(CORAL GABLES, FL) -- Philip F. Blumberg may not have a crystal ball on his desk but says he spotted the current commercial real estate price drops two years ago and yanked his Blumberg Capital Partners company off the playing field.
Philip F. Blumberg
By liquidating the bulk of his firm's holdings over the past two years, he generated a 30 percent return this year and cleared all debt from the company's books.Now, he says, his company is positioning itself for next year's "strategic opportunities" to acquire distressed debt and discounted equity investment. Blumberg Capital Partners plans a new series of investments and capital raising.
He says he knows the opportunities will be there because "given the over-leverage in the commercial real estate market, and the ongoing decline in credit, a number of owners will be forced to sell at prices below their debt levels."
Besides being founder, chairman and CEO, Blumberg is also the chief investment strategist for the 30-year-old investment fund management firm.
Blumberg reminds individual and institutional investors, "The commercial real estate market is not a straight line. It's a cyclical.
"You need to gauge where prices are in the evolution of the cycle. That's what investment is all about. When you lose sight of risk and cyclicality, you make big mistakes."
He says any proposed federal bailout of the commercial real estate industry will require "a painful, significant deleveraging to succeed."
Blumberg believes "any bailout plan is working against a legacy of debt time bombs created by imprudent, unrealistic buyers who over-borrowed during the peak of the market in anticipation prices would continue rising unabated."
He agrees "creating a refinancing stimulus is helpful to that the credit freeze, but these ticking debt time bombs will make it difficult for our public officials to get their arms around this problem.
"Now, because the global economic recession has worsened over the past few weeks, coupled with layoffs at the front end of the cycle, demand for office space nationally is falling.
"Until companies can weather this storm and start expanding again, prices will remain low for landlords and vacancies will rise."
He says a new market analysis by his staff shows these trends:
- Maturing debt obligations will come under even more stress in 2009.
- Leasing rates are poised to drop an additional 20 percent to levels not seen since 2002.
- Commercial real estate prices in 2009 could potentially drop another 20 percent on top of the anticipated 15 percent decline this year.
- Average office vacancies nationally could rise to 25 percent by the end of this year.
- The nation's office market could take until 2011 to stabilize.
- Hardest hit markets will be New York City and Los Angeles.
- Faring a little better will be Washington, DC and Northern Virginia.
"Some cities are holding up in terms of occupancy levels, including places like Houston, which has been relatively resilient due to the energy markets," says Blumberg.
"However, most of the major hubs of commerce nationally are reporting alarming increases in available office space, which should lead to severely falling leasing rates in cities like New York, Chicago, Los Angeles and Phoenix," he says.
Blumberg says factors which are driving office pricing down are lack of available acquisition financing, "dramatically lower performance projections taking into account dropping rental revenues," and climbing vacancies.
"These downward trends will be magnified in 2009," he predicts.
Blumberg founded Blumberg Capital Partners in 1979. He says the firm has generated investor returns "exceeding an average of 17 percent annually" from 1992 through 2008 for both individual and institutional investors.
He says the secret to his company's success to date is that besides contributing his own cash, Blumberg's investment funds have "relied on internally generated cash and investor contributions, utilizing moderate leverage only to fund commercial real estate purchases."
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