Manhattan Lures REITs Capitalizing on Soaring Rents: Mortgages
By Christine Harvey, Feb. 28, 2012
Tom Toomey, chief executive officer of real estate investment firm UDR Inc. (UDR), is betting the best rental deal in Manhattan is owning the whole building.
The nation’s third-largest apartment real estate investment trust bought a five-tower apartment complex on Columbus Avenue between West 97th and 100th streets for about $630 million last month, with rents from $2,500 for a studio or one-bedroom apartment to more than $10,000 a month for a penthouse suite. It’s Toomey’s fifth purchase in Manhattan in the past year as rents soar and financing difficulties make it harder for individuals to buy.“Financing and underwriting are much tighter,” Toomey said in a telephone interview. With purchases requiring larger down payments, “people are going to stay renters for a long time,” said Toomey, who’s based in Highlands Ranch, Colorado.
Strict lending standards for so-called jumbo mortgages have contributed to declining home buying across the U.S. by even the most creditworthy borrowers as issuance of the loans has dropped 68 percent since 2007. Nowhere is that more evident than in Manhattan, where the median price of a two-bedroom apartment is about $1.2 million, almost twice the limit backed by government- supported mortgage companies Fannie Mae and Freddie Mac.
Manhattan rents rose 9.5 percent last quarter to an average $3,121, Miller Samuel Inc. and Prudential Douglas Elliman Real Estate said in a report last month. That’s about three times the rate for the 44 largest apartment markets in the U.S., according to Marcus & Millichap, a real estate brokerage firm. Manhattan rental apartment vacancy rates fell to a four-year low of 0.96 percent last year, down from 1.2 percent a year earlier and 1.9 percent in 2009, according to brokerage Citi Habitats. Vacancy bottomed in 2006 at 0.76 percent.
The key to the strength of the rental market is tightness of credit,” Jonathan Miller, president of appraiser Miller Samuel, said in a telephone interview. “It takes quadruple-A bizarre credit requirements to get approved.”
Jumbo loans exceed limits set for government-controlled mortgage companies by congress. For New York that’s $625,500.
Wall Street’s pay practices are also making it harder to buy, as financial firms increasingly pay bonuses in stock and deferred cash, said Alan Johnson, managing director of compensation consultant Johnson Associates Inc.
Morgan Stanley, Credit Suisse Group AG and Citigroup Inc. have all reduced senior investment bankers’ pay for last year as revenue slows. Morgan Stanley is capping immediate cash bonuses at $125,000, people with knowledge of the move said last month.
“It’s not a great sign for the financial sector contributing to purchasing apartments because there’s no sense of urgency to buy,” said Johnson. “Rentals are a much shorter commitment.”
Renters outnumber homeowners in the country’s largest cities including New York, Los Angeles and Chicago. More than 77 percent of Manhattan’s occupied units were rented in the decade ended 2010, compared with nearly 23 that were owned, data from the Census Bureau showed.
Nationally, the home ownership rate fell 1.1 percent to 65.1 percent from 2000 to 2010, the largest decrease since the Great Depression, according to the U.S. Census Bureau. Fallinghome prices have discouraged some homebuyers.
The S&P/Case-Shiller index of property values in 20 cities fell 4 percent in December from a year earlier. Values are down 34 percent from a July 2006 peak.
Low vacancy rates and rents that are likely to continue climbing this year have made apartments the “darling” of commercial real estate, according to Ryan Severino, economist at research firm Reis Inc.
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The nation’s third-largest apartment real estate investment trust bought a five-tower apartment complex on Columbus Avenue between West 97th and 100th streets for about $630 million last month, with rents from $2,500 for a studio or one-bedroom apartment to more than $10,000 a month for a penthouse suite. It’s Toomey’s fifth purchase in Manhattan in the past year as rents soar and financing difficulties make it harder for individuals to buy.“Financing and underwriting are much tighter,” Toomey said in a telephone interview. With purchases requiring larger down payments, “people are going to stay renters for a long time,” said Toomey, who’s based in Highlands Ranch, Colorado.
Strict lending standards for so-called jumbo mortgages have contributed to declining home buying across the U.S. by even the most creditworthy borrowers as issuance of the loans has dropped 68 percent since 2007. Nowhere is that more evident than in Manhattan, where the median price of a two-bedroom apartment is about $1.2 million, almost twice the limit backed by government- supported mortgage companies Fannie Mae and Freddie Mac.
Manhattan rents rose 9.5 percent last quarter to an average $3,121, Miller Samuel Inc. and Prudential Douglas Elliman Real Estate said in a report last month. That’s about three times the rate for the 44 largest apartment markets in the U.S., according to Marcus & Millichap, a real estate brokerage firm. Manhattan rental apartment vacancy rates fell to a four-year low of 0.96 percent last year, down from 1.2 percent a year earlier and 1.9 percent in 2009, according to brokerage Citi Habitats. Vacancy bottomed in 2006 at 0.76 percent.
The key to the strength of the rental market is tightness of credit,” Jonathan Miller, president of appraiser Miller Samuel, said in a telephone interview. “It takes quadruple-A bizarre credit requirements to get approved.”
Jumbo loans exceed limits set for government-controlled mortgage companies by congress. For New York that’s $625,500.
Wall Street’s pay practices are also making it harder to buy, as financial firms increasingly pay bonuses in stock and deferred cash, said Alan Johnson, managing director of compensation consultant Johnson Associates Inc.
Morgan Stanley, Credit Suisse Group AG and Citigroup Inc. have all reduced senior investment bankers’ pay for last year as revenue slows. Morgan Stanley is capping immediate cash bonuses at $125,000, people with knowledge of the move said last month.
“It’s not a great sign for the financial sector contributing to purchasing apartments because there’s no sense of urgency to buy,” said Johnson. “Rentals are a much shorter commitment.”
Renters outnumber homeowners in the country’s largest cities including New York, Los Angeles and Chicago. More than 77 percent of Manhattan’s occupied units were rented in the decade ended 2010, compared with nearly 23 that were owned, data from the Census Bureau showed.
Nationally, the home ownership rate fell 1.1 percent to 65.1 percent from 2000 to 2010, the largest decrease since the Great Depression, according to the U.S. Census Bureau. Fallinghome prices have discouraged some homebuyers.
The S&P/Case-Shiller index of property values in 20 cities fell 4 percent in December from a year earlier. Values are down 34 percent from a July 2006 peak.
Low vacancy rates and rents that are likely to continue climbing this year have made apartments the “darling” of commercial real estate, according to Ryan Severino, economist at research firm Reis Inc.
Read the full story here
Atlanta Offices Showing `Staggering' Delinquencies, Fitch Says
By Christine Harvey, March 9, 2012
The struggling office property market, particularly in Atlanta, held back improvements in late payments for commercial mortgages bundled into bonds, according to Fitch Ratings.
One Alliance Center, a 22-story tower in the Buckhead area 10 miles north of downtown Atlanta, became 60 days delinquent last month, Fitch said today in a report. A “staggering 37 percent of all Atlanta office properties in Fitch-rated deals are now considered delinquent,” the report said. That compares with late payments on commercial mortgage-backed securities of 8.3 percent in February, a 0.02 percentage point decline from a month earlier, Fitch said.
“The outlook for office properties will remain strained for the foreseeable future, with performance among Atlanta office properties to be particularly dismal,” Mary MacNeill, a managing director at Fitch Ratings, said in an e-mail statement.
The delinquency rate for office loans overall increased 30 basis points to 7.68 percent and the rate for multifamily rose to 13.3 percent from 13.04 percent in January, Fitch said. A basis point is 0.01 percentage point.
Atlanta’s office market is a victim of overbuilding and inflated real-estate prices fueled by issuance of commercial mortgage-backed securities that peaked in the U.S. at $232 billion in 2007. Bank of America Plaza, the tallest tower in the U.S. Southeast, was sold in a foreclosure auction last month after vacancies rose and the value of the building tumbled.
“Atlanta office owners have faced an uphill battle with an abundance of new supply in recent years,” MacNeill said.
While investor confidence in commercial-property debt is at the highest since May, borrowers in cities outside of prime U.S. office markets of New York, Los Angeles, Washington and Boston are finding it hard to refinance debt bundled inside CMBS.
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One Alliance Center, a 22-story tower in the Buckhead area 10 miles north of downtown Atlanta, became 60 days delinquent last month, Fitch said today in a report. A “staggering 37 percent of all Atlanta office properties in Fitch-rated deals are now considered delinquent,” the report said. That compares with late payments on commercial mortgage-backed securities of 8.3 percent in February, a 0.02 percentage point decline from a month earlier, Fitch said.
“The outlook for office properties will remain strained for the foreseeable future, with performance among Atlanta office properties to be particularly dismal,” Mary MacNeill, a managing director at Fitch Ratings, said in an e-mail statement.
The delinquency rate for office loans overall increased 30 basis points to 7.68 percent and the rate for multifamily rose to 13.3 percent from 13.04 percent in January, Fitch said. A basis point is 0.01 percentage point.
Atlanta’s office market is a victim of overbuilding and inflated real-estate prices fueled by issuance of commercial mortgage-backed securities that peaked in the U.S. at $232 billion in 2007. Bank of America Plaza, the tallest tower in the U.S. Southeast, was sold in a foreclosure auction last month after vacancies rose and the value of the building tumbled.
“Atlanta office owners have faced an uphill battle with an abundance of new supply in recent years,” MacNeill said.
While investor confidence in commercial-property debt is at the highest since May, borrowers in cities outside of prime U.S. office markets of New York, Los Angeles, Washington and Boston are finding it hard to refinance debt bundled inside CMBS.
Link here
New York Extends Lead Over London, Tokyo in Commercial Property Investment
By Christine Harvey, Feb. 27
New York extended its lead over London as the top destination for commercial real-estate investment as the U.S. economy revived and Europe’s debt crisis discouraged some buying in the region, property broker Cushman & Wakefield Inc. said today in a report.
Investment for commercial properties rose to $35.7 billion in New York last year, including multifamily buildings, making it the largest target for buyers at a city level, the broker said. That compares with $29.2 billion in London and $22.6 billion for Tokyo.
Commercial investment globally rose 14 percent in 2011 to $727 billion, or $808 billion including multifamily properties, Cushman & Wakefield said, with volumes up 83 percent from 2009. New York overtook London as the No. 1 destination for real- estate investment in the twelve months through August for the first time since 2007 as improved access to financing spurred deals. At the time, New York led London by $2.5 billion.
“There was a flight to quality in the Americas,” said Greg Vorwaller, global head of capital markets for Cushman & Wakefield. Investors focused “on best-in-class assets in flagship markets” including New York, Washington, San Francisco, Boston, Los Angeles and Chicago, he said.
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