In Depth Analysis: CalculatedRisk Newsletter on Real Estate (Ad Free) Read it here.

Saturday, April 11, 2009

CRE Bust: A Hole in the Ground

by Calculated Risk on 4/11/2009 06:56:00 PM

From The Oregonian: Construction of downtown Portland high-rise is halted by tight credit (ht Shawn, Justin, Neil)

Tom Moyer, one of Portland's most successful real estate developers, will halt work Monday on his 32-floor tower now under construction in downtown Portland.

Moyer's decision to pull 350 workers off the Park Avenue West is a stunning sign that no city, no person and no block is spared from this recession.

... The building, originally scheduled to open in 2011, already was more than half leased by a law firm and a Nike store.
At the job site Friday, the concrete, mechanical and iron workers left the site about 3 p.m. with the building 15 percent finished. It remains just a parking garage, frozen for now about three floors below ground.
[Vanessa Sturgeon, president of TMT Development] said she expects construction to remain stopped until they can find financing in early 2010. They'll use the time to redesign the building and lop off the top 10 stories that were to be "ultra-luxury" condos.
Carpenter Steve Callopy said he has no safety net beyond unemployment compensation and doesn't see any fresh work on the horizon. Commercial construction, in particular, seems to have fallen apart.

"Do you see any commercial stuff going on?" he said. "I see a lot of commercial 'For Lease' signs."
This article makes several key points:

  • Even the best financed CRE developers are halting work. This building was already half leased!

  • The most financing the developer could find was 45% LTV.

  • Even when construction restarts, the developer is "lopping off" the top 10 stories of luxury condos. That condo market will dead for years.

  • There will be many more construction jobs lost this year as CRE projects are completed or halted.