Halstead Property

Diane M. Ramirez
President
dramirez@halstead.com
(212) 381-3203

Industry Luminaries Look Ahead What Can We Expect In 2009

CAPITAL MARKETS

"I've been a contrarian all my life. and I don't believe all the doom and gloom that everyone else sees. We've taken a steep fall, but the rise will by just as steep. The developers who are still standing will be so because they will have maintained the strategies that have always kept them around. Those who didn't have a good strategy going in, who were overleveraged, are the ones in trouble. Some buildings were financed based on 10% compounded rent growth, and this created huge leverage. Those buildings themselves are sound - but the debt on them in many cases is too high for the owners to fight their was out, and the banks will have to take some loss." -Douglas D. Durst, president of The Durst Organization

"We need to unfreeze the credit markets. To do that, we need a structure that will lend credibility to these loans, so people will buy them. They need backing similar to what the government is providing for auto, student and small business loans. The industry must make the case that there'll be systemic risk to the economy if credit is not made available - then we have to work with the mayor and the governor to ensure we have shovel-ready projects that have a long-term ability to stimulate the economy." -William C. Rudin, president of Rudin Management Co., Inc.

"In 2009 about $400 billion in real estate loans - commercial, including multifamily - will come up for refinancing. Most commercial buddings are financed by five- to seven-year mortgages with very little amortization, so at the end of the term you'll have to borrow the same amount again, and who's going to lend to you? We hope to see a consortium of banks backing these loans and some backing from the government with Troubled Asset Relief Program money. Also, REBNY will do what it can to persuade the state legislature not to push companies out of the city by raising their taxes - which would be the worst possible long-term decision." -Steven Spinola, president of REBNY

INVESTMENT OPPORTUNITIES

"It's likely we'll see a lot of acquisition in 2009. There will be some in the third and fourth quarters, but for now there's a lot of sorting-out to be done. The following 30 to 48 months will present many good acquisition opportunities that we could not have taken when the market was too rich, too flush. I see opportunities to place our senior preferred equity and mezzanine debt: not buying loans, but originating them with our own capital, raised from credit investors - and we still syndicate, as my grandfather did in 1934. Pricing will adjust downward, which means opportunity for those who are prepared to commit capital. You'll have to have guts to play in this market, though." -Anthony E. Malkin, president of Wien & Malkin

"The credit markets, while still relatively frozen, are thawing slightly around the edges. There's plenty of debt available for assets under $50 million, and new banks are being formed with the purpose of making loans in that space. People are going in find much more allure in hard, transparent, income-producing assets now, in the wake of the scandals involving Bernard Madoff, Fredric Dryer and others. Current uncertainties, coupled with low interest rates, will make real estate look attractive. In the 1970s, real estate was a game for maverick investors; today it's relatively safe." - Robert A. Knakal, chairman of Massey Knakal Realty Services

"There's still financing available for commercial income-producint properties priced under $50 million - although at lower loan-to-value and with more stringent underwiting of current net operating income. Most transactions in that price range are with private investors, who tend to act entrepreneurially, and we still see a fair amount of activity from them, since after all they've been waiting for this very opportunity. Private entrepreneurial investors have always evaluated investment real estate on income/expense analysis, and thus they were less competitive when the market belonged to the more speculative, leveraged investor who was looking for future growth." -Edward M. Jordan, Northeast regional director for of the special assets services group of Marcus &. Millichap

RESIDENTIAL SALES AND DEVELOPMENT

"Price-wise, big apartments are taking the biggest hits. Historically, in the past 20 years, the upper end of the market has been the most insulated, but now, with the financial world the hardest hit, buyers are shying away from larger units. In markets like this you tend to see a flight to the familiar. Buyers feel more secure investing in more established neighborhoods. Therefore we anticipate that as in other downturns. the Upper East and West Sides, the West Village, and the most established areas of TriBeCa will remain strong." -Frederick W. Peters, president of Warburg Realty Partnership

 
"With the expiry of the Section 421a tax abatement, we'll see a huge slowdown of development in general. The end of 421a was good for the market because it slowed development before the crisis became evident, and therefore current developments that have not yet sold out still have a chance to sell. In this slower market, we'll have to show our brokers how to operate, how to negotiate. REBNY has been helping agents with market-centric educational efforts, teaching them how to build long-term relationships and how to price in this market." -Diane M. Ramirez, president of Halstead Property

COMMERCIAL LEASING

"Last year we saw many major retail brands coming in at all-time high rents. Apple, Hugo Boss and others put the Meatpacking District on the map, and revitalized SoHo and Bleecker Street. We won't see that kind of activity in 2009, but we might see an influx of bowling alleys, movie theaters and retailers that had been priced out of Manhattan: national discount chains like Marshall's and Costco, whose sales have remained strong." -Robin Abrams, executive vice president, The Lansco Corp.

"Rents will come down as much as 30%. A saving grace is that there hasn't been overbuilding in the core urban areas as there was in the early 1990s, and since relocation costs money, tenants will want to stay put if rents are reasonable. There won't be buildings standing empty, but there will be significant sublet space available. As for commercial mortgages coming up for refinancing, the markets will be sufficient for responsible borrowers. For owners who are overleveraged, the situation will be catastrophic." - John E. Zuccotti, chairman of Brookfield Properties 

Wednesday, January 14, 2009