Green Street

Record Apartment Building-Boom Meets Reality: First CRE Decline Since The Great Recession

The Commercial Property Price Index (CPPI) by Green Street, which tracks the “prices at which commercial real estate transactions are currently being negotiated and contracted,” plateaued briefly in December through February and then started to decline. By June, it was below where it had been in June 2016 – the first year-over-year decline since the Great Recession.

Financial Anarchy

Having no cost to money is the economic equivalent of no intelligent laws in society. The equivalent of using our money but having a baseline of zero for the benefit produced with that money. The results are what you would expect, the wild west, One might say, Financial Anarchy.

"We Are Extremely Over-Retailed" Picturing The Death Of America's Malls

Starting in the mid-1990s, "the mall genie was out of the bottle," says one mall analyst, "and it was never going to come back." While about 80% of the country’s 1,200 malls are considered healthy (vacancy rates of 10% or less), that compares with 94% in 2006; and more than 30 million square feet of malls are more than 40% empty, a threshold that signals the beginning of what one one analyst called "the death spiral." As The NY Times reports, like beached whales, dead malls draw fascination as well as dismay, "nobody ever thinks a mall is going to up and die," but as the following images show - dead or dying they are.

The "Peak Bubble" Deal Is Back: Stuy Town To Be Sold Again

Stuyvesant Town, Manhattan's largest 'rental community', is back on the block as Bloomberg reports Fortress is preparing a $4.7bn bid for the apartmenet complex whose last 'failed' deal came to epitomize the lax lending based on unrealistic projections of future income that fueled the real estate bubble. Tishman Speyer and BlackRock purchased the 11,000-unit complex for $5.4 billion in 2006 - a record at the time - helped by a $3bn senior loan which was sliced-and-diced to investors (and then defaulted upon). But, as one analyst notes, "Stuytown has certainly come a long way since the depths of the crisis,” and Fortress' $4.7bn reflects a "resurgence in pricing." No bubble here at all as they hope rent-stabilized tenants will flip enabling all that fresh cash-flow for yet another yield-chasing investment idea based on the belief that real-estate prices (and rents) never go down (ever)... or potential buyers might remember "too many people have had too many unpleasant surprises at this location."

Scramble To Exit Housing Market Peaks With "American Homes 4 Rent" IPO Pricing At 44% Discount

Two months ago we first observed the scramble by various hedge funds, in this case Blue Mountain, to take advantage of the peak sentiment in housing, and specifically rental housing (which just hit an all time high as reported previously) by rushing to capitalize on recent investments and dump exposure to the witless public. Specifically, we envisioned the then just announced IPO of the aptly named American Homes 4 Rent (yes, with a "4" not "for"), also known as AMH, which however came at precisely the wrong time for the market: just as mortgage rates were soaring and Colony American Homes postponed its own parallel IPO. Two months later, with the market about to pass 1700 and fears about the housing market put back in the shelf despite a glaringly obvious collapse in mortgage demand, these IPOs are back and with a vengeance, although now reflecting a far more subdued, tapered if you will, view about the house leasing sector. Not surprisingly, AMH priced overnight, selling 44.1 million shares at a price at the bottom of the $16-18 range to raise a total of $706 million: a 44% discount to the $1.25 billion suggested in the prospectus filed back in June.

The Housing Bubble Goes Mainstream

While it isn't news to regular readers, the fact that one of the key pillars of the "housing recovery" (the other three being foreign oligarchs parking cash in the US courtesy of an Anti Money Laundering regulation-exempt NAR, foreclosure stuffing and, of course, the Fed's $40 billion in monthly MBS purchases) have been the very biggest Wall Street firms (many of whom had to be bailed out the last time the housing bubble burst) who have also become the biggest institutional landlords "using other people's very cheap money" to buy up tens of thousands of properties, appears to still be lost on the larger population. Intuitively this is to be expected: in a world in which the restoration of confidence that a New Normal, in which everything is centrally-planned, is somehow comparable to life as it used to be before Bernanke, is critical to Ben's (and the administration's) reflationary succession planning. As such perpetuating the myth of a housing recovery has been absolutely essential. Which is why we were surprised to see an article in the very much mainstream, and pro-administration policies NYT, exposing just this facet of the new housing bubble, reflated by those with access to cheap credit, and which has seen the vast majority of the population completely locked out.

New York's Ultraluxury Office Vacancy Rate Jumps To Two Year High As Financial Firms Brace For Impact

Traditionally, when it comes to reading behind the manipulated media's tea leaf rhetoric and timing major inflection points in the economy, the most accurate predictor are financial firms, whose sense of true economic upside (or downside) while never infallible, is still better than most. Yet unlike employment, which is usually a lagging, or at best concurrent indicator, one aspect that has always been a tried and true leading indicator, has been real estate demand, in this case rental contracts. Due to the long-term lock up nature of commercial real estate contracts, firms are far less eager to engage in rental transactions (and bidding wars) when they expect a worsening macroeconomic environment. Which is why news that office vacancy in Manhattan's Plaza district, the area between Sixth Avenue and the East River from 47th to 65th streets, anchored by the landmark Plaza Hotel at Fifth Avenue and Central Park South which is home to some of the nation’s most expensive and prestigious office towers, and where America's largest hedge funds and PE firms have their headquarters, has just risen to 12.3%, or a two year high, is probably the most troubling news for the economy and a real indicator of what to expect of the immediate future.

Reggie Middleton's picture

Wall Street real estate fund investors have essentially given an implicit, cost free "call option" on the real estate market to the big banks. This cost free call incentivized the banks to do as many big deals as fast they could during the CRE bubble, and allowed them to profit even when the deals went bad (as many of them have and inevitably will due to the bubble prices, leverage, expanding cap rates and a negative fundamental/macro outlook). Most observers will be shocked to see the disparity in the returns between the bank, as the fund manager, and their investors. Well, I present to you, "shock" in the form of a blog post!