CRE Cliffnotes (8.27.10)

Good News for a change. (More CMBS Borrowers Pay Off Balloons in Time)
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• Two Sentence Overview: CMBS borrowers successfully paid off 49.9% their balloon mortgages on time in July (the highest percentage since 2008). This is due to new found liquidity (in the form of foreign wealth funds, insurers, pension funds, and even some CMBS issuances) and record low interest rates.
• One Sentence Takeaway: While this is far too early to be a trend, this is definitely good news as the combination of funds from other equity sources and low interest rates are lessening the likelihood of the whole “next shoe to drop” scenario.

Office prices have declined 30.8% since 2Q 2007:
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• Two Sentence Overview: Uncertainty in the broader economy has led to a drag in investment activity. However, the number and dollar volume of commercial real estate transactions is increasing.
• One Sentence Takeaway: As trades increase we can be more confident that buyers and sellers are coming to an agreement on price (i.e. a bottom), however there is allot of cash chasing too few deals which makes this whole “buyer/seller agreement on price” thing difficult.

C&W Houston Office 2Q Market Beat:
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• Two Sentence Overview: This is a good one pager from C&W saying Office Class A space is likely to increase in vacancy, especially in the CBD, as vacant sublease space continues to come onto market through the rest of the year (Ugh). The “triple threat” of the drilling moratorium, the Continental/United Merger, and the status of NASA still has a lagging effect on the Houston economy.
• One Sentence Takeaway: With very little construction, we can at least look forward to a recovery that does not have an supply problem when the economy comes back and there is more certainty from these three core issues.

Infamous Houston Office WSJ Article:
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• Two Sentence Overview: I am sure many of you saw this badboy on the WSJ, filled with color on the whole “triple threat” story. I looked for the positives in the article and at least Houston has a employment rate one point lower than the U.S.
• One Sentence Takeaway: Ok, ok, so there are hurdles we need to overcome…we will…and the space market will be stronger because of it as there will be very little new product out there once there is sustainable job growth.

CRE Cliffnotes (8.20.10)

In the midst of Favre returning and Clemens getting indicted I managed to come across some relevant (and hopefully) value added articles this week. But unlike Clemens, I am not going to lie… the news this week was more on the negative side then this optimist would personally like. But, in the spirit of Favre, I “owe it” to everyone to report what I see. So with these stretched links aside, let’s get to it:

WSJ: Tenants Taking less space
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• Two Sentence Overview: Even though there has been a national rebound in office leasing activity (161.3 million SF of leases signed in the past 12 months or a 5.7% increase over the previous 12 months), existing tenants are taking less space than they had previously. Tenants either do not have a demand due to a downsized workforce or they are being more efficient with their space with collaborative work environments (less SF per employee).
• One Sentence Takeaway: I hate to be Debbie Downer but this is definitely a negative trend for the office market, however tenants consolidating and reducing space needs in the name of efficiency emphasizes the importance of having a “best in show” leasing and managing service to maximize occupancy and tenant retention (whether that be in house or a 3rd party provider).

Jobless Claims Up:
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• Two Sentence Overview: If you are like me, you are tired of this report already as artificially created (stimulus induced) government jobs are decreasing initial claims for jobless benefits rose 12,000 to 500,000 last week. As this chart shows this could mean that even if jobless claims improve, it could be a while before there is positive growth in jobs.
• One Sentence Takeaway: Without question this was a disappointing figure that points to weakness in the job market, however the story remains for office owners that we do not have a supply problem and once jobs pick up (and therefore demand) – positive fundamentals will return.

Oily Issues:
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• Two Sentence Overview: No question, the moratorium set by our fearless leaders in Washington is costing the Houston economy jobs (anywhere between 12K on the low end and 50K on the high end). In Houston, Chevron and HighMount have already laid off workers and Halliburton and Baker Hughes have relocated others.
• One Sentence Takeaway: The moratorium only exasperates an already difficult situation and one can only hope that leaders in Washington are persuaded to act accordingly.

Coffee and CRE (8/17/10)

Each Monday morning, my intention is to compile five relevant and recent articles about office real estate in general and the Houston market in particular. Each article will have a link, a two sentence overview, and a one sentence takeaway. I hope over time this provides value to you.

With that, let’s get to it. I hope you enjoy the inaugural “Coffee and CRE” email:

Distress in Office CMBS (that rhymes):

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· Two Sentence Overview: Office CMBS loan delinquencies have shot up 78% in the past 9 months, however the office sector still boasts the lowest delinquency rate among property types. As we know, in Office it’s all about jobs, and the 71,000 private sector jobs created in July just did not cut the mustard (90,000 were expected).

· One Sentence Takeaway: Could this mean more attractive prices are on the horizon for office buyers? (there is a allot of coin on the sidelines sure hoping so)

Be Optimistic for Office…in a little while:

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· Two Sentence Overview: While weak, national office fundamentals could be pointing to a inflection point in a recovery (note: I just wanted to say “inflection point” because it sounds so smart). Nationally some office owners are able to increase asking rates while many are coughing up more concessions to keep tenants creating a weird increase in asking rate decrease in effective rate scenario.

· One Sentence Takeaway: For all the horrible news on vacancy increases and rent rate decreases, there are favorable supply conditions which could bode well for a strong recovery when demand picks up.

Texas is Tops for Business:

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· Two Sentence Overview: This will probably be a theme in this weekly email about how great the Lone Star State is. Bottom line is 70% of all new jobs in the US have been created in Texas since 2008 – awesome stat to throw around.

· One Sentence Takeaway: All things economic doom and gloom considered, it just feels warm and fuzzy knowing we have a state government that is going to incentivize the heck out of new companies moving to Texas thereby creating jobs, and creating demand for office space (Texas Stats Link).

Texas fighting Drilling Moratorium:

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· Two Sentence Overview: Texas Attorney General Gregg Abbot filed a legal challenge to the 6 month Obama ban on deep water drilling. The case is based around the Federal government not involving Texas at all in its decision to ban drilling ( a state right).

· One Sentence Takeaway: Lawyers are the only guaranteed winner in this whole ordeal, and the uncertainty has definitely stalled growth, but with the spill capped and damage mitigated the long term effects may not be as bad as originally thought (although there is sure to be greater regulation).

Houston Q2 Deliveries and Construction:

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· Two Sentence Overview: Five buildings totaling 78,828 square feet were completed in the Houston market area in the Second Quarter. The largest buildings that are underway currently are the Hines MainPlace (972,474 SF - 10% pre-leased ) and Hess Tower (844,763 SF - pre-leased.)

· One Sentence Takeaway: New construction has decreased and even large deliverables have a good percentage preleased which should bode well for the positive supply side story once demand returns.