In the November/December issue of Real Estate Portfolio, REITs and some of their respective positions towards distressed assets is examined by Lynn Novelli. As we have been observing commercial real estate assets fall in price, REITs, many with fresh capital, are beginning to aquire distressed real estate and debt. John Paulson, the noted hedge fund manager is quoted as saying "distressed assets offer the best investment opportunities this year." We agree that many of these assets do represent an excellent opportunity and more should be arriving in 2010.

As Novelli finds,REITs that had been previously overleveraged have cleaned up their balance sheets significantly and will now be ready to pounce on these assets as they become available. Listed RIETs have raised over 22 billion in equity this year. As we have noted multiple times, some of these assets have yet to come to market. Investors are teed up and ready but the product offerings have been sparce. Eventually it will happen however but patience is a virtue, especially for getting greater clarity on what a reasonable price to pay for these assets are. On the horizon, it looks like 2010 might be an exciting year where we can actually see some sizeable commercial transactions occur.

Real Estate Portfolio article click here.

We have been very curious to see where population was going in the Las Vegas Valley. This November the Southern Nevada Regional Planning Coalition Board approved it's estimates performed by the member entities (valley municipalities and Clark County).

The population increased from 1,986,146 to 2,006,347. Thats an increase of 20,201 persons or about 1%. This is below the growth rates of the recent decade, although an improvement over last years numbers. Nevertheless, it is an estimate and the degree of cohabitation, which may effect the estimates is not known. These are probably the best estimates we will get however and I have seen the methodology and a lot of the numbers that lead up estimate.

For housing, we need increases in population to absorb current housing supplies. At 2.5 persons per household, this represents about 8,000 households. Growth like this at least takes a small chunk out the vacant housing supply, which is estimated at around 50,000 homes.

A good article from today's Review Journal showing the resiliency of the Las Vegas real estate market.  Investor activity continues at a brisk pace and expect more investor activity in the year ahead, especially as larger investment groups begin to purchase distressed residential and commercial assets.

Click here for the article  http://www.lvrj.com/opinion/a-quiet-boom-in-the-housing-market-70134557.html .

The housing bust left homebuilders with plenty of red ink on their books as they walked away from swaths of land they no longer needed.

For the rest of the article click here:  http://www.lvrj.com/business/homebuilders-hunt-for-land-69451427.html

We have posted on the inflation topic before. Previously we noted how its a guessing game as to whether we will continue to have deflationary pressures or in the slightly longer term, inflation. My guess is that when the economy recovers, we will see inflation. Then again, I am more of a regional econ science guy rather than a macroeconomist so we look to the Fed for guidance because outside of individual decision makers in the aggregate, the Fed has the most influence.

James Bullard, President of the St Louis Fed, recently gave comments to the Financial Times about inflation, noting that, "I think there’s still some risk of deflation, but I do think the deflation risk is fading as the economy recovers.” He goes on to express, "In the medium term, “you have inflation that will be possibly substantially above target over a horizon of two to four years, and that, I think, is because of the combination of very large fiscal deficits in the US with very easy monetary policy.”

Here is a good article on distressed commercial real estate and how each type of player in the market has a different perspective, from owners dwelling on past numbers to investors looking towards the future. We are talking to investors that are looking at opportunities in Las Vegas. Here is an excerpt.

"A new breed of distressed-asset investors, frequently referred to as vulture capitalists, has emerged in the past 12 months. These cash-rich buyers are pooling funds to pick up troubled commercial real estate assets at bargain prices. “They are about the only ones with enough cash and no immediate expectation of financing being available soon,” says Ron L. Opfer, CCIM, director of commercial assets for CBPR Asset Solutions Services, a division of Coldwell Banker Commercial in Las Vegas that assists banks with distressed assets. “That is why they underwrite with a high internal rate of return. They are stepping up and taking a huge risk. They are entitled to a return that reflects that risk.”

That sums up a lot of it but check out the whole article here.

From an artilce by Loopnet and quoting some Bloomberg numbers, $31.3 Billion of CMBS will face higher debt service requirements in the next year. The interest only periods on the loans will be ending and the properties are not cash flowing as expected when the underwriters originally calculated the loans.

These are spread out all over the country and there is not a lot of securitzed commercial loans in Las Vegas that we know of, however this poses further risks to bank capital requirements and hence, limits credit availabiltiy as a whole, especially for the commercial property sector.

Loopnet article: click here.

In an effort to keep people in the homes that they currently reside, or perhaps to prevent delapidation of vacant homes, Fannie Mae announced a program where people can perform a deed in lieu of foreclosure and then sign a lease at the market rate. The lease is good for up to one year and then it is month-to-month. It will be interesting to see how they appraise that market rate.

Its hard to say if this will have any stabilizing effects on neighborhoods. Fannie Mae does have a lot of exposure in the Las Vegas area. Check out the press release here.

October numbers continued to reflect the fractured housing market, where short sales continued to make up a greater proportion of the active inventory but for which the failure rate (falling out of pending or not meeting a contingecy for sale) is still high. We have essentially two different product types on the market, either REO or short sale. The mechanics of getting the deals done is distinct for each type.

REO inventories are moving quite well and in a more orderly fashion. However, valuations are still hard to peg given the multiple offer situation. Nevertheless, a high proportion of the REO properties that go under contract close. This is not so true short sales. This market is better understood as having two many parties to the transaction. Many of these transactions are not that orderly but without chaos there can be no order I suppose. Agents in our office are managing to get these deals done though, and if there was anytime where a commission is really, really an earned commission, that time is now.

The current recession has forced changes in many aspects of business and culture. I was hoping that the recession would lead to hip hop having its "grunge era" and returning to its roots on the street. I was also hoping that rock and roll would go back to some more introspective and original writing. Unfortunately those things haven't appeared. What has happened has been housing returning to its roots as a place to call home. This has been something that has made sense, where housing has returned to affordable levels (although it may be overdoing it in some home segments).

Changes in the market have also lead to some rigidities we didn't have before. Over 70% of the contingent sales on the market are still awaiting short sale approval and this can be very sticky as banks attempt to squeeze as much as they can from the seller, killing some deals.

The exhibit below shows that while much of the SFR market is tied up, the proportion that go to pendings still stays pretty flat. This implies that most of the contingent offers really are just tying up the property.

Source: Mlxchange, Coldwell Banker Premier Realty.

Here is a graphic from the Las Vegas Sun showing where the foreclosures have been taking place. Foreclosures are more directly tied to high purchase prices rather than employment only since once a household is deeply upside down, especially when they owe 40% or more than the home is worth, there propensity to pay the note falls dramatically. This is irregardless of their employment situation.

The areas like Mountains Edge, Aliante and Providence were recent masterplans and naturally anything built during the 2004 to 2007 years is going to have a lot of walking away. The age of the homes is also a reason why some good buys are available in these areas. These are modern styled, recently built homes and there are several configurations to choose from. I always recommend a home inspection but there are certainly fantastic homes out there.