SOURCE: The New York Times

The mortgage foreclosure crisis has hit both Fannie Mae and Freddie Mac extremely hard. The companies are by far the biggest providers of financing for domestic home loans. If they are unable to borrow, they will not be able to buy mortgages from commercial lenders. In turn, that would make it more expensive and difficult, if not impossible, for home buyers to obtain credit, freezing the United States housing (and commercial lending) market.

Both Fannie and Freddie shares have been dropping due worries by shareholders. This has caused their cost of borrowing to rise. In a statement issued by Fannie Mae they stated "Our company has raised more than $14 billion in capital since November 2007, including $7.4 billion most recently in May," the company said. "As our regulator has stated, and has reiterated in public statements this week, we are adequately capitalized."

The biggest worry is that if Fannie Mae and Freddie Mac are unable to resolve their difficulties, that the economy will be affected not just within the U.S. but worldwide. The securities of both Fannie and Freddie are held by many financial institutions, central banks, and investors overseas.

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SOURCE: Forbes

A high-yield way to get into commercial real estate can be through net-leases. A net-lease is when a building owner sells the building and then leases it back, typically for a long period of time. The building owners do this as a way to raise cash and yet keep their location and storefront. The new owner will likely have a well-protected stream of income for 20-30 years.

Another way to get into high-yield commercial real estate is through net-lease real estate investment trusts (REITs). These REITs own the actual building rather than the mortgage and do much better on returns than equity based REITs.

Even though most sale-leasebacks involve deals worth greater than $20 million there are still many opportunities for individuals. They can participate by piggybacking since REITs and other institutional net-lease buyers often sell off some of their properties individually. This allows them to turn a profit or balance holdings geographically. Currently, 60% of the 11,000 single-tenant retail outlets available are priced below $2 million.

One investor, Jack A. Diamond, became a net-lease holder for a Checkers drive-through hamburger outlet. He paid $387,000 for one of the Checkers stores that was being sold by Trustreet Properties. "I like the steady income stream and not having day-to-day responsibility" for managing the real estate, says Diamond, a retired building supply executive, who co-owns five other net-lease properties via an S corporation.

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SOURCE: The Washington Post

The lack of competition in the U.S. commercial real estate market is proving a prime time for foreign investors to make their move. The results of a first-quarter survey performed by the Association of Foreign Investors in Real Estate (AFIRE) have just been released. The findings show that their international investors rank the U.S. as the most attractive market in the world.

U.S. investors are finding it difficult to find money due to the credit crunch. This is playing a large part in the lack of competition that foreign buyers are seeing. Another important factor is that more conservative U.S. investors are waiting for prices to fall somewhat. Not only that, the inventory of upper echelon Class A commercial buildings is relatively small and all this combined is setting the stage for some record setting deals.

The interesting thing is that foreign investors aren't getting any real bargains. They are paying premium prices for premium properties. These properties typically have a solid base made up of long term, credit-worthy tenants. The great value here is having such a strong hedge against the volatile market that the U.S. is enduring at the moment. One of the things that does make for a bargain though is that the U.S. dollar is worth a lot less compared to many foreign currencies. With the real estate market down along with the dollar, it makes for a double discount on commercial property.

The time needed to familiarize foreign buyers with the commercial real estate market is another factor that is available now. Before, properties were moving so quickly that they didn't have time to really feel confident about placing their money in the fray. Now that a lot of the competition is holding back, they are able to move into the U.S. market with the ability to do their homework before investing.

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SOURCE: Wall Street Journal Online

A rally in real-estate investment trusts for the first quarter was brought on due to strong gains realized by two of the industries that benefit from the housing bust. These industries are apartments and self-storage. Eight of the top 10 performers last quarter by way of total returns -- a combination of stock-price appreciation and dividends -- were apartment or self-storage REITs.

The self-storage industry is doing well, right along with apartments, because people who can't afford the cost of their homes are moving. Mike Kirby, director of research for the investment-research firm Green Street Advisors, says "The simple logic there is that as people downsize their housing, they need some place to store their stuff."

Apartment REITs have a real advantage over the other REIT classes. They are able to borrow from Fannie Mae and Freddie Mac which helps to provide a stable source of capital to them. Because Fannie and Freddie are government-backed lenders they have a mandate to provide credit for affordable housing.

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SOURCE: Wall Street Journal Online

Demand for office space dropped for the first time since the economy emerged from its downturn earlier in the decade, according to first-quarter data from Reis Inc., a New York research firm.

Throughout the nation, the vacancy rate for office space has increased to 12.8% from 12.6% in the previous quarter. During the 2003 downturn after the technology bust, the rate hit 16.9% but it is felt that these levels won't be seen this time.

Even though some areas are hurting, some bright spots can be found. "The energy markets are booming," says Ric Clark, chief executive of office company Brookfield Properties. Houston topped the list of 79 markets that Reis surveys in terms of rent growth, up 3.5% last quarter. Denver, Tulsa and Oklahoma City also fared well.

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SOURCE: USA Today

The debt binging that the caused a lot of the
financial crisis the economy is facing has not been alleviated by the Feds. This is certainly the worst financial crisis in the last 50 or 60 years," says Kenneth Rogoff, a former chief economist at the International Monetary Fund and now an economics professor at Harvard.

The best-case scenario that the financial markets
can expect is that the Feds can lead them to a recovery in the housing market. No one wins if this economic breakdown spreads to other banks and beyond. "It's a really dicey moment we've come to." says Seattle-based money manager William Fleckenstein.

A good article by USA Today which answers a number of questions regarding the collapse of Bear Stearns and its effect on the economy can be found by following the link. It discusses the issues that are worrying the economy and what some analysts feel may take place.

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SOURCE: Wall Street Journal Online

The tough commercial real estate market fund-raising business could be difficult to enter for some but GE feels it will do well for a number of reasons. A falling market poses more challenges but the large and long time real estate investor has a proven track record that should help them in this credit crunch.

One advantage GE believes it has is hundreds of local agents looking into commercial real-estate markets. The funds will get a first look at any potential properties that fit the profile they are hoping to take advantage of. Joe Parsons, chief executive of GE Real Estate's newly formed global investment-management division, said that GE's investment strategy is different from funds focused on distressed situations. Instead of waiting for fire sales, or those properties down about 50% in price, GE is looking at properties discounted in the 10% to 15% range.

GE's goal is to take advantage of the current pricing adjustments while striving to be one of the largest real estate asset management firms within five years. Even GE executives agree that the market is mixed for new funds but are optimistic in their ability to invest well. Mr. Parsons, who recently ran GE Real Estate's North America equity arm, agrees that buying opportunities are scarce right now. "We're hoping the liquidity returns slowly to the market and that presents more opportunity for investing." he said.

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