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If New York is a Leading Indicator…
Posted By squarefeet On December 10, 2008 @ 6:01 am In Commercial Real Estate Investing,Trends | No Comments
New York is, if nothing else, a psychological benchmark and leading indicator for a lot of people when it comes to analyzing the state of the real estate market. TRD  is reporting that prices are being slashed for trophy assets, and there is still trouble in finding buyers.
According to the article in TRD, Deutsche Bank has been looking to offload a couple assets (1540 Broadway and Worldwide Plaza) it acquired as part of Macklowe’s poorly-timed acquisition  of Blackstone assets. After unsuccessfully being able to find a buyer able to go through with the deal, Deutsche has decided to slashed prices.
The article is reporting that prices were slashed from $2B to $800MM, but a quick call to a colleague in New York indicated that was incorrect. Instead, the price has been slashed on only one building due to vacancy which the credit markets currently cannot see past. I have no way to confirm this, but it makese sense.
During 2005-2007 assets were acquired, as in Macklowe’s case, with minimal amounts of equity (a reported $50M on a $7B deal; with a $1B personal guarantee). As rents deteriorate, vacancy rises, and debt becomes harder to find, owners will have trouble holding on to their assets. We started to see the first signs of this in New York when credit seized up on Macklowe, but that same trouble is hanging over the heads of many commercial real estate owners  and developers right now, particularly those on the buying side during the height of the market mid-decade.
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 TRD: http://ny.therealdeal.com/articles/deutsche-bank-slashes-price-tag-for-two-macklowe-buildings
 poorly-timed acquisition: http://www.squarefeetblog.com/2008/05/28/boston-properties-goldman-sachs-acquire-gm-building-macklowe-son-to-take-over/
 trouble is hanging over the heads of many commercial real estate owners: http://www.nytimes.com/2008/12/10/business/10default.html?_r=2&ref=business
 Macklowe Likely To Forfeit His 7-Property New York City Portfolio: http://www.squarefeetblog.com/commercial-real-estate-blog/2008/02/06/macklowe-likely-to-forfeit-his-7-property-new-york-city-portfolio/
 Weakness In Apartments; San Jose Rent Falls Most: http://www.squarefeetblog.com/commercial-real-estate-blog/2009/11/10/weakness-in-apartments-san-jose-rent-falls-most/
 New Basis, New Rents: http://www.squarefeetblog.com/commercial-real-estate-blog/2009/10/23/new-basis-new-rents/
 2010 Will Be A “Bloodbath”, But Keep Reading: http://www.squarefeetblog.com/commercial-real-estate-blog/2009/11/05/2010-will-be-a-bloodbath-but-keep-reading/
 CRE Dominoes: 8000 Marina Blvd Defaults: http://www.squarefeetblog.com/commercial-real-estate-blog/2009/11/12/cre-dominoes-8000-marina-blvd-defaults/