The Retail Development Crisis: What Now?


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Powerpoint presentation by Mark G. Bulmash, President of Bulmash Real Estate Advisors, LLC - June 13, 2009

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The Retail Development Crisis: What Now?

  1. 1. The Retail Development Crisis: What Now? Mark G. Bulmash Bulmash Real Estate Advisors, LLC Congress For New Urbanism June 13, 2009 Denver, Colorado
  2. 2. Current Situation Bulmash Real Estate Advisors, LLC
  3. 3. Financial Markets – Bank Debt <ul><li>$1.8 Trillion of Commercial Loan Debt (1) </li></ul><ul><li>$216 Billion in losses is expected by end of 2010 (1) </li></ul><ul><li>In 2008, mortgage bankers closed $116 Billion on commercial loans, down 65% from 2007 (2) </li></ul><ul><li>$218 Billion of Commercial debt is set to mature in 2009 & $270 Billion is due between 2010 & 2011 (3) </li></ul><ul><li>By year end, small banks may have 13-14% of all construction and land loans are predicted to be delinquent (1) </li></ul><ul><li>Many banks are not taking back loans where borrowers are making debt service – “extend & pretend” </li></ul>Bulmash Real Estate Advisors, LLC
  4. 4. Financial Markets - CMBS <ul><li>Market size: $806 Billion (4) </li></ul><ul><li>$90.5 Billion is maturing in 2009 (4) </li></ul><ul><li>$61.9 Billion is maturing in 2010 (4) </li></ul><ul><li>$17.15 Billion is delinquent as of April 2009 vs. $3.26 Billion in April 2008 (5) </li></ul><ul><li>Projection is $40 billion by yearend (5) </li></ul><ul><li>No new activity since second quarter of 2008 (4) </li></ul>Bulmash Real Estate Advisors, LLC
  5. 5. Financial Markets – US REITs <ul><li>Maturities for REIT debt is $93.7 Billion from now through 2012 (6) </li></ul><ul><li>$53.1 Billion is for Retail subsectors alone (6) </li></ul><ul><li>In 2009, REITs issued $14.2 Billion in new equity through May 31 (7) </li></ul>Bulmash Real Estate Advisors, LLC
  6. 6. Retail Real Estate Transactions <ul><li>First quarter 2009 Property Sales are down 75% from the same period in 2008 and down 90% from 2007 (8) </li></ul><ul><li>$8.85 Trillion is being held in cash, bank deposits and money-market funds (8) </li></ul><ul><li>Property values have declined 25-40% (8) </li></ul><ul><li>Major gap between buyers and sellers perception of value (20-40%) (8) </li></ul>Bulmash Real Estate Advisors, LLC
  7. 7. Retailers <ul><li>Dichotomy: many are doing poorly while some are doing well (9) </li></ul><ul><li>Chain Store Sales are off by 4.6 % in May (10) </li></ul><ul><li>Overall Retail Sales are expected to decline 2.5% in first half of 2009, decline 1.1% in Q3 and increase 3.6% in Q4 (11) </li></ul><ul><li>Consumers are buying necessities, not luxuries </li></ul><ul><li>Retailers are having trouble with credit </li></ul><ul><li>Many retailers have eliminated most if not all of their real estate staff </li></ul>Bulmash Real Estate Advisors, LLC
  8. 8. Developers/Owners <ul><li>Rents are expected to be down by 6% in 2009 (12) </li></ul><ul><li>CW reports that 130 million square feet has gone dark since recession started (13) </li></ul><ul><li>Demand is estimated to decline by $49.8 msf in 2009 (14) </li></ul><ul><li>Supply is expected to increase 90 msf in 2009 (15) </li></ul><ul><li>Most developers have eliminated a significant amount of their real estate staff </li></ul><ul><li>Most developers are focused on their liquidity and solvency </li></ul><ul><li>Most developers are only working on projects already under construction and pushing back opening dates </li></ul>Bulmash Real Estate Advisors, LLC
  9. 9. Future Bulmash Real Estate Advisors, LLC
  10. 10. Financial Markets <ul><li>Lenders will demand more equity & use tighter standards – “Big deals” will be very difficult in short run (13) (16) </li></ul><ul><li>It will take years before lending approaches recent levels </li></ul><ul><li>Everyone will be more disciplined & creative just to get capital </li></ul><ul><li>REITs will continue to deleverage (17) (18) </li></ul><ul><li>Public subsidies will remain important </li></ul>Bulmash Real Estate Advisors, LLC
  11. 11. Retailers <ul><li>Consolidation across segments </li></ul><ul><li>Winners will be stronger than ever </li></ul><ul><li>Survivors will be opportunistic </li></ul><ul><li>Some are experimenting with smaller concepts or extending into new market segments </li></ul><ul><li>Retailers want proven existing & infill properties – customers need to be there now </li></ul>Bulmash Real Estate Advisors, LLC
  12. 12. Developers/Investors <ul><li>Focus on existing properties, not much new development </li></ul><ul><li>Some infill opportunities are available where the trade area is there and underserved </li></ul><ul><li>Buyers will spend money on discounted existing properties - cheaper and less risky than new development </li></ul><ul><li>Less leverage will be used </li></ul><ul><li>“ C” centers will die and be reused for something else </li></ul>Bulmash Real Estate Advisors, LLC
  13. 13. Bulmash Real Estate Advisors, LLC 4050 Oxford Court Beachwood, OH, 44122 Phone: (216) 496-0651 Fax: (216) 292-4486 [email_address]