by Calculated Risk on 10/12/2009 06:42:00 PM

From CB Richard Ellis: U.S. Retail Cap Rates

Ending at 8.71%, cap rates were up again. The 59 basis point gain is the largest quarterly increase we have ever measured, even trumping last quarter's previous record.
emphasis added

Click on graph for larger image in new window.

This graph from CBRE shows the retail cap rate since 2003. Note that 2009 is an average of Q1 through Q3, and the cap rate in Q3 was at 8.71% - above the 2003 annual level.

Sharply higher vacancy rates, lower rents, reduced leverage and much higher cap rates - this is what Brian calls the "neutron bomb for RE equity"; destroys CRE investors (and lenders), but leaves the buildings still standing.

Cap Rate: the net operating income divided by the current value (or purchase price). Net operating income excludes depreciation and interest expenses. Say an investor paid $100 thousand in cash for a retail property, the investor would expect to clear $8,710 in cash per year after expenses with an 8.71% cap rate (the $8,710 is before paying income taxes that depend on financing and depreciation).

by Calculated Risk on 10/12/2009 04:45:00 PM

From Larry Gonick's The Cartoon History of the Modern World, Part 2, on page 248 ... (ht TDM)

Click on cartoon for larger image in new window.

Posted with permission from Larry Gonick. Thanks!

For more on Tanta, see the menu bar above ...

by Calculated Risk on 10/12/2009 02:10:00 PM

Renae Merle at the WaPo writes about Bank of America's struggles to ramp-up their mortgage modification department: Racing the Clock to Avoid Foreclosures

The following section probably requires more explanation:

The company was also slow out of the box because it initially took a more conservative approach than some other banks, requiring that borrowers document their income and complete other paperwork before granting preliminary approval for a modification. In August, Bank of America softened the requirement and began authorizing some modifications without getting all the documents first.

Read mort_fin notes:

"What the article doesn't make clear is that what was changed was the timing of the income documentation, not the level. It used to be the case that bofa required full documentation of income before they would even run the numbers to tell a borrower that they qualified. Now they will give an answer over the phone and start a trial mod, giving the borrower a month or 2 to provide the docs. No docs, no permanent mod. A borrower who can't document their claims gets a month or two of reduced payments before getting kicked out."

This is why it will be important to watch the number of permanent modifications over the next few months. The Treasury announced last week that 500,000 modifications have been started, but the Obama plan had produced only 1,711 permanent loan modifications as of Sept. 1. That number should increase sharply soon.

by Calculated Risk on 10/12/2009 12:17:00 PM

From HotelNewsNow.com: Hotel Industry Pulse stalls

Economic research firm e-forecasting.com in conjunction with Smith Travel Research announced the HIP hit a snag in its recovery. After going up two months in a row, HIP declined 2.1 percent in September. HIP, the Hotel Industry's Pulse index, is a composite indicator that gauges business activity in the U.S. hotel industry in real-time. The latest decline brought the index to a reading of 79.7. The index was set to equal 100 in 2000.
...
“The HIP had shown improvements over the previous two months, but we’ve tried to approach those gains with cautious optimism,” said Chad Church, industry research manager at STR. “Over the past months, we saw leisure demand continue to make strides in recovery while business travel maintained its downward trend. Now that the summer travel season has come to an end, we’re waiting to see any signs of life from the business segment.”

Click on graph for larger image in new window.

This index is now at the lowest point since 1992.

Over the last couple of years the hotel industry has been crushed. RevPAR (Revenue per available room) is off about 14% compared to the same period in 2008. And at the current occupancy and room rate levels, many hotels are losing money.

HIP historical data provided by HotelNewsNow.com and e-forecasting.com.

More from Chad Church at STR: STR's October forecast holds steady

As we come to conference season again, our outlook for 2010 and 2011 will depend heavily on the performance data we see during the next two months. ... As of now, we stand at a RevPAR projection of -4.2 percent in 2010.

Chad provides this graph comparing weekend (leisure) vs. business travel:

"[D]emand in the weekend segment (which we use as a gauge for leisure travel) has stabilized, while demand in the weekday segment has yet to hit a definitive bottom. If the unemployment rate remains close to 10 percent throughout 2010, sustained demand growth in the leisure segment will be difficult. The corporate travel segment will then be the barometer for recovery, and as of August, there have been no discernable trends in our monthly data to indicate a turning point."

I'll have more on Thursday, but the hotel industry is still searching for a bottom for the occupancy rate, and at the current low occupancy rates, the Average Daily Rate and RevPAR will continue to decline in 2010.

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

Note: The Sacramento Association of REALTORS® is now breaking out monthly resales by equity sales (conventional resales), and distressed sales (Short sales and REO sales). I'm following this series (as an example) to see changes in the mix.

Click on graph for larger image in new window.

Here is the September data.

They started breaking out REO sales last year, but this is only the fourth monthly report with short sales. About 63 percent of all resales (single family homes and condos) were distressed sales in September.

The second graph shows the mix for the last four months. Conventional and short sales have held steady, but foreclosure resales were lower in August and September. There are many reports of more foreclosures coming, and the number of foreclosure resales should pick up later this year.

Total sales in September were off 18% compared to September 2008; the fourth month in a row with declining YoY sales.

On financing, over half the sales were either all cash (25.2%) or FHA loans (27.6%), suggesting most of the activity in distressed bubble areas like Sacramento is first-time home buyers using government-insured FHA loans (and taking advantage of the tax credits), and investors paying cash.