Pain at the Pump: Been There, Done That

MARK HESCHMEYER, EDITOR
MAY 12, 2011
WWW.COSTAR.COM
A WEEKLY NEWSLETTER FOCUSING ON CHANGING MARKET CONDITIONS, COMMERCIAL REAL ESTATE, MORTGAGES AND
CORPORATIONS PUBLISHED BY COSTAR NEWS
IN THIS WEEK'S ISSUE:
Pain at the Pump: Been There, Done That........................................................................................................................................ 1
Gramercy Facing Foreclosure Action on Nearly 900 Bank Properties .............................................................................................. 5
TIAA-CREF and CBL Form $1.09 Billion Joint Venture ..................................................................................................................... 5
Tenants Shifting from Retrenchment to Growing Smart .................................................................................................................... 6
Angelo Gordon Grabs Control of More Pacific Office Properties ....................................................................................................... 7
Commercial/Multifamily Mortgage Origination Highest in Nine Years ............................................................................................... 8
CMBS Delinquencies Reveal Fragility of the Recovery ..................................................................................................................... 9
Banks Unlikely To Be Economic Growth Catalysts ......................................................................................................................... 10
Bond Street Holdings Continues Acquisitions of Distressed Florida Banks ..................................................................................... 11
Freddie Mac Marketing New CMBS ................................................................................................................................................ 11
Bank of America More Than Tripling Number of Customer Centers ............................................................................................... 12
GM To Invest $2 Billion in U.S. Plants, Adding 4,000 Jobs ............................................................................................................. 12
FD Partners and Stonewater Partners To Merge ............................................................................................................................ 13
Pep Boys Acquires Big 10 ............................................................................................................................................................... 13
Upcoming Corporate Facility Closures & Layoffs ............................................................................................................................ 13
Lease Cancellations: Vitro America ................................................................................................................................................. 15
Watch List: Liquidated Loan Losses ................................................................................................................................................ 16
Pain at the Pump: Been There, Done That
Impact on CRE from High Gas Prices is More the Exception than the Rule
U.S. gas prices have again climbed above $4-plus/gallon this spring, as they did for the first time ever in the
summer of 2008 when the increase was accompanied by an outcry from shopping malls to distribution center
operators.
Perhaps because the commercial real estate industry has been through this before, the business outlook has
been less ruffled. Or maybe it is because it just been through the worst recession in a lifetime and it is used to
more economic bad news that the impact of high gas prices on real estate has been more muted.
On the personal side, though, the "pain at the pump" has prompted some rethinking of travel habits to the point
that the next Prius that pulls into a building parking lot or the next bicycle that is chained to a bike rack could be a
brokers.
CoStar surveyed readers across the country this week to gauge if and how high gas prices are impacting
commercial real estate.
"My team focuses on commercial real estate investment funds and many are actively pursuing and buying real
estate. To date, none of the conversations have focused on the price of fuel," said Kevin M. Lynch, managing
director of Sperry Van Ness National Office and Industrial Properties Group and the National Single-Tenant Net
Leased Property Group in Arlington Heights, IL. "From a travel perspective, several investors have mentioned
the price of fuel and its possible impact on business and family travel but it is still the exception rather than the
rule."
"The general census is that fuel prices will continue to fluctuate over the years and business will compensate,"
Lynch said. "Conversations with tenants have not revealed significant concerns yet either."
In energy-rich Texas, the gas price threshold has even been a positive.
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"High fuel prices don't seem to matter quite as much in areas that depend on oil and gas exploration and
refining," said Matthew Cravey, president of NAI Cravey Real Estate Services in Corpus Christi, TX. "Obviously
we don't want to spend any more on anything we don't have to. However, our area in South Texas is
experiencing a financial boom that we haven't experienced since the '80s. All of this activity relating to
exploration is filtering down to all sectors of our economy."
"South Texas is spread out and it is a fact of life that you must drive," Cravey said. "It sure doesn't hurt that we
are all making more money to help pay for these higher prices and still have some left over."
"We have not seen retailers very worried about the drive time or the cost yet," Cravey added. "I had spoken to
some retailers that thought they might open smaller stores and then locate more stores throughout the area but it
looks as though its business as usual."
RETAIL REAL ESTATE COULD BE THE MOST SUSCEPTIBLE
"Over the last few months, the big question for retail analysts has been, 'when will gas pricing finally take a bite
out of retail sales,'" said Garrick H. Brown, retail research director at Terranomics in Burlingame, CA. "The
combination of a rising dollar and reduced consumer demand sparked a commodities sell-off last week that sent
the price of a barrel of oil from near $115 (as of last Monday) to below the $100/barrel mark (as of last Friday).
This should translate into lower prices at the pump within the next couple of weeks. Unfortunately, it is more than
likely just a pause in the action… as opposed to the reversal of the big picture trend."
Russ McGinty, senior vice president retail services for North Central Commercial Real Estate in Maple Plain,
MN, said that, "several larger format grocery tenants have mentioned real estate discussions on small format
stores positioned closer to customer base." but that is about it.
BROKERS FEELING THE PAIN
"Us lowly real estate agents are really feeling the hurt since we drive sooo many miles in the course of our
business," responded Sharon D. Hopmann, senior agent for Realty Exchange Commercial Group in St. Louis,
MO. "What I have done to minimize wasting time and money on showing properties is to schedule showings
more strategically and prequalify the buyers better."
Kristin Hammond, an associate for Pacific Real Estate Partners in Portland, OR, likened the response to déjà vu
all over again and doesn't change the way she responds to clients; that remains dictated by their needs /
objectives for office space, she said.
"Most of my tenants impacted by high gas prices made the decision back in 2008/2009 to locate closer to mass
transit or in the urban core," Hammond said but added, "I periodically use light rail to get to client meetings
downtown, carpool to work. I have a colleague now driving a Prius."
R. Dabney Tompkins, brokerage services for CB Richard Ellis | Office Properties in Portland, OR, has also
altered his personal travel habits.
"I moved to Portland about five years ago after being in the real estate business in Texas for 22 years,"
Tompkins said. "Because Portland has such a great bicycle network and mass transit system, I thought I would
give it try of not owning a car. Of all the industries, real estate would seem like one of the most difficult to work in
without a car. But now I ride my bicycle to my office downtown and either take light rail to appointments (if they
are on the light rail) ride my bike to appointments (if they are close enough) or rent a Zipcar, which are hourly car
rentals that are parked all over the city. At $7.50/hour, my monthly Zipcar bill is less than my monthly car
insurance – no more gasoline bills, car insurance, parking fees, maintenance, washing or repairs – savings I
estimate of about $25,000/year. And if there is a client I need to impress, there is a Zipcar BMW across the street
from my office for $13/hour. I have been car free now for three years so quite frankly I have no idea what a
gallon of gas costs."
We heard from several other CRE professionals and their comments follow.
THANK GOD FOR SUVS
I can only speak for myself. I was in an auto accident about two weeks ago. I would still drive an SUV regardless
of gas prices as it saved my life.
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Andrew Marken, manager of real estate specialists, Real Estate Portfolio Management at Fresenius Medical
Care with U.S. headquarters in Waltham, MA
From a personal perspective, we will be keeping our SUV's for daily commuting and to haul our boat and other
toys.
Kevin M. Lynch, managing director of Sperry Van Ness National Office and Industrial Properties Group and the
National Single-Tenant Net Leased Property Group in Arlington Heights, IL.
FUEL DEALS
We are just under $4/gallon here in Las Vegas and although I try to mitigate the daily driving, sometimes there is
no way around it. So, I have taken on the approach of finding the "deals." First I will check out
vegasgasprices.com, and typically will end up in the part of town one of the cheaper stations are located, so will
fuel there. Another great incentive I take advantage of is, I do all our grocery shopping at Smith's (a.k.a. Kroger
in other parts of the US). They have a program that will earn one point for each dollar spent. When you shop at
their stations, you can take up to $1/gallon (up to I think 35 gallons) off the gas price by using your points. You
think with the rising price of gas, the groceries are impacted as well, so it is not hard to accrue points. I just saved
40 cents/gallon the other day!
Mike Pristow, managing director of KW Commercial in Henderson, NV
INDUSTRIAL ECONOMY OF SCALES
When business is great and the availability of labor becomes a concern, firms tend to move back to cities and
the labor force that is available there. The same phenomena may occur if the price of gas causes the inner city
work force not to travel. Firms may start coming back.
The trend with distributors continues to be away from the smaller local distribution center offering improved
service ( 30,000 to 100,000 square feet) and toward the mega distribution cent (400,000 to 1.8 million square
feet ) where they get economies of scale and the dramatically improved supply chain software and techniques
affords comparable service times and quality. These distribution centers are located in outlying areas like
Frackville, Covington and Hazelton where the labor and the land are cheap and sites are large enough to build
these monster structures.
J. Francis Mahoney, director at Cushman and Wakefield of Pa. Inc. in Philadelphia, PA
We have noticed a change in where certain types of companies, such as manufacturing and distribution centers,
are laying their roots. Many are now purchasing facilities near or around short-line railroads. Since railroads are
always trying to find the most fuel efficient methods in order to keep shipment costs low, it makes perfect since
that this is becoming a trend.
Alicia Neal, CRM administrator for Malin Integrated Handling Solutions and Design in Addison, TX
HOTELS COULD BE HURT
The "Pain at the Pump" will have a negative impact on hotels located along interstate highways and those
proximate to traditional drive to destinations such as national parks and amusement / theme parks. Leisure
travelers, specifically vacationing families, will be cutting back on their fuel consumption and will be more likely to
take shorter trips that won't involve an overnight stay.
Mark H. von Dwingelo, senior vice president Northeast Region for Jones Lang LaSalle Hotels in Stamford, CT
APARTMENT DEVELOPMENT SHIFTING
We are starting to see a resurgence of multifamily rental development in Florida. The biggest difference we have
noticed is that most developers are looking for infill or transit oriented sites. In part, this is due to a forecasted
increase in gas prices and a desire for people to live closer to where they work.
T. Sean Lance, managing director, president - troubled asset optimization for NAI Tampa Bay
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Gramercy Facing Foreclosure Action on Nearly 900 Bank Properties
Gramercy Capital Corp. missed the scheduled maturity repayment of more than $790 million in loans, a default
which will likely result in an attempt by the lenders to foreclose on nearly 900 properties comprising 25.4 million
rentable square feet, the company announced.
The loans are pooled into two groups:
$240.5 million mortgage loan with Goldman Sachs Mortgage Co., Citicorp North America Inc. and SL
Green Realty Corp. and
$549.7 million senior and junior mezzanine loans with KBS Debt Holdings LLC , Goldman Sachs,
Citicorp and SL Green.
The loans are secured by mortgages on properties owned by the Gramercy Realty division and by pledges of
equity interests in substantially all of the entities constituting the company's Gramercy Realty division.
As of Sept. 30, 2010, Gramercy Realty's portfolio consisted of 627 bank branches, 323 office buildings and two
land parcels, of which 54 bank branches were owned through an unconsolidated joint venture. The occupancy of
the properties was 83.7%.
Cash flow from Gramercy Realty's portfolio, after debt service and capital requirements, was negative and was
expected to remain so under the current loan terms it has with its lenders, Gramercy said.
Gramercy Realty's two largest tenants are Bank of America and Wells Fargo, which represented approximately
40.4% and 15.6%, respectively, of the rental income of the company's portfolio and occupied approximately
43.6% and 16.5%, respectively, of Gramercy Realty's total rentable square feet.
Notwithstanding the maturity and non-repayment of the Gramercy Realty loans, Gramercy Capital said it is still in
active communications with its lenders and is trying to negotiate an agreement for an orderly transition of all or
substantially all of the Gramercy Realty assets to the Gramercy Realty lenders, but with continued management
of the assets.
TIAA-CREF and CBL Form $1.09 Billion Joint Venture
TIAA-CREF and CBL & Associates Properties Inc. formed a $1.09 billion real estate joint venture to invest in
market-dominant shopping malls.
TIAA-CREF will invest in four of CBL's market dominant shopping malls: Oak Park Mall in Kansas City, KS; West
County Center in St. Louis, MO; CoolSprings Galleria in Nashville, TN; and Pearland Town Center in Pearland,
TX.
"We have been exploring joint venture opportunities for quite some time and our patience and persistence has
been rewarded," said Stephen Lebovitz, president and CEO of CBL & Associates. "This transaction will not only
further our deleveraging efforts by reducing our total debt by approximately $480 million, it will also create a
vehicle to pursue future corporate growth opportunities."
TIAA-CREF's Global Real Estate group owns more than $14 billion commercial properties across the U.S.,
Canada, and Western Europe.
"This is an attractive opportunity to expand TIAA-CREF's long-standing footprint in the dominant regional retail
sector," said Philip McAndrews, managing director and head of global real estate transactions and joint ventures
for TIAA-CREF. "The investment underscores our continuing strategy to invest in high-quality, well-leased and
well-located retail properties with strong and experienced partners, such as CBL. We believe super regional
malls are an essential part of a well-diversified portfolio. These assets provide durable income streams along
with stable and enduring long term values."
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TIAA-CREF will receive a 50% pari passu interest in the three enclosed malls, including Oak Park Mall, West
County Center, and CoolSprings Galleria and a 12% interest in Pearland Town Center. In addition, TIAA will
assume $268 million of property specific debt. CBL will continue to manage and lease the properties.
CBL anticipates closing on the transaction by third quarter 2011.
Eastdil Secured acted as CBL's exclusive financial advisor in arranging this joint venture.
West County Center in St. Louis (Des Peres), MO: West County Center is a 1.3-million-square-foot
super-regional mall anchored by Missouri's only Nordstrom as well as Macy's, JCPenney and Barnes &
Noble.
Oak Park Mall in Kansas City (Overland Park), KS: Oak Park Mall is a more than 1.5 million-square-foot,
high-performing shopping destination featuring four department stores including the area's only
Nordstrom as well as Dillard's, Macy's and JCPenney, plus more than 185 specialty stores and
restaurants.
CoolSprings Galleria in Nashville (Franklin), TN: CoolSprings Galleria is a more than 1 million-squarefoot super-regional shopping destination anchored by Belk, Dillard's, JCPenney, Macy's and Sears.
Pearland Town Center in Houston (Pearland), TX: Pearland Town Center features a 718,000-squarefoot open-air lifestyle center anchored by fashion department stores Dillard's and Macy's, as well as
Barnes & Noble.
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Tenants Shifting from Retrenchment to Growing Smart
Tenants throughout corporate America are beginning to be less concerned about cost containment within their
real estate portfolios and are shifting their focus from retrenchment to growing smart to increase their productivity
in 2011 and beyond, according to Jones Lang LaSalle as part of the results of its 2011 Corporate Real Estate
Survey distributed at the CoreNet Global Summit in Chicago.
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The survey revealed that though most companies are beginning to enter a cautious growth mode. Firms are
placing a strong emphasis on providing a compelling rationale for each square foot of their real estate footprint in
response to Wall Street expectations for growth and cost management as well as merger and acquisitions
activity.
"Companies in the United States are entering a growth mode in terms of hiring and business line expansion, but
this may not translate to growth in office space needs to the same degree," said Kenneth Rudy, international
director, corporate solutions at Jones Lang LaSalle. "Even as they grow, companies are focused on strategies to
maximize space utilization, both in the amount of space needed per employee and in the effectiveness of the
space in driving a highly productive workforce."
The mandate will be less focused on increasing square footage in a portfolio, and more aimed at supporting
business growth in a flexible manner while managing total occupancy costs and reducing risk.
It will also involve making strategic repositioning decisions to eliminate underutilized or redundant space.
Occupiers will be challenged to adopt organizational structures that can drive global initiatives, balance growth
and consolidation, control risk and enable quick decision making.
Positioning for smart growth in the face of changing demographics, labor costs, energy costs and world politics is
leading companies to carefully evaluate entire operational footprints – office, distribution and manufacturing –
and to develop the right commercial real estate organization, governance and guiding principles that can drive
global initiatives and produce results, while supporting a company's appetite for strategic growth.
"The old rules no longer apply," said Lauren Picariello, vice president of occupier research for Jones Lang
LaSalle. "Many large companies will not immediately take on more space as they increase revenues and resume
hiring. There is a fundamental shift in the way corporate America consumes commercial real estate today."
FLIGHT TO QUALITY RAMPS UP
Unlike previous cycles, this recovery will not be as broadly based, JLL said. In recent quarters, in response to a
tenant-favorable market, occupiers aggressively used flight-to-quality strategies to secure top-tier space at
market-low rents.
Companies are being hyper-selective with space requirements and are migrating to real estate that brings the
company as close as possible to its clients, employees and other key stakeholders. Many leading markets
segments are now seeing the availability of premier quality Class A space tighten, making the flight to quality
executed in 2010 more challenging. As shortages of quality space emerge, especially for large size
requirements, relocation options will become limited, reducing tenant leverage.
As occupiers gravitate away from second-generation space to new higher quality options, holes have been left in
the Class B and commodity space markets. This in turn has created opportunities for more price-conscious
tenants looking to take advantage of higher vacancy and depressed rents for "flight to value" plays.
Angelo Gordon Grabs Control of More Pacific Office Properties
Pacific Office Properties Trust Inc. has formed two joint ventures with Angelo, Gordon & Co., to own two
separate office properties, the City Square Office Towers in Phoenix, AZ; and the Pacific Business News
Building, in Honolulu, HI.
The new partnerships are the most recent of more than a dozen joint ventures formed between Pacific Office's
management group and Angelo Gordon, which together have completed more than $950 million in acquisitions.
"The contributions of City Square and the PBN Building to these joint venture structures are highly beneficial to
both partners, and is consistent with our co-investment strategy to own properties in partnership with institutional
investors," said Jim Ingebritsen, president and CEO.
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Last month, Pacific Office Properties Trust hired Eastdil Secured to assist in the potential recapitalization of a 1.6
million-square-foot portfolio of Class A office buildings in Honolulu. Pacific Office Properties is a San Diegobased REIT and is the largest office-building owner in Honolulu.
The company reported a GAAP net loss for the year ended Dec. 31, 2010, of $17.2 million compared to a net
loss of $15.6 million a year earlier.
The City Square Office Towers comprise 722,000 square feet in three office towers in the Phoenix CBD and is
part of Phoenix's most prominent mixed-use project. The PBN Building is a 90,000-square-foot, 10-story office
building.
Pacific Office will continue to manage both properties and oversee leasing activities.
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Commercial/Multifamily Mortgage Origination Increase Highest in 9 Years
First quarter 2011 commercial and multifamily mortgage originations were 89% higher than during the same
period last year and 25% lower than during the fourth quarter of 2010, according to the Mortgage Bankers
Association's (MBA) Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations.
The decrease from fourth quarter 2010 reflects the industry's usual push to finalize deals before the end of the
year, and subsequent drop-offs in first quarter numbers.
"The pace of commercial and multifamily mortgage lending continued to increase in the first quarter of this year,"
said Jamie Woodwell, MBA's vice president of commercial real estate research. "The percentage increase in
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commercial/multifamily mortgage originations for the first three months of 2011 were the highest of any first
quarter since 2002, and were nearly double the volume seen during the first quarter of 2010."
The 89% overall increase in commercial/multifamily lending activity during the first quarter of 2011 over the same
period in 2010 was driven by increases in originations for all property types. When compared to the first quarter
of 2010, this included a 465% increase in loans for hotel properties, a 194% increase in loans for industrial
properties, a 104% increase in loans for multifamily properties, a 92% increase in loans for office properties, a
91% increase in loans for health care properties, and a 13% increase in loans for retail properties.
Among investor types, first quarter 2011 originations for conduits for CMBS increased 391% compared to last
year's first quarter. There was also a 126% increase in loans for life insurance companies, a 73% increase in
loans for commercial bank portfolios, and a 59% increase for the Government Sponsored Enterprises (GSEs),
Fannie Mae and Freddie Mac.
CMBS Delinquencies Reveal Fragility of the Recovery
After three consecutive months in which the U.S. CMBS delinquency rate showed signs of leveling off, the rate
re-accelerated in April, according to Trepp LLC and Fitch Ratings.
In February and March, the CMBS delinquency rate posted its smallest rates of increase since mid 2009. Those
statistics, along with the view that CMBS lending was beginning to pick up steam, led many to believe that the
worst was behind the CMBS market.
In April, however, the delinquency rate for U.S. commercial real estate loans in CMBS increased significantly,
jumping 23 basis points. That puts the rate at 9.65% once again, the highest reading in the history of the CMBS
market, Trepp data shows.
The multifamily delinquency rate jumped sharply in April, up 56 basis points, and remains the worst major
property type with a delinquency rate of 16.77%, Trepp noted.
Lodging delinquency rate headed down falling 52 basis points to 15.45%; industrial delinquency rate spiked 51
basis points to 10.76%; office delinquency rates went up 7 basis points and remains best performing major
property type at 7.2%; and the retail delinquency rate moved 43 basis points higher to now more than 8% for first
time.
Both Trepp and Fitch noted, however, that there are factors putting downward pressure on the delinquency rate.
Loan resolutions have once again helped cancel out rising monthly U.S. CMBS delinquencies, according to the
latest index result from Fitch Ratings.
"While the nascent real estate recovery and elevated loan resolutions are grounds for cautious optimism, it is still
too early to say that CMBS delinquencies have reached a peak," said Fitch managing director Mary MacNeill.
"There are still several overleveraged performing loans that may potentially slip into payment default, meaning
that CMBS delinquency volatility may persist."
With three of the largest five performing specially serviced loans transferring last month, there is considerable
uncertainty as to whether these loans will default in the near term, MacNeill said.
"Borrowers have been paying debt service on several performing large loans in special servicing during workout
negotiations, but they may cease to do so if they are unable to reach a viable near-term modification," MacNeill
said. "Conversely, any modifications or liquidations that remove large loans from the index could push CMBS
delinquencies downward."
Trepp said the rise in delinquencies is also being tempered by other factors.
First, as new CMBS issues are added to the data set, the delinquency rate benefits from a larger denominator.
And, second, special servicers have been resolving a greater number of troubled legacy CMBS loans than they
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were 18 months ago. Accordingly, as troubled CMBS loans leave the universe as they are sold off or modified
the balance of troubled CMBS loans is reduced. This, too, puts downward pressure on the delinquency rate.
Trepp also noted one factor, however, that has the effect of pushing the delinquency rate higher: the retiring of
defeased or performing loans. As those loans leave the pool, the denominator shrinks, thereby pushing the rate
higher.
Defeasance among loans backing U.S. commercial real estate securities increased significantly last year over
the depressed defeasance activity in 2009, according to Moody's Investors Service.
In 2010 the defeasance of CMBS loans was more than double that in 2009 -- $2.8 billion in 2010 compared to
$1.3 billion in 2009. The pick-up in defeasance reflects increased liquidity for commercial real estate assets ,
Moody's said.
"Defeasance remains an important factor in CMBS credit because it dramatically reduces the risk of potential
loss of principal and interest associated with real estate assets by substituting Aaa-rated US government
securities for the real estate collateral," said Sandra Ruffin, a Moody's vice president and senior credit officer.
Banks Unlikely To Be Economic Growth Catalysts
By: John O'Callahan
The good news about the banking system is that it is continuing to mend gradually. The bad news is its earnings
capacity, appetite for risk, and its customer demand in a deleveraging environment all remain below normal.
Banks' first quarter earnings reports have benefited from significant reversals of loan loss reserves, as the
volume of distressed loans appears to be moderating.
Generally, banks' portfolios of nonperforming loans have improved, thanks to easy money from the Fed and an
economy slowly on the mend, but the level of health varies across the bank universe and plenty of challenges lie
ahead for all banks.
Data on a $5.5 trillion subset of the bank universe (53% of which consists of the assets of mega banks, also
1
referred to as too-big-to-fail, or TBTF ) reveals large banks' average nonperforming loan balances (NPLs)
declined by 0.1% year-over-year, to 4.6% at the end of 2010; NPLs of banks with assets below $5 billion
continued to increase by 0.3%, to 4.3%.
Loan loss reserve balances for banks that have already reported results for first quarter 2011 reveal diverging
2
trends by bank size : large banks have taken most of their losses already, while smaller banks are still increasing
3
reserves to cover more losses to come.
Smaller banks, for example, lag behind larger ones in cleaning up their books of construction and development
loans, reducing those balances by less than 25% over the past year, versus 35% for the large banks.
While the Fed's policy has been successful in increasing prices of riskier asset classes over the past year, it has
4
been less successful in getting banks to increase lending overall. Total lease and loan balances have continued
to decline with a steepening fall in the first quarter of 2011.
Ironically, as large banks reduced the balances of their commercial real estate (CRE) term loans more rapidly
than balances of other loan categories, the smaller banks actually increased their CRE term loan balances over
the past year. Smaller banks' Tier 1 capital levels — on average 1% to 3% higher than TBTF bank levels of
around 12% as of first quarter 2011 — may be viewed as being high enough to absorb future shocks, allowing
them to strategically grow portions of their portfolios.
The combination of declining loan balances and declining interest margins can only result in lower net interest
income, a more pronounced problem for the too-big-to-fail banks. Larger banks are also facing declining or
volatile fee income from investment banking, trading, and consumer-related charges in the face of increased
regulation and slow economic growth.
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At the same time, expenses have increased; employee headcount is up 1% to 3% over the past year, with the
larger banks at the higher end of that range.
Lower revenues, falling profit margins, and the prospect of diminishing future support from the Fed as its easy
money policy is reversed point to considerable headwinds, even as the peak of total loan delinquencies appears
6
to be in the past. It's very likely that all of these uncertainties and headwinds will translate into a prolonged
period of tight credit, which will continue to be a drag on economic growth.
FOOTNOTES
1. The TBTF banks included in this analysis are JPMorgan Chase, Bank of America, Wells Fargo, and
Citigroup.
2. Data from SNL Financial on 85 banks with loan balances of approximately $3.4 trillion.
3. Charge-offs have declined significantly across all bank sizes in the first quarter, but larger banks have
reversed reserves while smaller banks have not.
4. It's difficult to measure the success of the Fed's actions with regard to lending conditions; credit
conditions could have been much worse without QE2.
5. However, the larger banks reduced workforces significantly in 2008–09.
6. But in commercial real estate portfolios, very large volumes of maturing loans, many facing refinancing
issues, will continue to challenge banks. Residential mortgage issues are well publicized as well.
Bond Street Holdings Continues Acquisitions of Distressed Florida Banks
The Office of Thrift Supervision closed Coastal Bank of Cocoa Beach, FL, and appointed the Federal Deposit
Insurance Corp. (FDIC) as receiver.
Premier American Bank, a Miami-based subsidiary of Bond Street Holdings Inc., entered into an agreement with
the FDIC to purchase substantially all of the assets. Since its formation in April 2009, Bond Street has raised
$740 million and has acquired seven failed banks in Florida.
Coastal Bank, which reported net losses in 2008, 2009 and 2010, was critically undercapitalized.
Coastal Bank began operations in 1999. As of Dec. 31, 2010, the institution had 27 employees, assets of $129.4
million, retail deposits of $123.7 million, a home office and one branch.
As it has for most recently failed banks, distressed commercial real estate made up a big portion of Coastal
Bank's assets. the bank listed more than $21.7 million in with most of that tied to construction and development
loans and projects.
For the group of 13 banks that failed in April, CRE loans comprised $599 million (or 79%) of the total $759 million
in nonperforming loans. Construction and land loans made up $346 million or 46% of the total, while commercial
mortgages comprised $253 million (33%) of the total nonperforming pool, according to Trepp.
The FDIC estimates that the cost to its Deposit Insurance Fund will be $13.4 million.
Freddie Mac Marketing New CMBS
Freddie Mac is going to market with a new multifamily mortgage-backed securities offering – the 13th in its series
of Structured Pass-Through Certificates (K Certificates). This is its fifth such offering this year.
The McLean, VA-based company is offering $1.1 billion in K Certificates, which are expected to price the week of
May 16.
The certificates are backed by 81 recently originated multifamily mortgages and are guaranteed by Freddie Mac.
The 10 largest underlying mortgage loans represent 30.7% of the initial mortgage pool balance.
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Ronkonkoma at Colony Park, 586 units in Ronkonkoma, NY, $46,040,000
Foxfire Apartments, 500 units in Laurel, MD, $44,700,000
Trump Village II 441 units in Brooklyn, NY, $42,675,000
The Giovanna 730 units in Plano, TX, $38,161,880
Century Ridge 434 units in Atlanta, GA, $38,097,000
Trump Village I 441 units in Brooklyn, $37,547,000
The Enclave 320 units in Palm Desert, CA, $35,600,000
Keeler's Corner Apartments 414 units in Lynnwood, WA, $34,568,167
Ansley at Park Central 490 units in Dallas, TX, $34,000,000 and
Forest City 298 units in Denver, CO, $32,309,178.
Bank of America More Than Tripling Number of Customer Centers
Bank of America plans to more than triple its number of customer assistance centers in the coming weeks,
bringing the total to 40 in 22 states by early summer.
Beginning this month and into July, the bank plans to open 28 new centers in some of the metropolitan areas
that have been the hardest hit by the downturn in the economy and housing market.
Bank of America is already operating 12 fulltime customer assistance centers, including five opened since the
first of this year.
Seven of the new centers will be in hard-hit areas of California, including two additional locations in greater Los
Angeles, as well as sites in San Diego, the Inland Empire, the Antelope Valley and the northern and southern
San Joaquin Valley.
Other metropolitan areas to be served by the new centers include Atlanta; Baltimore/Washington; Denver; Detroit
(two locations); north metro Detroit/Pontiac; Houston; Kansas City; Miami; Milwaukee; Nashville; Newark, NJ;
New Orleans; Philadelphia; Raleigh; Richmond, VA; San Antonio; St. Louis; and Tucson.
Since the first of the year, Bank of America has opened customer assistance centers in Alexandria, VA; Chicago;
Glendale, CA; Orlando; and Seattle.
GM To Invest $2 Billion in U.S. Plants, Adding 4,000 Jobs
General Motors Co. plans to invest about $2 billion in U.S. assembly and component plants, creating or
preserving more than 4,000 jobs at 17 facilities in eight states.
"We are doing this because we are confident about demand for our vehicles and the economy," GM chairman
and CEO Dan Akerson said during an event at the 54-year-old Toledo (OH) Transmission Plant. "This new
investment is on top of $3.4 billion and more than 9,000 jobs that GM has added or saved since mid-2009."
GM's U.S. sales through the first four months of the year are up 24.8% over 2010, and the company last week
reported its fifth-consecutive profitable quarter since emerging from bankruptcy reorganization in July 2009.
In Toledo, GM will invest $204 million to retain about 250 jobs for an all-new, advanced 8-speed automatic
transmission for future vehicles that offer customers improved fuel economy and outstanding performance.
The first of the new investments -- $131 million and about 250 additional jobs in Bowling Green, Ky., -- was
announced last week.
Over the next few months, GM will make specific facility investment announcements dependent on successful
completion of state and local incentives in some communities. According to the nonprofit Center for Automotive
Research, the ripple effect of the planned investments would add almost $2.9 billion to the U.S. gross domestic
product and create or retain more than 28,000 jobs.
THE WATCH LIST NEWSLETTER
12
"There is no greater evidence of the positive effect of the historic federal intervention than large new investments
in major U.S. automotive facilities on the part of the rescued firms such as General Motors," said Sean
McAlinden, executive vice president of research and chief economist at the Center for Automotive Research.
FD Partners and Stonewater Partners To Merge
Two boutique real estate firms, FD Partners and Stonewater Partners, intend to merge into a new company, FD
Stonewater, effective July 1, 2011.
The merger brings together a combined track record of more than $10 billion in investment and acquisitions and
more than 37 million square feet of lease transactions.
Founded in 2007, FD Partners has to-date primarily focused on the acquisition, leasing, and development of
federal government occupied real estate. Since its formation in 2003, Stonewater has focused on corporate
single-tenant acquisitions, asset management and corporate advisory, including sale-leasebacks.
FD Stonewater will be based in Arlington, VA, with offices in New York and Los Angeles.
Pep Boys Acquires Big 10
The Pep Boys – Manny, Moe & Jack acquired Big 10 Tires and Automotive, which operates 85 stores throughout
Florida, Georgia and Alabama.
"We are very excited to add this many new Service & Tire Centers in a single transaction and to improve our
market density in Orlando, Atlanta and the gulf area of Florida and Alabama."
"This acquisition furthers our stated strategy to grow through Service & Tire Centers," said Mike Odell, Pep Boys
president and CEO. "We are very excited to add this many new Service & Tire Centers in a single transaction
and to improve our market density in Orlando, Atlanta and the gulf area of Florida and Alabama."
During 2011, including the recently announced acquisition of seven stores in the Seattle-Tacoma market, Pep
Boys has acquired 92 operating locations with $93 million in annual sales for an aggregate purchase price of $41
million. With the addition of these locations, Pep Boys now operates 147 Service & Tire Centers and is well
ahead of the targeted total of 55 new stores for fiscal 2011.
Upcoming Corporate Facility Closures & Layoffs
Company
Precision Camera
Ben-Ezra & Katz
The Rusty Pelican
Restaurant
Boston Scientific
Corp.
DSE Fuzing
Kmart
Address
3 Annginna Drive, Enfield,
CT
2901 Stirling Road, Suite
300; and 2699 Stirling
Road, Ft. Lauderdale, FL
3201 Rickenbacker
Causeway, Key Biscayne,
FL
8600 N.W. 41st St., Miami,
FL
4257 Daubert St; and 6655
E. Colonial Drive, Orlando,
FL
1650 Airport Blvd.,
Pensacola, FL
THE WATCH LIST NEWSLETTER
Closure
or Layoff
Owned
or
Leased
Unknown
Owned
Unknown
Leased
Unknown
Unknown
Owned
Unknown
Unknown
Leased
No.
Impacted
115
Impact Date
CoStar ID No.
immediately
378708 /
378711 Ind.
Condos
145
6/28/2011
151
7/5/2011
18
7/1/2011
7842566 /
356622
103
6/30/2011
408036 /
380663
57
8/21/2011
1170171
13
Company
Murphy Cap &
Gown
BagcraftPapercon
dba Marcal
Chicago
Gendex Dental
Systems
Ivex Packaging
Paper
Temple-Inland
Sears Holding
Corp.
J C Penney
Dietrich Metal
Framing
Ditan Distribution
Cognis Corp.
Graphic Packaging
International
The Kroger Co.
Palmetto GBA
Travelers
Advantage
Services.
US Bank Corporate
Payment Systems
SuperMedia LLC
Farmers Insurance
Exchange - 21st
Century
Capital One Call
Center
CVS Caremark
AT&T
AT&T
Federal Reserve
Bank of Dallas
Carrier Corp.
Yusen Logistics
(Americas) Inc.
General Dynamics
Land Systems
Cardiac Science
Pinnacle Foods
Group
Address
4200 31st St, North, St.
Petersburg, FL
5401 S. Western Blvd.,
Chicago, IL
901 W. Oakton St., Des
Plaines, IL
292 Logan Ave., Joliete, IL
11600 W. Grand Ave.,
Northlake, IL
3700 E. Main St., St.
Charlese, IL
2000 Springhill Mall
Highways 31 and 72, West
Dundee, IL
1435 W/ 165th St.,
Hammond, IN
909 Whitaker Road,
Plainfield, IN
5051 Estecreek Drive,
Cincinnati, OH
10600 Evandale Drive,
Cincinnati, OH
5827 Emporium Square,
Columbus, OH
4249 Easton Way, Suite
400, Columbus, OH
300 W. Schrock Road,
Westerville, OH
738 Highway 6 South,
Houston, TX
5801 Executive Drive,
Irving, TX
1945 Lakepointe Drive,
Lewisville, TX
7933 Preston Road, Plano,
TX
1300 E. Campbell Road,
Richardson, TX
4199 Broadway St., San
Antonio, TX
1010 N. St. Mary's St., San
Antonio, TX
126 E. Nueva, San
Antonio, TX
1700 E. Duncan St., Tyler,
TX
550 Woodlake Circle, Suite
C,, Chesapeake, VA
14041 Worth Ave.,
Woodbridge, VA
3303 Monte Villa Parkway,
Bothell, WA
1150 Industry Drive North,
Tacoma, WA
THE WATCH LIST NEWSLETTER
Closure
or Layoff
Owned
or
Leased
Unknown
Leased
133
6/17/2011
Closure
Owned
52
5/6/2011
Closure
Leased
75
5/9/2011
152589
Closure
Owned
78
5/9/2011
212433
Closure
Owned
83
5/2/2011
152473
Closure
Leased
78
Closure
Leased
139
6/11/2011
6873215
Closure
Owned
105
6/26/2011
211980
Closure
Leased
76
8/5/2011
81331
Closure
Owned
108
7/1/2011
505787
Closure
Owned
222
6/21/2011
Closure
Leased
91
7/10/2011
714543
Layoff
Leased
92
6/17/2011
732635
Closure
Leased
81
12/31/2011
733071
Layoff
Leased
61
6/24/2011
236984
Closure
Leased
277
5/30/2011
409703
Closure
Owned
85
6/17/2011
422300
Layoff
Owned
62
6/12/2011
8009586
Closure
Leased
250
6/30/2011
409955
Layoff
Owned
31
6/11/2011
Layoff
Owned
30
6/11/2011
953035
Layoff
Owned
71
6/24/2011
968317
Closure
Owned
135
5/30/2011
7057271
Closure
Leased
96
7/3/2011
1251703
Layoff
Leased
112
5/30/2011
133891
Layoff
Leased
54
7/1/2011
782936
139
6/23/2011
Layoff
No.
Impacted
Impact Date
immediately
CoStar ID No.
376840
824390
14
Company
T-Shirt
International
TMP Directional
Marketing
Atlas Transit
T-Shirt
International
Address
5695 W. Franklin Drive,
Franklin, WI
7800 W. Brown Deer
Road, Suite 300,
Milwaukee, WI
2761 Chase Ave.,
Milwaukee, WI
7730 S. 6th St., Oak
Creek, WI
Closure
or Layoff
Owned
or
Leased
Layoff
Owned
44
6/10/2011
1262926
Closure
Leased
167
6/14/2011
1267895
Closure
Leased
83
6/28/2011
1258831
Layoff
Owned
45
6/10/2011
1260102
No.
Impacted
Impact Date
CoStar ID No.
Lease Cancellations: Vitro America
Company
Vitro America d/b/a
Binswanger Glass
Co.
Vitro America
Address
City
State
Landlord
3646 N. Graham St.
1875 Ord Way
Charlotte
Oceanside
NC
CA
Vitro America
Vitro America
Vitro America d/b/a
ACI Distribution
555 Zephyr St.
816 Southeastern Blvd.
Stockton
Fayetteville
CA
NC
819 F St., Suite 400
West Sacramento
CA
The Lemmco Co.
Ord Way LLC
Tulloch Construction
Inc.
LOL Inc.
Peterson West Sac
LLC
Orig.
Expiration
4/30/2013
7/31/2012
12/31/2011
12/31/2011
3/31/2012
Advertisement
THE WATCH LIST NEWSLETTER
15
Watch List: Liquidated Loan Losses
The following information for these lead listings was provided by Trepp LLC, an industry leader in providing surveillance data
on loan and commercial real estate performance underlying the CMBS market.
Most
Recent
Prop.
Beg. Loan
Appraised
Realized
CMBS; Special
Property
Address
Type
Bal.
Value
Loss
Servicer
Buffets
1460 Buffets Way,
BofA 2007-2;
Headquarters Eagan, MN
Office
$18,974,937
$6,800,000 $16,914,046 Helios AMC
Harmony
Square
1550 East Harmon
BofA 2007-2;
Apartments
Drive, Las Vegas, NV
Multifamily
$12,963,421
$4,950,000 $10,928,933 Helios AMC
Best Western
8955 Daniels Parkway,
BofA 2007-2;
Fort Myers
Fort Myers, FL
Hotel
$10,400,000
$3,180,000
$8,849,063 Helios AMC
The Echelon
5252 E. 82nd St.,
BofA 2007-2;
Retail
Indianapolis, IN
Retail
$7,784,741
$2,300,000
$7,439,900 Helios AMC
BS 2007PWR15; C-III
Cabot Oil &
1200 Enclave Parkway,
Asset
Gas Building
Houston, TX
Office
$22,239,744 $20,600,000
$7,003,969 Management
Alpert LP
2999 N. Powerline Road,
BofA 2007-4;
Office
Pompano Beach, FL
Industrial
$5,926,759
$2,625,000
$5,490,958 LNR Partners
Shepherd
BS 2007Ranch
PWR17; C-III
Shopping
8879-8939 N. Chestnut
Asset
Plaza
Ave., Fresno, CA
Retail
$5,700,000
$3,700,000
$3,524,575 Management
4351 Lakeland Drive,
BofA 2007-2;
Sleep Inn
Jackson, MS
Hotel
$3,699,718
$1,800,000
$2,880,996 Helios AMC
BS 2007PWR16; C-III
Canyon Road
11515 Canyon Road,
Asset
Retail
Puyallup, WA
Retail
$2,755,442
$900,000
$2,354,301 Management
BS 2007PWR17; C-III
1776 Summit Forest
Asset
Silver Creek
Drive, Marietta, GA
Multifamily
$8,100,000
$5,620,000
$2,338,302 Management
BS 2007924 E. New Haven Ave.
PWR16; C-III
Railroad
& 907 Strawbridge Ave.,
Asset
Emporium
Melbourne, FL
Mixed Use
$2,300,000
$725,000
$2,054,966 Management
BS 2007Sheraton
PWR15; C-III
Universal
333 Universal Hollywood
Asset
Hotel
Drive, Universal City, CA Hotel
$84,000,000 $75,100,000
$1,998,549 Management
BS 2007Glenview
PWR16; C-III
Estates
101-263 Glenview Drive,
Asset
Townhomes
Mansfield, OH
Multifamily
$3,710,613
$2,340,000
$1,845,864 Management
BS 2007Shops at
PWR17; C-III
Waggoner
7940 E. Broad St.,
Asset
Road
Columbus, OH
Retail
$2,847,793
$1,870,000
$1,342,456 Management
BS 2007-TOP26;
5101 Highway 5101 Highway 101,
C-III Asset
101
Minnetonka, MN
Retail
$1,052,964
$330,000
$764,354 Management
The above CMBS loans were liquidated in the last three months with net proceeds resulting in the indicated realized
loss.
THE WATCH LIST NEWSLETTER
16