Even cream-of-the-crop office developers with sterling track records and prime, high-visibility locations in the District of Columbia are finding themselves frozen out of the credit markets. More than four months has passed since the last office project broke ground in D.C., and the consequences of the downturn are starting to ripple through the area's economy.
The economy will not begin recovering from the subprime mortgage crisis by the end of the year, says the latest Federal Reserve Beige Book, a report based on anecdotal information from economists, bank directors, market experts and other sources. According to the Atlanta Federal Reserve president, the economic sector under the greatest amount of stress is commercial real estate, and it is likely that this industry's struggles will complicate efforts to stabilize the banking system and credit markets.
Each day, the Federal Reserve Board of Governors gets reports about loans made to banks and securities firms, but it refuses to disclose the information to the public. The Fed says that doing so would cast "a stigma" on the companies that receive loans through the Primary Dealer Credit Facility.
As a group, equity REITs are paying out their highest dividend yields since 1990. REITs carrying relatively low amounts of debt that are able to cover dividends with cash from operations remain promising opportunities.
Some Manhattan landlords have been forced to discount office rates as much as 20% as the demand for these spaces continues to drop. To hold onto their tenants, landlords could offer generous renewal packages to tenants with leases that expire in the next 12 to 36 months -- these tenants will likely have an abundance of available office space to choose from when their leases expire.