Monday, May 18, 2009

Starbucks Continues to Shutter Stores

I neglected to post this when the news first hit, but for those of you that missed it, Starbucks, the once darling of the NNN world has announced another round of shutters. We wonder when the hemorrhaging will stop. Starbucks continues to make money, so we are not talking about a bankruptcy situation here. No, they are projected to Net over $300 million this year. They just got a little sloppy on site selection. The good news is most of these leases are for 10+ years, so Starbucks is legally obligated to pay the rent. The issue comes if your financing balloon is a lessor term than the lease contract and when the original commitment on the lease from Starbucks comes to an end. Investors should be interested in at least negotiating out of the lease with Starbucks, if they feel they can line up another tenant....easier said than done in this environment, I know.

Here is a piece from the Tampa Bay Business Journal about stores that will be affected in the Tampa Bay Area.

Sunday, May 10, 2009

CMBS Set Up for Failure

Unfortunately, the world of commercial real estate seems unlikely to avoid very turbulent waters ahead. The epicenter will undoubtedly lie in the mountains of loans that were written in the go-go market and are to begin renewals in the next 2-3 years. Most of these loans are performing today, but how does one renew these loans? Lenders have tightened their credit requirements. Loans that were written at 70% LTV's interest only, non-recourse will now be required to be written at 50-60% LTV's, fully amortized with some form of recourse . And, if this development were not bad enough, add the fact that the some markets have deteriorated by upwards of 30 to 35% and you can understand why there is a problem. In a world were liquidity has dried up for many in the commercial real estate investment arena, where will investors find the capital to pay these loans down to bring them in to compliance with the new standards and avoid repossesion by creditors?

No where is this issue more of a challenge than in the Commercial Mortgage Backed Securities (CMBS) market. These loans are traditional loans that were packaged and resold in the debt market as securities to third party, passive investors that have no relationship with the borrowers. The chance of a negotiated settlement in a distressed renewal situation is less promising with CMBS loans, when compared to bank held debt in which the borrower can visit the office of a banker in which they have relationship and hammer out a deal in which neither party looses their shirt.

The government understands that a spiraling commercial real estate market could send the economy on another downward leg already has CMBS on its radar for TALF bailout. How the market deals with this situation in the coming years will be interesting to say the least.

Monday, May 4, 2009

According to Boulder....NNN Deals SURGED in 1st Quarter

"At least one category of commercial real estate investment is enjoying a surge in activity, though not in pricing. Net lease transactions rose several hundred percent for all three major net lease property sectors during the first quarter compared to the last three months of 2008, according to a study by Boulder Net Lease Funds L.L.C. (...More )"

The news has been mostly gloomy over the past 9 months, but we are starting to see sprouts of life in various sectors. Residential sales in our area have picked up markedly in the last 2 to 3 months. Realtors and Mortgage Brokers alike are reporting high levels of activity. I would not expect a straight-line recovery, but any good news at this point is.....well, good news.