Jim Cramer 11/17/09: “The case for true commercial real estate catastrophe, I think is totally bogus. If the industry were so near the precipice, then retail should have produced more failures than just Linen & Things and Circuit City, especially given the 10.2% unemployment rate and tight credit markets. There’d be more store space vacancies, too”.
Allow me to enlighten Jim on other store closings in 2009 (let’s not split hairs on the final counts as economic conditions remain fluid). This is NOT the all-inclusive list.
Blockbuster (up to 960 by the end of 2010)
Starbucks (up to 600 from the summer of 2008 through March 2009)
Rite Aid (117 in 2009, 200 in 2008)
Steve and Barry’s (252)
Jones Apparel (announced 225 from mid 2009 through 2010)
Foot Locker (117 announced for 2010)
Macy’s (11 in 2009 and just this week announced 5 more in 2010)
Let’s reflect on the larger picture using data released this past week:
Reuters (1/6/2010): Vacancies at U.S. strip malls hit an 18-year high in the fourth quarter and the vacancy rate for large regional malls reached the highest in at least 10 years, according to real estate research firm Reis Inc. Jim: might this alter your “there’d be more space vacancies too”.
Strip malls -- neighborhood and community shopping centers typically anchored by grocery or drug stores -- had a vacancy rate of 10.6 percent in the fourth quarter, surpassing the high set in 1991, Reis economist Ryan Severino said in a report released on Wednesday. The early 1990s is a period often referred to as the commercial real estate depression.
Reuters (1/7/10): The U.S. apartment vacancy rate rose to an almost 30-year high of 8 percent in the fourth quarter, and rents dropped in the biggest one-year slump in 2009, according to real estate research company Reis Inc.
Bloomberg (1/8/10): Office vacancies surged to a 15-year high in Q4 2009 and the rents fall the most on record. The vacancy rate stands at 17% from 14.5% a year ago. In case you do not have a calculator handy Jim this represents a 17% increase in the vacancy rate year over year.
Memo to Jim: vacancy rates escalating to decade plus highs coupled with reductions in rent (a.k.a. income) negatively impacts one’s CRE investment returns. I welcome an opportunity to forward a couple of reputable CRE investment models; if you are not sure how increased expenses and income reductions impact one’s cash-on-cash return. GRANDPA IS HERE TO HELP.