Convention Center expansion photo courtesy of Brad Maule, check out his complete portfolio at www.phillyskyline.com/lovecopter
By Thomas J. Walsh
Developers across the nation could not have been happy to see the top story on the front page of Saturday’s (Dec. 27) New York Times.
It wasn’t like it was shocking news. But the sheer numbers involved in the bleak outlook for Big Apple building and development looks like the financial equivalent of shock-and-awe.
“$5 Billion in Projects Are Called Off or Delayed as Credit Tightens,” read the sub-headline. http://www.nytimes.com/2008/12/27/nyregion/27developers.html?_r=1&scp=6&sq=developers&st=cse
The story will evidently become a more common refrain as 2009 rolls along, and as the residential real estate debacle increasingly spreads to the commercial side: Developers are starting to miss payments, Times writer Christine Haughney reports. Haughney cites Reis Inc., a New York-based real estate research company, with some scary numbers. “The percentage of loans in default nationwide jumped to 7.3 percent through September 2008, compared with 1 percent in 2007.”
These kinds of numbers, naturally, will have direct implications on all manner of Philadelphia area projects on the drawing boards, such as the enormous American Commerce Center planned for 18th & Arch, but also:
• Stamper Square on the site of the former and now-barren NewMarket plot in Old City
• David Grasso’s proposed 40-story hotel and apartment tower at 1600 Vine Street (which is said to have inked deals with a major hotel flag and big retailers)
• Plans by Tower Investments and developer Bart Blatstein to redevelop two abandoned breweries (Schmidt’s, Ortleib’s) in the Northern Liberties area and the forlorn State Office Building at Broad and Spring Garden streets
• Any number of Center City hotel projects hoping to piggy-back on the underway construction of the Pennsylvania Convention Center expansion
• The Cordish Co.’s “Philly Live” entertainment complex dreamed up for the site of the old Wachovia Spectrum in South Philadelphia
It could even mess up the timing for the Foxwoods Philadelphia casino makeover of The Gallery at Market East, though that project appears to be on the political fast track.
For the multi-use, multi-building, multi-everything ACC tower, rising 1,500 feet with more than 2 million square feet of space, commercial real estate professionals around the region have reactions ranging from cynicism to stoicism. If a major investor is behind it, it could attract junior lenders willing to hedge their risk. Then again, its high profile could work against that thinking. Then again ...
“We’ve got this potential for a large pension fund that’s behind it,” prominent zoning attorney Peter Kelsen told KeystoneEdge.com earlier this month (http://www.keystoneedge.com/features/acc1204.aspx ). “That changes the dynamic in terms of its capital markets needs, dramatically.” As in earlier conversations, Kelsen did not name the pension fund, but it’s been involved from the get-go, and its managers have been urging ACC developers Hill International Real Estate Partners to stay the course with their zoning and planning groundwork.
Meanwhile, senior analysts at the Urban Land Institute have been telling audiences of industry officials around the country, including those at a breakfast at the Hyatt Bellevue on Nov. 25, not only to take up golf, but to devote some real time to the game.
The growth rate for construction and land development loans shrunk to barely a blip this year — to 0.08 percent through September, compared with 11.3 percent for all of 2007. In 2006, that rate was 25.7 percent, according to the Federal Deposit Insurance Corporation, the Times article says.
The story came five days after another frightening piece of news. Guess who’s asking for Federal bailout dough?
“With a record amount of commercial real estate debt coming due, some of the country’s biggest property developers have become the latest to go hat-in-hand to the government for assistance,” it was reported in the Wall Street Journal (http://online.wsj.com/article/SB122991429181825709.html ).
“They’re warning policymakers that thousands of office complexes, hotels, shopping centers and other commercial buildings are headed into defaults, foreclosures and bankruptcies.
“The reason: according to research firm Foresight Analytics LCC, $530 billion of commercial mortgages will be coming due for refinancing in the next three years – with about $160 billion maturing in the next year. Credit, meanwhile, is practically nonexistent and cash flows from commercial property are siphoning off.”
Happy New Year everyone.