Home The Firm Our Practice Our Professionals News K&S Blog Clients Resources Contact
Home | K&S Blog | New York City Real Estate Economy
New York City Real Estate Economy

04/22/2008


These pair of articles described the weakness in the New York City real estate economy.

The article “Harry’s Other Sale” describes how Mr. Macklowe’s empire is unwinding before our very eyes. Seven billion dollars of real estate purchased just last year has been returned to the banks. The question that begs to be answered is “How in the world did the largest banks on the planet lend Mr. Macklowe $7,000,000,000 while only requiring him to put up $50,000,000 towards the purchase price for these properties”? Frankly, the banks deserve the meltdown that is occurring in real estate. It is inexcusable to lend 99% plus on a speculative office property sale in any market. Apparently, everyone in the banking industry has forgotten what happened in 1988 through 1992.

On the other hand, the New York City commercial vacancy rate while deteriorating, still shows some resiliency. It is still an excellent time for commercial property owners to lease up their space now before the market continues to deteriorate. later in 2008. The CRAIN’S daily update of April 8th suggests some continuing strength even where there is weakness. It is quite amazing that the overall vacancy rate only rose to 6.1% at the end of March, 2008 from 5.7% at the end of 2007. That’s a testament to the resiliency of many New York businesses in the face of the recession that’s gripped the United States for the past several months.

Once again, what can you do?

If you are a landlord, rent up your space as quickly as possible.

If you are a tenant, hold off until the end of the year. There will be bargains galore. -- Edward E. Klein

 


HARRY'S OTHER SALE
CRAIN'S NEW YORK BUSINESS


http://www.crainsnewyork.com/apps/pbcs.dll/article?AID=/20080407/FREE/57382998

Real estate insiders have been buzzing for weeks about how much Harry Macklowe will realize on the sale of the General Motors Building, hoping that the deal will give them insight into how the Manhattan office market is weathering the credit crisis and the economic slowdown.

Now the seven midtown office buildings that Mr. Macklowe bought last year for $7 billion—using the GM tower as collateral—are being put up for sale, and they should provide an even better perspective on office building values. While iconic towers like the GM Building sell for premium prices that are often driven higher by buyers’ desire to own well-known trophies, the purchase price of these seven properties will be determined by market fundamentals.

“Everyone has been holding back [on selling] assets, because they want to see what these buildings will get,” says Dan Fasulo, managing director of Real Capital Analytics, which tracks real estate transactions. “They’ll create a new baseline for office building sales.”

Experts agree that the properties are all attractive and that the slumping dollar will make them especially alluring to foreign buyers. Still, the deteriorating economy, New York’s weakening office rental market and the credit crunch will make selling the buildings a challenge. Some expect that current conditions will push the buildings’ value 10% to 15% below the price for which Mr. Macklowe bought the properties, known as the EOP portfolio.

Mr. Macklowe was forced to return the seven buildings to a group of Deutsche Bank-led lenders, which is selling them to recoup the $5.8 billion loan made to the developer. Clearly, one of those lenders, Vornado Realty Trust, doesn’t believe that the buildings will generate that much money. In the fourth quarter, it wrote down $57 million of its $66 million of risky debt on the Macklowe properties.

The company has good reason for concern. In the first quarter of this year, the number of sales of New York office buildings fell 59% from year-earlier levels, to 22, according to RCA; the amount of space sold plunged 87%, to 2.9 million square feet. The average sale price, $716 per square foot, was up modestly versus a year earlier but far from the peak of $839 reached in the third quarter of 2007.

Back in February 2007, when Mr. Macklowe bought the seven buildings, financing was cheap. Midtown commercial rents had recently jumped 25%, according to CB Richard Ellis Inc., with all indications pointing to further healthy increases.

The dearth of financing also has made it difficult for Mr. Macklowe to sell the GM Building—especially since the initial asking price was more than $3 billion. Two sources say Boston Properties Chairman Mortimer Zuckerman is negotiating with Mr. Macklowe, with one putting the price tag at $2.8 billion. Mr. Macklowe’s spokesman declined to comment, and Mr. Zuckerman didn’t return a call.

-- Theresa Agovino is a Real Estate Reporter at Crain's New York Business

CRAIN'S DAILY UPDATE
CRAIN'S NEW YORK BUSINESS
COMMERCIAL LEASING TAKES A HIT IN THE FIRST QUARTER


http://www.crainsnewyork.com/apps/pbcs.dll/article?AID=/20080408/FREE/210866022

Economic uncertainty pushed Manhattan commercial leasing activity down 8% during the first quarter and drove office vacancy rates to their highest levels in a year, according to a report released Tuesday by Cushman & Wakefield.

The overall vacancy rate for the quarter rose to 6.1% from 5.7% at the end of 2007.

Leasing activity slowed as financial firms--traditionally Manhattan’s largest tenant group--sharply cut back on renting space as they take huge write-downs and lay off staff in the wake of the credit crisis. Banking and financial services firms accounted for 15.3% of leasing activity in the first quarter, down from 31% at the end of last year.

Overall, leasing fell to 5 million square feet during the quarter, down from 5.4 million a year earlier. The slowdown in March was particularly acute with activity dropping more than 57% from the same month a year ago, to 905,730 square feet.

Joseph Harbert, chief operating officer for Cushman & Wakefield’s New York Metro region, said he wouldn’t be surprised if leasing activity remains soft in the next few months as tenants hold back on making decisions as they wait to see if rents fall.

So far, that hasn’t happened. Cushman & Wakefield said that in the first quarter, overall rents jumped more than 25% to $67.13 a square foot from the year ago period. Mr. Harbert says even though the economy is weakening and overall vacancy rates are increasing, vacancies have not risen to the point where landlords feel compelled to lower their rents. However, he notes that they are giving more free rent and more generous construction allowances.

“There is more flexibility in doing a deal,” says Mr. Harbert.

-- Theresa Agovino is a Real Estate Reporter at Crain's New York Business

Copyright 2008 Crain's New York Business


SUBCONTRACT MAY NOT CONTAIN CONDITIONS PRECEDENT MORE STRINGENT THAN STATE FINANCE LAW § 137 01/11/2014
By: Brian J. Markowitz
More Info

CONTRACTOR CANNOT ENFORCE MECHANIC’S LIEN AGAINST LANDLORD’S INTEREST IN THE PROPERTY FOR WORK PERFORMED AT THE DIRECTION OF THE TENANT 01/06/2014
By: Brian J. Markowitz
More Info

K L E I N   &   S O L O M O N,  LLP

© Klein & Solomon, LLP
Attorney advertising notice . Search . Contact . Site Map . Web Site Disclaimer and Notice
Stretch Ink