Commercial Real Estate Blog

RREEF Research has issued two reports this month. The first report covers commodity prices, and the impact on trade, housing, and other real estate impacts. Some of the items related to trade which are noted in the report include:

• Pacific Northwest ports (i.e. Seattle, Portland, Vancouver) to benefit as the shipping distance is shorter than that to California
• Rail to benefit; air cargo volume to decrease

On real estate, the report noted a trend towards smaller homes, closer to employment centers. On the hotel front, commodity prices will likely result in a 10% cut in domestic seats, thereby reducing demand for hotels. This comes on top of the increasing energy costs hotels face.

The full report is available for download here.

Wachovia issued a report earlier this month on the state of commercial real estate. Generally speaking, they are bearish on almost all asset classes. Citing a tight lending market, oil prices, slowing demand, and other factors, the anticipation is that the run up in asset prices will continue the reverse which was initiated over the past few quarters.

The report contains a lot of useful data and charts, and rather than paraphrase the details, I’ve outlined the key points below. If you’d like to read the whole report, it is available here for download.

• Traditional Commercial Mortgage Financiers Pick-up Market Share
• CMBS Issuance Halts and About Face
• Nonresidential Construction Set to Weaken
• Property Fundamentals Correction Underway
• Domestic Banks Tighten Lending Standards
• Slowing Economy Puts Pressure on Office Fundamentals
• Industrial Demand Cooling Off
• Apartments Expected to Benefit from Housing Slump?
• Retail Slowing with Consumer Spending

There isn’t much that wasn’t generally known in the report, but the numbers and charts quantify what is going on. The prices are national averages so cap rates, costs per square foot, etc. in the report vary significantly from what assets trade for in Silicon Valley and bay area. Nevertheless, money chases opportunity so any fundamental change in other markets will have an impact on our local market as opportunity costs become to great to ignore.

Valter Mainetti and his Sorgente Group have acquired a majority piece of the Flatiron Building in New York. Estimated to be worth about $180-190M, the Flatiron building is a landmark building sitting at the intersection of Fifth Avenue, Broadway, and 23rd Streets.

In another notable deal, Abu Dhabi investment council (United Arab Emirates) is currently in negotiations to acquire a 75% stake in the Art-Deco Chrysler building. The deal would value the building at about $1 Billion. The building is on a 140+ year ground lease from Cooper Union with the remaining 25% stake being owned by Tishman Speyer.

High oil prices and the weak dollar have made New York a prime target for middle eastern investors and sovereign wealth funds. For Europeans, the weak dollar has spurned tourism and investment in the United States, from flats and vacation homes, to institutional grade real estate assets.