Saturday, February 28, 2009

Elk Grove Commercial Real Estate Photolog Revisit

It's been a while since I did one of these (they're very labor-intensive), but seeing as how 2009 will likely be the year of the Great Commercial Real Estate Crash, I thought I'd pick up torch once again. To get me started, I decided to revisit some of the places I first documented over 15 months ago, in December 2007. For more background on the troubles in commercial real estate, I suggest these posts by Calculated Risk and Mish Shedlock:

CR: Fed: Delinquency Rates Increased Sharply in Q4
Mish: Does The Shopping Center Economic Model Work?

Elk Grove is full of empty and soon to be empty commercial real estate. Most of the city was constructed within the last 10 years, much of it within the last 5. It grew from north to south away from Sacramento proper into farm and pasture land, and it seems to be dying off in the opposite direction. These properties are mostly located on the the bleeding southern edge.

There were two bright spots. The old Ralph's store was changed into a Nugget, and what was once a "coming soon" restaurant is going strong over a year later. Other than that, things look pretty bad for Elk Grove commercial real estate. Incredibly, there is still some construction going on.

Blue are improved over last time, red is the same, green is new. View Larger Map

New Nugget store replaced the vacant Ralphs.

Pho Lotus is doing well one year later.

Whitelock and Bruceville. Still nothing new here, and the cookie place is gone, soon to be replaced by something called "Yogelato."

Nothing new at Whitelock and Atkins, and they lost the pizza place.

Stripmall across from Stonelake is half empty.

Stonelake itself is still struggling.

Yes, they're still building CRE on spec here. Home of a future bailout.

Another soon-to-be taxpayer owned institution.

So much for the reef hermit at Harbour Point. They've been asking $1.95/sqft since my last visit. Would you pay $1950/month for a store here?

Longport Retail Center is 100% empty.

This project is abandoned.

The only change at Laguna West is the fancy new sign.

A large collection of empty office buildings and light retail near Laguna Blvd and Highway 99. These buildings surround the Elk Grove Civic Center.

Home of the former Elk Grove Ford. The gangsters are moving in.

Home of the former Elk Grove Saturn.

The site for the now and future Elk Grove Promenade. The project has now been suspended indefinitely, and the owner, General Growth Properties, is in default on $1.2 billion in loans. They may be forced into bankruptcy at any time.

Sacramento Regional Real Estate Trends for February 28, 2009

Just the graphs this week, since most indicators remain the same.

Statewide Unemployment Hits 10.1%

From the EDD (pdf):

California’s unemployment rate was 10.1 percent in January, and nonfarm payroll jobs declined by 79,300 during the month, according to data released today by the California Employment Development Department (EDD) from two separate surveys.
Almost 35% of the jobs lost were in IT alone:
EDD's report on payroll employment (wage and salary jobs) in the nonfarm industries of California totaled 14,648,100 in January, a net loss of 79,300 jobs since the January survey. This followed a loss of 84,400 jobs (as revised) in December.

Four categories (natural resources and mining; educational and health services; leisure and hospitality; and government) added jobs over the month, gaining 7,400 jobs. Educational and health services posted the largest gain over the month, up by 3,900 jobs.

Seven categories (construction; manufacturing; trade, transportation and utilities; information; financial activities; professional and business services; and other services) reported job declines this month, down 86,700 jobs. Information posted the largest decline over the month, down by 27,700 jobs.
Looks like at least one of my 2009 guesses was right... Region-specific data for Sacramento will be released next week. Not a pretty picture.

Thursday, February 26, 2009

CalPERS Monthly Update and Heath Benefit Info

Another month, another 2.3% asset decline:

CalPERS' fund size declined $4 billion in the month of February to $170 billion. It's down 33.3% from its peak of $245 billion in July 2007.

In other CalPERS news, California State Controller John Chiang has released 10-year cost projections (pdf) for state retired state employee health costs, and the results aren't pretty:

Projecting the three scenarios out over 10 years shows the actuarial unfunded obligation would grow from $48 billion to $71 billion in 2017-18 under a pay-as-you-go scenario. Full funding would increase the unfunded obligation from $31 billion to $48 billion. Partial funding would increase the unfunded obligation from $38 billion to $58 billion.
The state has paid $1.36 billion this year for retiree health benefits, or a little more than 1% of the entire general fund budget. While it may seem unwise to use the "pay-as-you-go" method to fund these liabilities, Chiang's press release had this to say about the alternative (emphasis mine):
Pre-funding permits the State to earn investment income on the amounts set aside to fund future benefits. That investment income can be used to help offset the costs. The State would need to contribute $2.68 billion in 2008-09 to fully fund its obligation.
Ruh-roh. I don't like where this is headed. Digging into the actuarial report (pdf), we find these gems:
The primary assumption influencing Annual OPEB Costs and the Actuarial Accrued Liability is the assumed rate of return or discount rate on assets supporting the retiree healthcare liability. The State of California currently finances retiree healthcare benefits on a pay-as-you-go basis from assets in the general fund, which are invested in short-term fixed income instruments through the Pooled Money Investment Account (PMIA)... Based on PMIA's historical returns, investment policy and expected future returns, a discount rate of 4.5 percent was selected for the pay-as-you-go funding policy.
Seems conservative. Or is it?
Over the last ten years, the PMIA average annual return was approximately 4.00 percent on a nominal basis and 1.50 percent on a real basis. The discount rate of 4.50 percent takes into consideration a long-term inflation assumption of 3.0 percent, and a real return of 1.50 percent.
Fudge factor alert. None of the liability assumptions are inflation adjusted, but the expected investment returns are? Also, the PMIA annual returns are not at all consistent. Here are the last 10 years (pdf):
98/99 5.344
99/00: 5.708
00/01: 6.104
01/02: 3.445
02/03: 2.152
03/04: 1.532
04/05: 2.256
05/06: 3.873
06/07: 5.121
07/08: 4.325
I realize this is a planning document, and policies will adjust as conditions change. However, as expensive as these spending projections are, they seem fairly optimistic to me, and even the current cost levels are nearly unsustainable politically. CalPERS retirees should expect a bumpy ride in the years ahead.

Sunday, February 22, 2009

Sacramento Regional Real Estate Trends for February 21, 2009

Inventory remained essentially flat again this week, but there was some price movement to the upside as higher-priced inventory slowly makes a return to the marketplace. The most notable changes are in Yolo County, where a combination of a drop in sub $200K listings and an increase in $500K+ listings has led to a sharp rebound in market price aggregate data.

There will be many extra-market factors effecting market action this year, including various tax incentives, interest rate pegs, and foreclosure moratoriums. Most of these political maneuvers will only delay price discovery if the recession lasts beyond 2009.