January 2010: Commercial News Round Up

News briefs to keep you in the know about the commercial real estate industry.

January 1, 2010

Ignore Mark to Market at Your Peril

As the era of "extend and pretend" enters its second year, banks and other corporate entities that hold sizeable real estate portfolios generally remain unwilling to write down the declining values of those assets. And while the decision concerning when to take a write-down has generally been "a matter for discretion for companies," under Financial Accounting Standard 157 the prolonged and severe drop in commercial property prices may raise red flags that auditors can no longer ignore, suggests Todd Anderson, senior managing director with CB Richard Ellis in Los Angeles. That’s why it’s prudent for commercial real estate professionals to advise their corporate clients now of the upcoming accounting risks and help them determine realistic market values before the auditor comes, says Anderson. Companies that bought commercial properties in the last few years are particularly vulnerable, he adds.

Why worry about a problem until it happens? In a market with few comparables and sales mostly prompted by distress, "it can take time to compile and analyze information and reach a reasonable new value. You don’t want the pressure of financial compliance forcing you to do that in a short period of time," Anderson explains. So, although they may not want to hear it, encourage your clients to take a hard look now at the book value of their real estate so they can be prepared when it’s audit time.

To read the entire CBRE report, "FAS Talking—Unpacking Real Estate’s Impact on Financial Statements," go to www.cbre.com.

Make Room for Grandma

Apartments may be losing residents from economically inspired doubling up by tenants, but that’s not the only housing option to suffer. Assisted-living facilities have also seen an outflow of residents. It’s hard to get a concrete figure on exactly how many seniors are moving back in with the kids, but based on anecdotal evidence, it’s a growing phenomenon, says Deborah Brett, a real estate and planning consultant in Plainsboro, N.J., who specializes in senior housing. "With a weak job market, people can’t afford to help their parents pay rent. Or they may need the extra income that seniors can contribute to sustain their own households," she says.

One factor that may offset the losses, especially when the economy recovers, is the increasing willingness of immigrant groups such as Hispanics or Asians to move elderly family members into assisted-living and nursing homes rather than care for them at home.

All types of senior housing have suffered from the real estate market woes and the economic decline. Baby boomers ready to downsize can’t sell their current homes. Shrunken retirement portfolios are also prompting boomers to stay put and keep working. A survey conducted in late 2008 for AARP found that the economy had affected the housing decisions of 61 percent of surveyed baby boomers. In many cases, these decisions led to the remodeling of current homes rather than their sale.

NAR Commercial Members See Higher Leasing Volume

Like everyone in commercial real estate, the 81,000 commercial members of the NATIONAL ASSOCIATION OF REALTORS® have seen their sales volume fall in recent times. According to the NAR Commercial Member Profile 2009, members saw sales drop a median of 10 percent between 2006 and 2008. Transaction sales volume per member was $2,024,900 in 2008, with median value of a sales transaction at $544,100. Sixty-five percent of members reported a total sales volume of more than $1 million; nearly 25 percent had sales of more than $50 million.

But if sales languished, leasing transaction volume provided a bright spot for commercial members, growing by 33 percent between 2006 and 2008, according to the report. The median lease value was $128,900; the median size of a lease transaction was 4,300 square feet.

More leases weren’t enough to keep median income from falling among commercial practitioners, however. In 2008, median income was $99,900, a drop of 13.5 percent from 2006. Predictably, the more experience you have, the more you earn. Those in the business 16 years or more earned a median of $147,700.

You can access the entire profile free of charge by pointing your Web browser to www.REALTOR.org/commercial.