Now this is not an area in which I routinely work, but this was one of my investors whom I continued to consider my client.  Years before we had worked diligently to negotiate fair & profitable terms in the purchase of the property, and I was not about to set him adrift facing minimal income or at worse a dark store.

Well the course of action was obvious. First to calm him by sharing the frequency of these requests today and to help provide the tools to analyze the prospects for the tenant’s return to profitability. And secondly to research and supply the data need to reach a compromise which would benefit all parties.  The end result was that a compromise of both rent reduction and timeline was reached to the satisfaction of both parties.

The point is this.  It’s not always over once the sale closes but isn’t it great to be able to offer on-going and long-term support as a part of your service…..gosh, I guess that means I’ve got your back!

Analysts are now recognizing that this recession exceeds the magnitude & severity of that of the 1980’s and continues.  Citing the increase in job losses, the stock market crash, the credit freeze, volatility of energy prices, and continuing decline in home prices, the net worth of the US household has declined by 10% due to the devaluation of housing prices and stock market losses according to National Retail Report.  The fact that employment will continue to decline by over 2 million jobs this year (in addition to the 3 million jobs lost last year); the effect of the global recession reducing global trade volumes; the reduction in consumption resulting in a negative GDP; the increase in retail vacancies, closures and bankruptcies; and the potential collapse of one of the nation’s major industries, the US automaker, all reflect a prolonged economic contraction.  Most predict that the negative fundamentals will continue through the first two quarters of ’09.

Primary locations continue to dominate as opposed to secondary and tertiary locations. So an A+ credit tenant in rural town USA is not underwritten the same as the same A+ credit tenant in Chicago..

Lenders are also evaluating not only the borrower’s financial strength and credit, but the borrower’s entire portfolio to determine if other assets in the portfolio are at risk and could affect the borrower’s credit.

The active lenders in the market today are Life Insurance Companies, local banks, and credit unions, generally focusing on credit tenant, long term leases and lease quality.  Portfolio lenders are much less active, and due to their risk adversity, have tripled spreads on senior mortgages. Robert Ader of US Realty Advisors states that the number of active lenders in today’s market has decreased by 50% – 60%.

Retail Vitals:

Continuing decline in consumer demand and spending leading to weak space market fundamentals, increasing vacancies, rent concessions, corporate bankruptcies and credit defaults define the current market as in continuing distress.  Most analysts project that a soft recovery will begin to take place in 2011, 2012.  In the meantime, with declining or non-renewable rents and maturing debt and an inability to access equity capital, sellers are slowing moving to reduce the pricing gap which has existed thus far.  Cap rates are slowly moving higher  by 25 to 50 bp. Buyers looking for deep discounts on credit tenant properties or those investments which are operating efficiently may be disappointed. But other retail properties presenting more risk either in tenant credit or location, are being marketed at significantly higher cap rates.

Analysts feel that there are some areas of the commercial real estate investment market which have over corrected and are priced for a depression instead of a recession, and these may present opportunities for long term investors.  So for those investors who have a clear strategy and defined goals, now may be the time to exit the sidelines and proactively pursue opportunities. This recession, although severe, is cyclical, and recovery will definitely see these factors: diminished supply, increased demand and skyrocketing inflation. The wise investor will look for sound opportunities now.

So have we reached bottom??

It’s not clear, but it may be that we are at least out of freefall.

Church’s Chicken is making use of modulars in its expansion plans as they are cost efficient and qualify for 7-yr depreciation vs. 39-yr depreciation

http://www.net-properties.com

General Growth, a publicly traded REIT, owns over 200 malls throughout the US and of those 200 malls in 44 states, 158 regional centers have filed for protection. Among those are the famous Fanueil Hall Marketplace in Boston, Harborplace in Baltimore, and Tyson’s Galleria in McLean VA.  Chapter 11 Protection will allow the company time to continue to explore strategic alternatives, search available sources of capital and restructure maturing mortgage loans.

GGP emphasized that its core business is sound and performing well, and that the operations of its shopping centers and other properties will continue as usual. (GGP’s third party management business and other select subsidiaries have not filed for protection.) But the fallout from this will be keenly felt in numerous markets and immediately by vendors who will be prohibited from engaging in any collection activity on any pre-petition debt until a plan of reorganization has been approved by the court.

And so, the economic ripples widen….

For current informaton about nnn investment real estate, contact us at http://www.net-properties.com

Basically this could be titled …. ’The World According to…..’ [net-properties.com]

Hope to dialog with you soon!!