Commercial Real Estate Blog

The UK chancellor responsible for economic matters in the UK has indicated that the current economic downturn in the UK is the worst the country has faced in 60 years. The article touching on details and other thoughts of Alistair Darling, the chancellor, can be read here in the Guardian.

A federal judge today gave the ok for an IRS investigation to move forward against UBS, a swiss bank. The summons is fairly unprecedented as Swiss banks pride themselves on privacy. In a tax-evasion investigation, IRS is seeking information about US citizens who have not disclosed swiss bank records to the IRS.

UBS is currently battling mounting losses stemming from the subprime financial shenanigans, and the IRS may be seeking to take advantage of UBS’s wobbly condition to bring them to their knees on this issue.What is happening at UBS, if it proceeds, likely would pave the way for further action against Swiss Banks. It should be noted that it is not clear whether UBS will in fact release any information. If they do, the trust in Swiss Banking will fall dramatically, possibly spurring a flight of capital.

This brings me to Singapore. Singapore is growing quickly as a rival to Switzerland as a banking haven. By cutting personal income taxes to 20% and tightening account privacy, Singapore is quickly becoming a go-to haven for Asia’s growing number of millionaires.

Other features of Singapore banking are that any authority seeking information from a Singapore bank must prove that the customer violated tax laws; a tough thing to do if they’re looking for information in the first place. Trust accounts in Singapore are much more flexible than those in Europe as well; and as a result; the amount of assets in trust accounts in Singapore is now over $100B.

Singapore has also revised its laws allowing foreigners with enough assets to acquire property. Given what is happening with UBS and the wealth creation in Singapore; it is an office space market and economy to keep a very close eye on.

In another sign that rampant drug-use is becoming an epidemic amongst architects working in Dubai, Dr. Fisher is proposing a rotating skyscraper in Dubai, and another in Moscow, and eventually one in New York City. This building will supposedly have its floors pre-fabbed in Italy, and assembled on-site in Dubai. Estimated selling prices are about $3,000 per square foot, and the estimate is that the building will be delivered in 2010.

If there is one thing money has shown us, it is that with enough of it, nearly anything is possible. Architects, engineers, financiers, and contractors all over the world have proven this. But this 80-story dream is a bit far-fetched, particularly when it is supposed to be delivered in two years and is brought to us by an architect whose education is in question, admits he hasn’t practiced architecture regularly in years, and has never built a skyscraper before.

Interesting concept for sure, and it’ll be fantastic if it works, but I’m a bit skeptical if of this one. But who can blame them for trying? After all financing is plentiful when you can sell the black gold beneath your feet for $130/barrel oil.



The WSJ is reporting in their commercial real estate section today on office space in Moscow. The numbers are staggering compared with almost anything we have in the US. The average cost of “prime” space in Moscow is $223 psf per year, up 92% from the first quarter of last year when the average was $121. Adjusting for exchange rates, the rate in 2001 was $61 a square foot.

Some sites near the Kremlin are reported to be asking north of $300 per year ($25 psf/month!).  By contrast, the most expensive space in California comes in at about $192 psf/year, and the highest end space in San Francisco is about $100 psf.

In response to these sky high rents and robust demand, developers are planning on increasing the available inventory of space by 25% by delivering approximately 21.5M square feet of space to the market by 2011.

Amongst the projects being delivered is RussiaLand’s Russia Tower, a massive 600m tall mixed-use project featuring what will be the tallest building in Europe. The project video is featured above. 

The Royal Bank of Scotland’s (RBS) chief credit strategist Bob Janjuah has issued a report to its clients to be prepared for a global credit and equity crash. Bob Janjuah forewarned against last year’s looming credit crisis. According to his report, the next three months will be nasty.

The report includes warnings that the S&P could fall by more than 300 points to 1050 by September. In debt markets, they are forecasting that both the high grade and low grade iTraxx indexes could soar. This index is a European index designed to allow people to trade the “Riskiness” of European debt, with the US having a seperate set of similar indexes as well.

What is key in the report has to do with inflation, the fed pumping money into the market, and what needs to be done about it. All the money being pumped into the market by the Fed is causing headline inflation to increase. Unfortunately we find ourselves in economic conditions which don’t easily allow the raising of interest rates. The economy, both domestic, international, and emerging markets will then be faced with further tightening of credit causing global growth to cool significantly.

The impact on commercial real estate could be significant; you would have the cost and availability conditions of debt to continue to deteriorate, coupled with the fact that risk premiums will have increased in other asset classes. This would suggest a similar jump in expectations for commercial real estate, which translates into higher cap rates and tighter, more conservative underwriting from institutions. Things are trending in that direction, and RBS’s report could suggest that we’re aways away from any reverse.

South China Mall, a 7 million square feet monstrosity (the largest mall in the world), sprawled over 200 acres and built in 2005 in the southern Pearl River Delta city of Dongguan sits nearly empty. The mall was originally designed to house 1,500 tenants. There are less than a dozen. The mall was featured a few years ago in the New York Times to demonstrate the development and shift in socio-economic behavior in the world’s most populous country. Unfortunately, it seems the developers didn’t bother to look at demographics as the neighborhood it is built is in the suburbs where average incomes don’t justify such a giant mall and the location is only convenient by car. Oops.

The mall was developed by a noodle billionaire (really), and took design cues from all over the world. Yet after all this, it’s a huge failure. You can read more about the mall here.

The lesson here is that if you’re making billions of dollars selling noodles, keep doing it.

Though likely not surprising to anybody, year over year investment sales both in the United States and on a worldwide basis are down dramatically. According to a Jones Lang LaSalle (NYSE:JLL) report cited by NREI, first quarter investment sales in the US came in at $39.2 Billion, a number which is down 69% from the year ago period.

Internationally, investment sales during the first quarter were $154 Billion, which is down 46% less than the $283 Billion number from a year ago. This statistic was provided by Real Capital Analytics.

There is a lot of money currently waiting on the sidelines to acquire assets, but for the time being sellers are not conceding much on price. That might change though over the course of the next one to two years as loans mature. As Macklowe Properties found out, refinancing a short term loan in this market is difficult to do. If owners don’t can’t meet the heightened equity requirements currently facing those looking to acquire or refinance assets, they might be forced to sell.