Virtual Open Houses

Two New York City office properties are back on the market, as a deal under which George Comfort & Sons would have acquired the assets--1540 Broadway and Worldwide Plaza--for some $2 billion has fallen through.

At CPN’s annual New York City Investment conference on Friday, speakers offered a vision of the nation’s largest commercial real estate market that blended sober realism with an occasional dash of clear-eyed optimism.

As government and industry scrambled to stem the housing crisis, another 84,868 homes were lost to foreclosure in October, according to a report released Thursday.

Bill Conerly at Seeking Alpha has a good post today about how to deal with the excess housing supply. In a nutshell, he says helping people move from renting to owning isn't the right solution because it will just exacerbate the oversupply of rental units. The only solution, in his view, is population growth. That takes time.

The $189 billion California Public Employees’ Retirement System, the largest and most closely watched pension fund in the country, has revealed a huge hit to its real estate portfolio. Its housing related assets are down 35% to $6.1 billion as of June 30. Until recently, the big fund was still reporting double-digit increases in its real estate investments. According to a report that will be presented to the fund’s investment committee on Nov. 17, CalPERS’ overall real estate portfolio is down 11.2% for the fiscal year that ended in June.

The fund seems to have made some very basic investment mistakes, including over concentration in its once red-hot home market of California. Among its biggest disappointments is a nearly $1 billion investment in a partnership involving homebuilder Lennar, forestry giant Weyerhaeuser and private equity firms Cerberus and MacFarlane Partners. That partnership, called Land Source, is now in bankruptcy. A report prepared for the fund by independent consultant Le Pastrier Development Consulting found that high-levels of leverage contributed to the volatility of the fund’s housing investments.

CalPERS, known for agitating for corporate governance changes at big companies it invests in, is adjusting its own policies in the wake of the real estate debacle. The fund is busily restructuring its partnerships to reduce debt. In the future, real estate investments will have to pass muster with an internal review committee, an independent fiduciary and a board consultant. CalPERS is still looking for a new chief investment officer. The fund’s previous top manager, Russell Read, bailed out last spring.

Rep. Barney Frank, chairman of the House Committee on Financial Services, highlighted the need for a bailout program for troubled homeowners on Wednesday. But he stressed that not all borrowers should necessarily be rescued.

The flurry of announcements by the government and major banks that they are engaging in a massive campaign to modify mortgages that are in or are hurtling toward default and foreclosure will certainly give rise to predictions that the housing market has been stabilized and disaster averted. If only it were so.

Make no mistake, policymakers and banking executives had to launch this concerted campaign to try to stop the wave after wave of foreclosures that seems to feed on itself. As lenders foreclose on one delinquent borrower, and then sell the home at what is invariably a steep discount, that just pushes a number of nearby homeowners so far underwater that they just move out and mail their keys in, which just sets the cycle in motion again.

But anyone hoping that this synchronized effort to modify millions mortgages that are in trouble is likely to be disappointed. Because behind the splashy headlines, there are limits to what the government and banks can hope to achieve. And trying to slow the free-fall in housing markets is akin to the government trying to put its finger in the dike.

The fact is that despite the double-digit declines in housing values in most cities, housing remains significantly overvalued in many markets by all of the traditional benchmarks: One key ratio – the median cost of a new home vs. median income – suggests that home prices nationwide still need to drop another 15% to 20% on average, as you can see in this chart compiled by money manager Barry Ritholtz. And the equilibrium price is far more than that in bubble markets like southern California and Florida. According to this "fair value" calculator, one suburban neighborhood outside Washington, D.C. that I checked (Alexandria, Va., where I lived in the mid-1990s) is now 47% overvalued. Ditto for a few communities in Los Angeles that I surveyed.

CB Richard Ellis arranged more than 80,000 square feet of retail and garage leases at the Manhattan House on behalf of O’Connor Capital Partners.

Viacom has decided to keep its global headquarters at 1515 Broadway in Times Square, renewing and extending its lease for 1.3 million square feet of space at the 54-story Midtown Manhattan skyscraper that is home to MTV studios and the Nokia Theater.

As if more proof were needed that the lending environment is hammering even top-of-the-line development, project backers in Boston and Philadelphia have acknowledged that the capital markets crisis is forcing them to put some of those cities’ showcase projects on hold.