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REBNY luncheon panel on market: At least a year

Photo Above: Cynthia Bergman and John Goldman, Halstead Property; David Greene, MHP

The REBNY luncheon at the Hilton today began by honoring “Most Promising Commercial Sales Person of the Year” winner Robin Fisher, Newmark Knight Frank, and quickly moved to a panel that discussed, in stark detail, exactly where the market is right now. Short answer: Not pretty, but light, somewhat distant, at the end of the tunnel.

Cushman & Wakefield’s Kenneth McCarthy, who moderated the panel, began with a quick overview. By now we all know the grim short-term details: Last week’s city budget estimated that 295,000 jobs will be lost, and half of those are office workers. So far, about 40,000 have been lost, so we we have a ways to go. But this “doesn’t mean a disaster forever,” McCarthy said. He advised that about a year from now we will start to see signs of a recovery starting.

Lansco Corp.’s Robin Abrams had the unenviable task of recapping the state of retail. She said it’s tough to project what will happen right now, and read off a litany of really scary headlines that are really, really not helping put shoppers in the mood, which further depresses both the market and everyone in general.

But amidst the debris, she observed, “landlords are starting to change their standards” regarding both rent prices and various sweeteners. “We’re probably going back to 2006 levels,” she said, but not lower. For lucky tenants out there, namely those with a viable business and who are looking for space, in the next 6 to 12 months it “may make sense to start locking in” good long-term leases. So, for now, she said, “we’re busy and hopeful things are going to improve gradually.”

Eastern Consolidated’s Peter Hauspurg thanked everyone for even inviting him to talk about sales, given the present state of that market. Remember sealed bids? Gone. He estimates that sales volume is down from mid-2008 levels by 80% to 90%.

But there is a lot of action behind the scenes, he advised, “nothing short of high drama,” was how he put it. Why? Because virtually all the deals done between 2005 and 2007, if they were highly leveraged (read: 75% to 100%), are either already, or will soon be, in financial distress. And that is a lot of deals! Many, if not most, were on five-year loans that need to be refinanced–and that…makes for high drama.

After all, the paucity of deals means that comps are almost impossible to get. And when you get them, it’s not pretty. For example, noted Hauspurg, based on last week’s sale fo 1540 Broadway to CBRE for $355 million, prices are way off. That deal makes a “comp,” now also called a “new price discovery,” for Class A space of about $400 PSF, down from $1000 PSF 18 months ago. And the market’s valuation of the SL Green portfolio would put Class B space at about $300 PSF, down from $750 in the same time period. With that type of plunge, every refinance is massively difficult–and probably pretty unpleasant, too.

And it’s no prettier for residential land, if you have a yen to develop right now. He estimated that what was $400 to $500 PSF is now about $150 to $200 PSF of buildable space.

CB Richard Ellis’ John Powers, in addressing the leasing situation, said that he thought, “we’ve passed the fear part of the cycle,” probably in the last quarter. “I believe I have seen the light at the end of a very long tunnel and that it will take time to claw our way out of it.”

Post Date: 3/19/2009

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