Early 2007 was a frenzied period for commercial real estate (the February sale of Equity Office Properties Trust by Sam Zell to Blackstone was the market peak), but the 2008 drop, even by the standards of the sometimes-volatile New York City real estate market, is still dramatic. And of course, the credit crunch is immediate culprit, but with the financial services industry in secular decline and some Class A office space tenants like law firms Wall Street dependent, the outlook for rental income is far from rosy.
From Bloomberg:
New York City commercial real estate transactions plunged 61 percent in 2008 through October as the global credit crisis roiled lending and sidelined buyers.
About $17 billion of transactions have closed so far and the market is headed for its worst year since 2004,…Sellers have made 237 deals of $5 million or more, a four-year low in a market that posted a record $51 billion in sales in 2007.
“The banks are not lending, and most of them are saying we’re done for the year,” said Scott Latham, executive vice president for New York investment sales at Cushman & Wakefield Inc., the largest closely held commercial brokerage. “In all likelihood, you will see next to no transactions between now and the end of the year.”
The property recession that began in housing during 2006 is spreading to the commercial market. About 85 percent of domestic banks tightened lending standards on commercial and industrial loans to large and mid-size firms in the past three months, the highest since the Federal Reserve’s Senior Loan Officer Survey began in 1991, the Fed said yesterday. Financial firms have recorded writedowns and losses of more than $680 billion.
The office market will likely get worse in 2009 and may not improve for at least another year, said Andrew Simon, executive managing director for the New York City office of NAI Global, a worldwide network of 325 independent commercial property brokerages. The bankruptcy of Lehman Brothers Holdings Inc., the takeover of Merrill Lynch & Co. and the city comptroller’s forecast that New York may lose as many as 165,000 jobs are also weighing on the market…
SL Green, the biggest owner of Manhattan office buildings, has dropped 65 percent in the 12 months through October…
September was “disastrous” for the financial and commercial property markets, Real Capital said. Office sales totaled $13.4 billion in the third quarter in the U.S., the lowest since the first quarter of 2004. Sales for all of 2008 aren’t likely to exceed the volume of the first quarter of 2007.
“Until we have some kind of watershed transaction that gives people a sense of what the market is, you’re not going to see a lot of transactions,” Lynne Sagalyn, director of the Paul MilsteinCenter for Real Estate at Columbia University, said in an interview.
Sales involving New York real estate investor Harry Macklowe, perhaps commercial real estate’s most prominent casualty of the credit crisis, accounted for more than two- fifths of New York’s year-to-date dollar figure through October.
Macklowe paid $6 billion last year for seven Midtown skyscrapers, primarily using short term debt. His lender, Deutsche Bank AG, took control of the towers in February and sold five of them for $2.83 billion. Macklowe also sold the General Motors Building and three other buildings for $3.97 billion to Mortimer Zuckerman’s Boston Properties Inc….
The few deals being made usually require sellers to either provide financing or allow buyers to take over their existing loans, said Howard Michaels, chairman of the New York-based Carlton Group LLC, a real estate investment banking firm…
A standoff between sellers and buyers over price appears to be stalling the market, said Michaels.
“Most people are waiting to see how 2009 shakes out. Until then, nobody’s putting any buildings on the market unless they have to.” he said. “I don’t think that anybody would voluntarily sell into this market right now.”
Two properties remain on the market five months after they went up for sale. They are Worldwide Plaza on Eighth Avenue, a 1.7 million square-foot tower, and 1540 Broadway in Times Square, the former Bertelsmann Building.
The seller of both buildings: Harry Macklowe’s lender, Deutsche Bank.
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“Most people are waiting to see how 2009 shakes out. Until then, nobody’s putting any buildings on the market unless they have to.” he said. “I don’t think that anybody would voluntarily sell into this market right now.”
haha… sticky on the way down, just like Harry homeowner prices.