Credit markets starting to thaw, need more in 2009

The NY Times has an excellent article summarizing the current credit market and detailing what needs to happen and why in 2009 to really get the economy going again. Certainly, commercial real estate is hugely impacted both by the ability to get commercial mortgages and by the strength of tenants (all classes). The credit markets are starting to thaw and they're proving to have very significant impact on all aspects of our economy.

I'm personally glad to be done with 2008 and look forward to a much better 2009. While there is likely plenty of pain ahead, I think the worst is behind us and, frankly, I can't stand the thought of things getting any worse.

Here's to better times ahead!

November sales drop in Salt Lake City

Not surprisingly, home sales dropped significantly in November. Just like the rest of the country, Salt Lake City saw a significant drop in the number of homes that sold. I don't think I was the only person who expected that to happen after all the financial troubles (TARP, etc.) in September/October. The national economic troubles scared a lot of buyers. Consumer confidence plummeted and it's not the least bit surprising to have home sales down significantly in the 30-60 day range. I hope to see home sales pretty flat through the hard winter months and an uptick in the Spring. The Deseret News article makes the point that stuff in the $200-250k range is still selling well and the overall affordability is back.

More later.....

NYTimes article on "passive houses"

Very interesting article on another generation(?) of green-building technology in today's NY Times. "Passive houses" are increasingly popular in Germany and they sound like a great idea. The idea is to build an airtight structure with tons of insulation such that it can be kept warm by a body heat and the heat put off by lights, etc. It doesn't need a furnace because it stays warm enough on its own. The biggest challenge was maintaining fresh air in the house and they figured out how to do that via a heat exchanger system. Worth the read and further research.

It's exciting to see new innovation that will likely have huge positive impacts on our way of life.

More later.....

Why the banks aren't lending yet

Last post for Christmas Day.

I've been perplexed as to why banks aren't lending when the federal government is telling them to do more of it with the TARP funds they're getting. Not only are they getting the TARP funds but deposits seem to be as well. The increased interest rate on savings accounts and all the marketing by banks to get more deposits are strong indicators that banks are anxious to increase deposits. Conversely, they've got to be lending money to pay all the interest on deposits. While I understand the nervousness about liquidity/solvency on the bank's part, it seems like they're just pushing their troubles down the road if they just sit on cash.

Anyway, the Wall Street Journal is reporting that, while being publicly told to increase lending, they are being privately told to hold on to their money. Congress and the head regulators are publicly calling for banks to increase lending so the credit markets will loosen up and the economy will start moving in the right direction. At the same time, the "regulators on the street" are telling the banks individually that they need to strengthen their cash positions. One example: regulators are pushing the banks to identify loans that may prove problematic in the future (though still "performing" now") and set aside cash for losses now.

This article sheds some light on the mindset of bankers and why they're acting how they are. Let's get the money moving with increased lending. I'm interested to see whether the Democratic Congress follows through on their push for a TARP-related requirement that banks lend some of the gov't funds they're receiving.

More later....

Close all the malls?

The Washington Post has a provocative article suggesting we'd be better off by closing down all the malls in the country. Not sure why malls are getting hammered on by the media lately. The world of retail has obviously and, why malls are a part of that, they're far from the whole problem. The case could be made for blame shared among the retailers, owner/landlords, and consumers.

Anyway, it's an interesting article though uninformed and unrealistic. I think it's safe to say that some malls will survive (and thrive) in their current form, some will morph into "lifestyle centers", and some will just struggle for years.

We can always count on evolution in the world of retail and market cycles to strengthen the strong and kill the weak.

More later....

Merry Christmas!

Hope everyone had a great day with loved ones!

Derek

Utah supplants Nevada as fastest growing state

By Stephen Ohlemacher, The Associated Press
Article Last Updated: 12/22/2008 11:23:25 AM MST

WASHINGTON » Utah is the nation's fastest growing state, knocking Nevada from its usual top spot.

Utah's population climbed by 2.5 percent from July 2007 to July 2008, according to new population estimates from the Census Bureau. Arizona is the second-fastest growing state, followed by Texas, North Carolina and Colorado.

Nevada, last year's fastest-growing state, fell to eighth. Nevada had been among the four fastest-growing states each of the last 23 years.

Only two states -- Michigan and Rhode Island -- lost population from 2007 to 2008.

California remained the most populous state, followed by Texas, New York, Florida and Illinois.

CRE impact on national, state economies

Here's the update to the annual report showing the impact of commercial real estate on the national and state economies. No comments, just a link to the report on the NAIOP website.

More later....

Only a matter of time--big developers looking for bailout $$$

The Wall Street Journal tells us that a handful of large commercial owners are petitioning Congress for access to some bailout funds. They're concerned about the mortgages coming due over the next couple of years and the anticipated trouble refinancing those notes. Here's the link but you may not be able to it because WSJ.com is a subscription site.

What I found more interesting was a report that was attached to the article. It's a "Commercial Real Estate Outloook" by the CMBS Research folks at Deutsche Bank. It's packed with good data about the state of existing commercial mortgages, defaults, what's coming due, trends, etc. I hope you can get to this because it is very worthwhile. Let me know if you can't and I'll e-mail a copy. (Not sure about copyright laws and what kind of trouble I would get for posting it directly to my blog.)

More later.....

UAR Broker Forum & Economic Summit

Yesterday I attended the broker forum and "town hall" (?) economic summit hosted by the Utah Association of Realtors. It was more focused on the housing market but plenty of valuable information. Here are a few key points that have direct or indirect impact on commercial real estate in Utah.

Howard Headlee, Utah Bankers Association

• waves of res. mortgage defaults likely still to come
• TARP bailout money just starting to hit the market, banks needs to raise deposits so they can lever the bailout money and start lending it (note: he didn't say anything about whether they banks will actually lend the money or just use it for acquisitions. I wanted to ask but there was no time for questions in spite of the "town hall" aspect of the event.)
• res. development - very limited lending until inventories decline and stabilize
• comm. development - depends on specific circumstances

Bill Erickson, Utah Housing Corp

• approximately 4000 new homes in Utah are sitting empty (that's 10.5 months worth of supply rather than our typical 6 months supply)

Ken Fears, NAR Regional Economics Mgr

• numbers of home sales and affordability indexs are getting close to pre-boom levels
• credit still thawing, noted spread between 3-month T-bill and LIBOR
• buyers have/will pay a premium for homes in "walkable neigbhorhoods" with amenities and access to mass transit

Kelly Matthews, Wells Fargo VP & Economist

• Utah still showing healthy population increases between births and net in-migration
• population increase is actually quite a bit higher than the number of housing starts (was 20k in 2006 and about 6k in 2008)
• previously forecasted housing values would have to drop 20% to return to "affordable levels", values have dropped about 8-9% from the highs and, because interest rates have come down, we may already be at that "affordable" level

Arthur "Chris" Nelson, U of U Dir. of Metropolitan Research

• the U.S. is the only industrial nation with population growth
• to maintain growth we will need to redevelop as much space as build new
• he forecasts that Utah will clear out extra housing inventory in 2009 and 2010 should be a good year
• condos & co-ops - nationwide resale and appreciation better than SFR
• 1/3 to 1/2 of new buyers coming into the market was "walkable neighborhoods" with transit options
• studied Phoenix and D.C. markets - found that during boom times the fringe (suburbs/exurbs) area appreciated and sold as well as areas closer to downtown, now with down cycle in market the fringe areas have been getting hammered while closer-to-downtown areas are holding values very well and, in some cases, still increasing
• anticipates home-ownership rates will fall for many years with underlying shift towards rental housing, even among mid/high income demographics
• to meet growing need for rental housing, 1/2 of new construction by 2020 may need to be for-rent
• dying mall area great redevelopment opportunities (see my most recent post about this)

James Wood, U of U Economic & Business Research

• over last several decades, Utah has had a period of expansion (3-5 years long) every 10 years followed by contraction (2-4 years long)
• current contraction has been quicker and more severe than any since 1950's
• contractions usually worst in the 3rd year, we're in middle of 3rd year right now
  
• 2010 will likely have 10k fewer jobs than 2007

A lot of hot air was also expended but I came away from the meeting with lots of good insights. General consensus was that the first half of 2009 will likely be pretty painful but things look much better beyond that for Utah's economy and housing market. Our fundamentals are pretty strong and it shouldn't take too much longer for the excess fat to get flushed out of the system.

I would be glad to hear from someone with additional insights or more information. Thanks.

Dead malls are prime redevelopment sites

I plug in this morning and the lead story on CNN.com is about dead malls being a strain on communities. There are definitely parts of the country (maybe most) that are overbuilt when it comes to retail options like malls, power centers, strip centers, etc. With the American consumer pulling back (at least until the economic crisis passes), there will certainly be some pain felt by owners and managers of retail space as significant amounts of space will be going dark. We'll see that in most areas of Utah just like everywhere else.

Towards the end of the article it talks about how some of these dead malls have been redeveloped as lifestyle centers and walkable neighborhoods. I wholeheartedly agree that these sites represent awesome redevelopment opportunities. They are large parcels that have already been assembled, they are often in urban areas and have likely been a de-facto center of the community, they usually have utilities and other infrastructure in place, and they always have great transportation access. I attended a presentation yesterday by Dr. Arthur "Chris" Nelson who is the very highly regarded Director of Metropolitan Research at the University of Utah. He touched on dead malls as great redevelopment sites and added the fact that, with their proximity to freeways and other large thoroughfares, they are usually "transit-ready". There is usually plenty of right-away in existing roads to put a mass-transit line in. (I'll post about yesterday's presentations at another time.)

I'm working on a property in Ogden, Utah that fits this perfectly. The City of Ogden has been very proactive in the redevelopment of its downtown mall site. Great things are happening in downtown Ogden and I'll tell you all about it a little later when I have the time.

More to come.....

test from Blackberry

Just a quick test to see if I can post from my Blackberry.

Welcome to the #1 source on commercial real estate in Utah

Utah's commercial real estate market is full of great opportunities and I intend this blog to be a great up-to-date resource. Check back regularly for market updates and property profiles and, of course, please add comments and insights as we go.

Derek