Square Feet

Wishing you all a safe, healthy, and prosperous 2008.

The Commerce Department has released figures showing that new homes sales have dropped to a 12-year low. While the west has fared well, the rest of the country is showing a very poor performance: the Northeast saw a sales drop of 19.3%, the Midwest 27.6%, and 6.4% in the South. Only the West saw a gain, at 4%.

Over the past year, new home sales have fallen by over 34%, the largest slide since 1991.

For months now we have been hearing of the downturn in the residential market and the subprime woes that have put a stranglehold on credit. The media has been all to focused on the residential market because that is what most people on the streets are concerned with.

We are starting to see the mass media picking up more stories related to commercial real estate woes that exist in the market. The Wall Street Journal has published an article discussing some of the problems that the credit turmoil has created in the commercial property market.

The fallout has hit some players in the commercial property market hard, amongst them Centro Properties, the fifth largest owners of shopping malls in the US. Centro’s stock price dropped more than 90% in two days after it was revealed that it is struggling to refinance $6.2B of short-term debt it took on to finance its acquisition of New Plan Excel.

The difficult Centro faced was that it initially planned to issue CMBS (commercial mortgage backed securities) to convert its short-term debt into long-term debt. With the CMBS market in the tank, Centro and other players are facing an uphill battle in raising new debt, and existing property owners are facing drops in property values.

Earlier this year we detailed Harry Macklowe’s time bomb as he is also trying to secure financing to cover the short-term debt he took on earlier this year in his $7.1B acquisition of Manhattan properties.

The dry up of the CMBS market leads to the drop in sales activity, and ultimately in sales prices. In fact, according to Real Capital Analytics, sales of large office properties fell 55% from November 2006 to November of 2007.

Too many risky acquisitions have taken place based on future cash flow projections and until that “backlog of inventory” is flushed out, the CMBS market will likely remain in its current state. That is not to say deal won’t get done, but they’ll be far and few between and any buyer’s will likely command a premium spread.

The sentiment has been changing for sometime and it will likely continue to deteriorate as seller’s willingness to drop prices is only a function of the time it takes for them to realize that.

Wishing you a safe, happy, and warm holiday season.

The California High Speed Rail Authority has voted to include San Jose on the San Francisco-to-Los Angeles High Speed Rail that it is planning. The 200MPH rail was voted to travel through San Jose’s Diridon station which at some point is slated to become a stop for VTA, CalTrain,AltaMont, and BART trains.

The cost of the project is $30B and will include $10B of funding coming from state issued bonds which will likely go up for vote in 2008.

In the online world, software has enabled retailers to analyze visitors shopping patterns with a click of a mouse. In the brick and mortar world of retailing, developers, architects, and retailers each spend massive amounts of time and money designing projects and stores in ways which maximize foot traffic and stickiness, which for developers means maximizing rental rates, and for retailers sales per square foot.

A U.K. based company named Path Intelligence has devised a novel system which allows both mall owners and retailers to analyze foot traffic. It uses a combination of proprietary hardware and software to detect and triangulate on shopper’s cell phone signals to an accuracy of one meter. The software then uses that date to visually display data which can help determine traffic patterns and answers questions relating to store stickiness, bottlenecks, etc.

Boston Properties has closed on their purchase of North First Business Park in San Jose. The park is comprised of eight office and R&D buildings totalling 367,000 square feet on 24 acres of land. The seller was an affiliate of Goldman Sachs.

The property is bound by Zanker Road, Daggett Drive, and First Street. Boston Properties’s plans for the property are to redevelop the site into approximately 1.4 million square feet of Class A Office Space.

The park is mostly vacant and it is unclear when Boston intends on redeveloping the site, but it should be noted that a large number of parcels of property have changed hands in the North First Street area recently, and most of the properties include plans to redevelop into Class A office space. It will be interesting to see if the forecasts for Class A space demand will mesh with all the developers who intend on delivering millions of square feet of such space over the next 2-4 years.

Atmel is also currently marketing its headquarters and an adjacent 11 vacant acres of land for sale. The company likely intends on relocating into a smaller Class A headquarters environment somewhere along the 101 corridor in Santa Clara, San Jose, or Milpitas.