Headlines – Week of August 15, 2010
August 22, 2010
Office Leasing Rebound Could be Deceiving
However, just as the office market seemed to be turning a corner, the broader economy has suffered a setback that started in April and continued through June. On a trailing four-quarter basis national leasing activity rose 5.7% (161.3 million square feet).
In many cases, though, tenants are taking less space than they had before. This is due to the reality that they have fewer employees, but it’s also because they have discovered how to use space more efficiently. In New York, for instance, three of the second quarter’s five largest deals involved tenants either taking the same amount of space or less.
Nationally, the overall vacancy rate was 17.4%, the highest level it’s been since 1993.
Office using employment (which includes the information, professional/business services and ﬁnancial services sectors) is the critical catalyst for office space demand. From peak to trough, U.S. office using employment has fallen by 8.3%. Four markets were hit with layoffs in office-using sectors that were well above the national average. These were Atlanta (-12.1%); Fort Lauderdale (-11.9%); Orange County (11.6%) and Tampa Bay (11.4%).
At the other end of the spectrum, the two Texas markets, Dallas/Fort Worth (-4.3%) and Houston (-4.1%), as well as Washington, DC (-1.2%), have held up much better than most markets during this downturn.
Analysts and brokers are especially concerned about the hundreds of office buildings that are in precarious financial condition due to the fact that they are worth less than the mortgages that were made during the boom times. Such properties have an intense need to fill space in order to boost rental revenue and, subsequently, values.
1 out of 4 renters never plans to own a home
According to a survey provided by Trulia.com, 27% of renters do not plan to buy a home … ever. Of those renters who do plan to purchase someday, 68% said it would be more than two years before they do.
Plans to delay a home purchase or not planning to buy at all could have an enormous domino delaying effect on economic recovery in the U.S. according to the company’s CEO. Renters converting into buyers are crucial to turning around the housing slump, but the current economic crisis is causing people to become very hesitant to get off the fence and buy a home.
According to the study, many Americans still maintain a core belief in the inherent value of owning a home: 72% believe homeownership is part of their American Dream. While it’s a decline from 77% six months ago, it shows that the American Dream of homeownership is still alive.
Nearly one in five Americans (19%) said that their attitude toward homeownership has grown more negative over the last six months; however, more Americans, 23%, said that their attitude toward owning a home has grown more positive in the same time frame.
Death of the ‘McMansion’ – Is the Era of Huge Homes Is Over?
From 1950 to 2004, the average size of an American home jumped from 983 square feet to 2,349 square feet. In the past few years, there have been an increasing number of references made to the “McMansion glut” and the “McMansion backlash,” as more towns pass ordinances against garishly large homes, which are generally over 3,000 square feet and built very close together.
However, according to another survey by Trulia.com, that figure is poised to drop for the first time in six decades and declares “The McMansion Era is Over.”
The survey delves into a harsh reality; with tough economic times in the background, large residences are no longer a given. Adults who might buy a house displayed a preference for smaller homes, with only 9% saying their ideal home size is more than 3,200 square feet – the same number of who said they’d like their home to be between 800 and 1,400 square feet. Fifty-five percent of Americans would prefer a home between 1,401 and 2,600 square feet.
Harris Interactiveconducted this July 2010 survey online within the United States on behalf of Trulia between July 22-26, 2010, among 2,055 U.S. adults aged 18 years and older. The sample included 1,345 homeowners and 663 renters.
For a little historical context, 1,200 square feet was the average home size in America in the 1960s. That grew to 1,710 square feet in the 1980s and 2,330 square feet in the 2000s.
What’s more, many in the real-estate business say they think this trend of downsizing, or “right-sizing,” is here to stay. Many believe this is a long-term trend and believe that families with children who’ve been foreclosed upon won’t want to go through these experiences they saw their parents go through.
The follow-up question, of course is what do we do with all the McMansions that have already been built?
The demise of the McMansion has stirred a growing discussion in the real-estate community about the possibility that it may force a dramatic redesign of the suburban McMansion tracts into mini-towns with more practical uses like offices, banks, grocery stores and movie theaters.
CMBS in Special Servicing Could Top $100B
September brings 126 U.S. CMBS loans to maturity, with almost half of them already in special servicing in the company’s latest weekly U.S. CMBS newsletter.
The maturity breakdown by month through December is as follows:
September: 126 loans; $962 million (43% specially serviced)
October: 159 loans; $2.1 billion (34% specially serviced)
November: 158 loans; $1.6 billion (14% specially serviced)
December: 176 loans; $1.7 billion (16% specially serviced).
At the end of the 2nd quarter, $92 billion of loans were in special servicing, a number that will likely reach $110 billion by December. There are currently total 5,207 CMBS loans in special servicing of which 63% were transferred due to imminent default. However, Fitch says the ratio of delinquent vs. current loans in special servicing is 60 to 40, and the report notes, that the majority of loans that transfer as current eventually become delinquent.
84% of the total dollar volume comes from loans that were originated between 2005 and 2007, the peak years for commercial mortgage securitization.
Most maturing loans already in special servicing are either delinquent or in foreclosure. This trend is likely continue into 2011, when 2,198 fixed-rate commercial mortgage loans (representing $26.5 billion) mature with 17% already in special servicing.
Fitch expects loans secured by office, retail, and hotel properties from the 2006 and 2007 vintages to be the most difficult to refinance in 2011
Posted by Scott R. Lodde