|By Richard Metcalf, Albuquerque Journal,
N.M.McClatchy-Tribune Regional News
Jan. 18, 2010--The building that houses the Hyatt Regency in Downtown is going into foreclosure and will eventually be sold on the courthouse steps, although the 395-room hotel itself will be unaffected.
"Hyatt Regency Albuquerque remains fully operational and looks forward to welcoming all future guests," said general manager Daniel Kuperschmid. "We do not expect to see any service disruptions to our guests or employees."
The hotel has been in the building since it opened in 1990. Chicago-based Hyatt Hotels Corp. has a long-term management agreement to operate the hotel that's attached to the building, Kuperschmid said. As a result, the hotel has seamlessly stayed in operation while the ownership has gone through any number of ownership changes over the years.
The 20-story building at 330 Tijeras NW is owned by G Lobos LLC, a subsidiary of Chicago-based GEM Realty Capital Inc. The company declined a request by the Journal to comment on the foreclosure.
The adjacent 22-story Albuquerque Plaza is separately owned and not part of proceedings.
The initial foreclosure notice was filed in 2nd Judicial District Court by attorney Paul M. Fish of the Modrall law firm on behalf of Bank of America. The principal owed on the mortgage, filed in May 2007, is $43 million, Fish said.
Founded in 1994, GEM has two lines of business that invest in private commercial properties and in publicly traded real estate securities, respectively. In a 2006 newsletter by San Ramon, Calif.-based Institutional Real Estate Inc., one of GEM's three partners said the company was "very bullish on hotels, so we've taken a net long bias in the lodging sector in our hedge fund."
Three-and-a-half years later, the hotel or hospitality sector is struggling with the impact of the recession. In general, the real estate value of hotels has fallen along with their occupancy rates and revenue.
According to a September 2009 survey by the International Lodging Finance Council, 70 percent of lenders believe it will take five or more years before hotel values return to peak levels in inflated dollars.
In 2008, GEM's ownership of the Hyatt building made it Bernalillo County's 15th biggest payer of property taxes. Its tax bill that year was $555,591.
A twinkling of good news
"Commercial real estate lags the economy" is a common refrain, but what is it about real estate that lags the economy?
Is it property prices or vacancy rates? Rents or net operating incomes? Mortgage delinquencies? Is the refrain applicable to all types of commercial real estate, or is it more appropriate for specific types like hotels or office buildings?
The Washington, D.C.-based Mortgage Bankers Association only poses those questions rhetorically in its report on commercial real estate financing in the third quarter. Without confirming or denying the existence of a lag, the association says there's a twinkling of good news for lag believers.
The real gross domestic product grew in the third quarter, prompting some economists to proclaim the end of the Great Recession. From a commercial real estate standpoint, GDP growth "may begin the countdown on the 'lag' and on when the economy will have grown sufficiently to rekindle demand," the quarterly report says.
"Given the depth of the recent downturn, the commercial property market has a significant amount of ground to cover."
The outlook for commercial real estate is uncertain for reasons that have nothing to do with bricks and mortar, according to the report.
"The recovery in economic activity under way since the middle of the year has been of moderate dimensions and plagued with risks," it says.
One of the biggest risks to economic expansion is the weak demand for labor. Unemployment dipped in November -- from 8.1 percent in October to 8 percent in the metro, from 10.2 percent to 10 percent nationwide -- but is expected to climb again. Healthy employment goes hand-in-hand with healthy commercial real estate.
Another big risk to economic expansion is the difficulty that small businesses and consumers are encountering in obtaining credit. Small businesses and consumers rely on banks for their credit "and there is little evidence that, as yet, banks have loosened the purse strings," the report observes.
Commercial mortgage originations dropped 12 percent from the second to third quarter of 2009 and are down by more than half from the third quarter of 2008. There's not a lot of property changing hands these days.
Banks are the most common source for commercial mortgages. The bankers association reports 48 percent of all commercial mortgages made by banks involved owner-occupied buildings. These mortgages are basically guaranteed by the business income of the buyer and occupant.
The more classic commercial mortgage is made to an investor and is guaranteed by the revenue that the property itself generates in the form of rent. This type of commercial real estate lending by banks has reportedly become hard to find.
Job preservation and creation should be the yardstick for measuring any proposals affecting business during the legislative session that starts Tuesday, according to a legislative update at NAIOP's luncheon meeting last week.
Comparing the state's economy to a pyramid, Beverlee McClure of the Association of Commerce and Industry of New Mexico said private-sector jobs form the base of the pyramid. With the recession forcing businesses to shed jobs, she said the ranks of the unemployed have grown to about 115,000.
With 12 percent of the labor force out of work, including those no longer counted in official unemployment statistics, McClure said the private sector "has shrunk so much it's hard to carry the weight of the public sector."
Proposals to raise certain taxes or create new revenue streams are bound to come before the state Legislature, which must deal with a projected $1 billion budget deficit this year, she said. Rather than head in that direction, McClure said, "We have to look at streamlining government. We've got to bring new employers to the state if we want to absorb those 115,000 unemployed."
About 390 people attended the Jan. 11 luncheon meeting of the New Mexico chapter of NAIOP The Commercial Real Estate Development Association at the Albuquerque Marriott in Uptown.
CARNM office opens
The Commercial Association of Realtors New Mexico opened its own office earlier this month at 6739 Academy NE, Suite 319.
Executive director Kendra Yevoli is no stranger to CARNM, serving in that position when the association operated under the auspices of the Greater Albuquerque Association of Realtors. Her past experience involved management positions with the State Bar of New Mexico and the New Mexico Defense Lawyers Association. Kelli Bergthold is the executive assistant.
The CARNM board decided last fall to split from the much larger, residentialoriented association after 14 years.
Richard Metcalf covers commercial real estate for the Journal. You may reach him at 823-3972 or email@example.com.
To see more of the Albuquerque Journal, or to subscribe to the newspaper, go to http://www.abqjournal.com.
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