A Bailout for Commercial Real Estate?

“Right now, we believe there is insufficient systemic capacity to refinance expiring, performing commercial real-estate loans,” reads a letter from a dozen commercial real estate trade groups to Treasury Sec. Henry Paulson, according to the Wall Street Journal this morning. In other words, the commercial side of the business, long perceived as relatively healthy compared with the residential side, is warning of dire straits ahead unless refinancing money is available in the near future. Money from where? The new $200 billion bailout recently cooked up by Paulson (pictured) and his people to infuse liquidity in the student, car and credit-card loan market, that’s where. The WSJ cites research by Foresight Analytics L.L.C., an Oakland-based firm, that says that $160 billion in commercial mortgages will need refinancing by the end of 2009. With CMBS in a coma, and banks and other customary lenders stuffing their mattresses rather than lending, getting all those deals done will be problematic. Walgreen Co. has once again scaled down its store-opening plans in the wake of shrunken profits. For the Chicago-based retailer’s fiscal quarter ended Nov. 30, profits were $408 million, or 41 cents a share, down from $456 million, or 46 cents a share for the same period last year. Same-store sales, an important retail metric, did manage to eke out an increase of 1.7 percent compared with the same quarter last year. But the same quarter last year had scored growth of 5.4 percent compared with a year before that. The company says it will reduce its rate of new store openings to 4 to 4.5 percent in 2010 and 2.5 to 3 percent in 2011. That may be growth, but it’s anemic compared with the chain’s historic average annual growth of about 8 percent. In fiscal 2009, the company says it will open 495 new stores, compared with 629 new stores in fiscal 2008. The decision, taken as consumers pare back their own spending, is bound to have a ripple effect on retail space leasing as well as the net-lease property market, since Walgreens–which lease 14,500 square feet on average–typically either anchor small shopping centers or operate as stand-alone corner properties. Nevada used to be the go-go state in terms of population growth, which was one of the factors driving its real estate bubble in the early- to mid-2000s. Now the U.S. Census Bureau is reporting that the state’s growth rate has been cut in half in two years’ time. Nevada was the fastest-growing state in the union from July 1, 2005 to July 1, 2006, posting a 3.5 percent population increase during that period. From mid-06 to mid-07, the rate was 2.9 percent. From mid-07 to mid-08, the state’s population grew by 1.8 percent– now the eighth highest among the states. For nearly a quarter century beginning in the 1980s, the state had always been among the top four states for population growth every year.