Commercial real estate finance

Today I went to the Fairmont Hotel in San Francisco, to listen to the speakers, sages and pundits at the Fisher Center's annual Real Estate and Economics Symposium.

The main economic take-away was that the recession is over, employment is not falling as fast and may soon start growing and the housing market has bottomed out.

Great news then: but not for commercial real estate, which has a whole different set of problems. CRE values are down 41% from the peak. RCA's Robert White estimated there's $1.8 trillion of real estate loans originated over the last 6 years where values have fallen more than 25%, effectively wiping out any equity holdings. The value drop hasn't led to many foreclosures yet because net operating income remains cushioned by long leases. Also, banks are choosing to "pretend and extend" while properties can still cover their debt service payments.

This won't continue for long. Around $800 billion of CRE debt will need to be refinanced over the next two years, and commercial vacancy rates are rising and rents still falling. While the banks' cost of capital is essentially zero, they are willing to extend the loans on any property that is cash flow positive, and only foreclose on the weaker under-performing assets. But zero percent Treasuries aren't sustainable. Once they rise (and Ken Rosen expects T-Bills to be at 2.1% by the end of 2010) the performance hurdle will also rise and that will result in many more foreclosures of commercial properties. Only then will the real CRE losses begin to be recognized.

And it'll also be a great time to buy.

The sad saga of Marinwood Plaza

The village of Marinwood is located midway between San Rafael and Novato. Marinwood Plaza, which is located just west of Highway 101, used to house a Bell Market, which served the neighborhoods of Marinwood and Lucas Valley.

However, the Bell Market closed several years ago, and the Plaza has been mostly vacant and decaying since then. Only a liquor store and dry cleaner somehow survived, and the cleaner is soon to relocate to Hamilton.

Attempts to renovate and relaunch the center have been well-documented, and a summary follows.

Marin County Supervisor Susan Adams viewed the Plaza as an opportunity to develop affordable housing, a view not shared by many local residents. The Marinwood Association is a neighborhood group that has been at the forefront of attempts to get the Marinwood Village off the ground.

Marin County adopted the Marinwood Plaza Master Plan in 2006, with 30,000 sq.ft of retail space and around 100 multifamily residential units, as detailed in the Conceptual Design Plan.

At the end of 2007, hopes were raised when Trammell Crow showed interest in redeveloping the center. The Pacific Sun posted this account of attempts to rebuild the Plaza in January 2008.

And throughout 2008, residents hoped that Trammell Crow would make it happen. But by 2009 it was clear the plan wouldn't work, and activity on the redevelopment stopped.

With a population of just 6,500, the local area just isn't big enough to support a full market, so it makes sense to plan any future redevelopment around residential units, with a smaller retail plaza of 5-6 units at the Miller Creek Road end of the site. Let's hope that another developer sees the opportunity to make this happen when the economy picks back up.

Marin retail news update

Mill Valley residents can cast their vote to help select a design consultant for the Miller Avenue Streetscape Plan. All fourteen proposals are on the City of MV website, and those with time on their hands can use the evaluation tool to select their favorite consultant.

Over in Corte Madera, The Village will be getting a not-so-glamorous new neighbor when The Home Consignment Center takes over the Lay-Z-Boy space at 801 Tamalpais Avenue.

Nearby, the Old Town Square will be losing one of it's most popular stores when Tamalpais Paint and Color moves to a location in East Corte Madera in January. The current building was offered for sale last year, at which point the paint store was "in the middle of their 10-year lease". Any local residents care to suggest what they would like to see in that space?

Good news for leopard-print throw rug fans: Z Gallerie (Town Center Corte Madera) has emerged from bankruptcy.

A new proposal was unveiled for the Hannah Ranch site in Novato. The development proposal includes a 116-room hotel and a small amount of office, retail and restaurant space, and was greeted with much more enthusiasm than the previous attempt to build a Home Depot at the site.