by Calculated Risk on 3/10/2009 06:13:00 PM

From the NY Times: Rising Appeal of Short-Term Leases

Both tenants and landlords seem to be growing afraid of commitment these days. With the economic outlook murky at best, fewer of them want to tie themselves to long leases.

In Manhattan, where office leases often last 10 years, there has been a noticeable uptick recently of leases lasting only one to three years. ...

In all of Manhattan, 21 percent of the office leases that were signed in the fourth quarter of 2008 were for three years or less, compared with 15 percent in the corresponding quarter a year earlier, according to Cushman & Wakefield, a real estate brokerage firm that compiles data on commercial transactions. Brokers say they expect short-term leases to become even more fashionable this year.

“There’s a lot of anxiety out there, and short-term decisions are easier to rationalize,” said David L. Hoffman Jr., a principal at Colliers ABR, a real estate services company.
...
[Jeff Furber, the chief executive of AEW Capital Management] said that tenants were driving the demand for short-term contracts and that he would be happy to sign office leases for five years or more. “But business conditions are deteriorating so rapidly,” Mr. Furber said. “Tenants are saying that they’re just not sure how much space they’ll need in a year or two, so it is hard for them to commit.”
...
“This is the first time that I can remember when both landlords and tenants want to do short-term leases,” [Ken Perry, the chief investment officer and director of asset management for the Swig Company] said.

He said that usually one side or the other saw an advantage in this approach, depending on which direction rents were thought to be heading. “But with all of this uncertainty in the markets, neither side wants to go long term.”

As Mr. Perry notes, usually one party or the other wants to go long term. Now landlords don't want to go long term - because they are hoping rents will recover - and tenants don't want to go long term because business conditions are deteriorating rapidly and they don't want to be stuck with excess space. Interesting times ...

Update: to be clear - it is a tenant market - so whatever the tenant wants, the tenant gets.

by Calculated Risk on 3/10/2009 03:57:00 PM

Quite an up day ....

DOW up 5.7%

S&P 500 up 6.3%

NASDAQ up 7.1%

The following graph puts the rally into perspective:

Click on graph for larger image in new window.

This graph is from Doug Short of dshort.com (financial planner): "Four Bad Bears".

This is the 2nd worst S&P 500 / DOW bear market in the U.S. in 100 years.

Note that the Great Depression crash is based on the DOW; the three others are for the S&P 500.

by Calculated Risk on 3/10/2009 03:34:00 PM

From Dow Jones: Con-way CEO Sees Evidence Of Bottoming In Volume Slide

Con-way Inc. Chief Executive Doug Stotlar voiced some optimism Tuesday that a persistent slide in freight volumes could be stemming, citing a seasonal uptick so far in March.

"We hope that we're at the bottom," Stotlar said, speaking at a Raymond James conference in Orlando, Fla.
...
But Stotlar, whose comments were broadcast over the Internet, added that he can't quantify the March increase yet nor say for certain that it signifies a bottom.

Tonnage at Con-way's main unit, its less-than-truckload freight business, was off about 13% in January and about 12% last month. Stotlar said the company is getting a seasonal lift so far in March - indicating the trend may have bottomed - although "we're at a much lower level than we were prior to the economic downturn."

The trucking survey should be available soon.

by Calculated Risk on 3/10/2009 01:56:00 PM

From MarketWatch: AT&T to spend up to $18 bln on capital expenditures in 2009

AT&T Inc. said Tuesday it plans to invest $17 billion to $18 billion in 2009. About two-thirds of expenditures are earmarked for expanding the company's wireless and wired broadband networks, AT&T said.

The story doesn't mention that AT&T spent $20.3 billion on capital expenditures in 2008, so the announcement today is in line with AT&T's previous announcement on Jan 28th:

Total capital expenditures for 2009 are expected to be down 10 to 15 percent versus 2008 levels.

I guess the good news is they didn't reduce their plans further!

Note: There will be a significant investment slump in Q1 2009, especially in equipment & software and non-residential structures.

by Calculated Risk on 3/10/2009 11:34:00 AM

From Manheim Consulting: Wholesale Prices Rise in February (ht Brian)

Wholesale used vehicle prices (on a mix, mileage, and seasonally adjusted basis) increased significantly again in February. Seasonally adjusted, February’s rise was 3.7%, which came on the heels of a 3.8% increase in January. The Manheim Used Vehicle Value Index now stands at 105.5, which represents a year-over-year decline of 2.4%.

Some analysts have suggested that the rapid rise in wholesale used vehicle pricing is a precursor to an improvement in new vehicle sales and may even point to a recovery in the overall economy. It’s more likely, however, that the turnaround in wholesale used vehicle values is a necessary, but not a sufficient, condition for a better new vehicle market. That’s especially true given that the recent rise in auction pricing has been driven in large part by supply dynamics that were created by the unprecedented slowdown in new vehicle sales.
...
Buyers switch to used vehicles. Comments from dealers indicate that potential new vehicle buyers are opting instead to buy used. Evidence that these buyers could have actually afforded a new vehicle is provided by the fact that many of today’s used vehicle customers are making significant downpayments and the shorter loan maturity (relative to new vehicles) means that the monthly payment on their used vehicle loan would often be enough to buy new.

Click on table for larger image in new window.

This index from Manheim Consulting is based on all completed sales transactions at Manheim’s U.S. auctions (A sample size of over five million transactions annually).

As noted above, buyers have switched from new to used cars - pushing up the prices of used cars. This is a probably a necessary step to higher new car sales.

Also according to Manheim, February’s sales rate new vehicles was only 9.1 million units (SAAR). That would be the lowest rate since early 1967!

by Calculated Risk on 3/10/2009 08:56:00 AM

From the WSJ: U.S. Weighs Further Steps for Citi

Barely a week after the third rescue of Citigroup Inc., U.S. officials are examining what fresh steps they might need to take to stabilize the bank if its problems mount ...

Citi executives said they haven't detected signs of corporate clients or trading partners withdrawing their business ...

Banking regulators and Treasury officials called Citigroup executives over the weekend ... the talks were geared toward future planning and that no new rescue was imminent. ... The discussions include the Treasury Department, Office of the Comptroller of the Currency, Federal Reserve and Federal Deposit Insurance Corp.

From MarketWatch: Citigroup's shares rise as CEO plugs performance

... Chief Executive Vikram Pandit said the hard-hit provider of financial services firm was profitable during the first two months of the year and called its capital position "strong."

Here is a memo from Pandit to employees.

by Calculated Risk on 3/10/2009 12:26:00 AM

From the WaPo: Detox for Troubled Assets

The government's plan to strip banks of troubled assets could force some firms to record large losses, but the painful purge would help restore confidence in the banking system, according to Sheila C. Bair, chairman of the Federal Deposit Insurance Corp.

Bair said yesterday that the effort might require more money than the $700 billion Congress has approved to aid the financial industry ...

This is an interesting interview. It it not clear that Sheila Bair understands that the "public-private investment funds" will overpay for toxic assets because they are receiving low interest non-recourse loans with limited downside risk (a direct subsidy from taxpayers to the banks). She thinks that

"The government, by providing low-cost funding, it will help to tease out that liquidity premium from the pricing and hopefully get the pricing a little higher."

And even at these above market prices, selling these assets will still leave a huge hole in the banks' balance sheets. However Bair sees this as a positive:

Bair emphasized that banks forced to take large losses might not need more government money because, newly cleansed, they would be in position to raise money from private investors. She said the size of the write-downs actually could be a positive, by establishing that banks are free of their problems.

Insolvency is success.

by Calculated Risk on 3/09/2009 10:37:00 PM

From the WSJ: S&P Puts Mortgage-Backed Securities on Downgrade Watch (ht Bob_in_MA)

Standard & Poor's Ratings Service on Monday placed its ratings on $552.8 billion worth of U.S. first-lien Alt-A residential mortgage-backed securities issued between 2005 and 2007 on watch for downgrade, saying it sees an increase in losses from the transactions issued in those years.
...
S&P said it believes continued foreclosures, distressed sales, an increase in carrying costs for properties in inventory and more declines in home sales will further depress prices and lead to higher losses.

The beat goes on.

by Calculated Risk on 3/09/2009 09:00:00 PM

Teams from the Treasury Department and Federal Reserve are analyzing the appropriate terms and conditions for accepting commercial mortgage-backed securities (CMBS) and are evaluating a number of other types of AAA-rated newly issued ABS for possible acceptance under the expanded program.
Federal Reserve, TALF, March 3, 2009

From the Christian Science Monitor: Real estate woes seep into malls, office towers

By April, the federal government expects to have a plan to refinance office towers and shopping centers in danger of defaulting. The scale is likely to be massive...

For now, commercial delinquencies are few. But office vacancy rates are heading toward record levels, according to one estimate, and banks are exposed, with $1.72 trillion in commercial real estate loans outstanding as of Feb. 18.

Just as significant, many insurance companies and pension funds have invested in real estate, putting them at risk, as well.
...
This year some $300 billion in loans to developers are due to be refinanced by commercial banks. Given the decline in the economy, many real estate ventures might not be able to survive if they are not able to refinance their loans on better terms more reflective of today’s economic conditions. But banks are largely refusing to refinance as the properties drop in value.

Last year there was some discussion of a bailout for CRE investors, and that didn't make any sense. This article seems to suggest that the Fed will be helping with a solvency problem because of rising vacancy rates and falling property values. I don't think that is the Fed's intention.

The Fed is considering a program to provide liquidity for newly issued AAA-rated CMBS. That won't help investors who bought at the top, but it will help property owners with strong cash flow positions to refinance. The Fed's role is liquidity, not solvency.

No Pop-up comments.

by Calculated Risk on 3/09/2009 06:23:00 PM

The FDIC allowed 60 Minutes to follow along on the seizing of Heritage Community Bank in Glenwood, Illinois on Feb 27th. This segment provides glimpses of the process. (ht Jon)

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