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A 4-story, rent stabilized walk-up apartment building located on the Northwest corner of 43rd Avenue and 46th Street in Sunnyside, New York.

The property is within walking distance to all public transportation. There are twelve (12) two-bedroom apartments and four (4) one-bedroom apartments.

There is tremendous upside in rents.

Click here for listing details.

Neighborhoods: Sunnyside/ Agents: Stephen Preuss

Featured Closing: 1600 Central Avenue

9/30/2008 11:46:58 AM/ Kari Neering/ Closings

An immaculate five-story office building with one passenger elevator and one freight elevator located just minutes from the prestigious Five Towns area of Long Island sold to a Brooklyn investor.

The
building is currently 90% leased, and the seller will lease back the remaining space for 12 months upon closing. The property also has secure parking for 74 vehicles.

The Far Rockaway sale closed at $12,150,000.

Neighborhoods: The Rockaways

It is no wonder that there has not been much talk recently about the massive budget deficits that we are facing on a city, state and federal basis. Of course, there have been other things on our minds and on the minds of politicians. The Investment in America Plan (aka The Bailout Plan, aka The Emergency Economic Stabilization Act of 2008 (EESA)) has been front and center. It appears this Act will be voted on within the next day or two and this, if passed, should provide a necessary boost to the flow of credit in the marketplace. The tightening of credit has been gaining momentum during the last two months as the crisis is becoming more problematic in some areas.

The housing market continues to take its lumps as 6.6% of all mortgages were at least 30 days past due at the end of August. Signaling that things are not improving, this delinquency rate was 5.8% at the end of June and was 4.5% one year ago. This rise in delinquent loans has been driven by mortgages originated in 2006 and 2007 when lending standards were the least restrictive. Mortgage delinquencies have been on the rise for three years which has led to substantial losses for banks and institutions holding securities backed by mortgages. Moody’s Economy.com estimates that from 2004 through 2007 banks made risky mortgage loans (subprime, Alt-a and Ninja loans) on 15 million homes and as many as 10 million may go into default. These defaults will force home prices lower and have the effect of making lenders more conservative. As lenders lose their appetite to lend, those actions, along with the weakening economy, are creating a downward spiral and are exacerbating an already troubled market.

Short term money markets also remained in turmoil demonstrating that credit tightening may harm the broader economy, hence the importance of the EESA.  These short term markets afford companies with ample cash reserves the opportunity to access extra dollars by investing in securities with short life spans of just days or weeks. All of this capital helps keep the economy lubricated by making those funds available to other firms needing to buy inventory, meet payroll, etc. These short term markets are all but hidden from the general public and include the floating-rate municipal bond market, the overnight Treasury repo market and the short term commercial-paper market. Last week the commercial paper market contracted by $61 billion, its largest decline in over a year. There is such a lack of confidence in the markets that banks and funds aren’t extending credit to customers even for a few hours during the day, as they typically do. Companies are continually monitoring the debt markets, where rates on any debt that matures in more than one day remain elevated. These elevated rates are the result of increased demand for safe Treasury bill type assets. In fact, the benchmark 10-year note yield fell to 3.862% last week.

With credit tough to come by and confidence low, it is critical that EESA gets approved. We need credit availability to get the economy moving. This Act will not be a solution by itself but it is a needed component of the solution. We have been fortunate that debt has been available from portfolio lenders for our moderately priced investment properties in New York. In fact, it is interesting to see that the commercial mortgage lending unit of WaMu was a highly profitable division of the failed bank. We were working on two transactions where WaMu was in the process of providing the debt and these transactions are right on track with the only change being the bankers now have different phone numbers. It has been our contention that the high profitability and low risk nature of today’s loans are providing incentive to the lending community to deploy capital into our market sector. Access to debt on a larger scale is still a challenge and perhaps EESA will help jumpstart that sector. These are positive developments for our building sales market where we are thirsting for positive news.

In addition to the current credit crisis, we have to be concerned with the massive deficits that are projected in various budgets. For 2009 the New York City budget is expected to have a deficit of $2.6 billion, the New York State budget deficit is forecast to be $5-6 billion and the Federal deficit was estimated at about $500 billion BEFORE the bailout plan was contemplated. The concern we have is that the bridging of these deficits will be effectuated by large, across-the-board tax increases. But tax increases are not the solution. The need has never been greater to reduce government spending. To his credit, Governor Paterson has been one of the few politicians who have been speaking out about cutting government spending. Budget gaps must be balanced with a combination of spending reductions and tax increases (as opposed to tax increases alone). I find it interesting that no one wants to talk about spending cuts. But after all, reductions are controversial as voters don’t like to think that sectors which are important to them may receive funding cuts. In the debate last Thursday, it was interesting to see how both presidential candidates sidestepped the issue. Senator Obama, when asked what specific spending cuts he would endorse, simply said he would cut wasteful programs and then spent the rest of his allotted time discussing what he wouldn’t cut. Senator McCain, when asked the same question, said he would consider a spending freeze and would also look to cut wasteful spending without mentioning any specifics. The cuts that are required are not just dollars spent on wasteful programs. Some real pain will be felt and should be spread across the board. If you have the ear of a politician in the coming weeks, remind them that spending cuts are necessary and are likely to be more acceptable to the public based upon the upheaval in our economy.

Regardless of who wins in November, it is very likely that our taxes will increase, and on all levels, city, state and Federal. The New York City economy will be adversely affected on a disproportional basis due to the high concentration of high income earners here. An even bigger concern is the status of the capital gains tax. An increase in this tax slows building sale transaction volume as the costs of selling become prohibitive. In a market where our volumes are already challenged, another incentive not to sell is the last thing we need. We should learn from experience. When the Cuomo tax went into effect in the 1980s, transaction volume dried up and tax revenue did not increase as much as projected. I vividly remember hundreds of conversations I had with potential sellers during the Cuomo tax years who liked the valuation we came up with for their property but who ultimately decided not to sell based upon the high costs associated with a sale. When the law was eliminated, the market reaction was so positive that tax revenue jumped significantly based upon the unclogging of the pent up demand to sell. Let’s hope Washington can provide some much needed relief while not relying on taxing us to death to accomplish their objectives.

Agents: Robert Knakal

Featured Listing: 58 5th Avenue, Brooklyn, NY

9/29/2008 2:18:05 PM/ Massey Knakal/ Listings

Mixed-use building located on established Fifth Avenue retail corridor in Park Slope, Brooklyn.

Two free-market apartments over a 900 sq. ft. store leased to a national tenant (Flight001.com). Significant air rights for additional development potential.

Located one block from the 2, 3, 4 trains at Bergen Street.

Click here for listing details.

Neighborhoods: Park Slope

Featured Closing: 610-616 Burnside Avenue

9/29/2008 10:35:57 AM/ Kari Neering/ Closings

A highly visible retail property located just off the Nassau Expressway in the Inwood section of Long Island just sold to a retail business for $1,300,000.

Delivered vacant, the new owner will use the retail space to sell his construction products.

Neighborhoods: Nassau County

Featured Listing: 313 East 18th Street

9/26/2008 3:36:25 PM/ Kari Neering/ Listings

Massey Knakal has been retained on an exclusive basis to arrange for the sale of the Vested Remainder Interest for 313 East 18th Street, currently held in a life estate.

The property is a 20-foot-wide, four-story townhouse on the north side of East 18th Street between First and Second Avenues. It contains approximately 3,200 square feet. This interest is not entitled to collect any rents nor is it responsible for any expenses, real estate taxes, insurance, repairs or maintenance to the premises.

The property cannot be sold by the Life Estate Owner without thewritten consent of the Remainder Interest Owner.

All bids on this property are due by Friday, October 3 at 5 p.m.

Neighborhoods: Gramercy Park/ Agents: John Ciraulo

This sale comprises a one third Tenant in Common Interest in the buildings located at 801-03 Greenwich Street. The current seller has the use of the ground floor retail and fourth floors of 803 Greenwich Street as well as the fifth floor of 801 Greenwich Street. 

The buildings are ideally located in the heart of Greenwich Village and steps from the Meatpacking District. Fashion retailer Martin Margiela, whose parent company is Diesel, recently occupied the ground floor retail space for $119 per square foot—a premium rent. This interest in the property can be sold almost entirely vacant and would be an ideal opportunity for either an investor looking to ultimately control the entirety of the two buildings or for a user looking to live in or operate their business out of the property.

Click here for listing details.

Neighborhoods: Greenwich Village/ Agents: James Nelson

In The News

9/26/2008 1:59:20 PM/ Kari Neering/ News

The PR Department is pleased to announce that we were featured in 18 news articles in the last week .
 
Of note:
- Wall Street woes dominated the news. Chairman Robert Knakal was a lead source on this matter for several publications including The New York Sun, The New York Times, Real Estate Weekly, Globest.com and The New York Observer.
- Michael Amirkhanian and his viewpoints on Bed-Stuy were all over Globest.com.
- Rob Shapiro's territory article on the bright spot in today's market made the pages of Real Estate Weekly.
- Tom Donovan's appointment to the Brain Tumor Foundation also made the pages of Real Estate Weekly.
 
These articles and others can be found at the new www.masseyknakal.com under News. 
Have a great weekend everyone.  

Neighborhoods: Bedford Stuyvesant, Washington Heights/ Agents: Michael Amirkhanian, Robert Knakal, Robert Shapiro, Thomas Donovan

Featured Closing: 14 Olive Street

9/26/2008 1:13:19 PM/ Kari Neering/ Closings

$630,000 was what it took to secure a commercial development site in the Williamsburg section of Brooklyn.

The buyer, a Queens user, will use the site as his industrial shop and part of the lot will be for parking.

Neighborhoods: Williamsburg/ Agents: Mark Lively

This brick three story mixed-use building consists of two floor-through apartments and a commercial unit with an extension on the ground floor.

There are also 1,117 square feet of available air rights associated with the property which allows for the possibility of future development. It is located just steps from the waterfront and less than three blocks away from the Greenpoint Avenue G train station. The building will be delivered fully vacant at closing.

Click here for listing details.

Neighborhoods: Greenpoint/ Agents: Mark Lively

A twenty-five (25) foot wide four-story mixed-use building on the west side of Second Avenue between East 80th and East 81st Street.

The property contains one commercial unit on the ground floor and fifteen (15) apartments above.

There are over 11,326 square feet of air rights remaining.

Click here for listing details.

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

20' wide, 4 story walk-up apartment building located on Marlborough Road. The property is approximately 5,750 sq. ft. and consists of 8 residential apartments.

The property is located steps away from the B and Q trains and other transportation. The units are newly renovated. The property is perfect for an investor looking for immediate and adequate cashflow.

Click here for listing details.

Neighborhoods: Midwood

This 50-foot-wide apartment building with 18 residential units in the Bedford-Stuyvesant section of Brooklyn was in good condition, which helped it sell for $1,335,000.

Neighborhoods: Bedford Stuyvesant/ Agents: Michael Amirkhanian

I’m often asked by investors, “How is downtown Manhattan faring in these uncertain markets?” My answer is that it’s well-positioned to weather the storm. With so much new construction downtown is vibrant, modern and has upgraded infrastructure. Downtown also borders culturally diverse and unique neighborhoods like TriBeCa and Chinatown, which makes it an even more exciting place for investors.

 

Government support

According to the Downtown Alliance, which manages the Downtown-Lower Manhattan Business Improvement District (BID), downtown Manhattan is the fourth largest business district in the U.S. with more than 90 million square feet of office space. In the last seven years a tremendous effort by government, local advocates and residents have remade the district into a 24/7 community. Federal and state officials, in addition to the Bloomberg administration, implemented an array of measures to get business and residents back to downtown. The Liberty bond program has helped with billions in tax-exempt financing for downtown; The Industrial and Commercial Abatement Program (the former ICIP) is an ambitious public works redevelopment program; and a new Fulton Street Transit

 

Station and Fulton Street beautification program is in the works. In May 2008 at a Real Share conference, City Council member Alan Gerson also expressed support for business and stated that government can learn from and work with the business community to bring more retail and supermarkets to downtown. More recently, the Department of City Planning approved a rezoning initiated by a developer and changed the manufacturing M1-5 zoning to a commercial/residential C6-2A zoning in an area close to Chinatown. The rezoning is another sign that city officials in charge of downtown understand the needs of the business community and are flexible in their approach to zoning issues.

 

Visible results

The results of all the efforts to attract businesses and residents are visible – of the 312,000 employees who work downtown, about 55,000 also live there (as compared with about 20,000 in 2001). According to the Downtown Alliance statistics, the average downtown salary in 2007 was $127,619 - almost twice the average for Manhattan. Not surprisingly, a high-end retail corridor has come to life on Wall Street and Broad Street. Tiffany’s recently opened its first new location in Manhattan there, and Hermes. Canali and Thomas Pink have set foot nearby. Additionally, the highest grossing BMW dealership in the U.S. is also on Wall Street. 

 

With the relatively inexpensive dollar and the eternal Manhattan mystique, tourism is also booming. More than six million people are projected to have visited lower Manhattan by the end of 2008.  Occupancy rates in 2007 for downtown hotels was at a phenomenal 88%, about 10% higher than the average for Manhattan and about 30-40% higher than the industry average. Because downtown attracts a large number of business visitors, its average daily rate was at $340 -over 25% higher than the average rate in the city. A number of owners have decided to cash in on the great revival of downtown – a building at 6-12 Water Street sold for $450 per buildable SF in early 2008. Massey Knakal is currently marketing a development site at 90 Water Street, off of Wall Street, a great location for a hotel.

 

Exciting new projects

A number of large investors and real estate owners consider downtown their base and in the past few years have engaged in many exciting new projects. Joseph Moinian is currently building a luxury W Hotel south of the World Trade Center site at 123 Washington Street and has finished a renovation at 95 Wall Street, a luxury rental designed by Philippe Starck. William Rudin is focusing on improving his buildings and making them the “most wired and technologically advanced in the country,” while Kent Swig of Swig Equities continues to buy office and residential building. In May 2008, Swig Equities announced it will convert 45 Broad Street to a luxury hotel and residential project with a Nobu restaurant, spa and retail on the ground floor. 

 

As Mr. Swig famously said when asked why he likes downtown: “With rents of class A office buildings downtown relatively inexpensive to Midtown you can hire limousines for all your senior executives and have them at your disposal 24/7 and still save a great deal of money on rent.” While parking is difficult downtown and the constant construction slows you down, Mr. Swig’s argument makes very good sense. Rents for class A office space are $55 downtown vs. $75 in Midtown. When incentives and tax abatements kick in, average rents downtown tend to be closer to $40 per square foot. 

 

Challenges and predictions

While the economy has recently slowed and Wall Street seems more somber, downtown still holds its own with other areas of Manhattan. Analysts mostly fear that developers or converters will not be able to finance their projects and that an increase in the vacancy rate of office buildings will put downward pressure on rents, which may lead to foreclosures. The Wall Street slowdown may also put pressure on retail purchases and thus, on retail rents.

 

While all of these arguments have some validity, we do not expect the slowdown to lead to a major unraveling of the building sales markets or rental prices in the next 12 months.  Yes, projects with low cash flow (developments/conversions or rent stabilized multifamily properties) will probably experience a very challenging environment if they need to finance or refinance now, but the bigger projects will probably survive.  Financial institutions have started giving discounts on commercial mortgages in an effort to reduce their risks to defaults. Debt funds are for now waiting on the sidelines but have large cash piles. Real Estate Alert, a trade publication, estimates that in 2008 there are at least 55 active or planned funds, which have raised $33.8 billion for commercial real estate debt.

 

The average vacancy rate for office buildings in downtown Manhattan is about 7.7%, according to Cushman & Wakefield.  The number, while up from the last quarter, is still quite low by historical standards. The WTC and the Fulton terminal have experienced delays, yet gone are the naysayers who only about a year ago thought that developer Larry Silverstein would find it challenging to rent the World Trade Center.. Since 2005 more than 20 % of the new commercial tenants downtown have been from counter cyclical industries like education, health care and non profit organizations, which should cushion a potential blow to rents. While buying power of the downtown population has been affected, it is still strong– e.g. Battery Park residents have an average salary of $315,000.

 

Yes, the promise and excitement of downtown is well and alive, we just need to dance a cautious dance for the time being.

 

 

 

Neighborhoods: Financial District

The events of the past week have, without doubt, marked a definitive turn in the evolution of American capitalism. The shocks delivered to us in “Black September” have been the most profound since the Great Depression in the late 1920s and 1930s. This has prompted the Secretary of the Treasury, Henry Paulson and Fed Chairman, Ben Bernanke to propose the most significant government intervention since the Depression. This was all done to avert systemic economic devastation. And the repercussions to our real estate market are numerous. What will happen to unemployment and capital availability? Unemployment has the most profound affect on our real estate market fundamentals. It affects office occupancy rates, residential occupancy rates and residential for-sale unit volume. The lack of capital availability has stalled the institutional quality building sales market. The problem is that no one really knows where we are headed. 

 

The volatility of the Street has had significant consequences. Gone is the conviction that the free market is the most efficient route to prosperity. The thought that the financial markets should be unleashed to allocate capital, absorb risks, enjoy profits and realize losses has been suppressed. Erased is the thought that when the markets are inefficient they will correct themselves. Also scrapped is the thought that the government’s role is to minimize its involvement, limiting itself to protecting small investors and consumers, establishing the rules of the game and stepping in only when necessary to cushion the economy from shocks like the stock market crash of 1987 and the instances where large institutions like Long Term Capital Management collapsed in 1998.

 

Many politicians today claim that the problem is that the regulation system is antiquated. Indeed it is as many of the parameters were established in the Depression era. But the larger problem is that financial instruments have become so complex that most people who are trading them don’t even understand them. Who really knew what the potential risks were if MBS securities went wrong? If anyone really knew the risks, wouldn’t at least one of the companies holding these securities sell all of them when they could have to save themselves? They didn’t do it because they were not aware of the risks and ramifications. So if you had regulators overseeing what these issuers were doing, would they even know what to look for? I don’t think so. Regulation sounds good in theory but the regulators would have to know more about the financial instruments than the creators of the instruments because, clearly, even the creators did not fully understand the ramifications of their innovation. An inevitable result of this crisis will be an attempt of more control by government of our financial system.

 

In the last two weeks, the US government which has been the supporter of the free market system and champion of private enterprise has:

 

   •    Nationalized Fannie Mae and Freddie Mac, the two engines of the mortgage industry which required taxpayer dollars to keep them viable.

 

   •    Needed to inject an $85 billion loan to American International Group, Inc. and will implement an orderly disposition of all of its assets.

 

   •    Allowed the 158 year old Lehman Brothers to crumble as the investment bank could not raise capital needed to stay afloat.

 

   •    Extended beyond FDIC insured bank accounts government guarantees of $3.4 trillion of money market mutual funds deposits.

 

   •    Banned the short selling of 799 financial stocks. Short selling has been an integral part of our equities market.

 

   •    Encouraged the transaction which saw Merrill Lynch sold to Bank of America.

 

And...

 

   •    Asked Congress to ratify a massive and unprecedented plan to have the government acquire hundreds of billions of dollars of toxic illiquid mortgage related assets from financial institutions so they can strengthen their balance sheets, raise capital and resume lending.

 

These are historic times. Nothing like this has ever happened and even if you look at 1933 when numerous banks were shuttered, we haven’t seen anything so sweeping. In the Depression, the government action was taken after the disaster had hit. Here the government has acted preemptively. As bad as things have been, it is surprising that things haven’t been worse for our economy and our real estate market.

 

In 1991 Congress enacted a law which required banks to increase the amount of capital reserves they were required to hold. This is the primary reason that this crisis hasn’t led to a complete disaster. Banks were on stronger footing going into this crisis than banks were in the early ‘90s which saw 843 banks fail. This time around, only 11 have failed thus far. The problem with the 1991 law is that it did not apply to institutions other than banks. Insurance companies, investment banks and mortgage companies are not subject to these regulations. In fact, investment banks were leveraging capital by a 30 to 1 margin leaving them incapable of meeting capital requirements if things went wrong, which they did based upon rotten mortgage securities. Therefore, regulation of these entities will likely be addressed this time around but regulators must look to the future. They must look at what financial instruments will exist in the future and not only look to regulate what created our problems in the past. They must understand the derivatives market and the risks inherent in these products and how to regulate them. Clearly, almost no one knew how much risk was associated with MBS and their related derivatives. How can you regulate something you do not understand?

 

There are times when the government has to step in to provide guidance and stability to the markets. What Secretary Paulson and Chairman Bernanke have done, so far, was unavoidable and what they have proposed, while compromising our free market ideology, is necessary to protect taxpayers and minimize our exposure. But the government is always involved in some way in our markets. They need to be there, always have been and always will be. So if you think this government intervention is constraining our capitalistic system, consider this: Do you as a property owner really own your property? Yes, you can make management and strategic decisions, decide when and what to renovate and who to lease space to (provided you do not own rent regulated apartments but that is another conversation for another day) but what happens if you do not pay your real estate taxes? Pay your taxes and capitalism is available to you. Don’t pay and the government will own your property. This is contingent capitalism which is the way it always has been and always will be. So don’t think that what is happening now flies in the face of capitalism. It does not.

 

So why all of this talk about banks and the Fed and the Treasury Department and the government? Here’s why: Our real estate market needs the banking system to be recapitalized so that the stream of debt into our market is free flowing. Sure underwriting should be more conservative but if our fundamentals stay strong, why shouldn’t banks invest in mortgage products? Spreads have exploded and risk has been reduced based upon the low loan to value ratios. If lenders have capital, they should be pouring it into New York City real estate. Net interest income alone can, over time, recapitalize the industry. Lending will come back much stronger than it has been recently and this will provide a shot in the arm to our market. The Fed, the Treasury and the government can, to some degree, enhance this flow of capital and I applaud their attempts to assist in stimulating the necessary liquidity to the banking system which is so desperately needed.

 

Agents: Robert Knakal

Now I know that some of you will jump down my throat and accuse me of wearing my rose colored glasses and laying some broker BS on you just based on the title of this installment. So let me first acknowledge that, looking at the financial sector as a whole, we are in troubled times and in unchartered territory. Our entire “free market” philosophy is being challenged, 158 year old financial giants are going bankrupt and the Government has seized the country’s largest insurance company. Inflation is high, credit is tight, mortgage delinquencies are rising, foreclosures are rapidly increasing, consumer spending is slowing, consumer confidence is in the toilet and people are liquidating money market accounts based upon fear and these accounts have always generally been considered as good as cash. Budget deficits on the City, State and Federal level are ballooning and not too many people are talking about how to address them. The Misery Index, which is calculated by adding the rate of inflation to the rate of unemployment, is being referenced in the Wall Street Journal. This index hasn’t been discussed since Jimmy Carter was in the White House. The future of the entire investment banking industry is in question. So, do I see what is going on out there? I do.

 

When addressing the investment sales market in New York City, the level of activity in the market is almost always conveyed as an aggregation of total sales prices for all property types and sizes. The reports I have read recently show investment sales activity down by as little as 59% (by Cushman and Wakefield) and by as much as 85% (by Jones Lang). Without knowing the parameters of their studies it is not possible to explain the very large discrepancy in these numbers. We do not put as much significance on this measurement as a few transactions can greatly skew these figures (the sales of Peter Cooper Village/ Stuyvesant Town for $5.4 billion or the purchase of the EOP portfolio for $7.0 billion for example).

 

At Massey Knakal, we think it is important to segment the market and address the sector which affects the overwhelming majority of our clients. That is the sector of income producing properties (both commercial and multifamily residential) with sale prices below $100 million. We recently completed our study of the first half of 2008 (the report is prepared by the appraisal firm Miller Cicero) and were pleasantly surprised by the results. The number of transactions was down only 31%, the aggregate sales price was down 35% and prices were off their peak by only 5% down to $222 per square foot (this price per square foot based on a consolidated median basis). Capitalization rates have inched up from 5.5% to 5.8%. All of these metrics were compared to the first half of 2007 which will, undoubtedly, be viewed on as the absolute top of our recent cycle. The question is, why has this segment performed so much better than larger properties? Here are some reasons:

 

The midsized property sale market has been a significant beneficiary of the recent financing environment. Most of the lending that has occurred has emanated from portfolio lenders which make loans and keep them on their balance sheets (or in their portfolios, hence the name). This is opposed to lenders that made loans and sold them to the secondary market in order for them to be securitized and sold to investors. As the buyers for these securities evaporated, so did the entire commercial mortgage backed securities (CMBS) business. CMBS transactions were down by 90% in the first half of 2008. Portfolio lenders have stepped into the void are providing debt for our clients and their view of the current lending market is positive, provided they have capital to lend. If you look at the banking business, the spreads, or profits, lenders make on each loan is now as much as ten times as large as they were 16 months ago. Spreads had been as low as 35 or 40 basis points and today they can be as much as 400 basis points. Some lenders are looking for even higher spreads and will likely get takers for that expensive money based upon the lack of capital at some banks, which limits the choices borrowers have.

 

While these loans are more profitable for the lender, the loans are also accompanied by less risk as loan to value ratios have gone from 75% to 85% 16 months ago to 60% to 65% today. From the lenders perspective, they are making more profit with less risk so the motivation to make loans is very high. The caveat is that the lender must have the capital to lend. It is anticipated that the proposal made last week by Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke to Congress will, if passed, loosen credit by creating more capital availability for banks. Net interest income for local and regional banks is high and this dynamic will assist the banking system in recapitalizing itself.

 

The midsized property sales market has also benefited from the amount of equity that is available and the relatively low actual dollar amounts that are needed to close transactions. Even with only a 60% loan, a $10 million transaction can close with approximately $4 million of equity. There are hundreds of investors with $4 million dollars available for an acquisition. If we examine a $250 million transaction the same way, $100 million of equity would be required. The number of investors who have that kind of equity is significantly lower and this pool is reduced even further by the reluctance of those who have that amount of equity to invest it in one transaction. This dynamic bodes well for the smaller property segment.

 

If we look at sales activity in Manhattan (south of 96th street on the east side and 110th on the Westside), Northern Manhattan, Brooklyn, Queens and the Bronx, we see that the largest reductions in sales activity have occurred in Northern Manhattan and the Bronx. In the Bronx sales activity is down by 42% and in Northern Manhattan the reduction was 63%. We believe this is due to the fact that these markets benefited the most, in relative terms, during the last 7 years as institutional investors showed a strong appetite for multifamily properties here for the first time in any significant way. This new demand segment compressed cap rates and raised gross rent multiples. As turnover of regulated apartments was not meeting projections, these institutional investors began to question aggressive proformas and their hunger for product has abated. Prices in Northern Manhattan are down by 35% but, surprisingly, prices in the Bronx have remained fairly consistent. Sales activity in Brooklyn and Queens has been the least adversely affected as volume was off by 22.5% and 17.6% respectively. Manhattan experienced a reduction of 36%.

 

The overall volume of sales in the first half of 2008 was approximately 2.2% (annualized) of the total stock of properties. This compares favorably to our market baseline of 1.6% which was the minimum level of activity from non-discretionary sellers that we saw in 1990 and 1991 when the only people who were selling, had no choice. This means that 27% of sellers who sold properties during the first half of the year, chose to. We believe this number would have been significantly higher if potential sellers were aware that pricing in this sector had some fairly positive inertia.

 

In terms of returns (cap rates), walk up apartment properties are a good reflection of investor sentiment as the statistical sample is significant in all boroughs. In Northern Manhattan investors are now seeking an average yield of 6.1% as opposed to the 5.4% that satisfied them in the first half of 2007. In the Bronx, the yield requirement remained the highest at 7.4% with Brooklyn and Queens investors requiring 6.6% and 6.2% respectively. Cap rates in Manhattan remained below 5% at 4.8%, which was up from 4.0% in first half 2007.

 

Since the period covered by the report (ending June 30), the market has softened, but not significantly. We expect that prices may have fallen another 5% or so and volume appears to be steady as we get the word out about the relative health of prices. Is there a reason to be optimistic? Notwithstanding my first paragraph today, I think so. Let’s see if Congress can pass the proposal before them which, we hope, will free up capital for the banking system to pump back into our market. It will be a long road but each day we get closer to a recovery.

 

Have a great week, Bob.

 

Agents: Robert Knakal

The Cove Club Retail Condominiums are an exceptional investment opportunity located on the Battery Park City waterfront. Almost 4 full city blocks of retail frontage. Lease for largest tenant expires in 2010 and is currently 45%+ below market. 

All units benefit from having either high ceilings or water views. With its ideal downtown location and the ability to deliver over 600 feet of retail frontage, this property is ideal for both investors and end users alike.

Great upside in rents and an excellent location.
 
Click here for listing details.

Neighborhoods: Financial District/ Agents: Brock Emmetsberger

There's little positive news in the media today, but I have found one bright spot from a developer who is still reporting very strong sales. Kenneth Horn, from Alchemy Properties, is finishing two condominium projects this year at 125 West 21st Street (The Indigo Condominium) and 50 West 15th Street (The Oculus Condominium).

At the Indigo, where closings started on or about May 1, 2008, Ken reports that 47 of the 52 units have closed. All of the units were sold at the asking pricing and about seven of these units were sold after July 1, 2008.

Meanwhile at the Oculus, 42 of the 46 units sold. About seven of the units have been sold since July 1, 2008. Ken said he has had an issue with only one buyer who is having difficulty with obtaining end loan financing. For both projects, they are achieving sell outs of $1,200-$1,300/ft.

Alchemy also closed on two construction loans so far in 2008 with 303 East 77th Street in March and 800 Tenth Avenue in July. Ken said the closings were lengthy and more difficult than in the past, but the loans did close.

Clearly, it's the developers with track records who are getting projects done. This audience of buyers seems to be growing smaller and smaller, but it is encouraging that closings have continued to happen.

Neighborhoods: Chelsea/ Agents: James Nelson

Featured Closing: 107 East 35th Street

9/22/2008 10:16:57 AM/ Kari Neering/ Closings

An 18.75' wide, 5-story property with a basement in Murray Hill sold for $4,600,000 to a 1031 Exchange buyer.

The 7,715 square foot townhouse is a mix of 7 free market units and 4 rent stabilized units. The property is situated in the Murray Hill Historic District.

Neighborhoods: Murray Hill/ Agents: John Ciraulo

This four story, mixed-use building in Chelsea with a selling basement was formely home to the night club "Suede" on the ground floor.  The ground floor is now vacant and, with a part of the basement, is approved for restaurant and cabaret use (Use Group 12A retail). 

The second and third floors have a Certificate of Occupancy for offices while the fourth floor is approved for residential use.

This property would present an ideal opportunity for investors, users, and developers alike.

Click here for listing details.

Neighborhoods: Chelsea/ Agents: Brock Emmetsberger, James Nelson

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