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8/28/2008 3:00:34 PM/ Kari Neering/ News - General Real Estate News

Another week has passed in the news as Massey Knakal continues tro enjoy being splashed across city pubs. Can you believe summer has passed us by?  

Broker John Barrett's East Hartsdale Avenue sale made big news in several of the trades, real estate Web sites, the Westchester Business Journal and even The Journal News.
Broker Lynne Davis's territory article on Astoria made headlines in Brokers Weekly, Real Estate Weekly and The Queens Gazette.

Real Estate New York's article, "Uptapped Potential," delved into all things Staten Island with the help of Broker Matt Giordano.  
 
These articles and others can be found at the new www.masseyknakal.com under News. 

Have a good weekend everyone! See you after Labor Day!  
 

Neighborhoods: Westchester County, Staten Island

Featured Closing: 177 Buffalo Avenue

8/28/2008 9:50:25 AM/ Kari Neering/ Closings

Still think it's impossible to buy property in New York City for under a quarter of a million? Think again.

Massey Knakal Broker Waleed Cope closed on an 1,800 square foot lot in Northern Crown Heights for $195,000. The gross buildable square footage exceed 4,300.

The new owner plans on building co-ops.

Neighborhoods: Crown Heights

Gramercy Park apartment building for sale.

 

The landmark-status property has a grand master staircase, a 3 passenger elevator and a second fire staircase in the rear.

 

Most of the units have been recently renovated and the lobby and master staircase possess exceptional ornate detail. The property poses an exceptional opportunity for an investor or live/invest with three apartments being delivered vacant.

 

Click here for listing details.

http://www.masseyknakal.com/listings/detail.aspx?lst=18074

Neighborhoods: Gramercy Park/ Agents: John Ciraulo, Robert Burton

Featured Closing: 244-18 Jericho Turnpike

8/27/2008 11:28:18 AM/ Kari Neering/ Closings

High taxes and questionable tenants made 244-18 Jericho Turnpike a battle to sell. However, Massey Knakal was able to secure a buyer at just under the asking price, $650,000.

The two-story, mixed-use property in located in Floral Park, Nassau County. There is vacant retail space on the ground floor and apartments above.

Neighborhoods: Nassau County/ Agents: Tommy Lin

This rent stabilized apartment building is in an excellent location and consists of six apartments and a two-car garage. The building has considerable upside with in-place rents significantly below market. The property is ideal for an investor familiar with the rent stabilization process, a "hands on management" style and wants an excellent opportunity in the Gravesend section of Brooklyn.

 

Click here for listing details.

http://www.masseyknakal.com/listings/detail.aspx?lst=16678

Neighborhoods: Gravesend

125' wide development site located on 47th Street in Maspeth, Queens.

 

-          22,381 sq. ft. footprint (approx)

-          Highly desirable M3-1 zone

-          40,391 buildable sq. ft. (Industrial) maximum

 

M3-1 districts are for heavy industries such as power plants, solid waste transfer facilities and recycling plants.

 

Click here for listing details.

http://www.masseyknakal.com/listings/detail.aspx?lst=17318 

 

Neighborhoods: Maspeth

It has been five months since the Fed stepped in to "fix" the Bear Stearns debacle, which was warranted due to the potential systemic risks a failure of such magnitude would have on the broader markets. It has been one month since Treasury Secretary Paulson rolled out unprecedented steps to support the mortgage market. Supporting the mortgage market was basically supporting Fannie Mae and Freddie Mac, which buy loans made by banks and package them into securities that are then sold to investors worldwide. These government sponsored enterprises own or guarantee more that $5 trillion of mortgages and related securities. Both of these moves were aimed at one thing: instilling something financial institutions were in dire need of - confidence. Hopes were that these steps would provide participants in the market with the confidence needed for stabilization. These efforts, while necessary, appear to have missed the mark in some ways as with the sound of the closing bell last Friday; shares of Fannie Mae and Freddie Mac were at levels 90% below one year ago.

As defaults on home mortgages soar, Fannie and Freddie have recorded combined losses of about $14 billion in the past year. Those losses are expected to continue for at least another few quarters with some analysts projecting the companies will not return to the black until 2010 or 2011. If these institutions were a medical patient they would be in critical condition in the intensive care unit. Barclays Capital estimated that Fannie’s balance sheet has a negative value of $3 billion, while Freddie is $20 billion in the red. Baron’s estimates that, taking a mark to market approach to their assets, the negative equity approaches $100 billion. One of the functions of these GSEs that is rarely written about is the impact these enterprises have on the multifamily market through their purchases of multifamily mortgages. For our building sales market in New York, this is a vital ingredient in keeping our market somewhat stable. This is particularly true given the pending problems with regional and local lenders who have yet to face the full ramifications of having significant percentages of their risk based capital allocated to dangerously risky construction loans.

Things are going to change at Fannie and Freddie and it is likely to be soon. Even after accounting scandals that rocked the enterprises and saw some heads roll, officials at the two companies have been buoyed by their well-funded clout in Washington. That has already helped to minimize the impact of prior regulation that was too lenient. The net result is inadequate capitalization that enabled bosses and even shareholders to profit handsomely in up markets but is now taking its toll in a big way. In addition to the common stock price plummeting, Moody’s lowered preferred stock ratings for both companies to Baa3, the lowest investment-grade rating, from A1. Standard & Poor’s Ratings Services recently made a more modest cut, taking the preferred ratings to A- from AA-. This downgrading is stinging the banks and insurers that hold them. Given the uncertainty of the future of the companies, private investors have been wary of putting additional capital into them. Their current limbo state is highly problematic for the financial markets, the housing sector and the economy. This is a meaningful reason why a recapitalization is needed now. It will eliminate the uncertainty.

Fannie and Freddie have been trying to raise capital but this has not been easy. Freddie has approached private equity firms and other investors about buying new shares. But the needs it has dwarf any capital the private equity community might have. While going to the public markets, the spreads, or differences, between Fannie’s and Freddie’s debt yields and Treasury yields have widened considerably since the start of the housing crisis because of jitters about the highly leveraged companies’ stability. Last September, Fannie issued three-year debt at 0.55% over Treasury yields. Last week, it paid 1.23% over Treasuries. Freddie recently paid 1.13% over treasuries on 5-year notes which was the highest spread they have ever paid on such debt. A sudden pullback by overseas investors is largely to blame for these increasing spreads. Foreigners, mostly Asian central banks and funds, hold approximately 40% of Fannie’s and Freddie’s total debt while European investor demand has averaged about 11% and both of their appetites have waned since the beginning of August. The banks that manage the agencies’ debt issues are pulling out all the stops to ensure their success – even to the point of boosting demand artificially through deals know as "switches". In switches, an investor agrees to buy into a new issue in return for being able to sell back to the banks an equal amount of an old one, thus ensuring its net exposure does not rise.

These increases in the cost of Fannie and Freddie raising capital have been passed onto the consumer in the form of higher mortgage rates (a 30-year mortgage is now 6.52%) even with a Federal Funds Rate of 2%. Mortgage rates would have gone even higher if yields on Treasury bonds hadn’t fallen. Ten-year Treasuries now yield 3.8%, compared with about 4.6% one year ago. Intuitively, this dynamic will prolong the housing slump. The added cost to consumers is being reflected in the amount of new mortgage applications. For the week of August 8th, applications were down about 37% from a year ago, with purchase applications off 32% and refinance applications down 44%, according to the Mortgage Bankers Association. These levels are at their lowest since December 2000.

Given the problems Fannie and Freddie are facing, the Treasury Department has been wrestling with how to structure a recapitalization, should one be necessary. It seems like now is the time. The government bailout will likely see the Treasury taking one of two approaches. The first is a preferred-stock investment that allows the companies to raise more capital of their own. The second is nationalization through a common-equity injection that leaves current shareholders with nothing, and thus offers the taxpayers, who are financing the bailout, with a better deal. If taxpayers have to ante up, the only justification is to protect the larger financial system. In an interview this weekend, Jeffrey Lacker, the president of the Richmond Federal Reserve, threw his support behind the second option. He said that nationalization would probably also lead to the removal of both institutions’ managements, and undermine the cozy ties the agencies have long had with Congress. Former Fed Chairman Alan Greenspan indicated recently that Fannie and Freddie should be nationalized and then privatized in several transactions creating six or seven separate companies. It seems this is becoming more and more probable.

Investors in the multifamily properties have grown increasingly concerned about the fate of Fannie and Freddie as their involvement in the market has buoyed values and fueled new transactions. The two companies, along with Ginnie Mae, hold 35% of the mortgage debt on multifamily housing. There is seemingly no limit to the amount of multifamily mortgage product that can be sold to them. Even with the above mentioned problems, Fannie Mae announced last month that it would increase its commitment to buy loans on multifamily housing to provide additional liquidity for rental housing. Fannie said it invested $20 billion in multifamily housing in the first half of the year. That is down 25% from the first half of 2007 but the total number of transactions is down 45%, meaning they are becoming a more integral player in the market. There is good reason for their continued appetite in the multifamily sector. Delinquencies on Fannie and Freddie backed multifamily loans in the first quarter were just .09% and .04%, respectively. The GSE’s participation in the multifamily market is welcomed as market fundamentals continue to erode, albeit at a slow pace. What their appetite will be after restructuring will be a key for the sector moving forward.

Agents: Robert Knakal

A four-story residential apartment building for sale on east side of Wallace Street between Brooklyn and Randall Avenues.

 

- 68 residential units

- 37,000 sq. ft. lot

 

Click here to see listing details:

http://www.masseyknakal.com/listings/detail.aspx?lst=18622

Neighborhoods: Nassau County

Featured Closing: 1673 Gates Avenue

8/25/2008 10:20:10 AM/ Kari Neering/ Closings

A city investor just purchased a three-story, six-unit apartment building in the Ridgewood section of Queens for $763,500. Three of the six units are vacant. She plans to renovate those vacant units and rent them at market rents.

Smart lady.

Neighborhoods: Ridgewood/ Agents: Thomas Donovan

News

8/22/2008 12:11:37 PM/ Kari Neering/ News

This week my assistant, Shannon Krause, was on vacation, therefore no Massey Knakal news has been copied and posted as of yet.

I take this opportunity to thank Shannon for all her hard work. The real estate world needs you back!

Have a great weekend everyone.

Corporates: Shannon Krause

Featured Closing: 3059 Steinway Street

8/22/2008 12:10:47 PM/ Kari Neering/ Closings

An aggressive marketing campaign led to the sale of a mixed-use investment property in Astoria. It closed at $6,100,000 to a Queens investor.

Sleepy's was the main retail tenant.

These Upper East Side properties are four contigous six-story walkup apartment buildings on the south side of East 82nd Street between York and East End Avenues, containing 106 residential units and 1 commercial unit.

There are 74 Free Market units, 22 Rent Stabilized units, and 10 Rent Controlled units. In 542-46 East 82nd, there is street level storage space which could be converted to commercial space. The current average residential rent is approximately $32/sf including Free Market units which presents immediate upside to an investor. Due to the large number of Free Market units, the buildings are prime for condominium conversion immediately or as an exit strategy.

Click here for listing details.

Neighborhoods: Upper East Side/ Agents: Thomas Gammino Jr.

The subject property is two story, mixed-use building located on the southeast corner of Sutphin Boulevard and 110th Road in Jamaica.

The building consists of (1) commercial space, and (2) two bedroom apartments. Both apartments will be delivered vacant. Additionally, the commercial tenant plans to vacate at the end of the lease term (December 2008).

The vacant commercial space will pose a prime opportunity for either an owner/user or for an investor with the possible option to divide the current large space into two commercial spaces.

Click here for listing details.

Neighborhoods: Jamaica

Featured Closing: 231 Bowery

8/21/2008 9:00:26 AM/ Kari Neering/ Closings

231 Bowery was on the market for four years and went through several rounds of bidding wars before the final buyer signed a contract for $18,600,000 -  $4,600,000 over the asking price.

The property is located next to the newly built New Museum of Contemporary Art. It's one of the largest properties on the Bowery.

Neighborhoods: NoHo/ Agents: Robert Burton

Featured Listing: 121 Ludlow, New York, NY

8/20/2008 3:02:50 PM/ Massey Knakal/ Listings

121 Ludlow is a fully renovated 3 story building located in the heart of the Lower East Side on Ludlow Street between Delancey and Rivington Streets.

It is currently vacant on the ground floor with two commercial tenants above, an art studio on the 2nd Floor and a Hair Salon on the 3rd Floor.
This is a one of a kind opportunity for a user or investor to purchase a property in the hottest part of the Lower East Side.

Click here for listing details.

Neighborhoods: Lower East Side/ Agents: Michael DeCheser

This is one of the last large retail development sites on the corridor between South and Grandview Avenue.

-  2.8 acre site
- Frontage on four sides including 230+ ft on Forest Avenue.
- C2-2 zoning
- 122,000 buildable square feet

Click here for listing details.

Neighborhoods: Staten Island

Featured Closing: 2276 56th Street

8/19/2008 10:09:48 AM/ Kari Neering/ Closings

The longtime home of Ira's Shoes in Bensonhurst has been sold.

The Levin family hired Massey Knakal to sell the building, which has been vacant for quite awhile after the passing of the original owner, then years later, his son. It wasn't an easy sell, as it required a complete gut renovation.

In the end a Long Island investor paid $550,000.

Neighborhoods: Bensonhurst/ Agents: Jeffrey Shalom

Prime Morrisana development site for sale.

The subject propery is a 9,256 Sq. Ft. residential development site located on Intervale Avenue between East 167th and East 169th Streets. The site is zoned R7-1 allowing for the construction of 31,841 (Approx.) sq. ft. of residential space.

Click here for listing details.

Neighborhoods: Morrisania

Breaking News

8/18/2008 9:40:04 AM/ Kari Neering/ News

Last week's Chairman Commentary by Robert Knakal ran in today's Real Estate and Investment column on Institutional Investor's Web site.
Click here to see it.

Agents: Robert Knakal

I love Wall Street. The 1987 Oliver Stone movie is a cult classic where Bud Fox (played by Charlie Sheen) is lured into the illegal, lucrative world of corporate espionage and insider trading when he is seduced by the power, status and financial wizardry of Wall Street legend Gordon Gekko (played by Michael Douglas). Michael Douglas won an Oscar for his performance. It is, indeed, one of my favorite movies, but the movie is not the Wall Street I am referring to. I am referring to the capital market activities of the bankers who continue to do things, both positive and negative, that make investment in real estate so attractive. In the movie, one of Gekko’s famous lines is “Greed, for lack of a better word, is good”. I think the line should be changed to “Greed on Wall Street is good…for the real estate market”.

What I am referring to are the various things that have happened on The Street in the past 25 years that have changed the perception of real estate as an asset class to Americans. The insider trading scandals of the early 1980s are well documented and created a ground swell of skepticism in the stock market and those responsible for trading its securities. Until that time, investment in real estate had been primarily viewed as an activity for risk taking entrepreneurs and a few large institutions. So many people were burned in these insider trading scandals that purchasing stocks, which was previously seen as relatively conservative, was falling out of favor and increasing numbers of people became interested in purchasing investment properties. During the 1980s allocations of institutional investors toward real estate continued to grow and the pool of private investors seeking commercial real estate opportunities followed suit.

The popularity of the real estate investment trust (REIT) brought the ability to purchase commercial real estate to even the smallest of investors. Real estate was becoming a Main Street investment vehicle and private capital had a significant impact on the market recovery experienced during 1993, 1994 and 1995 as the RTC implemented its disposition strategy. Professional management and institutional style ownership became more popular, even in segments of the market where it hadn’t previously existed such as the small property market.

Throughout the late 90s and in 2000, internet companies were growing wildly, some trading at infinite price earnings ratios because they had no earnings and were selling at prices which would indicate that they did. I remember clients telling me, “Bob, why should I buy that building at an 8% cap rate when I am making 25% per year with my internet stocks?”  Then along came March of 2001 and the tech stock bubble burst. Many of these investors, who lost millions, were investing in little more than smoke and mirrors. Yes, some people made money, a lot of money, but most lost significant equity. Consequently, the attraction of tangible asset, like real estate, got another shot in the arm. So much so, that in the New York City real estate market we were not even aware that the country was experiencing a recession.

Stock market investors rationalized that internet firms produced no tangible products and had no tangible track records so their investment criterion had to be altered. Of course these investments were ill conceived as the investors ignored the basic fundamentals investing in operating companies. They felt a return to looking at the fundamentals of the companies they would invest in would be prudent so back to blue chip stocks it was. Blue chip companies at the time included Enron, WorldCom and a host of others that were soon out of business due to poor management, cooked books, bad decision making, fraud or a combination of all of these. These scandals were so well publicized that in the following years more capital was deployed into commercial real estate investment than at any time before.

In the summer of 2007, the subprime crisis began to unfold publicly. The result of excess and greed, this crisis still has a long way to go before it is behind us. The investors in these bad loans had very little knowledge of the quality of the underlying assets these loans were collateralized by. The stamp of approval by a rating agency or the issuer was all the investor relied on. Investors, now more than ever, want to understand what they are investing in. Real estate is so transparent. It is so easy to understand. The income is what the income is, as are the condition of the property and the operating expenses. I’m not saying that being a successful real estate investor is easy. It is not. It takes creativity, instinct, guts and capital. It is, however, transparent so if you want to know what you are investing in, invest in real estate.

In the most recent chapter, auction-rate securities fraud has dominated the headlines. Offering investors slightly higher yields than money market funds or other fixed-income investments, auction-rate securities are a type of short-term debt that gained popularity. They also allowed issuers, including municipalities, student-loan organizations, corporations and charities to borrow for the long term, but at lower, short term interest rates. These rates reset in weekly or monthly auctions conducted by Wall Street firms. In November of last year, I was marketing a $45 million, elevatored apartment building on the upper west side which would have required about 20 million in equity at the selling price. An investor who said he really wanted to buy the building said, “Bob, why should I invest 20 million of equity into this property with no return at all on this equity. I could buy Treasuries or auction-rate securities and make 3 or 4% on my money.”  Well Mr. C, I’ll tell you why:  In February, this $330 billion market stopped functioning when Wall Street firms stopped supporting it with their own bids. These securities were marketed to investors as cash or cash equivalents. In recent weeks, an avalanche of litigation has brought to light many inappropriate actions by participants in this market such as brokers selling personal auction-rate holdings just prior to general public awareness of the impending collapse of the market. To date, investment banks have committed to reimbursing some of their clients approximately $40 billion due to the illiquidity of auction-rate securities. Former SEC chairman Arthur Levitt recently said, “The image of firms being dragged to the table is destabilizing. Very few issues have shaken public confidence in the integrity of our markets as much as this.”

So, will this encourage even more capital to be earmarked for investment in commercial real estate? I realize that investors who were buying auction-rate securities are very risk averse and certainly will not equate buying auction-rate securities or T-bills with buying commercial real estate. And don’t get my thesis wrong, I realize that Wall Street is a critical component of the New York City economy and real estate markets in many ways. A large percentage of the billions of dollars of bonuses made on the street each year support the strength of our residential market. The financial services sector represents a significant percentage of the tenant base in our office buildings. We should credit Wall Street with creating and popularizing REIT investing. The mortgage backed securities business had added significant liquidity to the commercial market and while CMBS activity is down 95% from 2007 levels, I am sure this market will make a comeback in one form or another. Whether its resurgence is in a modified form or in the form of covered bonds, which are so popular in the commercial real estate market in Europe, we will be dependent on Wall Street for its implementation.

Participants in the New York building sales market should be thankful to those guys on Wall Street, both for what they do right and for what they do wrong. They both help our real estate market albeit in different ways. I am a fan of anything that helps our industry so I am a fan of Wall Street.

Agents: Robert Knakal

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