Our latest few weeks of statistics show the problem in commercial real estate in our area. This week's report shows only one sale, of a 15,000 sf building, in all of New Haven County. Last week, there were three small leases, together totaling only 2600 sf. If you are a seller, and you're not selling, or a landlord, and you're not renting, you're not alone!
Maybe it's the weather. Does anyone remember us ever having worse weather for a month of summer? Our pool is still not up to 70 degrees, and I haven't been in it yet. I can't even bike much, since the roads always seem to be slick with rain. It's pretty good running weather, as long as you don't mind getting a little wet. I know that I'll be complaining about the heat soon (maybe even when I run on the track tonight), but I'm ready for some sunshine!
We are hoping that the delay of summer will cause real estate sales to keep happening, instead of slowing down next week, as they normally would. That would certainly be a silver lining to the cloud that's been sitting over New Haven for the last month!
Thursday, June 25, 2009
Thursday, June 18, 2009
Commercial Real Estate Panel
We had an interesting real estate panel this morning, with the head of commercial real estate lending from Webster, Bill Wrang, our appraisal partner, Marc Gottesdiener, and Mike Morand from the Yale Office for New Haven and State Affairs. There was a lively discussion of how we got to where we are in the national financial mess, what the current state of the Connecticut market is, and what we can expect in the future. We also heard from Mike about Yale's real estate plans.
The bottom line: New Haven and CT are better off than many parts of the country, but we are in the midst of a frozen commercial market. In 2007, 500 billion in real estate changed hands. In 2008, that number was 110 billion. So far this year, it's 9 billion. No wonder we are finding conditions so tough! Over the next couple of years, many loans will come up for refinancing. Values have generally held, and appraisers are finding that bankers are shocked at the low rate of decline over the past year. Retail and apartments are taking the biggest hits in valuation.
Cash is king, and cash flow will determine future ability to borrow. It's better to make a new deal with an existing tenant, including free rent and/or lower rates, than to have a vacancy. Lenders are looking for a lower loan-to-value ratio, although rates are still low. Banks are loath to foreclosure, and relationship lending is the way to go. Balances in the bank are important. There is most likely still another shoe to drop on the commercial side, but, so far, we are not seeing much delinquency in this region.
The bottom line: New Haven and CT are better off than many parts of the country, but we are in the midst of a frozen commercial market. In 2007, 500 billion in real estate changed hands. In 2008, that number was 110 billion. So far this year, it's 9 billion. No wonder we are finding conditions so tough! Over the next couple of years, many loans will come up for refinancing. Values have generally held, and appraisers are finding that bankers are shocked at the low rate of decline over the past year. Retail and apartments are taking the biggest hits in valuation.
Cash is king, and cash flow will determine future ability to borrow. It's better to make a new deal with an existing tenant, including free rent and/or lower rates, than to have a vacancy. Lenders are looking for a lower loan-to-value ratio, although rates are still low. Banks are loath to foreclosure, and relationship lending is the way to go. Balances in the bank are important. There is most likely still another shoe to drop on the commercial side, but, so far, we are not seeing much delinquency in this region.
Thursday, June 11, 2009
Compromising
With the recent spate of real estate activity, we were hoping to see sellers more realistic than many are. This is my chance to remind them that, given the current credit climate, it doesn't help them to extract the last dollar in the sales contract, if the home then does not appraise out. Banks are understandably cautious these days, and many people don't have extra money to put down, so they are dependent upon an appraisal that will support maximum financing. Even if they do put plan to put a little more down, buyers will likely balk at paying more than the bank's appraised value for property, particularly in a market less than robust. It's funny (well, maybe that's not the word...) how the problem in getting transactions from A to Z has moved through the process, from listing to offers to inspections to financing. Let's hope that it moves right out of the system!
I'm also wondering whether the spring market will last further into the summer, especially since it seems to rain EVERY day. We got a late start, more due to economics than weather, but often a late start means a longer season for selling. We could use the time to try to catch up to last year throughout the region.
I'm also wondering whether the spring market will last further into the summer, especially since it seems to rain EVERY day. We got a late start, more due to economics than weather, but often a late start means a longer season for selling. We could use the time to try to catch up to last year throughout the region.
Wednesday, June 3, 2009
Lagging Statistics
Now that we're finally seeing some increase in the number of buyers and the resulting sales, the statistics for April are out. They show that prices fell and units fell. Not surprising, since that's reflecting activity from the first quarter. It doesn't measure today's pulse, but rather what was happening 60 to 90 days ago.
If we're lucky, the news will convince sellers not to be greedy, and buyers that it's a good time to get a reasonable price on the real estate they wish to own. It will let the government know that it can't stop trying to help the housing market. If we're lucky, it will not send everyone screaming for the hills, or more accurately, back into the cocoons where they have been hiding since last fall.
All of this does show the importance of the consumer confidence index, which is a measurement the government puts out on a periodic basis, to judge the mood of the buying public. Lately, this number has been at historic lows. The most recent results, however, have shown a sharp uptick in consumer confidence. We consider this number, along with personal income levels and interest rates, to be one of the three most important ways to predict the level of real estate sales. We could have told the press that sales would rise in May, after seeing the rise in consumer confidence. Since it's such a subjective measure, though, almost anything can affect it. That's why I'm hoping that the April sales numbers don't send it plummeting again.
If we're lucky, the news will convince sellers not to be greedy, and buyers that it's a good time to get a reasonable price on the real estate they wish to own. It will let the government know that it can't stop trying to help the housing market. If we're lucky, it will not send everyone screaming for the hills, or more accurately, back into the cocoons where they have been hiding since last fall.
All of this does show the importance of the consumer confidence index, which is a measurement the government puts out on a periodic basis, to judge the mood of the buying public. Lately, this number has been at historic lows. The most recent results, however, have shown a sharp uptick in consumer confidence. We consider this number, along with personal income levels and interest rates, to be one of the three most important ways to predict the level of real estate sales. We could have told the press that sales would rise in May, after seeing the rise in consumer confidence. Since it's such a subjective measure, though, almost anything can affect it. That's why I'm hoping that the April sales numbers don't send it plummeting again.
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