Often at the beginning of the New Year, business leaders seek out the Amazing Kreskin, who for some six decades has served as a bona fide mentalist on his predictions for the coming year. Instead of seeking the advice of Kreskin, or my cloudy crystal ball, I’ve asked a who’s who of the New York commercial real estate industry for their insights on 2010.
Last year, the difference between asking and net effective rents was down by close to 50 percent and few office leases were struck at prices over $100 per square foot. Yet industry leaders like Bruce Mosler, co-chairman and CEO of Cushman & Wakefield, believe we have reached the bottom on pricing.
“In 2010, I expect rents to rise, concessions to level off and strong landlords to control the marketplace,” he said.
The president of Newmark Knight Frank, James Kuhn, feels similarly. “Financial services firms are beginning to hire and will need space,” Kuhn said. “These companies will lease much of the available sublease space on the market.”
But others aren’t as sanguine. Mosler’s colleague, Cynthia Foster, executive managing director at Cushman & Wakefield, said: “I believe we will continue to see prices decline in certain Class A and Class B buildings.”
Investment sales brokers could have spent the last year on vacation in Bora Bora, given the sales volume in 2009. It now looks like a limited amount of financing is returning to the market for low-leverage, well-situated properties in Manhattan.
Meanwhile, many of the nation’s largest insurance companies, once the pillars of financing for commercial real estate, plan to double their volume of new loans this year after retreating for most of 2009.
“We expect to double our production in 2010 at rates as low as 6.25 percent for five- to seven-year term loans,” the managing director at Prudential Mortgage Capital, Melissa Farrell, said.
Robert Dirks, managing director at Principal Real Estate Investors, had a similar take.
“If we like a deal, our credit committee will offer rates as low as 5.5 percent,” he said.
These rates are significantly lower than those offered in 2009. A joint venture of Prudential Mortgage Capital and New York Life Insurance, for example, provided a $135 million mortgage for the Cross County Shopping Center in Yonkers at a rate of 7.75 percent in October.
Expect foreign lenders to remain interested in financing New York City office buildings.
Last year, a syndicate of German lenders led in the financing of 100 Park Avenue, an office building owned by SL Green Realty. Industry leaders expect many of these lenders to join a syndicate early in 2010 to finance Tishman Speyer’s office building at 300 Park Avenue. Pricing for this five-year loan is expected to be in the range of 375 basis points over Libor.
One term deleted from the dictionary in 2008 and most of 2009 was “CMBS.” Finally in the fall, three financial real estate companies were able to securitize commercial mortgage-backed securities transactions.
The president and CEO of Vornado Realty Trust, Michael Fascitelli, said: “In 2007 you could securitize anything. Nevertheless, after nearly seeing not one securitized loan for more than a year and a half, I am certain securitization will return in 2010. Instead of the old days, the new rules will be, ‘Keep it simple or stupid’ if you want to securitize.”
Things are looking up in the investment sales of residential buildings, said Paul Massey, CEO of Massey Knakal Realty Services. “For the past 90 days, investment sales activity has increased for residential rental apartments buildings,” he said. “The increase in volume is due to a combination of interested buyers and financing from local savings and commercial banks.”
Many of the leading community banks are actively pursuing lending opportunities for rent-regulated apartments in the five boroughs. Owners and prospective purchasers of residential rental buildings continue to see low rates from commercial and savings banks as well as from Fannie Mae and Freddie Mac. In 2010, expect pricing for first mortgages to range from 5 to 6 percent from lenders including New York Community Bank, Dime Savings Bank of Williamsburgh, M&T Bank, Capital One Bank, Sovereign Bank, Signature Bank and Herald National Bank. Joining the New York local banks in providing financing for residential rental apartments will be banks from New Jersey and Connecticut that include Oritani, Spencer, Investors and Peoples Bank. Don’t be surprised when some of these banks open loan origination offices in Midtown Manhattan.
As we enter the new decade, this pessimist thinks that the horizon is getting brighter for commercial real estate. Only time will tell if the gurus of the industry were correct with their predictions for 2010. Nevertheless, after nearly two years of doom and gloom, let’s hope that things will brighten for the real estate marketplace.
