Posted by:
Kenneth Rudy
Corporate Solutions

Although there aren’t too many Summit sessions dedicated to it, a lot of people here are very focused on the state of the real estate debt and equity markets as CRE teams struggle to meet cost reduction targets while generating cash for the bottom line.

While most of us have been witnessing the huge stock market rally since March, not many people have noticed the just as significant high-grade bond market rally which has seen corporate bond issuance exceed $1 trillion dollars–potentially beating 2007’s record-setting year.  The stock market rally has also allowed equity issuance to be on pace to have its second-best year ever, with more than $157 billion issued through September. Not surprisingly however, commercial mortgage debt remains extremely constrained as lenders contend with a 60-day delinquency rate of 3.27%, a level not seen since the mid-90s. And delinquencies are still growing.  In addition, the CMBS markets remain shut down, eliminating a source of debt capital to refinance what will be close to $350 billion per year of commercial mortgage maturities through 2012.

The lack of new and reasonably priced commercial mortgage debt and the growing list of commercial banks being taken over by the FDIC has increased real estate equity yields to levels not seen since the last major real estate downturn in the early 90’s.  All of this distress creates a unique environment for investment grade corporations with core real estate requirements.

Companies that understand which real estate assets are core, non-core and surplus can generate capital and drive down operating costs in line with corporate objectives.  How?  With the cost of senior unsecured debt being raised in the bond market at historic lows and real estate values coming off of their historic highs by anywhere from 35% to 50% just since 2007, companies can seize the opportunity to utilize their comparatively low-cost capital to acquire core real estate at bargain prices.

Many CREs are well equipped to seize the opportunities that exist, because the tools to manage the real estate portfolio and create appropriate financial and operating solutions have become better understood in the marketplace.  For an in-depth look at how capital markets trends may affect your CRE strategies, here is a sneak peek at Jones Lang LaSalle’s brand-new report.

Kenneth