The US economy grew at a faster than expected 5.7% annual pace in the fourth quarter, the quickest in more than six years.

The first estimate put Q4 gross domestic product growth at its fastest pace since the third quarter of 2003. The economy expanded at a 2.2% annual rate in the third quarter. Analysts had forecast GDP, which measures total goods and services output within US borders, growing at a 4.6% rate in October-December period.

Growth was boosted by a sharp slowdown in the pace of inventory liquidation, a factor that could serve to mask the strength of the economic recovery. However, even stripping out inventories, the economy expanded at an annual rate of 2.2%, accelerating from the 1.5% increase in the third quarter, reflecting relatively strong performance from other segments of the economy.

Business inventories fell only $33.5 billion in fourth quarter after dropping $139.2 billion in the July-September period.

The change in inventories alone added 3.4 percentage points to GDP in the last quarter. This was the biggest percentage contribution since the fourth quarter of 1987.

In the last three months of 2009, consumer spending increased at a 2% annual rate, below the 2.8% recorded in Q3 when consumption received a boost from the government’s car scrappage scheme.
Consumer spending, which normally accounts for about 70% of US economic activity, has been held back by the worst labor market in a quarter century.

Business investment in the fourth quarter grew for the first time since the second quarter of 2008 as the drag from the troubled commercial property sector was offset by robust spending on equipment and software. Business investment rose at a 2.9% rate.

The growth of spending on new home construction slowed sharply in the fourth quarter to an annual rate of 5.7% from an 18.9% pace in the third quarter. Export growth outpaced imports, leaving a trade gap that contributed half a percentage point to GDP growth in the last quarter.

Equity Interface is an online real estate investment service designed to connect developers and accredited investors. By offering unparalleled research tools and information, Equity Interface empowers members to discover mutually beneficial real estate opportunities. For more information, please visit www.equityinterface.com

Leading central bankers believe a ‘progressive normalization’ of the world economy has taken hold, driven by emerging economies, according to the president of the European Central Bank.

‘At a global level there is a confirmation of the progressive normalization of the economy,’ ECB chief Jean-Claude Trichet said on behalf of the participants in a meeting of central bankers in Switzerland.
During their first quarterly meeting of the year at the Bank for International Settlements (BIS), they concluded that a global economic recovery was underway.

‘We are in the recovery mode, that is something that is very much due to the emerging economies,’ Trichet said. He said these economies had shown resilience, describing them as being in ‘a more dynamic mode now’.

The ECB chief did go on to warn that commercial banks must ensure that they clean up their balance sheets in the wake of the financial crisis to ensure a steady recovery. ‘We are telling our banks that they have to do themselves everything to reinforce their balance sheet by all appropriate means,’ he said.

The central bankers met the heads of several big banks at the BIS over the weekend to underline the need for a sound financial system to prop up long term growth.

They said afterwards that they hoped that new international standards aimed at bolstering the banking industry’s ability to weather future financial crises would be finalized by the end of this year.
Leading central bankers and national regulators in the Basel Committee on Banking Supervision said last month that they were aiming to strengthen financial requirements on banks by the end of 2012, once their proposals were refined and tested this year.

The reforms, which have been in the offing for several months, are part of the international response to the crisis triggered by the collapse in financial markets and several major ban

Equity Interface is an online real estate investment service designed to connect developers and accredited investors. By offering unparalleled research tools and information, Equity Interface empowers members to discover mutually beneficial real estate opportunities. For more information, please visit www.equityinterface.com

LaSalle Investment Management today released the 2010 edition of their Investment Strategy Annual. A publication that provides an outlook for global real estate markets.

The report notes that the plunge in values has stopped in most major markets it follows and sings of increasing investor confidence are beginning to be seen.

LaSalle anticipates a further re-alignment in the pricing of risk with an increase in deal flow as sellers slowly move from denial to acceptance. Investors should seek an appropriate balance between total risk aversion and inappropriate risk tolerance. The former is already resulting in a surplus of capital targeting a handful of ultra-safe deals.

Jacques Gordon, Global Strategist at LaSalle Investment Management said: “Overall, investors in commercial real estate should be cautiously optimistic about the outlook in 2010. However, as a late cycle participant in the general economic recovery, real estate will behave differently from other asset classes. The income streams from leased buildings weathered the global recession in remarkably good shape, but as leases mature in generally weak markets, net operating income will be under downward pressure in many countries for several years to come.”

“At the same time, in terms of stimulus packages and bail outs, commercial property has been treated quite differently from residential real estate, banking and other industry sectors. And private equity prices have not yet recovered as robustly as stocks or bonds. All these differences mean that real estate’s diversifying power in a portfolio will be restored.”

The firm goes on to state that in 2010 investors can look forward to more rational pricing and, in cases of distressed properties and owners, some hugely interesting opportunities. As they develop investment strategies for 2010-2011, investors with a clear view of the returns they require can take full advantage, says LaSalle.

William Maher, Head of US Strategy, LaSalle Investment Management said, “Investment opportunities in North America will improve but are likely to remain limited in 2010, particularly in the United States and in Mexico. In the US, the best opportunities, both core and higher return, will evolve from the resolution of the large level of maturing and failing loans.”

La Salle go on to recommend that investors in the US focus on low-risk re-priced core properties. A large number of opportunities are expected to emerge from the problems caused by the excessive leveraging of the real estate sector over the past five years.

As regards high return strategies, the areas to focus on include distressed debt (public and private) and a wide range of structures that focus on the provision of “rescue capital” to private real estate funds, developers, individual assets, and lenders.

Not surprisingly, the major risks to Commercial Real Estate according to the report is with the capital markets, which are expected to be the main driver of performance, while economies are weak. Real estate capital markets could be quite volatile in the years ahead, says LaSalle. The unintended consequences of monetary and fiscal stimulus policies could lead to too much money flowing back into property ahead of a solid recovery in fundamentals. This excess liquidity risk is already building in China and, to a lesser extent, the UK. To manage this risk, investors should maintain a strict discipline that focuses on achieving a required return with realistic and diligent underwriting.

Equity Interface is an online real estate investment service designed to connect developers and accredited investors. By offering unparalleled research tools and information, Equity Interface empowers members to discover mutually beneficial real estate opportunities. For more information, please visit www.equityinterface.com

Still reeling from the large losses in Real Estate investments over the last few years it may seem futile to search for any ray of light to ease the pain.

But, wearing an optimistic hat, it is possible to see some benefits for the investor moving forward. The main positive is in the area of fee’s and how they are structured into the deal.

At the height of the boom, the general partner was soaking up a large chunk of the deal through exorbitant management fees. Everyone was happy, deals were going well, and people were taking the eye off the ball when it came to what was going to the sponsor. Figures got so out of hand that the sponsor was finding themselves with as big a piece of the pie as the investor, without having to stump up much cash, if any.

It was not uncommon to see 6%+ placement fees greeting investors at the door with an annual charge of 1%+ on Gross Asset Value thrown in for good measure. Not to mention the piece of the action at the back end which in many cases left the developer/sponsor with up to 50% of the profits.

When one looks at it logically, it simple did not make sense that those who are providing the equity were being left with a decidedly meager offering of the riches on offer.

This is no longer acceptable and developers need to start taking a long hard look at their investment model and ensuring that the fees are at an acceptable level. Investors are wiser as a result of their recent hard knocks and simply won’t accept a sponsor trying to take all the good out of a deal with unreasonable fees.

The institutional investment world is no different and managers here are also in for a serious wake up call.

Until recently, fund managers structured their funds with “2/20” fees. This meant charging investors a 2% fee on their contributions during the fund raising period, and then another fee of up to 20% based on a percentage of the fund’s total profits once it closed.

London-based private equity researcher Preqin, say that today’s fees vary widely and have come down from the old 2/20 standard. For example, most real estate funds now charge from 1.5% to 1.74% during their fund raising program.

Even more recently, managers have come under increasing pressure to trim their fees even further and to better align their fee structures to the actual performance of the funds.

Developers, and fund managers alike, are becoming incrasingly aware that they are now dealing with a whole different species of investor. One that has felt that wrenching feeling of a deal gone South and will not take that leap of faith so easily next time. Once bitten……

Equity Interface is an online real estate investment service designed to connect developers and accredited investors. By offering unparalleled research tools and information, Equity Interface empowers members to discover mutually beneficial real estate opportunities. For more information, please visit www.equityinterface.com

During the last number of golden years in the Real Estate market, the only word that investors wanted to hear was ‘returns’. Now, according to Ernst & Young, this is being replaced by another ‘R’ word: risk.

Ernst and Young are witnessing a marked change in the priorities of large Real Estate investment firms. When once, at the height of the real estate boom, they were focused on generating the highest possible returns for their investors now that attention is primarily targeted at managing risk.

In material documented from market research on over 40,000 client meetings globally, Ernst and Young said that firms should be developing a “plan of action” if they are to benefit from the downturn. That plan needs to focus on capital availability, reevaluating the business model and risk management.

With almost 75% of real estate executives anticipating a “permanent change” in the risk management of their organizations, Ernst & Young said everyone had to learn lessons as they tried to prepare for “success”.

In the ‘Lessons From Change’ report, the firm added that real estate companies need to be adept at controlling the expectations of investors who were used to seeing exorbitant returns in times past. They now need to “accept lower returns as some companies focus on lower yielding but lower risk investment”.

The issue of increased regulation is also something that the report identifies. Global Real Estate leader Howard Roth said this would be one issue facing all investors, particularly private equity and real estate funds. Here there is a growing demand and expectation for greater disclosure of investment plans and asset verification.

Dean Hodcroft, Ernst & Young’s Real Estate leader for Europe, the Middle East, India and Africa, continued by stating that: “Two years ago, real estate executives spent most of their time on new deals. Now they spend most of their time firefighting: protecting assets, controlling costs and, most importantly, managing cash flow.”

Equity Interface is an online real estate investment service designed to connect developers and accredited investors. By offering unparalleled research tools and information, Equity Interface empowers members to discover mutually beneficial real estate opportunities. For more information, please visit www.equityinterface.com

Lending conditions for the commercial real estate industry continued to worsen in the third quarter, according to an index by San Francisco based Banc Investment Group. The index is supported by data from the US Bureau of Labor Statistics, CB Richard Ellis, Grubb & Ellis and Reis.

The index dropped 10.6% to 63.67 in the third quarter from 71.24 in the second quarter, which was an 11.6% decline from the first quarter.

The BIG CRE Index is essentially a forward-looking measure of strength of Commercial Real Estate market conditions for community banks. Values are derived from third-party providers and data collected by Banc Investment Group’s consulting services group, which provides a loan pricing model for community banks nationwide.

In summary, conditions in the industrial sector fell 21.2% representing the largest fall, according to Banc Investment Group. Retail sector lending conditions dropped 7.7% while the the office sector dropped 7.1%. Multifamily fell 9%.

This data foretells a testing lending environment for the fourth quarter of 2009 and into 2010.

Retail

•    The retail sector of the index fell to 60.89 in the third quarter from 65.99 in the prior quarter, down 7.73%. Half as much as compared to the second quarter.
•    For neighborhood and community shopping malls, rents fell an average 0.7% during the quarter. Vacancy rates at neighborhood and community shopping malls exceeded 10%, while rates rose nearly 2.5% at regional malls. In both subsectors, the rate of deterioration is only about half that of the second quarter.
•    More than six in ten markets experienced a rise in vacancy rates, and more than 95% recorded negative rent growth.
•    Lending conditions benefitted from a modest improvement in retail sales (less gas and autos). Sales rose 0.6% in August and 0.4% in September.

Industrial

•    The industrial sector of the index fell to 43.97 in the third quarter from 55.84 in the prior quarter, which is a decrease of 21.27%. This was slightly tempered in comparison to the decline between the first and second quarter.
•    Vacancies rose again, up an average of 3.4% in the quarter.
•    With inventory levels sinking, industrial production has turned positive for every month in the third quarter.

Multifamily

•    The Multifamily sector of the index fell at an increased pace of 9.06% to 76.74 in the third quarter from 84.39 in the previous quarter.
•    Unemployment rose 30 basis points from June through September. The average vacancy rate increased 1.3% over the quarter to a 23-year high. The vacancy rate is expected to climb further, although at a slower pace. In tandem, rent growth dropped 30bps.
•    Across the U.S., about 65% of metropolitan locations reported a rise in vacancies, while more than five out of ten saw rent decline.

Office

•    The office sector of the index fell to 73.07 in the third quarter, down 7.19 % from 78.73 in the prior quarter.
•    The sector posted negative net absorption levels with vacancies rising nearly 4% over the third quarter, despite only half the amount of space coming online as the second quarter. Nearly 85% of Metropolitan areas experienced a rise in vacancies.
•    Year-to-date, average rents dropped 7%, with nine in 10 areas suffering rent declines.

Analysts are predicting positive figures for property sales and house starts next year in the US but they are also quick to warn that the recovery will be up and down.

The vast majority agree that the real estate market has reached bottom and indeed one can see prices increasing in a lot of states. However, there is still considerable confusion with indices reporting varying figures and experts disagreeing over whether or not a glut of foreclosures will come onto the market, and thus send prices into freefall.

Fitch Ratings increased its projections for housing starts and home sales for the first time in more than three years. At the same time, they were cautious in warning that recovery will be turbulent.
 
‘During the first 12 to 15 months off the bottom, the housing recovery may appear jaw-toothed as substantial foreclosures now in the pipeline surface as distressed sales,’ said managing director and analyst Bob Curran.

The foreclosure topic has caused much debate.

Latest figures from ForeclosureRadar show California foreclosure filings in September flattened from the previous month, while still well above the levels from a year earlier.

Conversely, other states saw a sharp increase, with Florida up 29.6%, Texas up 24.3% and Michigan up 18.22%.

According to Royal Bank of Scotland (RBS) the delinquency pipeline threatens to put as many as 2.7 million distressed sales on the market, ‘A housing market that is just beginning to climb from the ashes would be unable to handle an influx of nearly three million additional homes for sale all at once,’ they said.

Radar Logic’s president Michael Feder is less worried. ‘The threat of pending foreclosures to the housing market is, in our view, overstated and we believe there is strong evidence that housing supply and demand are returning to more normal levels,’ Feder explained.

Their latest residential property index shows that home prices and home sales in 25 metropolitan statistical areas increased 1% and 1.9%, respectively, from July to August.
 
The National Association of Realtors is reporting that existing home sales increased nearly 10% from August to September, and sales activity is at peak level since July 2007.

Equity Interface is an online real estate investment service designed to connect developers and accredited investors. By offering unparalleled research tools and information, Equity Interface empowers members to discover mutually beneficial real estate opportunities. For more information, please visit www.equityinterface.com

For the first time in more than a year, economy growth was in positive figures, said the Commerce Department on Thursday. The figures unofficially ended the worst US recession in 70 years.

GDP expanded at an annual rate of 3.5 percent in the three months ending in September, which is a significant jump from its depleted base. The economy had contracted at annual rates of 0.7 percent and 6.4 percent in the second and first quarters of this year, respectively.

Consumer spending, which accounts for over two-thirds of US economic activity, surged at a 3.4% rate in the third quarter, the fastest pace since the first quarter of 2007. Residential investment, which was the main force behind the downturn, jumped at a 23.4% annual rate in the third quarter, contributing to GDP for the first time since 2005, after declining 23.3% in the April-June period.

This surge in consumer spending and residential investment was likely to have been driven by government stimulus programmes.

The economic recovery in the third quarter was supported by a sharp moderation in the pace of inventory liquidation by business. Inventories fell $130.8 billion, slowing from a record $160.2 billion plunge in the second quarter

Analysts are hoping that the slowdown in the inventory decline by businesses will continue to support the economy in the fourth quarter.

Unemployment remains a major area of concern however with job seekers not likely to feel the benefits for months to come.

Stagnant consumer demand and withering consumer confidence have left companies wary of hiring more employees or taking any expensive risks at all. The jobless rate reached 9.8 percent in September, its highest rate in 26 years.

Such forces may pressure government to look for targeted interventions into the labor market, in addition to last winter’s broader $787 billion stimulus package which continues to work its way through the economy. Proposals on the table include another extension in unemployment benefits and various job creation programs.

The advent of social networking has seen many businesses broaden their lines of communication with clients and potential customers. However, for tightly regulated industries, including ours, the challenge is utilizing these services in a legitimate manner. With the need for diligent documentation of all contact with clients, it has up until now proved very hard to get the best out of these platforms.

The head of the largest U.S. independent securities regulator said on Tuesday (October 27th) that social networking sites like Facebook and LinkedIn raise “serious new challenges” for financial regulators.

Wall Street bankers and analysts increasingly wish to use such social networking tools to connect and interact with customers, Richard Ketchum, the chief executive of the Financial Industry Regulatory Authority (FINRA) said.

But unfortunately, the current design of these sites, married to the current legislation, makes it rather difficult. It proves hard for firms to keep the kind of archives of their employees’ business communications required by regulators, Ketchum told industry group Securities Industry and Financial Markets Association’s (SIFMA) annual meeting.

“We continue to witness the advent of technologies that will challenge your ability to ensure compliance with regulatory requirements,” Ketchum told the bankers and dealers. “Social networking is one such innovation.”

Most firms prohibit their employees from using sites like Facebook for business, partly because of the difficulties they pose for firms’ ability to meet supervision and record-keeping requirements, Ketchum said.
“Nevertheless, interest in these sites is inevitable and will not go unabated,” he said.

FINRA has set up a task force comprised of industry representatives “to explore how regulation can embrace technology advancements in ways that can improve the flow of information between firms and their customers without compromising investor protection,” he said.

Vacancy rates in the U.S. office, industrial and retail property markets continued to rise in Q2 2009.

Commercial property markets are reflective of the economy, and the results from the mid point of the year highlight the continuing impact of the recession on property markets throughout the country.

Office vacancy rates increased by 80 bps during Q2 2009 to 15.5%. With both downtown and suburban markets feeling the ongoing effects of the the recessionary environment. The downtown vacancy rate increased by 70 bps to 11.7%, while the suburban rate rose by 90 bps to 17.6%.

The largest vacancy increases occurred in markets where the housing crash has been particularly concentrated, for example in the Southwest and Florida. In saying that, the increases were noticeable across the board, with 44 out of 57 markets seeing higher vacancy levels during the quarter.

The national office vacancy rate still remains well below the high of 19.1% set in 1991,however it is forecasted to reach 17% by year-end, with negative absorption for the year at 68 million sq. ft.

The national industrial availability rate increased 80 bps during Q2 2009 to 13.0%. Industrial availability is now at the highest level since 2003 and is forecast to go higher. The industrial market continues to suffer from declining economic activity both at home and abroad, as trade flows have slowed, and its negative absorption for the year is going to set a record.

The retail (neighborhood and community centers) availability rate moved upwards to 11.7% and is forecast to continue in that direction.

However, the rate of increase is noticeably slowing which may signal that the negative effect from the current economic crisis on neighborhood and community centers is moderating. It is expected that once the recovery in consumer spending begins, some tenants of neighborhood and community centers will be the first to benefit.