Fake Fronts

shopfrontHat tip to Rick the Tuna!

With 140 empty shops in the borough, council bosses think they have come up with a unique way of ensuring shopping areas remain as vibrant as possible.

The first empty shop unit to be given a makeover with a “flat pack” shop front is in Whitley Bay.

North Tyneside Council said the move was cost-effective and would help to attract new investment.

The council said the fake shop in Whitley Bay – which alone has 49 empty units – has been welcomed by traders and shoppers.

‘Attractive to shoppers’

Judith Wallace, North Tyneside Council’s deputy mayor said: “The economic climate has forced many businesses to bring down the shutters.

“We need to ensure that the remaining businesses continue to survive and that means ensuring our high streets look attractive to both shoppers and potential business investors.

“This is a simple and cost-effective approach that keeps the retail unit available for potential new uses and in the meantime also contributes to the street scene.”

Empty shops in Wallsend and North Shields are now being earmarked for similar treatment, which costs about £1,500 a time.

The government-funded project involves colourful graphic designs featuring a range of different shop types, which are either taped inside the windows or screwed to the fascia so they can be removed and reused as required.

Karen Goldfinch, chair of Whitley Bay Chamber of Trade, said: “It’s an excellent way of promoting how a unit can be used, perhaps inspiring new businesses to come into the town.”

SD CRE Vacancy Record

From today’s U-T (thanks Kwaping!):


An excerpt:

San Diego’s office market reached the 20 percent vacancy rate for the first time in 16 years, CB Richard Ellis said yesterday in its third-quarter report on the commercial real estate market.

The rate was even worse when factoring in the sublease space available, which raised the vacancy level to 25.6 percent.

To put the statistics in brick-and-mortar terms, 14.5 million square feet out of a 56.6-million-square-foot base equates to nearly all the office space in downtown and Mission Valley, the region’s two biggest office markets.

Mark Reid, the brokerage’s regional managing director, said that while the vacancy rate may have been higher in past recessions, the quantity of vacant space has never been so large. However, the empty offices offer opportunity for bargain-seeking tenants, he said.

“It’s a great time to be a tenant if you’re a steady, proven business with a good, solid financial statement,” Reid said. “There are some terrific deals to buy buildings and lease space.”

The prospects for improvement in the vacancy rate look bleak, the brokerage report said:

“The recovery period will likely begin at either the end of 2011 or early 2012 with office employment and net absorption levels returning to a positive trend.”

(says who, his crystal ball?)

CRE Trouble

hat tip to BB for sending along this article, from the FT:


The Federal Reserve is reviewing banks’ exposure to commercial real estate, the troubled sector whose slide poses a risk to many institutions because of the wide distribution of loans and mortgage-backed securities.

In its regulatory role, the Fed will look into a cross-section of banks to build a picture of how resilient institutions are to the troubled market. It is keen not to characterise the exercise as a “stress test”, which has come to evoke the audit of 19 large banks earlier in the year.

A cross-disciplinary team will look at the variety of commercial real estate assets on banks’ balance sheets, encompassing loans and commercial mortgage-backed securities.

The Fed’s own Beige book reported last week that the economy continued to stabilise during July and August, but loan demand and commercial real estate remained weak.

Commercial property prices are now 26.9 per cent lower than one year ago and 33.9 per cent below the level seen two years ago, according to an index compiled by Moody’s Investor Service. Values on commercial property prices are now 35.5 per cent below the peak seen in October 2007.

Commercial real estate ”is ground zero for the distress happening over the next 3 to 5 years,” said Rich Friedman, head of Merchant Banking at Goldman Sachs on Wednesday. It will be five to six years before there is any real improvement, Mr Friedman added. Real estate deals were often more leveraged than the buyout deals done at the height of the bubble, precisely because there was so much leverage, to refinance will be a huge challenge.

“The deterioration continues,” said Richard Parkus, analyst at Deutsche Bank. “There’s been no dramatic acceleration…but there’s been no slowing.”

Other regulators are also trying to assess the impact of the problems in commercial real estate, which has seen large increases in vacancy rates, declines in rents and high levels of defaults.

Banks and bank regulators decide the extent to which loan problems are reflected on the books, said Mr. Parkus. It’s “highly uncertain” when they will be fully realised, he added.

Positive news about the broader economy is unlikely to be “manifested commensurately in CRE,” he said. “The fact that we don’t have 10 banks a day going under [does not mean] that things are not as bad as we thought…We have a relatively enormous amount of deleveraging that has to take place.”

Analysts consider a blockage in refinancing as potentially the most serious impact of the deteriorating commercial real estate market. The Fed has tried to help by opening up its Term Asset-Backed Securities Loan Facility (Talf) to investors in CRE securities.

But some with links to smaller banks believe the doomsday consequences of the troubled market have been over-played. “I don’t think it’s the doom and gloom scenario that we had in housing,” said Steve Brown, chief executive of Pacific Coast Bankers’ Bank, which serves thousands of community banks. “Spreads are tightening in a lot of the paper that’s out there.”

Richard Levenson, president of San Diego-based Western Financial, a niche investment bank that works with community banks, said he had noticed increased regulatory attention on commercial real estate. Regulators, he said, are “making sure [community banks] understand where their collateral values are”.

He noted that in California’s “strip malls there are a lot of vacancies” but argued there were also investors waiting in the wings who might provide a boost to the market.

More Commercial

From sddt.com:

A new report concludes the level of commercial loan defaults accelerating, but whether that means a surge of commercial foreclosures in San Diego depends on who is assessing the data.  Nationally, the Deutsche Bank report noted more than $2 trillion worth of commercial paper is set to mature between now and 2013, and as much as $450 billion would not qualify for refinancing under current criteria.

“This downturn may well exceed 2001-2003 when cumulative default rates reached nearly 25 percent,” Deutsche Bank stated.

The bank said the national commercial delinquency rate reached 4.1 percent as of the end of June. While year-to-year figures weren’t immediately available, that rate was some 3.5 times higher than December.

The bank identified some 2,158 delinquent commercial mortgages representing $27.9 billion in instruments nationally as of the end of June.

The commercial foreclosure activity has been robust enough here that Del Mar Heights-based Trigild, a receiver and distressed property specialist, has expanded its headquarters to accommodate more project management and accounting personnel.

Bill Hoffman, Trigild president and CEO, said in a prepared statement that his company’s portfolio of properties has grown significantly over the last year, and now represents more than $2 billion in defaulted commercial loans. These include the hospitality, commercial office and retail, multifamily and unfinished development sectors.

Hoffman doesn’t expect the distressed commercial property business to slow down.

“Tight credit markets will continue to hinder investors’ ability to pay off loans, and as a result, the rate of commercial defaults is soon expected to top 5 percent,” he said. “With this in mind, we are anticipating a dramatic influx of business in the coming months, and are growing our firm and service to accommodate new clients and employees.”

Jamie Dick, a Newmark Realty Capital Inc. senior vice president, suggests that while commercial foreclosures, particularly when they involve payment defaults, are inevitable in many cases, commercial lenders who are faced with loan maturity defaults — a big balloon payment at the end _ are likely to be more accommodating.

“If the lender forecloses, what are they going to do with it?” Dick said. “There’s a saying going around. It’s called ‘extend and pretend.’ They extend hoping that things will be better when the loan matures again. We are seeing a lot of banks work with borrowers.”

However, Dick said there is a shrinking pool of lenders willing to refinance, meaning some will foreclose rather than attempt a workout.  With the commercial mortgage backed securities market effectively dead, finding lenders who will loan at all has become increasingly problematic.

“I’d say that 2007 was the last normal year as far as the CMBS market goes. If you looked at a pie chart you’d see that up until then, CMBS was 65 percent of the market, so you can imagine all of that disappearing,” Dick said.

Dick said that CMBS was a $19 billion market in 1999, but reached $230 billion by 2007. 

“And wait until 2017 when all the loans from 2007 will be coming due.”

Some loans are still available. Dick noted that lenders have shown a willingness to provide as much as $5 million, but with very few exceptions, getting access to more capital than that has been extremely difficult.  When asked when capital will begin to flow more easily, Dick said it could be years from now.

“I think it’s like an icicle. It will melt, but it will be one drop at a time,” Dick said.

While there are pockets of overbuilding such as the Carlsbad and Interstate 15 office markets and the Otay Mesa industrial market, Dick said San Diego generally doesn’t have the surplus of space, currently the case in markets such as Phoenix and Las Vegas.

“Mainly, we just ran out of places to build. For example, we didn’t have all that land to build shopping centers,” he said.  Dick said although some centers are hurting with the loss of some major tenants such as Circuit City, the retail vacancy is 6 percent at most – still a very healthy figure.

“San Diego will recover very quickly,” Dick said.

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