Sunvalley Shopping Center, in what will likely be a boost for East Bay retail, will add some major new retailers this year and next, including a Forever 21 mega-store at the Concord mall.

The new retailers are XXI — the mega-store for the Forever 21 brand — A’GACI and Jessica McClintock. All these stores cater to young women.

via Sunvalley mall bags 2 new retailers for young women – ContraCostaTimes.com.

This is a post from Peter Maclennan's blog Peter Pays Paul.

Sunvalley mall bags 2 new retailers for young women – ContraCostaTimes.com

News around the nation indicates that capital markets for commercial real estate indicate that things are beginning to thaw.

First, the Wall Street Journal is reporting that Harvard Tests Market for Its Property Bets.

Harvard University’s $26 billion endowment is looking to unload a chunk of its $5 billion real-estate portfolio as it seeks better investment opportunities and to reduce its exposure to the troubled property market.

The folks at Harvard Management Company must think that now is a better time to market this opportunity than in the past two years. Stanford tried this approach last year and was offered between 80 and 85 cents on the dollar for their investments.

Second, Simon Property Offers $10 Billion for General Growth. Simon is the nation’s largest mall owner. The majority of their offer, $9 billion, was in cash. Simon would not put $10 billion on the line if they didn’t see commercial real estate markets improving.

Finally, GlobeSt.com is reporting Cautious Optimism for Finance at the 2010 MBA CREF Conference.

Unlike 2009 when the majority of lenders were out of the market, over 90% of the lenders surveyed by the MBA have indicated they have or plan to return to market to lend in 2010.

A good friend told me that while attending the conference, he was surprised by the optimism and the amount of funds available for investment. His concern was that there may be an abundance of optimism that would lead to a repeat of the folly at the height of the real estate cycle.

While none of these items make a case for a hot capital market, collectively they do indicate that markets are changing. By no means are the markets functioning at full speed, but they do seem to be thawing.

What do you think are markets thawing out?

Photo credit: Frozen Steak by stevendepolo.

This is a post from Peter Maclennan's blog Peter Pays Paul.

Thawing Out Commercial Real Estate Capital

Many hotels were bought or sold during the height of the commercial real estate market. Take for instance the Casa Madrona Hotel in Sausalito, CA, which sold in 2005 for an estimated $20 million.

The San Francisco Business Times is reporting:

Sausalito’s Casa Madrona was sold at auction today for a reported $11.4 million — the estimated opening bid.

The article also mentions that this one hotel supplies almost half of Sausalito’s hotel tax revenue. It is no wonder why so many city and county municipalities are in trouble.

This is a post from Peter Maclennan's blog Peter Pays Paul.

Casa Madrona Hotel sold at auction – San Francisco Business Times:

Twenty-five Bay Area projects will receive funding totaling $189.85 million. By county, $47.6 million went to Alameda, $7.2 million to Contra Costa, $450,000 to Marin, $64.4 million to San Francisco, $21.8 million to Santa Clara, $1.4 million to Solano and $47 million to Sonoma.

The $7.2 million allocated to Contra Costa County will be split between Valley Vista Senior Housing in San Ramon and Lillie Mae Jones Plaza in Richmond. Both of these projects appear to be in the construction and development phase.

This is a post from Peter Maclennan's blog Peter Pays Paul.

$190 Million Awarded to Bay Area Affordable Housing

The news out of New York today is that:

A group led by Tishman Speyer Properties has decided to give up the sprawling Peter Cooper Village and Stuyvesant Town apartment complex in Manhattan to its creditors in the collapse of one of the most high-profile deals of the real-estate boom.

The decision comes after the venture between Tishman and BlackRock Inc. defaulted on the $4.4 billion debt used to help finance the deal. The venture acquired the 56-building, 11,000-unit property for $5.4 billion in 2006—the most ever paid for a single residential property in the U.S. The venture had been struggling for months to restructure the debt but capitulated facing a massive debt load and a weak New York City economy that has undercut rents and demand for high-priced apartments.

via Tishman Venture Gives Up Stuyvesant Project – WSJ.com.

Unfortunately, this deal was done at the height of the market. The owners were expecting to be able to raise rents on many of the units to market rates. A lawsuit by tenants halted the owners’ plans and eventually the tenants won.

The interest reserve ran out earlier this year and the owners decided to turn the keys over to the lenders.

Now the property is whispered to be worth only $1.8 Billion, less than half the purchase price and less than half the $4.4 Billion debt used to finance the project. Many of the lenders are going to lose money on this project as well as the loss to the equity investors.

This project should serve as a monument to commercial underwriters to be careful when using forecasted rental income to determine value.

(Photo: stuyvesant town by dandeluca)

This is a post from Peter Maclennan's blog Peter Pays Paul.

Highest Priced Apartment Project Goes Back to Lenders

Washington, D.C.-based Klingbeil Capital Management has paid about $10 million to acquire three San Francisco apartment buildings that were part of the Lembi Group’s rapidly disintegrating multi-family empire.

This is a post from Peter Maclennan's blog Peter Pays Paul.

Lembi Update: More Apartments Sell

Behringer Harvard Multifamily REIT I has acquired the 277-unit Acacia on Santa Rosa Creek apartments in the third apartment property purchase in California by the Dallas-based apartment REIT in recent weeks.

The buyers believe that the rental demand for Sonoma County is still strong and warrants an acquisition price.

This is a post from Peter Maclennan's blog Peter Pays Paul.

277-Unit Complex In Santa Rosa Sells for $38M

Private-equity firm CIM Group has teamed up with New York developer Harry Macklowe to help him regain control of what is regarded as one of the most valuable vacant lots in the world, according to people familiar with the matter.

This strategy is being used in a number of transactions. The success of this strategy depends upon the lenders willingness to take a loss on the property. Lenders that are in need of cash or understand that they are underwater on a property are more likely to take a discount.

In the case of the Drake Hotel site, a vacant piece of land doesn’t offer a lender much to work with. When Mr. Macklowe bought the lot it had a hotel on it which is more marketable. A lender is likely going to avoid a situation where they have to develop a piece of land.

The WSJ article also quotes Keith Barket from Angelo, Gordon & Co., a private-equity firm. Mr. Barket believes that the deleveraging of commercial real estate will take 3-5 years to complete.

It will be interesting to see if it does.

This is a post from Peter Maclennan's blog Peter Pays Paul.

Investors Buying Distressed Property Debt

The Mercury News reported yesterday on a proposal by the Bay Area Air Quality Management District that could require some housing developers to go study air quality as part of their entitlement process. According to the article, developments within 1,000 feet of major transportation corridors seem to be those affected.

The Bay Area Air Quality Management District is the group in charge of regulating the pollution of the air in the San Francisco Bay Area. They are responsible for “Spare the Air” days that prevent private home owners from burning wood, wood pellets or manufactured fire logs on Spare the Air days.

This is a post from Peter Maclennan's blog Peter Pays Paul.

Want to Develop in the Bay Area – Study Air Quality

“Although troubling times are ahead for many investors, lifetime investment opportunities are forming for the real estate cycle players with cash in hand,” according to the most recent PricewaterhouseCoopers Korpacz Real Estate Investor Survey, which polls major institutional equity investors who invest primarily in institutional-grade property. Investors who are patient, but also daring and selective will acquire high quality assets in markets such as Boston, Washington, D.C., San Francisco, New York and Austin.

2010 Promises More Deleveraging for REITs, Great Buying Opportunities.

This is a post from Peter Maclennan's blog Peter Pays Paul.

NREI – 2010 Promises Great Buying Opportunities