Marktbericht USA Jan10

The market can’t be fully healthy until the distress cycle is completed.

Executive Summary

• The recent appearance of positive indicators – economic and otherwise – has turned market sentiment in the commercial real estate sector decidedly more favorable.
  
• Property values have been resilient and by some measures have already rebounded modestly from their peak-to-trough decline of approximately 40%. While transaction volume remains low, demand for the few institutional-quality assets that have come to market speaks to the healthy appetite for income-producing properties, and has given greater visibility to pricing.
  
• An ample amount of capital is available through both the public and private markets. REITs start the year in a position of relative strength, having raised billion of capital in 2009, and other sources of private equity are in relative abundance.
  
• REIT balance sheets are much healthier than a year ago and companies seem positioned for growth. However, having gained 28% in 2009, REIT share prices are high and it may be difficult to meet investors’ expectations for growth through accretive acquisitions.
  
• Widespread distress has yet to materialize, although it should be more apparent in 2010 due to increasing defaults within CMBS pools. However, many banks lack incentive to foreclose on overleveraged properties, having learned from the early 90’s that acting too hastily may exacerbate financial losses. Both borrowers and lenders are trying to buy time and salvage as much value as possible by extending and modifying loans, particularly those that cover debt service.
  
• The banking sector remains far from healthy, but the availability of debt is improving. Some lenders – particularly life companies and a small group of banks – are eager to finance stable properties in major markets. As a result, spreads of loans backed by high-quality properties have compressed meaningfully. However, mortgage originations remain a fraction of their pre-crisis levels and far below that which is required to refinance debt coming due over the next few years.
  
• While the recession is over and the economy is beginning to create more jobs after two years of steady losses, demand in the space markets is likely to remain weak for at least another year. Rents will not rise until after vacancy rates peak, which may not happen in some sectors until 2011.