Brokered

Grubb & Ellis & Alan Lurie - Five Minutes on Mondays

2009-07-09T14:25:00.006-04:00

For those of you who don't know, Alan Lurie who heads up the Project Management group for Grubb & Ellis New York, is also a Rabbi. At our Monday morning meetings, Alan shares his spiritual insights, and he just came out with a book Five Minutes on Mondays. Here's a segment on Fox News discussing Grubb & Ellis, David Arena, Alan Lurie, and Alan's book.

Good News Friday (On Wednesday) Silver Lining

2009-07-08T15:08:00.003-04:00

Silver Lining

It’s tough to find the good news in this morning’s payroll employment report from the Bureau of Labor Statistics. Employers shed 467,000 jobs (net) in June, ending the four-month string of lessening monthly losses, while the unemployment rate increased a tenth of a percentage point to 9.5 percent. Job losses since the recession began now total nearly 6.5 million. Where’s the good news in that, you say?

- Keep in mind that employment is a lagging indicator and is unlikely to turn around until next year. Today’s report does not change the outlook held by a majority of economists that the recession will end later this year as GDP turns positive in the third or fourth quarters.

- A sluggish recovery should minimize the potential for an outbreak of inflation. It should help keep interest rates and oil prices low, thereby providing some support for consumer spending, the housing market and the financial sector despite the rising unemployment rate.

- A gradual recovery will provide cover for the Federal Reserve to tighten interest rates and withdraw liquidity from the credit markets in an orderly fashion. If inflation were to flare up, the Fed might need to act precipitously, thereby increasing the potential for back-to-back recessions as in the early 1980s.

- Don’t forget that the 467,000 jobs lost in June is a net number. In the third quarter of 2008 (the most recent data available from the BLS), private employers added 6.8 million jobs and eliminated 7.8 million. Of the 6.8 million jobs added, 5.5 million were at expanding businesses, and 1.3 million were at new businesses. Employers are adding new jobs all the time, and eventually, the balance will shift back into the black with more jobs created than eliminated.

-Lastly, the health care and social assistance sector keeps chugging along with 21,000 net new positions created in June. Educational services also added 13,000.

Deutsche Bank Report: The Outlook for U.S. Home Prices

2009-06-29T18:07:00.003-04:00

While I generally don't post on residential real estate, there has been a lot of buzz regarding this recent report from Deutsche Bank on the Outlook for U.S. Home prices, so I thought I would share it with you.

I'm sure you will find this report surprising in its preditions, as DB is certainly not painting a rosy outlook. They predict that U.S. home prices will decline an additional 14% from Q1 2009, and that New York home prices will drop an additional 32% to reach an affordability level in line with other markets. The report goes on to say that factoring in othe risk factors, there will be a 40.6% decline from Q1 2009 in New York.

Without further ado, here's the report. Enjoy!

Tenant Demand Stalls; Available Space Continues to Grow—Grubb & Ellis NYC Office Market Trends—June 2009

2009-06-19T09:30:00.002-04:00

June 2009 Office Market Highlights

• Leasing velocity is down 40% through May compared to one year ago

• The professional services sector accounts for 31% of 6.3 million square feet leased this year

• Availability (13.5%) and vacancy (7.8%) continue to rise

• Generous concessions and falling prices are making transactions more cost-effective for tenants

Here's the report

Good News Friday - From Bob Bach

2009-06-19T09:17:00.003-04:00

Bob Bach, Chief Economist of Grubb & Ellis has started sending out weekly Good News Friday reports to Grubb & Ellis employees (ok, he has for a few months and I haven't been on the ball). Anyway, I've decided I'm going to start passing these on for your enjoyment. We can all use a little bit of good news right now.

Trifecta of Good News

Here are three hopeful indicators released just this week:

The Conference Board Leading Economic Index rose sharply for a second consecutive month. Vendor performance, the interest rate spread, real money supply, stock prices, consumer expectations and building permits pushed the index higher in May, outweighing negative contributions from weekly hours and initial unemployment claims. Over the past six months, the index rose 1.2 percent, the first time the index has increased over a six-month period since July 2007.
The Labor Department reported that continuing jobless claims fell by 148,000 to 6.69 million during the week ending June 6^th. It was the largest decrease in seven years and breaks a string of 21 consecutive increases. Initial jobless claims rose slightly during the week ending June 13^th, however.
The American Bankers Association's economic advisory committee, a group of economists for large banks, predicted that real GDP will turn positive in the third quarter, thus bringing an end to the recession. The committee also expects housing starts to move up later this year and home values to increase moderately in 2010. Here is a link to a Bloomberg article on the committee’s findings.

Not all recent news is optimistic, and not all aspects of these indicators are positive. But this is the norm when the economic cycle is shifting from recession into recovery. Do not be surprised if the data releases are positive one day and negative the next with a gradual migration toward positive news as the recovery approaches.

If You've Ever Wondered about 190 Bowery

2009-06-18T12:19:00.002-04:00

After walking by 190 Bowery several times, perplexed by this seemingly abandoned beautiful building covered in graffitti, I finally decided to try to find out what was going on with it. What I found was so interesting, I thought I'd share this article with all of you: New York Magazine: The 72-Room Bohemian Dream House.

Deutsche Bank Commercial Real Estate Outlook 1Q 2009

2009-06-17T15:11:00.007-04:00

Sorry for the delay in getting timely information like this out there. Again, like last quarter, not too many big surprises in the DB outlook. Some items of note:

Deliquency rates on older loans have greatly increased, coming close the deliquency rates on more recent loans.
Monthly deliquencies are at a historic high.

Hotel deliquencies and retail deliquencies are way up and multi-family deliquencies are the highest to date.

Declining property prices pose a significant threat to loans needing to refinance over the next decade.

Click Here for the Report

Declining Employment; Rising Available Supply—Grubb & Ellis NYC Office Market Trends—May 2009

2009-05-20T12:58:00.001-04:00

May 2009 Office Market Highlights

• 104,200 NYC jobs cut from August 2008 (since employment peaked) through March 2009

• Available sublease space up 23% this year totaling 15.3 MSF

• Landlords using aggressive disposition strategies to lease space

• Asking rents continue to depreciate, as much as 20% in some submarkets this year alone

• Investment activity remains sluggish

• 104,200 NYC jobs cut from August 2008 (since employment peaked) through March 2009

• Available sublease space up 23% this year totaling 15.3 MSF

• Landlords using aggressive disposition strategies to lease space

• Asking rents continue to depreciate, as much as 20% in some submarkets this year alone

• Investment activity remains sluggish

Here's the report

Available Sublease Space Soars, Rents Plummet--Grubb & Ellis New York City Market Trends--First Quarter 2009

2009-04-13T16:39:00.004-04:00

First Quarter 2009 office market highlights:

Available sublease space hits 14.6 million square feet.
Sublets account for 30% of available inventory for first time since 2002.
Manhattan direct Class A average asking rents are down 8% from end of last year.
Leasing activity is down 45% as demand slows.

Here's the report

Best Market Leverage for Tenants in Decades—Grubb & Ellis Market Trends March 2009

2009-03-18T09:29:00.002-04:00

March 2009 office market highlights:

Changing real estate climate creates a tenants market.
Tenants gain leverage due to influx of supply and slowdown in demand.
Select landlords facing declining property values give tenants opportunity to renegotiate existing leases in advance of expiration.

Here's the report

"By Virtue Of" or Stuyvesant Town, Peter Cooper Village & J-51 - What it all means . . .

2009-03-17T15:29:00.009-04:00

As you may have heard, the appellate court earlier this month ruled that New York City residential buildings receiving J-51 tax benefits can not convert rent-stabilized apartments into market-rate units under the city's luxury decontrol laws under any circumstances. Further, it ruled that landlords that have done so in the past, must return the rent gains to current and former tenants.

To understand the repurcussions of this decision, you first have to understand that the J-51 tax benefits are, what they say and what they mean. If I had all the answers, I'd be very rich and influential, but I'll take a shot at making sense of it.

To put it simply, J-51 tax benefits provide tax breaks to landlords who renovate existing rental apartments. In exchange for receiving these benefits, landlords must subject the units in their buildings to rent stabilization. They may not destabilize these units until the tax benefits expire. Now . . . here's the catch. Many of the buildings that receive J-51 tax benefits already were stabilized before the landlords received the benefit.

The question is, can these units be deregulated, since they were already stabilized when the J-51 tax benefits took effect?

To answer this question, the judges went back to the rent stabilization law, which says that units are exempt from luxury decontrol if they "become" rent stabilized "by virute of" receiving J-51 tax benefits. So, the new question is, does "by virtue of" mean "solely by virtue of" - meaning that pre J-51 stabilized apts. could be destabilized or does it mean "in-part by virtue of" - meaning that no stabilized apts could be destabilized?

For what it's worth, wiktionary defines "by virtue of" as "because of; on the grounds of; by reason of; due to; based on." Based on this, it would seem to me, that only units stabilized as a result of the J-51, are restricted from destabilization. As attorney Stephen Meister (who filed an Amicus Curiae brief on behalf of the Real Estate Board of NY) notes, the fact that the law says "become" stabilized further points to the fact that the restriction on luxury decontrol does not pertain to existing stabilized buildings. Any lawyers I've asked about this, as well as the Supreme Court of NY County (based on the 2007 decision) and the DHCR (Department of Housing & Community Renewal) agree. However, this decision was overturned by the latest verdict of the appellate court. Of course, Tishman Speyer is appealing and has already been granted a stay.

So, what does this all mean to NYC real estate?

In my opinion, if the opinion of the appellate court is not overturned, it will be a horrible blow for NYC real estate. First, many landlords will have to return billions of dollars in rent overpayments to tenants and past tenants in nearly 80,000 units. Second, many of those same landlords will default on their loans, loans that were underwritten based on the successful deregulation of stabilized apartments. With landlords defaulting left and right already, this is big trouble for NYC real estate and the NYC economy.

Many of you may say, well, what about the poor lower and middle income tenants that the appellate court's interpretation of this law protects? To that I say, read my last blog post! This ruling only protects tenants who make $175,000 per year or more, who live in stabilized apartments. I can't say that I feel sorry for these "lower and middle class" people. The fact of the matter is, living in Manhattan, or NYC for the matter is not an entitlement.

The Case for Rent Deregulation

2009-03-06T09:18:00.010-05:00

Since this is a commercial real estate blog, I have avoided the topic of rent regulation, but the fact is, that rent regulation has a huge impact on real estate owners that we represent, and this is a topic that I'm passionate about, so here it goes.

First, let me explain what rent regulation is in NYC. There are 2 major forms of rent regulation - Rent Control, and Rent Stabilization - there's also public housing, Mitchell Lama, etc. - but I'm not getting into that today.

Rent control only applies to 2% of NYC apartments, and will soon cease to exist as it is limited to existing tenants and inheriting a rent controlled apartment is quite difficult. If you want to know more about rent control and MBR (Maximum Base Rent), visit: http://www.housingnyc.com/html/resources/dhcr/dhcr1.html.

Rent Stabilization applies to a whopping 48% of NYC apartments and a much higher percentage of Manhattan apartments. Rent Stabilization basically stipulates, that as long as a tenant lives in an apartment with rent under $2,000, that tenant's rent cannot be increased more than the set percentage set by the Rent Guidelines Board (RGB). That set percentage generally is somewhere between 2.5-4.5% per year. The only way an apartment can be destabilized, is if the rent on the apartment hits $2,000 AND the tenant makes $175,000 or more, or if the apt is vacated and reaches $2,000 a month. The apt can reach $2,000 a month on vacancy in a couple of ways. First, the RGB sets a higher % that an apartment's rent can be increased on vacancy. Right now that number is 17%. Second, When an apt. is vacated, a landlord can make improvements to the apartment and allocate 1/40th of the value of the improvements to the monthly rent. Therefore, if an $850 apartment is vacated, the Landlord can first raise the rent to $995 dollars. Then, the landlord can make $41,000 in improvements to the apartment. After allocating 1/40th of the improvements to the apartment, the rent is now $2,020 and Voila, the apartment is destabilized.

It seems relatively simple for a landlord to destabilize an apartment, and it is, but ONLY, if the tenant vacates, and that's the big catch. The fact of the matter is, once people get rent stabilized apartments, they don't leave . . . it's too good of a deal. This creates a system that inflates rents for everyone else. It is anti-capitalistic, prevents new residents from moving to New York City, and discriminates against the "new middle class." Don't believe me? Think of this: ONLY 1/3 OF NEW YORK CITY RENTALS ARE AT MARKET RATES. Of those, only 3% are available at any given time. To make matters worse, less than 1/3 of Manhattan rentals are at market rates, and the vacancy rate is only 2.24%.

Anyone who's taken Econ 101, or has a little bit of common sense understands the concept of supply and demand. If supply is low, the demand for what limit supply exists is inflated, and price increases. That is what happens with NYC rentals, and particularly Manhattan rentals. Imagine how much lower prices would be, if there were no more rent stabilization.

Now, it's only fair that I address the comments of advocates of rent stabilization. They claim, that if you get rid of stabilization, you will displace millions of middle class people and New York will become a city of the very rich and the very poor. Interesting theory, and to some extent it has merit, but is a cheap apartment in Manhattan an entitlement? I have many friends who would love to live in Manhattan, but cannot or choose not to because the rents are too high. Are the recent college graduate middle class less important than the middle aged entitled middle class?

Besides which, rent stabilization does nothing to protect the middle class, it just protects the status quo. If you make a million dollars a year and your stabilized apartment is $500 a month, do you get a larger increase in rent? There answer is no! Your apartment will go up 4.5% this year, the same number as everyone else. Hell, Governor Patterson, has 1 rent stabilized apartment and Representative Charlie Rangel has 3. Is that fair? Is it fair that in the same building, 1 resident has a 3 bedroom apartment for $568, and another a 1 bedroom for $2,200?

To make matters worse, the assembly just passed bills which will raise the rent at which apartments get deregulated to $5,000, and raise the income limit to $240,000.

Let's think about what would happen right now if rent stabilization were abolished.

First, stabilized tenants will be in a bind - no question.

Some would pay a higher rent and stay where they are - given the tough economy, they'd be in a much better position to negotiate with their landlords then they would have been in a year ago.
Some will move to cheaper neighborhoods or boroughs.
Some will move out of the city entirely. They will rent in the suburbs, or use the money they saved by being rent stabilized to purchase a house.

Second, increased supply in this economy will significantly decrease rents across the board.

Many people who otherwise would not think they could afford to live in NY will move here. This will bolster the NY economy and compensate for people moving out.
People at risk of losing their apartments along with their jobs will be able to stick it out a little longer and until things start to recover.

Third, landlords will raise rents in formerly stabilized apartments.

To get higher rents, landlords will need to invest significantly in their buildings and apartments. While before they had no incentive to fix up their buildings, now the incentive is clear. The blight of rundown buildings will be gone from the city.
Apartment buildings will start to sell again, and for a lot more money. Transfer taxes, capital gains and the like will be a windfall for the city of New York.
Owners that recently purchased buildings and are at risk of default will no longer default on their loans.

Fourth, higher rents will mean higher assessed values for buildings.

Higher assessments means more tax revenue for the city. This means more money to invest in jobs, infrastructure, etc.

So, you decide. Is rent stabilization a fair system? Does it really protect the middle class? Is it good for the economy? Is it good for society? Is a 3 bedroom apartment in Manhattan for $600 a month an entitlement? Is an apartment in Manhattan an entitlement?

For more on this topic read:

NY Post - My $600 a Month Prison

NY Post - The Madness of Rent Stabilization

NY Times - Rangel Defends Use of Rent Stabilized Apartments

The Village Voice - Big Changes in Rent Laws Pass Assembly

New York Magazine - The Berserkonomics of One Rent-Stabilized Apartment Building

NYC Housing Authority - http://www.housingnyc.com/downloads/research/hvs08/08summary.pdf

Goldman Sachs Buys Stake in CBRE

2009-02-10T15:06:00.004-05:00

Here's an interesting tidbit from yesterday's RealDeal:
-----------------------------------------------------------
February, 09, 2009

A unit of Goldman Sachs bought an 8.7 percent stake of real estate services company CB Richard Ellis through a stock purchase in the final quarter of 2008.

According to documents filed February 5 with the Securities and Exchange Commission, Goldman Sachs Asset Management completed the purchase of 22,882,930 shares of CBRE stock by December 31, 2008.

The purchase would be worth just under $100 million using the closing price of about $4.35 on the last day of the year, but it was unlikely it was all bought on one day.

In November, CBRE raised $207 million through the sale of 57 million shares through a secondary stock sale.

A spokesperson for California-based CBRE, Robert McGrath, declined to comment. A representative from Goldman Sachs was not immediately available for comment.

A senior research analyst for real estate at BMO Capital Markets, Paul Adornato, said prices were historically low for real estate services companies.

"It appears that Goldman Sachs Asset Management believes that over time the real estate services business will rebound and hence they bought a substantial stake in CBRE," he said.

By Adam Pincus

Starting & Running a Business in a Turbulent Economy - Feb. 5, 2009

2009-02-03T16:45:00.005-05:00

As you may know, when I'm not working as a real estate broker, I keep myself busy as Founder & Chairman of the Jewish Entrepreneurs Organization. Since the JEO has an event coming up in a couple days, I thought I'd take this opportunity to plug it!

The event is a panel session titled "Starting & Running a Business in a Turbulent Economy," and it will take place at the Stern School of Business at NYU. The panel will be moderated by the Executive Director of the Berkeley Center for Entrepreneurship at Stern, and will feature 4 distinguished entrepreneurs. They are:

Robert Davidman - CEO, EarthQuake Media
Joshua Landes - Co-Manager, Wynnefield Partners Small Cap Value L.P.
Allan Levy - Founder & CEO, SellUp Inc.
Murray Hidary - Founder of EarthWeb & iAmplify

Like our last event, we're offering a networking session afterwards with wine, beer, and dessert.

We still have a few tickets left. You can buy them at: www.jewishentrepreneurs.org.

I hope to see you at the event!

The Shadow Knows! - or, What is Shadow Space?

2009-02-02T12:56:00.006-05:00

As you can see from the Grubb & Ellis Fourth Quarter Market Trends, vacancy rates in Manhattan have increased from 4.5% to 6.6%. A big jump, yes, but it does not nearly convey the scope of the NYC commercial real estate downturn. The report goes on to say, that available space (space that isn't actually vacant now but will be available within the next 12 months) grew from 7.7% to 11.6%. This starts to tell the real story, but there is one last element that has to be accounted it for, and that is what those of us in the industry refer to as "Shadow Space."

"Shadow Space" is simply space that we believe can be rented, but is not actually on the market. This space may be occupied or may not be. There is no way to know exactly how much shadow space is available, but due to rapid downsizing at large companies throughout the city, one thing is for sure . . . there is a lot of it.

So, you may wonder, "If companies have space available to be rented, why don't they just put it on the market." Well, there are countless reasons for this, but here are a few.

1) Some companies are looking to consolidate their employees into 1 or more buildings, but they haven't decided which buildings to consolidate into. If they get an offer for their space in one building, they'll move everyone to another.

2) Real estate executives may not want to officially recognize space as available. If they do, they will be held accountable for subleasing that space and will have to report to their bosses if/when it does not get subleased.

3) If space is recognized as not being utilized, the companies will have to write it off every month that it sits, they may prefer not to do that (particularly the RE group).

4) Some of the shadow space is in buildings that are under construction or planned for construction.

5) Building out space for a corporate user is expensive. If a company thinks that they may need the space again, it may be worth sitting on it for a while rather than subleasing it, and then having to build out new space in the future (or leasing new space for more than they are getting from the sublet).

Right now, we believe that there is approximately 21 mm SF of shadow spadow space in the Manhattan market, including the World Trade Center development. Without the WTC, the total amount of sublease space is around 14 mm. Add that to the current available space on the market - 42 mm, and you get 63 mm with the WTC, and 56 mm without the WTC, or 17.4% and 15.5% availability rates respectively. Keep in mind, that a huge chunk of that space is sublease space which naturally trades at a large discount to direct space. Now you're seeing the real picture of what's going on!

Grubb & Ellis Newswatch 1-21-09

2009-01-21T18:33:00.003-05:00

Articles of interest

Associated Press
Oil Lower Amid Grim Economic News

Bloomberg
A $17 Trillion Alliance Can Save World Economies: William Pesek
Apple, Nokia Weather Handset Slump as Spending Shifts
Dubai Property Prices Drop 23% from Record, HSBC Says
Hedge-Fund Investors Remove Record $152 Billion in Last Quarter
Long Island, Queens Home Prices Drop on Wall Street Job Cuts
Obama Team Pushes to Complete Rescue as Stocks Plunge
Toyota May Pass GM as Biggest Automaker amid Slump
U.S. Stocks Rise on Obama Plan, Citigroup, Bank of America Gain

Business Week
Stimulus: Hard Hats Say ‘Bring it On’

CNBC
Bank of America Could-Cut 4,000 Jobs

Globe Street
Report: BofA Will Cut 4000 Jobs, Mostly NYC

New York Daily News
Wave s of Fury over Co-op’s Big Fee Hike

New York Observer
‘Financial WMD’ Booster Wants $14 M.
Apartments, with a Long View
Bloomberg A.D.
Grand Slam! No More $1K a Foot for Trophies
Mighty Bargains
NBA Bounces Around
Well-Designed Deal in SL Green’s Brooklyn Prize

New York Post
McGraw-Hill’s Deluxe Lounge

Reuters
Barclays Slumps, Dogged by Capital Worries
|BlackRock Profit Dives on Fees Slump, Write-Downs
Geithner Urges Action on Economy and Bailout Program
U.S. Bancorp Profit Falls to Lowest since 2001
US Chain Store Sales Fall 2.3 pct Last Week-Redbook

The Real Deal
On the Front Line of Wall Street’s Woes
Queens Buckles Under Subprime Pressure
Yes! Financing Is Available for NYC Hotels

Wall Street Journal
Extreme Makeover: Bankruptcy
Hancock at Center of ‘Tranche Warfare’
Live and Work Ensembles
University Upgrades Boost Commercial Sector

Grubb & Ellis Newswatch 1-15-09

2009-01-15T18:55:00.001-05:00

Associated Press
Crude Prices Tumble Close to $35

Bloomberg
Bank of America May Get U.S. Aid for Merrill Lynch
ECB Cuts Key Rate as Recession Forces Trichet’s Hand
JPMorgan Profit Drops 76 Percent on $2.9 Billion of Writedowns

Crain’s
Mayor Bloomberg to Reveal New Jobs Plan
Occupancy Drop Forces Layoffs at Hotels

Globe Street
2009’ ‘One of the Most Challenging’ for Office
Morgan Stanley, Citi Form JV

New York Observer
At 14 Wall, a Blizzard of Leasing; The Street, SOM Latest Signers
Fordham Neighbors Tap Lobbyists, Lawyers to Fight Expansion

New York Post
Minor Adjustments
Room at the Inn
Storefront Shoppers
Wealthy Humbugs Rock Tiffany Sales

New York Times
2nd Hudson Rail Tunnel Clears Key Federal Hurdle
To Avert Blight, City Will Repair and Resell Vacant Homes
Virgin Megastore in Times Square to Be Replaced by Forever 21

The Real Deal
This Month in Real Estate History

Wall Street Journal
Bank of America to Get Billions in U.S. Aid
Democrats to Unveil $825 Billion Stimulus Measure
Foreclosure Filings Up 81% in 2008
Goldman Finds a Way to Dole out Cash
J.P. Morgan Stays in Black
Jobless Claims Jump in Latest Week
Rates Fall, but Refinancings Are Limited

Renewals Brisk. Asking/Taking Rent Spread Soars—Grubb & Ellis Market Trends 4Q-08

2009-01-14T18:26:00.007-05:00

Grubb & Ellis New York has released its Fourth Quarter 2008 office market trends.

•Vacancy climbed to 6.6%, while availability soared to 11.6%

•Taking rents down 10% to 15% on average, while asking rents down only 2.5%

•Lease renewals accounted for 35% of 26.4 million square feet leased, compared to 22% in 2007

•Over 5.5 million SF sublease space added to market—28% of all available space

•Office investment volume down 69% from 2007

Click picture for the full report:

Grubb & Ellis Newswatch 1-14-2009

2009-01-14T18:24:00.002-05:00

Grubb & Ellis Mentions

The Real Deal- Rich Persichetti
Weak Office Market Leads to Surge in Lease Renewals

Articles of interesT

Bloomberg
Commercial Building in U.S. to Drop 11% Percent, Architects Say
Dubai Developer Delays Work on World’s Tallest Tower
Goldman Plans Takeover of Universal Studios Japan
Libeskind Flags 9/11, Spurned Master Plan in New Condo Tower
Nortel Networks Files for Bankruptcy
Oil Slump Forces Rich Arab Countries to Run Deficits
U.S. Retail Sales Decline for a Record Sixth Month

Crain’s
Insurance Broker Moves for Right Rent
Landlords Chase School
New Realty Brokerage Bows as Market Sags

Curbed
Harlem Mystery Building Gets a Name: Windows on 123

New York Daily News
Queens Borough President Speech

New York Observer
The Money Pit

New York Post
$26M Lands 1627 B’way
SL Green’s Dilemma

New York Times
More Manhattan Shop Windows Are Expected to Be Empty This Year
Yankee Stadium Burdens Mayor’s Campaign

The Real Deal
Brownstone Brooklyn Prices Unscathed in Fourth Quarter
Now Is the Time to Sublease Space in Manhattan
Office Leases
Retail Leases
Sales

Wall Street Journal
Apartments Try to Stay Afloat
California Commercial Sector to Worsen
Citigroup Ready to Shrink Itself by a Third
Construction Industry Counts on Obama
Deutsche Bank Expects to Post $6.33 Billion Fourth-Quarter Loss
Fed Officials Say Ailing Banks Require More U.S. Funds
J.P. Morgan Cuts Use of 3rd-Party Brokers
Price Drops to Continue
Retail Sales Tumbled in December
Short Sales v. Foreclosure

Grubb & Ellis Newswatch 1-13-09

2009-01-13T19:25:00.003-05:00

Articles of interest

Associated press
Nov. Trade Deficit Drops to Lowest Level Since ‘03
Obama Seeks Access to Half of Bailout Funds
Stocks Set to Extend Losses Following Trade Report

Bloomberg
Bernanke Urges ‘Strong Measures’ to Stabilize Banks
Brooklyn Apartment, Home Prices Drop 7.5% as Recession Hits
Dubai House Prices Declined 8% in the Fourth Quarter
Hedge Funds Lost $350 Billion in 2008 Amid Global Market Rout
Saab, Volvo Promote Vehicles as GM, Ford Peddle Swedish Units
State Pension Funds’ $865 Billion Loss Means New Hires Get Less

CNN
Bernanke: More Bank Bailouts Needed
The 2009 Economy and Your Wallet
The Case for a Quick Recovery

Globe Street
272,000-SF Office Will Get Makeover
Apartment High-Rise Gets $94M Refi
Gramercy CFO Stepping Down

MSNBC
Small Retailers Struggle In Tough Season

New York Observer
Sublease Bonanza! Who Can Take It?

New York Post
Bonus Pool Is Back
Ciprianis Sue In Food Fight
SL Green’s Dilemma

The Real Deal
Large Bowery Parcel on Market for $40M

Wall Street Journal
Bernanke Says Stimulus Should Be Paired With Other Measures
Giant Bank in Probe Over Ties to Madoff
Hedge Fund Assets Cratered in 2008
Help Wanted: Wall Street Stockbrokers, No Joking
Trade Deficit Narrows Amid Restrained Demand
We’re All Keynesians Again

Grubb & Ellis Newswatch 1-12-09

2009-01-12T12:37:00.001-05:00

Every day, the Grubb & Ellis research team puts out a great newswatch with all of the latest and most relevant commercial real estate news. Since I find it really interesting, I thought I'd starting passing it on to all of you. Please let me know if you like this, and I'll keep posting!

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Grubb & Ellis Mentions

Globe Street- Bob Bach

Job Numbers Deal Blow to Office Market

Articles of interest

Bloomberg
Broadway Partners Talks With Lenders After Loan Deadline Passes
Capitalism Freezes in Worldwide Winter of Discontent
Citi May Book $10 Billion Gain on Morgan Stanley Deal
Crude Oil Tumbles Below $40 as Demand Drops Faster Than Supply
Deutsche Bank Trading Losses Reveal Industry Setback
Ford May Seek U.S. Help as Economy Imperils Sales
Manhattan Boom Leaves Glam Condos, Sleek New Tully, Green Rail
Nordic Currencies Beaten in Market Slump Lure Goldman
RWE Agrees to Buy Utility Essent for EU9.3 Billion

Crain’s New York Business
Another Retailer Declares Bankruptcy
Citi-Morgan Talks Seen Leading to Wave of Deals
Madison Ave. Caught in a High-End Migraine
Recession Rocks Manhattan Office Market
Retail Turnover at Grand Central

Curbed
City Spends Almost $40 Million on Two Downtown Lots
Fifth Avenue Fire Victim May Finally Get Carted Off

Globe Street
Carlton Rolls Out $300M First Mortgage Facility
Holiday Inn Opens in LIC
IBO: Outlook Gets Grimmer
Multifamily Fundamentals Soften
REIT Stocks Dives Hammer CEO’s Equity

New York Daily News
A Home Run for New York

New York Post
Stuy Town Owner Sued Over Low-Rent ‘Eviction Spree’

New York Times
A Yonkers Project Under Threat
At Least the Agents Are Sold
Blue Marks the Spot for a Law Firm
In New York, No Crisis for Niche Manufacturers
Lowering the ‘Golden Age’
Plans Unveiled for Brooklyn Philharmonic’s Firehouse Home
Rainbow Room’s Lease Terminated
Will Loan Limits Rise?

The Real Deal
Homestead Leaves Home -- for Good
IStar Offering Drake Loan at Steep Discount

Wall Street Journal
A-Rod Cuts Mansion’s Price
Bank of the United States
Citigroup Takes First Step Toward Breakup
Plan to Cut Foreclosure Rate Clears Key Hurdle
Wave of Bankruptcy Filings Expected From Retailers in Wake of Holidays

Grubb & Ellis 2009 Real Estate Forecast

2009-01-05T13:19:00.008-05:00

Grubb & Ellis has released its 2009 Real Estate Forecast. The online tool let's you create custom reports for your market - wherever you are in the US. In a world of uncertainty, this is a must read!

Deutsche Bank Commercial Real Estate Outlook Q4 2008

2008-12-23T16:39:00.007-05:00

Deutsche Bank has released their latest real estate outlook report. No big surprises here. Loan deliquency rates are going up. Mutifamily looks the worst, followed by hotel and then retail. Office loans don't look too bad yet, and Industrial still looks ok.

The real story comes on pages 18, 22 & 23. Page 18 shows the drastic decline in property prices. Declines in prices aren't a big deal for owners that have owned and plan to own their buildings for a long time. However, many of the country's biggest and most expensive buildings have changed hands in the last couple of years, for top dollar - particularly in NY. Many of these properties are in trouble as their short term loans are coming due, and the landlords who were counting on ever increasing rents and very low vacancy rates to refinance these properties won't be able to refinance.

In fact, if you look at page 22, you'll see that a huge share of the loans maturing in the next few years are interest only - very scary! The remaining pages show that borrowers are already having trouble refinancing these loans and it's only expected to get worse.

Ultimately, I think that it's fair to say that NY will be hit very hard by the inability to refinance loans. In a future post I'll explain why in detail, but here's the jist of it. Buyers of office towers in NYC have bought buildings with increasing small "cap rates" (basically the annual predicted profit margin, or the percentage return per year as determined by dividing the Net Operating Income by the Sales Price). This leaves very little "room for error." If vacancy rates go up, expenses go up, or rents go down . . . even a little bit, the profit dissapears, the slightest bit more, and the buildings are losing money. Buildings that bring in less money are worth less, refinancing a building when you owe more than the building is worth is awfully tough!

Without further ado, here's the Deutsche Bank Report.

Here's a great note from my friend Peter - Thanks!:

Don't be so surprised that the loans that are defaulting are the IOs, as IOs are typically bridge/construction which got crushed. Longer term loans typically are likely less speculative in their underwriting. As for the cap rates, what you didn't mention was the idea that said cap rates were "synthetic" and were anticipated to increase as soon as rents rolled. Unfortunatly, due to market conditions, rents have not only not increased as anticipated, but have decreased (perfect storm) which has lowered caps even further (and in turn, caused defaults).

Asking Rents Drop, Taking Rents Tumble: Great Research from G&E

2008-12-17T12:38:00.004-05:00

In advance of posting the Grubb & Ellis market report for the month of December, I thought it would be helpful to explain what Net Effective Rents are, which I did in my last post.

Now that you have this wonderful knowledge, here is the latest report which goes into more detail on market and breaks down asking rents on a direct and sublet basis. By the way, the difference between direct and sublet asking rents: 27%!!

If you've been thinking about when to take advantage of this crazy market, now is the time. Without any further ado, here's the report:

Asking Rents & Even Taking Rents Don't Tell The Full Story

2008-12-17T11:52:00.005-05:00

In some of my recent posts (ok, not that recent) I've shared some of Grubb & Ellis' research on what's going on with the market. Many people have mentioned to me, that they are suprised by how little asking rents have dropped. With that mind, I thought now would be a good time to talk about Net Effective Rents.

Net Effective Rents are simply, the rent that a lessee or sublessee pays once you "net out" all of the concessions made by the landlord or sublandlord and average out the rent bumps. Here's an example:

Joe makes a deal on a space in Midtown. The landlord on the space is asking $70 a SF (per year) for a 10,000 SF space. Joe likes it, but recognizes that this rent is much higher than the current market for that kind of space. Joe's astute broker, Michael realizes that the landlord is under pressure from his investors to rent his space for as high a price as possible. He suggests to Joe, that he put in an offer close to the asking price but with lots of concessions to bring the overall cost down.

Ultimately, Michael negotiates a 10 year deal for Joe where he pays $65 a foot for the first 5 years and $67 a foot for the second 5 years. Joe will also get $75 a foot in Tenant Installation allowance, and 10 months free rent.

Joe's new landlord goes back to his investors and tells them that he made a deal with an average rent of $66. Not far off his asking price of $70. However, let's look at the Net Effective Rent, shall we?:

The value of 10 Months free rent: $5.42/SF

The value of $75 a foot in TI (Tenant Installation $): $7.50/SF

Net Effective Rent: Average of $65 for 5 years and $67 for 5 years = $66 - $5.42 free rent - $7.50 TI = $53.08

Now, this is obviously a simplified model, as I didn't account for the time value of money. If I did, you would find that the landlord did even worse. I also made the assumption that all of the free rent was up front, which is not always the case, and I assumed that the term wasn't extended to account for the free rent.

The point of this example was to show you, what's really happening in the NY market right now. Asking rents may only be down 3.7% from their peak, but taking rents are down 9% and net effective rents are down 12.6%. This trend will surely continue well in to 2009 and expect to see much larger discounts on sublets than on direct space.