Global Viewpoints

Becamex City Center Breaks Ground in Binh Duong Vietnam

Edited: Jennifer Brenner Andrade
Source: Becamex IDC Corp

Becamex IDC Corp broke ground recently on the Becamex City Center in Binh Duong, Vietnam. Becamex City Center is a master-planned, modern urban center with residential facilities for 4.000 and an anticipated workforce of 20.000. The mixed-use project features office buildings, upscale apartments, a hotel, commercial streets and recreation centers. There are also areas designated for a common courtyard and green space to create a green  and friendly environment.

Becamex IDC is the investor for this three-phase project with the approval of the Binh Duong People’s Committee. This project is located right in the heart of Thu Dau Mot Town and cccupies a total land area of 6.1 ha. The total investment capital is VND 2,500 bil.

Present at the ceremony were Mr Mai The Trung – Member of Central Party Committee and Secretary of Provincial Party Committee, Mr Nguyen Hoang Son – Deputy Secretary of Provincial Party Committee and Chairman of Binh Duong People’s Committee, leaders from provincial People’s Council and Committee, Fatherland Front Committee and other authorities.

Addressing the ceremony, Mr Nguyen Hoang Son – Chairman of Binh Duong People’s Committee praised the project’s investors and said that not only will Becamex City Center become an impressive landmark of Binh Duong when completed, but also, the project will change the urban image of the province. At the ceremony, Becamex IDC Corp, together with its subsidiaries and partners, also donated a total of VDN 3.4 bil to charity organizations of the province and education foundations of Medical University, Tra Vinh University and Social Science and Humanities University.

Two US Firms Form $50M Self-Storage JV

Edited: Jennifer Brenner Andrade
Source: WP Carey & Harbert Management

Carey Storage, an affiliate of investment firm W.P. Carey & Co. LLC, has formed a self-storage-focused joint venture with Harbert Management Corporation. Harbert and W. P. Carey are contributing a total of $50 million to the venture -- $30 million from Harbert and $20 million from W. P. Carey.

The venture has been seeded with an existing portfolio made up of thirteen properties, which have been acquired by W. P. Carey's self-storage-focused investment team over the past two years. W. P. Carey currently manages approximately $440 million of self-storage assets, including $60 million owned by the new venture. The self-storage investment team is actively pursuing additional property acquisitions.

W. P. Carey Managing Director, Anne Coolidge Taylor, noted, "While the self-storage venture is W. P. Carey's first with a sector focus, our first investment in this space dates back to 2004 when we closed on a $312 million, 78 property sale-leaseback transaction with U-Haul. As we make additional acquisitions, we will continue to apply W. P. Carey's 35 plus years of real estate investment experience to the self-storage sector."

W.P. Carey began investing in net lease properties in 1973 and has been managing the Corporate Property Associates series of distinct real estate investment trusts since 1979. The CPA investment programs specialize in acquiring and managing portfolios of triple net leased assets, broadly diversified by geography, industry and tenant.

"Self-storage is a property sector of particular interest to us. We have been looking for the right team with sufficient management expertise to help us execute a self-storage strategy," said Alan Fuller, Vice President and Senior Managing Director at Harbert Management. "By creating a joint venture with W. P. Carey, we gain access to W. P. Carey's self-storage experience."

Swedish real estate returns fall to new low, SFI / IPD index

Edited: Jennifer Brenner Andrade
Source: IPD

IPD, a global information provider, has published the SFI / IPD Swedish Annual Property Index for 2008. Per the index, total returns for the year fell to -3.3%, a substantial fall from the 14.7% return achieved in 2007. Swedish property outperformed equities but lagged behind bonds, which returned -39.5% and 15.7% respectively.

The main driver of these poor returns was a significant rise in yields of 13.3% or 69 basis points over the 12-month period. This effect was partly offset by a strong market rental growth of 4.0% y/y. The All Property rate of capital growth came in at -7.9%. While this fall is much milder than those experienced in the UK and Ireland, it still represents significant asset re-pricing when compared to the 9.5% rise in values recorded in 2007.

Income return for 2008 was 4.9%, slightly up from the record low return of 4.8% in 2007. Capital values fell farthest in the Office sector but the worst-performing sector was Residential with a -3.7% total return, due in part to an income return of just 3.4%. Industrials performed best with a total return of -0.4%, followed by Retail and Offices at -2.6% and -3.5% respectively.

Christina Gustafsson, Head of IPD in the Nordic region, comments: “Yields have now - after five years of compression - started to rise across all property sectors in Sweden. The shift alone would have cut the values by close to 12.0%, but this was partially counterbalanced by a robust rental market. Investors reported fairly strong rental growth of 4.0%, which was roughly in line with increases linked to the contractual indexation of rents in commercial leases in Sweden”. (The rent indexation is based on the inflation rate reported at October 2008 which was 4.0% up).

The SFI / IPD Swedish Annual Property Index is based on a sample of 1,276 properties from 17 funds covering SEK 225bn at the end of December 2008.

Occupier Opportunities Emerge as Rent & Supply Conditions Change Across Europe’s Office Markets

Edited: Jennifer Brenner Andrade
Source: CBRE

Occupiers are experiencing increased lease flexibility, greater choice of premises and greater incentives in the European office market according to the latest research by CB Richard Ellis. The report reveals that tenants are benefiting from current falls in leasing activity and the subsequent pressure that landlords are coming under to preserve cash flows and maintain capital values. Landlord flexibility has become essential as take-up across the main markets in Western Europe in 2008 declined to the levels seen in 2004-05.

Occupiers are also benefiting from the fall in office rents across Europe, with average rents declining by 2.5% in the EU-27 during the final quarter of 2008. This was driven by falls in Western European markets such as London and also in CEE markets including Moscow where recent rental growth is now being reversed.

Matthew Pullen, Head of Global Corporate Services EMEA, CBRE, said, “We anticipate that there will be pockets of new leasing activity as opportunistic occupiers who are in a position to break tenancies will seek to move to cheaper buildings or further consolidate their portfolio by taking additional space in an existing location. Other tenants will leverage their improved negotiating positions to upgrade office premises, securing attractive terms on buildings which might previously have been beyond their reach.”

The CB Richard Ellis EU-27 vacancy rate index has risen steadily from 6.7% in Q1 2008 to a figure of 7.5% at the end of Q4 2008. Vacancy rates in some of Europe’s larger markets, such as Milan and London, witnessed increases of over 200 basis points in 2008, providing occupiers with improved access to quality premises. Reduced investment into Europe’s emerging markets has brought the long-term stability of some cities into question, as reduced foreign demand and restricted local demand become insufficient to sustain growth. However, this supply is likely to present offshoring opportunities to organisations as they pursue cost saving targets. Further increases in the vacancy rate are expected in the first half of 2009. This is partly due to a rise in the supply of sub-leased space as some tenants decide not to occupy their pre-let offices.

The delivery of schemes initiated during recent years will continue through 2009 in many key cities, and despite an expected 20% drop in completions in 2010, occupiers will be provided with a greater choice of good quality office space this year.

“The real winners coming out of 2009 will be those corporate occupiers who can influence further changes in their business cultures through the introduction of alternative workplace strategies, more robust planning tools and more innovative approaches to managing total occupancy costs through the building lifecycle, which would include sourcing and energy management strategies,” concluded Pullen.

Green Development Plan in Contention for 67-Acre, $1B Urban Project in DC

By: Jennifer Brenner Andrade

HDG Waterfront Group is pushing an environmentally friendly plan for the 67-acre Hill East development project in urban Washington DC east of Capitol Hill. The land, which currently holds the closed Washington DC General Hospital complex, has waterfront access to the Anacosta River. The goal of the project is to create “one of the greenest communities in America,” says Sinclair S. Cooper of Hunt Development Group’s Urban Ventures Group, one of two master developers on the project.

This billion dollar project would introduce a three-million square foot, mixed-use project with loads of green touches including: a 200,000 square foot renewable energy power plant; a daily farmer’s market; and a town center that will provide residents walking access to groceries, restuarants, offices and day cares. According to published reports, three other development groups have also submitted proposals for the project, these include Hill East Development, New Hill East and East-banc.

HDG Waterfront Group’s proposal is the least dense of all of the proposals, which each call for about five million square feet of new development, explains Cooper who adds that the smaller, lower slung development profile will allow more room for green spaces and reopen the view of the river.

The District’s Mayor, Adrian Fenty and his office, are running a sophisticated process to finalize plans for the site, says Cooper. The winning development team will either lease or buy the land from the city. Notably, HDG’s plan calls for over two million square feet of residential space, 473,000 square feet of office space and 100,000 square feet of retail among other plans.

CBRE Appoints New CFO and New CIO

Edited: Jennifer Brenner Andrade
Source: CBRE

CB Richard Ellis Group, Inc. has appointed Robert E. Sulentic as the company’s chief financial officer.

Mr. Sulentic is a highly seasoned industry veteran who combines public company corporate finance experience with an in-depth understanding of the company’s global operations. Mr. Sulentic is currently chief executive officer of the company’s Development Services business, and until recently, served as group president of CB Richard Ellis’ EMEA and Asia Pacific operations. Before that, he was chief financial officer and then chief executive officer of Trammell Crow Company, prior to its acquisition by CB Richard Ellis in December 2006. In addition to his chief financial officer role, Mr. Sulentic will also continue to lead the company’s Development Services business.

In addition, Jim Groch has been named chief investment officer with responsibility for Corporate Finance and Strategy, which is a new position. Mr. Groch held a similar position with Trammell Crow Company prior to its acquisition by CB Richard Ellis. He has strong expertise and a proven track record in corporate finance, real estate investment, and mergers and acquisitions. Included among his responsibilities will be a focus on managing the company’s capital structure and balance sheet and overseeing merger and acquisition activities. Mr. Groch will also continue as the chief investment officer for the company’s Development Services business.

Gil Borok, who assumed the responsibilities of interim CFO in late 2008, will resume his responsibilities as the company’s executive vice president, chief accounting officer. Additionally, Mr. Borok will assume the role of chief financial officer of the company’s Americas business.

“Bob, Jim and Gil are a highly experienced team that work well together. I look forward to their collective guidance and counsel as we lead the company forward through the current downcycle and position ourselves to take advantage of an eventual improvement in market conditions,” said Brett White, president and chief executive officer of CB Richard Ellis.

 

Lower prices fuelling the interest of owner occupiers

Edited: Jennifer Brenner Andrade
Source: RICS

Owner occupiers are returning to the housing market looking for bargains says a recently re-released RICS research report. Many potential purchasers believe that the market has reached a bottom but first time buyers are still being denied access to the property ladder.

Following three successive monthly increases in the RICS new buyer enquiry series, a reliable lead indicator of transaction activity, RICS has asked further questions of its members to determine what is underpinning this sustained pick up in interest. 71 percent of Chartered Surveyors stated that lower house prices were responsible for the growth in enquires while 48 percent believed that buyers are increasingly convinced that the bottom of the market is insight. Only 35 percent of surveyors believe that lower mortgage rates are tempting buyers. Meanwhile, just 15 percent referred to positive personal circumstances overwhelming negative macro concerns.

74 percent of Chartered Surveyors reported that it is existing owner occupiers who are driving the renewed level of interest while 38 percent of surveyors indicated that investors are coming back into the market. However, only 23 percent of surveyors thought that first-time buyers are a factor in the market. Interestingly, almost one in ten respondents suggested that overseas buyers were now looking for opportunities in the UK residential market, benefitting as they are, from favourable currency movements.

95 percent of Chartered Surveyors reported that existing houses were the most popular type of dwelling for those enquiring and only 32 percent of surveyors reported interest in flats. New build properties remain an even less attractive proposition for potential buyers.

Commenting, Simon Rubinsohn, RICS chief economist said:

“Interest from owner occupiers is likely to persist over the coming months as those with large deposits look to capitalise on the drop in house prices. However, a sharply deteriorating employment picture may eat away at this improvement in sentiment pushing potential buyers back to the sidelines. To prevent this happening and help restore an orderly housing market, the government urgently needs to address the issue of the availability of mortgage finance. It is essential that guarantees for residential mortgage backed securities are introduced sooner rather than later.”

ProLogis European Properties sells remaining one-third investment in PEPF II

Edited: Jennifer Brenner Andrade
Source: ProLogis European Properties

ProLogis European Properties (Euronext: PEPR), Europe’s largest owner of modern distribution facilities, has completed the sale of its remaining investment and future commitment to ProLogis European Properties Fund II (PEPF II) to six institutional investors.

Gross proceeds of €14.4 million in addition to the elimination of €174m of future commitments implies a 28% discount to December 2008 investment value. This disposal, combined with the sale of the initial two-thirds stake in PEPF II in December 2008, decreases PEPR’s ownership in PEPF II to zero. Overall, the disposal of the entire position relieves PEPR of the obligation to fund further investments of €522 million in PEPF II before August 2010.

Net proceeds of both disposals will be used to reduce debt in line with the strategic initiatives outlined by PEPR in December. M3 Capital Partners acted as exclusive financial adviser and placement agent to PEPR.

ProLogis European Properties, or PEPR, which listed on Euronext Amsterdam on 22 September 2006, is the largest pan-European owner of high quality distribution and logistics facilities. Established in 1999, PEPR is a real estate investment fund (organised as a Luxembourg closed-ended fonds commun de placement) externally managed by a subsidiary of ProLogis, the world’s largest owner, manager and developer of industrial distribution properties.

As at 31 December 2008, PEPR has a portfolio of 246 buildings, covering 5.2 million square metres in 11 European countries, with a net open market value of €3.4 billion. The portfolio has an occupancy level of 97.3% and an average of 4.0 years to the next lease break or 6.1 years to lease expiry.

Is There Opportunity in 2009?

Bob Young, CCIM, RIISnet EVP Business Development

Tough Times: Recent talk and press releases create a mood of negativism and fear. To be sure, the real 2008 numbers are down at a rate greater than most of us can even remember. And, 2009 is going to be tough, maybe tougher. What can any of us do? Look for the opportunity that is a part of every down cycle.

The government has already put $7 trillion into the financial system in the past year through all its available options, with more to come. The interest rate is effectively zero and gas is back under $2 per gallon. Still, the slowdown is draining sales, orders, jobs and retail spending. The question for the commercial real estate investment community is what to do with our assets and capital in the mean time? Drawing from many excellent sources available to our industry, here are trends we can expect to see (special thanks to CapLease and their 2009 Outlook):

Housing: Even very low interest rates and aggressive stimulus features will still have to work their way through the bad assets that got us here in the first place. Housing starts could take until year-end to start back up.

Consumer Spending: Personal balance sheets look as bad as the national banks that financed their over-borrowing. Consumer credit will be very tight and jobs will recover slowly, at least through the end of 2009.

© Real Capital Analytics, Inc. Data believed to be accurate but no guaranteed, subject to future revision, analyses based on properties and portfolios $10 million and greater.  www.rcanalytics.com

Financial Markets: After Lehman put the “Bank” in Bankruptcy, we’ve had a series of shocks. Enter the government support that means, long-term, banks will pay more for their debt. Safety is the investor’s watch-word, or else “distressed assets”, where expected future returns would be higher if risk is taken. Yet, buyer’s offering cap rates imply tenant default rates over 30%, which no one believes will actually happen.

Banks: Don’t look now, but lending is UP. The Fed’s own data shows commercial loans up 15% in November, while home equity loans were up 21%. But that’s just to their existing customers, and only because these lines of credit were set up before the crisis. $4 trillion in commercial debt needs refinancing. We need the financial markets to securitize these loans and move them from the banks’ balance sheets.

 

What About Distressed Assets? The above chart shows the radical decline in stable asset deals in 2008. The first one shows year-over-year sales off 40% to 80% in every type of property and region. Globally, only the Middle East had a net gain in 2008 sales, but was cooling off at year’s end. Why would owners place their assets for sale in a market where buyers’ offers reflect a cap rate that discounts their income 30% or more? Default rates, though rising, should not approach those levels due to TARP and TALF programs.

The Distressed Asset chart paints an even more interesting picture. It shows the Real Capital Analytics’ estimate of $100 billion in 2009 assets somewhere along the pipeline of Potentially Troubled, to Troubled, to “REO”, when a lender has assumed ownership through foreclosure. Since many loans written in 2006 through 2008 used very aggressive lending criteria, expect even more “distress” when they come up for re-financing in today’s stricter environment. This is the time in the business cycle where more future wealth is secured than any other, because the circumstances of owners’ distress force lower prices and higher returns. That is why distressed or REO assets will emerge as an active market component in 2009.

Market Innovation: Look for solutions that align the supply of distressed assets with opportunistic buyer demand. This market sector will cycle up, then down, over the next three years, becoming potentially bigger in 2010 than the remaining or re-emerging stable asset market. Argus Software and RIISnet will keep its customers alerted to any technology that helps buyers, sellers and their brokers find the best vantage point in the market from which to understand these rapid changes. Meanwhile, be sure to monitor your Argus Transaction Zone assets and searches to develop your own view of the market. Keep your data handy, your capital ready, and know which kinds of distressed deals work best for your firm.

Sotheby’s Purchases its New York Headquarters

Edited: Jennifer Brenner Andrade
Source: Sotheby’s

Sotheby’s (NYSE: BID) today announced that it has successfully completed the purchase of its York Avenue flagship headquarters and auction premises in New York City for $370 million. The purchase price was funded by the assumption of the prior owner’s mortgage of $235 million at a rate of 5.6%, a $50 million cash payment, which was made in January 2008, and an $85 million cash payment which was funded at closing last Friday.

“Sotheby’s New York headquarters are the premier auction facility in the world and integral to our business,” said Bill Ruprecht, President and Chief Executive Officer of Sotheby’s. “The building is a strategic asset to this organization and we are extremely excited to be able to own it once again.”

In addition to all the benefits that ownership of the York Avenue building brings to Sotheby’s, another positive aspect of the building transaction is that it has eliminated Sotheby’s capital lease obligation on the York Avenue property which had a 10.4% rate and replaced it with a mortgage obligation at a rate of 5.6%. This will result in annual cash interest expense savings on the building of approximately $4 million in 2009.

Sotheby’s also announced that in December and January it had repurchased $21.8 million of its $150 million aggregate outstanding 7.75% Senior Notes due June 15, 2015 for $12.1 million which represented an average cost of 56 cents on the dollar for these repurchases. The pre-tax gain associated with these repurchases was $9.1 million.

The Company will continue to monitor the market and may purchase additional bonds opportunistically, when the pricing is favorable. The Company also announced that it successfully completed an amendment to its senior secured credit agreement with its existing banking syndicate which allows the Company more flexibility on its covenants. As a result of the amendment, the interest rate on our borrowings will move from LIBOR plus 1.75% to LIBOR plus a margin between 3.25% and 4.5% depending on the Company’s quarterly leverage ratio.

Additionally, the Company’s total borrowing capacity was reduced from $300 million to $250 million, all of which is currently undrawn.

“With the additional leverage that Sotheby’s incurred to purchase the York Avenue property, Management thought it prudent to amend its existing banking agreement to gain flexibility with respect to our loan covenants. Additionally, Management concluded the reduction in the total borrowing capacity is appropriate in light of the Company’s current cash balances and projected liquidity needs,” said Bill Sheridan, Chief Financial Officer of Sotheby’s.