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1601 Forum Place, Ste. 200 West Palm Beach, FL 33401 Ph: 561 471 8000

www.mhcreal.com. 1601 Forum Place, Ste. 200 West Palm Beach, FL 33401 Ph: 561 471 8000. 951 Yamato Road, Ste. 102 Boca Raton, FL 33431 Ph: 561 394 5200. SOUTH FLORIDA . SHORT SALES & FORECLOSURES. PRESSURE DROP. Presented by:. Neil E. Merin, SIOR, CCIM Chairman. September 13, 2011.

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1601 Forum Place, Ste. 200 West Palm Beach, FL 33401 Ph: 561 471 8000

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  1. www.mhcreal.com 1601 Forum Place, Ste. 200 West Palm Beach, FL 33401 Ph: 561 471 8000 951 Yamato Road, Ste. 102 Boca Raton, FL 33431 Ph: 561 394 5200

  2. SOUTH FLORIDA SHORT SALES & FORECLOSURES PRESSURE DROP Presented by: Neil E. Merin, SIOR, CCIM Chairman September 13, 2011 www.mhcreal.com 1601 Forum Place, Ste. 200 West Palm Beach, FL 33401 Ph: 561 471 8000 951 Yamato Road, Ste. 102 Boca Raton, FL 33431 Ph: 561 394 5200

  3. Section 1 Flooding The Market

  4. SOUTH FLORIDA PROPERTY SALES Supply Demand Pricing Income Source: CoStar

  5. SOUTH FLORIDA SALES VOLUME & AVG. PRICE PER SF – ALL COMMERCIAL Source: CoStar

  6. SOUTH FLORIDA SALE TRANSACTIONS – ALL PROPERTY TYPES Source: CoStar

  7. SOUTH FLORIDA SALES LAST 12 MONTHS • 1,120 Transactions • $3,400,000,000 - of Commercial Transactions • $3,200,000 - Average Sales Transactions • 31,800,000 - Square Feet Sold • 5,325 - Acres of Land Sold • $119 - Average Price Per Square Foot • $57,000 - Average Price Per Hotel Room • $96,000 - Average Price Per Multi Family Unit Source: CoStar

  8. SOUTH FLORIDA SALES PENDING AND FOR SALE 3,798 Properties • $7,730,000,000 - Of Total Value • 43,391,000 – Square Feet Of Commercial • 5,568 – Multi Family Units • 1,863 - Hotel Rooms • 9,765 – Acres Of Land Source: CoStar

  9. SOUTH FLORIDA NUMBER OF SALES BY PROPERTY TYPE Source: CoStar

  10. FLOODING THE MARKET • INCREASING NUMBER OF FORECLOSURE SALES DRAWING MORE CAPITAL, COMPETITION AND INTEREST. • VALUES ARE RISING OFF BOTTOM LEVELS • COST BASIS OF OWNERSHIP IS FALLING FOR NEW OWNERS.

  11. Section 2 Clearing The Pipeline

  12. SOUTH FLORIDA TOTAL AMOUNT IN SPECIAL SERVICING BY PROPERTY TYPE DecemberAugust% Change $300,333,000 $563,274,836 +87.55% Retail Office +51.29% $295,195,000 $446,613,128 Industrial +10.96% $39,265,000 $43,569,540 +110.21% $86,900,000 $182,676,786 Multi Family +40.04% $332,680,531 $237,565,000 Other $892,925,472 +965.54% Hotel $83,800,000 Total +136.01% $1,043,058,000 $2,461,740,293

  13. SOUTH FLORIDA CMBS LOANS DELIQUENT VS FORECLOSURES/REO $3,000,000,000.00 $2,461,740,293 $2,500,000,000.00 $2,000,000,000.00 $1,500,000,000.00 $1,043,058,000 $1,000,000,000.00 $838,911,665 $500,000,000.00 0 $0.00 Dec. 2009 Dec. 2009 Foreclosure/REO Aug. 2011 Aug. 2011 Foreclosure/REO

  14. SOUTH FLORIDA TOP FIFTEEN CMBS FORECLOSURES/REO Total $660,616,223

  15. NON CURRENT LOAN BY TYPE FDIC INSURED INSTITUTIONS Commercial & Industrial Retail & Office Multi Family Development 9/10 6/11 9/10 6/11 9/10 6/11 9/10 6/11

  16. COMMERCIAL REAL ESTATE HURTING SMALL BANKS “The bulk of the rising delinquencies is falling squarely on the shoulders of small and regional banks. Small to regional banks – defined as banks holding less than $100 billion in assets – have $784 billion in commercial real estate loans on their books. That’s about 71% of the total market.” Source: Independent Community Bankers Association of America

  17. RECENT HEADLINES BANKS SELLING LOANS • Anglo Irish Reportedly Taps Winners in Commercial Real Estate Loan Sale $9.5 Billion of commercial real estate loans on 250 properties sold to Lone Star Funds, Wells Fargo, and JP Morgan • $800 Million CRE Loan Sale Completed This week Mission Capital Adivisors had over $800 million is CRE loans on sale, giving bidders the opportunity to acquire performing, sub- and non-performing assets secured by a variety of collateral types, including multifamily, office, student housing, condominiums, marina, industrial, residential and commercial land, medical office, bank stocks, among others, throughout the U.S. Many of the loans have recent appraisals. "The sale is an ideal opportunity for equity buyers looking to enter the market by purchasing one or several of the individual loans," said Stephen Emery, managing director of sales and trading at Mission Capital. HFF Completes $238 Million Loan Portfolio Sale on Behalf of a Major Financial Institution

  18. RECENT HEADLINES BANKS SELLING LOANS Regions Bank completes $500,000,000 sale of non-preforming notes Barclays Bank agrees $586m Commercial Real Estate loan portfolio sale RBS Seeks Sale of Property-Loan Portfolio, Sunday Times Says 2.6 billion dollars of loans to be sold to Blackstone Group at 50% discount

  19. BANKS SELLING LOANS

  20. CLEARING THE PIPELINE • SPECIAL SERVICERS MOVING RAPIDLY FROM WORKOUTS TO FORECLOSURES. • BANKS AND SAVINGS INSTITUTIONS ARE SELLING NOTES AND REAL PROPERTY TO CLEAR NON-PREFORMING LOANS. • NOTE BUYERS ARE SEEKING UNDERLYING PROPERTIES AT SIGNIFICANT DISCOUNTS.

  21. Section 3 Pressure Drop

  22. SOUTH FLORIDA VACANCY & RENTAL RATES – ALL PROPERTIES Source: CoStar

  23. BROWARD & PALM BEACH COUNTY SALE TRANSACTIONS - OFFICE Source: CoStar

  24. BROWARD & PALM BEACH COUNTY SALES VOLUME – OFFICE BUILDING Source: CoStar

  25. BROWARD& PALM BEACH COUNTY SALES BY BUILDING CLASS – OFFICE BUILDINGS Source: CoStar

  26. BROWARD & PALM BEACH COUNTY AVERAGE PRICE PER OFFICE BUILDING SF Source: CoStar

  27. BROWARD & PALM BEACH COUNTY VACANCY & RENTAL RATES - OFFICE Source: CoStar

  28. BROWARD &PALM BEACH OFFICE FORECAST REPORT Source: CoStar

  29. BROWARD & PALM BEACH COUNTY VACANCY & RENTAL RATES - RETAIL Source: CoStar

  30. BROWARD & PALM BEACH COUNTY AVERAGE PRICE PER BUILDING SF – RETAIL SALES Source: CoStar

  31. BROWARD & PALM BEACH RETAIL VACANCY RATES Source: CoStar

  32. PRESSURE DROP • COST BASIS FOR COMPETING PROPERTIES DROPPING. • INCOME IS NOT RISING, AS NEW OWNERS CAN AFFORD LOWER RENTAL RATES. • VACANCY NOT EXPECTED TO IMPROVE IN NEAR TERM (3 YEARS), AND RENTS WILL STAY LOW OR GO LOWER.

  33. WORKOUTS ARE THE PAST, IT’S FORECLOSURE TIME • We are at the very beginning of a massive amount of CRE foreclosures. • More available for sale product will attract more buyers and capital. • Sales at dramatically lower prices than previous purchase prices will create lower basis for new owners. • New owners will be able to compete with low rents, forcing current owners to lower rates. • Rents will be flat to falling over next 3 years, landlords will lack pricing power. • Despite flat line income growth, prices on CRE will continue to rise modestly, as buyers lower yield horizons and compete for product.

  34. Neil E. Merin, SIOR, CCIM Chairman nmerin@mhcreal.com www.mhcreal.com 1601 Forum Place, Ste. 200 West Palm Beach, FL 33401 Ph: 561 471 8000 951 Yamato Road, Ste. 102 Boca Raton, FL 33431 Ph: 561 394 5200

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