Uncategorized | Taos Properties - Blog

Real Estate Loan Problems

Thursday, November 6th, 2008

Largest Problem Loans: The List No One Wants To Be On

Retail Properties Make Up One in Four of Largest Delinquent or Specially Serviced CMBS Loans, No Office Properties Make the List

While millions of dollars are being pumped into the global financial system to ease the credit crunch, the rescue effort is still in the early stages and it remains difficult to obtain financing for commercial real estate or even refinancing for performing loans. Because of this, there is a growing sense that the protracted credit crunch will likely continue to swell the number of loan delinquencies and defaults.

One of the best glimpses into the state of real estate defaults and delinquencies can be found in the hundreds of billions of dollars of loans backing commercial mortgage-backed securities (CMBS).

Fitch Ratings’ current rated U.S. CMBS portfolio is composed of 475 transactions with a balance of $556 billion. As of Sept. 30, Fitch’s loan delinquency index was 45 basis points due to the delinquency of 488 loans representing a balance of $2.5 billion. Delinquent loans range in size from $87,740 to $112 million, with an average loan size of $5 million. Of all the loans, 17 have outstanding balances greater than $20 million.

In addition, 246 non-delinquent specially serviced loans totaling $2.5 billion have transferred due to imminent default or other nonmonetary reasons. Although not all of these loans are likely to become delinquent and are not included in the 45 bps of delinquencies, Fitch’s loan delinquency index would double to 90 basis points if they did become delinquent. Loans in special servicing range from $87,740 to $225 million, with an average loan size of $7 million.

While CMBS loan defaults remain near historical lows, economic conditions in markets such as Texas, Florida and Michigan and borrower-specific credit issues continue to slowly contribute to growing defaults, Fitch reported.

In a report released last week, Fitch examined 20 of the largest specially serviced loans by dollar volume of the loan. Characteristics of the 20 loans discussed below vary by originator, property type, and location. One notable trend is the number of loans taken out at the peak of the commercial real estate cycle in 2006 and 2007 that have transferred to the special servicer one or two years after securitization. This is much sooner than usual. Historically, CMBS default curves show defaults peaking in years three to eight.

Another notable trend is that no office properties are included in the list. Despite the economic environment for businesses, office delinquencies have remained relatively low, with only 0.27% of all office loans delinquent. Office properties typically benefit from medium- to long-term leases that provide a degree of insulation from market downturns.

Conversely, the list is dominated by retail, multifamily and hotel properties that have greater immediate exposure to economic conditions.

This article is excerpted from Watch List (Nov. 2-8), a weekly report of property and credit market conditions and real estate investment opportunities.

The following list presents the largest delinquent and specially serviced loans identified by Fitch Ratings, supplemented with additional research by CoStar Group.

Largest Delinquent Loans

The following loans are the top 10 loans included in Fitch’s loan delinquency index, which consists of loans 60 days or more delinquent in addition to those characterized as nonperforming matured loans.

Senior Living Properties Portfolio, GMAC 1998-C1 (Special Servicer: Capmark Finance)
This $112 million loan is secured by a portfolio of 74 health care facilities, which has been in special servicing since October 2001. Senior Living Properties (SLP) experienced extensive operating losses beginning in 2000 due to lower revenues as a result of changes in Medicare and Medicaid reimbursements. SLP filed for voluntary Chapter 11 bankruptcy in May 2002. A bankruptcy reorganization plan went into effect in November 2003 allowing SLP’s management, with the lender’s review and approval, to effectuate an orderly liquidation of the SLP facilities. In 2005 and 2006, SLP liquidated 30 properties in Illinois. Of the properties in the portfolio, 48 properties in Texas remain as SLP management works to improve operations and consolidate locations. The loan matured Feb. 1, 2008, after which the special servicer converted the loan to interest only and extended the maturity date to Feb. 1, 2009. Consolidated occupancy continues to be approximately 60%.

Charlestowne Mall, MSCI 1998-XL1 (Special Servicer: Midland Loan Services)
Carson Pirie Scott, Kohl’s, Sears, Von Maur and Classic Cinemas movie theatre anchor this 850,000-square-foot regional mall in St. Charles, IL. The $44.2 million loan transferred to special servicing in April 2005 when it failed to secure new financing at its anticipated maturity date in April 2005. The asset became real estate owned (REO) in December 2005. Occupancy as of Aug. 31 was 78%, including the anchors and 55% not including the anchors (in-line space). Sales terms have been negotiated for a disposition of the asset but have been placed on hold. Reserves have been depleted, and the servicer is advancing for principle and interest payments as well as operating expenses.

Lakeside at White Oak, GSMSC 2007-GG10 (Special Servicer: CW Capital Asset Management)
The $43 million loan is secured by a 561-unit multifamily property in Newnan, GA. The loan defaulted in May 2008 and transferred to special servicing in July. The property experienced significant declines in occupancy and cash flow following a homicide at the property in 2004. During the past two years the property has gradually restabilized in terms of physical occupancy; however, rents are below market. The special servicer is reviewing the borrower’s proposal for forbearance and a modification while at the same time accelerating the loan and initiating the foreclosure process. The borrower has stated that it will not consent to a receiver because it still wants to keep the property and work out the default. The borrower is looking for an outside investor to recapitalize the borrower and provide funds to restabilize the property.

New Horizon Apartments, MSCI 2006-IQ12 (Special Servicer: Centerline Capital Group)
The $30.5 million loan is secured by a 912-unit multifamily property in Memphis, TN and transferred to special servicing in December 2007. The property has suffered from declining occupancy due to soft market conditions. As of Aug. 31, 2008, the property was 56.6% occupied. Leasing activity continues to be affected due to the enforcement of payment policies. A receiver has spent $53,000 on capital improvements at the property. The property has also suffered some fire damage; the special servicer is working on obtaining the insurance proceeds for four fire-damaged units. The current insurance policy is due to expire on Nov. 1, 2008. The receiver continues to operate the property while the special servicer works toward foreclosure.

Beach Club and Viridian Lake Apartments, MLMT 2004-KEY2 (Special Servicer: Key Bank Real Estate Capital)
The $30.1 million loan is secured by a 637-unit multifamily property in Fort Meyers, FL that transferred to special servicing in May 2008. The property suffers from major deferred maintenance issues and distressed market conditions. Additionally, the borrower redirected insurance proceeds to pay property expenses resulting in a default of cash management and lockbox agreements. A new entity was also found to have been added as a controlling member of the borrower without lender consent. An internal valuation and broker’s opinions indicate the property is not worth the debt. The borrower consented to the appointment of McKinley Inc. as receiver.

Days Suites Kissimmee Lodge, NLFC 1998-1 (Special Servicer: LNR Partners Inc.)
The $27.4 million loan is secured by a 600-room limited service hotel property in Kissimmee, FL, and has been in special servicing since November 2001. The loan transferred to the special servicer due to declines in performance as a result of market conditions and a loss of the Days Inn flag. The special servicer continues to pursue a sale of the asset, which has finalized the terms of a letter of intent for a sale and is moving forward with the preparation of a purchase and sale contract. The most recent appraisals indicate significant losses.

College Club, CSFB 2007-C1 (Special Servicer: Midland Loan Services)
The $27 million loan is secured by a 504-bed student housing facility in Fort Meyers, FL, near Florida Gulf Coast University. The loan was transferred to special servicing in June 2008. Occupancy has declined significantly since issuance due to declining market conditions and poor property management. The borrower replaced the onsite manager in the spring 2008 and was running an aggressive leasing campaign with deep concessions to increase occupancy for the 2008-2009 school year. The property is currently 70.4% leased as of Sept. 4, which does not support the debt service and the borrower is unwilling to support the property. The special servicer is working with the borrower on a possible forbearance agreement while pursuing foreclosure should an agreement not be reached.

Serrano Apartments, CSFB 2003-C5 (Special Servicer: ING Clarion Partners)
The $26.4 million loan is secured by a 438-unit multifamily property in Houston, TX, and has been in special servicing since October 2007. The borrower/sponsor, MBS Cos., filed bankruptcy in November 2007. The borrower previously presented a contract to sell the property for $31.3 million through the bankruptcy proceedings; however, the price has since been reduced twice to an unspecified amount. The sale is scheduled to take place via a loan assumption, which is currently under review with the special servicer who continues to negotiate the terms with the borrower and potential purchaser. A foreclosure was scheduled for Nov. 4 if an Oct. 31 loan assumption deadline was not met

Two Detroit Center Garage, GMAC 2005-C1 (Special Servicer: Capmark Finance)
The $24.8 million loan is secured by a 1,095-space parking garage in Detroit, MI. The property was previously part of the Comerica Tower office and parking garage complex. The Comerica Tower was acquired by the lender, IStar, through a deed in lieu in September 2007. Occupancy of the property declined, which negatively affected the parking structure. The property was listed for sale with NAI Farbman in February 2008. Multiple offers on the property have been received; however, marketing efforts continue. July 2008 occupancy of the parking garage was 86%, primarily on a month-to-month basis.

Holiday Inn - Columbus, MS 2006-XLF (Special Servicer: Midland Loan Services)
The $24.5 million loan is secured by a 337-unit hotel and 60,000-square-foot indoor water park in Columbus, OH. The loan matured on Feb. 9. Although the loan had two six-month extension options available, the borrower allowed the Holiday Inn franchise to expire in January, which resulted in a default of the loan, as well as a $10.5 million mezzanine loan. The special servicer met with the borrower and the mezzanine loan holder at the property in February 2008 and found the property to be in very good condition other than the elevators in the main tower, which are being replaced. The borrower stated the new management company recommended letting the franchise agreement lapse. The special servicer agrees the franchise was not beneficial to the asset due to the water park. Representatives of the mezzanine loan holder have expressed an interest in working out the loan. The special servicer has received interest from a hotel group interested in purchasing the loan.

Largest Performing Specially Serviced Loans

The following loans are with the special servicer but were either reported at least 30 days delinquent or were paying debt service as of the September 2008 remittance reports.

Riverton Apartments, CDCMT 2007-CD4 (Special Servicer: LNR Partners Inc.)
The $225 million loan is secured by 12, 13-story buildings totaling 1,230 units in the Harlem section of New York City. The loan transferred to special servicing in August 2008 due to imminent default. The borrower has been unable to convert stabilized units into deregulated units as quickly as expected and has converted only 10% of the units to fair market rents as of July 31. The loan was originally structured with a $5 million letter of credit debt service reserve. The borrower submitted notification stating there would be insufficient funds to make future debt service payments. The special servicer is reviewing a modification proposal. As of the October remittance, the loan is currently 30 days delinquent.

Biscayne Landing, CSFB 2007-TFL2 (Special Servicer: Key Bank Real Estate Capital)
The $110 million loan is secured by the largest underdeveloped parcel of urban land in South Florida, consisting of 188 acres in North Miami. The loan transferred to the special servicer in March 2008 when the borrower failed to make the scheduled prepayment of $17 million that was due on Jan. 30. At issuance, the loan was structured with an up-front $39.5 million interest reserve, of which $14.6 million remains as of July 31, 2008. At issuance, funds from the loan were to be used to prepare the site for expected development. As various parcels were prepared for vertical development, the loan was to be paid down via the release of these parcels through construction loans; this never occurred. The original development plan that revolved around a master planned community has been modified by the borrower to better represent current demand, and the city recently approved an alternative town center commercial concept with a reduced residential component and the inclusion of big box retail and in-line space, in addition to entertainment, office, and hotel venues. The Biscayne Landing loan matures on May 9, 2009, and has two one-year extension options.

Macon Mall, Wachovia 2005-C20 (Special Servicer: CW Capital Asset Management)
The $137.5 million loan is secured by two cross-collateralized regional malls in Macon, GA and Burlington, NC, owned by the Lightstone Group. Macon Mall is a 1.4 million-square-foot two-level enclosed super regional mall and the Burlington Mall is a 419,194-square-foot one-level enclosed mall. The loan transferred to special servicing in February 2008 due to imminent default. Both properties have had declines in occupancy as a result of new competition in their markets and tenants vacating over the past six months. The borrower has been funding the shortfall over the past year and indicated it would not continue to fund it. The borrower requested a modification that was denied by the special servicer. The loan is now in monetary default, and the borrower will not contest a trust foreclosure, which is expected to occur within 60-90 days. Jones Lang LaSalle Retail has been appointed at receiver/manager of the malls.

Fortress/Ryan’s Portfolio, COMM 2006-C8/COBALT 2006-C1 (Special Servicer: Midland Loan Services)
The $126.5 million loan is secured by a portfolio of 130 retail properties, specifically a mix of restaurant tenants in 22 states that are under a triple net master lease. The loan is current but was transferred to special servicing in February 2008 when the Buffet Holdings Inc. filed for Chapter 11 bankruptcy protection. The lease has not been rejected, and the borrower and tenant have agreed to a lease amendment. A loan modification request submitted by the borrower in conjunction with the lease amendment is currently under review by the special servicer.

Astor Crowne Plaza, GSMSC II 2005-GG4 (Special Servicer: LNR Partners Inc.)
The $81.8 million loan is secured by a 707-room full-service hotel in New Orleans, LA, built in 1920 and renovated in 2002. The loan transferred to the special servicer in September 2006 due to imminent default. The loan was assumed in August 2008 and one of the conditions of the assumption was that the new borrower complete a property improvement plan (PIP). The loan is now current and performing but remains with the special servicer under a rehabilitation period.

LeNature’s Headquarters, MSCI 2006-IQ11 (Special Servicer: LNR Partners Inc.)
The $55.8 million loan is secured by a warehouse distribution facility in Phoenix, AZ, with more than 200,000 square feet of warehouse space, approximately 220,000 square feet of bottling space, and nearly 70,000 square feet of office space. The loan transferred to special servicing in November 2006, three months after the deal was issued, when the single tenant, LeNature, filed for bankruptcy and vacated the space. The loan remains current under the forbearance agreement, and the loan was assumed in June 2008 by a wholly owned subsidiary of CB Richard Ellis Investors LLC, which is continuing to market the property for lease or sale.

Galileo Retail Portfolio, JPMC 2004-PNC1 (Special Servicer: Midland Loan Services)
The $55 million loan is secured by six cross-collateralized retail centers encompassing a total of 683,846 square feet in Connecticut, New Hampshire, North Carolina, and Tennessee. The loan transferred to special servicing in July 2008 due to an impending default as a result of the borrower’s inability to refinance prior to the February 2009 final maturity date. The borrower is a subsidiary of the Centro Properties Group (Centro). Centro does not have the ability to obtain new debt at this time and wants to initiate a timely liquidation of the collateral properties. The note was due Nov. 1. The borrower can only repay in full after Dec. 1, 2008, with no penalty. As of year-end Sept. 30, 2008, the loan had a servicer-reported debt service coverage ratio (DSCR) of 2.45 times (x) and consolidated occupancy of 89.9%, compared to 2.24x and 94.4% at closing, respectively.

Holiday Inn Portfolio, GSMSC 2007-GG10 (Special Servicer: CW Capital Asset Management)
The $48.5 million loan is secured by a portfolio of 11 hotels (10 full service and one limited service), franchised by Holiday Inn and Crown Plaza in seven states. The loan transferred to special servicing in April 2008 due to imminent default. The loan became delinquent in September 2008. Currently, the only two hotels with flags are the Holiday Inn in Sheffield, AL, and the Crowne Plaza in Cedar Rapids, IA. The trust has Prism Hotels (Prism) appointed as receiver on the Sheffield hotel, and the preferred equity of the borrower put Prism into management in the other 10 as of last month. The borrower has made modest progress toward its property improvement plan with Intercontinental Hotels Group and little if any progress with Choice and Wyndham. As of the October remittance, the loan is currently 60 days delinquent.

Country Club Plaza, JPMC 2004-CIBC9 (Special Servicer: Centerline Capital Group)
The $44.8 million loan is secured by a 433,829-square-foot retail center in Sacramento, CA, built in 1960, and renovated in 2003. Gottschalks, Macy’s and Sport Chalet anchor the center. The loan was transferred to special servicing in March 2008 due to imminent default. The borrower continues to make debt service payments. The property has struggled with declining occupancy of its in-line tenants since issuance. As of July 31, 2008, the loan had a servicer reported DSCR of 0.97x and was 91% occupied.

Tallahassee Mall, CSFB 1999-C1 (Special Servicer: LNR Partners Inc.)
The $44 million loan is secured by a leasehold interest in a one- and two-story regional mall in Tallahassee, FL, totaling 965,680 square feet. The loan was transferred to special servicing in August 2008 due to imminent default. The borrower requested debt relief due to cash flow issues after the loss of Goody’s and Dillard’s earlier this year. As of Aug. 31, the property was 65% occupied. As of March 31, 2008, the DSCR was 1.13x. The special servicer is contemplating workout alternatives, including selling the property and taking title into the CMBS Trust.

Weekly Chamber Update

Tuesday, October 28th, 2008

The Taos County Chamber of Commerce, a New Mexico corporation since 1962, is a Membership Association existing for the sole purpose of advancing

our community’s business, agricultural and commercial sectors through the building of its entrepreneurial and economic growth.

TAOS COUNTY CHAMBER OF COMMERCE

BUSINESS UPDATE

Last updated October 27, 2008

To view amendments to this Business Update between Monday’s mailings, visit http://www.taoschamber.com/BusinessUpdate.htm

IN THIS EDITION

Click on link to go directly to that section

1. WEEKLY CALENDAR

2. WELCOME NEW MEMBERS!

3. CHAMBER NEWS

October is Fair Trade Month!–Learn more about Fair Trade and what it means to be Fair Trade Certified
Download anwers to frequently asked questions here.

Take a quick survey about Fair Trade.
Read more in the Fair Trade Beat

Board of Directors—Meeting Agendas & Minutes; Committee updates & contact information
Economic Reports–View Quarterly and Annual Economic Reports for Taos County

Chamber Connection—A monthly update from the TCCC, as seen in the Taos News

Innovators & Entrepreneurs— A Taos News article featuring local business owners

Chamber Master –Taking advantage of your Member Benefits on www.taoschamber.com

Taos Entrepreneurial Network (TEN)—Supporting local entrepreneurs through business education, community outreach and creation of an entrepreneurial network.

Northern New Mexico Business Expo–The largest expo of its kind in Northern New Mexico! Don’t miss out on this great networking opportunity! www.northernnmexpo.com

Business Professionals of America–Offering highschool students an opportunity to learn business skills and compete in business-related areas

Marketing Opportunity Through Yellow Scene–Coop advertising available Download more information Download Flyer

3. TOWN OF TAOS NEWS BRIEFS & IMPORTANT ANNOUNCEMENTS

News Briefs
RFP for Youth & Family Center Concessions

Griffin & Associates Marketing Update- Report for September
Planning & Zoning Update

4. BUSINESS & COMMUNITY RESOURCES

Finance New Mexico–Update on funding still available for small businessess through ACCION New Mexio Article–NM Expidites Loans

NM Small Business Development Center (SBDC) hosting upcoming workshop –7 Habits for Small Business Managers

Rowley Enterprises–Update and resources from Heather Rowley, Organic Agriculture Advocate

New Mexico Restaurant Association hosting Hospitality Legislative Forum

Habitat for Humanity seeking sponsors for Green Home Design Competition

Association of Commerce Industry (ACI) Hosting Member Luncheon–”Aftermath of the Election 2008″

5. CONTACT US

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WEEKLY CALENDAR

Tue 28th 10:00am Town of Taos Special Council Meeting Council Chambers Civic Plaza Drive 575-751-2000

Wed 29th 3:00pm TCCC Community Connection with Brad Hockmeyer KTAO 101.9–Steve Fuhlendorf & TCCC Director Scott McAdams

Thu 30th 2:00 pm TCCC Membership & Ambassador Meeting TCCC Office, Cabot Plaza 108 F Kit Carson Rd 575-751-8800

Thu 30th 3:00pm TCCC Special Board Meeting TCCC Office, Cabot Plaza 108 F Kit Carson Rd 575-751-8800

Fri 31st 11:00am Economic Development Committee Meeting TCCC Office, Cabot Plaza 108 F Kit Carson Rd 575-751-8800

Sat 1st 11am-2pm Bridges Project for Education 2nd Annual College Fair Convention Center Rio Grande Hall Civic Plaza Drive Sue Goldberg at 575-751-7602.

Sat 1st-Mon 3rd Taos Pueblo Closed to all visitors on the due to religious activities. Tentatively will be open at 10am on Sunday. For more info call Marcie Winters Taos Pueblo Tourism 575-758-1028

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WELCOME NEW MEMBERS!

(Listed Alphabetically)

Respess & Respess, PC

36 Mariposa Rd, Arroyo Seco

(575) 776-9858

arespess@mindspring.com

Accountant services

Café Loka

112 Camino de la Placita

(575) 758-4204

www.cafeloka.com

Bakery, Café & Artspace

loka: a sanskrit word denoting world, abode, or place or plane of existence. the root of location. a location in space and time existing separately and independently of the physical dimension.

Jandreau Art

105 Quesnel St

(575) 613-4666

Jandreau Art is a gallery of small works of art from contemporary artists from around the world. Located behind Rellenos Café.

North Central Regional Transit District

(505) 438-3257

www.ncrtd.org

Transit district serving the counties of Los Alamos, Rio Arriba, Taos & Santa Fe and the Pueblos of Pojoaque, San Idelfonso, Ohkay Owingeh, Santa Clara & Tesuque. Schedule available at www. ncrtd.org

Taos Pawn Shop

910 Paseo del Pueblo Norte

(575) 758-4092

taospawn@yahoo.com

Pawn shop, cash loans, retail sales of musical instruments, tools, old Indian jewelry, CDs, bikes, generators, guns and much more!

Unique Perspectives, Ltd.

Chris Knox

(575) 758-3626

unique@newmex.com

Mobile computer repair, including PC hardware, software, operating systems, and networking

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MEMBER ANNOUCEMENTS

New websites!

Made in New Mexico www.madeinnewmexico.com

Jewelz of Taos www.jewelzoftaos.com

Members, please submit your announcements to be included in the Business or Events Update using the access info here, or contact info@taoschamber.com or 575-751-8800 for more information

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CHAMBER NEWS

October is Fair Trade Month!

Earlier this year Town Council Members passed a resolution and enacted stringent guidelines to prepare for the coveted designation. Taos is the first Fair Trade Town in New Mexico, the first in the Western United States, and the fifth nationally.

What does it mean to be Fair Trade? How is buying Fair Trade different than buying organic or buying locally? For answers to these questions and more, download this quick guide to What it means to be Fair Trade

Does your business currently offer Fair Trade products? Would you like to learn more about Fair Trade and how you can support this effort? Take this quick survey and let us know what you think! Simply fill it out and return by email to info@taoschamber.com or by fax to 575-751-8801.

The Fair Trade Beat is a monthly update from TransFair USA, a non-profit, and the only third-party certifier of Fair Trade products in the U.S. The Fair Trade Certified label guarantees that products were produced and traded in an economically, socially, and environmentally responsible way. When you buy Fair Trade Certified products, you support the well-being of families, communities, and the earth.

Chamber Master

Take full advantage of your business directory listing on www.taoschamber.com !

As part of your membership benefits, you can:

- Login with your user name and password to your member page

- List your business information in the online business directory

- Post Hot deals, Job postings, and Events

- Keep your contact information accurate and up-to-date!

- Download complete instructions here

To learn more about this web training or enhancement opportunities, contact:

Anita Bringas, TCCC Membership Director at 575-751-8800 member@taoschamber.com

Jill Schmoyer, ChamberMaster Consultant at 612-616-3919 jill@chambermaster.com

Taos Entrepreneurial Network (TEN) Next meeting—Wednesday, November 19, 2008 6:00-8:00pm

Taos Entrepreneurial Network - TEN meets every third Wednesday of the month at 6:00 pm at the Taos County Chamber of Commerce Office on Kit Carson Road. Our meetings are open to anyone interested in learning more about entrepreneurial efforts in Taos County as well as current business owners who would like to share their knowledge and experience.

TEN’s Vision Statement

Every business entrepreneur in Taos, New Mexico and surrounding communities will be successful according to their own measure and definition.

TEN’s Mission Statement

The mission of the Taos Entrepreneurial Network is to improve the Economic well-being of the citizens of Taos County, New Mexico and surrounding communities through business education, community outreach and creation of an entrepreneurial network.

For more information contact Network Facilitator Victoria S. Gonzales at 770-1079.

Northern New Mexico Business Expo

October 22nd & 23rd at the Buffalo Thunder Resort

Visit www.northernnmexpo.com for full event schedule, workshops and networking opportunities

Newsletter October 7th–Info Tech

Newsletter October 14th–Transportation

Buiness Professionals of America

Taos High School’s chapter of Business Professionals of America (BPA) is starting its program for this school year. The mission of Business Professionals of America is to contribute to the preparation of a world-class workforce through the advancement of leadership, citizenship, academic, and technological skills. This national student organization is an integral part of career and technical education programs. These programs are dedicated to making a positive difference in the lives of young people by developing their potential for premier leadership, personal growth and career success through career and technical education.

Support the Taos Highschool Business Professionals of America! Learn how by dowloading letter from BPA Advisor Tracy Galligan

Tracy Galligan

Business /Computer Teacher and BPA Advisor

134 Cervantes St.

Taos, NM 87571
Phone: (575) 751-8000
Fax: (575) 751-8001

Class: (575) 751-8072

Cell: (505) 927-9022
tragal@taosschools.org

Chamber Connection

View October Chamber Connection

Innovators & Entrepreneurs
October 2, 2008 TAO-Taos Artist Organization
October 9, 2008 Seasons of Taos

Octover 16, 2008 Morning Light Physical Therapy for Women

TCCC Board of Directors

Contact the TCCC Board of Directors

Board of Directors meetings are held the 4th Wednesday of every month at 3:00pm at the TCCC Offices in Cabot Plaza 108 Kit Carson Rd, Suite F. Membership attendance is welcome and encouraged. If you would like to request an agenda item, please contact Anita at member@taoschamber.com or call the TCCC at (575) 751-8800

2008 TCCC Board Agendas & Minutes

Agenda 10-30-08 Minutes 10-30-08

Agenda 10-22-08 Minutes 10-22-08

Agenda 09-24-08 Minutes 09-24-08 No Meeting Held in September

Agenda 08-27-08 Minutes 08-27-08

Agenda 07-23-08 Minutes 07-23-08

TCCC Standing Committees

For information on serving on one of the following committees, or to speak to one of the following issues, please contact the Committee Chair:

By Law & Policy Ralph Lombardi, Chair Email Ralph

Economic Development Christopher Madrid, Chair Email Christopher

Employee Relations Elizabeth Crittenden-Palacios, Chair Email Elizabeth

Government Affairs Luis Reyes, Chair Email Luis

The Taos Project –Peter Wengert, Chair

Agenda 10-10-08 Minutes 10-10-08
Member Relations & Community Outreach—Shawn Duran, Chair Email Shawn

Economic Reports

2nd Quarter 2008
1st Quarter 2008

Annual Report 2007

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TOWN OF TAOS

To receive regular updates and news briefs from the Town of Taos, opt in by contacting Cathy Connelly, Public Relations Director at cconnelly@taosgov.com or at 575-751-2001

Town Web Site and New Outreach Information

Town of Taos News Brief # 77 10-23-08

Town of Taos News Brief # 76 10-21-08

Town of Taos News Brief # 75 10-16-08

Town of Taos News Brief # 74 10-08-08

Town of Taos News Brief # 73 10-03-08

Town of Taos Council Meeting Highlights 10-21-08

Planning & Zoning

Download Summary of Recent P&Z Meeting

P&Z Agenda 11-05-08

Current Marketing Report Now Available from Griffin & Associates

Download September Report

Download Executive Summary

The Town of Taos Youth & Family Department, which runs the Center, is soliciting submissions for the provision of concession stand services. The Request for Proposal (RFP) is attached, with details. Notice is published in the Taos News today, October 9, 2008, and the RFP is also posted on the Town’s web site, http://www.taosgov.com (see Finance at top for drop down index and then click RFPs and Bids).

Town of Taos

400 Camino de la Placita

Taos, NM 87571

http://www.taosgov.com

505-751-2000 office

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BUSINESS & COMMUNITY RESOURCES

ACCION New Mexico

(505) 243-8844

accion@accionnm.org

Website: www.accionnm.org

Association of Commerce and Industry of New Mexico (ACI)

Download October ACI Newsletter

(505) 842-0644

PO Box 9706

Albuquerque, NM 87119

Empowering Business Spirit Initiative (EBS)

Nancy Chatfield, EBS Marketing Coordinator 505-428-7763, 505-929-4064

Scott Beckman, Program Manager 505-989-8004

Finance New Mexico

New Mexico Economic Development Department

1100 St. Francis Drive

Santa Fe, New Mexico 87505 USA

Phone: (505) 827-0278

Mobile: (505) 670-6343

Fax:(505) 827-0263

www.TradeNM.com

New Mexico Economic Development Department Office of International Trade

1100 St. Francis Drive, Suite 1060

Santa Fe, NM 87505

Telephone: 505.827.0300

Fax: 505.827.0328

Email: Trade.Info@state.nm.us

www.TradeNM.com

New Mexico Workforce Connection

Career Connections 2008 is Tuesday, October 14th at the Sagebrush Inn & Convention Center from 10am-2pm. Download Flyer

575-758-4219

1036 Salazar Rd.

www.state.nm.us/dol

ad_taos@state.nm.us

New Mexico Small Business Development Center (SBDC)

“Building New Mexico’s Economy One Business at a Time”

Small Business Development Center at Northern New Mexico College

Main Office At Northern New Mexico College
1027 N. Railroad Avenue
Espanola, New Mexico 87532
Phone:(505) 747-2236
Fax:(505) 747-2234

Taos Office
1332 Gusdorf Road, Suite B
Taos, New Mexico 87571
Phone: (505) 737-5651

SBDC Staff
Julianna Barbee, Director jbarbee@nnmc.edu
Ida Carrillo, Assistant Director icarrillo@nnmc.edu
Gary Bouty, Business Analyst garyb@laplaza.org
Rita Sandoval, Business Support Specialist rtamm@nnmc.edu

New Mexico Small Business Investment Corp

Paul Goblet

NMSBIC Financial Advisor

505-670-1329

New Mexico Tourism Dept

Download October Newsletter

505.827.7400 or

800.545.2070,Lamy Building,491 Old Santa Fe Trail

Santa Fe, NM 87501

Regional Development Corp (RDC)

2209 Miguel Chavez Road, Suite C
Santa Fe, NM 87505
505.820.1226 (office)
505.983.8654 (fax
www.rdcnm.org

Taos Business and Education Collaborative (TBEC)

Leilani Weiermann

Executive Director, TBEC

Taos, NM 87571

Ph: (575) 751-8800 Ext 214

Fax: (575) 751-8801

educate2@taoschamber.com

Taos County Economic Development Corp (TCEDC)

www.tcedc.com

tcedc@tcedc.org

575-758-8731 (ph)

575-758-3201 (fax)

P.O. Box 1389

1021 Salazar Rd.

Taos, NM 87571

Taos County

105 Albright Street, Suite A

Taos, New Mexico 87571
Ph: (575) 737-6300

Fax: (575) 737-6314

www.taoscounty.org

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Taos County Chamber of Commerce

108 F Kit Carson Rd

Taos, NM 87571

575-751-8800 (main)

575-751-8801 (fax)

www.taoschamber.com

Steve Fuhlendorf, CEO

steve@taoschamber.com

Anita Bringas, Membership & Events Director

member@taoschamber.com

Jénelle Adams, Administrative Assistant

info@taoschamber.com

Board of Directors

If you have comments or suggestions on content for this update, please contact member@taoschamber.com

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Overall Market Data

Friday, October 24th, 2008

Retail Property Sales Register Consistent Decline, Shopping Center Sales Drop-Off Dramatically
CoStar Reports on Retail Property Sales Statistics, Capital Market Trends and Outlooks, Executive Opinions and Expectations, and more…

Last week, CoStar Advisor reported on major trends in vacancy, rental rates and construction activity in retail real estate from the Third Quarter 2008 National Retail Report. This week, we turn our attention to retail property sales and overall capital market trends identified in the CoStar report, as well as recent reports issued by Cushman & Wakefield, Jones Lang LaSalle (”JLL”), the International Council of Shopping Centers (”ICSC”) and The Urban Land Institute (”ULI”)/PricewaterhouseCoopers.

Overall Retail Property Sale Statistics

In the National Retail Report, CoStar tallied sales of retail buildings 15,000 square feet or larger that occurred during second quarter 2008. (CoStar reports quarterly sales statistics one quarter later than a quarter’s close date to maximize accuracy and ensure that the information reflects a high percentage of deed records on closed sale transactions that may not have been made public.)

During second quarter, CoStar tracked 350 closed sale transactions of retail property for a total sales volume of $2.62 billion. In comparison to first quarter 2008, 17.8% fewer transactions closed and sales volume was down about 35.2%.

All told, 776 retail property sales closed during the first half of 2008 for a total sales volume of $6.67 billion. In comparison to the first half of 2007, 40.6% fewer transactions closed and sales volume was down about 48.9%.

The average retail building sold for $154.30 per square foot during second quarter, down 16.7% from average price paid for retail property during the first quarter. During the first half of 2008, the retail buildings sold for an average price of $171.67 per square foot, surprisingly 5.6% higher than the average price per square foot for the first half of 2007.

A continued decline in the average capitalization rate for retail property sales continues to tighten the margins investors realize. During the first half of 2008, the average retail cap rate was 6.53%, which compares to 6.78% during the same period in 2007.

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CoStar’s Third Quarter 2008 National Retail Market Report, which provides comprehensive statistics for national and local retail real estate trends, is now available to subscribers under the Analytics / Market Reports headline on the CoStar Control Panel. For non-subscribers, the report can be purchased now via CoStar’s Yahoo Store for a reduced price by following this link.

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Shopping Center Sale Statistics

According to a current search of CoStar COMPs data for sales of shopping centers 15,000 square feet or larger, 82 transactions closed during second quarter 2008 for an aggregate sales volume of $538.14 million. The average price per square foot was $108.91 and the average seller’s cap rate was 7.45%. In comparison to first quarter 2008, 21% fewer transactions closed and sales volume was down nearly 18% while the average price per square foot was surprisingly up about 16%.

Second quarter 2008 shopping center sales activity was down drastically in comparison to the same period in 2007. Specifically, 81% less transactions closed, total sales volume was down about 89%, and the average sale price per square foot was down nearly 28%. Interestingly, the average seller’s cap rate was exactly the same — 7.45%.

With the understanding that not all sales data is in yet for the third quarter of 2008, all signs are pointing to a significant drop-off in activity from previous quarters. Only 41 sales of shopping centers 15,000 square feet or larger have been recorded as closed during third quarter, for a total sales volume of only $206.4 million, an average price per square foot of $99.42, and an average seller’s cap rate of nearly 7.6%.

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Brokerage Houses’ Views

JLL’s Manhattan Capital Markets Group, which includes Thomas Beneville, Nathaniel Rockett and Peter DeCheser, wrote in a Market Update report released earlier this month, “Availability of debt was the primary issue at the outset of the quarter, over which was layered a radical change in forecasts for the health of the leasing market, and a corresponding shift in risk pricing at the end of the quarter. The takeover of Fannie Mae and Freddie Mac, followed by the bankruptcy of Lehman Brothers, the sale of Merrill Lynch, the rescue of AIG, the failure of Washington Mutual and the apparently distressed sale of Wachovia, produced an understandable negative shift in underwriting of market leasing assumptions and higher return requirements.”

JLL went on to point out that while transaction activity is down significantly, it still does not reflect the “on the ground feel” the industry is experiencing, “as most of the deals recorded during this time were made much earlier.”

“Rather than narrowing as more information flows into the market, the bid/ask spread appears to be widening even further as buyers increasingly worry about trying to ‘catch a falling knife.’ In addition to concerns about the health of the market, would-be buyers feel that there will be many opportunities in the new year…and prefer to keep their money in the bank while they wait on forced sales that result. In short, the market is just beginning to come to grips with the full scale and extent of the problems to be solved and will not begin to move forward again until participants feel comfortable that they know where things stand,” said JLL in the report.

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Cushman & Wakefield wrote earlier this month in report titled Financial Industry Crisis: An End in Sight?, “Already sales have fallen [drastically] in volume from a year ago and prices have declined. While it is difficult to get an accurate reading on the investment market because of the small number of transactions, prices are down and cap rates are up, and real estate capital and risk have been fundamentally re-priced for the foreseeable future. What impact this will have on long-term allocation to the sector remains to be seen, but in the meantime we expect to see further price adjustment and cap rate increases.”

Joseph Harbert, chief operating officer of Cushman & Wakefield’s New York Metro Region pointed out in a recent press release addressing third quarter statistics that many deals closed this year have been facilitated by seller financing or loan assumptions. “This is key, as credit is sparse, particularly for larger deals,” said Mr. Harbert. “The tightness in the debt market, combined with the recent financial sector difficulty, has slowed sales volume further in the past few months,” he added.

Harbert says that investors are currently seeking to buy property with strong occupancy and little rollover risk over the next few years. “There has been abundant capital raised for deals, but much of this capital is still on the sidelines, waiting for better opportunities,” said Mr. Harbert. “When investors perceive the market has stabilized, we expect a surge of capital chasing deals.”

“The global economy is going through one of the most difficult periods in its history. The financial stresses of the past month will inevitably make an already difficult economic environment worse, and the next six months or so are likely to be extremely challenging. No industry or sector will be unaffected. The good news is that recent measures have started the necessary process of cleaning up the financial system that will permit the economy to move forward. In that sense this is the beginning of the end of the financial crisis,” said Cushman in the Financial Industry Crisis report.

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Industry Group Views

ICSC recently reported the results of its monthly Shopping Center Executive Opinion Survey, which asked executives’ to give their opinions on shopping center industry conditions between Sept. 19 and Sept. 30. More than 76% of respondents said their local markets have experienced lower property sales in comparison to the prior three-month period. Showing industry executives have come to accept this as reality, only 2.6% of respondents said sales had increased in the past three months.

Even more drastic is the widespread acknowledgement of the tight credit market — 89.2% of executives said that equity financing for retail real estate acquisition and development is less available; not a single respondent believed that equity financing is “more available” than it was three months ago. Further, 94.4% of executives said that this is a worse time to borrow than it was three months ago.

On the subject of capitalization rates, 75.7% of executives said that cap rates are higher or much higher than they were three months ago and not a single respondent said cap rates were lower than three months ago. On their expectations for where cap rates will be six months from now, 8.1% of respondents think cap rates could lower and 24.3% are hoping they will stay the same; however, 67.6% expect cap rates will be higher or much higher than they are now.

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ULI, together with Pricewaterhouse released its Emerging Trends in Real Estate 2009 report on Oct. 21, 2008. This annual industry outlook report, in its 30th year, sums up interview and survey responses from more than 600 real estate experts across all sectors.

The report says that shopping centers have turned a corner and are now perceived as “high risk”, which has shopping center owners “bracing for value losses.” The report, addressing capital markets across all sectors, advises investors not to buy until owners come to grips with these value losses in the form of lower sale prices, “Until sellers relent, investors should sit tight, amass as much capital as possible and wait for prices that clear the market. Opportunities will surface at significant discounts to peak pricing and patience will be rewarded. Investments made in 2009 could result in substantial future returns.”

Many of these “significantly discounted opportunities” may arise from an increasing number of commercial property foreclosures in 2009, according to expectations of respondents. “For 2009, expect commercial foreclosure rates to increase as lenders bite the bullet on workouts and special servicers become more active. Defaults and delinquencies will not approach levels seen in the early 1990s, but could rise to 3% to 4% of outstanding loans.” Bankers will be pressured to “clear up” their portfolios, warns the report.

So what U.S. retail markets are an investor’s best bets? Overall, respondents lean toward major U.S. cities, and dial down even further to urban infill properties. 91.8% of respondents recommend buying or holding on to property in Washington, D.C., followed by Seattle (94.2%), San Francisco (94.2%), Los Angeles (87.9%), New York City (86.7%), Dallas (85.7%), Boston (82.7%), Chicago (81.1%), Houston (79.1%), Denver (77.6%) and San Diego (77.1%).

Where do respondents expect capital to come from in 2009? On the equity side, private equity firms, opportunity funds and hedge funds top the list, followed by institutional investors and pension funds. On the debt side, respondents put mezzanine lenders at the top of the list, followed by non-bank financial institutions and insurance companies. Because of the weak dollar, respondents expect foreign investors to continue to buy property, and a good percentage lean towards retail investment. However, respondents predict that the availability of equity and debt capital from all sources will decline in 2009, and in addition, 69.1% expect underwriting standards will become even more stringent in 2009.

On what to expect for the capital markets in 2009, the report states, “As markets deleverage and correct, the length and severity of the re-pricing process will influence the resumption and intensity of capital flows. No one should make assumptions too readily.”

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Financial Meltdowns Pressuring Real Estate Funds

Friday, October 24th, 2008

Financial Meltdown Pressuring Real Estate Funds
New Strategies for Coping Include: Cancelling Cash Distributions, Selling Assets, Avoiding Risk

The October destruction that took place in the stock and credit markets has hit real estate investment funds of every portfolio makeup hard. Whether they hold properties, REITs or mortgages, funds have seen investors flee and assets drop precipitously in value.

In response, the funds have shored up their cash by selling assets, withholding dividends and readjusting their holdings to conserve value and avoid risk. As a result, success by the funds in the past quarter isn’t being measured in profits, but rather in limiting losses and avoiding foreclosure in some cases.

BlackRock, one of the biggest names in real estate funds, this week reported that the broadly adverse global capital markets hurt market values in all asset classes during the quarter. Assets under management ended the quarter at $1.26 trillion, down 12% since June 30, 2008 and 3% since Sept. 30, 2007.

Net losses for the quarter included $13.4 million in losses from real estate products compared to net gains a year ago of $26.9 million.

“I think it’s fair to say there is not one product in alternatives that has done well,” Laurence D. Fink, chairman and CEO of BlackRock, said in an investor conference call this week discussing third quarter results. “Hedge funds, private equity, real estate all were under extreme pressure.”

“I don’t think any of them expected to have these types of setbacks in terms of declines in [net asset value], but I think more certainly no one had expected to see such illiquidity,” Fink said. “So, I think one of the lessons to be learned will be a greater appreciation for liquid assets, and I do believe a lesson to be learned will be clients are going to have a more conservative portfolio.”

Absent a significant turnaround, Fink said. “Clients will need to reevaluate their assets and liabilities, reconsider allocation and diversification policies, and develop new investment strategies for the future.”

Even smaller funds, such as RMR Funds in Newton, MA, which has historically paid monthly distributions, is suspending distributions to shareholders until further notice. That includes its RMR Real Estate Fund, RMR Hospitality and Real Estate Fund and RMR F.I.R.E. Fund that invest primarily in common and preferred securities.

“In order to meet the asset coverage ratios which are pre-conditions to the payment of common share distributions, the funds may need to reduce their leverage by selling investment securities and redeeming preferred shares,” the company said in a statement to investors. “In an effort to avoid selling securities at distressed prices immediately and to preserve their ability to meet long term investment objectives, each fund is suspending its distributions to common shareholders to allow for a more orderly repositioning of each fund’s investment portfolio.”

NNN 2003 Value Fund LLC, managed by Grubb & Ellis Realty Investors LLC, also is suspending distributions effective Nov. 1, and putting most of its assets up for sale.

The company’s cash balances have decreased significantly this year due to operating losses, debt service requirements and distributions to unit holders.

As of Oct. 8, the fund had unrestricted cash balance of just $1.7 million, Kent W. Peters, CEO of the fund wrote to investors this month. Suspending distributions will enable it to reduce its expenditures by $290,000 per month. Those funds will be applied towards future tenanting costs to lease spaces in its properties.

The fund is trying to sell several assets yet this year and said it will evaluate the sale of its remaining assets.

Up for sale are:

901 Civic in Santa Ana, CA; 99,000 square feet. The property is currently 74% but the fund has a letter of intent to lease approximately 19,000 square feet of the building for five years.

Executive Center I in Dallas, TX; 205,000 square feet. The mortgage loan balance on the property of approximately $5 million became due Oct. 1, but was extended for one year to give it time to sell the property.

Four Resource Square in Charlotte, NC; 152,000 square feet.

Tiffany Square in Colorado Springs, CO; 184,000 square feet. The property has significant refinance exposure as the mortgage loan is due in February 2009. It is marketing the property for sale in order to avoid refinancing.

The Sevens Building in St. Louis, MO; 197,000 square feet. It is marketing the property in order to take advantage of a recent short-term lease signed with the largest tenant in the building and the favorable, assumable financing terms under the present mortgage loan.

Chase Tower in Austin, TX; 389,000 square feet. It is anticipated that the property will be marketed for sale some time in the first half of 2009.

Executive Center II & III - Dallas, TX; 381,000 square feet. The current mortgage loan with LaSalle Bank matures in December 2008; however, two one-year renewal options provide flexibility to market the property.

California Mortgage and Realty Inc. in San Francisco, which manages CMR Mortgage Fund II, has been trying to shift its holdings from primarily mortgages to properties. David Choo, president of the management firm, told investors this has been the toughest year it has ever experienced.

“Our assets, which are primarily mortgage loans and real estate properties we have acquired through foreclosure, are generally illiquid investments that have become even more illiquid during the past year,” Choo wrote to investors this month. “The fund has not been granting redemptions this year and thus ironically, there was no ‘run on our bank.’”

“The fund is not highly leveraged, although it is in many junior positions, and it continues to face challenges of meeting senior debt service requirements,” Choo continued. “These have been and still remain as serious ongoing challenges in an increasingly inactive and illiquid market. We continue to work through the borrowers’ delinquencies and foreclosures and bankruptcies. We continue this uncomfortable journey from being a mortgage investment fund that collected monthly interest payments and sent out monthly distributions to investors to a fund that is becoming an owner of real estate which needs to be managed, marketed and sold or held for the longer term.”

“The fund has managed to meet enough of its debt service requirements to avoid being foreclosed upon by senior lenders other than the few cases where the secondary collateral had insufficient equity value to justify additional investment on our part,” Choo wrote. “By not having had to sell properties at large discounts and not getting foreclosed out in large amounts, we have not to date suffered large losses as a result of losing collateral. We have also worked hard to meet the other operating expenses of the fund to enable our accountants, auditors, attorneys and other service providers to continue to work with us during these difficult times. And we have managed thus far to avoid having to ask our investors to help us by providing additional capital to allow us to better protect the existing capital that you and others already invested.”

In September, CMR Mortgage Fund II:

Acquired two properties: 7,100 acres in Lassen County, CA, intended for ski resort development, and 900 acres of residential development land in Casa Grande, Arizona.

Sold no properties.

Received offers on 28 acres of residential development land in Victorville, CA. Entered into contract to sell an apartment building in Concord, CA. We also entered into contract to sell an apartment complex in Fresno, CA, but that subsequently fell out of escrow.

Refinanced an office/warehouse facility in South San Francisco to raise $1.5 million in cash for immediate needs of the funds. Where it could not sell a particular property immediately, it, for the first time, borrowed against it to help meet monthly cash needs.

Not All Doom and Gloom

Despite the sea of troubles, fund managers were not signaling complete gloom and doom for real estate.

Philip Blumberg, chairman and CEO of Blumberg Capital Partners in Coral Gables, FL, said his firm has just completed a two-year liquidation of its funds real estate holdings and bought out most of its investment partners.

In anticipation of the price declines, Blumberg said, the firm is now exploring investment opportunities in commercial real estate, distressed debt and European REITs.

Laurence Fink, chairman and CEO of BlackRock, said he is also still a believer in real estate.

“I’m actually very bullish on real estate strategies as I believe in some of the real estate platforms, especially multifamily will be a product that we’ll be able to provide coupon and some price appreciation albeit, its going to be much lower than historical returns for this product areas. But I do believe real estate will provide a very safe platform for a lot of investors,” Fink said

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Real Estate Forcaste

Friday, October 24th, 2008

National

October 22, 2008 E-mail this article
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Written by Randyl Drummer

Frozen By Fear: Forecasters Say Real Estate Likely to Hit Bottom in ’09
Moderate Development During Last Boom May Help Markets Avoid Deep V-Shaped Downturn. But Navigating Financial Meltdown May Prove Increasingly Tricky

Economics — the dismal science — earns its nickname during real estate down cycles. And following the shock of seeing Wall Street all but implode, it should not be surprising that the first round of forecasts for next year paints a fairly gloomy picture for commercial real estate — though studious observers (especially those with ample cash for distressed property opportunities) may find a silver lining or two.

U.S. commercial real estate is facing the prospect of its worst year since the depression of 1991-1992, with property values expected to plunge, foreclosures/delinquencies rise sharply, and a limping economy likely to put a crimp in property cash flows, according to the 2009 Emerging Trends in Real Estate report released Tuesday by the Urban Land Institute and PriceWaterhouseCoopers LLP.

Total expected returns on private equity real estate investments will likely drop into negative territory for the first time in nearly two decades as the market hits bottom next year. A weak recovery is expected to begin in 2010.

Two economists delivering different forecasts in recent days both referred to a “minefield effect” in which investors and their lenders — seeing the damage the economic meltdown has done to their colleagues’ portfolios — freeze in their tracks, afraid to make a move.

“In 2005 through 2007, we were walking through the valley, admiring the mountains and the streams, when suddenly we saw somebody blow up,” said Dr. Peter Linneman, chief economist at NAI Global, during a webcast of his quarterly Global Economic Outlook Oct. 17. “Everybody just stops and stares at their feet and starts sweating.”
Based on survey responses and interviews with more than 700 real estate, finance and consulting professionals, the report notes that, while commercial real estate largely escaped the housing and stock market crash, there may be no escaping the explosive devices strewn through the general economy: the credit crisis, a broken financial system, a potentially deep recession, mounting national debt, rising unemployment, consumer fear, higher energy costs and global geopolitical uncertainty.
“There’s a whole minefield of issues out there,” noted ULI Senior Fellow Stephen Blank, who introduced the Emerging Trends report with author Jonathan Miller, partner with NY-based Miller Ryan LLC.

Coral Gables, FL-based Blumberg Capital Partners joined the dire chorus, echoing the others in warning that property prices may erode as much as 20% in 2009 as debt matures and refinancing options continue to evaporate.

Investors who bought property since 2005 are now finding they overpaid and are overleveraged, with few avenues to refinance, said Philip Blumberg, Chairman/CEO and chief investment strategist.

“Unfortunately, too many of those buyers had unrealistic expectations: the economy would continue growing unabated, capital flows would remain at unrealistic levels, pricing of commercial office buildings would continue growing, new buyers would continue emerging and credit would always be plentiful.”

‘This Cycle is Different’
Still, bright spots exist that could contain the implosion. Housing distress is benefiting the apartment market, ranked in the ULI/PricewaterhouseCoopers survey as the number-one asset class for investors. Moderate-income apartments in core urban markets near mass transit centers offer the best buy.

Also, with a few exceptions, development didn’t go crazy during the last boom cycle. The pipeline is emptying and very few construction loans been approved since the beginning of the year — and almost none since midyear, Linneman noted.

“Construction is just dead, dead, dead, dead, dead,” the doctor said. “Those of you who are developers and think you have a great site — mothball it. Get your entitlements, but don’t even waste your time and energy.”
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Editor’s note: For another take on development activity around the nation, read this week’s In The Pipeline column. To receive the column every week for free by e-mail, join our distribution list.
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“In an odd way, the industry was first saved by high construction costs created by demand from abroad — and now, by the complete lack of capital that says supply will be shut off like I haven’t seen at any time in my business career,” Linneman said. “The absence of a development pipeline means 2009 will be rugged, but late 2010 through 2012 are going to be quite good — don’t bet against the U.S. economy. With a modicum of leadership, we’ll get through this, but it will take a long time.”

This cycle is different, agrees Scott Fouser, president/CEO of Portland, OR-based RealNet Investments, LLC. “The major cause of the rapid change was and is the debt markets. One positive thing about this cycle that is different from others is it was not caused by an oversupply of product. Increased transparency in the real estate market has helped lenders avoid overbuilding of most product types.”

Condos, however, somehow slipped through the overbuilding cracks. For the foreseeable future, most new commercial construction will be limited — and “this is a good thing,” Fouser acknowledged. He predicted the trough and recovery would be more U-shaped than V-shaped.

“Existing properties should improve their occupancy rates much more quickly than previous downturns, where too much space needed to be absorbed. However, depending on how broad and deep the trough is, vacancies could increase enough in certain markets to extend the recovery time.”

Capital, Aweigh!
One wildcard is an estimated $300 billion in opportunity capital waiting on the sidelines. When that money starts to enter the market again, there may be a spike in activity, mostly for distressed assets and purchasing debt, Fouser said.

The main beneficiaries of the real estate downturn in the U.S. are cash-rich offshore buyers, who will continue to take advantage of the weak dollar and buy trophy properties in major 24-hour cities, ULI/PriceWaterhouseCoopers respondents said.

Interviewees agreed that eventually, savvy investors will be able to cash in on the inevitable recovery, which some see occurring in 2010. “Money will be made on riding markets back to recovery and releasing properties, not on financing structures,” according to the report.

In fact, wistful investors who wondered whether capital markets had undergone secular changes that eliminated most cyclical risk have been bitterly disappointed, as reported in the latest report. In hindsight, “there was never any structural change, just a temporary surge of capital into the markets. The ensuing leverage binge and transaction ‘fee fest’ morphed suddenly into a financial market debacle, according to the report.

At the very least, cap rates and return expectations will need to recalibrate to more normal historical levels. A consensus of ULI survey respondents estimates that cap rates need to increase about 150 to 200 basis points on average from their recent lows to more normal territory in the 7.5 to 8.5% range, depending on property sector, market and quality.

“That translates into a possible 15 to 20% value haircut,” the study said. “Trophy, 24-hour city properties should have less exposure — with their cap rates rising 50 to 75 basis points — while B and C product could see increases of 200 to 300 points. Inflation and rising interest rates pose additional downside risk.”

Optimists had hoped to counter depreciation from rising cap rates with rising property net operating incomes (NOI). But the lackluster economy dashed those hopes. Instead of rents rising or at least holding steady, owners are resigned to deteriorating leasing, rife with concessions and tenant inducements.

“It’s ‘hunkering-down time’ where the initial winners will be companies that can out-lease and out-manage their competition,” one respondent noted.

Before any rebound, however, private real estate markets need to correct and lenders must help shake out the bad loans by forcing distressed owners into a sale. Debt capital needs to begin flowing and lenders will need to learn to deal with a stricter regulatory environment.

The commercial mortgage-backed securities (CMBS) market must “reformulate,” with bondholders sorting out their complicated portfolios, and regulators need to restore confidence in the securities market. The government will begin a systemic overhaul and insert itself into overseeing mortgage securitization, helping start a more measured debt flow, according to the ULI.
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Editor’s note: For another take on development activity around the nation, read this week’s In The Pipeline column. To receive the column every week for free by e-mail, join our distribution list.
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Finally, the economy needs to improve — and that seems a remote possibility in the short term, with most economists saying the country is either already in or entering a recession. Falling demand for space won’t affect real estate markets severely until 2009. There’s no quick fix for the housing market, and stricter lending standards and the weak economy will continue to drain the home market of buyers.

Advice: Sit Tight and Staff Up for Recovery
A consensus of those interviewed and study authors agreed that the best advice for investors is to sit tight — opportunities will surface at big discounts. Buy discounted loans and recapitalize distressed borrowers, invest in maturity defaults, construction loans, or take mezzanine positions and equity stakes in properties.

Other advice includes investing in publicly held REITs that will lead the market’s recovery, focus investments on “global pathway” markets — 24-hour coastal cities like Seattle, San Francisco, Los Angeles, New York and Boston.

Still more advice: developers should trim staffs, since “there’s no reason to carry overhead when you won’t be able to build for a considerable period.” Brokerages should “rightsize” by firing lower producers. Firms should staff up on asset managers, leasing professionals and workout specialists. (See related CoStar Advisor story about one brokerage’s plans to do just that) Separate good assets from bad; retrench and reposition development assets to mixed-use and infill. Higher-density residential with retail will gain favor in the next building cycle.

Other quick-hit suggestions from respondents in the ULI/PriceWaterhouseCoopers survey:

Go green. Cutting energy and other operating cost is likely to be a growing priority for both landlords and tenants.

Buy or hold multifamily; hold office. Hold hotels, buy residential building lots, but be prepared to hold.

Purchase distressed condos in urban areas near transit.

Focus on neighborhood retail centers with strong grocery anchors and chain drugstores.

Markets to Watch
Seattle and San Francisco held the top two rankings in the ULI study. New York City, traditionally the top-ranked city for investors, slips to fourth place in 2009 due to the financial industry crisis, after Washington, D.C.

Los Angeles holds its own in fifth place, but suburban areas outside the city hard hit by the housing crisis, including Riverside, San Bernardino and Orange counties, will continue to suffer.

Las Vegas and Phoenix head the list of losers, while the report describes Florida markets as in “disarray.” Midwest markets continue to lose ground, however, Chicago manages a “fair” ranking. Texas markets, especially Houston and Dallas, will continue to improve due to oil and other energy industry growth.

Apartments take top position in the report, with distribution/warehouse coming in second. Downtown office space is expected to outperform suburban markets. Retail development may have bottomed out but could decline further, while the housing industry faces more foreclosures and no rebound in values for 2009.

Snapshots of the top 10 markets:

Seattle and its corporate giants are bracing for rising downtown office vacancies; now at 10%. Tepid job growth will flatten rental rates. Housing demand drops and prices will slip but stay above national averages. Interviewees rate the market a strong buy for apartments. The best buy for industrial property is the Puget Sound ports.

San Francisco offers a Pacific gateway, high quality of life and a diversified economy. The city ranks first for development and homebuilding, and is a leading buy city for apartments and office. Housing foreclosures should remain in check, the report notes.

Washington is the ultimate hold market when the economy struggles,” according to the report. Downtown office vacancies should remain below 10% and apartments enjoy strong leasing. Above-average employment helps retail, however, office vacancies continue to soar in northern Virginia, and expect further declines in condominium and home prices.

New York will continue to take a beating. The Wall Street meltdown has cost jobs and office vacancies. Hotels should continue to draw tourists with the weak dollar. Condo/cooperative developers should worry about flagging buyer demand, the report notes.

Los Angeles’ downtown benefits from condo/apartment projects. Hotels benefit from global pathway location. One downside — homebuilders in San Bernardino and Riverside continue to cope with the housing collapse.

Houston stays relatively strong as long as energy stays hot. It makes the top 10 for the first time since 1995. Office vacancies drop but apartments soften. Cheap land results in cheap housing.

Boston’s jobs outlook is more favorable than most cities, with office space tight in the Financial District and the Back Bay area. New harborside hotels threaten older product.

Denver, the CO state capital, has a major federal government presence, which should buffer job losses. Steady population growth and broadening diversification keeps housing stable. New mass transit should pay future dividends.

Dallas compares favorably to other hot-growth markets. Office vacancies downtown are 20% or higher, BUT apartments do well and developers keep building single-family homes.

Chicago: Apartments do well, but condos weaken as speculators leave the market. Office vacancies are in the low teens, and O’Hare International Airport keeps industrial space in the “global pathway.”

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Taos County Chamber of Commerce

Monday, October 20th, 2008

TAOS COUNTY CHAMBER OF COMMERCE

BUSINESS UPDATE

Last updated October 20, 2008