Word of Mouth - Talk about the NYC Commercial Real Estate Market

It’s All About Greece

2012-01-26T10:01:00.000-08:00

Barbara Byrne Denham, Chief Economist

I recommend Greg David’s blog piece issued yesterday on New York City’s economy citing Eastern Consolidated’s recent Employment Alert. It is always good to review New York City’s statistics to understand how the city is doing. Our soon-to-be-issued Manhattan Economic Indicators carefully analyzes the fourth quarter data and provides commentary on what the statistics mean for the coming year.

I also recommend the New York Times recent article on how the International Monetary Fund is trimming its estimates for global growth. It covers a lot of bases on the state of the global economy.

The I.M.F. cut its growth forecasts for almost every region in the world. For Europe, the I.M.F. expects the region to contract by 0.1% instead of its earlier forecast of 1.4% growth, issued in September.

Its forecast for the United States did not change, but it did warn that American banks face exposure to the European debt crisis.

Much of the talk these days is about Europe and the current negotiations between Greece, its private lenders and the European Central Bank. Why does this news matter here in New York?

First, so little is moving in the market because of the uncertainty that a lack of resolution to this Greek debt has generated. The Greek government is due to pay 14.4 billion euros to bond holders in March, or it will default. Officials are trying to get the banks to agree to a 50% “haircut.” The ultimate agreement will have a significant impact on the banks and the ECB whether they agree to the cut or not. The impact from a default would be significant and right now the market believes that banks will agree to the 50% discount. But this effective write-down will hurt banks’ capital just as the last Basel III agreement is requiring banks to increase capital ratios. How this all will be resolved in the next two months is still anyone’s guess.

This is why Wall Street is quiet, why the office leasing market has stalled, why fewer large office buildings have traded and why financial service companies are shedding jobs: because the outlook in Europe is still so unclear.

It’s important to stay informed on this and many other economic-related topics as much beyond our five boroughs affects New York City’s economy.

Back to Work

2012-01-12T12:46:00.000-08:00

Barbara Byrne Denham, Chief Economist

What happened last quarter? Did everyone start their holiday in mid November? The volume of commercial property sales fell by more than 40% in the fourth quarter to $6.1 billion from $10.7 billion in the third quarter.

Nearly every property type outside of hospitality saw a decline, but the slowdown was most pronounced in multifamily and office property sales, both of which registered half the volume that was traded in the third quarter.

The lackluster fourth quarter results were indeed a casualty of the broader uncertainty from the European debt crisis that had escalated at the end of last summer. Combined with other tepid economic conditions in the U.S. economy, the lack of resolution in Europe put off investors for the short term.

The decline was primarily due to a lack of large transactions, the statistics clearly show that the small and mid-size deals are still trading. Moreover, little seems to suggest that this segment of the market will suffer in the near-term. Statistics on the U.S. economy are starting to improve (see future blogs), and New York City’s real estate market is still considered one of the safest investments in the world. Those who fear Europe may in fact shift their focus away from the continent and towards the U.S.

As per President, Daun Paris, “Our investors are still eager to buy in the current market despite the bad news from Europe –and maybe because of the conditions in Europe they are even more interested in buying in New York City. Still, we’re just not seeing as many large transactions as we had six months ago.”

It's the End of the Year: Time for an Outlook?

2011-12-15T12:11:00.000-08:00

Barbara Byrne Denham, Chief Economist

It is inevitable in my line of work to be asked what my forecast is for the coming year. People want to know where the economy is headed, and there are pronounced concerns given all of the uncertainty with Europe, the tepid U.S. economy, layoff announcements from Wall Street and the steady release of very mixed statistics overall -- some signs of progress but just as many disappointments.

I always hesitate when asked this question because every year there is always a great deal of uncertainty, both domestically and abroad. Is this year all that different from the last few?

Consider the number one concern last year: oil prices had spiked due to the tumultuous activity in Egypt and the Middle East. Doesn’t that seem like a long time ago? The second most significant worry was the earthquake in Japan: many feared that it would disrupt the flow of goods around the world which would affect both GDP and job growth. Both of these stories made headlines but had faded from view by mid-year.

Europe had not been as much of a concern at this point last year but now is the number one most pressing concern. Each week, the news from Europe flip-flops back and forth: will they come to an agreement to handle the overall debt crisis or will some countries abandon the Euro? It had looked like a 50-50 call a month ago, but some promising developments have been reported and it appears that while Europe will continue to lag the rest of the world, they will hopefully avoid the worst-case scenario of a default.

The U.S. economy definitely seems to be on more solid footing today than it was a year ago as employment growth has accelerated slightly, the debt crisis was avoided for the near term and consumption growth remains positive. Still, all of this growth is at very low rates and nothing suggests that this rate of growth will accelerate any time soon.

What does appear to be the chief concern locally is the outlook for Wall Street: banks have issued record low earnings reports for the last two quarters; most have announced layoff plans and a number are cutting back on real estate. New York City is beholden to Wall Street for much of its economy – its high-paying workforce spends the bulk of their earnings in the city for condos, private schools, charities and cultural institutions, retail and restaurants. More importantly, the wage earners contribute a significant share of tax revenues to the city. Everyone is forecasting that Wall Street firms will shed another 5,000 or more jobs, and wages including bonuses will drop proportionately.

This will have a significant impact on the local economy, but the rest of New York City’s industries should continue to add jobs so the net gain should remain positive for the year. Where will this growth come from?

Tourism remains strong. European travelers to New York will likely drop in 2012, but other countries that have stronger economies could make up for these losses. The U.S. is reportedly stepping up its tourism marketing efforts abroad which should have a disproportionately greater impact on New York than other U.S. locales.

Private education institutions continue to expand. A number of local universities have accelerated expansion plans in connection with the city’s call for bids on a new engineering campus on Roosevelt Island or in Brooklyn. Hopefully, these plans will yield at least some job growth next year.

Finally, technology-related industries are hiring aggressively, at least that is what a number of anecdotal reports have said. While my monthly jobs numbers have yet to show significant growth in these industries, a few firms such as Facebook, Twitter and Tumblr have leased or are looking to lease space, and it seems as if this industry moves in herds just as Wall Street does . So when Google bought its 1.8-million-square-foot city headquarters building last year and announced plans to expand, other firms seemed to have responded in kind.

Yes, everything seems to circle back to real estate. New York City has had its ups and downs, but businesses prefer to operate in New York City because of its real estate, its central location, its transportation infrastructure and its density of talent. Moreover, the recent property sales data has indicated that investors remain more eager to buy properties in New York, especially multifamily properties, than elsewhere because of the stability. With the stock market volatility as high as its been, this is not surprising . And foreigners especially have had more faith in New York and the dollar than nearly anywhere else in the world. Why should this change?

Therefore, my outlook remains positive. I do not anticipate much accelerated growth in the statistics, either in New York or the U.S. but the good news should certainly outweigh the bad in the next year.

Barbara Byrne Denham directs the Research Center at Eastern Consolidated and is the Editor of its three quarterly newsletters, The MetroGrid Report, Manhattan Economic Indicators, and the Manhattan Commercial Property Sales Report; the monthly NYC Employment Alert; as well as a series of Research Reports, all of which are regularly cited in the press.

How Far We’ve Come Since 9/11

2011-09-08T12:11:00.000-07:00

Barbara Byrne Denham, Chief Economist

On this important 10 year anniversary, it is important to reflect on so much that 9/11 wrought on our country – the loss of lives and our sense of security to name a few. We also like to remember the extraordinary heroism that emerged on that day.

But another ritual we like to take on anniversaries is to measure how far we’ve come and, in particular on the anniversary of 9/11, it is significant that we take note of all that was accomplished in the last 10 years.

On the economic and real estate front, recall the vast uncertainty that arose in the weeks following that sunny Tuesday when so many office workers who felt lucky to be alive were displaced from their work place. Many firms worked overtime to set up operations in hotels and made other contingency plans. The most memorable move was when Morgan Stanley sold its brand new building at 750 Seventh Avenue to Lehman Brothers and subsequently purchased the former Texaco Headquarters in Westchester County in order to decentralize its operations. Not for the first time (or the last), many worried that Wall Street firms would flee Manhattan.

However, the uncertainty settled quicker than most expected and the damaged buildings were repaired within months. Not only did the fear that businesses (and residents) would leave Manhattan fade rapidly but the desire to live and work in Manhattan soared.

Just to show how in demand Manhattan has been for residents, tourists, employers and even students, consider how much has been built since 9/11:

• We have added 42 new office buildings with another 10 underway or in late planning stages including the World Trade Center towers; these buildings have added 20.2 million square feet of space and the future buildings will add another 15.4 million square feet. This is a significant milestone as more than 16 million square feet of office space was destroyed on 9/11.

• We have added 427 new residential buildings with nearly 54.5 million square feet of housing. According to the Census Bureau, this new housing has added 48,950 housing units (since 2000).

• We have added 104 hotels including more than 16,000 hotel rooms.

• Moreover, Manhattan developers have purchased more than 1,000 development sites since 2001.

Eastern Consolidated, CoStar and Property Shark

And these don’t even include the renovated buildings.

Indeed, it will be a solemn weekend for sure, but we should find some solace in knowing how strong and dynamic our city has become in 10 years.

NYC vs. the World's Largest Cities

2011-07-06T14:38:00.000-07:00

Barbara Byrne Denham, Chief Economist

I often get swept up in all of the regional economic statistics every month trying to explain where the economy and real estate market is headed and neglect to consider where New York City stands as a global city.

Every now and then I thoroughly appreciate a more macro analysis of the New York City economy vis-à-vis the rest of the world. One of the best studies I’ve seen in years that compares New York to other large cities around the world was conducted by the New York City Partnership and PricewaterhouseCoopers. The study, “Cities of Opportunity 2011,” its fourth annual analysis, features the performance of 26 cities, all capitals of finance, commerce and culture.

The methodology was designed to maximize transparency and simplicity for readers. It uses publicly available data supported from global multilateral development organizations such as the World Bank, national statistics organizations and commercial data providers. A total of 66 variables were selected and divided into the following 10 indicator groups: intellectual capital and innovation; technology readiness; transportation and infrastructure; health, safety and security; sustainability; economic clout; ease of doing business; cost; demographics and livability, and finally, lifestyle assets (culture) which New York City scored the highest in along with technology readiness.

The surprising and impressive result of the study is that overall New York outranks all of the other cities on the above criteria with a slim edge over Toronto, San Francisco, Stockholm and Sydney.

Even more illuminating are the interviews from a series of experts including Rem Koolhaas, Judith Rodin and Mortimer Zuckerman. All are both complimentary and critical of New York and other cities but their perspectives from lifelong careers provide sound advice to any urban enthusiast. Check out the study on

http://www.pfnyc.org/reports/2011-Cities-of-Opportunity.PDF

Barbara Byrne Denham directs the Research Center at Eastern Consolidated and is the Editor of its two quarterly newsletters, The MetroGrid Report and Manhattan Economic Indicators, the monthly NYC Employment Alert, as well as a series of Research Reports, all of which are regularly cited in the press.

Census 2010: Bogus?

2011-05-31T12:22:00.000-07:00

Barbara Byrne Denham, Chief Economist

Much has been said about the extremely low 2010 Census population data for New York City. Just last week, the New York Times reported that the outcry on the very low population increase for much of Queens and Brooklyn was justified based on their own analysis in which they were able to invalidate the high vacancy rates that the Census takers found in numerous neighborhoods.

In order to put the decennial census numbers (showing a population growth of just 167,000 or 2.1%) in perspective, we compared the official decennial Census numbers with other aggregate statistics for New York City.

The graph below shows how the “official” 2010 Census number and derived growth compares to the annual “estimates” produced by the Census Bureau. These annual estimates take into account a number of statistics including births, deaths and net migration. This chart also shows the growth in the New York City labor force.

The labor force statistics are based on estimates produced by the Bureau of Labor statistics that are derived from the Current Population Survey (CPS), a sample survey of about 50,000 national households that provides comprehensive data on the labor force, the employed, and the unemployed. The Labor Department estimates the local labor force numbers using the CPS, employment statistics from the survey of employers (CES), and the unemployment insurance system. [More]

The Transformation of Chelsea

2011-05-09T11:39:00.001-07:00

Barbara Byrne Denham, Chief Economist

Few neighborhoods in Manhattan have undergone as complete a transformation as Chelsea has over the last decade. Starting in the mid 1990s, artists moved to Chelsea from SoHo. Foot traffic increased as did interest in the Meatpacking district and the opening of hip restaurants such as Pastis and high-end retail such as Stella McCartney. More recently, the re-development of the High Line spurred tremendous residential and hotel development in the area, the most notable of which was the Standard Hotel that opened in 2009. Finally, the opening of the Apple Store at West 14th Street and Ninth Avenue cemented the area as a high-end retail destination.

The commercial property sales market for Chelsea – West 14th Street to West 30th Street west of Avenue of the Americas – includes so many transactions for art galleries and related spaces that they become their own property type. And the results show that art-related space in Chelsea indeed carries a premium when compared to most other property types.

-Sales of arts-related spaces picked up in the second half of 2010.

-Retail property prices have stayed remarkably healthy.

-Development site sales in the first quarter of 2011 have already surpassed that of 2010.

-Hotel sales have been strong: prices paid in 2010 neared $1,000 per square foot.

-The volume of multifamily sales has grown in line with all of Manhattan in that they more than doubled in 2010.

-Chelsea’s office market is in a class of its own: vacancy rates have been lower than in Midtown and Downtown but prices paid have been comparable, at least judging by Google’s recent purchase of 111 Eighth Avenue.

[Read more]

Barbara Byrne Denham directs the Research Center at Eastern Consolidated and is the Editor of its two quarterly newsletters, The MetroGrid Report and Manhattan Economic Indicators, the monthly NYC Employment Alert, as well as a series of Research Reports, all of which are regularly cited in the press.

Building a Science and Research Facility in NYC

2011-03-03T10:45:00.000-08:00

Barbara Byrne Denham, Chief Economist

The Wall Street Journal recently ran an article on the city Economic Development Corporation’s appeal to recruit a “premier science and research facility and campus in the City of New York.” The supporting materials on EDC’s website provide a treasure trove of data and information highlighting why New York City serves as an ideal place to open such a facility, http://bit.ly/e5EnVF.

These highlights include the fact that New York City’s economy is outgrowing the rest of the U.S. – a fact that we have mentioned throughout this recover; that its estimated gross “city” product ranks it second internationally behind Tokyo and ahead of London, Shanghai and Mumbai; that the city provides access not only to deep pools of financing but to opportunities for collaboration with other universities and industries as well as to top existing talent with the ability to attract new talent.

It also mentions how New York faces stiffer competition from the global front on financing and innovation and how New York City’s science and engineering statistics rank it far behind San Francisco and Boston on measures such as R&D spending per capita of its top engineering programs and degrees granted. As per their presentation: “New York is relatively underweight in applied sciences, despite excellent existing institutions. A dramatic boost in the scale of applied sciences in New York has significant potential to reshape the economy. “

Anyone in real estate reading these materials understands the who, the what and the why of this discussion but fundamentally questions where the city suggests a prospective university would build a research center – a question the Wall Street Journal neglected to cover. The city’s proposed sites include Governors Island, the Naval Hospital in the Brooklyn Navy Yard, Farm Colony in Staten Island and the Goldwater Campus on Roosevelt Island. These sites each have their strong merits as well as their own unique drawbacks. Some of the drawbacks include obsolete and insufficient infrastructure and limited access to transportation. The supporting materials state that the city is willing to provide capital assistance to the prospective facility to help modernize the infrastructure.

Having worked on various economic development initiatives to attract talent to New York City, I have frequently witnessed how close the city has come to attracting viable education and institutional organizations willing to invest in New York City. But in nearly every case, the capital requirements were always prohibitive. I like to think this time the city has put its full faith and credit behind this effort. Let’s see if I’m right.

Barbara Byrne Denham directs the Research Center at Eastern Consolidated and is the Editor of its two quarterly newsletters, The MetroGrid Report and Manhattan Economic Indicators, the monthly NYC Employment Alert, as well as a series of Research Reports, all of which are regularly cited in the press.

December Employment Results Disappointing

2011-01-25T08:00:00.000-08:00

Barbara Byrne Denham, Chief Economist

New York City lost 16,600 jobs in December, all of which were in the private sector. This follows November's loss of 4,400 jobs revised upward from a loss of 7,600 jobs reported last month. December's negative results are consistent with last year that showed a sharp drop-off in December that was followed by a significant gain in January. We expect this pattern to repeat with the January numbers; that is, show a gain as December and January tend to produce the two most volatile months of data every year.

The industry with the biggest loss was membership organizations that shed 10,000 jobs. This category includes unions, religious and many non-profit organizations. In July 2010, this industry had posted an unexpected gain of 8,000 jobs. This month's change removes those added jobs and about 4,000 more. This volatility warrants further review. [Read more]

Barbara Byrne Denham directs the Research Center at Eastern Consolidated and is the Editor of its two quarterly newsletters, The MetroGrid Report and Manhattan Economic Indicators, the monthly NYC Employment Alert, as well as a series of Research Reports, all of which are regularly cited in the press.

Time to Breathe a Huge Sigh of Relief, or No?

2011-01-05T13:57:00.000-08:00

Barbara Byrne Denham, Chief Economist

When the holidays have passed, many of us breathe a huge sigh of relief as the pressure to get everything done has eased and life can go on as normal. That same sense of relief seems to be permeating the economy these days as the preliminary holiday sales reports suggest that sales increased 5.5% over last year. Another relief to the overall economic uncertainty that persisted in recent months was the passing of the $858 billion tax plan that extends the Bush tax cuts another two years. The bill serves as a second stimulus package as it extended unemployment benefits and granted a one-year payroll tax holiday. While the bill will definitely inflate the deficit over the next few years which could hurt the economy in the long run, it did alleviate considerable concern that the anemic economic growth of late would stall.

Uncertainty is never good for the economy as it precludes consumers from spending, investors from investing and lenders from lending. More clarity on the economy is always better than less, and with the passing of this recent tax bill most feel that the economy will “go on as normal” – at least in the short run.

Consumers are generally very short-sighted and are not likely to weigh the risk of the long-term impacts from the rising deficit into their spending decisions. They just know that their tax bill will be the same this year and next which will help them set their budgets. This is a good thing and could boost the overall economy, generating tax revenues to offset the swelling deficit. Like any debt, putting it off will delude many into thinking that it’s not their problem.

But eventually it will be. The Congressional Budget Office estimates that under different assumptions, the federal debt could rise to between 80 and 110 percent of GDP by 2025, up from 62% at the end of 2010. Not since the 1940s has federal debt exceeded 50% of GDP. The CBO’s recent report outlines the negative impact of heavy debt levels on the economy.

It is true that in two years things could look vastly different from today so why worry about it now. If shrouding the deficit is the federal government’s strategy, it certainly will help to increase the momentum in the economy, but this momentum would have to grow dramatically to restrain the debt levels that will grow with time.

Barbara Byrne Denham directs the Research Center at Eastern Consolidated and is the Editor of its two quarterly newsletters, The MetroGrid Report and Manhattan Economic Indicators, the monthly NYC Employment Alert, as well as a series of Research Reports, all of which are regularly cited in the press.

Upper Manhattan: The Quiet Market that Hums

2010-12-15T11:27:00.000-08:00

Barbara Byrne Denham, Chief Economist

Garnering the least amount of attention from the broader real estate realm, Upper Manhattan is the quiet market that hums. In fact, during the worst days of the recent financial crisis, property sales in Upper Manhattan did not suffer as heavily as the rest of Manhattan, particularly for multifamily properties.

This is not a surprise to the many investors who favor this area for its stable crop of buildings – most with rent regulated units that house residents who remain tenants longer than in more transient neighborhoods. As per Chairman and CEO Peter Hauspurg, “We have a number of clients who focus exclusively on Upper Manhattan due to its dependable stock of properties. We’re starting to see a lot more investor interest in this area as banks prefer to lend on properties with less turnover.”

The volume of development site sales soared from 2004 through 2008 but then quickly abated in 2009 and 2010. For the eight-year period analyzed, 78 development sites were sold totaling 2.1 million buildable square feet. A separate analysis listing all new multifamily buildings in Upper Manhattan shows that 40 new buildings have either been built since 2000 or are under construction in Northern Manhattan housing approximately 3,000 new units. [Read more]

Barbara Byrne Denham directs the Research Center at Eastern Consolidated and is the Editor of its two quarterly newsletters, The MetroGrid Report and Manhattan Economic Indicators, the monthly NYC Employment Alert, as well as a series of Research Reports, all of which are often cited in the press.

How Public School Test Scores Impact New York City’s Real Estate Values

2010-12-09T13:50:00.000-08:00

Barbara Byrne Denham, Chief Economist

Anyone who lives in New York City knows that neighborhoods with good elementary schools command higher real estate values. Quantifying this relationship has never been easy, but with the recent abundance of test score data, the impact on real estate prices from higher test scores can be determined and the results are compelling.

Eastern Consolidated compared the average prices for multifamily properties sold in 2009 and 2010 for Manhattan, Brooklyn and Queens to average test scores for elementary grades 3rd through 5th for both years. Both the average test score data, from the New York City Department of Education, and the multifamily sales data were averaged by zip code. The prices of multifamily properties were used because these prices are directly related to the properties’ rent rolls and serve as an accurate measure of property value.

The results by neighborhood showed that most neighborhoods that had high test scores also had high property values such as the Upper East Side (10021, 10028), the West Village (10014, 10011) and Greenwich Village (10013). Still, there were a number of surprises: in a number of neighborhoods, test scores were higher than average when property prices were lower, or the reverse: test scores were low when property prices were high. [Read more]

Barbara Byrne Denham directs the Research Center at Eastern Consolidated and is the Editor of its two quarterly newsletters, The MetroGrid Report and Manhattan Economic Indicators, the monthly NYC Employment Alert, as well as a series of Research Reports, all of which are often cited in the press.

New York City's Economy is Finally Out of the Woods

2010-10-28T14:13:00.000-07:00

Barbara Byrne Denham, Chief Economist

The recent economic indicators continued to shed a favorable light on New York City's economy as commercial sales volume grew steadily, employment growth outpaced the U.S. and office rents turned the corner. No one is sounding the trumpets yet, but all indications suggest that New York City's economy is truly out of the woods.

While there remains much uncertainty stemming from the upcoming elections, the likely expiration of lower tax rates, pending financial reforms and higher health insurance costs, New York's economy should withstand these potential headwinds and continue to add jobs through the remainder of 2010 and beyond. The stock market has surged since the end of the summer which has spurred some optimism, especially in the real estate market. But it should do little in the way of job growth for the securities industry which continues to trail the rest of the city's economy.

In sum, the statistics tell a mixed story of modest growth in many parts of the economy tempered with stagnancy in a few others.

Prices Hold Steady in Manhattan's Village

2010-10-18T13:09:00.000-07:00

Barbara Byrne Denham, Chief Economist

Few neighborhoods have earned a simpler moniker than "The Village" nor a more recognizable one. Given its legacy as being one of the most desirable places to live, work and go to school; the Village's commercial real estate market saw prices soar over the last 10 years. Even in 2008 prices barely corrected, although, indeed, volume plummeted.

This year, however, transactions have picked up quite a bit while prices have held steady. According to Peter Hauspurg, Chairman and CEO, "Selling a property in the Village is one of our easiest assignments given the investor interest in this area. If one of the traditional real estate families isn't the highest bidder of a Village property, it is likely that a university or other institution is."

The sales trend line for development sites shows an upward trajectory for the average price paid per buildable square foot from 2003 through 2008. This is not surprising. However, not one transaction closed between July 2008 and December 2009. Remarkably, there have been two development site sales in the Village this year including the $55-million sale of 122 West 12th Street ($588 per buildable square foot) part of St. Vincent’s hospital, to Rudin Management, and a small parcel on 427 East 12 Street. Read on

The Federal Reserve's Beige Report

2010-10-05T08:23:00.000-07:00

Barbara Byrne Denham, Chief Economist

Of all the publications I read as a part of my job, the one report that gives me some very good insight is The Beige Report published by the Federal Reserve.

Quite aptly named, this report is written in a style that is both dry and colorless with no bullets, charts or tables. Yet it provides news for various industries based on contacts in the field. The Beige Book for New York, issued on September 8th, contains a number of anecdotes from this past summer that are worth sharing. The overall theme seems to be that things are improving but ever so slightly:

A city employment agency reported that market conditions appear to be improving gradually, conditions were not as dire as last summer.

Local banks reported decreased demand for consumer loans and commercial mortgages, and steady demand for commercial and industrial loans. Demand for residential mortgages picked up, but likely due to refinancing. Credit standards have tightened for all categories--particularly in commercial mortgages. However, the spread in rates over the cost of funds has narrowed.

Office vacancy rates increased modestly in Manhattan while rents were little changed.
Non-auto retailers reported that comparable-store sales were 2-3 percent ahead of a year earlier. But there has been a particularly pronounced slow-down at New York City stores.

Tourism activity in New York City was strong. Manhattan hotels reported occupancy rates of 90 percent in the summer despite a rise of 5 percent in the number of hotel rooms. Room rates were 10-15 percent higher than last year. Business travel accounted for a growing share of revenues. Broadway theater attendance has been brisk.

Manhattan's residential rental market showed signs of stabilizing. Rents climbed slightly and landlord concessions have declined. The volume of new housing units will continue to climb with the addition of new developments. The city’s co-op and condo sales market slowed over the summer more than the seasonal norm and prices were flat.

While some of the above anecdotes contradict the recent city employment statistics – especially in retail – they at least provide a good balance to them.

Barbara Byrne Denham directs the Research Center at Eastern Consolidated and is the Editor of its two quarterly newsletters, The MetroGrid Report and Manhattan Economic Indicators, the monthly NYC Employment Alert, as well as a series of Research Reports, all of which are often cited in the press.

New York City Shows Continued Evidence of Healthy Economy

2010-09-28T07:08:00.000-07:00

Barbara Byrne Denham, Chief Economist

Showing continued evidence of its healthy economy, New York City added 5,500 jobs in August. The city's private sector added 6,500 jobs while the public sector lost 900 jobs (the difference was due to rounding). These results follow the strong 27,200-private-sector-job growth in July.

Two industries captured the lion's share of the gains in August: retail added 3,600 jobs and construction added 1,700 new jobs. These gains illustrate the strength of the city's economy compared to the national economy. In August, national retailers shed 4,900 jobs. Construction added 19,000 jobs in the U.S. in August, but the industry had lost more than 100,000 jobs, nationally, in 2010 prior to August.

Elsewhere, both private education and hotels added 1,100 jobs and accounting added 1,000 jobs. Offsetting these, the health services industry lost 1,100 jobs in August and membership organizations lost 1,700 jobs after adding a fluke 7,600 jobs in July.

[Read more]

Barbara Byrne Denham directs the Research Center at Eastern Consolidated and is the Editor of its two quarterly newsletters, The MetroGrid Report and Manhattan Economic Indicators, the monthly NYC Employment Alert, as well as a series of Research Reports, all of which are often cited in the press.

New York City's Economy Shows Continued Progress

2010-08-04T11:48:00.000-07:00

Barbara Byrne Denham, Chief Economist

New York City's economy showed continued progress in the second quarter as commercial property transaction volume increased, jobs were added and office availability declined somewhat.

New York City survived two significant milestones in the second quarter. First, the jump in the volume of distressed properties that was forecasted to occur this quarter did not come to pass. More distressed properties did come on the market than in past quarters but much less than was expected. Second, financial regulatory reform was passed (just after the close of the quarter) and the market's tepid response to the proposed legislation suggests that Wall Street will not have to face the harshest restrictions.

These milestones reinforce the sentiment that the worst of the city's economic news is in the past. However, the modest size of the upticks in the last few quarters suggests that the market has yet to shake off the overhang from the last recession.

[Read more]

Barbara Byrne Denham directs the Research Center at Eastern Consolidated and is the Editor of its two quarterly newsletters, The MetroGrid Report and Manhattan Economic Indicators, the monthly NYC Employment Alert, as well as a series of Research Reports, all of which are often cited in the press.

The Times They Are A-Changin'

2010-06-17T13:11:00.000-07:00

Marcia Yawitz, Senior Director and Principal

Smiles are once more beginning to appear on the faces of Commercial Brokers as the market has shown a definite upswing from the disastrous 2009. Although the levels of financing have not and probably will not reach those of 2007, banks are once again financing deals. With many of the mortgages written in the heyday of the market beginning to come due in 2011 and 2012, sellers are being realistic that their mortgages may not be refinancable at the same LTV.

Buyers on the other hand have been sitting on the sidelines with cash in hand waiting for the bottom and for the opportunity to “steal” a building. But with such low returns on their cash, they are looking to come back into the market which has been slowly coming back up.

Lending institutions are now selling their performing and non-performing loans, and though the foreclosure procedure and the eventual obtaining of a deed can take as long as two years, purchasers are willing to take the risk knowing that they are obtaining a property which is priced under market and will eventually have the upside they require.

We believe that the opportunity to buy is now and this is justified by the increase in the volume of sales we are experiencing.

Marcia Rose Yawitz is a veteran real estate professional with over thirty years of experience. In her ten years at Eastern, she has sold apartment, office and loft buildings as well as development sites, shopping and strip centers totaling approximately $1 billion in sales. [Read more]

The Foreclosure Process: Part I

2010-06-07T13:11:00.000-07:00

David Schechtman, Senior Director and Principal

Foreclosure is governed in New York not by common law, but by statutory law. You’re dealing with Article 13 of a codified section of law. It is wildly complex. Commercial foreclosures and residential foreclosures are very different. Most states are a deed of trust state. New York is one of ten states that is a mortgage state, one of the worst possible states for lenders to get the keys to buildings. And these days people are asking ‘how long will it take me to foreclose on this building?’ The answer before 2005 was generally 12 to 18 months. Given the sheer volume in the courts and several revisions to the bankruptcy code which make that a probable detour, you’re looking at 24 to 30 months. And that’s the same for a $3 million walkup on St. Marks or a $250 million syndicated or secured mortgage on Park Avenue. Even the securitized mortgages that we’re reading about, in order to get the keys, the mortgagees still have to follow the process. Everything is done according to New York State law.

What is a lis pendens? A suit is pending. It generally means there’s some event of default that a lienor can attach to the building. Very often it will be the mortgagee who will be the lendor who has not been paid. It’s a legal claim which says that this piece of property cannot be transferred or if it is transferred it’s still subject to this “boot,” this hindrance. Lis pendens gives us wind of the fact that there’s a problem.

What is a foreclosure? A lendor seeks to be made whole—it is not necessarily about wanting the building back. It’s a way for the lendor to get all their money back. When lenders give somebody, for example, $10 million to buy a 6 cap, and that 6 cap turns into a 4 cap, it’s belly up. The $12 million purchase with a $10 million loan, that loan is completely in default now. That lendor doesn’t necessarily want to own two beautiful 25-footers on Spring Street. What they really want is to be made whole. And the law and the scales of equity are saying foreclosure is a remedy by which a lendor can get all of its money back.

So how does the bank protect itself? The first step the lendor will look at monetary default to protect itself. We haven’t been paid for 30 or 60 or 90 days. That allows you to accelerate your loan, file a complaint and commence a foreclosure law suit in the New York State Supreme Court. But there are actually steps before that where a lendor can say “I’ve been paid, but as part of our mortgage document, because it was such a risky deal at a 4 cap and we lent them $10 million these people promised us to keep cash reserves, or these people promised us that the income would get to a certain level they would have certain tenants out or they would fulfill other covenants and they haven’t done it. So the bank says we smell trouble, the federal regulators have looked at us, half the brokers in this city are calling us saying we want to buy your loan we hear half the building is vacant, we better start protecting ourselves. They look for a technical default. Any other breach of a material convenant in the mortgage document, meaning cash reserves, tenancy has gone done, too many violations on the buildings, etc.

David Schechtman is the Senior Director of Eastern Consolidated’s Turnaround and Distressed Group. Focusing a large portion of his business on working with the owners of distressed entities and their attorneys and advisors in maximizing the value of their real property, Mr. Schechtman has enjoyed considerable success in the disposition, sale/leaseback and recapitalization of distressed real estate assets. He has completed more than $1.5 billion of transactions. [Read more]

NYC Growing Faster than U.S. in Current Economy

2010-05-24T10:14:00.000-07:00

Barbara Byrne Denham, Chief Economist

Demonstrating the underlying strength of its economy, New York City added 15,700 jobs in April and has added 53,500 in the first four months of the year. New York not only lost fewer jobs in the last recession but it is growing faster than the U.S. in the current recovery.

This is remarkable given how the collapse of Lehman
Brothers in September 2008 froze markets around the
world prompting many to presume that New York’s
economy would suffer more than the rest of the U.S.

The federal government sector added 3,800 jobs in
April, all of which likely are temporary census workers.
Other gains in April were concentrated in construction
(+2,600 jobs), retail trade (+1,400), legal (+1,300) and
health services (+1,200). While some of the growth
in April may have been weather-induced, it is pretty
safe to say at this point that the streak of job losses
bottomed in December 2009 at a cumulative 184,500
jobs, with 168,400 in the private sector.
Only a few industries suffered losses in April, including
fi lm and sound recording, apparel manufacturing,
computer systems design and employment services.
The securities industry added 500 jobs and commercial
banking added 700.

April’s numbers following March’s strong showing does
not necessarily prove that the City’s job losses have
come to an end. Health services is still poised to lose
jobs given the closing of St. Vincent’s Hospital. Also,
the recent announcement that Law and Order may
end its series in New York City could have a steep
impact on the City’s fi lm and broadcasting industries as
well as catering and other ancillary industries. Finally,
Pfi zer recently announced that it planned to shed jobs,
although it was not clear that any of its cuts would
be New York City-based. Still, it is unlikely that these
announced losses will erase the 53,500 jobs added in
the last four months. [More]

Current Data Shows Promise

2010-04-29T09:09:00.000-07:00

Barbara Byrne Denham, Chief Economist

Spring is in the air and so is optimism. Even before the Labor Department reported positive job growth for March, the momentum seemed to have shifted in a positive direction in the first quarter. Optimism is a powerful force in the economy: it tends to follow the law of self-fulfilling prophecies. If enough people think that the worst is over, they will consume more, hire more and generally take on more risk which in turn will fuel growth. While it takes some time for the statistics to register this growth, the current data shows some promise, particularly in commercial real estate sales where volume has indeed increased by 63% in the quarter. New York City's employment growth was also positive in the first quarter, adding 37,100 jobs. Finally, Manhattan office availability rate fell to 13.4% from 13.7% at the end of 2010.

Property Sales Volume

The Manhattan commercial property sales market showed considerable improvement in the first quarter. The total volume for the quarter was $2.35 billion, up from $1.4 billion and $1.5 billion in the last two quarters of 2009.Though volume is still way off that of 2006 and 2007, it is more in line with that of 2001 and 2002 when volume averaged $10 billion annually.

New York City Employment

New York City added 37,100 jobs in the first quarter including 14,000 jobs in March. The table below shows the industries that captured the highest share of growth. Some of the added jobs were induced by the warmer weather in March, which means these gains may be temporary. But the gains in accounting, film and computer system design look more permanent. Even manufacturing and banking added jobs in the quarter. Far more industries posted gains in the quarter then losses. Nevertheless, some did have losses.

Office Market

More than 1.1 million square feet of sublease space was removed from Manhattan's office market in the first quarter. Because sublease space is added or removed from the market by individual tenants outside of their scheduled lease expirations, changes in sublease space availability can be a significant indicator of how firms feel about future space needs. Hence this recent drop bodes well for the near future. Indeed, this second quarterly drop in sublease availability was spread quite evenly across Manhattan. [Read more]

Barbara Byrne Denham directs the Research Center at Eastern Consolidated and is the Editor of its two quarterly newsletters, The MetroGrid Report and Manhattan Economic Indicators, the monthly NYC Employment Alert, as well as a series of Research Reports, all of which are often cited in the press.

New Momentum in the Market

2010-03-16T07:05:00.000-07:00

Eric. M. Anton, Executive Managing Director and Principal

Spring has sprung and the thoughts of young men and young women in the New York marketplace turn to…………Actually working on deals.

Amazing as it seems, there is a new sexy spring life to the market that seems to be very real. Unlike the well wishes and hopeful thoughts and painful reality of 2009, 2010 is starting out with real momentum. At Eastern Consolidated, we have closed a few large scale deals that seemed like distant memories way back in December of 2009. More sizable transactions now seem not only possible but quite frankly probable.

Just last week my partner Ron Solarz and I closed on a large scale development site of 88,000 FAR for approximately $390 psf on the NW corner of 56th Street and Lexington Avenue; and we were also able to get a deal into contract for a 200,000 sq ft development site in the 30’s on the Westside. The transaction should close this summer. The general feeling now is that lenders, funds and private sellers realize that the market is neither falling off a cliff, nor about to zoom up in the foreseeable future to the lofty heights of early 2007. Therefore, it’s time to roll up all our collective sleeves and make smart deals, that enhance the value of existing assets, rather than simply hope and pray for a bailout or an eccentric billionaire showing up to save the day.

More soon……

Eric M. Anton joined Eastern Consolidated a decade ago and has since established himself as one of the premier Investment Sales professionals in the country by successfully completing over $4 billion of real estate transactions. [Read more]

About Midtown East

2010-03-01T10:24:00.000-08:00

Barbara Byrne Denham, Chief Economist

The Midtown East submarket contains some of the most expensive real estate properties in the world. Buildings along Fifth Avenue to Sutton Place from 34th to 60th Streets house premier retailers, five-star hotels, prime office tenants including most hedge funds and a diversity of residents from around the world.

The commercial sales market analysis profiled below shows that the Midtown East office sales market took a particularly hard hit between 2007 and 2009, but the market for multifamily buildings and even development sites showed less of a correction due to the stability of the neighborhood’s prime occupants: the international community surrounding the United Nations. Not only does the diplomatic community largely prefer to live close to their place of work, but the recent data reveals how foreign governments have been active real estate buyers, even in 2009.

According to Eastern Consolidated Chairman and CEO, Peter Hauspurg, "In 30 years of business, I’ve never seen the office market as quiet as it was in 2009, but still, New York remains a strong draw for the international community and no other neighborhood highlights this fact better than the East 40s and 50s." [Read more]

Barbara Byrne Denham directs the Research Center at Eastern Consolidated and is the Editor of its two quarterly newsletters, The MetroGrid Report and Manhattan Economic Indicators, the monthly NYC Employment Alert, as well as a series of Research Reports, all of which are often cited in the press.

Harlem Update

2010-02-03T11:56:00.000-08:00

Marcia Yawitz, Senior Director and Principal

Most of the newly constructed buildings in Harlem which were converted to condominiums in the past few years experienced great success. One of the major reasons was the pricing structure which attracted purchasers of the units to the area. The units were primarily purchased to be occupied by users as opposed to investors who, in many other areas of the city, intended to “flip” the units. Harlem, with its excellent transportation access, has experienced a rebirth with the purchase and renovation of existing townhouses, new construction and renovation of existing buildings as well as the development of major retail sites.

However, that being said, Harlem has not escaped the repercussions of today’s economic downturn. Newly constructed buildings or those currently in construction are now being offered as rental instead of as condominiums. The question is how many units will be able to be absorbed and at what rental rates. Buildings with free market rental units are now offering both concessions as well as lower renewal rates, rather than having the units remain vacant.

Unfortunately, as evidenced by past history, it is the properties in less desirous areas which suffer the most. Will this happen in Harlem only remains to be seen if these properties remain vacant or under tenanted. On the other hand, the older rent regulated properties continue to sell and banks continue to finance them because of their guaranteed income flow.

Marcia Rose Yawitz is a veteran real estate professional with over 30 years of experience. In her ten years at Eastern, she has sold apartment, office and loft buildings as well as development sites, shopping and strip centers totaling approximately $1 billion in sales.

Outlook for 2010 Brighter but Still Unclear

2010-01-20T08:32:00.000-08:00

Barbara Byrne Denham, Chief Economist

Now that 2009 is in the rearview mirror, many analysts are declaring that the worst is over. That could be true: 2010 could hardly be worse than 2009, but just because we have crossed the threshold of the year (and the decade) does not indicate that the economy is on the upswing. The statistics herein paint a rather bleak picture: commercial sales volume held steady at the anemic pace recorded in previous quarters, job losses increased, the office availability rate was little changed in the quarter but the average asking rate plummeted by $10 per square foot.

There is contrasting evidence that the economy may see the bottom soon; Wall Street profits were strong in the second half of the year and the City's tourism industry had a banner holiday season. Still, whether these bright spots will have enough of an impact on the rest of the City's economy to restore job growth remains unclear.

The 2009 Manhattan commercial property sales market ended only slightly better than it started. Preliminary estimates show that total volume for the year was $5.7 billion, down from $23.6 billion in 2008 and $62.8 billion in 2007. In 2001 and 2002, Manhattan commercial sales volume averaged $10 billion annually.

New York City's job losses accelerated at the end of 2009 after holding steady through the summer. In October and November 2009 (the last month available) the City lost a total of nearly 30,000 jobs putting the aggregate loss for the current recession at 139,600 jobs or 3.7%. As bad as this looks, the loss compares favorably to the losses at the national level: 7.2 million or 5.2%.

The only good news in the office market at the end of 2009 was that available sublease space declined by nearly 1 million square feet to 16.2 million square feet. The overall availability rate, however, increased by almost as much. At the end of the year, the Manhattan availability rate was 13.7% up from 13.6% at the end of the third quarter. Midtown's availability rate climbed to 14.6% from 14.3% at the end of the third quarter. [Read more]

Barbara Byrne Denham directs the Research Center at Eastern Consolidated and is the Editor of its two quarterly newsletters, The MetroGrid Report and Manhattan Economic Indicators, the monthly NYC Employment Alert, as well as a series of Research Reports, all of which are often cited in the press.

A Look at the Manhattan Hospitality Marketplace

2010-01-07T13:17:00.000-08:00

Alan P. Miller, Senior Director and Principal

As I witnessed the countdown of the final two months of calendar year 2009 there was promise in the air for the new year 2010.

Personally, I cannot make le$$ money in 2010 than the previous 12 months so there is tremendous upside on the income side of the equation for me as well as many industry colleagues in the same field of work.

While 2009 was really challenging in the investment sales domain, I am sure that it had been as trying a year for any individual involved in the hospitality industry whether employed by a hotel company or reliant on the performance of a hospitality project even in one of the planet’s top hotel markets such as New York City.

I have resided in Times Square, NYC, for the past decade. Being entrenched and surrounded by existing hotels and brand new hospitality projects gives me a bit of a skewed view on the state of affairs here.

I live adjacent to The Hilton Garden Inn Times Square and just west of the Crown Plaza Hotel. Directly across the street I witnessed recently the re-branding and post-renovation launch of the President Hotel, complete with gorgeous new lobby and interiors inspired by past heads of the United States as a theme.

What is key to a hotel’s performance is not the ADRs (Average Daily Rate) or occupancy levels, but RevPAR, which is a formula based on the two ingredients and stands for Revenue Per Available Room.

In the past, if a hotel was running at 85% occupancy with ADRs of $350+/night, the hotel enjoyed good profit margins.

2008 was not the best year in real estate as a whole, considering that a recession had already started in 2007, various financial firm meltdowns began to occur (BTW, Madoff became a household term yet 99%+ of the general population never knew of this scoundrel prior to his admission of culpability), however, it was the BEST year in recorded history for the NYC hospitality marketplace as a whole!

There was financing available to improve existing rundown hotels as well as a plethora of lenders for newly built or conceived hotel developments as late as 2007, yet the well ran dry and the markets became less liquid in 2008, albeit still the strongest year as far as ADRs and occupancy rates are concerned.

Turn the corner to 2009 and hotel real estate was worth 50% of its peak value at best and hoteliers saw their hotels only booked at 50%.

While each day I walk out into Times Square amid a sea of people, the weakened dollar has kept tourists flocking to NYC as they are able to secure bookings cheaper and shop at a discount in the best retail market in the world.

Trying to maintain hotels so that they continue to fill up and owners can pay their debt service will be a challenge in 2010 as we are probably in for more of the same as 2009. Until banks figure out which over-leveraged lodging properties to take back through foreclosure or choose to restructure the existing high levels of debt on NYC hotel properties with the current owners, I do not think that anyone can predict when we will be back on track to healthy occupancy levels and uncompromised service levels that the Big Apple tourist residences are accustomed to.

Alan P. Miller, an Eastern Consolidated "Broker of the Year", has been involved in New York City real estate for twenty-four years and has been involved in the sale of development sites, hotels, residential conversions, commercial loft buildings, parking facilities, outdoor signage, Transferable Development Rights, 421-a Tax Certificates, as well as Inclusionary Bonus Air Rights.

The Opportunity in Environmental Asset Developments

2009-12-16T11:59:00.000-08:00

R. Stuart Gross, Executive Managing Director and Principal

There is an exciting and lucrative business in eco-asset development. Eastern Consolidated is the financial advisor to the premiere eco-asset development firm on the East Coast – GreenVest. Eastern has raised over $5 million of capital for GreenVest development projects, over 7 years, generating outstanding returns (over 30% IRR) for the investors. Eastern is currently raising $1.4 million for GreenVest for its latest “wetland mitigation” project in Pleasantville, New Jersey, where projected returns are north of 50% IRR.

GreenVest earns outstanding risk adjusted returns in projects which remediate impaired land by providing wetland mitigation “credits” which are sold to public and private sector buyers. These buyers have an obligation to restore impacted wetlands from their development activity. This may be private sector development or it may be infrastructure such as roadways.

The credits arise from the creation of wetlands and species habitat, restoration of streams, extraction of nutrients, etc. The costs associated with these projects are a fraction of the revenue derived, owing to the market for these “credits”. This market also includes manufacturers who must remediate prior damage to the water quality system, as enforced under the relevant federal and state statutes.

GreenVest has a 10 year track record of generating significant profit from the eco-asset projects that have been undertaken. $9 Million of eco asset credits have been sold in three states and 4 Brownfield redevelopment projects have been completed involving over 232,000 square feet of space on a total of 197 acres. The primary geographic focus is in the states of New Jersey, Pennsylvania and North Carolina – all states with significant environmental impact and statutory mechanism to mitigate. For more information and a prospectus contact R. Stuart Gross at sgross@easternconsolidated.com.

R. Stuart Gross, an Eastern Consolidated principal since 2002, is a veteran real estate professional with twenty-nine years of experience in acquisitions, development and asset management.Read more

New York's Job Losses Accelerating

2009-11-24T08:03:00.000-08:00

Barbara Byrne Denham, Chief Economist

New York City lost 15,600 jobs in October. The private sector lost 12,800 jobs, and the public sector lost 2,700 jobs in October. While previous months’ data have had a lot of “noise” due to seasonal adjustment aberrations as well as a temporary surge in summer employment, these job numbers look legitimate. That said, October’s losses were the highest since December 2008 (not including the anomaly of September when most of this “noise” was apparent).

The losses in October were spread across a number of industries including construction (-2,900), securities (-1,700), restaurants (-1,300) and retail trade (-1,200). In addition, the industry classified as “other services” lost 2,000 jobs in October. This industry includes repair shops and dry cleaners which suggests that a number of mom-and-pop businesses suffered in October. A closer look at the data shows that this category has lost 3,300 jobs since the peak of 2008, or 5.4%.

The City’s cumulative loss now stands at 125,300 jobs (-3.3%), nearly all of which were in the private sector. With these results, New York’s jobs losses appear to be accelerating as the U.S. losses are decelerating. The U.S. cumulative loss is 7.3 million jobs (-5.3%), with 7.4 million private sector lost jobs (-6.4%).

Barbara Byrne Denham directs the Research Center at Eastern Consolidated and is the Editor of its two quarterly newsletters, The MetroGrid Report and Manhattan Economic Indicators, the monthly NYC Employment Alert, as well as a series of Research Reports, all of which are often cited in the press.

How to Play the Demographic Hedge

2009-11-05T05:54:00.000-08:00

Ben Tapper, Director

According to the U.S. Census Bureau, in July 2008 the U.S. population was 304,000,000. Of the total population, there were over 72,500,000 people 55 years of age or older. The largest single 10-year age grouping was for those aged 45 to 54 years, which included more than 44,000,000 people.

According to the Center for Disease Control, the average life span for Americans today is almost 78 years. At the start of WWII, the average life span was 63 years, and at the end of WWI, it was under 56 years. Since the end of WWII, the U.S. population has grown by no less than 20,000,000 people every decade, thanks in large part to the “Baby Boomer” population.

In combination, these numbers show that there are a lot more of us, and we are living significantly longer. Some of this is due to a shift in our careers, eating habits, and understanding of human biology. However, a large factor has been the advancement of medicine, and the diagnosing and treating of illnesses.

What does all of this mean for real estate investors? While a number of asset classes are experiencing distress, there are still certain segments that have retained their value, and even shown appreciation over the past few years. One of those major asset classes is medical office properties.
Medical office space, especially properties that function as patient treatment facilities and/or lab facilities, has seen more stability over the past few years than most other property types. Major reasons for that stability include the increased amount of people in need of medical care, and the more than 20 additional years of life we have added in the last century. As the population and lifespan continue to grow, in no small part thanks to a continually advancing field of research, there will be an ongoing demand for physicians and researchers. These individuals and companies will need space for labs and patient treatment, providing long-term stability not seen in other office asset classes or retail.

Ben Tapper joined Eastern after spending numerous years in technology sales and consulting, where he worked with both domestic and international organizations. He focuses his efforts on Eastern’s new 1031 exchange practice area and medical office properties.

Distressed Loan Opportunities

2009-11-02T12:39:00.000-08:00

Ann Zeller, Chief Marketing Officer and Principal

The panel, “Distressed Loan Opportunities” at the recent Real Share Conference New York sponsored by Eastern Consolidated, was moderated by Eric Michael Anton, a 20-year veteran of the brokerage and development business. The panel focused on the specific needs and motivations of banks and the investors that are hoping to profit from the market dislocations of the past 18 months. Panelists included John Wilcox of Savills PLC, Robert Knakal of Massey Knakal, Keving Salmon of Salmon and Marshall, Peter Von Der Ahe of Marcus & Millichap and Michael Campbell of the Carlton Group.

Most panelists agreed that the current opportunities are being closely evaluated by foreign investors in a similar fashion to the situation that occurred in the late 1980’s, though many of these investors still have not acclimated to NY and are not quite ready to pull the trigger on their first transaction. The general feeling is that by the middle of 2010, there will be more transaction activity, and that lenders will be motivated, or pressured by the Federal Government to sell down positions in distressed real estate. Clearly the magnitude of the distressed debt will be a source of business for buyers and brokers in the coming months, and as always, real world experience in the complex New York market was felt to be the most important attribute that brokers bring to bear in advising their clients.

Stuy Town Ruling Benefits Attorneys

2009-10-26T13:35:00.000-07:00

Marcia Rose Yawitz, Senior Director and Principal

The misguided State Supreme Court ruling on Stuyvesant Town and Peter Cooper Village will only serve to continue to deflate and devalue our current real estate market. The court held that rent regulated apartments in buildings which receive J-51 program abatements, are not subject to deregulation under the rules of “luxury deregulation”. Not only will this ruling affect those two properties and many other large rental properties, but it will have dire financial consequences for the owners of small and midsized portfolios in the outer boroughs. I anticipate that many tenants will file suits to have their rents reduced retroactively, for these small owners prolonged summary proceedings may threaten the financial viability of their properties. In the current fiscal climate where residential rents are being reduced in order to maintain full tenancy and expenses have escalated, it is difficult for these owners to survive. The City will also suffer as more and more owners file certiorari proceedings to reduce their assessments based upon a reduction in their annual property income.

Thirty-five years ago these rent laws were described as “impenetrable thicket confusing not only to laymen but to lawyers”. The only ones who will really benefit from this decision will be the attorneys representing tenants who believe that they are entitled to rollbacks and to attorneys representing landlords who have to defend these suits, many of which will be frivolous.

Over the years, DHCR and other governmental agencies have endorsed the legalization of rents for years. These agencies created the rules for vacancy decontrol in addition to tax benefits received from J-51 and 421A programs. The redefining of these guidelines will most likely result in a decrease in property values and an increase in foreclosures. Unfortunately, this decision by the Court is final and there is no appeal available.

Marcia Rose Yawitz is a veteran real estate professional with over 30 years of experience. In her ten years at Eastern, she has sold apartment, office and loft buildings as well as development sites, shopping and strip centers totaling approximately $1 billion in sales.

Lower Manhattan's Highs and Lows Go to Extremes

2009-10-22T12:29:00.000-07:00

Barbara Byrne Denham, Chief Economist

Few Manhattan submarkets have seen the dramatic highs and lows over last few years like Lower Manhattan. The area’s commercial real estate values took years to recover from 9/11. But by 2005, investors returned to the area, prices started to accelerate and retailers moved in. But when the City’s economy froze in September 2008 after Lehman Brothers went under, the impact on Lower Manhattan was severe due to its close ties to the industry.

With its old industrial inventory, Lower Manhattan conversions sales were included alongside ground-up development site sales. This resulted in a sharp climb in price per square foot for these sales. It is likely that the conversion investment prices were higher over the last 10 years because the core and shell of the buildings were already intact. While the volume of development site sales held steady in 2006 and 2007 with steady price increases, no development site sale has closed since mid 2008.

Given its inventory of 100 million square feet, it is no surprise that in the peak year of 2007, 24 office buildings traded hands. Activity dropped off significantly in 2008 to eight building sales followed by one lone sale in 2009: 70 Pine Street with 72 Wall Street as a package sold for $150 million or $145 per square foot. The average price per square foot topped out at $490 per square foot in 2007 and fell slightly to $470 per square foot in 2008.

The Lower Manhattan multifamily sales were heavily influenced by three transactions: the 2007 data is weighted by 2 Monroe Street for $155 million; the 2005 data is weighted by the $87-million sale of 88 Greenwich Street and the 2003 data is weighted by 310 Greenwich Street ($156 million). The average price per square foot held steady from 2007 through 2009 at $330 to $360 per square foot. In 2006, two buildings sold for more than $1,000 per square foot and a third did in 2007. So far in 2009, four multifamily buildings have traded in Lower Manhattan totaling $12.3 million. [Read more]

Barbara Byrne Denham directs the Research Center at Eastern Consolidated and is the Editor of its two quarterly newsletters, The MetroGrid Report and Manhattan Economic Indicators, the monthly NYC Employment Alert, as well as a series of Research Reports, all of which are often cited in the press. Read more

The Phones are Starting to Ring

2009-10-12T13:44:00.000-07:00

By Eric M. Anton, Executive Managing Director and Principal

Due to the tremendous amount of business, successfully closed transactions and profit making that our team has consummated during this year, it has been hard to find time to write for Word of Mouth. Frankly, I don’t know what we need a Blog, Twitter, the Internet or a brochure for, since buyers, lenders, investors and owners are flocking to our offices, and literally throwing money at real estate. Furthermore sellers are desperate to retain us to represent their properties and we only can accept assignments in excess of USD250mm.

Of course the above paragraph is tongue in cheek—but it felt really good to write. But tongue in cheek is kind of how I see Word of Mouth. It’s a chance to get a tiny bit more connected and more real with our clients, our friends, our customers, and the 2.5 billion people on the planet that enjoy hearing the backstory about New York City Commercial Real Estate sales and financing.

2009 has been a terribly challenging year for everyone on the transaction side of the business and volume continues to be low given the continued lack of attractive financing, and the slowness of financial institutions to realize write downs for all types of distressed assets. But business is definitely picking up. Most people would agree that Spring of 2009 was just the absolute bottom of the investment sales market, and probably the leasing and financing markets as well. Since that time, the phones are starting to ring, not loudly, but they are ringing. And there seem to be buyers willing to take some risk. Also, the financial institutions with whom we work are getting more realistic as far as pricing, and their willingness to negotiate deal terms.

So feel free to send any and all blogisms, and perhaps ask the questions that might not be completely approved by headquarters, or feel free to make a comment with a different opinion, etc.

Eric M. Anton joined Eastern Consolidated a decade ago and has since established himself as one of the premier Investment Sales professionals in the country by successfully completing over $4 billion of real estate transactions. Read more

Pockets of Strength Belie Market’s General Malaise

2009-10-05T14:00:00.000-07:00

By Peter Hauspurg, Chairman and CEO

The Manhattan commercial real estate market is never short of surprises and we recently have been privy to or involved in deals that show that odd pockets of strength belie the market’s general malaise.

To briefly recap how we landed in this mess, the New York City real estate market shook off the recession of the 70’s in a dramatic run-up in value that took off in 1982, the great Bordeaux year, and appreciated rapidly all the way till 1989, when the market tipped, the RTC was born and many of us remember the pain of the early 90’s and the slogan “stay alive till ’95,” which turned out to be true. It was the year 1995 that the longest bull market in real estate history began. Values started to improve post 1995 on the order of about 1.5% per month until the 9/11 attacks, which produced a six month lull. After that, our market re-accelerated to the extent of 2% per month value appreciation right up until August of 2007. So it’s no surprise that a lot of people made a lot of money when applying capital structures featuring 75-90% leverage at 5-6% interest rates to a market appreciating at well over 20% per year for so many years in a row.

Since mid 2007, of course, we have seen values plunge at nearly the same rate that it had been appreciating. Class A-office went from $1,000 psf to the mid $300’s in 18 months, residential development land went from $400 psf to half or less, and the market for hotel sites has been next to non-existent. Cap rates have risen, and residential, retail and office fundamentals continue to worsen.

Nevertheless, note this recent activity which shows you can never underestimate Manhattan’s position as the Capital of the World: At a busy midtown intersection, a retail condominium deal is being inked at a sub-3 cap, where the buyer, a local family, will pay $85 million using a $30 million mortgage and the balance cash equity which will yield barely 1.5% until a below-market lease resets in four years. In another prime Central Midtown location, we have a handshake on a 75,000 sq. ft. hotel site that is coming in at over $400 psf, a very healthy number reflecting the shortage of land in the prime business district. Similarly on the Upper West Side, we are finishing a contract on a 25,000 sq. ft. vacant building also at over $400 psf − not far off 2005-2007 levels. And in the multifamily front, we just were involved in a deal for an occupied West 70’s rent-stabilized, elevator property for $29 million or over 12 times the gross, a 5-cap, again maybe off 15% from the peak but not so bad overall. And on West 32nd Street near Broadway, a 130,000 sq. ft. solid B-minus office/loft property is in contract for $41 million or over $300 psf, surprisingly close to where Class A-minus office has traded. The key to the deal is a $30 million senior loan that was modified to allow some small additional seller financing and it is still cash-flow positive even with leases at today’s market levels. There is still a huge demand for office product of all types in Manhattan but almost no supply.

What is the reason for such strong pricing despite the general erosion in values? For a long time, we took the most important yardstick in measuring the likely success of a piece of real estate and locked it in a storage bin. Recently, we took it out, dusted it off and shined it up. And that of course is the Rule of Rules: “Location, location, location.” Its meaning is showing up big-time now. Stay tuned ……

Peter Hauspurg, Chairman and CEO, founded Eastern Consolidated with partner Daun Paris in 1981. He leads the firm’s global deal-making and property sourcing activities. As a tax attorney, he has been instrumental in developing Eastern’s reputation for real estate problem-solving and arranging alternative acquisition and disposition structures to minimize the tax effects in transactions that have such issues to overcome. Read more