CRE Hopium

Craigslist find:

RESTAURANT FOR SALE
Price: $150,000
This furnished restaurant is ready to go right now with an Outdoor Grill and food service area. Kitchen needs some remodeling work to become fully functional.There are 5,200 Sq. Ft inside and a large outside patio with a fire pit. It overlooks the habor and the boat docks, attacking herds of people to the location. Inside there is a fireplace area to relax in and a beautiful rock waterfall area to sit and enjoy a cocktail and meal.

This restaurant recently closed due to poor management....
... the rent is only $2.24 a Sq. Ft (including the patio Sq. Ft)
----
Eh. What could go wrong?

GRM 13.8

GRM is gross rent multiplier. That means annual rent as a ratio to purchase price.

$2,200,000. That's $220,000 per apartment. Now, I prefer the other GRM, monthly, not annually. Multiply by 12 is all. That's 165. In other words in this market 40% overpriced for a recovery. 60% overpriced for rent deflation expectations. They claim $ $13,000/mo in rent receipts. Taxes would eat the first $2000 every month. Ouch. Debt service also says 40% overpriced on a cash flow basis.

Hope springs eternal.

CRE Overbuilding

LATimes this morning:

The exodus from office buildings that started in late 2007 accelerated during the third quarter as the anemic business climate took its toll on the real estate rental industry, according to the Cushman & Wakefield real estate brokerage.
"These vacancies are a direct reflection on unemployment," said Joe Vargas, an executive vice president at Cushman & Wakefield. "Companies continue to reduce their workforce, or they are not hiring."

Snark translation: Thank you for choosing Cushman & Wakefield. We know you have many choices when analyzing the Southern California CRE market and we are dedicated to making your meal here with us a pleasant one. One note; the entire company is a hopium smoking section for your convienence. On the menu this morning ; one large cup of denial, buttered statistics, a steaming bowl of hypocrisy. For the main course; only the finest hand packed sausage made from the same secret ingredient entrails that go into our projections. For dessert; dollops of a most distracting concoction, blame of unemployment, is piled on top of the truth of overbuilding so that the resulting melange simply transcends understanding. We call it hoocoodanode parfait. And for your entertainment your server will read from his latest book.

IMO SoCal CRE suffers more from shadow overcapacity than does RRE. There were a lot of perfect storm trends that came together to produce this historic imbalance. Those general trends can be broken down into several categories. Economic, demographic, geographic, sociological, technological and competitive. We can spend hours on any but just an example of competitive. The Oxnard Target store is moving. A whole 1/2 mile across the freeway, further away from its cachement locus. Why? Because if they don't a competitor might take that new space and predate their customers. Now you've got a surplus full size Target store close to the core of a large population center.

Ventura Star story:

The closure of Oxnard’s existing Target will increase the barren surroundings of the area, which has seen its share of shuttered businesses: 24 Hour Fitness next door to Target; the abandoned Wagon Wheel area across Oxnard Boulevard; and a nearby boarded-up building that formerly housed Levitz.

Curtis Cannon, the city’s community development director, said he’s not concerned.

The green arrow is the new Target location:

Just for Cobradriver

Kunstler's Eyesore of the month is a Seminole Gaming project.

"Located 30 miles east of glitzy Naples, Immokalee is one of the most economically depressed areas in the US. It's home mostly to recent immigrants who work the nearby fields. The city is notorious for crime and general destitution. Its decaying buildings are seemingly held together only by the bars visible on every window. Many newer structures don't have windows. It's that kind of place.
"For decades Immokalee has been a blemish on the repute of nearby Naples, both located in Collier County. And for just as long, residents of Naples have attempted to create a newer, better, cleaner Immokalee, but with little success. The latest proposal calls for a massive addition to the existing Seminole Casino, a dingy outpost of video poker and 28-deck-shoe blackjack that occupies a pimped out ex-aircraft hanger on the skirts of town. This, of course, is being sold as What Immokalee Needs.
"Curious is the artist's representation of a south Florida hotel with hills in the background."

Well Equipped

It isn't just about having the right equipment. There's timing and location and leverage. Seems Sports Chalet (SPCHA is having trouble with the later. From the LATimes article:

With all of its stores in California, Nevada, Arizona and Utah, Sport Chalet "can hardly have been in a worse geographic location to weather the housing crisis," said Sean McGowan, an analyst at Needham & Co. "They're just right in the cross hairs."

Recession effects aside, Sport Chalet has made some missteps of its own. Analysts questioned the placement of several of the chain's latest locations, such as stores opened last year in Menifee, Calif., and Queen Creek, Ariz.

"Those are stores that were driven by the fact that there were a lot of new homes being built in that area," Mintz said. "And now that's the area where homes are standing empty and being foreclosed on."

More paintball and indoor flying model clubs coming soon.

MIT CRE TU

March 23 , 2009 update: The latest results of the Moodys/REAL CPPI show a return of negative 5.5% in December for the all properties national index.
Data available at the website.

The contagion is in CRE now too.

Seattle Hubris

Man is dey eva gonna git whacked. Click the pictures for a larger view.

Seattle is starting to exhibit the classic signs of a boom bust where special circumstances let them sail right over the edge. Look at the cranes. What are they building? When will they come on line? Who will invest? ENers know the reason. And in honor of anointed future president Obama's speech this morning; Ich ein ist ENers.

Gavshire Hathaway writes on Calculated risk:
I'm sitting here in Seattle, and I'm starting to see all kinds of signs that the CRE collapse is coming. From out my window I can count about 20 cranes building office buildings and condos.

Gav is right. The first crack was when the massive 13 acre family owned downtown redevelopment fell apart this spring. The lots were amassed over decades and were collectivized June of 2007. We all know what happened to lending the next month.
Seattle Times has it.
Those pesky bloggers picked it up.
And CNN Money runs the obituary July 22, 2008.

Being the last person to drink the kool-aid means getting to digest the sediment.

Blog Note: I took those pictures last month on vacation to the region. As the most excellent RE advisor Bawldguy repeatedly harps; there ain't no substitute for feet on the ground.

Charts are Astrology

Like my title, I think charts are generally useless but when the long term chart like GGP going back to the 1990s looks like a textbook case of parabolic then head and shoulders with a compressed right shoulder decline even skeptics like me are given pause. Maybe there is some value in charting.

Someone I admire and recommend recently said:

We have also lowered the occupancy rates in the recession version expecting lowering demand for shopping space in the wake of falling retail sales and consumer demand

This was Reggie Middleton this week.

Ahhhh. I can sleep now that Reggie has revisited vacancies. Read his blog/website. Caution: There is absolutely no evidence of what I am about to say.

The US has at least twice the retail/commercial square footage needed for the modern economy going forward.

I know it will take many quarters, perhaps years to be proven right. I can wait.

I run my business literally from a shed in the backyard. FedEx and UPS don't have a problem. Paypal and Time Warner don't either. My clients could care less about an office front. Think about all the places you do business with. Do they need all the overhead they are carrying? We could stop building general purpose commercial/retail space for a generation and still accommodate a strong, growing economy.