Morning Mortgage Meltdown: Housing Bill Stuck in Limbo: "Less politics and more focus," says...

July 9th, 2008

"Less politics and more focus," says sunshine Bush as he expresses confidence that the White House and Congress will eventually get some rescue on for homeowners in need. Meanwhile, Congress has yet to send their relief bill to the White House, pending resolution of said politics. The Senate's only just getting back from a week-long break, and they have yet to hammer out their own version of the bill, let alone a final version with the House. Did we hear something about more focus? [TIME]

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Commercial Real Estate

June 20th, 2008

Midyear 2008

Retail property fundamentals are softening due to the prolonged housing downturn and slowing economy; however,

performance variation by market and type of retail has widened significantly. This makes it more critical than any

time since 2002 to base investment strategy on specific markets, submarkets and investment circumstances. In the near

term, the retail sector will continue to feel the strain of reduced consumer confidence, the housing slump, and high food

and energy prices. The credit crunch has brought several planned projects to a halt and will limit speculative shopping

center construction, providing an opportunity to work through excess supply. Mature, supply-constrained markets will

outperform over the next 12 to 18 months as the economy stabilizes and moderate growth resumes. Current weakness

in traditional growth markets, mostly brought on by housing problems, could result in favorable longer-term investments

as these markets recover over the next 24 months.

Similar to other commercial property types, economic uncertainty and tight credit markets are resulting in significant

reductions in retail transaction velocity and mild price correction. Fortunately, the shift that is under way was preceded

by several years of healthy performance and robust price appreciation, which will limit distress sales and prevent

a major marketwide correction. Price and cap rate movements have been highly dependent on asset quality and tenant

credit, with the most sought-after properties experiencing cap rate adjustments ranging from 20 basis points to 40 basis

points. Cap rates for lower-quality properties have increased more substantially, reflecting lenders' and investors' focus

on safety. Despite tight credit markets and the considerable reduction in the issuance of commercial mortgage-backed

securities (CMBS), the majority of maturing commercial mortgages are being successfully refinanced and delinquency

rates remain near historical lows.

The government's stimulus package, liquidity injections and lower interest rates make

HOUSING DOWNDRAFT CATCHES RETAILMARKET; BUYERS AND

SELLERS SEEK NEW COMMON GROUND

RetailResearch

S P E C I A L R E P O R T

Economy:

a technical recession unlikely and should prevent a prolonged downturn, fostering growth later

this year. In addition, companies avoided excessive hiring and capital investments during the

most recent expansion period, supporting expectations for only a moderate downturn.

Construction: Completions are forecast at 131 million square feet this year, down from 145 million

square feet in 2007. Several large regional malls/lifestyle centers are slated to come online

this year, totaling 11 million square feet, more than two times the total delivered in 2006.

Vacancy: Vacancy is expected to rise 140 basis points this year to 11.1 percent, following a 90

basis point increase in 2007. Absorption of neighborhood/community center space turned negative

in the first quarter of this year for the first time since 1980, though vacancy in this segment

remains below the overall retail average at 7.7 percent.

Rents: Driven by new construction, shopping center asking rents are forecast to rise 1.9 percent

this year to approximately $20 per square foot, compared to 2.9 percent in 2007. Owners are

expected to increase concessions, limiting effective rent growth to 0.9 percent.

2008 ANNUAL RETAIL FORECAST

No

change in

total

employment

140 basis

point

increase in

vacancy

131 million

square feet

will be

completed

1.9%

increase in

asking

rents

arcus & Millichap is pleased to present the 2008 edition of the National

Vacancy Rate

Markets with the Lowest

Expected 2008 Vacancy Rates

Oakland

San Diego

San Francisco

San Jose

Washington, D.C.

Northern New Jersey

Orange County

New York City

Boston

Portland

Markets with the Highest

Expected 2008 Employment Growth

Charlotte

Atlanta

San Francisco

Denver

Dallas/Fort Worth

Salt Lake City

San Antonio

Seattle

Houston

Austin

Nonfarm Employment (Y-O-Y Change)

0% 1% 2% 3% 4%

0%

2%

4%

6%

8%

Vacancy Rate

Markets with the Highest

Expected 2008 Vacancy Rates

Dallas/Fort Worth

San Antonio

Riverside-San Bernardino

Austin

Cincinnati

Indianapolis

Houston

Kansas City

Columbus

Milwaukee

4%

8%

12%

16%

20%

Markets with the Greatest

Expected 2008 Asking Rent Growth

Northern New Jersey

Washington, D.C.

San Jose

Los Angeles

Charlotte

Austin

Portland

Miami

Seattle

New York City

Asking Rent Growth (Y-O-Y Change)

1% 2% 3% 4% 5%

M

Retail Index (NRI). The NRI is a snapshot analysis that ranks 43 retail

markets based on a series of forward-looking supply and demand

indicators. Markets are ranked based on their cumulative weighted-average

scores for various indicators, including forecast employment growth, vacancy,

construction, household formation, retail sales, rent growth and an additional

analysis of local housing market conditions. Taking into account both the

forecast level and degree of change for the year, the index is designed to

indicate relative supply and demand conditions at the market level.

Users of the index are cautioned to keep several important points in mind.

First, the NRI is not designed to predict the performance of individual

investments. A carefully chosen investment in the bottom-ranked market

could easily outperform a poor choice in the top-ranked market. Second, the

index is geared toward a short-term time horizon. A market facing difficulties

in the near term may provide excellent long-term prospects, and vice versa.

Third, it is possible for a market to rise in the rankings even if its fundamentals

are weakening. This can happen when conditions fall off more substantially

in the market's peers. Finally, because the NRI is an ordinal index,

differences in specific rankings should not be misinterpreted. For example, the

top-ranked retail market is not necessarily twice as good as the second-ranked

market, nor is it 10 times better than the 10th-ranked market.

Housing Woes Weighing on Retailers; Job Gains Expected in Second Half

Retailers are feeling the effects of the cooling economy and weak housing

market conditions. Food and energy costs continue to rise, putting a greater

strain on household budgets, while job losses during the first several months

of 2008 have hampered consumer confidence and further restrained discretionary

spending. These trends have been especially apparent in markets that

had posted some of the most impressive gains during the housing boom,

including Phoenix, Riverside-San Bernardino, Las Vegas and several Florida

metros. In many cases, retail developers built ahead of rooftops in outlying

areas of these markets and are now struggling as housing projects are delayed

and residential foreclosures push higher. There is good news in the

marketplace, however. In many supply-constrained areas, fundamentals

remain healthy, despite vacancy rates creeping moderately higher. Home sales

have already begun to pick up in a handful of markets, and modest job growth

is expected to return in the second half of the year, suggesting that the

economic downturn should be short-lived. Finally, retailers could see an

uptick in spending in the next few months as consumers receive tax rebates as

part of the economic stimulus package.

2008 National Retail Index

Markets with the Highest

Expected 2008 Completions

Millions of Square Feet

Houston

Phoenix

Riverside-San Bernardino

Dallas/Fort Worth

Chicago

Atlanta

Washington, D.C.

San Antonio

Northern New Jersey

Kansas City

0

3

6

9

12

Marcus & Millichap Research Services National Retail Index

page 2 Marcus & Millichap ◆ Special Retail Research Report

Mature Markets Rise While Traditional Top-Performers Undergo Temporary

Housing-Induced Softening

In the 2008 NRI, San Francisco ascended seven places to take over the top

position. San Francisco will receive a minimal amount of new stock, keeping

vacancy low enough to drive above-average rent growth. Strong retail sales

and rent gains propelled Seattle (#2) up three places in the index. Completions

are slowing significantly in San Jose (#3), sustaining the vacancy rate well

below the national average and supporting continued rent increases.

Uncertainty in the financial services sector is expected to result in weak job

expansion in New York City, causing the metro to fall three spots to #4, despite

forecasts for some of the nation's strongest rent growth. High household

incomes will support spending in Washington, D.C., this year, easing the

metro up four spots to the #5 position.

San Diego comes in at #6 again this year, although vacancy will rise in

response to increased retail deliveries. Oakland (#7) fell three spots in the NRI

amid forecasts for net job losses in 2008, though the market is expected to end

the year as the tightest market in the index, even after a vacancy forecast

increase. Portland (#8) made one of the greatest gains in the 2008 NRI, as

metrowide job growth and rent appreciation are expected to outpace the

national average in 2008. Despite some projected job losses, healthy rent

growth moved Los Angeles up three places to #9. Boston rounds out the top

10, jumping eight spots due to a forecast for only a modest increase in vacancy.

Weak housing market conditions drove down some traditionally highgrowth

metro areas in this year's ranking. Fort Lauderdale (#15), Phoenix

(#19) and West Palm Beach (#21) fell 13, 16 and 10 places, respectively. While

local retail fundamentals in these markets will experience turbulence over the

next 12 to 18 months, forecasts for retail demand drivers remain among the

strongest in the nation, supporting still-favorable long-range outlooks.

Despite forecasts for robust economic growth, Houston (#27) and

Dallas/Fort Worth (#28) declined modestly in this year's index due to high

levels of construction, which will result in vacancy increases of more than 100

basis points in each market. Austin (#11), on the other hand, rose four spots

due to scaled-back development and a healthy job growth projection.

Midwestern markets make up much of the lower-third of the NRI again

this year, as employment losses will continue to restrict retail sales in these

areas. Since many of these markets did not experience a rapid run-up in home

prices or retail development,C they may offer more stable retail fundamentals

through 2008.