0
Houston Commercial
Real Estate Market:
What’s Ahead for 2010

Breakfast Forum




www.boyarmiller.com
December 4, 2009
Homebuilding & Land
Development Markets
Joel Marshall – Trendmaker Homes
Senior Vice President




www.boyarmiller.com
Source: Freddie Mac
                                   7.0%


                                          6.5%


           ...
National
       Single Family Starts – NAHB Projections
                                                                  ...
National
     MSA Rank – Percentage Change September ‘09

              Top 20                                  Bottom 20
...
Texas
         Unemployment Rates – U.S. vs. TX vs. Houston
                                                              ...
Houston
              Trailing 12 Month Jobs – September ‘09



                                                          ...
TOP MSA’S RANKED BY POPULATION GROWTH IN 2008
Rank MSA                                    Growth    Rate
 1   Dallas-Fort ...
Houston
          MLS Months of Supply
     10.0

         9.0

         8.0

         7.0
Months




         6.0

      ...
Houston
      Home Appreciation – Texas Markets 2Q09

        Houston       Fort Worth       Dallas   San Antonio   Austin...
Houston
        Starts and Closings Comparison
                                                                           ...
Houston
        Finished New Home Inv by Price
1,600
                                   3Q08 to 3Q09
1,400

1,200

1,000

...
Houston
          Lot Delivery vs. Absorption
                                                                            ...
Houston
                Quarterly Lot Delivery Rate
                                                                      ...
Houston
                  Vacant Developed Lot – Market Area Comparison
                                     Starts   VDL ...
Houston
                    VDL Supply by Annual Starts Rate
                                      Ann Starts      VDL   V...
Houston
       Master Planned Community – Market Share
                                                               25%
...
0.0
                                         50.0
                                                100.0
                  ...
Still Obstacles Remain
• Low Consumer Confidence
• No Sign of Job Growth
• Financial Failures..Regional &
  Smaller Banks
...
Industrial Market
Welcome Wilson, Jr. – GSL Welcome, LLC
President and CEO




www.boyarmiller.com
2010 Industrial Forecast




     Welcome Wilson, Jr.
Whispering words of “recovery”...
Houston Industrial Market Totals:

  •482 million SF

  •3.27 million SF under construction
Houston Quoted Rental Rates
Average Quoted Rental Rates ‐

       Houston vs. US
•Available amount of 
sublease space in the 
Houston market is 
1,046,000, down from 
1.2 million SF during the 
2nd quart...
Location!


 Location!

                Financing!
Location!
               Financing!

              Financing!
•HCMBS issuance in 2007 was $230 billion

•In 2008 it dropped to $12 billion

•In 2009 it is at zero
•Evaporation of financing has caused a 
decrease in transactions and values

•Values have been difficult to determine 
due...
Over $500 billion of conduit debt is set to 
 expire in 2010, that number increases 
        each year through 2012
Houston Industrial Market’s 3 Major 
                Drivers:

•The National Economy

•Trade with Foreign Countries

•The ...
Domestic Rig Count ‐ November 25, 2009
Worldwide Oil Demand
The Texas population will add 13 million 
       people by the year 2030.
If Texas were it’s own country...
If Texas were it’s own country we would be 
12th in the world among countries based upon 
                     GDP.
3rd Quarter 2009    Houston        Dallas/Ft. Worth

 Total Industrial SF: 482,440,258   746,888,878

 % Vacant:          ...
Office Market
Rudy Hubbard – Transwestern
Managing Director, Investment Services Group




www.boyarmiller.com
BoyarMiller
December 4, 2009
BoyarMiller
                                                               December 4, 2009




What happened?

  Banks a...
BoyarMiller
                                                               December 4, 2009




What happened?

  They ca...
BoyarMiller
                                                                                                 December 4, 2...
BoyarMiller
                                                                             December 4, 2009




Where is the...
BoyarMiller
                                                                                                              ...
BoyarMiller
                                                     December 4, 2009




Where is the Houston office market n...
BoyarMiller
                                                        December 4, 2009




Where is the Houston office marke...
BoyarMiller
                                                                           December 4, 2009




 Where is the ...
BoyarMiller
                                                 December 4, 2009




What does this mean for Houston’s future...
BoyarMiller
                                                           December 4, 2009




What does this mean for Housto...
BoyarMiller
                                                              December 4, 2009




What does this mean for Hou...
BoyarMiller
                                                           December 4, 2009




What does this mean for Housto...
BoyarMiller
                                                         December 4, 2009




What does this mean for Houston’...
BoyarMiller
                                                   December 4, 2009




What does this mean for Houston’s futu...
BoyarMiller
                                           December 4, 2009




    www.transwestern.net
The performance advan...
Retail Market
Lance Gilliam – Moody Rambin Interests
Managing Director




www.boyarmiller.com
•   consumer income to fuel and generate retail sales

•   retail sales to pay rent

•   rent to fund debt service or rent...
   Fitch Ratings reported that retail sales from Black Friday weekend
    were, at best, marginal.
   The National Retai...
   Drew Kanaly with Kanaly Trust shared the following with your peers attending Boyar
    Miller’s breakfast last Septemb...
   “…the retail landscape will see material changes as
    retailers and property owners use the current
    environment ...
   Even if the capital markets would fund it, we still
    shouldn’t build it. We need to take a step back.
   Any new c...
   But … retail is a competitive industry. The strong survive. The weak do not.
    Successful retailers and restaurateur...
   Look beyond reports of reports that reflect vacancy rates for “retail” or
    “shopping centers,” in general. They ove...
UNCERTAINTY KILLS DEALS.


              There is a   W I D E gap between

   what buyers                                 ...
Questions & Answers
Boyar Miller Commercial Real Estate Breakfast Forum 12 4 09
Boyar Miller Commercial Real Estate Breakfast Forum 12 4 09
Boyar Miller Commercial Real Estate Breakfast Forum 12 4 09
Boyar Miller Commercial Real Estate Breakfast Forum 12 4 09
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This document is provided by BoyarMiller - Attorneys at Law. The information within is dedicated to commercial real estate property owners, investors, businesses, and brokers focused on real estate trends and graphs for 2010.

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Transcript of "Boyar Miller Commercial Real Estate Breakfast Forum 12 4 09"

  1. 1. Houston Commercial Real Estate Market: What’s Ahead for 2010 Breakfast Forum www.boyarmiller.com December 4, 2009
  2. 2. Homebuilding & Land Development Markets Joel Marshall – Trendmaker Homes Senior Vice President www.boyarmiller.com
  3. 3. Source: Freddie Mac 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 10/29/09 8/29/09 6/29/09 4/29/09 2/28/09 12/29/08 10/29/08 8/29/08 6/29/08 4/29/08 2/29/08 12/29/07 30 year Mortgage rate 10/29/07 8/29/07 6/29/07 National 4/29/07 2/28/07 12/29/06 10/29/06
  4. 4. National Single Family Starts – NAHB Projections 2,000,000 1,800,000 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 2006 2007 2008 2009 2010 400,000 SF Starts 1,465,400 1,046,000 622,000 501,000 600,000 % Change -15% -29% -41% -19% 20% 200,000 Peak to 'Trough' -15% -39% -64% -71% -65% 0 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 Source: NAHB
  5. 5. National MSA Rank – Percentage Change September ‘09 Top 20 Bottom 20 Rank State City Job Growth Rank State City Job Growth 1 LA New Orleans -0.3% 20 TN Nashville -4.2% 2 VA Virginia Beach -0.6% 19 CA San Francisco -4.4% 3 TX Austin -0.7% 18 UT Salt Lake City -4.4% 4 TX San Antonio -1.1% 17 FL Tampa -4.5% 5 D.C. Washington D.C. -1.2% 16 IL Chicago -4.6% 6 OH Columbus -1.8% 15 CA Sacramento -4.6% 7 NY Rochester -2.0% 14 CO Denver -4.7% 8 TX Dallas/Ft. Worth -2.2% 13 FL Orlando -4.7% 9 NY New York -2.5% 12 WA Seattle -4.8% 10 OK Oklahoma City -2.5% 11 CA San Jose -5.2% 11 MA Boston -2.5% 12 MD Baltimore -2.8% 10 NC Charlotte -5.5% 13 NC Raleigh -2.9% 9 CA Riverside -5.6% 14 PA Pittsburgh -2.9% 8 OH Cleveland -5.8% 15 TX Houston -3.0% 7 OR Portland -5.9% 16 NY Buffalo -3.0% 6 GA Atlanta -5.9% 17 PA Philadelphia -3.2% 5 NV Las Vegas -6.2% 18 FL Miami -3.3% 4 AZ Tucson -6.3% 19 VA Richmond -3.3% 3 FL Ft. Meyers -7.5% 20 AL Birmingham -3.7% 2 MI Detroit -7.8% United States -4.2% 1 AZ Phoenix -8.0%
  6. 6. Texas Unemployment Rates – U.S. vs. TX vs. Houston 11.0% US Texas 10.0% Houston 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 3Q98 3Q99 3Q00 3Q01 3Q02 3Q03 3Q04 3Q05 3Q06 3Q07 3Q08 3Q09 Source: U. S. Bureau of Labor Statistics
  7. 7. Houston Trailing 12 Month Jobs – September ‘09 105.0 80.0 55.0 30.0 5.0 -20.0 -45.0 -70.0 12 Mos. Ending Sept. -95.0 -120.0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2009 (P) 2010 (P) Source: Texas Workforce Commission; University Of Houston Regional Forecast Center
  8. 8. TOP MSA’S RANKED BY POPULATION GROWTH IN 2008 Rank MSA Growth Rate 1 Dallas-Fort Worth-Arlington, TX 146,532 2.4% 2 Houston-Sugar Land-Baytown, TX 130,185 2.3% 3 Phoenix-Mesa-Scottsdale, AZ 115,978 2.8% 4 Los Angeles-Long Beach-Santa Ana, CA 88,196 0.7% 5 New York-Northern New Jersey-Long 84,227 0.4% 6 Chicago-Naperville-Joliet, IL-IN-WI 72,771 0.8% 7 Austin-Round Rock, TX 60,012 3.8% 8 San Franciso-Oakland-Fremont, CA 58,406 1.4% 9 Washington-Arlington-Alexandria, DC- 55,835 1.1% 10 Charlotte-Gastonia-Concord, NC-SC 55,368 3.4% 11 Denver-Aurora, CO /1 53,233 2.2% 12 Riverside-San Bernadino-Ontario, CA 49,298 1.2% 13 Seattle-Tacoma-Bellevue, WA 46,588 1.4% 14 San Antonio, TX 46,524 2.3% 15 Raleigh-Cary, NC 44,804 4.3% Source: Census Bureau Source: Census Bureau
  9. 9. Houston MLS Months of Supply 10.0 9.0 8.0 7.0 Months 6.0 5.0 4.0 3.0 3Q00 2Q01 1Q02 4Q02 3Q03 2Q04 1Q05 4Q05 3Q06 2Q07 1Q08 4Q08 3Q09 Source: MLS
  10. 10. Houston Home Appreciation – Texas Markets 2Q09 Houston Fort Worth Dallas San Antonio Austin 6% 4% 2.4% 2% 1.6% 1.1% 0.7% 0.1% 0% -2% -4% Data Source: FHFA
  11. 11. Houston Starts and Closings Comparison 55,000 Annual Closings 50,000 Annual Starts 45,000 40,000 35,000 30,000 14,472 Units of 25,000 Inventory Reduction 20,000 since 4Q06 15,000 10,000 3Q99 3Q00 3Q01 3Q02 3Q03 3Q04 3Q05 3Q06 3Q07 3Q08 3Q09
  12. 12. Houston Finished New Home Inv by Price 1,600 3Q08 to 3Q09 1,400 1,200 1,000 800 600 400 200 0 <$100k $100k- $125k- $150k- $175k- $225k- $300k- >$500k $125k $150k $175k $225k $300k $500k
  13. 13. Houston Lot Delivery vs. Absorption 60,000 50,000 40,000 30,000 20,000 10,000 0 3Q98 3Q99 3Q00 3Q01 3Q02 3Q03 3Q04 3Q05 3Q06 3Q07 3Q08 3Q09 Annual Starts Annual Lot Delivery
  14. 14. Houston Quarterly Lot Delivery Rate 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 3Q89 3Q90 3Q91 3Q92 3Q93 3Q94 3Q95 3Q96 3Q97 3Q98 3Q99 3Q00 3Q01 3Q02 3Q03 3Q04 3Q05 3Q06 3Q07 3Q08 3Q09 Quarterly Lot Delivery
  15. 15. Houston Vacant Developed Lot – Market Area Comparison Starts VDL VDL MoS 14,000 70.0 12,000 60.0 10,000 50.0 Starts & VDL 8,000 40.0 VDL MoS 6,000 30.0 4,000 20.0 2,000 10.0 0 0.0 C S SE NE FN NW WNW WSW SW Market Area
  16. 16. Houston VDL Supply by Annual Starts Rate Ann Starts VDL VDL MoS 35,000 400.0 30,000 350.0 Subs with 25+ Annual Starts 300.0 25,000 Total: 9,367 Annual Starts 250.0 Starts & VDL 20,000 Total: 12,009 VDL @ 15.4 MoS VDL MoS 200.0 15,000 150.0 10,000 100.0 5,000 50.0 0 0.0 0 to 5 6 to 24 25 to 49 50 to 74 75 to 99 100+ Annual Starts
  17. 17. Houston Master Planned Community – Market Share 25% 20% 15% 10% 5% 0% 3Q05 3Q06 3Q07 3Q08 3Q09 MPC Share of New Home Closings
  18. 18. 0.0 50.0 100.0 150.0 200.0 250.0 300.0 350.0 400.0 Atla n ta Sa ra so ta So u th Flo rid a R io Gra n d e Va lle y C h ica g o N a p le s N o rth e rn C o lo ra d o St Ge o rg e Reno, NV Orla n d o Ja ckso n ville Alb u q u e rq u e /Sa n ta Fe M in n e a p o lis Ph o e n ix Tria d Bo ise D e n ve r Ta m p a L a s Ve g a s C h a rlo tte C o lo ra d o Sp g s Sa lt L a ke C ity Cent Cal R a le ig h -D u rh a m Tu cso n National Comparison Sa n D ie g o Vacant Developed Lot Supply In d ia n a p o lis Sa cra m e n to D a lla s/Ft Wo rth In la n d Em p ire N a sh ville N o Va -C N o rth e rn Virg in ia H o u sto n Sa n Fra n cisco Houston Au stin Sa n An to n io So C a l C o a st MD - C M a ryla n d
  19. 19. Still Obstacles Remain • Low Consumer Confidence • No Sign of Job Growth • Financial Failures..Regional & Smaller Banks • Question of Fundamental Consumer Change • Commercial Real Estate Loans • Appraisals!
  20. 20. Industrial Market Welcome Wilson, Jr. – GSL Welcome, LLC President and CEO www.boyarmiller.com
  21. 21. 2010 Industrial Forecast Welcome Wilson, Jr.
  22. 22. Whispering words of “recovery”...
  23. 23. Houston Industrial Market Totals: •482 million SF •3.27 million SF under construction
  24. 24. Houston Quoted Rental Rates
  25. 25. Average Quoted Rental Rates ‐ Houston vs. US
  26. 26. •Available amount of  sublease space in the  Houston market is  1,046,000, down from  1.2 million SF during the  2nd quarter •This only represents 3%  of total industrial space  available for lease
  27. 27. Location! Location! Financing! Location! Financing! Financing!
  28. 28. •HCMBS issuance in 2007 was $230 billion •In 2008 it dropped to $12 billion •In 2009 it is at zero
  29. 29. •Evaporation of financing has caused a  decrease in transactions and values •Values have been difficult to determine  due to lack of transaction volume
  30. 30. Over $500 billion of conduit debt is set to  expire in 2010, that number increases  each year through 2012
  31. 31. Houston Industrial Market’s 3 Major  Drivers: •The National Economy •Trade with Foreign Countries •The Energy Sector
  32. 32. Domestic Rig Count ‐ November 25, 2009
  33. 33. Worldwide Oil Demand
  34. 34. The Texas population will add 13 million  people by the year 2030.
  35. 35. If Texas were it’s own country...
  36. 36. If Texas were it’s own country we would be  12th in the world among countries based upon  GDP.
  37. 37. 3rd Quarter 2009 Houston Dallas/Ft. Worth Total Industrial SF: 482,440,258 746,888,878 % Vacant: 6.9% 12.1% Vacant SF: 33,247,214 90,140,534 Houston: Dallas/ Ft. Worth:
  38. 38. Office Market Rudy Hubbard – Transwestern Managing Director, Investment Services Group www.boyarmiller.com
  39. 39. BoyarMiller December 4, 2009
  40. 40. BoyarMiller December 4, 2009 What happened?  Banks and other high-powered Wall Street firms made a lot of bad loans for houses, and commercial real estate.  They also made a lot of bad loans for businesses, credit cards, and M&A.  They lost more money than their equity.  The losses are so big that the government can’t allow banks to take them all at once.
  41. 41. BoyarMiller December 4, 2009 What happened?  They can’t auction the bad assets because it would reveal the true extent of the losses.  So they have “injected capital” allowing the banks to amortize their losses over years.
  42. 42. BoyarMiller December 4, 2009 Where is the Houston office market now? Office Vacancy Rate Houston Metro Area 30% 1983 through 3rd Quarter 2009 25% 20% 15% 10% 5% 0% 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 3Q 09 Houston’s vacancy rate, at 13.2% (12.1% for direct space), is below the national average of 14% and has held up better than some of the harder-hit markets, like Phoenix, Dallas and Atlanta. Source: CoStar, Delta Associates; October 2009.
  43. 43. BoyarMiller December 4, 2009 Where is the Houston office market now? Average Office Rents Houston Metro Area 1982 through 3rd Quarter 2009 Source: Delta Associates’ analysis of CoStar data; October 2009.
  44. 44. BoyarMiller December 4, 2009 Where is the Houston office market now? Office Absorption and Employment Houston Metro Area 14 1980 through 3rd Quarter 2009 350 Change in Employment (000's) 12 Net Absorption (Millions of SF) 300 10 250 8 200 6 150 4 100 2 50 0 0 -2 -50 -4 -100 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09* * Absorption through 3rd quarter; Source: BLS, Delta Associates; October 2009. 12-month job growth ending September 2009.
  45. 45. BoyarMiller December 4, 2009 Where is the Houston office market now? Houston Job Growth Since 1980 Houston’s average job growth since 1980 has been approximately 36,000 per year.
  46. 46. BoyarMiller December 4, 2009 Where is the Houston office market now? Houston Historical Absorption Since 1980 Houston’s average net absorption since 1980 has been approximately 3.5 million square feet per year.
  47. 47. BoyarMiller December 4, 2009 Where is the Houston office market now? Houston Investment Sales Volume 2003 – 3rd Quarter 2009 $3 $2 Billions of $ $2 $1 $1 $0 2003 2004 2005 2006 2007 2008 2009*  Office investment sales (for which pricing information could be obtained) in metro Houston total $109 million through 3rd quarter 2009.  By comparison, sales totaled $981 million in the first nine months of 2008.  Weak market fundamentals and lack of liquidity in the credit markets have suppressed sales activity in all metro markets.
  48. 48. BoyarMiller December 4, 2009 What does this mean for Houston’s future?  $1.4 trillion in loans maturing in the next three years  This is the equivalent of . . . 140 billion $10 million deals  1 trillion seconds is over 30,000 years
  49. 49. BoyarMiller December 4, 2009 What does this mean for Houston’s future? A Timeline for CRE Recovery 2009  Prices fall as cap rates revert to 2002 levels  Occupancy falls as job layoffs continue  Rents fall as owners covet tenants  New construction continues to add new supply  Foreclosures increase as refinancing is precluded
  50. 50. BoyarMiller December 4, 2009 What does this mean for Houston’s future? A Timeline for CRE Recovery 2010  Prices continue to fall as price discovery continues  Occupancy falls as firms downsize staff  Layoffs end, but downsizing continues for cost savings  Rents fall to compete for smaller tenant base  New projects started in 2007-08 are completed  No new construction projects undertaken
  51. 51. BoyarMiller December 4, 2009 What does this mean for Houston’s future? A Timeline for CRE Recovery 2011  Slow job growth begins to soak up space  No new supply delivered to the market  Rent levels stabilize at lower rates  2006 vintage loans fail to refinance  Foreclosure rates decline as credit market heals  Class A space starts to fill at expense of lesser properties
  52. 52. BoyarMiller December 4, 2009 What does this mean for Houston’s future? A Timeline for CRE Recovery 2012  More rapid job growth increases absorption rate  No new supply delivered to the market  Rents start to rise as space starts to fill  More foreclosures from properties bought 1H07  Property values start to increase, anticipating positive absorption and very limited new supply
  53. 53. BoyarMiller December 4, 2009 What does this mean for Houston’s future? A Timeline for CRE Recovery 2013  More rapid job growth soaks up more space  Occupancy rate increases significantly  No new buildings delivered to the market  Prices continue to increase due to rising fundamentals and falling cap rates
  54. 54. BoyarMiller December 4, 2009 www.transwestern.net The performance advantage in real estate
  55. 55. Retail Market Lance Gilliam – Moody Rambin Interests Managing Director www.boyarmiller.com
  56. 56. • consumer income to fuel and generate retail sales • retail sales to pay rent • rent to fund debt service or rent to be capitalized to create value for a sale • consumers, retailers and capital markets have to have confidence in that income
  57. 57.  Fitch Ratings reported that retail sales from Black Friday weekend were, at best, marginal.  The National Retail Federation reported that more people shopped but spent less money.  “Mounting job losses, declines in wages & salaries and falling home prices prompted consumers to cut discretionary spending.“ Source: Wells Fargo Securities’ Economics Group  Reports from the recent Urban Land Institute Fall Meeting in San Francisco were that “not one expert was willing to predict what things will look like in 3 years other than they think it will be better.” And, further, that a “…recovery will be slow. Unemployment will not drop back to more normal levels until 2014.”  Robert Bach, Grubb & Ellis’ Senior Vice President & Chief Economist, included some hope in his recent Good Friday e-mail, “The recession is over, but 2010 is not going to feel like a classic recovery. There are too many headwinds, notably lagging job creation, lingering weakness in consumer spending and tight lending conditions.”
  58. 58.  Drew Kanaly with Kanaly Trust shared the following with your peers attending Boyar Miller’s breakfast last September:”Consumer spending has a long way to fall. Household balance sheet repair (more savings paying down debt) (is) likely to drive economic fundamentals over (the) next several years.”  Dr. Barton Smith included the following in the University of Houston’s Institute for Regional Forecasting Houston Economic Symposium on November 5, 2009, “The Worst is Behind Us -- The Wait Lies Ahead.” With that framing statement, he also noted and forecast: “job growth will begin in 2010 but not fast enough to keep the year’s average from falling. Nonetheless, most sectors will show year over year job growth by fall.” “consumers continue to struggle, bargain shop only” “retail sales would fall by 2.9% in 2009 and increase by a nominal 0.63% in 2010.”  From Wednesday’s Houston Chronicle, “Retailing analysts at Thomson Reuters expect stores to post a 2.3 percent sales increase for November, in contrast to a 7.8 percent decline a year ago.”
  59. 59.  “…the retail landscape will see material changes as retailers and property owners use the current environment to right size their portfolios and focus on repositioning underperforming locations. This process is healthy in the long run and will form a solid base for retail expansion as the economy rebounds … (We) work with our clients on both sides of the equation to take actions that will stabilize one another’s real estate through and beyond those challenging times.”  What that means is; whatever deal you thought you had with the tenant, you don’t or at least the tenant doesn’t think you do.  Requests for rent reduction and lease modifications are based on a company-wide initiative to “pay less.” Today, retailers are no longer focused on growth, they are focused on profit.  Good for the retailers’ stockholders. Bad for landlords.
  60. 60.  Even if the capital markets would fund it, we still shouldn’t build it. We need to take a step back.  Any new construction and tenancies would likely cannibalize existing retail and restaurant sales and, as a result, further weaken existing tenants’ ability to meet their current lease obligations.  Further, the downward pressure on rent extends beyond existing leases and is very evident in conversations about new stores --- few of which are being constructed.  The direction to most dealmakers is “pay less” Those numbers don’t work for new construction.  When that equilibrium returns, I do not know.
  61. 61.  But … retail is a competitive industry. The strong survive. The weak do not. Successful retailers and restaurateurs who are well capitalized will take advantage of their competitors’ weaknesses.  Many retailers have remarkable liquidity. Fitch Ratings noted in a special report: The Retail Register released in September 2009 that “...liquidity is strong for the dis- counters as a result of solid cash flow generation. Lower capital expenditures are expected to help generate addi- tional cash of $1 billion each for Walmart and Target.“  Limited new construction:  retailers’, especially grocers, entries into urban markets where elevated land prices have recently posed a barrier to entry.  retailers’ relocations to improve their location within a trade area or update the store to a current prototype.  smaller owner-operated retailers and restaurants and other service users.
  62. 62.  Look beyond reports of reports that reflect vacancy rates for “retail” or “shopping centers,” in general. They overstate the problem.  Vacancies in well-located, well-designed and responsibly owned and operated will be filled. Their will be pain but the pain will pass.  There are buildings that have significant vacancies that are “shopping centers” in name only. They no longer are or, in some cases, never were viable retail shopping environments. They are “something else.”  “Something elses” represent opportunity. These projects are prime candidates for “adaptive re-use.”
  63. 63. UNCERTAINTY KILLS DEALS. There is a W I D E gap between what buyers what sellers and tenants and landlords and are willing to pay are willing to for properties take for them UNTIL THOSE TWO PHILOSOPHIES RECONCILE, COMPLETING DEALS WILL BE DIFFICULT.
  64. 64. Questions & Answers
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