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Monthly Archives: November 2009
OPPORTUNITIES FOR TENANTS ABOUND
Diana Olick on a recent CNBC panel. Participants discuss the driving forces behind the commercial fallout, including a lack of available credit, rising delinquencies and vacancies, and unemployment. There are many opportunities for tenants amid the gloomy numbers.
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A STORM IS BREWING
“The commercial real estate business still has not been marked down. It’s not been marked to market,” Cantor Fitzgerald LP Chief Executive Howard Lutnick said. “The economy can’t, in my opinion, grow fast enough that the tenants are going to go out and start hiring and growing and building and take up all these rents at $60 a foot. It’s nonsense.”
FALLING RENTS AND INCREASING INCENTIVES TO ATTRACT TENANTS
The Wall Street Journal reports,
“Office buildings often don’t show financial strain in the early stages of a downturn because they are occupied by tenants who have signed long-term leases. As long as the tenants stay in business, their landlords can even see revenue increases because of escalation clauses in their contracts.
The pain starts hitting when leases expire. In tough markets, landlords typically have to spend a lot to retain or attract tenants through brokerage commissions or incentives such as free rent or interior construction. The cost of attracting tenants is a factor that is cutting into funds from operations.”
A COMMERCIAL REAL ESTATE CRASH?
WILBUR ROSS THINKS SO
Wilbur Ross, Billionaire investor thinks the U.S. is in the beginning of a “huge crash in commercial real estate.”
“All of the components of real estate value are going in the wrong direction simultaneously,” said Ross. “Occupancy rates are going down. Rent rates are going down and the capitalization rate — the return that investors are demanding to buy a property — are going up.”
Ross suggests “extreme caution” before putting money into commercial real estate, especially office space, because properties are losing tenants.
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