Economic Update – Uncertain Future for Big 3 Vexes Detroit RE

Detroit has been edging back into the news lately, as the U.S. Department of Treasury is reportedly sidling the auto giant GM toward a late springtime bankruptcy. For Detroit real estate markets, that might actually be a positive of some kind, since it would clear away some of the uncertainty that’s been hanging over the market since the Big Three were double-punched by the oil-price bubble and the recession. For the Detroit industrial market, conditions have been surprisingly stable lately. According to Grubb & Ellis’ most recent report on the market, industrial vacancies stood at 13.5 percent marketwide in 4Q08, representing no change from 4Q07, though throughout 2008 vacancies were slightly and then down slightly. It could be that industrial users are simply eager to maintain their own private status quo, and have been putting off decisions about moving or otherwise changing their space usage. “The lack of improvement in unemployment rates and the uncertain direction of the automotive industry continues the keep the Metro Detroit region at a standstill,” noted the report. Goldman Sachs Group, known for not drinking much of the subprime Kool Aid back in the day, was so eager to say it had made a handsome profit in 1Q09 that the company announced that fact to the investment community a day ahead of schedule on Monday. The company earned $3.39 a share during the quarter, more than twice what was expected. The bank also said that it was going to issue a $5 billion stock offering, and use the proceeds to help pay back the $10 billion TARP funds that it received last year. Things aren’t quite so cheerful at Talbots Inc., where fiscal fourth quarter (ended January 31) losses totaled $367 million, or $6.85 per share, considerably worse than the $171 million loss for the same period last year. Same-store sales were down almost 25 percent in the quarter, compared with a year ago. Still, the company noted that it has secured a new $150 million credit facility, through Aeon Ltd. of Japan, to help it “navigate through these most turbulent times.” Not only has the company been hit by falling consumer demand for women’s clothes, it has also been weighed down by the acquisition of the struggling J. Jill chain a few years ago. It looked like it was going to be a down day for Wall Street on Monday after the three-day weekend, and indeed the major indices spent most of the day down, with the Dow Jones Industrial Average eventually losing a scant 25.57 points, or 0.32 percent. The S&P 500 and the Nasdaq came out slightly positive, however, up 0.25 percent and 0.05 percent, respectively.