Archive for the ‘share loss transaction’ Category

DesignDex (A/E|apparel|graphic d)


Nike – Woodside Corp Park | 15100 SW Koll Pkwy | 26,000 RSF

Tetra Tech – Hawthorn Biz Park | 5293 NE ElamYoung Pkwy | 4,367 RSF

TechDex (apps|provider|hardware|var)

Central Business District

Crowd Factory – Oregon Trail Building | 333 SW Fifth Ave | 4,095 RSF renewal

Barefoot Sound – 1710 NW Upshur St | 8,500 RSF


AIVEA – Amberglen | 1600 NW Compton Dr | 3,793 RSF

GeneralBizDex (consulting|finance|insurance|legal|other)

Central Business District

Randstad – Unitus Plaza | 1300 SW Sixth Ave | 2,700 RSF

Scherzer Strom & Shaw – Commonwealth Bldg | 111 SW Fifth Ave | 3,131 RSF

Mitsui – US Bank Tower | 111 SW Fifth Ave | 1,696 RSF


WPE – Vancouver Biz Pk | 3315 NE 112th | 3,000 RSF

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The losses on troubled CMBS loans has escalated by 33% over the past year, with recovery around 43 cents on the dollar.  Many analysts expect losses to continue an upward climb this year, or in other words declining property values mean increasing loss severities.

The average loss severity rate for CMBS loans resolved in 2009 was 57% compared to a rate of 43% in 2008. The cumulative historical average is 37.2%.  Analysts with Fitch Ratings expect the loss severities to remain above the cumulative average through 2011.

Assets liquidated today will be those unlikely to see a cash flow improvement as a result of an extension or modification. Concurrently, special servicers are continuing to see a high volume of underperforming loans further slowing the process for resolution (think high stakes divorce proceedings). With a continual stream of excess inventory and a declining frequency of modifications, there appears to be no relief in sight.

In a booming market, a collateral liquidation could recover fully the interest shortfalls and possibly even the total outstanding balance. But in today’s environment, where commercial real estate values are well below the 2007 peak, it will take much longer to return to the value at the time the loan was secured.

A study conducted by CoStar Group showed that among liquidated loans, 91% of properties had at least one reappraisal done and 87.5% of those experienced a reappraisal value lower than at the time of securitization, triggering appraisal reductions for those assets with loan amounts more than 90% of the new appraisal value.

During the First Quarter of 2010 there have been $270 million in losses through liquidation. Among the $17.7 billion in loans added to special servicing this year thus far, 7% saw appraisal reductions. This means the rate of loss severity is sure to worsen.

Certain property types are expected to yield higher loss severities than others.  Here’s the breakdown for 2009:

  • Retail – 48.2%
  • Industrial – 48.8%
  • Office – 56.9%
  • Multifamily – 58%


source: CoStar

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Leasing activity is on the rise. Companies are modestly hiring, driving up transaction activity as tenants slowly start the process of renewing leases, searching for good deals and making other occupancy decisions postponed during the last 2+ years.  This isn’t to say we are through all the pain (debt is looming), but certainly businesses are at least coming out from under the bed and facing a new day.

It is likely office vacancy rates have peaked nationally, meaning Portland probably has six more months of climbing vacancy in most submarkets. The downtown (Central Business District or CBD) submarket would be the exception. Thanks to some big moves by the GSA and other companies moving in downtown as emerging industries like green tech gain momentum, the CBD is starting to tighten on office space, particularly for larger tenants.

Office rents are expected to begin rising in most U.S. markets by the middle of next year.  But again, the Portland CBD may hit that pace sooner. The suburban markets will lag.  Across the country, Landlords are not likely to see significant growth in net operating income for years to come, think 2015.  Nominal rents adjusted for inflation have decreased every quarter since early 2008. They are now down 20% from a decade ago, from over $24/SF to $19/SF nationwide.  On a 5,000 SF lease that’s a difference of almost $2,100/month.

First quarter 2009 was the worst three-month period for leasing in a decade. Many tenants delayed decisions to sign a new lease or renew as the market continued to add vacancy and drop rates.  However, first quarter 2010 is shaping up to be one of the strongest leasing quarters in five years. All of this good news doesn’t necessarily translate into positive absorption just yet, as 50% of the top 20 markets showed negative absorption.

All of this is good news considering the dismal performance of 2008 and 2009. But there are still big challenges ahead that will likely cause a recovery stall or value drop in the commercial real estate market.

source: CoStar

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Ok, so it’s no Ferrari-like speeds for the commercial real estate market recovery, but the first signs of some promising momentum comes on the distressed properties track.

For the past 2+ years distressed property offerings have sat pretty much untouched while buyers tried to determine the best time to re-enter the market (ie. when values hit bottom and stabilized).  It looks like 2010 is it.  In the First Quarter,184 transactions closed compared to 102 in the First Quarter of 2009, a nearly 45% increase year over.  2010’s number is more in line with transaction volume during the first quarters of 2008 (187) and 2007 (189). A good indicator that buyers with cash have decided the timing is right to pursue deals.

While the activity level among distressed properties is a good sign, it must be noted that  assets in good standing are not moving without considerable discounts. Take, for instance, the recent sale of One Main Place in Portland. This Class A office tower had 97% occupancy and a strong tenant roster. It was purchased in 2006 for $69 million and recently sold for $59 million. 


Distressed office prices have been trending down from their 2007 peak.  But lately the price gap has narrowed with top prices declining and bottom prices slightly increasing. Since late Third Quarter 2009, distressed office properties have sold for anywhere from $70 to $140/SF.  During the same time period, nondistressed office properties sold for between $110 and $200/SF.

Three years ago, distressed industrial properties were trading anywhere from $20 to $80/SF.  In late 2008 and early 2009 there was a brief rally in industrial prices, but today the price bottom is back around $20/SF.  The top of the price scale is around $40/SF, narrowing the gap between high and low by $40/SF.  Nondistressed flex and industrial properties have been selling for between $40 and $85/SF.


The mix of buyers of distressed office properties during the recession years breaks down as follows:

  • Regional developer/owners – 26%
  • National developer/owners –  17% 
  • Individuals – 14%
  • Corporations – 14%14% 
  • Investment managers – 11%

Over the last six months, investment managers have decreased their share to less than 5%, while banks and government entities have increased their share of purchases. No doubt a portion of the  government increase comes from assumption of numerous corporations with considerable real estate holdings.

The mix of buyers of distressed flex and industrial properties since 2007 breaks down as follows:

  • Regional developer/owners- 23%
  • Corporations – 20%
  • National developer/owners – 16%
  • Investment managers – 11%
  • Individuals – 11%

Over the last six months, corporations have become the most active buyers accounting for 3 out of every 10 purchases. Regional developer/owners follow closely at 28% while investment managers’ share has fallen to 8%. Individuals now account for less than 4%.

source: CoStar

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The commercial real estate market has not bottomed out yet. Most private commercial real estate investors believe it will be 2012 before things start an upward turn (and mind you not a sharp incline then). Based on a poll conducted by Lee & Associates Investment Services Group, 82% of investors believe that prices for commercial real estate had not started to stabilize and nearly half of them feel it will be at least 18 months before some form of traction takes hold in the market. 23% felt the market would turn around in under a year (optimists).

Clearly, the credit market continues to be the source of the problems. Until banks establish a quick pace on foreclosures and problem loan workouts no one has a clear picture of where values will land and the inventory of properties for sale is too small to establish pricing. The poll supports this stance as 62% of all assets purchased in the fourth quarter were made with lender financing. 26.4% of those surveyed said they purchased assets on an all-cash basis. When asked what they think will turn the market around – 55% believed available financing followed by better pricing would do the trick.

The biggest “attention-getter” response was that 72% of investors polled said sellers had become only slightly more realistic in their pricing.  According to Mark Larson, Vice Chairman of Lee-ISG, “The consensus seems to be that sellers would like to sell on last year’s pricing while buyers believe values are declining further.” According to Larson, it is unclear if the bottom has occurred since we are only just now starting to see lending institutions get back non-performing assets.

source: CoStar

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