 2730591 WatchingIgnorance
WatchingIgnorance's picture

See, now I like that. Then, we can copy and paste MDB comments where they belong. It will be like looking into a parallel universe, where the only things that change are the names. But the shit still smells the same . . .

Thu, 08/23/2012 - 11:58 | 2730520 Disastra
Disastra's picture

Ummmmmmmm THIS CHART IS BULLISH, and if you work in CRE you know that the market is hot. Select CBD office and apartment properties are trading for south of 5 caps and CMBS spreads are tighter and volumes are up, as well as REIT bond issues.


Spare us the BS. 


Still luv ya.

Thu, 08/23/2012 - 12:06 | 2730551 TheFourthStooge-ing
TheFourthStooge-ing's picture

"The bottom is in!"
"Now is a great time to buy!"
"Businesses are hiring and need more office space!"
"Retailers are expanding!"
"The malls are filling up!"

</flying unicorn crapping solid gold skittles>

Thu, 08/23/2012 - 12:13 | 2730585 J 457
J 457's picture

Disastra, some markets are "hotter" than others.  I can take you to dozens of cities with row after row of vacant strip malls, empty big box stores, and one building after another of various sizes sitting idle.  It's almost shocking how many are empty and/or closing with few new businesses opening.  I'm sure there are some areas doing well, but in my market area (CA) its not pretty. 

Thu, 08/23/2012 - 11:59 | 2730522 LawsofPhysics
LawsofPhysics's picture

Cut to the chase already, who will be the next major player to get a bailout?  There is frontrunning to be done.

Thu, 08/23/2012 - 12:01 | 2730534 FLUSA.com
FLUSA.com's picture

I agree that what I see on the street doesn't corespond to this chart.  We are tying to purchase commercial deals but they are flying off the shelf and at prices that do not make sense.  But maybe that is because I'm in Florida and I can see it on a national level obviously.

Thu, 08/23/2012 - 12:04 | 2730546 Disastra
Disastra's picture

Miami Center just traded mega tight for Miami standards and vacancy is still at 20%! What are you working on?

Thu, 08/23/2012 - 12:04 | 2730547 NotApplicable
NotApplicable's picture

Prices, (and mindsets) are sticky.

Especially when the banks are sitting on their inventory rather than trying to clear the market.

Thu, 08/23/2012 - 12:06 | 2730548 LawsofPhysics
LawsofPhysics's picture

"Flying off the shelf"

To whom?  My only guess would be China.  FYI- no property tax in Florida.  Many still believe that buying a physical property will provide a "safe" store for wealth.  just my two cents.

Thu, 08/23/2012 - 12:07 | 2730553 Disastra
Disastra's picture

Russians, Ukranians, BX, Vornado, other REITs with tons of cash - where you been?


and China, what these are not real buyers?

Thu, 08/23/2012 - 12:09 | 2730563 yogibear
yogibear's picture

We are always looking for suckers. We will take Russian, Ukranian, etc money and make it disappear.

Just like what happened in Japan with Hawaiian real estate. Poof, it was gone.

Thu, 08/23/2012 - 12:17 | 2730610 Hype Alert
Hype Alert's picture

My brother and I were discussing stores of wealth and my arguement of why inflation is theft.  He kept saying buy real estate and gave historical examples.  With every pitch, I kept hitting back with it was all before property taxes.  He had no comeback.


No time in history has an economy successfully inflated it way out of a situation like ours.  They've all failed.  It's not a good sign.

Thu, 08/23/2012 - 12:46 | 2730757 MachoMan
MachoMan's picture

Wait...  his claim was that real estate took off in inflationary/hyperinflationary economies?  Really?  How long of legs does this real estate rally have exactly?  This should have been your first point of attack... 

Ask him what happens to home sales when there is the slightest uptick in mortgage rates... 

Aside from the fact that if he's going to argue from induction, he needs to explain why our situation is similar to the historical example.

Property taxes are an afterthought... 

Thu, 08/23/2012 - 12:46 | 2730761 Turin Turambar
Turin Turambar's picture

I agree with you.  I'm in real estate.  At this time, about the only thing I'm hanging on to are small multi-family apartments.  6-20 units.  Regardless of how ugly things get, people will always need a place to stay.


Thu, 08/23/2012 - 12:26 | 2730616 ZerOhead
ZerOhead's picture

Definitely NOT flying off the shelf in the states and countries we are in.

Thu, 08/23/2012 - 12:02 | 2730541 Disastra
Disastra's picture

Pennsylvania REIT should implode soon.


Massive debt maturity and GLA expiration in near term....heavily overlevered today.

Thu, 08/23/2012 - 12:07 | 2730554 yogibear
yogibear's picture

Occasionally I go past the rows of strip malls I see another vacant store front.

A few strip malls are completely empty. They still have to pay property taxes?

Way too many banks that look like palaces. Too much fed credit expansion money over the last 30 years created all these strip malls.

The fast-money is gone.


Thu, 08/23/2012 - 12:07 | 2730555 youngman
youngman's picture

Apartments are not Commercial real estate...Office, Retail, and Industrial is......its a local market thing...but I think the overall market should go down...retail is going the way of the internet...Food is slowing down and will more with the new higher prices coming soon in food....Office space growth is slowing as sf per employee is dropping with the use of tablets...Industrial might hold as retail turns to industrial...but manufacturing will be in trouble...as regulations move manufacturing offshore...IMHO

Thu, 08/23/2012 - 12:15 | 2730598 Disastra
Disastra's picture

most retarded, baseless thing I have ever read.

Thu, 08/23/2012 - 12:09 | 2730562 q99x2
q99x2's picture

Start the Bulldozers opportunities are just around the bend.

Thu, 08/23/2012 - 12:15 | 2730602 Mr Danger
Mr Danger's picture

One reason why sales are down is because NOBODY IS SELLING.

In the apartment space in my market everyone is full and rents are rising. Tenant quality is also increasing.

There is no supply of multi family in my market under 100 units. Zero. The last one that came on the market sold in 24 hours for 15% over asking for cash.

Thu, 08/23/2012 - 12:24 | 2730656 adr
adr's picture

That happened where I used to live. Apartment buildings started selling like crazy and investors rushed to pick them up. The problem was that the property taxes were increasing faster than the owners could increase rent. Then the price of nat gas exploded and it cost as much to pay the utilities as some of the rents.

Needless to say most of the owners went belly up. Then the foreign buyers came in. Kind of hard to manage an apartment complex from Russia. One building filled up with an entire Albanian gang that wasn't going to pay rent and what went on in that building wasn't pretty.

After three of the major conglomerates went bust the mayor of the city passed an ordinance opening all rental properties to section 8 tenants. The remaining owners praised the decision and went on a buying spree picking up rental units for pennies on the dollar in 2009. Guaranteed government paid rent, what could go wrong?

The city went from a wonderful place to live, to complete ghetto within three years.


Thu, 08/23/2012 - 12:19 | 2730626 ArkansasAngie
ArkansasAngie's picture

I'm an investor.  The problem is that property owners' expectation are still too high based on potential for minimum to negative growth in income and expenses not coming down one bit ... the cap rates aren't there ... unless you buy into 2% 30 years as real.

Thu, 08/23/2012 - 12:25 | 2730653 Arnold Ziffel
Arnold Ziffel's picture

Commercial real estate is still in a Bubble as far as I can see. Wait until JCP, Sears, Worst Buy and so on "downsize"....right now as it is, I see many empty stores in local malls and strip malls look like Ghost Towns.


How about when HP and Big Lots downsize; office space is already oversupplied.

They simply built too many.

Thu, 08/23/2012 - 12:26 | 2730666 adr
adr's picture

The stores were never built to actually sell product, they were built to enable inventory shuffling scams to support "sales" and prop up levitated P/Es.

Thu, 08/23/2012 - 12:28 | 2730676 Tinky
Tinky's picture

I've walked around Manhattan on and off for 40 years, and cannot recall seeing more vacant, prime commercial space. I've also noticed many small businesses that survived for decades have now closed. Both are telling, but the latter, in particular, is quite sad.

Thu, 08/23/2012 - 13:28 | 2730699 fogcity1981
fogcity1981's picture

Interest rates for commercial borrowers are at or near the cap rates.  This means that leverage can't be used to goose after fee yields to the investors.  Hard to get excited about 4.5 to 5% cap rates on a highly illiquid investment unless you are an all cash pension fund/endowment/foundation investor with a 30+ year holding period.


Thu, 08/23/2012 - 12:38 | 2730722 adr
adr's picture

I see "Ghost of 2009" all over my area. There are signs for commercial developments with one half built building, "Great Commercial Opportunity 48 Acres Opening Spring 2009".

In some areas the abandoned development will be sitting there while new construction has been started right next to it.

One of my favorite idiotic commercial developments is on Interstate 480 Route 77 junction outside Cleveland. On one side of the highway is a huge development that had nearly every momo big box store. Walmart, Circuit City, Bed bath, Lowe's, Pier 1, a Giant Eagle, restaurants, etc. It is nearly all abandoned, even the Walmart is gone. On the other side of the highway there is an empty cinder block shell of a development that was started. That was supposed to house a Target, JC Penney, Sears Hardware, and more restaurants.

Five miles down the road in the Cuyahoga Valley they created a huge commercial development on the site of an abandoned steelyard. This mega sprawl deep within the ghetto has a Best Buy, Target, Walmart, Home Depot, Marshals, Old Navy, Five Below, and a few other shops. The Best Buy is gone, the Target isn't doing well, more stuff walks out the door of the Home Depot than is actually bought. The Walmart is doing great because of EBT shoppers. In a couple years the Walmart is probably all that will be left.

Thu, 08/23/2012 - 12:44 | 2730751 DeadOnArrival
DeadOnArrival's picture

Size of CRE industry (personnel) is down +30% (banks, PE's, developers, property mgrs, brokers & staff), so if you're still in the biz the past 24 have been bearable, and rewarding if one bought in '09-'11.  ZIRP/NIRP is critical to continue appearance of stabilization/recovery, as blood-letting delayed for this reason and suspension of mark-to-market accounting.  But without new job creation its all an illusion.  IMO, need to shed another 10-20% industry personnel to reach long term equilibrium and let the market clear out the skeletons in the closets (i.e. mass grave sites)

Thu, 08/23/2012 - 12:46 | 2730758 Vince Clortho
Vince Clortho's picture

A slight pause in the ongoing recovery that began in 2008,

-- Spokesman for the Fed

Thu, 08/23/2012 - 12:56 | 2730796 Tinky
Tinky's picture

Orwell himself couldn't have phrased it much better.

Thu, 08/23/2012 - 12:54 | 2730780 reader2010
reader2010's picture

The rich from China failed to show up?

Thu, 08/23/2012 - 13:22 | 2730901 eatthebanksters
eatthebanksters's picture

Cap rates are meaningless in an economic environment where your tenants may go tits up before the end of their leases.

Thu, 08/23/2012 - 13:39 | 2730988 banksterhater
banksterhater's picture

Like we NEED more fking office space? NOBODY IS PLANNING TO NEED OR WANT THAT!

Ever heard of the internet? FOOLS!

Thu, 08/23/2012 - 14:03 | 2731083 huckman
huckman's picture

Sales volumn down could be a good sigh of a sellers market b/c they forcast their values are on the and hence hold.



Thu, 08/23/2012 - 14:39 | 2731241 bagehot99
bagehot99's picture

Instead of hiring teachers who can't teach students who don't want to learn, the 'crapulus' should have been spent on bulldozing vacant real estate and compensating owners 70c/dollar using some sensible valuation. That would have removed a massive overhang of unwanted real estate inventory, and kept money in the private sector where it actually might get used in new ventures (ie. created some jobs).

Instead, it was just recycled back into donations to Democrats via unnecessary union jobs and the dues collected from the marks.

Thu, 08/23/2012 - 19:20 | 2732066 blunderdog
blunderdog's picture

   compensating owners 70c/dollar

Well, 'course, lots of the "owners" you'd want to compensate would be the folks who didn't pay their mortgages.

Funny, huh?

Fri, 08/31/2012 - 04:13 | 2751725 Laura S.
Laura S.'s picture

It is not just American problem. It is the same in some cities and provinces in Canada (for example Vancouver Housing Market). With regards to the commentary about opening new restaurants, I´m also amazed how many people have credit to start this risky business now.
It was obvious since 2008-9 that RE would experience a serious downturn. And this is just a start. How many people would have money after another 4 years?

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