CRE Bubble? Commercial Real Estate Prices Since The Financial Crisis (Apartments Have Largest Run-up, Retail Has Poorest)

Given the advent of on-line shopping, commercial real estate prices are not quite back to where they were at the height of the asset bubble prior to the financial crisis of 2008-2009. Suburban office space is barely above the pre-crisis peak.

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On the other hand, apartment prices are substantially above where they were in 2008-2009, as are CBD (Central Business District) offices.

All with the help of The Federal Reserve’s low interest rate policies. But notice that the growth rate of CRE has slowed (except for apartments).

The good news for CRE investors? The Fed isn’t likely to keep raising their target rate or continue to shrink their balance sheet.

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D.C. Office Market Posts Strong Q1 As Coworking Demand Counteracts Law Firm Consolidation As Mall Vacancies Skyrocket

The topsy turvy world of commercial real estate!

First, vacancy rates are rising fast in US shopping malls. Not surprising given the consumer trend towards on-line shopping.

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Second, coworking demand is leading to a changing face of office spaces. Take Washington DC, for example.

The continued expansion of coworking companies drove strong absorption in D.C.’s office market in the first quarter, counteracting negative forces such as consolidation of law firm footprints and a slowdown in federal government leasing. 

Of course, San Francisco leads the US is most coworking spaces, followed by Miami, Atlanta and Washington DC.

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Speaking of commercial real estate and CMBS. the five largest loan losses in the CMBS space were reported by Trepp. Not surprising, the leader in March 2019 is a shopping center.

The REO Independence Mall asset accounted for 66% of the total realized losses for the month with a write-off of $149.7 million. That loss ate into 74.9% of the $200 million face amount tied to the asset, and is the largest loss ever incurred by a retail CMBS loan. Located in suburban Kansas City, Missouri, Independence Center is a 1 million-square-foot superregional mall and 398,000 square feet of that space served as collateral. The mall was sold to California-based International Growth Properties for $63.3 million last month, which marked a significant discount from its most recent valuation of $104.5 million. Following a maturity default in May 2017, special servicer commentary revealed that increased competition and economic challenges made it difficult for tenants to increase sales at the property. The loan represented 52.4% of the remaining collateral behind the WBCMT 2007-C33 deal. That deal has now lost 11.5% of its original balance to disposals.

Whoomp. There it is!

 

US Residential Construction Spending YoY Falls To Lowest Growth Rate -1.5% Since 2013 (Slippin’ Into Darkness)

Is housing slippin’ into darkness?

Perhaps. residential construction spending YoY fell in December to its lowest level since early 2013.

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Non-residential construction actually rose 4% YoY in December.

That’s not the way I like it.