Key fund manager predicts debt time bombs to worsen with leasing rates poised to fall an additional 20% next year to lowest levels since 2002
CORAL GABLES, FL-- Blumberg Capital Partners, one of the nation’s leading investment fund managers, says an analysis of commercial real estate values, leasing and vacancy trends by its staff shows that any federal bailout of the industry will require a painful, significant deleveraging to succeed.
The company said any bailout plan is working against a legacy of debt time bombs created by imprudent, unrealistic buyers who over-borrowed during the peak of the market in anticipation prices would continue rising unabated.
The Blumberg analysis shows that maturing debt obligations will come under even more stress in 2009 with leasing rates poised to drop an additional 20% to levels not seen since 2002, and with office vacancies potentially rising to 25% by the end of the year. Indeed, the nation’s office market could take until 2011 to stabilize, the company’s analysis shows.
“Creating a refinancing stimulus is helpful to thaw the credit freeze, but these ticking debt time bombs will make it difficult for our public officials to get their arms around this problem,” said Philip Blumberg, Chairman and CEO, as well as firm’s chief investment strategist. (top right, left and bottom right photos).
“Now, because the global economic recession has worsened over the past few weeks, coupled with layoffs at the front end of the cycle, demand for office space nationally is falling.
"Until companies can weather this storm and start expanding again, prices will remain low for landlords, and vacancies will rise.”
Such markets as New York City and Los Angeles will likely be among the hardest hit, with Washington, D.C., and Northern Virginia will likely fare better, according to the Blumberg analysis.
“Some cities are holding up in terms of occupancy levels, including places like Houston, which has been relatively resilient due to the energy markets,” said Blumberg. “However, most of the major hubs of commerce nationally are reporting alarming increases in available office space, which should lead to severely falling leasing rates in cities like New York, Chicago, Los Angeles and Phoenix.”
Blumberg Capital Partners’ new office market assessment, which takes into account the fresh economic data from the past two months, comes on the heels of its widely cited prediction in October that commercial real estate prices in 2009 could drop some 20% further--on top of an anticipated 15% drop this year.
Factors which are driving office pricing down are lack of available acquisition financing, dramatically lower performance projections taking into account dropping rental revenues and climbing vacancies.
These downward trends will be magnified in 2009, according to Blumberg, due to maturing debt obligations
, falling property values, and a massive decline in credit availability, which has largely eliminated refinancing options for building owners driving additional properties onto sale market.
As of December 1, the firm carried no debt, positioning itself for next year’s strategic opportunities to acquire distressed debt and discounted equity investment, according to Blumberg, who added that the firm is now planning a new series of investments and capital raising.
Blumberg Capital Partners is recommending to its investment partners to be patient in early 2009, exploring unprecedented investment opportunities in commercial real estate, distressed debt and REITs, among other areas – a strategy that it intends to follow as well.
Blumberg founded his firm in 1979, generating investor returns exceeding an average of 17% annually from 1992-2008, for both individual and institutional investors.
In spite of the firm’s strong returns, Blumberg’s investment philosophy emphasizes stability and security, to avoid over-reaching for yield at the expense of safety and invested capital.
CORAL GABLES, FL-- Blumberg Capital Partners, one of the nation’s leading investment fund managers, says an analysis of commercial real estate values, leasing and vacancy trends by its staff shows that any federal bailout of the industry will require a painful, significant deleveraging to succeed.
The company said any bailout plan is working against a legacy of debt time bombs created by imprudent, unrealistic buyers who over-borrowed during the peak of the market in anticipation prices would continue rising unabated.
The Blumberg analysis shows that maturing debt obligations will come under even more stress in 2009 with leasing rates poised to drop an additional 20% to levels not seen since 2002, and with office vacancies potentially rising to 25% by the end of the year. Indeed, the nation’s office market could take until 2011 to stabilize, the company’s analysis shows.
“Creating a refinancing stimulus is helpful to thaw the credit freeze, but these ticking debt time bombs will make it difficult for our public officials to get their arms around this problem,” said Philip Blumberg, Chairman and CEO, as well as firm’s chief investment strategist. (top right, left and bottom right photos).“Now, because the global economic recession has worsened over the past few weeks, coupled with layoffs at the front end of the cycle, demand for office space nationally is falling.
"Until companies can weather this storm and start expanding again, prices will remain low for landlords, and vacancies will rise.”
Such markets as New York City and Los Angeles will likely be among the hardest hit, with Washington, D.C., and Northern Virginia will likely fare better, according to the Blumberg analysis.
“Some cities are holding up in terms of occupancy levels, including places like Houston, which has been relatively resilient due to the energy markets,” said Blumberg. “However, most of the major hubs of commerce nationally are reporting alarming increases in available office space, which should lead to severely falling leasing rates in cities like New York, Chicago, Los Angeles and Phoenix.”
Blumberg Capital Partners’ new office market assessment, which takes into account the fresh economic data from the past two months, comes on the heels of its widely cited prediction in October that commercial real estate prices in 2009 could drop some 20% further--on top of an anticipated 15% drop this year.
Factors which are driving office pricing down are lack of available acquisition financing, dramatically lower performance projections taking into account dropping rental revenues and climbing vacancies.
These downward trends will be magnified in 2009, according to Blumberg, due to maturing debt obligations
, falling property values, and a massive decline in credit availability, which has largely eliminated refinancing options for building owners driving additional properties onto sale market. (Downtown Houston office buildings, middle left photo)
“Given the over-leverage in the commercial real estate market, and the ongoing decline in credit, a number of owners will be forced to sell at prices below their debt levels,” said Blumberg, Chairman and CEO.
In anticipation of the price declines, Blumberg liquidated the majority of the firm’s real-estate holdings over the past two years generating a 30% return this year.
As of December 1, the firm carried no debt, positioning itself for next year’s strategic opportunities to acquire distressed debt and discounted equity investment, according to Blumberg, who added that the firm is now planning a new series of investments and capital raising.
Blumberg Capital Partners is recommending to its investment partners to be patient in early 2009, exploring unprecedented investment opportunities in commercial real estate, distressed debt and REITs, among other areas – a strategy that it intends to follow as well.
Blumberg founded his firm in 1979, generating investor returns exceeding an average of 17% annually from 1992-2008, for both individual and institutional investors.
In spite of the firm’s strong returns, Blumberg’s investment philosophy emphasizes stability and security, to avoid over-reaching for yield at the expense of safety and invested capital.
In addition to his contribution, his investment Funds have relied on internally generated cash and investor contributions, utilizing moderate leverage only to fund commercial real estate purchases.
“The commercial real estate market is not a straight line. It’s a cyclical. You need to gauge where prices are in the evolution of the cycle. That’s what investment is all about. When you lose sight of risk and cyclicality, you make big mistakes,” said Blumberg.
“The commercial real estate market is not a straight line. It’s a cyclical. You need to gauge where prices are in the evolution of the cycle. That’s what investment is all about. When you lose sight of risk and cyclicality, you make big mistakes,” said Blumberg.
(Downtown Los Angeles office buildings, bottom right photo)
Blumberg Capital Partners’ real estate business is vertically integrated, executing acquisitions and dispositions, market research, due diligence, and the management and leasing of commercial properties.
For more information, visit http://www.blumbergcapitalpartners.com/ or contact Ludovic Roche at (305) 569-9500.
CONTACT:
Ludovic Roche
Vice President of Marketing & Business Development
Blumberg Capital Partners
255 Alhambra Circle, Suite 1100
Coral Gables, Florida 33134
Tel: +1 (305) 569-9500
Fax: +1 (305) 569-0800
lroche@blumbergcapitalpartners.com
Blumberg Capital Partners’ real estate business is vertically integrated, executing acquisitions and dispositions, market research, due diligence, and the management and leasing of commercial properties.
For more information, visit http://www.blumbergcapitalpartners.com/ or contact Ludovic Roche at (305) 569-9500.
CONTACT:
Ludovic Roche
Vice President of Marketing & Business Development
Blumberg Capital Partners
255 Alhambra Circle, Suite 1100
Coral Gables, Florida 33134
Tel: +1 (305) 569-9500
Fax: +1 (305) 569-0800
lroche@blumbergcapitalpartners.com
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