Fed's Beige Book and Commercial Real Estate

The U.S. Federal Reserve's latest Beige Book, more formally called the Summary of Commentary on Current Economic Conditions, was released today with figures pointing to continued modest expansion in economic activity during the reporting period from mid-August through early October. Citing "generally weaker" manufacturing activity, "subdued" wage expansion and a "slowed" pace of growth in some regions, the Fed's report highlights a handful of concerns while offering a modestly optimistic economic assessment overall.

According to the report, commercial real estate markets have shown signs of strengthening in all twelve federal reserve districts. Most noted improvement across all major segments, though New York and St. Louis noted some increased slack in the market for retail space. Commercial construction was also stronger, with Boston and St. Louis noting brisk construction in the health sector, including senior care facilities, and Cleveland also indicating strong demand for senior living structures. New York, on the other hand, noted some pullback in new commercial construction, though activity remained fairly brisk.

To read the full report, click here. For more news and information visit Blumberg Partners.

Q2 National Office Sector Report from Savills Studley

Savills Studley Research has released its National Office Sector Report for the second quarter of the year, which found that the national overall office availability rate ticked down to 16.4% after three consecutive quarters at 16.5%. While availability inches lower, Savills Studley found that the US national overall rental rate rose for the 15th consecutive quarter, rising by 1.2% from the prior quarter.

"Availability has barely budged so far in 2015 as new construction expands in more markets and leasing slows. Deal volume in the first half of 2015 has fallen by more than 15% compared to the first half of 2014 in most major markets, with very sharp decreases in Boston, Manhattan, Atlanta and Dallas." said Keith DeCoster, Savills Studley Research.

An excerpt from the report follows:

Slow Start to 2015
Weaker demand in markets such as Houston and Washington, DC is to be expected considering the pullback in the oil and gas industry and constrained government spending. More surprising is the decreased demand in markets that registered strong leasing in 2014, such as Atlanta, Boston, Chicago and Dallas/Fort Worth. Some drop-off in the fastest-growing markets like Dallas/ Fort Worth was inevitable – there are only so many 500,000-sf tenants looking for space, after all. Despite very strong demand from the biopharmaceutical sector in Cambridge, tenants in the Boston region leased only 21.8 msf in the last four quarters, down by 17.6% from a year ago. As of midyear 2015, deal volume in Downtown Chicago and Manhattan was down by 24.0% and 31.7%, respectively, compared to the first six months of 2014. In contrast to these markets, leasing in Denver, Phoenix, Los Angeles and San Francisco and Silicon Valley shows little sign of cooling.

Multiple Factors Impacting Leasing
Slower leasing so far in 2015 in many markets (a decline of more than 15% in two-thirds of major markets) can be attributed to several factors. For one, the breakneck pace of job creation in high-growth markets such as Atlanta and Dallas/Forth Worth has decelerated just a bit – from 4.0%-5.0% to 3.0%-4.0% (still well above the national average). Also, the surge in 2006 and 2007 leasing created a cyclical peak in 2016 and 2017 rollovers, which was boosted by companies signing early renewals. The very largest of the tenants in this cohort have satisfied their space needs. Additionally, during 2013 and 2014 many of the very best bargains were spoken for. In Lower Manhattan, for example, the sub-$45 Class A space that was still out there a few quarters ago has been snared. As traditional tenants in more markets a bit of a standoff is emerging particularly between landlords and traditional space users unwilling to ante up. Biotech companies in Cambridge may be willing to pay 70 or even $80 but banks and law firms are not. It remains to be seen whether this slowdown in leasing is just a lull, or if the concern expressed by some analysts – that the recovery is getting long in the tooth – is becoming a reality. Of note, Boston, Chicago, Los Angeles and Manhattan (in contrast to San Francisco and Silicon Valley) still depend on traditional space users for most of their leasing. Banks and law firms remain firmly rooted in the reality that their profit margins and revenues are still below pre-recession norms. Consequently, resistance to rental rate escalation in Boston’s Back Bay, Downtown Chicago and Midtown Manhattan still prevails.

To read the full report, click here. For more news and information visit Blumberg Partners.

Q1 in U.S. Office Market

CoStar data shows that several of the 54 largest U.S. office markets posted negative net absorption in the first quarter, which is the one area that CRE analysts will be tracking carefully in coming months. According to the group, the first three months of 2015 provided another 'feel good' quarter for the U.S. office market as office rent growth and elevated leasing and development activity continued to reflect strong fundamentals as brisk business activity and growing confidence in the broader economy encouraged business to lease space and investors to acquire office buildings. An excerpt from their reporting follows:

"While we still expect healthy overall growth in both 2015 and 2016, we view the office market as returning to a balance between supply and demand and also between tenant and landlord strength," said Walter Page, CoStar Group, Inc. Director of U.S. Research, Office.

CoStar analysts expected a slow down in net absorption during the first quarter after the strong 33 million square feet of net absorption in fourth-quarter 2014. However, the lower-than-expected level of absorption for first-quarter 2015 is somewhat concerning, especially because the slowdown appeared to impact other property types, Page said.

Net absorption fell below the net rate of new office building completions for the first time in five years during the first quarter. The narrow spread between newly delivered supply and occupancy demand resulted in a flattened vacancy rate of roughly 11.3% in the quarter in CoStar Portfolio Strategy's national index of the 54 largest U.S. metros.

For more news and information visit Blumberg Partners.

Global Effects on US Recovery

Preliminary reports suggest Europe may be slipping back into recession. 
That's one major danger to the US recovery. 

China suffered a rare trade deficit earlier in the year caused by weak external and internal demand after 5 months of decreased purchasing activity, and now manufacturing sector declines.  
Europe's double dip which looms stronger, will be affected further if China, a major market for European exports, continues to stagnate and shrink.  

That combined with credit shortages in Europe, means the easing of the sovereign debt crisis earlier this year, following the European Central Bank's(ECB) massive aid package, may all be for naught if global recession puts more pressure on a banking system already teetering on crisis.  Defaults and shrinking credit will reintroduce huge sovereign risk to a Euro Zone out of options other than full restructuring with dramatic write off's.  
And with a further domino effect on country risk through out the continent. 

The effect on the US in the banking/financial  sectors and credit availability and exports sectors certainly will echo with bad news.  

That scenario is one that could de-rail a nascent and fragile real estate recovery in the US (below).  Always a precursor to more serious troubles.  

One North American zone (in a hazardous world economy Canada and the US continue to build closer ties and interconnections across industry, energy and resources) advantage is a better positioned corporate sector and more stabally perceived fundamentals and political systems.  
In a volatile risk and surprise filled world that's a major capital attractor. 

Next week's release by the ECB may shed some light on money supply and recent bank lending - but doesn't presage the future.  

More important to the North American zone outlook, are the upcoming corporate earnings reports. 

Banks are set to contract loan portfolios by $1 trillion. This de-leveraging, though needed, will put further strain on the refinancing markets. Bond yields in Italy and Spain edge up. The German offer of a financial boost to the Euro zone financial rescue Fund, the European Financial Stability Fund, may ease concerns temporarily.

But we expect continued problems in Europe, absent some good news on fundamentals soon.

Fitch Report Shows US CRE Delinquencies Eased in October

According to Fitch Ratings the delinquencies on U.S. commercial real estate loans eased in October due to increased incidence of loan extensions. The exentions helped precipitate a slight drop in CREL CDO delinquencies and, as Fitch Director Stacey McGovern explained,"are short term remedies designed to allow added time for further negotiation of pending loan modifications."

CREL CDO delinquencies fell slightly to 12.8% last month (from 12.9% in September). Total loan extensions in October were reported at 58 in the month, which is significantly higher than the 2010 monthly average of 37 extensions. Asset managers reported $98 million in realized losses from the disposal of distressed assets last month. Total realized losses across such products rated by Fitch total more than $1.7 billion. "The risk still remains for realized losses to increase if real estate trends backpedal, though they have been in a relative holding pattern for the last few months," McGovern added.

For more news and information visit Blumberg Capital Partners.

Blumberg Capital Partners in the News

Blumberg Capital Partners was featured in an Arabian Business article titled "Gulf capital turns to US real estate, lured by distressed sales". An excerpt:

Arab investors that have historically favoured UK real estate are now looking to America, lured by tax cuts and low property prices, said Philip Blumberg, chairman of US-based investment management company Blumberg Capital Partners.

Property acquired by Middle East and African investors increased 140 percent between 2008/09 and 2009/10 from $1.1bn to $2.64bn, data from the National Association of Realtors showed.

"US tax policies are about tax cuts not tax increases so the US is emerging as a safe standard compared to Western Europe," Blumberg told Arabian Business.

To read the full article, click here.

Philip Blumberg on CNBC Asia Squawk Box 10/28/10

The Necessity of Investing In Commodities

The commodities market is one that investors need to be involved in, says Philip Blumberg, CEO of Blumberg Capital Partners. He told CNBC's Martin Soong & Adam Bakhtiar that he is concerned about China's growth trajectory.

Investing In Japan

Philip Blumberg, CEO of Blumberg Capital Partners tells CNBC's Martin Soong & Bernard Lo what he needs to see before he would start investing in Japan's real estate market.

Re-investing in US Real Estate

Philip Blumberg, CEO of Blumberg Capital Partners says he is looking to invest in "emerging markets" in U.S. He shares some of the top spots on his radar with CNBC's Martin Soong, Bernard Lo & Adam Bakhtiar.

Optimism About Japan

While investors are piling into "overheated " markets like China and Singapore, Philip Blumberg, CEO of Blumberg Capital Partners tells CNBC's Martin Soong, Adam Bakhtiar he sees reason to be more optimistic about Japan.