Economy Watch: Positive Signs for CRE?

On Tuesday, Reis Inc. reported that national average vacancy rate for 79 U.S. office markets was 17.5 percent, which is the highest since the dim days of 1993 (and not as high as 1991 or '92), but only 0.1 percent higher than during 1Q10.

October 6, 2010
By Dees Stribling, Contributing Editor

Courtesy Flickr Creative Commons user morrissey

Things might not exactly be looking up for commercial real estate, but there are hints that some kind of recovery is on the horizon, or at least not far under the horizon. On Tuesday, Reis Inc. reported that national average vacancy rate for 79 U.S. office markets was 17.5 percent, which is the highest since the dim days of 1993 (and not as high as 1991 or ’92), but only 0.1 percent higher than during 1Q10.

Also, effective rents for U.S. office space were $22.05 per square foot during the second quarter of 2010, down only 1 cent from the first quarter, according to Reis. In some places, such as metro New York, office vacancies are going down–11.6 percent to 11.3 percent between 1Q10 and 2Q10–and effective rents are going up, 0.2 percent in the case of New York, but those are still the exception.

Overall valuations for CRE are inching up nationally as well, noted a separate report by Green Street Advisors on Tuesday. That firm’s Commercial Property Price Index rose by 3 percent in September, and it says that that property values have now risen nearly 30 percent from their trough in early 2009.

“Pricing on transactions that have recently closed or that are in the works continues to enjoy positive momentum.” an optimistic Mike Kirby, Green Street’s director of research, said in a statement. “The rebound in pricing that began in earnest about a year ago has been impressive in terms of both its vigor and durability. Sellers are feeling less pressure to act, the outlook for fundamentals has improved, well-capitalized buyers are plentiful, and financing markets are recovering.”

California Politicos Ask for Foreclosure Investigations

Does the foreclosure situation among major U.S. lenders amount to a fiasco yet? “Foreclosure fiasco” has a certain ring to it, but in any case, members of Congress are now getting in on the act. In particular, on Tuesday members of the California Congressional delegation sent an open letter to the U.S. Department of Justice, the Federal Reserve and the Comptroller of the Currency, asking that they review the foreclosure processes now employed by banks for “possible violations of law or regulations.”

This after Ally, Bank of America and JP Morgan Chase all have acknowledged that some employees have signed off on foreclosure documents–affidavits headed for court sometimes–without actually examining them very closely, or in a few notorious cases (so far) even reading them. This process, which seems to lack much in the way of process, already has a nickname: “robo-signing.”

The letter suggests that more than mere procedure mistakes were going on. The foreclosure situation “only amplify our concerns that systemic problems exist in the ways many financial institutions have dealt with homeowners who are seeking to avoid foreclosures,” the letter said.

White House Goes Green

The greening of residential real estate isn’t precisely a new story, but a certain high-profile address is installing solar panels and a solar hot water heater, namely 1600 Pennsylvania Ave. in Washington, DC. The announcement was made on Tuesday by Energy Secretary Steven Chu and Council on Environmental Quality Chair Nancy Sutley, who characterized the move as part of an effort to portray solar power as reliable and accessible.

More precisely, the White House is reinstalling solar equipment. President Carter had a solar hot water heating system installed in the late 1970s, but that was unceremoniously removed by President Reagan in the mid-1980s.

With less fanfare, but also on Tuesday, the Obama administration announced another, much larger, solar installation on public property: two large-scale solar energy plants, the Tessera Solar Imperial Valley Solar Project and the Chevron Energy Solutions Lucerne Valley Solar Project. They are to be built on land managed by the U.S. Department of the Interior in the California desert and are the first such installations on public land. Together the plants could produce as much as 754 megawatts of power, roughly enough to supply 500,000 residences with electricity.

Wall Street experienced a sizable upward bounce on Tuesday, one its largest advances in some months. Investors seemed to be happy about the Bank of Japan’s efforts to support that country’s economy, and a report by the Institute for Supply Management that said its service sector index rose to 53.2 last month from 51.5 in August. Whatever the reasons, the Dow Jones Industrial Average gained 193.45 points, or 1.8 percent, while the S&P 500 was up 2.09 percent and the Nasdaq advanced 2.36 percent.