Economy | Real Estate Ambassador by Ark Rhowmine

Good News Friday | Commercial Real Estate Wausau WI

filed under: Commercial Real Estate Market posted on June 12th, 2009

Big Picture

Let’s take a moment to consider how far the financial sector has come since the credit crisis passed through its darkest period from September 2008 through March 2009.

Analysts debated whether the government would end up owning the major banks and a good chunk of the entire financial sector, but that discussion has receded along with the likelihood of such an outcome. (From September through March, the words “nationalize” and “banks” appeared in an average of 17.5 media articles per day. From April through Thursday of this week, the two words have appeared in 5.6 articles per day.)
Much criticism was heaped on the bank stress tests conducted by federal regulators, i.e. that the criteria were too lenient, or that the additional sums of capital required were too onerous (from the banks’ perspective), or that publicizing the results of the tests could, perversely, destabilize the banking system. Nevertheless, the stress tests laid the groundwork for banks to raise private capital. As a result, 10 of the nation’s largest financial institutions gained approval this week to repay $68 billion in TARP funds. Twenty-two smaller banks already have repaid their TARP funds.
The TED spread, a measure of risk-aversion in the credit markets, has receded to pre-crisis levels, signaling that credit is more available. Click here to view an interactive graph of the TED spread from Bloomberg. (The TED spread is the difference between interest rates on 3-month Treasury bills, considered risk-free, and 3-month dollar Libor, a widely used index for lending between banks and for business and mortgage loans.)
The commercial real estate industry is still in the early innings of recapitalization of both debt and equity, but publicly traded markets are giving commercial real estate a vote of confidence. So far this year, REITs have raised nearly $15 billion through 45 public equity offerings. Moreover, REIT share prices have rallied by 60 percent from their low on March 6^th.

There is much work left to do, but the financial system is in the process of righting itself, and the economy is showing signs of bottoming out. Consequently, the macro-environment in which the commercial real estate industry operates is becoming more hospitable.

Source: Robert Bach, SVP, Chief Economist, Grubb & Ellis

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posted by Ark Rhowmine // Leave A Comment

Where the Jobs Are, Part Two

filed under: Commercial Real Estate Market posted on May 22nd, 2009

Employers in health care and social assistance, educational services, and government have added a combined 836,800 net payroll jobs since the recession began in December 2007, as discussed in last week’s Good News Friday. What about the geographical distribution of job changes; have any states generated jobs since the recession began? Texas, Oklahoma, Wyoming, North Dakota and Alaska have more jobs in March 2009 than they did in December 2007 thanks to high energy and commodity prices that extended through most of 2008. The District of Columbia, with its reliance on the federal government, also added jobs. Since the recession worsened in September 2008, even these stalwarts have lost jobs with the exception of Alaska and North Dakota. Nevertheless, the recession is likely to be shallower in this region of the country. Which states will bounce back more quickly when the recession ends? Look for metropolitan areas specializing in technology, biotech and renewable energy and those able to attract young, educated workers to prosper in the long run – areas like Seattle, Portland, San Francisco, Silicon Valley, San Diego, Denver, Austin, Raleigh-Durham, the greater D.C. area and Boston. Recent articles in The Atlantic and The Wall Street Journal discuss which areas are likely to enjoy a competitive long-term advantage. But don’t count out other markets for real estate investment opportunities (debt or equity), particularly those with high barriers to entry. Cap rate spreads between primary, secondary and tertiary markets, which had compressed during the bubble years, are expected to widen again, meaning that secondary and tertiary markets may begin to offer more attractive yields – a greater risk premium – relative to primary markets.