The State of Portland Real Estate - and Future Financing
It's not Seattle, but from Todd Murphy's article in yesterday's Oregon Business it sounds like Portland is suffering just as much as its urban neighbor to the north. I found two pieces of useful information in this article. First, it attempts to predict what lending will look like once we finally hit bottom and begin to recover (in 2011 or later, says the article). The changes are not difficult to predict, but Murphy does a nice job of sketching out how a deal might get done:
The community banks that survive for the next commercial real estate world . . . [will] be giving loans of maybe only 60% or 70% of the now-lowered value of the property. For some traditional titans in commercial real estate and some new cash-rich entrants into the industry, that will work out OK. Large players in the industry and others, including private equity funds, have been amassing cash during the tumult of the last year or more.
“And they’re looking for opportunities,” says Mike Paul, former CEO of The Commerce Bank of Oregon, who now is a partner in a firm helping financial institutions dispose of their non-performing assets: foreclosed properties.
Paul suggests that the new commercial real estate world, with the traditional banks being reluctant to lend very much on any property, will leave an opening for those new entities to be part of deals. The private equity firms and others, looking to place cash in a distressed market, will provide some less-traditional financing that will make up a part of the deals. The firms will do it as more expensive lenders, or in return for equity in the properties. The private entities might provide another 10% to 20% of the value of the property, with the owner providing the final 10% to 20%.
But for right now, Murphy and those he consults see the spiral continuing down:
. . . as the job market remains dormant, the vacancies remain. As vacancy rates stay high, building values plummet. As building values plummet, many owners owe more on their loans than the properties are worth. And community banks with the loans on their books have lost billions of dollars in asset value. Many in the industry say some building owners without deep pockets are finding it difficult to make their loan payments or sell their buildings. (No one would name names.)
As we saw in the Seattle Times last week, that name in Seattle is Beacon Capital Partners.
The bright side in all of this is that commercial tenants are doing very well, from lower rents, to months of free rent, to great TI contributions. I'm even finding I'm able to negotiate self-help rights in a growing percentage of the leases I work on, which was unheard of except for the biggest tenants previously. The ability to lease space on great terms is a big help to new and expanding businesses, and ultimately to us all, as much as it may pain the landlords in the short-term.
On Halloween, Douglas McIntyre reported in 
Local developers Othello Partners have a great piece of real estate on top of the Othello link light rail stop, and they know it. Their design for the parcel, known as 
buildings to add significant value. Hudgins lists examples of similar funds: the Hines CalPERS Green Development Fund (created in 2006), with a current equity commitment of $277 million; and the $100 million Rose Smart Growth Investment Equity Fund. He points specifically to the Rose fund's $23 million 
