Pivot Point before the Summer

Looks like the commercial real estate sector will solely be dependent on REFI's able to be accomplished with some sort of gov't help. If you look at the value of property and the ltv, the refi candidate doesn't have a chance. Take a look at all the debt maturing over the next 36 months, it is absolutely staggering the reit debt spread out among office, retail, office and industrial.
Some of these loans have no takers, GGP is still looking for major help, MGM is on life support and although there is cash flow among the NY REIT giants there still is a declining rental market and severe asset deflation taking place. The resetting of values will take us back 10-20 years. TIME has always been the ally of deep commercial re holdings, time is running out and patience is wearing thin with holders of massive debt as prices and rates fall. Goldman says we need 10 Trillion of spending to stop the deflationary forces, they are right and gold hangs tight to a trading range of $900-$1,000, you will start to see gold and the bond market be the barometer over the next three months as we look to these experts on the forecast of the economy. Do not look at equity pushers, they are not the analysts , the debt underwriters are. They have to know the sustainability of progress going forward. Equity pushers are just that, you heard it all already, dollar cost average, buy when there is fear, market has a bottom, all great lines but no substance like the group writing debt.

As far as the Central NJ market, a lot of inventory hit the street this week, on the office and industrial side. Oh yea, that Prologis deal is finally inked for the +/- 192,000 sf, yes the numbers are crazy but its better than VACANCY. Boy times have changed!

Christopher Galiano- Managing Director, SIOR
NAI DiLeoBram & Co.
cgaliano@naidileobram.com

March and Sales are still Frozen

We will have to wait a few more months for the banks to get their act together before the spring thaw arrives for lending to resume. Sales prices on all commercial property are slowly declining and rental rates are following. We are a reset stage in the economy. We are at point where if owners haven't reset yet they will be. Sellers are already calling their brokers and reducing prices quickly to get the sale done.

A lot of empty space at Exit 7, 7A,
8A has its canyons too
9 has some health and Exit 10 is doing relatively fine
Office sublet space is rapidly unfolding
So it looks like a little more concessions for the tenant looking to sign a 5 year deal.

Chris Galiano, SIOR
NAI DiLeo Bram & Co.
732-985-3000

NJ/NY will get a great lift from the BILL!

With bldgs. having debt coming due in 2009, the big question is "where are the banks on the idea of rolling over the debt?" Well, thanks to the TARP and other things, we will see a lowering of interest rates quoted on your garden variety commercial loans. The reason being, in order to bring about major change in the economy, the thousands of loans Must roll in order for stability in the banking system to take affect. The boys at treasury will be watching with a keen eye.

What is really happening in retail is: Weekends are jammed at the malls and on the weekdays they are dead. Same with Hotels in Vegas, jammed for the weekend and cancellations for weekday conferences happening at an alarming rate.

Rail served bldgs. will be back in play in the second half of 2009, as energy prices rise again and the flow of commerce gets transferred to the mighty rail lines which growing very nicely until September 2008..

Office space in and around the rail stops will continue to see better occupancy rates higher than the suburban areas.

New Jersey should receive significant money from the US bailout and NY state will be bailed out even more so , good news for highway and bridge builders.

Growing retailers are: 2nd hand stores, dollar stores, grocery chains, car washes, dental offices(yes they do look at strip malls).

Chris Galiano, SIOR
Managing Director
NAI DiLeo-Bram & Co.
Piscataway, NJ

cgaliano@naidileobram.com

NJ Industrial Real Estate Hanging ON!

With whispers of up to a year's free rent on a select building or two, the modern solid newer warehouses in Central NJ are mostly occupied and rent producing at good rates. The problems in the market occur in the secondary locations in which the vacancy rises in periods we are going through. There just aren't as any companies looking for space. The sales market is still waiting for the spring thaw and looks like we will have one, it's just a matter of what month this year. Yes, in 2009, there will be a slight rise in the back half of the year in sales than the front half. All most people are waiting for is the treasury dept. to decide what rules we are going to play by this year and then we can apply it to the valuing of real estate asset classes and the debt markets can begin to trade again.

All that said enjoy the Valentines/ Presidents Day LONG weekend, its just what the Dr. ordered as we await the passage of the bill of a lifetime. Enjoy it!
Chris Galiano, SIOR
Managing Director
NAI DiLeo-Bram & Co.
Piscataway, NJ
cgaliano@naidileobram.com

What's Going On?!

#1 Question from commercial real estate tenants, buyers and owners, "what's going on out there?"
There's absolutely no visibility. Its like flying a jet with instrument conditions down to the runway with not even a look at the runway lights ahead. Why? Because, no one knows with any credibility whether or not sales will be off 10,20 or 30-50% in 2009. One thing is for sure ,sales will be down.
I will add one important notable quote from the holiday party circuit. From a major industrial owner with over 100 tenants "None of my tenants aren't in any even minor default." Why is that, I asked? "Because the landlord is the LAST company to get burned in an economic pullback, if there is no premises to operate from because of failure to pay the rent, then game over, out of business, and companies will do whatever it takes to not be declared in default of their lease." That news was very encouraging.
The banks are still frozen, I think they turned DOWN the temperature in December even more. Local banks are lending to local companies with proven track records and impeccable histories other than that, stand in line and take a number for any major line of credit. Office rents have continued to slip, with even more concessions now available for a 5 Year lease. Industrial rents are slowly heading south and with sublet space being the new talk of the market which we have not seen in a long time. Stay tuned< buckle up turbulence ahead and not minor but moderate to severe.

Nervous But Activity Is There

The credit markets are still frozen up on the eve of General Growth's $900 million refi prayer.
The holiday party circuit has been all about,"can you believe what happened to the reits"
Well reits that were on a buying binge on 80% ltv and paying up through 2007 find themselves looking ahead to serious refi issues in 2009. Who will want to fund the depreciating assets?
Some serious trading of properties may occur. Good deals will be based on tenant's that have a product that the citizens of the USA NEED not WANT., ie: soap, food, paper, beverage, auto parts and the consumer staples. Everything else is fair game for serious scrutiny. Rental rates are falling, landlord's willing to offer rent abatement in order to have tenant's move.
Sales that did happen in 2008 were already teed up in 2007.
Medical space seeing very good activity. Office depot dumping stores as well as KB Toys this week. Looks like we are trending to a reset down to levels seen in 2000. Ten year bill could go to 2% and borrowing will be at 65% ltv and up in 2009.
Big Box warehouse space is abundant at Exit 8A, South Brunswick, Monroe.
Exit 7A has big vacancy as well.
Cookie cutter deals at 25,000 sf and under continue to be a mainstay in the 4th quarter.
In the meantime there is a whole lot of enthusiasm towards a rip roar sale market in 2009, the only problem is what will be the catalyst towards acquiring assets that continue to decline in value? It will be all about the tenant's credit and their risk participation in the lease that govern 2009.

Buckle Up- 45 days til 2009

Sill too much bad debt on the bank's balance sheets has kept the commercial lending market FROZEN. Yes deals that are 50% LTV under 4 million can get done, but then you've eliminated 80% of potential deals.
It seems that the US of A has to hyper-inflate and spend 2 Trillion dollars over the next three years rebuilding every single solitary road,bridge, tunnel and transportation infrastructure that needs repair in order to keep the unemployment rate below high levels.

I can say that NJ remains at least for now much better than middle America since within 5 hrs of NY is 1/3 of the population of the country. Space will take time to be absorbed and older buildings will be candidates for redevelopment. Prime is at 4% going to 3% and the 10 Year Note is at 3.75% going to 2.75%, which would help the most important rate we need to be changed, that is the 30 year fixed. Can you believe that its not 5% yet? That's where it needs to be or lower within the next 9 months to get any 2nd home buyer interested in placing their bet and move this economy along.