(WASHINGTON) The US economy is straining to sustain its recovery from the worst recession since the 1930s as economists predict home sales probably plunged in July, and orders for long-lasting goods climbed for the first time in three months.

Purchases of new and existing houses fell 12 per cent to a 5.01 million annual pace, the lowest since March 2009, according to the median forecast of 54 economists surveyed by Bloomberg News.

Durable-goods bookings climbed 3 per cent last month, the survey showed.

‘The economy is stuck in a rut,’ said Russell Price, a senior economist at Ameriprise Financial Inc in Detroit. ‘We lost the momentum in the second quarter and now we’re really struggling to regain any momentum at all.’

Another report this week may show that the US economy grew from April through June even less than previously estimated, one reason why employment and consumer spending have failed to pick up.

Federal Reserve chairman Ben Bernanke may shed more light on policymakers’ outlook this week when he addresses central bankers from around the globe. He will speak on Friday at the Fed Bank of Kansas City’s annual symposium in Jackson Hole, Wyoming.

Earlier this month US policymakers said the recovery was ‘more modest’ than they had projected, prompting them to take additional steps to revive growth. Mr Bernanke may provide more insight into the central bank’s decision to maintain its asset holdings in a bid to prevent money from draining out of the banking system.

Sales of previously owned homes slumped 13 per cent in July to a 4.68 million annual rate, according to the survey median before a report tomorrow from the National Association of Realtors.

Commerce Department figures the following day will show demand for new houses was little changed at a 330,000 annual rate, the survey showed.

New-home sales reached a record-low 267,000 pace in May, the month after a government tax credit expired.

The incentive worth as much as US$8,000 propelled demand earlier in the year as buyers rushed to qualify ahead of the April 30 deadline for signing contracts and original June 30 deadline for closing deals. Sales have since plunged, indicating Americans lack the confidence to take on such a large purchase.

Orders for goods meant to last at least three years increased in July after falling 1.2 per cent and 0.7 per cent in the previous two months, economists project another Commerce Department report on Wednesday will show.

Business investment in capital equipment, including computers and machinery, is one of the remaining bright spots in the economy. That may explain why shares of machinery makers are outperforming builder shares and the broader market. The Standard & Poor’s Supercomposite Machinery Index has climbed 10 per cent so far this year, compared with a 12 per cent drop in the S&P Supercomposite Homebuilder Index. The S&P 500 Index is down 3.9 per cent since Dec 31.

Since the advance estimate for Q2 growth was released on July 30, reports have shown the trade deficit swelled in June more than the government had projected, inventories grew at a slower pace and there was less of a rebound in commercial construction.

The Commerce Department’s update on Friday will therefore show gross domestic product grew at a 1.4 per cent pace, the weakest quarter of the recovery that began in the middle of last year, rather than the 2.4 per cent rate calculated last month. – Bloomberg

Source: Business Times, 23 Aug 2010

(NEW YORK) Owners cut prices on one-quarter of US homes listed for sale in July, a fourth straight monthly rise, as job market fallout trumped record low mortgage rates, real estate website Trulia.com said yesterday.

Sellers in the 50 largest cities slashed US$30.1 billion from prices on houses on the market as of Aug 1, up from US$27.3 billion in the prior month, San Francisco-based Trulia said in a report provided to Reuters before official release.

Unemployment near 10 per cent, wage cuts, restrictive lending practices and home values that have fallen below their mortgage balances have left many potential buyers unable to take advantage of low rates.

‘With one out of every four homes experiencing at least one price reduction, sellers are feeling no relief this summer in a market climate of fewer qualified buyers and widespread uncertainty about the job market,’ said Pete Flint, Trulia chief executive.

The average discount on homes reduced at least once held at 10 per cent from the original asking price in July from June.

‘If buyers are unqualified to buy, it doesn’t matter how low interest rates are or how discounted a home is,’ Mr Flint said in a statement, adding that the housing market will bounce around the bottom for months.

Unemployment remained at 9.5 per cent in July but would have been higher if discouraged Americans had not dropped out of the workforce.

The housing market is still gaining equilibrium in the aftermath of up to US$8,000 in buyer tax credits that ended on April 30. The credit forced sales into spring months at the expense of summer activity.

During the spring sales rush, sellers cut prices by much smaller amounts totalling US$22.8 billion in March and US$25 billion in April, according to Trulia.

US 30-year mortgage rates averaged 4.56 per cent in July, according to home funding company Freddie Mac, and have since drifted to a record low under 4.50 per cent.

Nonetheless, in half of the 50 largest cities, sellers last month lowered prices on at least 30 per cent of the homes for sale. Foreclosures continue to weigh on prices.

The real estate market will keep languishing until the job market recovers, said Trulia’s Tara Nelson.

‘Sellers need to continue to be very aggressive with pricing to compete against all the low-priced short sales and foreclosures that they’ll be on the market with, for a long time to come,’ she said.

Minneapolis led in price cuts for a fourth straight month, with 42 per cent of listings lowered at least once.

The average discount was 9 per cent for a total of US$33.8 million in reductions, Trulia said, citing rising inventory and mounting competition.

Las Vegas had the biggest spike in the share of sellers cutting prices at 18 per cent, a 56 per cent surge, while New Yorkers cut prices on 20 per cent of the listings, a 15 per cent jump in the month.

Cities in California were among those with the largest increases in the share of sellers slicing prices.

Price-cutting on luxury homes listed at US$2 million or more had an average discount of 14 per cent from the original listing price, Trulia said.

Homes in this category account for less than 2 per cent of total inventory, but almost one-quarter of the total dollars slashed from asking prices. — Reuters

Source: Business Times, 12 Aug 2010

(SEATTLE) The percentage of US homeowners who owe more than their properties are worth declined in the second quarter as tax credits boosted prices in California and foreclosures surged, a real estate data provider said.

The company, Zillow.com, found that 21.5 per cent of homeowners were underwater on their mortgages, down from 23.3 per cent in the first quarter and 23 per cent a year earlier, according to a report yesterday.

The decline came as property prices in California were bolstered by state and federal benefits for homebuyers, Zillow said. Prices climbed from a year earlier in 28 per cent of the markets tracked in California, the most populous state. They gained 5.5 per cent in the Los Angeles area, 5.9 per cent in San Francisco, and 7.3 per cent in San Diego.

‘The double tax credits for some California homebuyers have certainly stimulated housing demand there and are partly responsible for the rapid – and likely unsustainable – rates of appreciation in many markets across the state,’ Stan Humphries, chief economist at Zillow, said in a statement.

Homebuyers seeking the federal benefit had to sign contracts by April 30 to qualify for a tax credit of as much as US$8,000, and have until Sept 30 to complete their purchases. In California, buyers could qualify for a credit of as much as US$10,000 under a programme that began from May 1.

US foreclosures reached a high in June, with more than one of every 1,000 homes taken over by lenders, Zillow said. The number of properties receiving a notice of default, auction or bank seizure climbed in three-quarters of US metropolitan areas in the first half of this year, Irvine, California-based RealtyTrac Inc said on July 29. The foreclosures contributed to the drop in the number of homeowners with negative equity, as some underwater properties were seized by banks, Mr Humphries said.

Across the US, home values fell 3.2 per cent from a year earlier to a median of US$182,500, according to Zillow. They declined 0.6 per cent from the first quarter.

About 26 per cent of homes sold nationwide in June went for less than the seller originally paid, Zillow said.

The closely held company uses public records data going back to 1996. Zillow’s mortgage figures come from information filed with individual counties across the US. — Bloomberg

Source: Business Times, 10 Aug 2010

WASHINGTON: Sales of new homes last month in the United States rose more than what was forecast following an unprecedented collapse in the previous month, a signal that the worst of the slump triggered by the end of a government tax credit is over.

Purchases increased 24 per cent from May to an annual pace of 330,000, figures from the Commerce Department showed yesterday. The rate was the second-lowest since 1963 after May’s downwardly revised 267,000 pace.

The lowest mortgage rates on record may help underpin demand, stabilising the industry that triggered the worst recession since the 1930s.

Even so, increasing foreclosures are swelling the number of unsold existing homes, putting pressure on prices and keeping buyers on the sidelines as unemployment hovers near 10 per cent and the economy cools.

Sales are ‘bouncing along the bottom’, said Mr Eric Green, chief market economist at TD Securities in New York.

‘The future is going to be dependent on job growth. There’s no demand because confidence is weak and employment is weak.’

Economists forecast that sales would rise 3.3 per cent to an annual pace of 310,000, according to the median of 73 projections in a Bloomberg News survey. Estimates ranged from 260,000 to 360,000.

The government had initially estimated May sales at a 300,000 rate and revised figures downwards for every month since March.

The 37 per cent plunge in May was the biggest on record.

The median price decreased 0.6 per cent from June last year to US$213,400 (S$291,100).

Purchases increased in three of four regions, led by a 46 per cent jump in the north-east and a 33 per cent surge in the south, the largest area.

Demand dropped 6.6 per cent in the west to a record low 57,000 pace.

The report suggested the housing market may be close to working through the distortions following the end of a popular home-buyer tax credit in April, an incentive that brought forward sales.

Data last week showed home construction fell to an eight-month low last month, while existing home sales were the lowest in three months.

To become eligible for a federal incentive worth up to US$8,000, buyers had to sign contracts by April 30 and close deals by the end of last month.

The surge in demand prior to the April deadline prompted the government this month to extend the closing deadline until Sept 30 to ensure buyers had enough time to complete transactions.

BLOOMBERG, REUTERS

Source: Straits Times, 27 Jul 2010

One US town is handing out city land now for future property tax revenues

(BEATRICE, Nebraska) GIVE away land to make money? It hardly sounds like a prudent scheme. But in a bit of deja vu, that is exactly what this small Nebraska city aims to do.

Beatrice was a starting point for the Homestead Act of 1862, the federal law that handed land to pioneering farmers. Back then, the goal was to settle the West. The goal of Beatrice’s ‘Homestead Act of 2010′ is, in part, to replenish city coffers.

The calculus is simple, if counterintuitive: Hand out city land now to ensure property tax revenues in the future. ‘There are only so many ball fields a place can build,’ Tobias J Tempelmeyer, the city attorney, said the other day as he stared out at grassy lots, planted with lonely mailboxes, that the city is working to get rid of. ‘It really hurts having all this stuff off the tax rolls.’

Around the nation, cities and towns facing grim budget circumstances are grasping at unlikely – some would say desperate – means to bolster their shrunken tax bases. Like Beatrice, places like Dayton, Ohio and Grafton, Illinois are giving away land for nominal fees or for nothing in the hope that it will boost the tax rolls and cut the lawn-mowing bills.

In Boca Raton, Florida, which faces a budget gap of more than US$7 million, leaders are thinking about expanding the city’s size and annexing neighbourhoods as an antidote. Sure, more residents would cost more in services, but officials hope the added tax revenues will more than make up for it.

Non-profit organisations

And leaders in Manchester, New Hamshire and Concord, Massachusetts are taking an approach that might have once seemed politically unthinkable: they are re-examining whether their communities’ non-profit organisations really deserve to be tax-free.

‘The stress of the past couple of years is causing us to look absolutely everywhere,’ said Anthony Logalbo, finance director in Concord, where officials realised that 15 per cent of the town’s property value had become tax-exempt and sent letters to non-profit groups asking whether they would consider paying something to the town.

‘Private schools and non-profit museums and community organisations benefit the town in lots of ways,’ Mr Logalbo said, ‘except that they don’t contribute to the cost of running the town.’

Analysts say that this year and next, city budgets will reach their most dismal points of the recession, largely because of lag time inherent in the way taxes are collected and distributed. Despite signs of a recovery, if a slow one, in other elements of the economy, it may be years away for many municipalities. Between now and 2012, America’s cities are likely to experience shortfalls totalling US$55-85 billion, according to a survey by the National League of Cities, because of slumping revenues from property taxes and sales taxes and reduced support from state governments. And even in places like Concord and Beatrice, where officials say budget strains are not severe enough to lead to layoffs or major cuts, a slow chafing has still taken a toll.

Beatrice (pronounced bee-AT-russ), which sits about 65 kilometres south of Lincoln down a highway called the Homestead Expressway, is recognised as home to the first Homestead Act application nearly 150 years ago. That law ultimately granted 270 million acres (109 million hectares) of land in 30 states to nearly anyone who could survive on it and pay a minimal fee.

Daniel Freeman, who came from Ohio, is said to have filed his claim for 160 acres near Beatrice just after midnight on Jan 1, 1863, the day the law took effect. There were others who filed claims in other places on the same day (some say they were actually first), but Freeman captured a place in history. The government paid to take back his Nebraska homestead decades later to turn it into a national monument that honours the Homestead Act and how it transformed the nation’s population.

Beatrice’s new Homestead Act is not the first to revive the land giveaway. Some tiny towns, particularly in the Great Plains, have made such offers before, mainly as a way to increase dwindling populations.

But disappearing is not the fear in Beatrice, which is home to several lawn-mowing equipment manufacturers and where the population has held steady at around 12,000 for decades. Instead, city officials are hoping to return some of the many lots the city has accumulated, because of unpaid taxes or flooding risks from the Big Blue River, and return them to the tax rolls. The city has not suffered gaping budget shortfalls or the property tax declines seen in some larger cities, but some large purchases and road reconstruction are on hold, waiting for a return to flusher times.

If the city were to give away just a few lots – and if people were to, as required by the law, build homes on them and stay for at least three years – Beatrice would secure annual real estate taxes on them, collect money for water, electric and sewer use, and no longer pay to mow the lawns. The arrival of new, improved homes might also have an infectious effect on existing neighbourhoods, said Neal Neidfeldt, the city administrator.

But the plan has its critics; at least one candidate for mayor here wonders what right the city has to give out public land to any non-taxpaying outsider who asks.

Officials acknowledge that the benefits sound modest, in the thousands of dollars annually, but say the revenue is needed. ‘What is the value of a lot to us if it’s empty?’ said Tom Thompson, mayor of Grafton, where an offer of 32 city-owned lots, promoted with a television advertising campaign, has quickly led to eight takers so far. ‘This is strictly financial – a way to go upstream from the trend.’

In Dayton, officials are offering thousands of vacant, foreclosed or abandoned properties under certain conditions for nominal fees – US$500, in many cases, to cover the cost of recording fees or US$1,200 if the city must initiate tax foreclosure proceedings. The prospect of city savings on mowing fees alone is enormous: each year, Dayton spends US$2 million to cut grass on the properties.

Daunting prospect

Back in Beatrice, though, the effort is only creeping along. Since the Homestead Act took effect in May, many people have called with inquiries, but no one has moved onto the lots along a gravel-covered road called Grace. Two families filled out an application – which seeks only a name, address and telephone number – but both have since put off plans.

One applicant, William Hendrix, 47, said the city’s law requiring him to secure permits for a new home on the property within six months, then build within a year after that, was too daunting. What if he could not get loans? What if he could not pay for the construction? What if he built a home but could never sell it?

‘Right now, giving away the land isn’t going to be doing anybody favours,’ Hendrix said. ‘I realised that Beatrice will get the taxes they want, but it won’t do me any good in this market.’

For their part, people in Beatrice sound patient. The peak of homesteading acres claimed under the federal act, they point out, came in 1913, some 50 years after the act’s passage. — NYT

Source: Business Times, 27 Jul 2010

(WASHINGTON) Sales of new US single-family homes rebounded strongly in June from the prior month’s record low, driving the number of houses on the market to its lowest level in nearly 42 years.

The Commerce Department said yesterday sales jumped 23.6 per cent to a 330,000 unit annual rate from a downwardly revised 267,000 units in May. The sales pace last month was still the second lowest since records started in 1963. The percentage increase was the largest increase since May 1980, and partially unwound the prior month’s historic 36.7 per cent decline.

Analysts polled by Reuters had forecast new home sales rising to a 320,000 unit pace last month from May’s previously reported 300,000 units.

‘Right now we’re running about 60 per cent below the average annualised rate for the last decade, so there’s a lot of potential out there for improvement,’ said Michael O’Rourke, chief market strategist at BTIG LLC in New York. ‘It seems like sales are bottoming, so its just a matter of that foreclosure inventory clearing up. After that, then we can start seeing some upside. I expect that to happen later this year, maybe next year.’

US government debt prices dipped on the home sales data, while US stocks added to gains. The US dollar pared losses against the yen.

Recent data have suggested the economy’s recovery from its longest and deepest recession since the 1930s moderated somewhat in the second quarter. Economists expect weak housing activity to act as a drag on growth for much of the year.

The government is expected to report on Friday that GDP growth slowed to a 2.5 per cent annual rate in the April-June period from a 2.7 per cent pace in the first three months of the year.

The Commerce report suggested the housing market may be close to working through the distortions following the end of a popular home-buyer tax credit in April, an incentive that brought forward sales. Data last week showed home construction fell to an eight-month low in June, while sales of existing home sales were the lowest in three months.

Analysts, however, believe a drop in home building is unlikely to ignite a new recession since housing is a much smaller share of the economy now than it was at the top of the housing boom. The impact of a 10 per cent drop in home construction has about one-third the impact now as it did in 2006, according to economists at Bank of America-Merrill Lynch. — Reuters

Source: Business Times, 27 Jul 2010

Over 520,000 homes repossessed in H1 as banks step up effort to clear backlog

(LOS ANGELES) More than one million American households are likely to lose their homes to foreclosure this year, as lenders work their way through a huge backlog of borrowers who have fallen behind on their loans.

Nearly 528,000 homes were taken over by lenders in the first six months of the year, a rate that is on track to eclipse the more than 900,000 homes repossessed in 2009, according to data released yesterday by RealtyTrac Inc, a foreclosure listing service.

‘That would be unprecedented,’ said Rick Sharga, a senior vice-president at RealtyTrac.

By comparison, lenders have historically taken over about 100,000 homes a year, Mr Sharga said.

The surge in home repossessions reflects the dynamic of a foreclosure crisis that has shown signs of levelling off in recent months, but remains a crippling drag on the housing market.

The pace at which new homes falling behind in payments and entering the foreclosure process has slowed as banks continue to let delinquent borrowers stay longer in their homes rather than adding to the glut of foreclosed properties on the market.

At the same time, lenders have stepped up repossessions in an effort to clear out the backlog of distressed inventory on their books.

The number of households facing foreclosure in the first half of the year climbed 8 per cent versus the same period last year, but dropped 5 per cent from the last six months of 2009, according to RealtyTrac, which tracks notices for defaults, scheduled home auctions and home repossessions.

In all, about 1.7 million homeowners received a foreclosure-related warning between January and June. That translates to one in 78 US homes.

Foreclosure notices posted monthly declines in April, May and June, but Mr Sharga said one shouldn’t read too much into that.

‘The banks are really sort of controlling or managing the dial on how fast these things get processed so they can ultimately manage the inventory of distressed assets on the market,’ he said.

On average, it takes about 15 months for a home loan to go from being 30 days late to the property being foreclosed and sold, according to Lender Processing Services Inc, which tracks mortgages.

Assuming the US economy doesn’t worsen, aggravating the foreclosure crisis, Mr Sharga projects it will take lenders through 2013 to resolve the backlog of distressed properties that have on their books right now.

And a new wave of foreclosures could be coming in the second half of the year, especially if the unemployment rate remains high, mortgage-assistance programmes fail, and the economy doesn’t improve fast enough to lift home sales.

The prospect of lenders taking over more than a million homes this year is likely to push housing values down, experts say.

Foreclosed homes are typically sold at steep discounts, lowering the value of surrounding properties.

‘The downward pressure from foreclosures will persist and prices will be very weak well into 2012,’ said Celia Chen, senior director of Moody’s Economy.com.

She projects home prices will fall as much as 6 per cent over the next 12 months from where they were in the first-quarter.

Economic woes, such as unemployment or reduced income, continue to be the main catalysts for foreclosures this year. Initially, lax lending standards were the culprit. Now, homeowners with good credit who took out conventional, fixed-rate loans are the fastest growing group of foreclosures.

There are more than 7.3 million home loans in some stage of delinquency, according to Lender Processing Services.

Lenders are offering to help some homeowners modify their loans. But many borrowers can’t qualify or they are falling back into default.

The Obama administration’s US$75 billion foreclosure prevention effort has made only a small dent in the problem.

More than a third of the 1.2 million borrowers who have enrolled in the mortgage modification programme have dropped out. That compares with about 27 per cent who have received permanent loan modifications and are making payments on time. — AP

Source: Business Times, 16 Jul 2010

(LOS ANGELES) The Spanish colonial-style Hollywood home where iconic sex siren Marilyn Monroe died in 1962 is going up for sale for US$3.6 million, the real estate agency said on Tuesday.

The one-storey property, built in 1929, which spreads lavishly over 23,000 square feet of land, is ‘the crown jewel’ of the luxurious neighbourhood of Brentwood, according to the agency’s website.

Cinematic diva Monroe lived in the house for only six months before her sleeping pill overdose death, having bought the house for US$90,000.

The current owner did not permit press access to the property but allowed AFP access to take photos from behind tall gates on the secluded cul de sac.

Monroe memorabilia is highly coveted, with even a burial spot near the star’s last resting place being sold on the online auction website eBay in 2009 for US$4.6 million. — AFP

Source: Business Times, 15 Jul 2010

Lack of available supply sparking demand for the few deals being offered

(NEW YORK) US commercial real estate sales in the first half totalled about a quarter of the average of the previous six years as owners kept properties off the market, impeding investors with record funds for purchases.

Buyers and sellers completed US$34.2 billion of deals through June, or 26 per cent of the average first-half dollar volume since 2004, according to preliminary figures from Real Capital Analytics. The total was about 12 per cent of the 2007 peak, when US$277.7 billion of properties changed hands in the same period, data from the New York-based real estate research firm show.

Sales climbed 58 per cent from last year’s first half, when purchases dried up after the US credit crisis and recession sent values tumbling. A dearth of available properties has sparked demand for the few deals being offered, according to Alan Kava, co-head of Goldman Sachs Group Inc’s Real Estate Principal Investment Area in New York.

‘People are frustrated that not a lot has been trading,’ Mr Kava said. ‘When something does come to market, that lack of supply is causing almost a feeding frenzy. People have real estate funds that are not on an infinite time line – they need to put capital to work.’

Private equity real estate funds have a record US$104 billion of equity available for US deals, research firm Preqin Ltd reported last month. Blackstone Real Estate Advisors has the most to invest, with Goldman Sachs second, according to Preqin.

More than half of the US$8.4 billion available for Goldman Sachs’s property funds is reserved for overseas investments, Mr Kava said. Blackstone has about US$12 billion for real estate purchases, said Peter Rose, a spokesman for the New York-based private-equity firm.

In top markets such as New York and Washington, owners who owe more than their properties are worth are finding new sources of equity and lenders are willing to restructure their loans, said Sam Chandan, Real Capital’s chief economist.

In less attractive markets, banks have been extending loans, waiting for higher prices so they don’t record losses, according to Mr Chandan. That has kept troubled assets off the market, he said.

There also is little incentive for owners who bought as the market climbed to sell now. Values in April were down 41 per cent from their October 2007 peak, according to the Moody’s/REAL Commercial Property Price Index.

‘The problem is more on the supply side than the demand side,’ said Dan Fasulo, a Real Capital managing director. ‘Our investors are regularly complaining there’s not enough quality listings available for purchase.’

Demand for properties is strongest in New York, Boston, Washington and San Francisco, ‘where domestic and foreign investors alike have sought to acquire high-quality assets’, said Mr Chandan.

Those four markets accounted for 20 per cent of first-half sales, compared with about 15 per cent last year, according to Real Capital. For office buildings, the largest category, the cities made up almost 35 per cent of the volume, up from almost 32 per cent last year.

Manhattan totalled US$2.92 billion of completed sales in the first half, up 70 per cent from a year earlier. About US$1.42 billion were office deals, up 62 per cent.

SL Green Realty Corp, New York’s largest office landlord, was both a buyer and seller. The company agreed in May to sell a 45 per cent stake in Manhattan’s McGraw-Hill Building at 1221 Avenue of the Americas to Canada Pension Plan Investment Board for US$576 million, a deal that values the building at about US$500 a square foot, according to Real Capital.

It also purchased 600 Lexington Ave for US$636 a square foot, and agreed to buy 125 Park Ave, a tower across 42nd Street from Grand Central Terminal. That deal was valued at about US$507 a square foot, based on data in a company statement.

Those prices reflect a rebound off market lows reached last year, when similar midtown Manhattan properties sold for about US$350 a square foot, said Mr Chandan. In 2006 and 2007, readily available loans that were packaged and sold as commercial mortgage-backed securities helped drive prices for top Midtown skyscrapers beyond US$1,000 a square foot.

‘We basically went around the world talking to capital sources, in Asia, Europe, Middle East, Canada, and domestically, and hearing the same thing,’ said Andrew Mathias, SL Green’s president and chief investment officer. ‘People’s confidence in Manhattan was not at all shaken, because of the extraordinary supply/demand metric that exists here, where you have very, very limited new supply, and the interest rate environment.’

The company paid US$523 million for its two acquisitions, combining both closed and contracted deals. Its sales of partial property interest totalled US$663 million.

The biggest completed deal of the year so far was Monsanto Co’s purchase of Chesterfield Village Research Center, a research and development complex in Chesterfield, Missouri, from Pfizer Inc, according to Real Capital. Monsanto paid US$435 million, said Kelli Powers, a spokeswoman for the St Louis-based company.

Distressed building sales probably will remain scarce, Mr Chandan said. There are US$184.6 billion of troubled properties facing foreclosure or bankruptcy, out of a total US$239 billion since the credit crisis started in 2008, according to a June 1 Real Capital report. – Bloomberg

Source: Business Times, 8 Jul 2010

(NEW YORK) Retailers shuttered more stores in US shopping centres during the second quarter, further delaying a rebound in the struggling retail real estate market, according to research firm Reis Inc.

Shopping centres and strip malls have been pounded harder than other types of real estate, hurt by weak consumer spending, anaemic job growth and an oversupply built to serve new housing that never materialised.

‘Until we see stabilisation and recovery take root in both consumer spending and business spending and employment, we do not foresee a recovery in the retail sector until late 2012 at the earliest,’ said Victor Calanog, Reis director of research.

For US strip centres, the vacancy rate in Q2 rose 0.1 percentage point from Q1 to 10.9 per cent, slightly below the 11 per cent in 1991 during the prior real estate bust, according to the Reis quarterly report, released yesterday.

Retailers gave up 1.85 million square feet of occupied space in Q2 at neighbourhood shopping centres, while developers opened less than 400,000 square feet of new strip mall space.

That compares with an average of about seven million to eight million square feet of shopping centres built each year from about 2001, according to Reis.

Unlike the office or apartment real estate sectors, a meaningful recovery in retail real estate is expected to be very sluggish, Mr Calanog said.

Rents are not expected to return to 2008 levels before 2016, he said.

‘It’s really the one sector where because of persistent overbuilding across time, things will really get way down and even a recovery defined by a bottoming out will be pretty tepid,’ he said.

A recovery also will depend on type of real estate, tenants and location, he added.

Asking rents fell 0.3 per cent from Q1 to US$19.07 per square foot, the lowest since the end of 2006, according to the report.

Factoring in months of free rent and other perks landlords offered to attract and retain tenants, effective rent fell 0.5 per cent to US$16.58 per square foot, the lowest in nearly five years.

Reis said that roughly half of its clients plan to take advantage of the cheap rents in their expansion plans.

‘Only about 20 per cent expressed such sentiments in the first quarter, and none were in a position to plan for expansion in 2009 for obvious reasons,’ Mr Calanog said.

‘If rents are so cheap now and they can lock it in, maybe it is time to expand,’ he said. ‘Some people will benefit from this. But it’s not going to be the retail landlord.’

At large US malls, the vacancy rate rose 0.1 percentage point from Q1 to 9 per cent, the highest since Q1 2000, when Reis began tracking regional malls.

Asking rent fell 0.2 per cent to US$38.72 per square foot, marking the seventh straight quarter of decline. Asking rent was the lowest in more than four years. Reis does not track effective rent at regional malls.

Some publicly traded retail real estate landlords are expected to fare better than the overall market.

Many of them, including Simon Property Group, Kimco Realty Corp, Developers Diversified Realty Corp and Equity One Inc, are scheduled to issue Q2 reports starting the end of July. — Reuters

Source: Business Times, 8 Jul 2010