Daily Real Estate News  |  April 1, 2010  |   

Execs Eye Deals as Commercial Prices Stay Flat 

More than 75 percent of commercial real estate executives believe that commercial property values will continue to fall for the rest of 2010, according to a survey of 325 executives by Deloitte Financial Advisory Services. About 73 percent believe that asking rents also will decline.

Executives aren’t optimistic that the market will recover quickly. About 63 percent of executives surveyed predict that full recovery will take two to three years, while 29 percent believe a full recovery will take four years or longer. Only 8 percent anticipate a full recovery within the next year.

If there is any good news in this survey, it is the number of executives who believe the market presents opportunities to buy at attractive prices. Forty-seven percent are considering an acquisition this year, while 20 percent expect to buy next year.

Source: Deloitte Financial Advisory Services (03/31/2010)

An abandoned Capital Plaza Motel sits boarded up in Raleigh, N.C. Closing a hotel is a last resort, because once it shuts, it's almost impossible to sell.

He's also noticing that bath towels in a growing number of hotel rooms are shabby and need to be replaced.

Cornelssen, a sales manager in Marlton, N.J., is one of many frequent travelers who say they see the tangible effect that the recession has had on the nation's hotel industry. Among them: run-down rooms with fewer bathroom amenities, closed club lounges, fewer concierge staffers, slow room service, reduced hours at restaurants and bars, and infrequent airport shuttles.

"The unfortunate reality of today's marketplace," says Hotels magazine Editor-in-Chief Jeff Weinstein, is hotels are "more focused on saving cash than delivering the best service."

Hit by a declining demand for rooms, low room rates and plummeting revenue, hotel companies have laid off hundreds of thousands of employees and are struggling to maintain quality. A record number of hotels are defaulting on mortgage payments. Hundreds have been taken over in foreclosures, and some have closed or are about to.

"Because of the recession and the credit bust," says Ed Watkins, editor of the trade publication Lodging Hospitality, "it's the worst downturn in decades — perhaps ever."

As a result, says Robert Habeeb, president of Chicago's First Hospitality Group, which operates 40 hotels in eight states, "The industry is in survival mode."

More Underwater Commercial Borrowers Walk 

An increasing number of commercial borrowers are walking away from their loans. In most cases, mortgages on commercial property are non-recourse loans, so the lender or investor has no further claim on the borrower’s assets.

"Frankly, I am surprised that we have not seen a lot more," said Rob Little, chief investment officer of Cornerstone Real Estate Advisers LLC.

While most borrowers attempt to work out a deal to manage the debt and remain owners in order to profit when times are better, if a property is deeply underwater, and the cost of modification is too high, "then it can make sense to walk away," says Aaron Bryson, an analyst with Barclays Capital.

Source: Wall Street Journal, Prabha Natarajan (03/10/2010)