Posted by ray@lcorn on October 30, 2009 at 17:06:50:
In Reply to: investing in retail property, what is your thought posted by PeterB on October 25, 2009 at 00:32:29:
Peter,
Right now is not the time to buy retail condo units, which is what you're describing. The retail property sector is just beginning to decline, and the next six to twelve months are going to bring a lot of bad news unless the capital markets get their act together in a hurry.
Retail sales are also anemic, and the Q3 GDP rise is not sustainable. Consumer spending is forecast to decline from 70% of GDP to 62%-64%.
Two factors are driving the decrease: first, the savings rate is headed back to historical norms of about 6% (from a negative rate in 2007), and 2)continued rising unemployment and stagnant wage growth.
The effects are obvious. We can't have both increased spending and increased saving. And if people aren't working, then aggregate disposable income drops. Combined, this spells a long period of retrenchment for the retailer sector.
This is the recipe for reduced demand for space. Normal fill times for retail vacancies were running about 6 months through 2008. This year it's jumped to nine months, and shows no sign of turning around. I would not want to be holding retail condo units subject to CAM charges and holding costs while demand is still declining. Actually I wouldn't want to hold retail condo units period, even in good times, but that's another discussion. Suffice to say, I'm a control freak and condos are not the least amount of control in real estate, but close enough.
So, is there opportunity? Yes, there will be, but not yet. The hardest part is being patient. Now is the time to be getting your house in order; personal financial statements, banking relationships and cash equity, whether through your own resources or partners. If you don't understand valuation, market analysis and due diligence practices now is the time to learn. Be ready to strike when the time is right.
In my current view the "crash" everyone is waiting for is going to more like a slow train wreck. There are a lot of securitized loan maturities coming down the pipe, and unless the market gets something in place to replace it it will be open season for bank-only lending. We've been here before, and history shows that the greatest profits are obtained on acquisitions obtained at prices below replacement cost.
ray
p.s. CoStar just published an article on this topic, "Q3 Retail Real Estate Report: Better but Not Out of the Woods Yet". See http://www.costar.com/News/Article.aspx?id=5DBD222A404DD8A287ADD5C46D5ABA27&ref=100&iid=155&cid=95D2941074B1A3E2C447825A837CB39C
But consider the source... the trades are full of supply side writers who almost always are overly optimistic.
- Re: investing in retail property PeterB 12:34:49 10/31/09 (1)
- Re: investing in retail property john 17:13:34 11/21/09 (0)