Former whipping boys now wearing white hats

Corporate-style mea culpa has put the stock market in a tailspin and, ironically, continued to buoy real estate.

An amazing byproduct of the latest raft of corporate restate ments and fraud charges is that investors are running to the relative safety of commercial mortgage-backed-securities, so-called CMBS, and U.S. Treasuries. As a result, commercial mortgage rates are down considerably and now range from 6 percent to 6.67 percent for fiveand 10-year loans, according to the Barron's/John B. Levy & Company Survey.

Real estate and commercial mortgages, whipping boys for many an economic downturn, are wearing white hats these days.

Observers need look no further than the two most recent CMBS offerings (commercial mortgage-backed-securities are bundles of commercial mortgages sold as bonds). The two offerings were priced the same day WorldCom announced its staggering write down, and the bonds priced at the most aggressive levels witnessed all year.

How long will it last?

Despite the robust tone of the market, gray-haired analysts are wondering just how long these good times will last. Indeed, despite the luster that investors see, real-estate fundamentals continue to weaken in most markets. Real estate has never handled fame very well. In fact, deteriorating fundamentals in combination with excessive capital has been lethal for real estate in past cycles.

Not to be left out of a real estate renaissance, Richmond is attracting national attention for its downtown revitalization efforts. On June 26, the Wall Street Journal's Property Report highlighted Richmond's riverfront activity and the ongoing conversion of old warehouses into apartments and office buildings.

The attention is for good reason. Shockoe Bottom and Shockoe Slip are abuzz with activity. Current residential projects completed, planned and under construction along the riverfront have and will bring a critical mass of residents to downtown Richmond and, in turn, feed retailers.

Getting piece of the action

National and local developers alike are working feverishly to nail down a piece of the action. The Cordish Co., a national urban mixed-use developer out of Baltimore, will soon announce details of its plan to redevelop the old power plant property on Brown's Island. This project, as planned, will anchor the western end of the Canal Walk, and Tobacco Row will anchor the eastern end. All of the properties in between are in various stages of play.

This activity, in combination with the convention center expansion and talks of high-speed rail, prompted Douglas Jemal to put two buildings along Main Street under contract. When closed, the properties will bring his Richmond portfolio to three office buildings. Says Jemal, who is noted for his vision and hand in downtown Washington's revitalization, "[Downtown Richmond] has opportunity and will be a great urban environment. . . . I didn't do any market study or anything, it just feels right."

Andrew Little is an investment banker with John B. Levy & Co.