It´s a case of worse, more worse, and worst when it comes to assessing the condition of U.S. property sectors.
Multifamily has the highest delinquency rates and some markets are getting killed by all the failed condos turning into rentals. But unlike the other sectors, multifamily borrowers can find financing through Fannie Mae and Freddie Mac. That´s enabling more transactions and bucking up some owners who had borrowed responsibly earlier in the decade and can find a safe harbor for refinancing their cash flowing properties. Nearly everybody says apartments will rebound more quickly when the economy starts to improve. Doubling up and kids living with parents will reverse, and yes we know, we know-the demographics are very favorable.
Warehouse struggle with declines in consumer spending and the housing markets. There´s not as much stuff-materials, goods, clothing, toys, whatever-moving through the distribution system. Vacancies are at or near record highs, but institutional investors want them in their core portfolios and they tend to stay in better supply/demand balance over time. Well that´s better than office.
Investors bemoan the plight of office markets-demand has disappeared, and spiking vacancy rates don´t tell the whole story of mounting shadow space coming on the market. Values plummet and borrowers can´t find refinancing. Owners get ready to give back the keys unwilling to shell out for tenant improvements and other concessions to hold onto their occupancies. Their lenders face large write offs.
Retail, of course, is a disaster area. We´re back to the early nineties when lower quality B and C regional malls will go belly up. How long can some power centers hold up as their big box tenants go out of business? Too many leisure and strip shopping centers exist as Americans grapple with reality-they can´t keep spending on credit anymore and they need to come to terms with personal debt.
Hotels always get hit hard in economic downturns and get clobbered today. Wholesale defaults are coming on floating rate debt which bankrolled most recent purchases at over the top pricing. Occupancy rates sag below break even, but the bigger problem is dropping room rates. Businesses savage travel budgets and many people just can´t afford vacations with their personal finances in shambles.
Housing led the pack into the maelstrom three years ago and only now may be stabilizing with dim prospects for any rebound... That´s not good news for all these other sectors following behind.
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Jonathan D. Miller
A marketing communication strategist who turned to real estate analysis, Jonathan D. Miller is a foremost interpreter of 21st citistate futures – cities and suburbs alike – seen through the lens of lifestyles and market realities. For more than 20 years (1992-2013), Miller authored Emerging Trends in Real Estate, the leading commercial real estate industry outlook report, published annually by PricewaterhouseCoopers and the Urban Land Institute (ULI). He has lectures frequently on trends in real estate, including the future of America's major 24-hour urban centers and sprawling suburbs. He also has been author of ULI’s annual forecasts on infrastructure and its What’s Next? series of forecasts. On a weekly basis, he writes the Trendczar blog for GlobeStreet.com, the real estate news website. Outside his published forecasting work, Miller is a prominent communications/institutional investor-marketing strategist and partner in Miller Ryan LLC, helping corporate clients develop and execute branding and communications programs. He led the re-branding of GMAC Commercial Mortgage to Capmark Financial Group Inc. and he was part of the management team that helped build Equitable Real Estate Investment Management, Inc. (subsequently Lend Lease Real Estate Investments, Inc.) into the leading real estate advisor to pension funds and other real institutional investors. He joined the Equitable Life Assurance Society of the U.S. in 1981, moving to Equitable Real Estate in 1984 as head of Corporate/Marketing Communications. In the 1980's he managed relations for several of the country's most prominent real estate developments including New York's Trump Tower and the Equitable Center. Earlier in his career, Miller was a reporter for Gannett Newspapers. He is a member of the Citistates Group and a board member of NYC Outward Bound Schools and the Center for Employment Opportunities.
