City building values are falling under the weight of high interest rates, crippling regulations, and massive vacancies caused by working from home and layoffs due to the pandemic.
Many properties are currently worth less than their debts and remain unsold. Sales in 2023 were the lowest since 2009, according to the New York Real Estate Board.
“Most buildings are worth less than they were a year ago just because of higher cap rates and higher interest rates,” said Michael Cohen of Williams Equities. Additionally, Rob Gilman, a certified public accountant and co-leader of Mr. Anchin's real estate group, warned that trillions of dollars in debt will soon come due.
At this pivotal time, the recent sale of $60 billion in failed Signature Bank loans (the largest in history across thousands of properties) will be liquidated over the next few years, providing new market value guidance. become. Doug Harmon's team at Newmark handled the transaction.
“We are in the early stages of a reset in real estate values,” said Peter Braus of Lee & Associates New York. “In 2024, we will see an accelerated environment for stranded owners.”
JLL's Andrew Skandarios says many owners are “locked in by low values and high loans,” but for buyers who are ready, able or willing to trade, There are plenty of opportunities. James Nelson of Avison Young noted that those tend to be foreign buyers and sellers.
One of the most important buildings scheduled to go on the market this year is the Roosevelt Hotel on East 45th Street. Its owner, the Government of Pakistan, employs his JLL for the transaction.
On the buyer side, a Monaco-based family office paid $38 million for 144 Fulton Street, which is leased to the world's largest Chick-fil-A. Japanese coffee company Geshari spent $38 million for 520th Street, Japan's Mori Trust Co. paid $998 million for a 49.9% stake in 245 Park Avenue, and South Korea's Hyundai Motor Company paid $998 million for 500th Street. spent $22.5 million on the Liberty Inn. St. and his $275 million for a brand new space at 15-17 Wright Street.
“We have built an irreplaceable asset and the global market has valued it very highly,” said Richard Coles of Late Street developer Van Burton.
Rent is regulated because renovation costs are capped at $15,000 per 10 years and “just scratch the surface” of maintenance costs, said Ben Tapper of Lee & Associates in New York City. He said the multifamily housing market is at a standstill. Nevertheless, Nelson said some such buildings have been sold to Japanese buyers who are “able to take a long-term view.”
“Many buyers are leaving the market, and the rest are looking for bargains and are avoiding buying unless it's stolen.”
Compass Adelaide Polsinelli
Empire State Realty Trust (ESRT) is selling an office building in Westchester and taking the proceeds to comply with so-called IRS Section 1031 tax exchange rules, as well as a retail building in Williamsburg and a retail building at 298 Mulberry Street. I bought a luxury apartment building.
ESRT's Anthony Malkin said, “If you have a 1031, you can get it within the deadline, but be prepared to overpay.'' “Be satisfied with the fact that you bought the best, so it will retain its best value over time.”
However, not everyone is so lucky. Woody Heller of Blanton Realty said some large institutional owners are simply giving up and “giving the keys back to their lenders.” “This is a fundamental shift in the market because we're used to people doing what it takes to buy time with lenders.”
That's what happened at the office building at 300 E. 42nd St. on Second Avenue. His $100 million-plus loan on the building is being sold by JLL. Even more dramatic, Blackstone purchased 1740 Broadway for $608 million in 2014 with a $308 mortgage. The tenants will be vacated and the property, valued at $175 million, will be sold by JLL to lenders.
Land leaseholders, on the other hand, may be evicted or forced out of office properties where office rents cannot cover costs. Take Shorenstein, which paid $330 million in 2015 for the lease on the 1407 Broadway property owned by the Goldman family. The $350 million loan was put into special repayment by him in November.
When will things improve? “Probably in 2026,” says Greg Kraut of KPG Funds. “It's a long time, so it's very difficult.”
But some owners are starting to see the light at the end of the tunnel and are waiting. “People have good reason to think rates are going to go down, so only a few are still trading,” said JLL's Bob Nakal.
Still, you have to be a “really smart analyst and connoisseur to read the tea leaves,” added Adelaide Polsinelli of Compass. “Many buyers are leaving the market, and the rest are looking for bargains and are avoiding buying unless it's stolen.”
