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Monthly Archives: April 2008

From WSJ

April 9, 2008; Page C10

Weak consumer spending is pushing struggling retailers close to or over the edge, and that is starting to hurt shopping-mall owners.

The latest retail casualty is Linens ‘n Things Inc., a 500-store home-accessory chain, which is considering filing for bankruptcy-court protection as soon as this week. The chain, which went private in a leveraged buyout two years ago, is running short of cash, and its vendors have stopped shipping products, said two people familiar with the company.

For shopping-mall owners, it is a rude awakening from the boom times of the past few years, when consumers borrowed to furnish new homes. While vacancies should remain low, the slowdown means weaker rent growth for all mall owners and serious pain for the most heavily indebted landlords.

Stock investors are dismissing the weakness, driving up shares of retail-property owners 7.7% this year, though the sector fell 19.6% last year.

The list of weak retailers is growing by the day, including furniture seller Domain Inc., high-end jeweler Fortunoff Inc. and electronics merchant Sharper Image Corp., all of which have sought bankruptcy protection since January.

Mall mainstay Foot Locker Inc. closed 274 stores last year and anticipates 140 more closures this year. Jeweler Zale Corp. is closing 100 stores in the wake of disastrous holiday sales. Wilsons the Leather Experts Inc. is closing 158 of its 260 mall stores this year, and teen retailer Pacific Sunwear of California Inc. is closing its 153-store Demo chain.

Making matters worse, new construction will raise the total amount of retail space by 3.5% this year in the top 54 U.S. markets. But retail-sales demand, which has slowed with the economy, will justify only a third of that new space when it is completed, according to market-research firm Property & Portfolio Research Inc.

Problems with lenders are especially painful for retail landlords who bet that rising rents and falling vacancies would help them handle heavy debt loads.

Centro Properties Group, a debt-laden Australian real-estate investment trust that owns 682 shopping centers in the U.S., faces an April 30 deadline to present a plan for repaying $3.4 billion in short-term debt that it failed to pay on time earlier this year. The company recently attracted preliminary buyout bids averaging $1 per share, according to people familiar with the matter, far less than the 10 Australian dollars (US$9.27) per share it traded for last year.

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Economic Real Estate Trends – By PMI

After several years of unsustainable gains, house prices are now declining in many parts of the country as well as for the country as a whole. According to the Office of Federal Housing Enterprise Oversight (OFHEO), national house prices dropped for the first time since its price series began in 1991. Prices in the seasonally adjusted purchase-only index fell by 0.3 percent in the fourth quarter of 2007 from the previous year. Even worse, when annualized, the decline in prices between the third quarter and the fourth quarter was 5.1 percent, suggesting
that the downturn in prices was intensifying as 2007 came to a close. Broader measures of house prices, such as that from S&P/Case-Shiller, show four-quarter prices down by a record 8.9 percent in the last quarter of the year, and by 19.8 percent at annual rates in that quarter. Given these large, and intensifying, price declines, how far will house prices fall before they start to recover?

Our models indicate that the decline in house prices is only about one-third to one-half over, due primarily to the magnitude of the supply/demand imbalance in the housing market. This assumes that the current economic downturn is both short and modest, and that the disarray in financial markets ends soon. Given the drop in prices already seen, the broad S&P/Case-Shiller house price index could decline by roughly 15-25 percent. The narrower OFHEO index could decline by a lesser 5-10 percent, because it excludes jumbo loans and the large portion of subprime and Alt-A loans that Fannie Mae and Freddie Mac don’t participate in. The difference between these measures is a rough estimate of how much worse the price decline is likely to be for houses using subprime, Alt-A, or jumbo mortgage financing.

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Appraiser News Online Headlines
Last Updated: March 28, 2008

On April 24, Appraisal Institute members will lobby Congress during the association’s annual Leadership Development & Advisory Council event in Washington, D.C. One issue LDAC participants will lobby on is appraisal regulatory reform. They will be urging the Senate to pass H.R. 3915, which contains improvements to Title XI of FIRREA. At the same time, LDAC participants will lobby against a provision contained in another bill pending in the Senate, S. 2452, that would impose a bonding requirement on residential appraisers and give consumers a private right of action against appraisers.


Appraisers are being encouraged to contact their Senators in advance of LDAC to urge them to seek the removal of the bonding and right-of-action against appraisers provisions in S. 2452. Brian Rodgers, the Appraisal Institute’s Congressional Representative, said appraisers should ask their Senators to “focus on the helpful and productive solutions in the appraisal industry, by including the House-passed appraisal reform provisions from H.R. 3915 in any legislation in the Senate.”

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From Forbes:

U.S. home loan applications spiked last week. The frenzy might be related to the government’s car salesman-style “get ’em while their hot” ploys to stoke, and possibly stabilize, the mortgage market.

On Wednesday, the Mortgage Bankers Association reported a 12.9% jump in applications for loans backed by government programs such as the Federal Housing Administration and the Veterans Administration. This sub-index rose to 375.2, nearly three times last’s year’s level.

Certain D.C. players are pushing to further expand the growing scope of Ginnie’s lending powers which lead to new, and perhaps, not so lucky for-profit bedfellows. (See “The FHA’s Private Partners” )

The MBA also posted a 5.4% jump in its seasonally adjusted index of mortgage application activity to 725.6 from 646.6 during the same period last year. The index of measuring mortgage refinancing applications for the week ended April 4 rose 3.4% to 2,724.7, and its home loan index climbed 8.1% to 384.7.

From Bloomberg News:

Mark Shenk- April 9 (Bloomberg) — Crude oil rose above $111 a barrel in New York and gasoline surged to a record after a government report showed that U.S. supplies unexpectedly dropped.

Crude oil inventories fell 3.15 million barrels to 316 million last week, the Energy Department said. A 2.3-million- barrel gain was forecast, according to a Bloomberg News survey. Metals futures also rose as the dollar fell against the euro, and gasoline pump prices reached a record average $3.343 a gallon.

“It looks like this move will accelerate and prices will move toward $115,” said Tom Bentz, a broker at BNP Paribas in New York. “This is all part of the big uptrend, and where it stops nobody knows.”

Crude oil for May delivery rose $2.37, or 2.2 percent, to $110.87 a barrel at 11:15 a.m. on the New York Mercantile Exchange. Futures reached $111.43, the highest since March 17, when prices touched a record $111.80 a barrel. Oil is up 80 percent from a year ago.

Gasoline for May delivery climbed 3.9 cents, or 1.4 percent, to $2.7894 a gallon. Futures reached $2.8228, an intraday record for gasoline to be blended with ethanol, known as RBOB, which began trading in October 2005.

U.S. pump prices are following futures higher. Regular gasoline, averaged nationwide, rose 1.2 cents to the record, AAA, the nation’s largest motorist organization, said today on its Web site.

Refineries operated at 83 percent of capacity last week, the Energy Department report showed. Plants used 88.4 percent during the same week last year. Refiners operated at 82.2 percent in the week ended March 21, the lowest since October 2005, the department said.

MarketWatch Pulse – Wednesday, Apr. 9 2008

BOSTON — Analysts at Lehman Brothers on Wednesday cut their earnings estimates on several apartment real estate investment trusts, including Apartment Investment and Management Co. , AvalonBay Communities Inc. , Camden Property Trust , Equity Residential and Post Properties Inc.  

“We believe the challenging economic/jobs outlook combined with the oversupply of residential property will put downward pressure on apartment fundamentals,” the analysts wrote in a research note. They said they are maintaining their previous price targets on the stocks despite the lowered earnings expectations “to reflect the current relative debt financing advantage that apartment owners enjoy over the other property types.” 

From WSJ:

Italian businessman Luigi Zunino, who is in contract to buy an apartment at New York’s Plaza condominium, is already seeking someone to pay $100 million for it, people familiar with the matter say.

Mr. Zunino, chief executive of Milan-based property company Risanamento SpA, hasn’t yet closed on the third-floor apartment of 10,000 square feet, the people say. The agreed-upon purchase price couldn’t be learned, but Plaza condos have sold for $4,000 to more than $6,000 per square foot. A spokesman for Mr. Zunino confirmed the condo contract but declined to elaborate.

The storied 1907 Plaza Hotel has recently reopened as a mix of hotel and condo units. Owners include Bear Stearns Chairman James Cayne and developer Harry Macklowe, who bought an apartment for nearly $60 million last June. A $100 million price, or roughly $10,000 per square foot, would test the upper limits of Manhattan’s market. The residential record there is likely an apartment at The Pierre that sold for $8,000 per square foot, several brokers say.

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