The Real Deal New York

Larry Gluck — one of the city’s most successful and experienced landlords — shocked the real estate world in August by informing his lenders that he was about to default on a $225 million loan at the storied Riverton Houses complex in Harlem. And now, even as he and his company, Stellar Management, fight to stave off foreclosure at the rent-controlled towers, the breathtaking speed of Riverton’s near-collapse has served as a wakeup call to rental buildings all over the city, many of which have pro forma loans similar to Riverton’s. The luck of Gluck” class=”read-more-link”>[more]

Only a few short months ago, new developments were the most coveted and
spectacularly expensive sector of the residential real estate market.
But as the credit crisis gets more severe, new construction projects
are facing massive obstacles. This month, in a series of stories, The Real Deal looks at the biggest roadblocks facing new residential developments in the city. Development in distress” class=”read-more-link”>[more]

This month, The Real Deal takes a look at how the Internet has fundamentally altered the business of real estate and what the future holds for the relationship between the two. It’s now difficult to imagine a real estate landscape bereft of some of the relationship’s positive attributes — a Webless world, say, where potential customers aren’t able to pore over floor plans at the click of a button. Surfing the next wave” class=”read-more-link”>[more]

This month, in a series of stories, The Real Deal looks at how
retailers in the five boroughs are dealing with a period where sales of
the canned mystery meat Spam are reportedly skyrocketing, while luxury
brands like Porsche and Tiffany are struggling.
Bracing for a retail bust” class=”read-more-link”>[more]

While it’s clear that New Yorkers are seeing the effects of the downturn, there’s a widespread belief that it will be milder here than in other cities — that the flood of new inventory coming on the market will be absorbed, the downturn will be shorter and the price cuts less severe. However, some leading economists and industry experts say, “Not so fast.” Is the city all that different?” class=”read-more-link”>[more]

Now that buyers have the upper hand amid a weakening New York City real estate market, they are using increasingly aggressive tactics to drive down apartment prices.

The latest move: renegotiating an apartment’s price after having already signed a contract and placing a down payment in escrow. Renegotiating at closing time” class=”read-more-link”>[more]

As the economy slows, the real estate job market continues to cool. Several large brokerages and developers have announced layoffs. But as counterintuitive as it may seem, some brokers are walking away from bigger firms and starting their own companies. [more]

Founder and principal of Midtown Equities, a New York-based real estate investment firm that owns 101 properties internationally, and co-founder and chairman of residential marketing and sales company Core Group Marketing. Cayre was part of a group of investors that bought the World Trade Center in 2001, and part of a team of investors that bought the Sears Tower in 2004, though he wasn’t directly involved in the Sears Tower deal, he said, as has been reported. Midtown Equities is working on a $2.3 billion, 55-acre mega-project in Miami with 3,000 condominiums, more than 600,000 square feet of retail and 200,000 square feet of office space. Personally, Cayre sold his house in Midwood, Brooklyn, for $10 million in October 2007, one of the most expensive sales in the borough. [more]

With bankruptcies on the rise and litigation expected to spike, it would seem that the legal services industry is again well positioned to survive, or even benefit, from the downturn.

But mercy is in short supply these days, and no law firm — not even some of the country’s most august — seems to be escaping unscathed. [more]

In a Webcast interview last month, The Real Deal’s Jill Gardiner spoke to David Schechtman, head of the turnaround group at Eastern Consolidated, about the opportunities the market downturn has created for distressed asset funds.

Schechtman said that while distressed purchases are on the rise and funds are looking for deals, the real fury in the field will likely not start until 2009. He also discussed which sectors of the market are most ripe for distressed asset deals and how the funds are raising capital in this financially anemic environment.

Log on to www.therealdeal.com to see the full interview and to access the archives. Every week, The Real Deal posts a new edition of the Webcast, which features exclusive interviews with industry insiders.

The Real Deal: We know that there are a lot of distressed asset funds and vulture funds. Tell us what kind of activity you’re seeing.

David Schechtman: There’s definitely increased sales volume, both for real estate that’s in distress for various reasons, and for mortgages, and that includes first mortgages and other levels of the capital stack. There’s definitely increased traffic in that sense, but I don’t think it’s at the levels at which many of these funds had hoped that it would be at this point. I think that 2009 is when we expect the real fury to begin.

TRD: So which sectors of the New York market do you expect to be most ripe for those opportunities?

DS: Well, I think at the moment, without a doubt, there’s opportunity to be had in buying the mortgages that are either in technical default or may still be current in paying from some of the lenders on development sites. Certainly in the boroughs, Brooklyn and some in Manhattan. These mortgages, whether they’re paying or not, banks recognize that now may be a good time to mitigate loss and let the new buyer or the new holder of the note fight through what likely will be a foreclosure, in many instances, or a restructuring of the loan. So the hottest sector at the moment for distressed is probably construction.

TRD: Talk a little bit about who exactly is setting up these funds. Are they organizations like Durst, are they high-net-worth individuals?

DS: Well, it runs the gamut. You have high-net-worth individuals who’ve been in real estate for many years. Some of these high-net-worth individuals and family offices have stayed out of real estate or the competitive bidding that has really … dominated the landscape in purchasing assets. Some of them are now back in full force, excited to take the opportunity, because it requires a ton of equity these days.

TRD: What about the private equity firms? How are they raising capital in this kind of environment, given the fact that there’s a freeze on lending and just a freeze on that type of activity?

DS: Private equity firms, a lot of them had money that was already committed, and a lot of them had an eye toward this down market. These are some very savvy folks. You’re talking about some of the captains of the financial and real estate industry. And these folks anticipated, when the market was at or close to its zenith, that eventually it would fall. So a lot of this has been in the planning for a while and they’re now poised to strike. Some of the funds are partially funded, they’re looking really toward 2009, and some of them are having difficulty raising the money that they expected to have and some of them likely will not be able to put out the money.

TRD: And can you be more specific about the deals that you’re working on, even if you can’t give us the addresses of buildings in distress?

DS: We can talk in broad strokes. There is a building in the West 30s in Manhattan, it’s 100,000 square feet, it’s vacant, you have a borrower who had a very aggressive first mortgage two years ago. That borrower vacated the building with an eye toward converting this building for another use, from commercial to hotel or residential. That borrower has really met with the market and figured out that it’s taken a lot longer and cost a lot more money. That bank is quietly allowing us and has called on us to bring in five or six people to give them an idea of what they would purchase that loan for.

TRD: Is there kind of a competitive bidding process right now behind the scenes for some of this debt?

DS: I’d say speed and availability of cash take absolute precedence. You may see a penultimate offer being accepted, sometimes a second-highest offer, because there’s certainty of execution.

Compiled by Sara Polsky

National chains are opting to close fewer stores, or even none, in the
city that grants them an unparalleled branding platform and
sales-volume opportunity, brokers said. The stores that are closing here are mom-and-pops or local
merchants. The sputtering economy, unraveling of the financial sector
and the credit crunch, coupled with high New York City rents, is
pressuring some local merchants to shutter their doors or scramble for
cheaper locations, brokers said.
[more]

What a difference a few months makes. With the recent volatility of the
stock market and the challenging economy overall, many retailers are
retrenching — some are slowing down their expansion plans, while others
are closing locations. “I don’t expect to hear of massive expansions in
New York City now,” said Barry Fishbach, executive vice president,
Robert K. Futterman & Associates. Retailers who are already here
may have normal growth, “but nothing aggressive,” he added.
[more]

A recent deal involving shadow space — blocks of space that are
available for leasing but have not been formally returned to the market
— was a 15-year, 100,000-square-foot lease inked by law firm Pryor
Cashman last month at Boston Properties’ 7 Times Square at 42nd Street.
The financial terms of the deal were not released, but reports said the
space had not been officially listed as available. Shadow space creeping up” class=”read-more-link”>[more]

Several financing offshoots of major real estate companies have hit the skids, burdened by soured loans and investments and a limited access to capital as the financial crisis has intensified.

These companies include Gramercy Capital Corp., which grew out of SL Green Realty Corp.; Centerline Holding Co., a creature of the Related Companies.; Chimera Investment Corp., created by Annaly Capital Management; and iStar Financial, a child of Starwood Capital Group.

All but Centerline are real estate investment trusts (REITs) and are headquartered in Manhattan.

The spinoffs were formed to exploit opportunities in various corners of commercial and residential real estate when times were good. But the credit crunch has thrown them for a loop.

The companies all have similar missions in different sectors of the market: Gramercy Capital finances commercial real estate transactions. Centerline lends to owners and developers in the office, retail and multifamily sectors. Chimera is in the residential arena, investing in mortgage securities and loans. And iStar makes loans to commercial real estate developers and investors, usually in amounts of $20 million to $150 million.

However, experts note that the financial crisis has destroyed the business model for commercial real estate finance companies. Under the usual model, the companies borrow money over the short term to make investments over the long term. Obviously, investment returns have to exceed borrowing rates for the companies to earn profits, and that’s not happening now.

“My impression is that they were essentially playing the yield curve, and that’s a tricky business now,” says Barry Vinocur, editor of the newsletter REIT Wrap.

Gramercy Capital

SL Green externally manages Gramercy Capital, which it took public in 2004. The larger firm remains the company’s biggest shareholder, with a stake of about 15 percent.

The credit crisis has taken a stiff toll on Gramercy. Its net income tumbled to $9.66 million in the third quarter, from $97.15 million in the year earlier, thanks to bulging loan losses and interest expense. As a result, the company halted its dividend.

SL Green had counted on fees and income from Gramercy for part of its own profit, and Gramercy’s woes have taken a toll on its parent. Now, the two firms have begun to separate.

Until October, SL Green’s chief executive Marc Holliday had been Gramercy’s CEO too. Bu, now, the spinoff has its own CEO, Roger Cozzi. In addition, Gramercy has cut the fees it will pay SL Green through 2009, when the management agreement between the two companies ends.

Still, worries about Gramercy’s loans and its access to credit dog the company, as the credit crisis creates more defaults and makes it harder for Gramercy to borrow money. According to the Wall Street Journal, the firm is close to breaking covenants on some of its credit lines.

The company’s reliance on collateralized debt obligations to finance its activities represents a problem too, as that market is virtually closed.

“That’s why Gramercy bought American Financial Realty this year — to get out of loans and into the net leasing business,” says a New York real estate analyst who requested anonymity. Gramercy paid $3.3 billion to acquire AFR, which owned 1,300 commercial buildings.

The stock market has reacted negatively: Gramercy’s stock price plunged 95 percent to 88 cents as of Nov. 17 from $19.35 a year earlier.

As for SL Green, strong leasing activity at its Manhattan properties helped compensate for Gramercy’s woes in the third quarter, when funds from operations totaled $88 million, up from $77.8 million in the year-earlier period. SL Green and Gramercy declined to comment.

Centerline Holding

Centerline originates loans and invests in bonds backed by commercial mortgages. It grew out of an affordable housing unit that began as part of Related. The unit was turned into a separate company — CharterMac — in 1997 and was renamed Centerline in 2006.

Related, which has dozens of New York City projects and was selected to develop the Hudson Yards site on Manhattan’s West Side, retains a 13 percent stake in Centerline. In addition, Related’s CEO Stephen Ross is Centerline’s chairman.

Centerline has been hammered as the financial meltdown has inhibited its borrowing ability, and commercial real estate transactions have dried up. The company posted a net loss of $157.3 million in the third quarter, swinging from a profit of $9.45 million in the year earlier. And its stock price has plummeted 98 percent over the last year, to 27 cents.

Charge-offs, or debt determined by a creditor to be uncollectible, have stung Centerline. In November, Centerline announced it was trimming its staff by 20 percent, or about 100 workers.

The previous month, the company had agreed to reduce its term-loan debt to no more than $50 million by Nov. 21, which would entail a payment of about $18.8 million. That move led Moody’s and Fitch to downgrade Centerline’s debt ratings.

It must repay the remaining $50 million by Dec. 31.

Fitch said its downgrade “reflects the adverse impact of current market conditions on Centerline’s business franchise and financial condition.”

On Oct. 30, the New York Stock Exchange announced that Centerline fell through one of the exchange’s listing requirements because its market capitalization amounted to less than $75 million and its last reported shareholders equity totaled less than $75 million. Centerline declined to comment.

Chimera Investment

Chimera may be the newest spinoff of the bunch. Annaly, a New York–based REIT that invests in residential mortgage securities, formed the company last year as a complement to its own operations and bought 10 percent of Chimera’s shares at the initial public offering.

Annaly acquires only agency mortgage securities — those guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. Chimera, by contrast, invests in non-agency mortgage-backed securities and home mortgage loans.

“Chimera is a more credit-sensitive mortgage REIT, while Annaly doesn’t take credit risk,” explains Steven Delaney, an analyst who follows the company for JMP Securities in Atlanta. “There is nothing Chimera does that Annaly couldn’t have done. But that would have soiled the purity of Annaly’s portfolio.”

Also, Annaly’s Fixed Income Discount Advisory Company (FIDAC) is Chimera’s investment manager. By creating Chimera, Annaly was creating a new asset management client that could generate fee revenue for its FIDAC subsidiary.

Of course, Chimera picked a bad time to debut, purchasing its initial portfolio in late 2007 and early 2008. Non-agency mortgage securities have plunged in value since then.

“The assets they invested in have lost market value, though they have performed well in a credit sense,” Delaney says.

Chimera hoped to use modest leverage, but the credit crunch has killed that idea, so the company has had to shrink.

“The combination of that shrinkage and declining market values has caused a loss of book value,” Delaney notes.

To refill its coffers, Chimera raised about $274 million in a secondary stock offering during October, with about $26 million of that stock bought by Annaly.

“Now they are back in business, and will invest in mortgage assets at a much lower price and on an unleveraged basis,” Delaney says. “So it has good prospects ahead.”

Chimera and Annaly both declined to comment.

IStar, meanwhile, began in 1993 as part of Starwood Capital, the company that recapitalized the Starwood Hotels, known for the Westin and W brands. IStar chief executive Jay Sugarman came up with the idea for the company, which went public as an REIT in 1998 and is now independent of Starwood.

IStar got itself into trouble with the $1.9 billion purchase of Fremont General’s commercial-mortgage portfolio and lending business last year.

That deal gave iStar a heavy exposure to the troubled condo market. As part of the transaction, iStar took Fremont’s $6.3 billion commercial real estate loan portfolio, made up largely of condo loans. IStar also had to finance Fremont’s commitments to $3.7 billion of loans, many to unfinished condo projects.

The firm is now desperately trying to sublet 107,000 square feet of space at 1095 Avenue of the Americas (see Tenants say ‘see you later’).

In September, Moody’s cut iStar’s debt rating to junk. The move was quite damaging for a company that finances its lending to real estate developers and investors by borrowing in the credit markets.

Moody’s made the move because it expects the company’s “asset performance will experience further pressure” amid weakness in the commercial real estate market. Moody’s noted in a report that it expects iStar’s nonperforming assets to exceed 8 percent of its total assets as iStar’s borrowers have trouble paying back loans.

IStar officials would only say that while the rating on the firm’s debt was lowered, the company was still left with an investment-grade rating.

With loan losses and asset impairments, iStar registered a net loss of $305.8 million in the third quarter, swinging from a profit of $93 million in the year-earlier period. The company has halted its dividend. “With more debt obligations coming due in the spring, iStar is hanging on to whatever cash it has to survive, though we still believe the forecast looks dreary,” Morningstar analyst Nicholas Cavallaro wrote in a research note.

And what is the broader outlook for these firms — iStar, Centerline, Gramercy Capital and Chimera —going forward? “Bad,” says the anonymous New York analyst. “First you have to get through the current liquidity crisis, and then you have to see if you really have a workable business model. Did you pick good loans and investments?”

Move over Chase and Wachovia — it’s the little guys’ turn. They may not be high profile, marquee names, but the time is ripe for small and mid-sized regional banks, such as Atlantic Bank and Astoria Federal Savings Bank, to enter and expand in the Manhattan market.

The unraveling of the financial services sector and consolidation in the banking sector means mega-banks, most notably Chase, will start unloading retail branches in the city, brokers said.

Although many retail real estate deals are on hold as Wall Street’s sickness contaminates the economy, these second-tier banks, many with suburban roots in the tri-state area, will sniff out expansion opportunities as space comes on the market and Manhattan retail rents drop, sources said.

“There will be a shift away from the 900-pound gorilla on the street … to smaller niche players,” said Faith Hope Consolo, chairman of the retail leasing and sales division of Prudential Douglas Elliman.

Brokers have been estimating how many bank branches Chase (with 121 Manhattan branches) will purge when it absorbs Washington Mutual (with 45 Manhattan branches), following its rescue purchase of the bank in September.

WaMu’s demise has been dubbed the biggest failure in banking history, done in by the culprit of the banking crisis: ill-fated mortgage lending practices.

Smaller banks are also sizing up the acquisition of Wachovia, with 23 Manhattan branches, by Wells Fargo, which has no branches in the city.

Risky business

Second-tier banks like Valley National and Astoria Savings Bank may seize an opportunity to capture market share in the city. National and global competitors, slammed by the subprime mortgage lending crisis, now charge higher interest rates on mortgage loans, are tightening credit terms and eliminating programs to minimize risk, said Luigi Rosabianca, principal attorney and founder of Rosabianca & Associates, a real estate law firm.

These smaller banks are now looking “to fill the void that has been created in the past few weeks.”

A number of the second-tier banks have expressed interest to Rosabianca’s real-estate developer clients in tapping Manhattan for expansion, he said.

As a general proposition, the smaller, mom-and-pop banks are more financially sound then their bigger counterparts, cushioned by big deposit bases, Rosabianca said.

They also have much lower loan default rates “than the other banks because they’re more prudent about whom they do business with.”

Chase plans to shutter between 400 and 500 of the 5,400 WaMu branches it acquired nationwide but will not disclose how many will go dark in New York City and has not set a timetable for the closures, said spokesman Michael Fusco.

With the acquisition of WaMu, “they swallowed a lot —there’s a lot of duplication of location and branches from that group,” Consolo said.

Indeed, in some neighborhoods, such as Columbus Circle, Chase has multiple branches within a two-block radius, and Washington Mutal also has a branch nearby, said Alan Victor, executive vice president of the Lansco Corp.

Because of the amount of real estate coming on the market, the smaller banks “are starting to poke around. I can’t say anyone is committing, but they’re waiting to see what sites are becoming available.”

While Chase is poised to sell off branches, Wells Fargo could hold on to all of its New York City Wachovia locations because the bank doesn’t have retail branches here, brokers said.

Smaller banks, such as Harlem-based Carver Federal Savings; Emigrant Bank; Hudson City Savings Bank, with 126 branches in the tri-state area; Astoria Federal Savings Bank; Valley National Bank; and Sovereign Bank have already put out feelers in Manhattan, said Consolo.

“They’ve come to all of our [bank] properties and are reviewing the opportunities,” she said. “They’re the lookers — who the winners will be, I don’t know.”

Northeastern regional bank Sovereign is bullish on the New York market.

“New York is a very, very important market for us — it’s something we are committed to,” said Ellen Molle, a spokesperson, but she could not elaborate as the bank is in the process of being acquired by Banco Santander.

Sovereign operates 75 branches in New York City, including 15 in Manhattan.

Sources said Atlantic Bank is angling to expand in Manhattan, where it currently operates seven branches.

Atlantic is part of New York Community Bancorp, a bank holding company for New York Community Bank, a savings bank with 178 branches in New York and New Jersey, and New York Commercial Bank, with 38 branches in New York City, Westchester County in New York.

“When we’ve expanded, it’s been through acquisition of other banks’ branches in markets where we see significant consolidation opportunities. We don’t build a new building or a new branch,” said Ilene Angarola, executive vice president and director of investor relations for New York Community Bancorp.

“Manhattan is a market we would consider expanding into with our Atlantic franchise” as well as others, she said.

“As rents decline, then real estate becomes more attractive.”

Let’s make a deal

If ever there were a time to secure a good Manhattan deal, it’s now, brokers said.

“There’s more space on the market and rents are going to come down,” said Andrew Mandell, a broker with Ripco Real Estate. “There is fear in the market.”

In some cases, a smaller bank could end up negotiating a sweet deal with Chase, for example, “just so that they can get [the branch] off their books.”

Retail rents are already 10 percent off asking rents in the city, Consolo said.

Victor sees even steeper drops of 20 to 25 percent in some neighborhoods.

As a result, the smaller banks will be able to “negotiate a better deal and take advantage of a down market,” he said.

“But keep in mind that the banks had created an artificial market … and inflated the market,” Victor said.

It’s no secret that other retailers had been shut out by the stranglehold the banks held over much of the city’s best real estate.

Two years ago, a corner retail spot in the city could bring landlords twice the normal asking rent, as banks like Wachovia, Chase and Washington Mutual battled it out for those coveted locations for top dollar.

But those days are gone.

Although the meltdown in the banking industry this fall in the last two months has made branch growth a moot point for the big banks, their expansion binge in the city had already ceased this year as the financial industry began to unravel and as their branches reached a saturation point.

“The bank wars we saw are over,” Consolo said. “It’s a completely different playing field.”

The new, smaller players “will not be overpriced or overbid.”

Still, brokers don’t expect the mom-and-pop banks to make new inroads for another 18 months.

But when they do, watch for a new crop of branches with a more homespun feel, brokers said.

Among the smaller banks, “the business has been quite parochial in nature — it’s about knowing your uncle, and there’s a hands-on approach,” Rosabianca said.

Consolo agreed. “It’s going back to having your little country bank on the corner that takes care of all of your needs and is more service oriented,” she said.

And they won’t have the sleekness of the big guys.

“Maybe it’s not bright lights and lots of glass, but some wood and comfortable chairs,” Consolo said.

“Maybe they’ll start serving lunch and dinner,” Victor said. “At least breakfast.”

As the New York real estate market softens and the economy slows, the real estate job market continues to cool.

Several large firms and developers have announced layoffs in the last few weeks, and the number of state real estate licenses issued to residential and commercial brokers has declined by nearly 10,000 in the past year. Many real estate professionals who are still employed are shifting gears.

In response to the economic slowdown, CB Richard Ellis made what a spokesman called “minimal” reductions to its staff in New York City in October as part of a firm-wide round of layoffs. The spokesman refused to give specific numbers.

Meanwhile, Cushman & Wakefield cut 200 jobs worldwide in October out of a staff of about 15,000. Earlier in the month, Massey Knakal Realty Services cut a quarter of its staff. Firm CEO and co-founder Paul Massey Jr. maintained the reduction was not motivated by economic turmoil.

On The Real Deal Webcast, Pamela Liebman, president and CEO of Corcoran, said, “There are certain jobs that if you are not doing as many deals, then maybe you don’t need as many people in certain areas of the company. So we’ve done some nonreplacements [and] lost people through attrition. And little things that we do — we have massage therapists that were coming every week — they’re not coming in every week anymore.”

Developers have also begun shedding staff as development slows. Extell Development said in November that it has cut about 10 percent of its staff as its pace of development declined. Tishman Speyer and Forest City Ratner have also cut employees, the New York Post reported.

The number of active broker and real estate salesperson licenses recorded by the state dropped by nearly 10,000 in 2008, which could mean that fewer people are taking the licensing exam or renewing their licenses at the end of the two-year expiration period. There were 146,293 active licenses at the end of October this year, down from 155,055 active licenses at the end of October 2007, according to figures provided by the Department of State.

Firms may also be freezing or slowing hiring. Commercial real estate job postings on eight job boards declined from 1,085 in June to 591 in August, according to the fall 2008 SelectLeaders/Cornell Job Barometer survey of real estate hiring, which includes both regional and national data. In August, 11 percent of the commercial real estate jobs posted were in New York, compared to 17 percent in June.

Barry Hersh, an associate professor at New York University’s Real Estate Institute, said a growing number of people are contacting him after losing real estate-related jobs on Wall Street or in development organizations.

College seniors seeking work in real estate finance are in less demand, said Barbara Hewitt, senior associate director at the University of Pennsylvania, who works with undergraduates at the Wharton School of Business. Some employers have cancelled at recruiting events, Hewitt said, and others are still running numbers to see how many people they can afford to hire this year.

“The meltdown of the financial markets has certainly impacted students who are doing real estate investments,” Hewitt said. “A lot of the smaller organizations are not coming [to recruit].”

Kenneth Patton, director of the Schack Institute of Real Estate at NYU, said the program has seen an increase in the number of full-time students, from 12.5 percent in the spring semester to 17.5 percent now. The shift could be an indication of layoffs hitting the industry. “A part-time student is working, gets laid off, so he decides to get this behind him and go full-time [to] defer being in the job market,” Patton said. “[We] see more of that.”

Some firms, however, say they are maintaining staffing levels or expanding. Platinum Properties, a brokerage that specializes in the Downtown market, recently moved to a new office and hired 10 people, most of whom are new to the industry, said CFO Dezireh Eyn. They will begin in residential rentals and, after a few months, move to residential sales and commercial real estate, Eyn said. Olinda Turturro, director of recruiting at Bond New York, said she has continued to recruit as usual, often among people who are new to the industry.

Professionals with an accounting background may be in demand because of the economic meltdown, said Patton.

“Some of the boring fundamentals that we’ve been teaching, like how to analyze a location, how to analyze an economy, how to really read a pro forma spreadsheet … all those old evaluation techniques are suddenly very much in demand” among employers, said Patton, who added that four or five of the NYU program’s adjunct professors have been hired away this year by companies looking for advice about how to deal with the slowing economy.

But Hersh said he thinks real estate employees will change positions rather than skills. “People might shift over from the acquisition part of a company to the management side, to keep buildings occupied, to keep tenants happy … in mortgages; it might be mortgage servicing rather than mortgage origination … management is king.”

The near-meltdown of the banking system has forced several major lenders, hedge funds and other companies to reconsider newly signed office leases in prime Manhattan locations — a phenomenon that could eventually force massive amounts of sublet space on an already weakened commercial real estate market.

A growing number of office tenants are asking to renegotiate or back out of leases that were signed in 2007, when office rents were averaging more than $85 a square foot in Midtown and approaching $200 a square foot in the priciest buildings.

The realities are grim for landlords. In some cases, brokers can find a creditworthy subtenant to take over if a company breaks its lease, but if that doesn’t happen, the space will more than likely languish on the market as the original tenant runs out of funds to pay the rent.

Legal options might not be much better. “I can’t imagine what the landlords are going to gain,” said attorney Hugh Finnegan, a co-director of the real estate department at Sullivan and Worcester. “They’re going to spend some money on legal fees and get a judgment [to deal with tenants who break leases], but it’s a judgment that’s not going to get them much value.”

Doug Linde, Boston Properties president, noted during the company’s third-quarter conference call that it will feel some impact from the bankruptcy of Lehman Brothers, which was paying the company $43 million a year in rent. He also pointed to the now-defunct law firm Heller Ehrman, which had been paying the company $7.7 million a year in rent and is now vacating its space. (The law firm has been leasing 144,000 square feet at Times Square Tower.) Boston Properties said it is negotiating a termination of the Heller Ehrman lease.

Meanwhile, Boston Properties has said it will write down $13.2 million for the remaining rent balance from Lehman Brothers, which occupied 436,000 square feet of office space at 399 Park Avenue. It believes the Lehman space will be empty until 2010.

Boston Properties officials say the loss of the two tenants would cost the company “about $50 million in revenue in 2009.”

Brokers say most commercial office landlords will try to pre-lease space over the next year or two to limit exposure during the economic downturn. However, the stock market dive and the accompanying economic tumult have prompted a number of companies to review decisions made just months ago about their future real estate needs.

“There are companies that have signed leases very recently and their business plans have totally changed,” said Benjamin Kursman, a lawyer at Herrick, Feinstein. “For those tenants who put up a security deposit and don’t have any assets, they will leave. If they have a full guarantee [to honor the terms of their lease], then that’s an issue.” London-based HSBC withdrew plans to lease space at 7 World Trade Center after a deal to sell its 452 Fifth Avenue North American headquarters flopped. Lower Manhattan officials said that German lender West LB has, however, agreed to lease that space, where asking rents have been going for $75 a square foot.

Meanwhile, Fran Pollaro, managing director at Brentler Realty, said a recent negotiation involving a private equity firm planning to double its 3,000-square-foot office space at Park and 57th Street just failed. The tenant, who had been in negotiations for a year and a half, had agreed to sign a deal for $110 per square foot, but pulled out just days after the federal bailout was announced. Pollaro said tenants are doing a lot of
window-shopping these days and are very reluctant to sign new deals. “I’m better off sticking to marketing at this point,” he said.

Alliance Bernstein, an investment firm based in Manhattan, has also slashed office space as the credit crunch has begun to impact earnings.

The firm put 46,000 square feet of sublet space on the market at the old Sports Illustrated building at 135 West 50th, after signing an extension for 86,000 square feet in 2007.

Alliance Bernstein had previously leased 220,000 square feet at the tower. CB Richard Ellis officials confirmed they are subletting the space, but declined further comment.

At the same time, landlords like the Blackstone Group are facing similar problems at 1095 Avenue of the Americas — the 1.3 million-square-foot tower that has long been home to Verizon Communications .

Financially troubled real estate investment trust iStar Financial Inc. is desperately trying to sublet 107,000 square feet of space at the building. IStar had previously agreed to lease for 15 years at a whopping starting price of $132 a square foot.

However, the firm, which is based in New York, ran into trouble after it acquired the $1.9 billion commercial real estate portfolio of Fremont General Corp. At the end of September, the most recent time period on record, iStar had $2.5 billion in loans on its nonperforming loan list. The firm lost $305 million in the third quarter, compared to $93 million in profit a year ago.

According to published reports, Blackstone is also in talks with another newly signed tenant, Centerline Holding Co., regarding its 100,000-square-foot lease in the Verizon building.

In late October, Moody’s Investors Service downgraded Centerline’s credit rating to junk status, noting that the company may not have enough cash to meet its near-term needs, which include a $109 million loan that is due this month.

The firm, which is led by Stephen Ross, the chairman of the Related Companies, said it would slash its nationwide workforce by 20 percent. A Centerline official, who asked not to be identified, said no decisions have been made yet, but emphasized that a wide range of options was possible, including negotiating lower rent, subleasing or even maintaining the current lease agreement.

“Everyone is taking a hard look at their revenues and expenses,” the source said. “We’re in the same position as many financial services firms.”

CB Richard Ellis, which is the leasing agent for 1095 Avenue of the Americas, declined to comment. In addition, the Blackstone Group was not immediately available for comment.

‘Good boy’ lease breaking

Under most commercial leases, tenants must forfeit a security deposit ranging anywhere from two to six months in cash or get a letter of credit when they break a commercial lease, according to Sullivan and Worcester’s Finnegan. Subleasing the space to a credit-worthy tenant can prevent default. However, tenants can also negotiate a “good boy” clause into their lease agreement, which means if a tenant exits a lease early with the premises in good shape, the tenant can avoid additional penalties.

Robert Bielsky, president of Manhattan Commercial Realty Co., said one of the reasons why tenants are backing out of current contracts is the flood of subleases coming on the market.

Instead of paying $150 a square foot in the Plaza District and other prime submarkets, hedge funds and other midsized firms can sublease space at a fraction of the cost.

“The fact that there’s a lot of space out there gives customers a reason to think that when they narrow out a choice, just before they go to the finish line, there is something better out there,” said Bielsky. “They hear that the market is crashing. They don’t want to be tied down with a lease, because they think something is better out there.”

Indeed, a series of third-quarter market reports show that Manhattan office rents have peaked and that large blocks of space will begin to flood the market by next year.

A Cushman & Wakefield report noted that asking rents in Manhattan were up 16 percent from a year ago, at $72.66 a square foot, but noted that rents have been flat for the past three months. The report also noted that the vacancy rate rose 0.3 percent from the previous quarter to 7.4 percent, its highest level in two years.

The report stated that available sublease space rose 72 percent from a year ago to 6.5 million square feet, the most since 2005, and that the Midtown, Midtown South and Downtown submarkets all recorded negative absorption, which means more space opening up than is being taken.

A report from rival Colliers ABR forecast more than 10 million square feet of office space will hit the open market by the end of 2009, as banks and other financial services firms trim back space commitments.

The tide is turning in the commercial office market, as a battered financial sector is expected to shift the balance of power away from New York landlords by forcing open millions of square feet in unused office space.

As Wall Street firms announce tens of thousands of job cuts, landlords are scrambling to retain their existing tenants, and the eventual flood of office space threatens to drop prices into a downward spiral. Brokers say the widening and increasingly unpredictable gap between asking rents (what landlords seek from tenants) and taking rents (which is what tenants are willing to pay) underscores the difficulties of a market in decline. [more]

Click here to see the desk of Albert Laboz

It’s no secret that every residential broker and firm in the city
worth their commission check has been hunkering down and strategizing
about how to deal with the new market conditions.

But now brokerages throughout the city — from the large corporate
Manhattan-based firms to the small independent firms in the far reaches
of the outer boroughs — are actually beginning to put those new
strategies into effect.

Some are laying off employees or nixing holiday parties. Others are
cutting budgets for advertising properties in print. And at least one
firm is closing some of its satellite offices. Meanwhile, brokers who
once worked exclusively in sales are taking on rentals to supplement
their shrinking incomes.

The principals, founders and heads of several major residential firms told The Real Deal
in this month’s Q & A that they expect the brokerage work force in
the city to shrink by anywhere from 10 to 30 percent during the
downturn.

They say that brokers who “puff up prices” in order to win
exclusives from sellers will be left in the dust and that brokers who
entered the industry just a few years ago when deals were falling from
the sky will have a harder time surviving than those who have lived
through past bear markets and have more sophisticated skills in
negotiating and shepherding tough deals.

One principal at a midsized firm said he expects New York City
brokerages with national parent companies to suffer more because they
are more exposed to the downturn more severely affecting the rest of
the country. And while company heads said they don’t see their brokers
turning to second jobs now, one joked, “Ask me again in January or
February.”

Here’s more on what the experts had to say about strategies for
surviving the downturn and on their predictions for what’s to come in
2009.

David Schlamm CEO/founder, City Connections Realty

What are you seeing in terms of layoffs and how much do you expect the city’s brokerage workforce to shrink by?

We are not planning any layoffs right now, but I do believe that
[the number of] brokers working will be reduced significantly starting
at the end of the fourth quarter or in the first quarter of 2009.

Which brokers do you think will have the toughest time surviving this downturn?

The brokers in business since 2004-05 came in during one of the
hottest periods and it was the easiest time to make money. They will
have the toughest time if they don’t totally change how they think and
do business. I [think] the up-and-coming areas will be hit hardest so
brokers in those areas will suffer more, specifically in Long Island
City or parts of Brooklyn.

What is the biggest mistake that you’re seeing brokers make right now?

Feeling sorry for themselves and not being proactive, both in my company and throughout the industry.

Has your brokerage closed any offices? Do you plan to consolidate operations in any way?

We have one very large office with 6,400 square feet. I had plans
to open two or three more offices, but I’m putting that on hold until I
feel we have hit the bottom. There are a few firms that have multiple
storefront locations that are going to get hurt during this downturn.

How are brokers coping with the decline in deals? Are they
working longer or fewer hours? Are any of them taking second jobs to
make up for the lack of deals?

While I believe some may be hiding their heads in the sand and
working fewer hours, those people will eventually end up leaving the
business. In general, good brokers know they have to do it full time or
not go to work, especially in a challenging time. So [they are not
taking second jobs] yet. But ask me again in January or February.

Are you seeing more brokers who were exclusively working on sales now also take on rentals?

I haven’t seen the switch so much here, but I have seen a huge
increase in the amount of inquiries on our exclusive rental listings by
the major sales firms in Manhattan.

Barbara Fox president, Fox Residential Group

Which brokers do you think will have the toughest time surviving this downturn?

Experienced brokers who have weathered prior downturns will know
how to keep their business alive. I worry about those who, though
successful, have had it too easy during the good times. Many brokers
never understood how to really work for a deal — for instance, the need
to learn sophisticated negotiating techniques. Those are the brokers
who will have to relearn their profession.

What are the biggest mistakes you’re seeing brokers make?

Not readjusting their strategy of doing business; not aggressively
pursuing new ideas and creating innovative strategies to generate
business; not being creative in finding buyers for the properties they
are representing; and not being honest with their sellers with regard
to pricing. Brokers got into bad habits over the past several years
doing anything and everything to win exclusives, including giving bad
pricing advice. Now it’s the sellers’ turn to wake up to reality and
understand that things aren’t going to be improving over the next
months. So if they’re serious about selling, they’re going to have to
be more flexible in negotiations.

What kinds of changes are you seeing brokerages make when it comes to spending?

Fewer and fewer people are looking to the print media for real
estate ads. Sellers like to see their property in print, but it pulls
in little business relative to the money spent by the firms. It’s
certainly one way to cut major costs.

What is the impact on competition -between brokerages now that there are fewer deals?

The fierce competition is on hold now. Brokers are working together more to accomplish their goals.

Neil Binder principal, Bellmarc Realty

What are the biggest mistakes you’re seeing brokers make today?

Catering to sellers and puffing sales prices in order to induce sellers to give them an exclusive.

Are companies eliminating services yet? Are they changing the allotment of -advertising money they’d normally give to brokers?

We have cut down our advertising a little. Firms that are very
large, that have affiliations to national companies are subject to the
severe downturn that is occurring nationally. Some of those are
severely affected by the parent companies like NRT or Realogy — they
own a number [of firms] in New York. If they are doing poorly in other
markets, a firm in New York City may have to suffer the consequences.

What’s the overall scene and mood like today in the brokerage
world? Are brokers working longer or fewer hours? Are they taking
second jobs?

We see our sales people coming in and working very hard. They may
be frustrated by not being able to accommodate buyers and sellers, but
they have to make a living so they’re really working hard. I’m sure
there are some who are working second jobs, but I never talk to my
sales people about it. They would not tell me and I don’t ask. I
imagine there are some people who have to put bread on the table and
they will do what they have to do.

Are you seeing more brokers who were exclusively working on sales now also take on rentals?

I’d say a larger percentage [of our work] is rentals now because a
lot of buyers are not interested in buying in the current market. The
sales people go where opportunities lie and we are seeing that rentals
are a large component of our business. We are predominantly a sales
operation, but rentals have doubled in the last year. I don’t know if
the rental market has gotten broader or whether we’re eating into it.

Kirk Henckels director of private brokerage, Stribling

What are you seeing in terms of layoffs and how much do you expect the city’s brokerage workforce to shrink by?

We are not planning any layoffs, only minor cuts in advertising, so
we are in an advantageous position relative to the larger firms. I have
seen some pretty dramatic cuts in advertising at other companies. I
think it’s greater than 10 percent. I imagine there will be some cuts
in staff levels as well. In terms of the number of brokers, I have a
feeling the wheat will be separating from the chaff. [Still], I think
our industry will fare better than Wall Street.

Have brokerages started eliminating services at all?

It seems to me that it is the really big ones and the really small
ones [that are eliminating services]. The really big because of a lack
of flexibility and the really small because they don’t necessarily have
the financial strength. So far in Manhattan, I have not seen any major
decrease in services. In our business the first thing that is adjusted
is advertising; that is the most flexible of the major overhead items.
Some have cut back and all firms will cut back — it’s a question of to
what degree.

What’s the overall scene and mood like today in the brokerage world?

It’s a little like the stock market. One day you hear about a big
deal being made, the next there are no sales. It’s erratic … There is
not enough empirical data yet to know what this new market is.

How are brokers coping with the decline in deals? Are they working longer or fewer hours?

I have seen it become much more professional — it isn’t a second
income anymore. The people that have established themselves will work
harder. We all have to work harder. You don’t find many part-time
brokers anymore. The competition is too stiff.

Are you seeing more brokers who were working on sales now also take on rentals?

Brokers sell whatever they can and luxury rentals have gotten to a
level where those commissions can’t be ignored. I would -expect a
high-end broker to take a high-end rental and be more inclined to do so
than before for obvious reasons. There is only so much to go around so
traditional rental brokers may have a little more competition from the
sales side.

What is the impact on competition between brokerages now that there are fewer deals?

I think certainly the competition for buyers has intensified more
so than the competition for sellers. Competition has -increased for
buyers, but it hasn’t gotten ugly and I don’t expect it to. Pricing in
this market is extremely tricky because for sellers, the negotiating
factor has changed so dramatically. Prior to the financial [crisis] the
negotiating factor was a mere 2 to 3 percent, whereas buyers now expect
more flexibility on the part of sellers and the market has not been
redefined yet.

John Reinhardt CEO, Fillmore

How much do you expect the city’s brokerage workforce to shrink by?

The real estate community has gone down and we are expecting
another 10 to 15 percent drop in the number of brokers a year from now.

Which brokers do you think will have the toughest time surviving this downturn?

I don’t think it’s specific to geography in the outer boroughs. We
are doing well in the outer boroughs. The smaller brokers are worried
about going out of business — they can’t pay bills so that is
attracting smaller brokers to our firm. I think it will happen in
Manhattan as well as other areas. There will be a flight to quality.
With the exception of niche markets, there will be a real movement of
agents.

What are the biggest mistakes you’re seeing brokers make in this down market?

Over-advertising in classified print mediums …We have cut
advertising expenses in the last two years and the number of new
customers is up 30 percent.

Has your brokerage closed any offices? Do you plan to consolidate operations in any way?

We have closed three local neighborhood offices five minutes from
each other. We have kept the team merged into [the] closest office, but
since some are leaving, there is room for the better-qualified agents.
We were able to recognize that as times get a little bit tougher we
have to work with fewer offices and can retain the same workforce.
Other firms have started to merge, they are considering or have
-already closed or consolidated in our area. I expect more of this to
happen, and often they are joining us or joining firms like ours. Some
successful brokers decided to open their own place and now they realize
that they have to recruit, train and motivate all these people. They
realized that they can get higher commissions without the risk and
aggravation of paying bills, so they are coming back to us.

What’s the overall scene and mood like in the business today?

Our agents are tougher and work harder. Some agents are taking it
slow and using it as an excuse. If they take it easy they are going to
be defeated. Some will jump to another career. We are training
[brokers] in how to list properties, how to say no when it’s
overpriced, and how to be more selective with who they work with so
they don’t have to work twice as hard.

What about commission structures? Are they changing?

There is in an increase in commission structure to top agents. Part
of our strategy is to attract the top agents … and [that includes] fees
to top agents. The lower end is not getting a raise. We are getting
tougher on the lower end, not giving the high splits unless they have
minimum standards now like [taking more] classes in training and skill
workshops to get to that next level.

What are firms doing to generate revenue in new ways now that sales volume is down?

We are more focused on our commercial department; it has doubled in
size this last year and we have worked on our new -development
division, which has grown 250 to 300 percent in the last year. We
started a contract today on a great job in the Bronx with 1,800 co-ops.
We opened an office in the Bronx at the beginning of this year.

Are you seeing more brokers who were exclusively working on sales also take on rentals?

We are a perfect example of that. We are rolling out a rental division.

Diane Ramirez president, Halstead Property

What are you seeing terms of layoffs and how much do you expect the city’s brokerage workforce to shrink by?

There is no excess in our employment and, therefore, no layoffs
will be made. Historically, the bottom 20 to 25 percent of the
brokerage community will be lost in any serious [down] market.

What are the biggest mistakes you see brokers make in a down market?

To get caught up in the negativity and to forget that this is
residential real estate — selling homes — and in all markets, some
people will need to sell and/or buy. Agents must also be well-versed
and knowledgeable about the art of negotiation. It’s -essential in any
market, but especially in tough ones.

Has your brokerage closed any offices? Do you plan to consolidate operations in any way?

We have not closed any offices and, in fact, we just opened one in
Hoboken, New Jersey, and started an investment sales division. This is
a time to look for opportunity in a fiscally sound way.

Barak Dunayer president, BARAK Realty

What are you seeing in terms of layoffs and how much do you expect the city’s brokerage workforce to shrink by?

I have spoken with my fellow CEO/presidents and sadly I learned
that many are laying off employees. I predict a 20 to 30 percent cut in
the city’s brokerage workforce and that much for agents as well. There
just won’t be as many transactions.

What are the biggest mistakes you see brokers make in a down market like this one?

The biggest mistake one can make in a market like this one is
taking a break. We have not hit bottom and now is the time to
strategize. All the managers at [our firm] actually started talking
about this all the way back in January. One of our managers, because of
the mortgage debacle, told all our agents that if you want to do 15
transactions this year, you must do 10 of them by June.

Are brokerages eliminating services yet? Are they decreasing advertising budgets?

We have looked into being even more effective with our advertising.
Even during a plush market, we minimized our print advertising since we
know it was never effective and it was only to impress sellers. Now,
because we want to hedge ourselves for tougher times, we have decided
not to have any print advertising whatsoever.

What’s the overall mood like in the brokerage world right now?

Discouraging at best. Many have quit and many of my colleagues have
let go of agents who are not producing. We have fought this off.

Are commission structures changing?

There will always be sellers who will try to negotiate our
commission no matter what market we’re in. In this market, however,
sellers need us more than ever. We’re already turning down listings if
they’re overpriced. This is a tough market to sell a property … In a
market like this, our managers have actually spoken about perhaps
charging a higher commission.

In a mansion that was once the residence of famed songwriter Irving Berlin, residential real estate brokers Richard Steinberg and Renée Bross Steinberg have carved out a home — literally.

That is, the Steinbergs live in one of six apartments hewn out of the 50-foot-wide, 25,000-square-foot mansion at 3 East 75th Street, which was the family home of Berlin’s wife, Ellin Mackay, and where he reportedly wrote “White Christmas.” [more]

While many commercial banks have dropped out of the mortgage lending business in New York due to the crash of the financial markets, several rival institutions and some nontraditional players have emerged in a new battle for market share in the city and the surrounding suburbs.

As the now-defunct Washington Mutual has fallen off New York’s mortgage lending scene, banks like Wells Fargo and JP
Morgan Chase have been expanding their piece of the residential mortgage pie. Other lenders, such as Citibank, which received a $40 billion government cash infusion last month, and HSBC, have grown more cautious, either pulling back on jumbo loans or cutting relationships with third-party brokers.

It’s notable that some banks are using this economic meltdown as a way to get a stronger toehold here. “We are definitely lending,” said Neil Bader, area manager at Wells Fargo Home Mortgage. “Our market share in the New York area is at an all-time high.”

The San Francisco-based bank has emerged as the leading originator of jumbo loans in the New York area in recent months. It is one of the few commercial lenders that is actively underwriting high-end condos, co-ops and even home renovations.

“Clearly there is some standing inventory in New York, and there has been some tightening across a plethora of banks,” said Robert Donovan, senior vice president at Bank of America, which acquired Countrywide in July for $4 billion. “We see it as an opportunity to grow market share.”

In 2007, Wells Fargo originated 5,783 jumbo loans in the New York metropolitan area, more than any other commercial bank, according to federal Home Mortgage Disclosure Act data. The bank was followed by JPMorgan Chase, Washington Mutual, Citigroup and Countrywide.

On a dollar basis, JPMorgan Chase led all New York area banks with $4.45 billion in loans, or 10.7 percent of the market. It was followed by Washington Mutual, with $4.2 billion, or 10.1 percent, and Wells Fargo at $3.97 billion, or 9.5 percent.

Initial HDMA statistics for 2008 will not be available until March, according to a Federal Reserve spokesperson. However, those market figures are likely to show a dramatic shift because of all the recent bank failures and financial mergers.

For one, federal regulators took over Washington Mutual earlier this year and sold it to JPMorgan Chase. Also, in October, Wells Fargo finalized a deal to acquire Wachovia, making the combined bank the second-largest mortgage originator in the U.S.

Meanwhile, strict new guidelines from Fannie Mae and Freddie Mac have caused turmoil in the multifamily market here. The agencies will not guarantee mortgage loans at buildings with less than 51 percent of the units sold, which means banks cannot sell these loans on the secondary market.

As a result, many homebuyers who signed contracts prior to the September credit crisis are now being asked to deposit anywhere from 25 to 60 percent of the purchase price on new condo units — or even pay cash. In other cases, buyers are going through four to five different banks before they can get final approval on a loan.

“Most of the banks will lend, but will only go up to conforming or super-conforming limits,” said Julie Teitel, senior vice president at GuardHill Financial Corp., a Manhattan-based mortgage banker and brokerage. “We still have three or four banks with awesome rates that will still do loans above $629,000. But they are stopping loans for any reason.”

It’s also no secret that virtually all traditional lenders — even those that are expanding market share — have tightened their underwriting standards in New York.

JPMorgan Chase, for example, has made significant changes on its jumbo loan product, instituting a maximum 85 percent loan-to-value ratio and a minimum credit score of 660.

It will also no longer underwrite investor-owned units, second homes or any Florida condos.

Officials at the bank said they did not have New York-specific data, but noted that across the country, third-quarter loan originations fell 33 percent from the previous quarter to $37.7 billion, down 4 percent from a year ago.

Lisa Breier Urban, a Manhattan-based real estate lawyer, said that Bank of America turned away one of her clients who was buying an apartment at LeHavre on the Water, a luxury 1,024-unit co-op complex in Whitestone, Queens. Urban says the bank turned her client down because the developer had pledged his unsold shares as collateral on another project.

“I now make sure people have their financing in line before they sign a contract,” said Urban. “The best-case scenario is to buy in a building where you’re approved and the building is approved.”

Bank of America officials declined to comment on any specific loan, but said general guidelines are required to reduce the risk in certain buildings and at certain price points.

The bank offers a 30-year fixed-rate jumbo loan for up to 80 percent of the value on a $1.5 million sale, and 75 percent on sales up to $3 million. Donovan, the senior vice president there, said the bank is also willing to underwrite loans in New York condo buildings with less than 51 percent of the units sold because it believes the risk of underwriting in new buildings is less than that of watching prices fall in an oversaturated condo market.

“Having empty standing inventory is negative in the marketplace in terms of pricing,” said Donovan.

Brokers and legal sources say other big lenders like HSBC have been sitting on their deposits for months, not approving loans in the New York market, while Citibank’s terms for jumbo loans are so strict that very few customers will accept them. After teetering on the brink of collapse last month, Citi escaped ruin with its government cash injection, which was designed to restore confidence and shore up liquidity.

For its part, HSBC says it is still lending in New York, but in November the firm said it would stop selling mortgages through outside brokers.

For luxury apartments in the multimillion range, an increasing number of mortgage brokers are turning to nontraditional loan sources, including insurance companies, credit unions, pension funds and private banking divisions of commercial banks.

Under the Economic Stimulus Act signed by President Bush, Fannie Mae and Freddie Mac will guarantee loans up to $729,750 in high-cost areas like New York, which reduces the risk for lenders. Therefore, many banks in New York are approving loans up to the federal limits and then asking borrowers to pay the remaining balance in cash.

Debra Schultz, director and senior mortgage consultant at Manhattan Mortgage Co., said UBS has launched a new program that allows high-net-worth individuals to set up a credit facility based on non-real estate assets, and then use that money to finance a mortgage.

For example, a client can borrow up to 70 percent of the value of blue-chip stocks or mutual funds, 90 percent of the value of high-quality bonds, and 97 percent of treasury bills. If a client qualifies, they can avoid having to go through appraisals, credit checks and other paperwork.

“It’s kind of like a margin loan, but a margin loan on steroids,” Schultz said.

Miami-based Gibraltar Private Bank and Trust is another bank that has expanded its reach among wealthy New Yorkers.

“I’ve gotten calls from people who were two to three weeks from closing [a mortgage loan] and their bank has changed its mind,” said Janit Greenwood, managing director and New York market manager at Gibraltar.

Barry Landsman, a real estate attorney with Pryor Cashman, said that the uncertainty has become too much for some buyers.

“For the first time in the 10 years I’ve been doing this, I’ve had my first two deals where my client just walked away,” Landsman said. “It’s not pretty out there.”

The torrent of bad news for New York City’s housing market continued in November as layoffs eviscerated the city’s work force, the national economy continued its downward slide and Mayor Michael Bloomberg lobbied for higher real estate taxes. The real estate industry waited with baited breath for the next round of quarterly market reports, when Manhattan will see the real effects of the mortgage crisis on home sales. [more]

In the heady days of condo buyers rushing to outmaneuver each other with fat offers on New York City residential properties, boring old fundamentals like price-to-earning ratios got tossed out the floor-to-ceiling window.

This measure — the sale price of a property relative to the rental income stream it could generate — had been a classic rule of thumb for setting a property’s value. The underlying idea, even in rarefied markets like Manhattan, is that a home’s price should directly reflect what the property could rent for.

Since the mid-1970s, the accepted nationwide ratio stood at sale prices of 15 times a property’s annual rent. In an indication of just how out of whack the boom market distorted this norm, the national ratio of median annual rents to median home prices soared above 25 to 1 in 2007, according to an October report from the Center for Economic and Policy Research and the National Low Income Housing Coalition.

“Basically, Housing Economics 101 says that the cost of a home should be a direct reflection of what it could rent for, a stream of income you could receive,” said Danilo Pelletiere, research director of the National Low Income Housing Coalition. “We got away from that quite a bit.”

Now that buyers, renters, brokers and lenders must focus on economic fundamentals, this old yardstick is getting dusted off. Economists are watching it closely as key indicator of health, not just for the real estate sector but the economy as a whole. New York brokers who never thought much about sale price versus rental rates — except as a tool for persuading renters to buy — are paying closer attention, too.

“I never priced a property based on that,” said Brian James, associate broker at Prudential Douglas Elliman. “This is definitely of interest and could be a very useful tool in pricing homes in New York City for 2009.”

Like many other indicators people are watching these days, this one is going down. Price-to-earnings ratios have been plummeting nationwide, while New York, long touted as a market unto itself, is also seeing a slump.

When the housing bubble burst initially, markets such as Las Vegas took early hits with lots of foreclosures. Now, cities including New York are catching up, logging more real estate price declines and foreclosures.

Moody’s Economy.com says prices for New York metro area single-family residences have dropped 10 percent since the peak of the market. Those declines mean price-to-earnings ratios are dropping, too. Through the end of the first half of 2008, the most recent time period for which data were available, the ratio was 15 to 1 in the New York area. That’s down from a peak of 18 to 1 in late 2005 through the third quarter of 2006, according to Moody’s Economy.com.

“The price-to-rent balance is looking like it is starting to come back in line with historical trends prior to the boom,” said Marisa Di Natale, senior economist at Moody’s Economy.com.

Balances are shifting, but the numbers have still not hit bottom, economists and researchers say. New York is among cities such as San Jose and San Francisco likely to see their price-to-earnings ratios plummet further, as a consequence of prices having moved up faster and higher than in other places.

“It has room to come down still,” Di Natale noted.

How low they will fall, and what impact that will have on a market already hammered by the credit freeze, rising unemployment and trillions of dollars erased from stock portfolios remains to be seen.

Some real estate insiders point out that, while important, this metric has its limits. As a comparative statistic focusing on a given property and similar properties nearby, it does not factor in the many perks that can set a residence apart, especially in Manhattan.

“It’s a broad stroke measure,” said Sofia Kim, vice president of research at StreetEasy.

Price-to-earnings ratios have spiked and retreated before. In the late 1970s, the national ratio jumped to about 18 to 1, before leveling out at about 15 from 1984-87, according to the Center for Economic and Policy Research and the National Low Income Housing Coalition report.

Previous cycles typically took about four to five years to fall back into line, noted Pelletiere of the National Low Income Housing Coalition.

The issue now, however, is that the steady upward march since around 1995 makes the historical benchmarks less relevant. Past cycles were smaller and less dramatic, with the ratio never rising above 20 times the annual rent. By contrast, the most recent cycle has lasted since the mid-1990s.

“My sense is it’s a bigger problem than in the past,” said Pelletiere.

As the faltering economy forces some brokerages to cut employee rolls and agents to compete for pieces of a more humble real estate pie, some brokers are walking away from bigger firms and starting their own companies.

Those moves may seem counterintuitive because small, independent firms are often more vulnerable in a down market. However, the brokers who are making a go of it expect to succeed by focusing on niche expertise that they gained at their former firms.

For a couple of the commercial brokerage start-ups, that means sticking to certain product types or geographical territories. At some of the new residential firms, it means focusing on bargain or no-fee rentals and staying away from both high-end rentals and for-sale listings.

Hitting the outer boroughs

Since the beginning of the year, three new commercial brokerages have popped up in the outer boroughs — two in Brooklyn and one in Queens. Former employees of the commercial brokerage Massey Knakal started all three firms — TerraCRG and CPEX Real Estate in Brooklyn, and Falco & Isak Realty Services in Queens.

As The Real Deal reported in early October, Massey Knakal has shrunk its agent pool from 191 to 146 since the beginning of the year, with most of those layoffs in the outer boroughs.

While CPEX and Falco & Isak both started up after Massey Knakal began letting go of employees, Ofer Cohen, TerraCRG’s founder, says he laid the groundwork for his own firm before Massey’s downsizing.

In the case of CPEX, the divorce from Massey Knakal hasn’t been the smoothest of transitions: One of CPEX’s founders, Tim King, filed a lawsuit against his former employer in October.

For his part, Cohen has added three additional brokers since he launched TerraCRG in January. (One of Cohen’s former Massey Knakal associates, Melissa DiBella, jumped ship with him.) The new firm is mainly focusing on the sales and leasing of industrial properties in Brooklyn and is billing itself as “the first commercial firm to focus only on the Brooklyn market.”

In its first seven months of operation, the firm has listed about $24 million of assets for sale and completed a total of six lease and sales transactions, with three more deals under contract, including a 20,000-square-foot hotel conversion site on Atlantic Avenue in Bedford-Stuyvesant that was listed for $3.3 million.

Cohen says the main challenge of opening during a sluggish market is trying to broker deals amidst the financing freeze.

“What we’re doing is ramping up listing activity, which requires no financing, to compensate for the length of time it takes to have deals closed,” he says.

When it comes to sales, he says TerraCRG is “trying to work closely with banks and mortgage brokers — bring them in very early on, so we know there’s a certain level of interest from the bank. We’re trying to preempt any trouble down the road.

“Before, there was a sense that things would eventually get funded, but that’s not there anymore,” he said.

Despite the downturn, Cohen expects to hire a few more senior brokers by the end of next year and expand into multifamily and mixed-use sales.

“There’s not a lot of competition when it comes to commercial real estate in Brooklyn,” he says. “Massey Knakal really opened up the market six or seven years ago. When I look at Brooklyn, I think it’s like Manhattan 10 or 15 years ago. We see a great opportunity to be one of the top commercial firms here.”

In Queens, a couple of other former Massey Knakal employees are making the same bet with their new brokerage, Falco & Isak Realty Services.

“I don’t think there’s any other company that’s only doing Queens commercial sales,” says Rubin Isakharov, who started the firm with John Falco in October. “We know the area and feel comfortable in the area. We’re completely devoted to one thing.”

Isakharov thinks opening in a bear market is better than grabbing a bull by its horns.

“Some people will say the timing is questionable, but I disagree,” he says. “I think it’s better. There’s not as much competition, and the market isn’t moving as fast, so there’s a lot of time for us to catch up and grow.

“And, when the market does clear, we’ll still be here.”

Isakharov says the firm intends to expand by breaking Queens into different territories, with one broker in charge of each.

“We look forward to competing with the big boys out there,” he says. “Every broker wants to eventually run their own business.”

Raking in rentals

Andre Campodonico — who started the residential rental firm Standard Living Realty in January — worked for Rapid Realty, a firm with about 70 agents that primarily concentrate on Brooklyn rentals, for five years.

“I worked my way up to be one of the main people there,” Campodonico says of his former employer. “Basically, the company started growing and added a lot of people, but I didn’t think there was any room left for me to grow. I hit a ceiling.”

Standard Living’s focus is exclusively on Brooklyn rentals, “a niche,” according to Campodonico, that’s keeping the company afloat. Another support has been its no-fee listings.

“No-fees are one of our specialties and they’ve helped keep us alive,” Campodonico says. “When I started and had a listing, the phone would not stop ringing. Now, you’re just waiting for a call to come in. You have to handle every deal like it’s your last.

“People respond a lot less to advertisements now, but no-fee listings still bring in a lot of calls.”

The company now has 40 agents, as well as branches in Park Slope and Williamsburg, according to Campodonico.

Although no-fees and rentals under $1,500 are the company’s bread and butter, Campodonico sees Standard Realty expanding in the short term with higher-end listings for buildings that were originally planned as condos, but are instead becoming rentals.

Back on the other side of the river, Keith Burkhardt is trying to keep renters in Manhattan.

Burkhardt formed his own company, the Burkhardt Group, after leaving Citi Habitats in June; he is specializing in no-fee rentals.

“I left Citi Habitats because I sort of saw the writing on the wall,” says Burkhardt. “I’ve been a broker in Manhattan for over 17 years. When I started, the market was terrible and we rarely collected a fee from an incoming tenant.”

Burkhardt is the only agent on staff at his firm, but he says he might eventually look to take in a partner.

“The 15 percent model is going to have to change, or someone like me is going to have to change it,” he says, referring to the percentage cut of an annual rent which listings agents typically pocket. “Firms are going to have to agree that they’re going to make less money but do more business and have happier clients.”

Although Burkhardt has been a sales agent in the past and still has a few sales listings, he thinks there’s more money to be made right now in Manhattan rentals.

“I wouldn’t recommend that anyone buy in this market unless they just didn’t want to pay rent,” he says. “Plus, it’s almost impossible to get financing for a co-op or condo, and foreign buyers are drying up. On the other hand, rents really haven’t gone down that much. The Village and prime areas are holding up.”

A trend?

So will there be more independent commercial and residential brokerages opening in the near-term? Cohen, Terra-CRG’s founder, thinks so.

“I think it’s a trend,” he says.

In a slower market, “top producers at established firms need more ground to cover, and the ability to make more money, and they see a lower opportunity cost at finally branching out on their own.”

“Transitioning markets in general are good for brokers; with the dislocation of talent elsewhere and power shifting from sellers to buyers, the upside in establishing a new brand in a down market is enormous,” he says.

Burkhardt, on the other hand, thinks a good number of residential agents are going to abandon the real estate game, whether they work for large or small firms.

“New and inexperienced brokers are going to shake out,” he says. “This market is just not going to be able to bear the thousands of brokers running around the city.”

Go to chart: New York City’s real estate market sees slowdown across the board

Compiled by Linden Lim

Manhattan

Gramercy
$2.05 million
260 Park Avenue South
2-bedroom, 2-bath, 1,407 sf condo in a prewar elevator building; doorman, concierge; unit has washer and dryer, walk-in closet; building has common outdoor space; asking price $2.28 million; eight weeks on the market. (Broker: Olaf Vize, Vize Property Group)

Gramercy
$999,000
205 Third Avenue
2-bedroom, 2-bath, 1,100 sf co-op in an elevator building (Gramercy Park Towers); 24-hour doorman, concierge; unit has northern and eastern exposure; building has laundry room, roof deck, gym, bike room, garage; maintenance $1,120; 54 percent tax deductible; asking price $1.065 million; 16 weeks on the market. (Brokers: Judith Thorn, Eric Dickenson, Warburg Realty Partnership; Kathy Gulrich, Fred Slavin, Bellmarc Realty)

Lower Manhattan
$2.18 million
15 Broad Street
2-bedroom, 2.5-bath, 1,900 sf condo in a prewar elevator building (Downtown by Starck); 24-hour doorman, concierge; building has live-in superintendent, fitness center, bowling alley, screening room, conference room, roof deck, children’s play room; common charges $1,447; last listing price $2.3 million; three months on the market. (Broker: Corey Wecler, City Connections Realty)

Midtown West
$1.155 million
357 West 55th Street
2-bedroom, 2-bath co-op in a prewar elevator building; unit has hardwood floors, northern and western exposures; maintenance $1,771; last listing price $1.195 million; 24 weeks on the market. (Brokers: Leslie Penny, Harriet Botwinick, Bellmarc Realty; Cynthia Crowley, Olshan Realty)

Upper East Side
880 Fifth Avenue
$6.1 million
2-bedroom, 2-bath duplex co-op; doorman, concierge; unit has views of Central Park, private roof garden; building has fitness center, garage; maintenance $4,799; last listing price $5.995 million; nine months on the market. (Brokers: A. Lawrence Kaiser, Key Ventures; Barbara Schwartz, the Corcoran Group; David Larijani, New York Private Realty Group)
Note: Correction appended.

Upper East Side
$375,000
233 East 69th Street
Studio, 1-bath, 425 sf co-op in an elevator building; 24-hour doorman; unit has western exposure; building has roof deck, laundry room, garage; maintenance $560; 48 percent tax deductible; asking price $360,000; four weeks on the market. (Brokers: William Vilkelis, Barak Realty; Maggie Leigh, the Corcoran Group)

Upper East Side
$349,000
333 East 79th Street
Studio, 1-bath, 440 sf condo in an elevator building; 24-hour doorman; unit has northern exposure; building has storage, garage, health club, laundry facilities; maintenance $583; 56 percent tax-deductible; asking price $349,000; two weeks on the market. (Brokers: Randolph Green, Century 21 NY Metro; Jason Schorr, S&S Real Estate)

Upper West Side
$3.625 million
100 Riverside Boulevard
3-bedroom, 3.5-bath, 1,900 sf condo in a new elevator building (Avery); 24-hour doorman, concierge; unit has two terraces, washer and dryer, Jacuzzi, northern, eastern and western exposures; building has roof deck, gym, party room, garage, storage; common charges $1,600; taxes $100 with 10-year tax abatement; asking price $3.625 million; six months on the market. (Broker: Sherri Shang, Century 21 NY Metro)

Upper West Side
$1.1 million
185 West End Avenue
2-bedroom, 2-bath, 1,150 sf co-op in an elevator building (Lincoln Towers); doorman; unit has views of Hudson River, balcony; building has fitness center, children’s play room, private park; maintenance $1,890; asking price $1.189 million; three weeks on the market. (Brokers: Jamie Breitman, Bellmarc Realty; Amy Schiff, Maxwell Jacobs)

Brookyln

Brooklyn Heights
$695,000
360 Furman Street
1-bedroom, 1-bath, 850 sf condo in a new elevator building (One Brooklyn Bridge Park); doorman, concierge; building has live-in superintendent, gym, garage, lounge, roof deck; common charges $500; taxes $90; last listing price $695,000; two months on the market. (Broker: Jeff Krantz, City Connections Realty)

Brooklyn Heights
$461,000
135 Willow Street
1-bedroom, 1-bath, 550 sf condo; doorman; building has roof deck; maintenance $610; 30 percent tax deductible; three weeks on the market. (Broker: Danielle Mosse, Brooklyn Heights Real Estate)

Brooklyn Heights
$281,000
30 Clinton Street
Studio, 1-bath, 455 sf condo in a prewar building; building has live-in superintendent, laundry facilities, storage; maintenance $576; asking price $299,000; four months on the market. (Brokers: Danielle Mosse, Brooklyn Heights Real Estate; William Lyn, Struck Realty)

Clinton Hill
$225,000
195 Willoughby Avenue
Studio, 1-bath, 500 sf co-op in an elevator building (Willoughby Walk); doorman; building has a courtyard, laundry facilities, parking, live-in superintendent; maintenance $355; 33 percent tax deductible; last listing price $225,000; nine and a half months on the market. (Broker; Alex Haven, City Connections Realty)

Downtown Brooklyn
$611,000
306 Gold Street
1-bedroom, 1-bath, 807 sf condo in a new elevator building (Oro); doorman; building has gym, screening room, lounge; common charges $578; taxes $125; last listing price $611,000; four days on the market. (Broker: Samantha Beringer, Prudential Douglas Elliman)

Downtown Brooklyn
$597,000
306 Gold Street
1-bedroom, 1-bath, 765 sf condo in a new elevator building (Oro); doorman; building has gym, screening room, lounge; common charges $548; taxes $118; three days on the market. (Broker: Samantha Beringer, Prudential Douglas Elliman)

Downtown Brooklyn
$557,000
195 Adams Street
2-bedroom, 2-bath, 1,043 sf co-op (Concorde Village); unit has southern and eastern exposures; maintenance $1,093; 33 percent tax deductible; asking price $589,000; 45 days on the market. (Broker: Jordan Glickstein, Brooklyn Heights Real Estate)

Williamsburg
$780,000
170 North 11th Street
2-bedroom, 2-bath, 1,130 sf condo in a new elevator building (Lucent); unit has hardwood floors, washer and dryer, central air; common charges $268; taxes $864; last listing price $815,000; four weeks on the market. (Brokers: Alan Shaker, Binnie Robinson, the Developers Group)

Williamsburg
$610,000
30 Bayard Street
1-bedroom, 1.5-bath, 804 sf condo in a new elevator building (the Aurora); 24-hour doorman; unit has hardwood floors; building has fitness center, roof deck, storage; common charges $612; taxes $1,144 with 15-year tax abatement; last listing price $675,000; 84 weeks on the market. (Broker: Ailene Quinlan, the Developers Group)

Williamsburg
$495,000
48 Whipple Street
3-bedroom, 2-bath, 900 sf co-op in an elevator building; building has a roof deck; maintenance $544; last listing price $499,000; four months on the market. (Broker: Lauren Dulberg, City Connections Realty)

Williamsburg
$347,000
223 Maujer Street
1-bedroom, 1-bath, 794 sf condo in a new building; unit has renovated kitchen, central air, hardwood floors, washer and dryer; common charges $178; taxes $13 with 15-year tax abatement; last listing price $367,000; four weeks on the market. (Felicia Putter, the Developers Group)

Queens

Long Island City
$365,000
41-26 27th Street
1-bedroom, 1-bath, 786 sf condo in a new elevator building; doorman; unit has hardwood floors, central air, renovated kitchen and bath; building has roof deck, gym, live-in superintendent, laundry facilities, storage; common charges $481; taxes $25 with 15-year tax abatement; last listing price $365,000; one day on the market. (Broker: Alan Shaker, the Developers Group)

Compiled by Jovana Rizzo

As construction financing all over the city sputters, many developers — from giants like Extell to builders of simple four-unit condos in the boroughs — are finding themselves on the hook for more cash. [more]

Andrew Barrocas, the CEO of the Real Estate Group New York, recently brokered nothing short of a real estate miracle. In the midst of the credit crunch, his client purchased a new condo Downtown with no money down.

To make it happen, Barrocas persuaded the building’s developer to let his client forego a deposit, instead using the 10 percent deposit — which came to $115,000 — from another buyer who’d broken his contract.

The developer also provided 30 percent financing to the new buyer and knocked $150,000 off the purchase price. To complete the deal, the new buyer received 60 percent financing from a bank.

The unusual arrangement worked out, Barrocas said, because the two buyers knew each other, and the buyer who walked away had suggested that his friend purchase the unit and use his deposit rather than letting it go to waste. Most importantly, he said, the deal would have been unheard of just last year when the market was strong. It came together because of the flexibility on the part of the developer, who was entitled to keep the money.

“The incentive was, he got a buyer for the unit,” Barrocas said. “In an ideal world, [the developer] would have loved to keep the deposit and find another buyer. But in a market like we’re in, he’s looking to do what’s safe.”

Given the financial crisis of recent months, many developers must now go to great lengths to sell units in new construction residential buildings.

Gone are the days when buyers clamored to plunk down millions for a new condo after a brief glance at a floor plan. Now that slow sales and falling prices have made the future of many construction projects uncertain, buyers prefer resales or projects that are near completion. As a result, developers are finding that they must be more innovative in order to sell out their units, even if it means taking risks and cutting into profits.

“Anytime you have a change in the market, people who are creative come out ahead,” Barrocas said.

In the down market, new development condos are facing challenges that resales and older construction projects don’t have. With sales volume down, prospective buyers worry that prices of new construction condos will fall in the time between contract signing and closing, which can sometimes be months or even years, explained Christine Toes, a vice president at Corcoran.

Meanwhile, the prices owners can rent their units for have in many cases fallen.

“There’s not as big of a concern that apartments are going to be flying off the shelves and they [buyers] need to get in early,” she said. “It’s kind of like the perfect storm for a lack of incentive to snatch up new developments. You can’t rent them for as much, and you’re not going to have 20 to 25 percent price appreciation in the next two years.”

Meanwhile, buyers are worried that many projects simply won’t get built at all — and with good reason, said Shaun Osher, the CEO of Core Group Marketing.

“I would say that about 80 percent of all new developments citywide have been either shelved or cancelled,” Osher said, adding that the figure includes both projects in the pipeline and those already for sale. “There are existing projects that are either under construction or about to start construction that won’t be moving forward.”

As a result, many buyers now find resales more attractive than new construction. “There’s a lot less risk in a resale from a buyer’s perspective,” Osher said. “It’s become much more difficult to sell off-plan because of the uncertainty of whether the project’s going to get completed.”

The problem has gotten so bad at some of developer Ken Horn’s new projects, including 462 West 58th Street and 303 East 77th Street, that he is planning to post large signs on the construction sites confirming that the projects have received construction loans.

“People want to see more completed buildings,” said Horn, the president of Alchemy Properties, who is holding off on marketing several of his new projects until construction is further along. “That’s a big change in the market over the past six or seven months.”

In the face of these concerns, even the freebies developers have been offering to lure buyers — free parking spaces, reduced closing costs or transfer taxes, discounted furniture — aren’t working in many new-construction buildings.

“It seems like the buildings that have just begun construction are not selling at all,” said Derrick Gross, a business analyst at StreetEasy.

As a result, developers of new construction projects have begun to step it up, taking more aggressive measures to sell units.

The 88 units at SteelWorks Lofts at 76 North 4th Street in Williamsburg went on sale a few weeks ago — just in time for the wild gyrations of the crisis on Wall Street. “It was at not so great a time with respect to the financial markets,” said developer Greg Belew, a managing partner at Fifth Square Partners.

While many buyers initially showed interest in the development, they have been hesitant to buy, he said. In response, he implemented a policy of allowing buyers to put down a deposit in two parts: 5 percent at signing, and another 5 percent several months later. “This was really to induce people to go ahead and make a commitment without having to put up so much cash at a difficult time,” he said. “The financial commitment is not as large.”

Belew knows the strategy is risky, because buyers with less money down are more likely to pull out of the deal. “It’s a worry,” he said. “But if this helps us gain market share and get people off the fence, there’s a momentum aspect to it.”

As The Real Deal first reported last month, SteelWorks is also one of several developments offering “price protection” programs that guarantee buyers discounts if prices in the building drop between contract signing and closing. Others include Clermont Greene in Fort Greene, One Sunset Park, and +Art at 540 West 28th Street in Chelsea.

This strategy also carries some risk, because the developer could lose money in the face of a drastic drop in prices. But it’s worth it to help assuage buyers’ fears of making a purchase, said Roberta Benzilio, the senior director of sales for Halstead Property Development Marketing, which is offering price protection in several of its buildings.

“People are concerned that if they buy now, the market will change between now and closing and they’ll lose out,” she said. “The only way to make people feel comfortable moving forward is to give them price protections.”

Developers are also finding that it’s crucially important to form relationships with mortgage brokers in an environment where buyers find it increasingly difficult to get financing, said Harry Jeremias, a principal at the Harch Group.

Jeremias noted that at the Renwick and Harch’s other new developments, the company’s mortgage broker, Everest Equity, proactively approaches buyers instead of the other way around. “Typically, developers hand out business cards for mortgage brokers,” he said.

He said he’s worked closely with Everest to make the necessary tweaks — an additional $5,000 discount, for example — to help make buyers’ financing structures more acceptable to lenders. “What’s driving down the prices is people not being able to get financing,” Jeremias said. “Ultimately, for developers, this is the way to go — teaming up with the right mortgage company.”

As New York City reels from the crisis on Wall Street, the real estate industry has taken some comfort in the fact that New York’s infamously tight market has avoided the massive inventory buildup found in Miami and other cities.

But New York City has more homes for sale than you might think.

While market reports peg Manhattan’s available inventory at around 8,000 units, experts say the real figure may be much larger, due to a “shadow inventory” of roughly 2,000 apartments.

Because developers often stagger listings of newly built units and strategically hold them off the market, official reports fail to capture a large number of available apartments. In a rising market, that would be good news for buyers, meaning there are more units available. But as prices decline, the excess inventory could become a problem and make for a longer recovery time for the city’s floundering real estate market.

“Right now, inventory levels officially aren’t that much different from a few years ago,” said Derrick Gross, a business analyst at StreetEasy. “Brokers will say it’s a great time to buy. But really, there are all these units that are hidden.”

Jonathan Miller, president of the real estate appraisal firm Miller Samuel, said Manhattan listing inventory was at 7,003 units at the end of the third quarter — up from 6,869 units at the end of the second quarter. By the end of October, the most recent date on record at press time, the figure was 7,444 units, or about seven months’ worth of homes for sale, he said.

But because his data is based on listings, it doesn’t include the units that developers haven’t yet put on the market, he said. He estimated that the real inventory figure could be closer to 9,444 units.

“In terms of absolute total numbers that are on the market, it certainly undercounts the product available for sale,” Miller said of his data.

One question many are asking is whether that inventory was also undercounted a year ago, as experts try to get a handle on the magnitude of the slowdown.

However, counting the number of unreleased units each quarter would be a nearly impossible task, involving an analysis of how many units are left at each new development. So, that figure is still a mystery to many of New York’s real estate experts.

“Those numbers are constantly changing,” Miller said. “It’s very difficult to extract which units are remaining.”

The complexity stems from a popular method of marketing new condo buildings. The vast majority of developers put only a small percentage of their units on the market at a time, as a way of controlling the prices fetched for each apartment and the speed at which they sell, according to Andrew Gerringer, director for new developments at Prudential Douglas Elliman.

“If you put the whole building on the market at once, people tend to cherry-pick the best units,” explained Gerringer. “You don’t want to have all the hard-to-sell units at the end.”

Releasing small batches of units at a time helps developers sell out the building evenly. “You play the units off each other,” Gerringer said. “There’s a bit of an art and science to it.”

The strategy is often viewed as a necessity, especially in larger buildings.

“When you have an offering plan with 200 units, the developer may release to the brokers blocks of 50 units at a time so you don’t flood the market with listings in this building,” Miller said.

At the Edge in Williamsburg, for example, there are 575 luxury condo units planned, in addition to 347 rental units. But only 53 active sales listings are considered “available,” according to StreetEasy.

The downfall of the strategy of holding back units is that it makes it nearly impossible for market analysts — like Miller,
StreetEasy and others — to accurately track how many “shadow” units are on the market because their data is based on active listings.

Miller said in the third quarter, new development accounted for 26.8 percent of the total inventory, or 2,002 units. “I would think that the number [of units] that are not released, that are under construction or completed but not added to the offering plan, is at least double the number of units that are currently on the market,” he said.

StreetEasy’s third-quarter market report estimated that there were 8,635 units on the market in Manhattan, but Gross said the number of units not yet listed “is probably pretty high.”

The difference between the two figures could have profound consequences for how long it will take New York City to recover from the slump.

“There’s a big discrepancy between the number of apartments that StreetEasy has and what is really on the market,” said Christine Toes, an associate broker at Corcoran.

“If you think we have 8,600 units, that means we’re in a much better situation than other cities,” Toes said. “But if it’s more like 10,000 units, then it will take more than seven months to absorb that entire inventory.”

Inventory has a direct relationship to prices, said Gregory Heym, chief economist for Terra Holdings. “If inventory builds significantly, prices will come down to sell off that inventory,” he said.

A large number of additional new development units “would put in buyers’ minds a different idea of the real estate market right now,” Gross added. “Buyers would be less inclined to move forward.”

For his part, Heym stressed that New York’s inventory, while higher than it has been, is still much lower than other cities’; Miami, according to some reports, has roughly three years’ worth of inventory overhang.

He also emphasized that the impact of shadow inventory will be neighborhood- and category-specific. “If people are looking for a co-op, prices are not going to be swayed by how much new development condos are,” Heym said.

Areas where there has been a large amount of new development include Williamsburg, the Financial District, West Chelsea and Long Island City, Gross said.

“It’s all about where the inventory is,” Gerringer noted. “If you have 10 new projects in Chelsea but only a few on the Upper West Side, your pricing can tend to be a little stronger on the Upper West Side.”

He said it’s not just buyers and developers who are interested in the amount of shadow inventory in the city: lenders are also concerned. “I’m asked about it a lot,” Gerringer said. “As a bank, you want to know how many units are out there.”

The upside for the city is that the credit crunch has made it nearly impossible to finance new projects, meaning the pipeline of new inventory is expected to dry up quickly once the current batch of new developments is sold.

“The condo filing plans have fallen precipitously, and that’s a good thing,” said Jeff Bernstein, a partner at Guild Partners, a boutique real estate investment banking firm. “My guess is that you’re going to see this pipeline go down to nothing.”

With lenders going into bankruptcy and the sales market disappearing, developers all over New York are facing choices about how to ride out this down cycle.

“If you go past construction sites, there are buildings with cranes that aren’t moving,” said Shaun Osher, CEO and founder of Core Group Marketing. “There are half-built buildings where there’s no construction happening.”

However, the choice of whether to “mothball” a project isn’t always up to the developer — sometimes the decision is made for him by the current lack of loan availability.

“Some developers, because they were trying to get into the ground before the 421-a tax abatement expired [in July], even used their own money, and now they can’t get construction financing,” said Andrew Gerringer, executive vice president of the development marketing group at Prudential Douglas Elliman. “So they’re in a situation where they couldn’t even get a construction loan, so they’d be forced to mothball.”

How long a project can sit on the shelf depends, of course, on the developers’ costs.

“Often, in the deals I see, there is a provision in the developer’s pro forma that gives them time, but not two or three years,” said Steven Kratchman, president of Steven Kratchman Architect, which does development consulting.

“In their pro forma, they might have 12 months of padding, so if I were in their shoes, what I might be doing in this market is stalling these three or four months until things start to clear up, with the credit crisis [and] with the new president,” he said.

“I’d wait to find out what’s going on till more like January, or perhaps do a three-, six- or nine-month stall.”

Kratchman said he is consulting on three New York City projects that have chosen to halt development to reassess. They include a hotel, a commercial building and a condo, but he declined to cite them by name or address.

Sunk foundations, sunk costs

The decision to mothball is also driven by what stage of completion the project is in. Certainly, for those who own land free and clear, building in a weak sales market doesn’t make sense, said Alex Hurst, founder and managing partner of Palatine Capital Partners, a New York City-based firm that buys struggling real estate assets and redevelops them.

“If you didn’t finance the land, you’d sit there, and you’d hold it,” he said. “You own an [unleveraged] piece of real estate, and your carrying costs are largely the real estate taxes, which are pretty nominal on land.”

However, developers who have already financed their land could be in a difficult position. “You have to hope you can figure out a way to refinance it, because normally land loans are pretty short-term loans,” Hurst said.

With the credit markets largely frozen, a property developer might have to resort to working with the current lender. “You call up your existing lender and say, ‘The world has stopped. I need an extra two years. Can you extend the terms?’” Hurst said.

For developments that are in the middle of construction, some sales and marketing efforts have been put temporarily on hold, in the hopes that a finished product will induce more apartment hunters to purchase.

Kenneth Horn, president of Alchemy Properties, has decided to hold off on all marketing and advertising efforts for two properties — Hudson Hill Condominium at 462 West 58th Street and Isis Condominium at 303 East 77th Street — until construction has reached a point where there is one floor completed in each building, and thus a model apartment for each unit line. For Hudson Hill that will probably be next month, and for Isis it will be around February.

“Maybe a couple of years ago you could sell off of floorplans, but now people want to know that, one, the building will be finished, and two, you have financing to finish the building,” Horn said.

Meanwhile, as The Real Deal first reported, developer Kent Swig, head of Swig Equities, closed his sales and marketing office at 25 Broad Street after subcontractors on the job were not paid due to the bankruptcy of Lehman Brothers. Those subcontractors have filed liens on Swig’s project, and at least one firm, Nova Development Corp., has filed a lawsuit in Manhattan Supreme Court. Swig did not return calls for comment.

The 346-unit condo has seen its funding frozen, but he appears to be pinning his hopes on waiting things out.

“He’s closed his sales office, he’s reduced his costs, and he’s trying to sort through the financing mess right now,” said Steven Goldschmidt, a senior vice president and managing director of Warburg Marketing Group, who is not connected to the project. “And dollars to donuts, he’ll reopen at some point. He’s going to keep his offering plan alive.”

Some developers are going in search of more equity. “I think we’re going to be seeing quite a bit of this,” said Osher. “They’re either going to have to foot the bill themselves, which is highly unlikely, or try to find funds elsewhere — investors, private equity funds — which is happening a lot. Or they can try to sell their project.”

Without additional equity, the options are dim. A developer could sell the land and take a loss, or go into foreclosure and walk away from the project. If the sales market dissolves while the project is already under construction, it’s an even more perilous situation.

“Developers have a tendency to personally sign for some portion of the loan. And you’ve got deposits from people. It becomes a complex situation very quickly,” Hurst noted.

Warburg’s Goldschmidt said the smaller developers have already felt the pain of the market. “The market peaked about two years ago for those smaller developers, so there’s already been a shakeout.”

Mothballing an asset is usually a last-resort strategy. “The math is pretty simple, right?” Hurst said. “Whatever you borrow, you need to continue to pay interest on, and once your interest reserve is gone, you’re coming out of pocket, or else you’re in default.”

Lenders capitalize an interest reserve for the development period and the time it should take to sell out the project, which is typically two to three years, he said.

On a $50 million project, for example, where a developer borrowed 85 percent to build, that’s a $35 million loan at, perhaps, a 7 percent interest rate. “Every year you’re coming out of pocket for $2 million,” Hurst said. “If you continue to come out of pocket every year, at some point your profit margin disappears.”

He continued, “So for developments like, for example, Riverton in Harlem, the come-to-Jesus moments will be when those interest reserves disappear, because suddenly somebody has to come out of pocket to feed the lender, and the minute you stop paying interest, you’re in default, and once you’re in default, they can pursue remedies like foreclosure,” Hurst said.

The current climate of buyers looking for bargains doesn’t help. “Developers may be in a position where the offers they’re getting are lower than what the mortgage to the bank is, so they’re in a position where they can’t sell,” said Gerringer.

“The developer could go to the bank and say, ‘Help me in taking a bit of a hit, so I can sell it,’ but we’re not seeing it yet,” he added.

Staving off foreclosure

Kratchman said he’s being approached by financial institutions and potential investors to examine struggling projects in New York in an attempt to preempt foreclosure. He said he was involved in more than half a dozen such deals, priced at $30 million or less, in the first three weeks of November alone.

Kratchman said his role is to attach a value to the half-finished project for either the lender or the private investor. He said he recently assessed a stalled Manhattan condo for a potential investor and came up with a value of $3.5 million. The lender’s basis, meaning the principal plus accrued interest and penalties, was $5.7 million.

The developer, lender and potential investor could not come to an agreement on the price of the building, which Kratchman declined to identify, so the lender pursued foreclosure, and the property went to auction. Because no buyer was willing to pay what the lender wanted, the lender ended up buying the note and now owns the property.

“As a lender you do this because you want to protect your basis, but at the same time it’s potentially bad, because you’re sitting with a REO [real estate-owned] property on your book,” Hurst said.

Gerringer said the opportunities to purchase struggling developments at advantageous prices aren’t yet out there. “The deals aren’t out there at numbers people are willing to buy them at,” he said.

Bushwick
The Knickerbocker
320 Knickerbocker Avenue
The Hudson Companies will develop the 49-unit condominium with loft and penthouse units, Brownstoner reported. Amenities include terraces or patios attached to many of the units, a gym, storage and roof access. The building will be LEED certified.

Lower Manhattan
40 Walker Street
Developer 40 Walker Street LLC is converting a former textile factory into four full-floor loft apartments. The units include three two-bedroom, two-bath apartments and one three-bedroom, three-and-a-half-bath duplex penthouse, ranging from 1,897 to 3,470 square feet. They are priced from $2.795 to $6.995 million. Amenities include washers and dryers and basement storage. Brown Harris Stevens is the exclusive sales and leasing agent.

Construction update

Fort Greene
Clermont Greene
181 Clermont Avenue
Read Property Group’s 74-unit condominium has applied for its certificate of occupancy. Twenty-five percent of the building’s
one-, two- and three-bedroom units have been sold. Available units range in size from 662 to 1,620 square feet and in price from $450,000 to $1.25 million. Amenities include indoor parking, a fitness center and a courtyard. The Barak/Blackburn Group of Prudential Douglas Elliman is the exclusive sales and marketing agent. Contact: www.clermontgreene.com.

Williamsburg
The Edge
34 North Seventh Street
Douglaston Development’s 575-unit condominium topped out in mid-November. The project was designed by the Stephen B. Jacobs Group, the architecture firm, with interiors by Andi Pepper. Prices begin at $420,000. The condo’s first phase is scheduled for occupancy in fall 2009.

Sales update

Brooklyn Heights
20 Henry Street
Sales began in early November at the two-building, seven-story condominium. The 38 units, studios through four-bedrooms, range in price from $580,000 to $2.56 million. Amenities include a roof deck, courtyard, fitness center and storage. Halstead Property Development Marketing is the exclusive sales agent. Occupancy is expected to begin in fall 2009.

Chelsea
456 West 19th Street
Sales began in early November at Cary Tamarkin’s 22-unit condominium. The residences range from 1,100-square-foot one-bedrooms to 3,000-square-foot three-bedrooms, and prices begin at $1.5 million. Amenities include a garden and storage rooms. The building is slated for completion in early 2010. Stribling Marketing Associates is the exclusive sales and marketing agent. Contact: www.456W19.com.

Chelsea
+Art
540 West 28th Street
Sales began in late October at Ekstein Development’s art-themed, 13-story, 88-unit building. Prices for the studios to four-bedroom units, which fall between 445 and 2,539 square feet, range from $520,000 to $4.2 million. The condominium will feature custom decorative panels, original artwork and sculpture in the courtyard, a lobby with a curated art collection, a concierge service that includes access to an art consultant and 6,000 square feet of ground-floor gallery space open to residents and the public. Occupancy is expected to begin in 2010. Halstead Property Development Marketing is the exclusive sales and marketing agent. Contact: www.540w28.com.

Downtown Brooklyn
One Hanson Place
Apartments are 85 percent sold at Dermot Company and Canyon-Johnson Urban Funds’ 179-unit condominium. Units range from studios to three-bedroom penthouses. Remaining apartments are priced from $595,000 to $1.095 million. Amenities include a club room, terrace, business center, children’s playroom and fitness center. Stribling Marketing Associates is the exclusive sales and marketing agent. Contact: www.onehanson.com.

East Village
The Theatre Condominium
133 Second Avenue
The seven units released for sale at Walter & Samuels’ project in the former St. Marks Playhouse sold out within a month of going on the market. The 11 loft units in the building range from 790 to 1,935 square feet and start at $800,000. Building amenities include a landscaped roof deck. Two duplex units will be released for sale in early 2009. Contact: www.theatrecondo.com.

Fort Greene
Toren
150 Myrtle Avenue
At the 38-story, 240-unit condominium, developed by BFC Partners, 55 percent of units have sold in five months. The Skidmore, Owings & Merrill-designed building will have studio, one-, two- and three-bedroom apartments ranging from 442 to 1,967 square feet. Prices range from around $350,000 to $1.7 million. Amenities at the building, which will have retail space, include an outdoor screening area, fitness center, swimming pool, library, lounge and parking garage. The building will have a cogeneration power plant and expects to achieve a silver LEED rating. Contact: www.torencondo.com.

Harlem
Rhapsody on Fifth
2056 Fifth Avenue
Available apartments at the 22-unit condominium range from one-bedrooms with 860 square feet to a three-bedroom with 1,992 square feet. Prices range from $550,000 to $1.25 million. Amenities include a landscaped courtyard, fitness room and private storage. The Corcoran Group is the exclusive sales and marketing agent. Contact: www.2056fifth.com.

Midtown West
The Avery
100 Riverside Boulevard
Only three residences at Extell Development Company’s 274-unit project were still available as of mid-October. The SLCE Architects-designed luxury tower has one-, two- and three-bedroom condos, and remaining units are priced between $865,000 and $2.41 million. Amenities include an in-house theater with visiting artists from Lincoln Center, library with Wi-Fi Internet access, private courtyard, parking garage, game room, concierge, fitness center, entertainment lounge and children’s playroom. Corcoran Group Marketing is the exclusive marketing and sales agent. Contact: www.averyriverside.com.

Park Slope
The Iriquois
620 10th Street
Sales are under way at the Iriquois, a 10-unit condominium. Units range from two-bedroom, two-bathroom apartments to four-bedroom, three-bathroom apartments. Prices range from $1.325 to $2.095 million. Amenities include a residents-only courtyard and a two-story lobby. Contact: www.betancourtrealestate.com.

Sunset Park
One Sunset Park
702 44th Street
Sales began in mid-October at  Paul J. Klausner/Continuum Development’s 54-unit condominium conversion. Twenty-one studio to two-bedroom units are available for sale, ranging from 562 to 1,114 square feet and from $300,000 to $585,000. Building amenities include a landscaped rear garden, individual storage units and bicycle storage racks. Halstead Property Development Marketing is the exclusive sales and marketing agent. Contact: www.onesunsetpark.com.

Upper East Side
170 East End Avenue
Forty-nine of the 90 units at the Peter Marino-designed project have closed and residents have begun moving in. Available apartments range from 1,010 to 3,149 square feet, with prices between $1.495 and $6.995 million. Corcoran Sunshine Marketing Group is the exclusive sales and marketing agent.

Upper East Side
300 East 64th Street
Sales have begun at the condo conversion of a former luxury rental building and many units are available for immediate occupancy. The 30-story building contains 102 studio, one-, two- and three-bedroom units. Prices range from $515,000 to $2.225 million for apartments from 469 to 1,431 square feet. Amenities include a 7,000-square-foot roof terrace, library, fitness center and storage units. Classic Marketing is the exclusive sales and marketing agent. Contact: www.300east64condo.com.

Williamsburg
111 Kent
111 Kent Avenue
Seven of the 62 units at the project have sold. The building includes one-, two- and three-bedroom apartments priced from $575,000. Amenities include a rooftop pool, sundeck and private cabanas. The building overlooks the East River, with views of the Manhattan skyline. Completion is expected in spring 2009. Prudential Douglas Elliman is the exclusive sales and marketing agent. Contact: www.111kent.com.

Leasing update

Lower Manhattan
20 Exchange Place
Of the 150 units released in the first phase of rentals at developer Metro Loft Management’s 350-unit building, 90 percent have been leased. Rents for the studios to two-bedrooms start at $2,500 per month. Move-ins have already begun. The 800,000-square-foot art deco building was originally built in 1931. Amenities include a fitness center, residents’ lounge, valet and a landscaped sundeck on the 19th floor. There will be over 100,000 square feet of on-site retail space. Contact: www.20xnyc.com.

Williamsburg
The Jacksonia
137-145 Jackson Street
The 54-unit condominium is half occupied and has introduced a rent-to-own program, in which prospective buyers can apply their first year’s rent toward a down payment to purchase one of the units. Rental rates begin at $2,500 for a one-bedroom apartment with a home office. The Barak/Blackburn Group of Prudential Douglas Elliman is the exclusive agent.

Compiled by Sara Polsky

Is 25 Broad Street just the tip of the iceberg? That project, a
346-unit condo, had its funding frozen after investment bank Lehman
Brothers declared bankruptcy. As The Real Deal first reported, subcontractors have filed $2.8 million in liens on the stalled conversion being developed by Swig Equities.

[more]

During the unprecedented condo construction boom of the past decade, New Yorkers grew accustomed to new condos selling out in a flash at record-high prices, such as hedge fund manager Dan Loeb’s purchase of a 15 Central Park West penthouse for $45 million.

But as the nationwide housing slump has begun to make its presence felt in New York, new development sales have begun to slip, and resales are being looked on more favorably by both buyers and lenders.

New developments’ market share of sales activity in Manhattan dropped to 30.1 percent, with roughly 798 units sold in the third quarter of 2008, compared to 1,856 resale units sold, according to a third quarter market report by Prudential Douglas Elliman.

That’s down from 32.5 percent in the same period last year.

All of this is against the backdrop of falling overall Manhattan sales. Total sales plummeted 24 percent to 2,654 in the third quarter, down from 3,499 in the third quarter of 2007.

The percentage of sales made up of new construction condos is lower now than at any time in the past five quarters, according to Jonathan Miller, president of appraisal firm Miller Samuel.

“The market share is shrinking slowly,” said Miller, who prepared the Elliman report.

That percentage will likely fall further as 2008 comes to a close, he said, since it’s increasingly difficult for buyers to purchase units in new developments because banks are increasingly unwilling to lend in projects with only a few sales.

“Lenders are much more concerned about buildings where only a few units have been sold,” said Miller.

Still, new construction has done well until now, considering that it has historically made up only about 10 percent of Manhattan sales. “We’re at double that pace,” he said. “New development has been absorbed surprisingly well.”

Prices of new construction condos are typically higher than resales, but while the average price per square foot for new developments slipped to $1,320 in the third quarter, down 1.5 percent from the prior year quarter, the average price per square foot for resales jumped 4.3 percent, to $1,142 per square foot.

Miller attributed that to the dual fact there have been fewer sales at high-end new developments, like 15 Central Park West, while high-end resales have continued to close.

The condo construction boom, which began in 2003–2004, pushed condo inventory to the same level as co-ops by mid-2006, and it has remained at slightly higher levels since then, he said.

A third-quarter market report by the Corcoran Group, which used a slightly different data set, found that the average sales price of a new development condo dropped 7 percent in the third quarter to $1.536 million, from $1.653 million in the prior-year quarter.

The Corcoran report, produced in collaboration with PropertyShark, also said that very high-end developments had skewed prices upward in prior quarters, while a large number of closings of smaller apartment in developments such as be@william and 212 East 47th Street are now driving them downward.

But real estate observers noted that there’s more to the story. As prices fall and sales slow, buyers are less inclined to purchase new-construction units because they’re worried the buildings won’t be completed or won’t sell out.

“Buildings that are close to completed have a huge advantage over buildings selling in preconstruction,” said Derrick Gross, a business analyst at StreetEasy.

According to Corcoran’s report, Downtown Manhattan, which accounted for over half of new development sales in the third quarter, saw median prices of new developments fall 7 percent to $1.275 million from $1.365 million in the prior-year quarter.

Condo resales in the area did even worse than new construction, with prices decreasing by 10 percent, from $1.395 million in the prior-year quarter to $1.25 million. The median price of co-op resales in the neighborhood increased 2 percent, to $740,000 from $725,000.

As sales slow, rumors have circulated that some condo projects will be forced to convert to rentals or default on their loans, because they aren’t meeting lenders’ expectations.

“One universal in the market is that things are selling more slowly,” said Marc Shapiro, a partner in the real estate group of Orrick, Herrington & Sutcliffe. “This slowdown creates a challenge for refinancing.”

A building’s success or failure depends in part on the flexibility of its lenders, said Harry Jeremias, a principal at the Harch Group, the developer of the Renwick and other properties. “There are some developers whose loans are maturing in the next six to nine months,” he said. “There’s definitely going to be panic.”

On the bright side, as the credit crunch continues, banks seem willing to cooperate with their borrowers rather than foreclose immediately.

“The key element is, I don’t think the lenders want to take back properties,” said Stuart Saft, a partner at Dewey & LeBoeuf. “We’re seeing that in deals we’re doing. The lenders have become far more difficult to deal with in making new loans, but they are working with their borrowers on existing loans.”

Neighborhood data on new developments varies wildly, depending on the specific projects in the area. For example, the median price of new developments on the Upper East Side shot up 107 percent to $1.795 million from $865,000 in the prior-year quarter, the Corcoran report found, due to closings at expensive properties such as 995 Fifth Avenue and 823 Park Avenue.

In Midtown East, however, the median price of new developments sank 56 percent to $915,000, down from $2.078 million in the prior-year quarter.

The change is due largely to the fact that many of last year’s sales were in pricey new condos such as Three Ten at 310 East 53rd Street. This year, many closings were on smaller residences, such as those at 212 East 47th Street.

Atlanta

Atlanta is overbuilt and unattractive to investors, according to an annual survey by the Urban Land Institute. Out of 50 metropolitan areas, Atlanta ranked 33rd for commercial and multifamily development, 24th for commercial and multifamily investing, and 33rd for home building, the Atlanta Journal-Constitution reported. The city hasn’t ranked at the top of the list since 1995. Overbuilding could be problematic for the city’s real estate market in 2009, particularly in Buckhead, where more than 2 million square feet of office space is under construction, but where less than 500,000 square feet of office space is absorbed each year.

Boston

Overall rents in Boston’s downtown office towers fell as much as 10 percent in October as the economic crisis hit investment and law firms, the Boston Globe reported. Landlords are also offering tenants more incentives, including several months’ free rent, in an effort to keep buildings occupied. Average rents for Class A office space downtown have fallen to $66.54 per square foot, a $3 decrease since the end of 2007. The amount of sublease space available, an indicator of the market’s health, increased to 723,000 square feet in the third quarter, up from 638,000 the previous quarter. Real estate experts said they expected rents would continue to decline.

Home sellers are cutting prices in some of the most popular towns in the Boston area and in several of the city’s top neighborhoods, opening up opportunities for buyers. In Sherborn, a suburb, 71 percent of the homes for sale have had their price marked down in the last three months, and 51 percent of the homes listed for sale in Concord have had their price cut, the Boston Globe reported. In several historic city neighborhoods, including the South End, Charlestown and Beacon Hill, sellers have also slashed prices. The price cuts have encouraged some buyers to look at homes that used to be out of their price range, area brokers said.

Chicago

Chicago-area builders are scheduling few or no projects for next year due to economic uncertainty. Montalbo Homes opened six new developments in the Chicago area in the fourth quarter of 2007, but the builder has no projects planned for 2009, the Chicago Tribune reported. Lakewood Homes turned three projects back to lenders to avoid going into foreclosure and is now trying to renegotiate loans. Belgravia Group, which has several projects in the city, doesn’t plan to begin any new projects for a year or two, said Alan Lev, the company’s president.

Law firms have led a real estate expansion in downtown Chicago over the past five years, anchoring new developments. As a result, layoffs at law firms may now hurt the city’s office market. Law firms have paid over $50 per square foot in new buildings in recent years, compared to the average asking rent of $36 per square foot in high-end downtown office space, the Chicago Tribune reported. Demand for new buildings may decline as law firms shed staff. But as existing firms relocate, better office space may become available.

Las Vegas

For-sale home inventory has decreased over the past year and the number of closings each month has almost tripled, the Las Vegas Review-Journal reported. In October of this year, 2,718 homes were sold in Las Vegas, up 180 percent from the 974 homes sold in October 2007. There was an inventory of 22,929 homes for sale in October compared to 24,341 for sale in September 2007 — a decrease due in part to the dip in home sale prices. About two-thirds of the home sales in Las Vegas now are foreclosure-related.

Los Angeles

Irvine-based developer SunCal is seeking Chapter 11 bankruptcy for two projects, a skyscraper and a community, the Los Angeles Times reported. The Westside, a 45-story luxury skyscraper at 10000 Santa Monica Boulevard, was designed by French architect Jean Nouvel. Marblehead, a 313-home development in San Clemente, has long been a controversial project. Lehman Brothers Holdings, the investment bank that collapsed in September, had invested $2.5 billion in SunCal developments, including in Westside and Marblehead. More SunCal projects in California will likely file for bankruptcy, a company spokesperson said.

As the real estate market elsewhere slows, developers from around the country are still flocking to Hollywood to invest in entertainment and nightlife projects. Real estate in Hollywood sells for $800 to $1,000 per square foot, more than twice the average rate for downtown Los Angeles, the Los Angeles Times reported. Upcoming projects in the area include a poolside rooftop club at the W Hollywood, slated to open in 2009 or 2010. The city is now trying to grow non-nightlife-related businesses in Hollywood, such as retail, art galleries and restaurants.

Philadelphia

Philadelphia’s home market continued to do well in the third quarter compared to other areas of the country, according to a study by real estate search engine Zillow.com. Home values fell 5.5 percent in the third quarter this year from their third-quarter 2007 level, just over half the drop the rest of the U.S. experienced, the Philadelphia Inquirer reported. Only 4.4 percent of Philadelphia-area homes bought in the last five years were underwater, meaning that the mortgage was more than the current value of the home. Nationwide, 14.3 percent of homes are underwater. Philadelphia may be taking longer to reach a real estate market bottom, experts said, because the area’s home prices peaked in 2007, while values elsewhere in the country hit their peak in 2006.

Phoenix

Bankruptcy filings in Arizona hit a new high in October, partly due to real estate-related filings, the Arizona Republic reported. Consumers and businesses initiated 2,119 filings in October, the highest monthly figure for the year and an increase of 90 percent over the October 2007 numbers. Experts said more real estate investors were filing for bankruptcy, many because they had not been able to refinance their adjustable-rate mortgages. Most of the filings were for Chapter 7 bankruptcy, which allows those who file for bankruptcy to start over financially after the court uses their assets to pay creditors.

Seattle

The median selling price of homes in King County dropped below $400,000 in October for the first time in over two years, the Seattle Times reported. Sales volume also dropped, according to statistics from the Northwest Mu`ltiple Listing Service. Pending sales offers — those that have been accepted but have not yet closed — dropped 22 percent from October 2007 and 46 percent from October 2006. The number of closed sales fell by 20 percent from October 2007. However, the number of new listings in October was lower than it had been at any point since December 2007.

Washington, D.C.

The federal government’s bailout plan may increase demand for office space in Washington D.C. as new regulatory agencies form and lobbyists, consultants and accountants move to take advantage of government demand for their services. The Government Services Administration, the federal government’s real estate arm, is looking for 60,000 square feet near the White House for new employees of the Treasury’s Troubled Asset Relief Program, the Washington Post reported. Other government agencies, including the Department of Health and Human Services, the National Institutes of Health and the Department of Agriculture, are looking for new space for reasons unrelated to the financial bailout.

Compiled by Sara Polsky

While asking rents for retail in Harlem came down over the past year,
the bright side is that asking rents on the Upper East Side went up.According to the biannual REBNY retail report, retail rents in an
area from 60th Street to 96th Street, Fifth Avenue to the East River,
climbed from an average of $172 a foot one year ago to $190 in 2008.
[more]

Building owners leasing commercial space in Hudson Square might be positioned better than landlords in other neighborhoods to weather the market downturn, brokers and owners said.

Many media businesses such as Viacom, New York Magazine, Clear Channel, Miramax, WNYC and CBS Radio have migrated from Midtown to this Downtown area just west of Soho. The attraction? Large industrial spaces that cost $40 to $50 per square foot, about half of what is charged in Midtown.

Despite the economic climate, “it’s as if nothing has changed. Hudson Square rents are the highest they’ve ever been,” said Andrew Peretz of Cushman & Wakefield, the leasing agent for Trinity Real Estate, which owns 7 million square feet in Hudson Square. Trinity is the largest owner of commercial space in the area, which runs north from Canal Street to Morton Street and west from the Avenue of the Americas to the Hudson River.

Peretz said they are not only seeing expansions by existing tenants but also new tenants coming in. “There are still inquiries and we are running tours. We just got a 250,000-square-foot tenant and a new proposal from a tenant wanting 70,000 square feet. Right now it hasn’t dried up, and I think it’s certainly a trailing indicator of the market even though I know we’re headed for a downturn.”

Last year the media giant Viacom leased 200,000 square feet at 345 Hudson Street, joining other media companies including WNYC Radio, which leased 71,000 feet at 10 Hudson Square. In May, Newsweek announced its move to 395 Hudson Street, joining other tenants such as Thomson Reuters and technology company Navisite.

Branding the neighborhood as a place for “creative businesses” will help commercial landlords withstand any financial crises, said Carl Weisbrod, president of Trinity Real Estate, a wholly-owned subsidiary of Trinity Church.

“We’re very well situated because we’ve had several years of really great leasing — not just in terms of volume, but in the kind of tenants attracted to Hudson Square as a creative center,” Weisbrod said. Those businesses include not only media and publishing but architecture firms, graphic design companies and nonprofits.

Jack Petrie, senior vice president of CRESA Partners, who has brokered space in Hudson Square, said tenants like Viacom and firms like Trinity Real Estate have validated the neighborhood for many prospective tenants.

“You can get good value in a rising neighborhood. If you sign a 10-year lease [in Hudson Square] in 10 years it will be a completely different, much improved, vital, 24-hour submarket.”

Petrie said that Trinity is known to offer low rents on raw spaces of former industrial companies.

“The older spaces used by printing companies are demolished and the space is delivered raw and offered ‘as-is’ with concessions for construction to attract office tenants. In the run-up they went from mid- to high $30s to $40s [per square foot]. Now the high-end of the Trinity portfolio is starting with $50 even.”

Leasing agents see strength in long leases because some companies located in Hudson Square have rents that go up incrementally over the course of the lease, some of which run up to 20 years. “We’ve got leases that run to 2014 and 2018,” said Jonathan Resnick, president of Jack Resnick & Sons, which owns 250 Hudson Street and the fully leased 315 Hudson Street.

To date, four of the 15 floors at 250 Hudson Street are vacant.

Resnick said in light of the market crises, they will be flexible to get deals done.

“People have negotiated free rent and tenant improvement. It’s always better to have a tenant in a space rather than a vacant floor. In this market we’re doing what we can to get the deals and we’re having success.”

The vacancy rate for Class A buildings in Hudson Square is about 16.7 percent, according to Peretz. For buildings owned by Trinity, the vacancy rate is 11 percent. Both are higher than the Manhattan average — in October, Manhattan’s vacancy rate was 6.6 percent, with a 7.3 percent vacancy rate Downtown.

Peretz said that Trinity’s vacancy rate was due to a lot of turnover, especially in the past three years as tenants like the New York State Department of Labor, JP Morgan and PricewaterhouseCoopers moved out. He claimed the space wasn’t being held intentionally for higher rents, “but for the real tenant that was right for the neighborhood.”

John Maher, a senior vice president at CB Richard Ellis, the firm that handled the Viacom deal last year for Trinity, said the neighborhood is changing.

“It has become a 24/7 professional environment with more restaurants and even more residential buildings. It’s more viable, safer and just a better place to be than it was five years ago.”

Residential developers are realizing that Hudson Square is a niche market to fill, one that could appeal to people who want to walk to work.

As nearby residential buildings such as the Urban Glass House on Spring Street and 505 Greenwich, just off Spring Street, become successful, the neighborhood is drawing developers like Harry Jeremias of PHH Realty Group, who is building the Renwick, a new, $70 million 12-floor glassed-in condo designed by Ismael Leyva Architects on Renwick Street.

Jeremias set out to offer a boutique, white-glove building with amenities that aren’t offered in nearby condos.

Those amenities will include a basement-level indoor lap pool, a gym space with a boxing ring (complete with kickboxing lessons), an art library stocked by publisher Taschen Books and 21 private parking spots for about $250,000 each.

Groundwork for the parking lot and basic foundation work has started for the Renwick. The 44 units are selling from $980,000 for a one-bedroom to $2.25 million for a two- bedroom home/office combo and $8 million for the penthouse.

About 40 percent of the preconstructed building is already sold, according to Frances Katzen of Prudential Douglas Elliman.

“And no one has pulled out — there have been zero cancellations,” Jeremias noted. “The last three or four months, it hasn’t been the best market we’ve seen, but we just signed two more units in the last two weeks.”

Jeremias said market conditions were not a concern “because we have 14 months to finish and we’re almost 50 percent sold.”

New hotels are also cropping up in Hudson Square. In September, the Sheraton Four Points opened on Charlton Street with 150 guest rooms and two penthouse suites, with a competitive nightly rate of about $399. Trump Soho, a 43-story condo-hotel on Spring and Varick streets, is scheduled to open in six months. At 330 Hudson Street, a warehouse is being converted into what will be the Viceroy Hotel by Tribeca Associates, which has a long-term lease with Trinity. (Tribeca Associates also developed Soho’s 60 Thompson hotel.)

The influx of new guests and residents generates income for local restaurants, said Phil Mouquinho, owner of P.J. Charlton restaurant at Charlton and Greenwich streets. Mouquinho, 58, was born and raised in Hudson Square.

“I was born here, I went to school here and I live and work here,” he said. He said he’s seen the neighborhood evolve. “I go back to days of the printer and paper merchants. Gradually I’ve seen that go, then the dot-coms come in, then Saatchi & Saatchi.”

In 1985, Saatchi & Saatchi was the first major ad agency to move to Hudson Square from Midtown, leasing over 400,000 square feet at $20 a square foot at Tishman Speyer’s 375 Hudson Street. The ad agency, which has increased its space to 819,000 square feet, recently signed a new lease.

“These kind of businesses have lunch at my restaurant, and that alone pays my bills,” said Mouquinho.

In August, celebrity chef David Bouley signed a lease at the Trinity-owned 10 Hudson Square for a 10,000-square-foot casual restaurant scheduled to open in January 2009. Bouley owns a French restaurant at 120 West Broadway, an open-kitchen dining room, bakery and market at 130 West Broadway, and Danube, an Austrian restaurant, at 30 Hudson Street.

Restaurants that line Spring Street and have become popular for lunch and dinner crowds include EAR, Kana Tapas Bar and Restaurant, Lomito, the relatively new 508 Restaurant and Bar, and Giorgione, the Italian restaurant owned by Giorgio DeLuca (of Dean and DeLuca.)

Trinity Real Estate is sponsoring an application to create a Hudson Square Business Improvement District, which is expected to be finalized within a year. “We’ve been very supportive of the BID,” said Weisbrod. “The main purpose is to strengthen the area and help improve the street environment to attract more retail to the neighborhood.”

Hudson Square used to be off the beaten path, said Peretz. “Now with all the different types of industries, that path has been totally beaten,” he said.

The expected softening in Manhattan retail rents has hit one neighborhood harder than the others: Harlem.

While the latest biannual Real Estate Board of New York retail report found that both Midtown and the West Side experienced drops in retail asking rents, Harlem saw the steepest declines. The area saw asking rents fall 26 percent over the same time last year.

Which raises the question: why?

“What skews these things is what’s available,” said Ben Fox, president of Winick Realty Group. “What I mean by that is size; the larger the retail space, the less dollars per foot it would command. So a 1,000-foot store, you could ask $500 a foot, and right next to it would be a 3,000-foot store that would command half of that.”

Lansco Corp.’s Robin Abrams, who chaired the subcommittee that put together the REBNY report, which came out early last month, agreed: “I think the data reflects a drop in retail rents because some very large spaces that may be priced lower than a boutique came on the market … more space that wasn’t on a high-profile corridor.”

By high-profile corridor, Abrams means 125th Street. The 125th Street strip’s proximity to transportation has allowed the corridor to consistently command the highest numbers in the area.

In fact, the REBNY report shows that the average rents of ground-floor retail on 125th Street, river to river, were actually up nearly 10 percent over the last year, from $113 a foot to $125.

So if prices are climbing there, well, then the problem most likely lies with everything else.

Specifically, many new luxury condo projects in Harlem, fruits of Manhattan’s recent building boom, include ground-floor retail space that is coming to market now.

“There have been new developments with large multilevel retail and that is impacting the report,” said Abrams. “These are great spaces and they are at appropriate rents for Harlem. They’re not depressed, but they’re not 125th Street.”

Many of these spaces are languishing, largely because the ideal retail tenant, as far as the developer is concerned, isn’t the same as the tenant who is eager to rent off the beaten path in Harlem.

“It is challenging to have to lease space at the base of a high-end residential building [in Harlem],” said Abrams, explaining that Lansco is currently trying to lease a retail space in a residential building at 110th Street and Central Park North. “The developers of most of this new product have been looking for the ideal tenant that will be in keeping with the image of the building and service the people who they’re trying to sell and lease the units to.”

Also contributing to the problem is the expectation that most retail tenants who sign 15-year leases aren’t looking for an area that’s up and coming, but instead a neighborhood that’s already arrived.

“[Harlem rents] are still discount in nature for most of the retailers,” said Scott Auster, a partner at Ripco New York. “But you’ve just begun to get a full price point tenant like MAC Cosmetics, Aerosoles, Old Navy, American Apparel.”

“The full-price-point tenants didn’t open in anticipation of further residential development, they did it because the customer is already there,” added Auster.

The challenge is getting those retailers into less-trafficked streets. “I think a lot of the developers thought that because of the architecture or the building, they would get sexy tenants like restaurants or apparel stores. [But instead, they're seeing interest from] health and beauty, drugstore chains, fast food or coffee chains, dry cleaners, some of the smaller banks, some of the more local restaurant operators, looking to service the community in Harlem rather than draw people from outside,” said Abrams.

“So there’s a little bit of a switch going on, and there are local tenants who might have been looking for space and are priced out — and then there are other tenants that the developers are trying to attract from other areas who need an education on the neighborhood.”

Thus a portion of the neighborhood finds itself at something of an impasse, as most developers aren’t willing (or able) to lower their expectations.

“The concern for that [investor] landlord is, where did he project his rents to be? He might have bought high, financed and developed depending on where he thought rents were going,” said Cory Zelnik, of Zelnik and Co. “The question for that landlord is, ‘Will he have the flexibility at what the market is?’”

In the end, the person who will gain from this market is the small-business owner. As the landlords of smaller spaces off the major retail corridors are forced to lower rents in order to fetch tenants, moms and pops can step in.

“The little wine shop, the local entrepreneur, will have more opportunity than in the past,” said Zelnik. “They’re not going to be on 125th Street, but if they want something cozy or quaint, it’s that landlord that’s off the beaten path that’s having the trouble, and he may be more willing to negotiate down.”

Rezoning for East Village, LES approved

The City Council approved the 111-block rezoning in the East Village and Lower East Side last month. The zone runs from Grand to 13th streets, bounded by the Bowery and Avenue D. The rezoning limits building heights to 80 feet on side streets and 120 feet on main streets. In a statement, Mayor Michael Bloomberg said the rezoning “will prevent new out-of-scale towers from undermining the existing building stock and established streetscapes.” He also said the rezoning will create an opportunity for new and affordable housing to come to wider streets. The mayor said he expects the rezoning to spur development of 1,670 additional housing units over the next 10 years.

City Council approves Willets Point

The City Council approved the Willets Point redevelopment plan last month, which will allow for more than 10,000 new apartments in the area, more than half of which will be below market rate. To move the controversial project forward, Mayor Michael Bloomberg increased the planned number of affordable housing units and struck deals with the three largest landowners in Willets Point so they could keep their businesses there, according to published reports. In a separate vote, the Council approved the 30-acre Hunter’s Point South redevelopment plan.

Bloomberg says no to homeowner rebate

After the City Council told Mayor Michael Bloomberg last month that he was legally required to send out $400 rebate checks to about 600,000 homeowners, Bloomberg said he had no plans to send out the money. Bloomberg, who said the city needs the cash this year, announced at a news conference that homeowners who had been waiting for the money should “plan for the worst.” The mayor had previously announced that the rebates would be canceled to save the city $256 million. But, it turns out, that the mayor cannot legally withhold the checks without City Council approval.

Tin Pan Alley may receive landmark status

A group of New Yorkers is pushing for landmark status for Tin Pan Alley, a series of four-story row houses on West 28th Street between Broadway and Sixth Avenue that used to be home to the publishers of “God Bless America,” “Take Me Out to the Ballgame” and other famous songs. The buildings were put on the market for $44 million this fall, but a plan to replace them with a high-rise fell through as the economy slowed. Preservationists, spurred to action by the construction plan, are now hoping the city’s Landmarks Preservation Commission will grant the buildings landmark status. The commission said it is researching the buildings’ history before making a decision, the Associated Press reported.

LMDC board members say full staff no longer needed

Members of the Lower Manhattan Development Corporation say the board’s full staff is probably no longer needed, now that the board has allocated most of the federal World Trade Center reconstruction funds, the New York Post reported. The group held monthly meetings before former Governor Eliot Spitzer took charge of it in 2007, but has only held seven public meetings in the last 17 months. The board’s approximately 50 staff members are paid a total of $4.2 million per year.

Bronx 911 call center project on hold

The Department of Design and Construction has put a planned 911 call center in the Bronx on hold after project costs rose from the $670 million originally projected to $957 million. The NYPD says the call center — a 37-story, 400,000-square-foot building — is critical to the city, which routes all of the 1 million 911 calls received each month through the MetroTech Center in Brooklyn. The Bronx center would take over half of those calls, but would also be capable of taking all calls during an emergency. The city had hoped to finish the building by the end of next year.

Compiled by Linden Lim

Oh what a tangled Web: Many brokers say negative online press has hurt sales at some developments — and that the current real estate market was pushed lower faster because bad news travels fastest in cyberspace.

Which leads to the question: Could the speed of Internet news work the other way, leading to a quicker real estate market recovery?

Given the abundance of online data, listings and news sources that did not exist during previous recessions, some real estate insiders say it might — though the jury’s out on how helpful the Net will be.

“The Internet is a vehicle to disseminate both good and bad news,” said Adrienne Albert, the CEO of the Marketing Directors, a residential marketing firm specializing in new developments that relies heavily on the Web to promote condo projects.

The Internet’s power to lure potential consumers and educate them very quickly is the primary way it could help speed a recovery, said Albert and others.

“Opportunities are going to be more accessible,” said Albert. “You’ll see changes happening in a positive way and people will say, ‘Oh boy, I better get on the bandwagon.’ So the faster that good news gets out there, the faster the recovery will be.”

Bill Staniford, the CEO of PropertyShark, said that the Internet’s ability to rapidly communicate information “to the masses” through listings and news would be “key” to the market’s recovery.

“To exit the recession, we’re going to need more people interested in real estate, and more people aware of the information necessary to making decisions,” said Staniford.

PropertyShark rolled out residential listings for the first time this past summer, and Staniford said that home buyers are the site’s fastest-growing segment of visitors.

Online foreclosure listings, which have become more easily accessible in recent years through sites like PropertyShark, may also play a role in speeding the market’s recovery, Staniford said (see Foreclosure listings a boost to traffic).

Steven Spinola, the president of Real Estate Board of New York, said the real estate community has mined the Web to its advantage by expanding online listing services, sending e-mail blasts with information about new developments, and launching Web sites to promote properties.

But he said the Internet has also made the market more volatile.

“I would prefer to have a less volatile situation when it comes to real estate than what the Internet helps make it, but that’s like saying we’d like to go back to the horse and buggy,” he said.

If the Internet does play a role in the market’s recovery, Spinola said, it would be in its ability to inform the industry of developments quickly. “As a result of that, the same way the crisis was known instantly, if there is a sound indication of recovery, that information may spread quicker,” he said.

On a development-by-development basis, David Maundrell, founder of the Brooklyn-based brokerage aptsandlofts.com, believes that real estate blogs “can make or break” sales.

Last year, the blogs Curbed.com and GowanusLounge.com dubbed a development in Williamsburg “the Roebling Oil Field” because of an underground oil tank leak at the site that surfaced during construction work.

“It was completely and 100 percent cleaned up, but because of the blogs, there was a negative stigma to it,” said Maundrell.

Aptsandlofts.com is now marketing the condo, Warehouse 11, being built on the oil leak site. Maundrell said the 120-unit building at 214 North 11th Street has 40 units in contract, a number he thinks would be higher without the negative attention. Nevertheless, said Maundrell, “you take the good with the bad,” in terms of blog coverage.

“It’s free advertising,” he noted.

Another example of the bad, according to Maundrell, was blog coverage of a crane accident in January of last year, at a condo construction site at 349 Metropolitan Avenue in Williamsburg — which he said neighbors and real estate professionals now know as “the building where the crane toppled over.” But a Corcoran broker who represents the property said the accident had no impact on sales. “It happened very early on,” said Eric Heras, a senior associate broker. “The real consumer has a very, very short memory.”

The 36-unit development, which is still under construction, has 22 units in contract and another 12 have not been released, he said.

Heras said even he learned about the accident from a blog. But he added that even when news spreads online, there is an upside.

“I’d rather a buyer say to me, ‘Look, I read this on the blog,’ and then we have a discussion about it, and at the end of the day they rely on my expertise,” he said.

To be sure, online chatter about real estate transactions leaves no one immune, and it has become another market force to consider.

“Transactions I’ve worked on, I’ve read about them on real estate Web sites,” said Dennis Sughrue, an attorney at Herrick, Feinstein. “People avidly consult to find out which projects are in trouble, which lenders are in trouble. It has become another arrow in the quiver of the people who are looking to invest in the real estate market.”

But according to Sughrue, the online phenomenon could ultimately be a boon to the market, because nothing is kept secret. “That may accelerate finding the bottom, so that the real estate community will start to venture back into the real estate market,” he said.

Others are far less sanguine about the Internet’s ability to speed the market’s recovery.

“Right now, we’re kind of in a panic. The Internet doesn’t help in that way because bad news travels so fast,” said Eric Anton, the executive managing director of the real estate investment firm Eastern Consolidated, who said the Web would not improve the market. “It will not help us improve values or get things going again,” he stated. “Prices will keep going down until people start paying more. It’s that simple.”

The speed of online communication was evident during the recent collapse of Lehman Brothers and other large banks, veteran real estate brokers said.

“You knew things were happening hour-by-hour in some cases,” said John Wollberg, Eastside director of sales for the residential brokerage Halstead Property. Wollberg said Halstead brokers were utilizing the company’s Intranet to share information with each other. “I think we realized at the moment that if it was going to impact people in the financial world with their jobs, there would be an ultimate effect on our marketplace.”

Nevertheless, optimists believe that when the market starts recovering, the Internet will be key in terms of spreading the good word.

“There’s good news that’s going to travel fast, too. They’re going to say, ‘Boy, I got this great something over here,’” the Marketing Directors’ Albert said. “Once some positive news gets out, it’s going to spread like wildfire on the Internet.”

Online foreclosure listings can be a portal to real estate deals, and companies that run such sites said Web traffic is growing steadily.

One national site, RealtyTrac.com, said it is getting about 3.5 million unique Web visits per month this year, up from 2.7 million per month last year.

There were about 1 million visitors per month in 2004, the year the company began tracking its Web traffic. “We did see a fairly big bounce in our traffic in 2008,” a spokesman for the company said. “But we were going up just as fast when the market was doing well.”

But other sites are recognizing the value of online foreclosure listings. This past July, Zillow.com launched its own online foreclosure listings. In October, the company reported 5.5 million visitors logged onto its site, a 38 percent increase from the year before.

Bill Staniford, the CEO of Property-Shark.com, which has foreclosure listings, said access to information about distressed properties could help to improve the market.

“To the extent that companies or individuals can start making more short sales, and identifying more efficiently which properties those are that can be sold in a short sale, it is going to help the recession along very quickly,” he said. “The Internet can help short sales just by trying to provide information.”

 
When Halstead wanted to promote its new online luxury listing
initiative, dubbed “S3,” the company put digital signs atop New York
City taxis — an unusual, if old-school, way of driving traffic to its
Web site.

The product and the promotion are emblematic of how many brokerages
are making a significant push to attract certain demographic groups to
their Web sites — and trying to ensure that users “stick” online. S3,
for example, allows a Halstead client who has listed a property with
the brokerage to track how many Internet users have viewed the listing
each day.

In general, brokerages are putting more muscle behind their
Internet marketing efforts, using the savvy of new-media professionals
who try to minimize “bounce” (jargon for when visitors leave a site)
and increase “conversion rates” (selling listings tied to online ads).

“A recent study by the National Association of Realtors showed that
84 percent of buyers are going on the Web, and that’s across almost
every demographic,” said Matthew Leone, marketing manager at Halstead
Properties. “We understand the need to commit larger sums of money to
Web-based products and our approach is cumulative, where we focus on
small, effective enhancements that drive traffic over the long-term,
rather than one big bang.”

It’s no surprise that larger firms dominate the rankings of New
York City-based brokerages on public Web metrics sites (see
accompanying chart ranking brokerages’ presence on the Internet),
because they spend vast resources engaging in search engine
optimization, or SEO, which attempts to ensure that sites place high in
Web search results by embedding them with key terms that are likely to
be typed in by buyers, like “New York City condo” or “Manhattan
apartment.”

By contrast, search engine marketing, or SEM, consists of paying
handsomely for an ad tied to those coveted search words. However, there
are differing opinions on how effective SEM is in terms of drumming up
Web clicks.

“We found that only half the visitors noticed [SEM] ads,” said
Katherine Cartwright, principal at Criterion Global, which specializes
in Internet marketing for real estate firms. “Yet the big New York City
brokerages engage in bidding wars to get generic terms like ‘New York
condos’ . . . paying $5 a click in some cases.”

Tracking traffic and rankings

To measure effectiveness, firms use many different approaches. One
of Google’s auxiliary services, Google Analytics, offers accurate data
for owners of URLs, but it provides only limited comparative data.

Major Manhattan brokerages use this application, along with
internal data generated by their sites and other metrics bought from
comparative Web metric firms, including Nielsen Online, Compete.com and
Quantcast.com, to build a critical mass of data to sift. Measurements
aren’t cheap; subscriptions to Compete.com run between $199 and $499 a
month. Nielsen Online’s NetView service, which tracks the online usage
of about 30,000 people a month, costs $50,000 a year.

The Corcoran Group subscribes to Google Analytics, Hitwise.com,
Quantcast.com and internal log file analysis, said Matthew Shadbolt,
director of Internet marketing for the brokerage, who noted that the
firm also follows other ranking sites, like Alexa, which some experts
argue has a selection bias.

No matter how many numbers get crunched, comparing Web sites is
certainly a tricky game from a statistical standpoint. “The Web
generates way too much data and you can only take a snapshot of
portions of it,” said Mark Gibbs, a Web metrics expert, Network World
magazine columnist and author of four books about computer technology.
“Even if Alexa gives 90 percent confirmation of your thesis, you should
look for other evidence.”

To that end, Gibbs noted that he helped develop the randomized
Nielsen Online method, which employs political polling techniques to
recruit over 30,000 random testers to install a toolbar and have their
Web usage tracked.

Regarding its rankings, the top New York City real estate firms
have such limited traffic that they fall below the public reporting
cutoff, said a Nielsen Online spokeswoman.

Quality, not quantity

Although brokerages use techniques like SEM to get as many people
to their sites as possible, many also say they are focusing much of
their IT know-how on better targeting the types of people who
eventually click on their sites.

“In the past, our primary focus was on how many visitors came to
our site,” according to a published Google Analytics testimonial from
Kristi Graning, senior vice president of IT and e-Business at RE/MAX.
But now, “we want to know more about their behavior in order to serve
them better. For instance: Why are people coming to our site? Where
they are coming from? And what do they do once they get there?”

With that data, according to RE/MAX Web analyst Jeanna Bush, the
company can track leads once handed off to Realtor.com. “Now, in
addition to allowing consumers to search on all listings, we will be
able to capture leads, pass them directly to our agents, and track and
measure our lead-to-sale conversion rate,” she said.

However, “the catch-22 is that all this data is useless unless you
can get advice to help you understand it, mainly by analyzing the path
people take through the site,” said Gibbs.

Many sites initiate A/B projects to test the best design, he said.
In that type of a test, visitors coming to the site in odd minutes
might land on the standard Web site, while others entering on even
minutes would get a completely different beta test site.

Halstead’s S3 program, the one promoted atop the city’s taxi fleet,
is named for a decade-old tagline, “service, service, service” — and it
offers two main components, noted Leone: In addition to providing
sellers with a checklist of agreed-upon tasks that the agent has
completed, it also gives a slate of Web statistics to sellers.

“It provides full transparency and accountability by giving the
seller a log-in password to see everything an agent is doing,” he said.
“The goal is to offer more analytics in the future.”

For now, statistics delivered to S3 clients include the top ten
sites where visitors found the listing, total visits to the listing
site and a breakdown of the links visitors clicked on when they got
there.

For Halstead and other brokerages, the trick is not just to get
visitors to their sites, but also to keep things engaging so they don’t
bounce out. This is where the science of attracting traffic turns into
an art.

“It’s not about volume; we’re trying to get beyond the random
person to get rid of barriers and engage visitors more deeply,” said
Cartwright. “If you’re pushing amenities on a particular project, for
example, and visitors to the site are clicking on floorplans and
bypassing the amenities package, then you should make floorplans the
selling point.”

Customization is key

For Cartwright’s clients, a major goal is to collect registrations
from visitors. “That’s the gold standard for figuring out what they
like and don’t like, and determining what is getting them to spend
money.”

Registrants are requested to provide varying degrees of personal
information. For example, at a Shvo Group open house in the Financial
District held in August for the W Downtown, visitors were encouraged to
register at a couple of computer kiosks, where prompts asked them for
the type of apartment they were looking for, their occupation and their
income.

Firms use this data to send targeted ads, among other strategies,
said Cartwright. “Say someone looks at an online ad for an Upper East
Side two-bedroom,” she said. “A week later, if you log on to a specific
display ad, we would send an e-mail to you based on the criteria you’ve
established. It’s logical and doesn’t waste anyone’s time.”

The key to this kind of campaign is cookies, computer tracking
devices that Web sites embed on the personal computers of site visitors
that allow companies to monitor individual behavior. To some consumers,
the practice smacks of Big Brother, so some online registration
applications require a double opt-in process.

“The merger of analytics and advertising is exciting because for
the first time you can actually get a lot of information about the
people coming to your site, and there’s much more qualified traffic
than ever before,” said Cartwright. “But data mining is a wild card
because if you dig up too much information about your prospects,
there’s a chance you can turn them off.”

Douglas Heddings used to rely on direct mail to market himself as a
real estate broker, but that was frustrating. Often his mailings would
be returned, either because people didn’t want advertisements in their
mailbox or because they had moved.
[more]

Brokers are spending a lot more time on social networking sites, but they’re not looking for dates. Instead, they’re spending serious advertising dollars to market their properties, sending out ad blasts via relatively new online applications like Twitter and launching partnerships with networking sites like Facebook. At the same time, brokers are advertising properties on a large number of online listing services — such as StreetEasy, Google and Zillow, in addition to their own Web sites.

Where are agents not spending the bulk of their marketing dollars? Print. Brokers from several firms said the Internet has become their primary marketing tool, and several said that close to half their marketing budgets are going toward online advertising.

“Five years ago, the majority of our budget was print advertising, and we did not advertise much online,” said Christina Lowris, executive vice president for advertising and marketing at the Corcoran Group.

“Our strategy is to be out there” by running listings on multiple Web sites simultaneously, said Dawn Tsien, president of the new development division at Coldwell Banker Hunt Kennedy. That’s necessary today because “80 to 85 percent of buyers are starting their searches on the Web,” she said.

Social networking sites, once the domain of teens and 20-somethings, are now the to-go source for launching marketing campaigns.

While some brokerages have been running ads on popular Web sites like the video clip site YouTube and social networking arenas such as MySpace and Facebook for more than a year now, several are increasing or just now launching marketing efforts on such sites.

The Web site Twitter, which allows participants to send short e-mail blasts to friends, similar to Facebook status updates and text messages, is beginning to be used for real estate marketing. The Bank Note, a commercial space in the South Bronx, is using the site to send out blasts to potential clients about the building.

Sarah Eisinger, senior property manager for Denham Wolf Real Estate Services, the Bank Note’s leasing agent, said the Twitter feed, which began in November, is promoting the building as a destination for artists and other creative types.

Meanwhile, the Haber Team at Prudential Douglas Elliman launched a Twitter account last month. Jason Haber, a broker on the team, said the account increases connections between potential buyers and other brokers, and it will be used to send out new listings. He said it is an extension of the group’s Facebook accounts and YouTube video tours. A check of Haber’s YouTube video tours shows most listings have over 1,000 views.

“Now that everyone is on Facebook, and we’ve been on it for years, it’s time for us to find the next wave,” Haber said. “There are so many new ways to market apartments, but you need to have a good sense of social media and how to use it.”

Friends with Facebook

Some firms, however, are just starting to advertise on Facebook, the Web’s leading social networking site in terms of unique visitors.

Tsien said Coldwell Banker will launch a new program in partnership with Facebook in January. The program will allow potential buyers to post a listing directly to their Facebook profile in order to solicit opinions from friends and relatives.

Jill Harnick, executive vice president of brand management at Prudential Douglas Elliman, meanwhile, confirmed that her firm is also exploring partnerships to utilize Facebook and other social networking sites for marketing purposes.

Matt Phipps, a real estate broker in Rhode Island and the vice chairman of the National Association of Realtors Communications Committee, said NAR has been encouraging brokers to utilize Facebook for advertising. He noted that several firms have been creating fan pages on the site and using them to market to younger potential buyers.

“Facebook shows a much greater engagement and return on investment,” said Jeff Lipson, an Internet marketing expert with the digital ad agency IconNicholson. “If I were to create an application on Facebook and call it “share a Coke with a friend,” I could then e-mail it to everyone on my page. This would then track it and show how many people are joining the application.”

If there’s a new condo planned somewhere in Manhattan, chances are Curbed.com has been tracking its progress. But the site — a blog focused on New York City real estate and
neighborhood news, founded four years ago by Lockhart Steele — is
hardly just a cheerleader for the industry. Instead, Curbed tracks
price “chops” with glee, and offers up renderings for its readers to
critique plus floor plans for them to dissect with abandon.

[more]

For many of those expanding from “click” to “brick” here in New York
City, the decision is driven by location, with first-time shopkeepers
willing to take on the financial risk of footing lease payments in
specific areas of the city — often fringe neighborhoods with relatively
low rents, like Crown Heights, Inwood and parts of Downtown Manhattan. [more]

Click here for Manhattan: Top residential brokerage Web rankings

When Frederick Law Olmsted and Calvert Vaux set about designing Central Park, they never imagined that the day would come when it would be fringed with such tall buildings. At a time when elevators had barely been invented and their implications for building heights were still unknown, Olmsted and Vaux had every reason to believe that, except for the occasional church spire, nothing higher than six stories would ever disturb the bucolic illusion they had so studiously contrived.

By the 1920s, of course, it was impossible to stand in Central Park and look in any direction except north toward 110th Street without seeing buildings rising above the trees. But there has been one place where New Yorkers could always go to gain some sense of how architecture originally interacted with Central Park: the 20-acre Mount Morris Park (now officially Marcus Garvey Park), which has a square footprint that extends from 120th to 124th streets on either side of Fifth Avenue.

Because of this area’s generally depressed economic circumstances over much of the past century, there was little incentive for major development, and in recent years the Beaux-Arts buildings that surround the park have been lovingly restored.

Now that occupancy at a new building, Fifth on the Park at 1496 Fifth Avenue, is scheduled for this winter and its exterior largely complete, it is already possible to judge the effect the new building will have on its surroundings. In one fell swoop, the building, at 120th Street, has largely ruined the scale and the gallantly Edwardian effect of the place.

A blockish, 30-story mass, it can be seen from every point in the park and from far beyond it. If you imagine taking something larger and only slightly less Modernist than the new Lucida at 151 East 86th on Lexington Avenue, and setting it down along Gramercy Park, you will have some idea of the effect that this new arrival has on the area.

Rising up 310 feet, this development contains 147 condos and 47 rental apartments, together with a 55-foot swimming pool and, built into the south side, a four-story church sanctuary that can seat as many as 1,800 worshipers. But beyond the pews, one suspects that few Harlem residents will be celebrating this new arrival.

The first problem with the design of Fifth on the Park is that it is a hybrid, with no sense of, or faith in, it own identity. Like many of the more recent structures built in Harlem, this new arrival makes abundant use of red brick facing, in a nod to the historical fabric of the area. But whatever force that contextualism might have is belied by strip windows that are sufficient to overpower their brick infill, but not powerful enough to attain the status of the modernist curtainwall to which they otherwise aspire. The brickwork is asserted most forcefully where it is needed least, as a covering for the mechanical core of the building, all the way at the top. On its southern façade, starting 10 stories up, the building’s upper floors recede from the street line in a series of incremental set-backs with balconies. But to the north, where it overlooks the park, the building takes on the impregnable solidity of a fortress, as though it were challenging or defying the park. The design is weakest, however, in the shift from the approximate contextualism of the northern side to a rather more modernist tone to the south. And that modernism is of the most entrenched and unimaginative sort. It seems to have been born of the same spirit that brought us all those white brick structures along First and Second avenues. The strong horizontal element of the windows to the south clash with the more modest fenestration to the north.

In recent years, the firm that designed Fifth on the Park, FXFowle, has been responsible for a number of projects around the city, with varying degrees of success. While he was still part of Fox & Fowle, Bruce Fowle was responsible for such daring composite structures as the Condé Nast and Reuters buildings in Times Square. The argument has been made that these buildings, and others like them, had an effect on Times Square similar to that of Fifth on the Park: they fundamentally altered the scale of the place. But Times Square is obviously very different from Mount Morris Park: even the giddy, gaudy excess of its new skyscrapers can be assimilated to the frantic spirit of the “crossroads of the world.” The same cannot be said for Mount Morris Park.

Of the residential projects that Fowle has worked on, the Onyx at 261 West 28th Street in Chelsea is a little more spirited in its design than the projected Archstone Clinton mixed-use development or the Helena apartment building on West 57th Street. Even if it feels somewhat cheaply made — the façade cries out value engineering — nevertheless, there is a certain grace to its slate-gray façade, with paler accents in metal and stone.

The same cannot be said for Fifth on the Park. How did such a building come to be built in the first place? Developed by Phoenix Realty Group together with Artimus Construction and Uptown Partners, it was built “as of right” because the developers purchased the rights to a full square block of land that was owned by Bethel Gospel Assembly Church next door. Although zoning for the area was intended to encourage medium-density structures, higher density is allowed for churches and doctors’ offices, and an exception is made to encourage high-rises on large open plots. In addition, the developers were able to use the open space around the church in calculating the amount of open space. This loophole gave them the right to build much higher than would otherwise have been permitted, even though, as should be obvious to anyone, the project, and the legal maneuverings by which it came about, thoroughly betrayed the spirit and the point of the zoning regulations.

For its part, the Bethel Gospel Assembly Church has what looks initially like a great deal. It gets a brand new auditorium, with an exterior along Fifth Avenue that is marked by a series of undulating walls — the design’s one attempt at drama. In addition, the developers paid $12 million for a playground owned by the church, together with all of the air rights to the entire lot, and promised the church, in addition to the auditorium, 47 rental units with which to raise revenue. But even if all of that was hard to resist, it is beginning to look like a Faustian bargain. Already the area has changed for the worse and that’s only the beginning.

James Gardner, formerly the architecture critic of the New York Sun, writes on the visual arts for several publications.

Today during the worst dislocation of the capital and credit markets since the Great Depression, when little or no financing for real estate is available, I ask the few financial institutions who are publicly stating that they are providing financing to answer the question poised in the 1996 film “Jerry Maguire,” when one of his clients said, “Show me the money.”

Oh ho ho! Show! Me! The! Money!

Unfortunately, few of the institutions that I remember being active in financing in 2005-2006 can actually show me any money.

Some of the world’s leading business leaders are asking the same question. Mort Zuckerman, chairman of Boston Properties, recently appeared on Fox Business and the McLaughlin Report. He said, “I am deeply worried about the economy; we have not solved the financial crisis.” And, he said, “No one is lending any money.”

In my recent discussions with more than 50 lenders, I surmise that nearly every foreign lender, including banks from Germany, France, Ireland, Scotland, the Netherlands, Australia, China and Japan, have not been lending since the summer. The few domestic commercial and savings banks who continue to offer financing are offering at terms and conditions that we have not experienced during the past decade.

A real estate executive at one of the world’s largest commercial banks, who asked not to be identified, said, “In my view the financing pipes are frozen, risk tolerance is extremely low and we are lending but capital is being allocated on a very controlled, higher-priced basis. I’m not seeing the typical repayments because the CMBS, insurance and pension fund takeouts of completed commercial debt are not happening.

“The only way to increase real estate lending is to further increase the percentage of capital allocated to real estate, which makes no sense given the declining markets in this industry.”

Gino Martocci, senior vice president in charge of real estate and commercial lenders for New York City and Long Island at M&T Bank, said, “While we remain committed to providing financing to our customers, the rapidity and severity of the economic shocks, as well as the demise or near demise of some of the largest institutions in New York, has created tremendous opportunity around underwriting assumptions. Cap rates, vacancy rates, rents and financing costs are all moving with little clarity on where or at what levels these will settle. As there is very little commercial real estate trading in the private markets, we are forced to use New York publicly traded REITs as a rough proxy on the direction of values and implied cap rates.

“The three best-known New York City-centric REITs have seen share prices decline between 45 to 90 percent from their 52-week high. While this appears to be something of an overreaction, it certainly implies significant 25 to 45 percent declines in net asset values and a corresponding increase in cap rates,” Martocci said.

“We have seen a flight to quality in the financing markets; lenders are more focused than ever on sponsorship when evaluating a loan request,” said Ronnie Levine, managing director at Meridian Capital Group. “The uncertainty regarding valuations has caused lenders to dial back the leverage. Lenders are now topping out at 60 to 65 percent on office loans and retail centers. The reduced first mortgage levels have increased the need for mezzanine loans to fill the gap in capitalization,” he said.

He added, “The hard money sector of the market has been extremely active in the current environment. These lenders typically charge rates in the low- to mid-teens and can move quickly to get a transaction closed. They have been particularly active working with borrowers who are trying to buy their loans back at a discount from a current lender.”

Gregg Winter, president of specialty lender W Financial, said, “Even in these dark days of the credit crisis, a steady stream of lower-leverage loans from fully stabilized, cash-flowing assets are not only getting done, they are getting done at historically low interest rates on very favorable terms for the borrowers. No one is paying attention to this sunny end of the marketplace, preferring to dwell on the idiotically underwritten loans of two years ago that are now blowing up all around us.

“Eventually all the carnage will have run its course. The financial system will reboot and will return to sound underwriting fundamentals, keeping future blowups to a minimum. This time around the damage is so severe that it may take a generation or two until the trauma dissipates and underwriting standards once again degenerate to dangerously low levels.”

Winter secured a loan for the owner of two residential buildings with a total of 298 units on the Henry Hudson Parkway in the Riverdale section of the Bronx. The borrower secured a 10-year (yes, I said 10-year) fixed-rate loan of $7 million, or $23,489 per apartment unit, with amortization of the loan over a 30-year term at a rate of 5.25 percent. The transaction was priced at 217 basis points over the 10-year Treasury bond, which was 3.08 percent at the time.

Lenders, including New York Community Bank, one of the strongest lenders for apartments, continued to be active during the fall. In September, the bank provided a seven-year interest-only loan for $135 million for the purchase of a multifamily apartment complex in Lower Manhattan. The deal represented a loan of 77 percent to the cost of the purchase with debt service coverage in excess of 1.20.

On the opposite extreme of reasonably low-priced financing, in November, W Financial provided a loan of $3.6 million for a first mortgage for a 70-room waterfront hotel in Sag Harbor on the East End of Long Island. The borrower, a private equity fund, needed bridge financing for its $11 million purchase of the property. The borrower had a $2 million deposit and had to close and was unable to secure financing. No bank would touch the deal, resulting in the borrower securing debt at a rate of 13 percent plus an origination fee of three points for the 18 month loan. At the end of the term of the loan, when he refinances, the borrower is obligated to pay W Financial a two-point exit fee.

In conclusion, I concur with Ronnie Levine when he said, “There is still debt available in this market. You just need to spend a great deal of time to know where to find it.” And to that I add, one day someone will SHOW ME THE MONEY.

Michael Stoler is the host of the real estate programs “The Stoler Report” and “Building New York” on CUNY TV in New York City and WEGTV in East Hampton. His radio show, “The Michael Stoler Real Estate Report,” airs on 1010 WINS on Saturdays and Sundays. Stoler is also an adjunct professor at New York University’s Real Estate Institute and a director at Madison Realty Capital. He is a former columnist and contributing editor for the New York Sun

How fresh are your “comps” — the comparable sales of properties used as benchmarks in home real estate appraisals? Buyers and sellers rarely had to be concerned about such a question — or even understand it — when values were on the upswing.

But in soft and declining markets, lenders recently have begun making comps a big deal. Some sellers are being forced to renegotiate lower prices with buyers, even after they have a signed contract.

Rather than accepting sales of similar properties that closed as many as six to 12 months ago, lenders and mortgage investors are demanding that appraisers include only the freshest comps, ideally those closed within the previous 90 days, to support their valuations.

They’re also pushing for more extensive data on local listings, pending sales, and listing-price-to-selling-price ratios before they agree to fund a mortgage at the requested amount.

As a result, growing numbers of sales transactions are being complicated — even knocked off track — as buyers demand that sellers lower agreed-upon contract prices to reflect the lower loan amounts offered by lenders.

“Appraisals have become a real hassle,” said Steve Stamets, a loan officer with 20 years’ experience at Nationwide Home Mortgage in Rockville, Md. “Some sellers are taking a beating,” he said, citing a recent transaction where the appraisal came in thousands of dollars below the signed contract price. Had the seller not agreed to eat the difference — take a lower price than the buyer had agreed to in the contract — “the whole deal could have fallen through,” said Stamets.

Major lenders and investors such as Fannie Mae and Freddie Mac “may have gotten rid of their ‘declining markets’ policies,” said Stamets, “but now everybody is beating down on the appraisal” by demanding 90-day comps or fresher.

In Richmond, Va., appraiser Perry “Pat” Turner of P.E. Turner & Co. says his firm has seen “numerous” cases where using newly mandated 90-day or more-recent comps — as opposed to those six months or older — has contributed to valuations lower than the price on the sales contract.

“In 95 percent of those cases,” he said, “the [listing and selling] agents have gotten together and renegotiated the contract” rather than lose the deal. In Woodland Hills, Calif., appraiser Kerry Leiman, owner of Leiman Appraisal, defends the tougher standards as producing valuations that are much more finely tuned to short-term changes in local price movements — down or up.

“Shorter is far better,” Leiman said, even if sometimes there are not enough comparable closed sales transactions that fit the lender’s tighter time requirements. In those instances, he said, appraisers are able to look to current listings and use “time adjustments” based on local market pricing trend data to come up with appropriate estimates.

Turner said that when enough 90-day comparables are not available, he can sometimes persuade realty agents to disclose — in confidence — the prices on pending sales, which otherwise are not reported or listed until closing. Pushed by lenders for the freshest possible data on properties, Turner also can tap into the local multiple listing service and statistically derive adjustment indexes for small geographic areas based on the percentage difference between original asking prices and selling prices.

That, in turn, allows him to adjust — downward or upward — estimated prices for current listings that are comparable to the property he’s appraising but haven’t sold yet. If the listing is for $400,000 and the index suggests that houses in the area are selling for an average 4 percent below the original list or asking price, the appraiser can estimate the probable value of the unsold comparable house at $16,000 less, or $384,000.

Tim McCarthy, an appraiser in Tinley Park, Ill., agrees that requirements for fresher comps generally improve valuation accuracy for lenders’ purposes, but are not foolproof. To the extent that appraisers have to focus on listing-price to selling-price and time-on-market indexes, they may miss some of the games that sellers and agents can play, he said.

For example, a seller with a current listing “at an unreasonable price” that hasn’t sold for months, said McCarthy, might pull the house off the market, then come back with it as a “new” listing with the same excessive price. As long as the listing date is at least three months from the date the house was pulled off the market, the listing will be counted as new under Illinois realty rules, and the high asking price may get factored into new appraisals.

In that case, McCarthy said, the whole push for freshness in data “just totally misses the mark.”

Ken Harney is a real estate columnist with the Washington Post.

Saudi investor may buy French hotels

Starwood Capital is in talks to sell the Concorde Groupe, through which it owns 12 luxury hotels in France, to JJW Hotels & Resorts, the International Herald Tribune reported.

JJW Hotels & Resorts, which already owns about 60 European hotels and resorts, is part of MBI International, controlled by Saudi businessman Sheik Mohamed Bin Issa Al Jaber.

Concorde Groupe properties that would be part of the sale include the Concorde La Fayette and Lutetia in Paris, the Hôtel Martinez in Cannes and the Palais de la Méditerranée in Nice. JJW Hotels & Resorts is expected to keep the hotels’ current management.

The hotels could be worth as much as $2 billion, a Saudi newspaper reported, but neither Starwood nor JJW Hotels & Resorts would comment on the value of the hotels.

Starwood is also negotiating to sell another one of its Paris hotels, the Ambassador, to a different, unidentified buyer.

The company said it intends to focus on luxury hotels, including the Hôtel de Crillon, one of its remaining Paris properties.

Luxury housing buoyant in Dusseldorf

Even as the rest of the world’s housing markets decline, Dusseldorf’s luxury housing market is thriving.

Much of the 1.65 million square feet of real estate under construction in Dusseldorf is high-end, worth more than $885 million in total, the International Herald Tribune reported. Luxury home prices in the city start at around $580 per square foot.

Dusseldorf, known for its trade shows, is credited with recasting itself in recent years as a more international city. It is well-situated, within a half-hour of other cities like Cologne and with about 12 million people living within a one-hour radius.

The German residential market, unlike the markets in Britain, Spain and elsewhere in Europe, has kept pace in the face of global turmoil with prices remaining flat, thanks to low rents that kept many out of the market.

But prices for high-end properties are rising because supply is not keeping up with demand. Pharmaceutical, media and law firm jobs are feeding demand for upscale real estate, the article said.

China tries to shore up real estate prices

Last month, the Chinese government instituted several measures in response to fears that the softening of the country’s real estate market will lead to a spike in loan defaults.

The government mandated that commercial banks reduce mortgage rates and down payments for borrowers trying to obtain their first mortgages, the International Herald Tribune reported. The government also reduced the tax on real estate purchases for first-time home buyers purchasing apartments of less than 970 square feet.

In Shenzhen, the city hardest hit by China’s real estate troubles, housing prices have already fallen by up to a third. A national real estate price index released in late October showed a dip of 0.1 percent in September from August, but experts say price drops are more severe.

Real estate problems in China may not send the country into a full-blown financial crisis like the meltdown in the U.S. because China’s mortgage system is relatively unsophisticated, experts said. About half of all Chinese home buyers pay cash, sometimes borrowed, instead of getting mortgages. Chinese banks also tend to renegotiate monthly payments rather than foreclose on homes.

Compiled by Sara Polsky

Elliman takes in Weichert branch on Long Island

A former franchise owner has decided to join forces with Prudential Douglas Elliman, expanding one of the real estate giant’s Suffolk County offices by 15 people. John Petsco, a former franchise owner of Weichert Realtors, which has 500 company-owned and franchise offices nationwide, has moved his office in Port Jefferson, Long Island, to Elliman’s nearby office in Miller Place. The move comes six months before Petsco’s five-year franchise contract was up. Petsco is now an Elliman broker.

Apollo Real Estate changes name

Apollo Real Estate Advisors announced recently the company is changing its name to AREA Property Partners to formalize its independence from the partnership that founded the firm 15 years ago. The name change was made official through an agreement between Apollo Global Management and AREA, which was launched in 1993 by Apollo Global founders William Mack and Leon Black. AREA was directly affiliated with Apollo Global until 2000, when the company began operating as an independent real estate fund manager.

Cushman & Wakefield forms resolution group

Cushman & Wakefield announced last month the formation of its resolution group, an interdisciplinary team of real estate investment and management professionals from across the country, to help property owners and investors navigate the financial crisis. The division will offer financial analysis, valuation, leasing, property and project management, investment sales, loan sales, debt and equity finance and litigation support.

Highline 519 construction manager expands operations

The city’s construction slowdown has prompted construction management firm Leeds United Construction to expand its operations to include office, retail and infrastructure projects. Company president Paul Bonnar said Leeds United is in discussions with owners of retail and commercial projects. The company, which previously only dealt with residential buildings, recently completed developer Sleepy Hudson’s luxury building Highline 519 at 519 West 23rd Street and is working on Five Franklin Place in Tribeca.

Compiled by Linden Lim

The former market director of real estate at JPMorgan Chase has moved over to the brokerage side of the real estate world and is now the director of financial retail services at Winick Realty Group. During the 27 years he worked at JPMorgan Chase, Bob Weber was in charge of overseeing the real estate portfolio of all the Chase branches in Manhattan and northern New Jersey. Weber secured branches at 15 Central Park West, 26 Astor Place and the General Motors Building, among others. He also integrated many of the banks’ locations during various mergers and acquisitions, a role he might resume at Winick.

“We hope to be doing a lot of disposition work with the Washington Mutual and JPMorgan Chase merger,” Weber said. “We’ve had meetings with them already, and plan to help realign them in the marketplace and move branches from one area to another.”

While working at Chase, Weber said he was always fascinated by the brokers’ role in deals.

“Brokerage is something I’ve been interested in for a long time,” Weber said. “About year ago I thought, I have 15 more years to work. It’s time to get into it and learn about the brokerage side of the business,” he said.

Weber said he called up his friend of 25 years, Winick CEO Jeff Winick, and told him he wanted to make the move.

“I want to bring in as many new relationships as possible,” Weber said. “[Winick] doesn’t have a whole lot in the financial service industries and insurance companies, so I want to get Jeff into meetings with those executives. As the financial services entrench, the question is going to be are they going to need retail locations. And assisting with that is one of the reasons I’m here.”

With sales and prices on a downward spiral in New York City, not many brokerages would want to expand their business. The Developers Group, however, just opened their second office in Brooklyn at 165 Bedford Avenue at North Eighth Street in Williamsburg. The marketing group represents a number of projects in Williamsburg, including 129 Metropolitan Avenue, the Edge at 22 North Sixth Street, NV at 101 North Fifth Street and the Rialto at 150 North Fifth Street, among others.

“In Brooklyn, the majority of our projects are in Williamsburg and we had to have a presence there. That’s why we looked at Bedford Avenue,” said Tara Mrowka, the development coordinator of The Developers Group.

The 700-square-foot space has about 10 desks. Some agents will be working from both the Williamsburg and Dumbo offices. Mrowka said the firm is looking for new agents.

The new office’s storefront has screens displaying listings that change throughout the day. There are also three computers in the office, which potential buyers can use to look through available listings.

The residential real estate market has been hurting, and in this financial crisis, some residential firms have decided to diversify their business. Residential brokerages Halstead Property and DJK Residential have recently opened commercial divisions and on Long Island, Weichert Realtors Ferreri-Gromus in Babylon also opened a new commercial and industrial division.

Halstead and DJK announced they were entering into the commercial world in the same week, but DJK said they have been doing commercial deals for some time.

“We have been working in the commercial market, and to make it a more formal division, we announced it to develop it even more,” said Phyllis Pezenik, vice president and managing director of brokerage services at DJK.

Pezenik said the firm is training some of its brokers who want to be involved in the commercial market and is also looking to bring in people with commercial experience.

Halstead Property opened an investment sales division and hired John Goldman, a former executive managing director at Murray Hill Properties, to run the group. Goldman told Crain’s last month that Halstead’s expansion isn’t a way to make up for the residential market slowdown but rather a way to capitalize on new real estate opportunities.

Weichert Realtors Ferreri-Gromus said it brought William Maurer on board as associate broker to join the new division. Maurer’s background includes representing clients with retail, office and investment properties, strip-mall leasing and property management.

Residential

Coldwell Banker Previews International

Martin Eiden joined the firm as senior managing director.

The Corcoran Group

Robert Manzari and Bonnie McCartney rejoined the company as senior vice presidents. They were most recently with Prudential Douglas Elliman. Lilly Schonwald was appointed marketing director of Corcoran Sunshine Marketing Group.

DJK Residential

Sindi Schorr joined the company as an associate broker. She was previously with Coldwell Banker Hunt Kennedy. Martha Lavayen joined as a sales agent. She was previously with Battery Park Realty.

Commercial

André Balazs Properties

Glyn Aeppel joined as chief investment officer. She was previously executive vice president for acquisitions and development at Loews Hotels.

CB Richard Ellis

Silvio Petriello was promoted to executive vice president.

Coldwell Banker Commercial Properties

James Famularo joined the firm as senior executive managing director.

Community Preservation Corporation

Ronald Schiferl was appointed chief financial officer. He was previously chief operating officer with Naterra Land.

Gramercy Capital Corp.

Roger Cozzi was appointed president and CEO. He succeeded Marc Holliday, who is remaining as a consultant. Andrew Mathias is stepping down as chief investment officer and remaining as a consultant. Gregory Hughes is stepping down as chief credit officer.

Helmsley-Spear

Steven Cohen joined the company as senior vice president and principal. He was previously with Tishman Speyer.

Jones Lang LaSalle

Janet Kissel was promoted to managing director from senior vice president.

Massey Knakal

Andrew Liebhafsky joined as an associate. He was previously principal and general counsel for Broome Street Construction, which he founded.

Savills

Stephen Shapiro and John Wilcox joined as vice presidents. Shapiro was previously with Eastdil Secured. Wilcox was previously with DTZ Rockwood.

Studley

Tatiana Tarassenko was promoted from associate director to managing director. Daniel Turkewitz was promoted from associate to assistant director.

Swig Equities

Eugene Flotteron was promoted to senior vice president of project development.

Compiled by Roland Li

 
Go to puzzle: Running from the bears

Click here for the solution.

Dramatic bonus cuts could devastate luxury housing market
New York’s troubled residential sales market could face even more peril than expected in 2009, as some of Wall Street’s top investment banks slash or weigh plans to cut bonus compensation for top executives.

Late last month, American International Group announced that its top seven executives would accept no bonuses for 2008 and that its top 57 executives would accept no salary increases through the end of 2009.

Edward Liddy, chairman and chief executive of AIG, agreed to cut his annual salary to $1 for 2008 and 2009.

Goldman Sachs and UBS earlier last month said they would forego bonus compensation for their top executives, and Citigroup’s board of directors is expected to make a decision on bonuses in early 2009. Meanwhile, Morgan Stanley officials were expected to make a decision on bonus pay sometime this month, according to Wall Street sources. JPMorgan Chase declined to comment on the investment bank’s plans for bonus compensation.

New York real estate experts say the loss of such compensation could devastate an already weakened market for luxury housing.

Wall Street bonus compensation fueled the real estate boom in New York, rising from $9.8 billion in 2002 to a record $33.9 billion in 2006. After slipping to $33.2 billion in 2007, a report released on Nov. 24 from New York State Comptroller Thomas DiNapoli warned that bonus compensation could plunge more than 50 percent over the next two years.

“Since Wall Street accounts for such a large share of the state and city economies, lower bonuses will have a significant adverse impact on the economy and tax collections for some time to come,” the report stated.

Barbara Byrne Denham, chief economist at commercial brokerage Eastern Consolidated, said that Manhattan sales would be hit the hardest, and could shift some buyers into rentals.

“As many prospective buyers put off buying a condo/ co-op, this could be beneficial to the rental/multifamily market, but only at the margin,” she said.

Attorney Hugh Finnegan, co-director of the real estate department at New York-based Sullivan and Worcester, said it would hit both primary and second-home sales.

“The first impact will be on the residential condo market in Manhattan and Brooklyn. That market is often driven by Wall Street bonuses,” he said, adding that the loss of bonus money will make it tough for buyers to make deposits on luxury apartments. In the second-home market, he said that the loss of bonus money would hurt home sales in the Hamptons and the Jersey shore. By David Jones

Trump Soho tops off, tallest building in ‘hood
Troubled luxury hotel-condo Trump Soho topped out last month at 46 stories tall, making it the tallest building in Soho. The tower at 246 Spring Street is being developed by the Trump Organization, Bayrock Group and the Sapir Organization. Completion is expected by fall 2009. Prodigy International Development Sales is the exclusive sales and marketing agent for the project, which has faced many obstacles during construction. Violations from the Department of Buildings include one for a crane that smashed the window of an adjacent building. Three construction workers were hurt on the site, and in January, one worker fell to his death when the building’s scaffolding collapsed. TRD

No buyers sign Obama contingency clause contracts
No buyers took developer Erik Ekstein up on his offer to include an “Obama contingency clause” in contracts signed before last month’s presidential election at Ekstein’s Chelsea condo tower, a spokesperson for the building said. The clause, which could be applied to units at +Art, at 540 West 28th Street, would have allowed purchasers to back out of their deals in the event of a John McCain victory. But the option “definitely increased” traffic through the +Art sales office, the spokesperson said. Units in the building start at $520,000. By Sara Polsky

Elliman retail partner buys at Manhattan House
Joseph Aquino, executive vice president of retail leasing and sales at Prudential Douglas Elliman, closed on a $1.48 million apartment at Manhattan House, the controversial Upper East Side converted condominium that his firm is marketing, according to sources and government records.

The deal makes Aquino one of the first buyers at the 200 East 66th Street tower, which just began closing apartment sales in October following a year-long conversion process.

“He bought when the offering was first presented,” said Faith Hope Consolo, chairman of the retail leasing and sales division at Elliman and Aquino’s longtime business partner. “He’s very happy. It’s a wonderful building.” Aquino was not immediately available for comment.

The move comes at a time when several major commercial banks, including Citibank, have decided not to underwrite mortgage loans at Manhattan House or have asked buyers for down payments of up to 50 percent. JPMorgan Chase officials said they were only following guidelines set by Fannie Mae and Freddie Mac, which call for banks to lend in new condo conversions only when more than half of available units are sold.

As of early November, more than 120 apartments in the 583-unit building were under contract, and 15 deals had closed. About six apartments were sold for cash, with the remaining financed with down payments of at least 25 percent, according to sources and city records. The building has another 190 rent-stabilized and 35 market-rate rental tenants.

Manhattan House officials have been under pressure to boost sales at the building. The sponsor, O’Connor Capital Partners, lost a December 2007 court battle to evict 31 existing market-rate tenants, which left the developer with fewer available units to sell, although the case is under appeal. The building’s Germany-based lender, HSH Nordbank, was forced to assume the risk on the Manhattan House loan after a deal to syndicate it fell apart.

Aquino and his wife Suzanne closed on their apartment, unit A1107, in late October, according to property records posted last month. The 1,113-square-foot, one-bedroom unit was originally listed at $1.48 million and was taken off the market 10 months ago after the Aquinos signed a contract, according to Streeteasy.com and records filed with the city Department of Finance. By David Jones

German director Herzog buys Flatiron co-op
Influential German-born film director Werner Herzog paid $630,000 for a one-bedroom cooperative unit at 7 East 14th Street in the Flatiron District. The 600-square-foot apartment is on the seventh floor of the Victoria, a 21-story residential building between Fifth Avenue and University Place built in 1964. The 66-year-old movie and opera director, who is also a screenwriter, resides in Los Angeles with his wife, photographer Lena Herzog. He was behind the 2005 documentary “Grizzly Man” and most recently a documentary on Antarctica called “Encounters at the End of the World,” completed last year. Herzog closed on the East 14th Street sale on September 18, according to property records posted last month. By Adam Pincus

Sales begin at 20 Henry
Sales started last month at the new seven-story Brooklyn Heights condominium 20 Henry. The two-building condo, at 20 Henry Street, between Poplar and Middagh streets, has 38 residences ranging in price from $580,000 to $2.56 million. Urban Realty Partners bought the buildings, which were previously in the Mitchell-Lama affordable housing program, in 2007 for $19.6 million. The developer is listed as 20 Henry Street Development LLC, which is run by Stan and Shelly Listokin. Units include studios and one- to four-bedroom homes. The condo was formerly the Peaks Mason Mints Candy Factory building. Architectural firm Pasanella, Klein, Stolzman, Berg Architects converted the former landmark factory to a condo. Amenities include a roof deck, courtyard, doorman, storage and fitness center. Halstead Property Development Marketing is the exclusive sales agent. Occupancy is expected for fall 2009. TRD

Dozens of CMBS slated to mature in NYC through 2010
Nearly 100 commercial mortgage-backed securities, or CMBS, loans are coming due over the next two years in New York City, forcing those real estate borrowers to find financing in a far more difficult lending environment than when the notes were written.

In the city, there are 52 such commercial real estate loans expiring in 2009 and 43 in 2010, according to Manhattan-based financial analytics firm Trepp. Such loans are typically held for five years, but neither the terms nor the additional information on the 95 securities was immediately available.

In 2009, refinancing will be needed for $2.6 billion in fixed-rate loans and $4.5 billion in floating-rate loans, while in 2010, $3.6 billion in fixed-rate loans and $271 million in floating-rate loans will need to be refinanced, according to Trepp.

The borrowers will likely have to pay higher interest rates as well as contribute equity — or seek out expensive mezzanine lenders to provide that equity — because lenders are underwriting loans at lower loan-to-value ratios.

“The amount of money available for lending for real estate is a small fraction of what it was over the past few years,” said Craig Evans, senior managing director for institutional investment sales at Colliers ABR. “A huge amount was done through the CMBS market, which is not functioning now.”

With the commercial mortgage-backed securities market frozen, he said borrowers would more aggressively seek out alternatives to the CMBS market, including banks and life insurance companies that do not appear to have the ability to deliver the volume of funding required. By Adam Pincus

Corcoran brokers, teams rank in top 200
Eleven brokers and teams from the Corcoran Group were ranked in “The Real Estate Top 200,” a national ranking and awards event that took place last month. Five Corcoran brokers were named among America’s top-selling individuals by sales volume, including Susan Breitenbach, Timothy Davis and Gary DePersia of the East End offices, and Dennis Mangone and Lauren Muss from Manhattan. The six broker teams that were ranked were all from Manhattan, including the Deanna Kory Team; the Carrie Chiang team; Robert Browne, Gregory Sullivan and Chris Kann; Deborah Grubman and Carol Cohen; and teams headed by Barrie Mandel and Sharon Baum. Corcoran was the New York City brokerage with the most teams on the list. The event took place on Nov. 7 at the National Association of Realtors Conference and Expo in Orlando, Florida, and was sponsored by the Wall Street Journal, Lore Magazine and Real Trends. TRD

Chang sells Chelsea hotel for $39 million
Hotel developer Sam Chang of the McSam Hotel Group and a partner sold their newly opened Wyndham Garden Hotel Manhattan Chelsea West for $39.06 million, according to property records published last month. The buyer was Gemini Real Estate Advisors, a real estate firm based in Manhattan. The 17-story hotel with 124 rooms — the first Wyndham in New York City — opened early last month at 37 West 24th Street, a hotel employee said. The transfer was planned to occur once the hotel opened, McSam Hotel Group COO Gary Wisinski said in an e-mail. The sale went into contract in May 2006, and was finalized November 4, the property records indicate. Gemini owns several hotels in New York City, including a Howard Johnson at 135 East Houston Street at Forsyth Street and the Comfort Inn Midtown West at 442 West 36th Street between Ninth and Tenth avenues. By Adam Pincus

Winick Realty founding partner dies
Frank Terzulli, a founder and executive vice president at Winick Realty Group, died on Sunday, November 2, at the age of 47, according to Victoria Juharyan, spokeswoman for the company. Terzulli helped found the 20-year-old Manhattan-based retail real estate services firm. He got into real estate after working as an executive at Macy’s department store, where he developed an interest in the retailer’s properties. At Winick, Terzulli represented a number of large retailers, including McDonald’s, Starbucks, Duane Reade, AT&T and Barnes & Noble.

Terzulli, who was raised in Brooklyn and lived in Manhattan, handled deals in both boroughs. He was marketing about 600,000 square feet of real estate in Brooklyn at the time of his death, Juharyan said.

Terzulli is survived by his two children, ages 10 and 13. By Sara Polsky

When running for governor in 1966, Ronald Reagan famously coined his party’s 11th Commandment: “Thou shalt not speak ill of any fellow Republican.”

It seems some New York City real estate brokers are taking a page from that playbook in order to counteract what they see as doom-and-gloom coverage of the current downturn. Some brokers say they are proactively trying to unspin what they view as negative media coverage in order to calm jittery buyers and sellers.

“We don’t want to contribute to any fear-mongering that’s out there,” says Stacey Max, who manages Bellmarc Realty’s Downtown office. “And sometimes the media does spin the situation to sell newspapers.”

James Lansill of the Corcoran Sunshine Marketing Group says that in the coverage of the current climate, analysts tend to lump together homes with subprime mortgages and pedigreed co-ops as if they were all part of the same market.

“Some aren’t making the distinction between the well-located and the marginally located,” he says.

Citi Habitats president Gary Malin says the coverage of the crisis indicates the housing woes will be long-lasting, which, in turn, is keeping some buyers stuck on the sidelines. But if changes in Federal Reserve policy suddenly result in 30-year fixed mortgages with 4.5 percent interest rates (about one point below their current levels), then a scramble for homes could ensue, he says. He says it’s best to be ready to make a move.

Brokers acknowledge that striking the right tone could impact their own business. Tamir Shemesh, a top broker with Prudential Douglas Elliman, notes,”If you read in the papers that somebody has done nothing, why would the client come to you?”

New York’s real estate industry has for years seemed to abide by the self-protecting maxim that even when the market is down brokers are supposed to wax bullish. And some firms have gone as far as to discipline brokers when they publicly say something that feeds into the negative coverage of the market.

In September Hall Willkie, president of Brown Harris Stevens, publicly slammed powerbroker Kathy Sloane for telling ABC’s “20/20″ that high-end co-ops had lost 25 percent of their value. Willkie said Sloane’s comments were “completely speculative, and at times factually incorrect.”

And, Brown Harris Stevens is not alone in trying to keep employees from spouting negative remarks. A broker at one of the nation’s largest residential firms, who preferred not to be identified, told The Real Deal, “Brokerages and their senior management want to continue to send the message that all is going to be fine, and as soon as someone says otherwise then they hammer that person for not toeing the company line.”

But Jacqueline Urgo, president of the Marketing Directors, says acknowledging the changed market is a given. “This is a sophisticated, intelligent audience,” she says. “To say nothing has changed is not credible.”

The party’s over at Manhattan’s two biggest residential and two largest commercial brokerages. Prudential Douglas Elliman and the Corcoran Group have joined the city’s two top commercial firms, CB Richard Ellis and Cushman & Wakefield, in pulling the plug on big seasonal events.

Instead, Elliman will donate funds to a charity while individual offices will still hold parties, said company president and CEO Dottie Herman.

“This is the first time in the 23 years I’ve worked for the company that there hasn’t been a holiday party,” said Helene Luchnick, who helms Elliman’s Downtown office.

Last year, Elliman enjoyed a “banner year — the best ever,” Herman said. The company celebrated accordingly, at The Pierre on Fifth Avenue at 61st Street. In 2006, the firm’s gala at Cipriani at 110 East 42nd Street featured sophisticated lighting, an ice sculpture and top-shelf food and booze.

“We’re in fine financial shape, but people are losing their jobs, even some here, so it’s not appropriate to have a huge party,” Herman said. “It’s a different world today.” The company will still hold its annual awards ceremonies in January.

At Elliman, “in years past, we used to spend $100,000 on our holiday parties,” said Paul Purcell, former president of Elliman and co-founder of New York City real estate company Charles Rutenberg Realty.

The Corcoran Group said it is being fiscally prudent as well. According to a published report, Pamela Liebman, CEO, said, “It’s not the time to waste money on a celebration.” She said holiday parties typically cost the firm well over $100,000.

In 2006, the Corcoran Group celebrated in style at its holiday party, when 900 people entered a simulated Roman palace, complete with scantily-clad actors in period costume.

The specter of the Grinch is overshadowing the season at other real estate and real estate-related companies.

One commercial broker, who asked to remain anonymous, said it was absolutely impossible to put a positive spin on the state of the market, although he’ll host 40 clients and employees at a Manhattan restaurant.

Nightclub broker Alex Picken of Picken Real Estate recalled last year’s party hosted by Winick Realty at Wild Salmon restaurant, complete with a DJ, food, drink and women dressed up as Santa’s helpers. This year, “there’s belt-tightening across the board,” he said.

Public relations firm Quinn & Co., which specializes in real estate, will spend the same sum as last year — $175 a plate — said the company’s president, Florence Quinn. This year, though, for the first time, the firm will gather at a client’s establishment rather than hold a holiday function elsewhere.

Manhattan-based law firm Herrick, Feinstein, which has a large commercial real estate practice, is also still spreading cheer as a necessary investment.

“For obvious reasons we’re keeping an eye on expenses, but we have no plans to diminish our social events,” said Carl Schwartz, head of the firm’s commercial real estate division. “They’re important for internal morale, good for our clients and, ultimately, good for our business.”

1971: City proposes Madison Avenue pedestrian mall
City officials unveiled a plan 37 years ago this month to convert Madison Avenue between 42nd and 57th streets into a pedestrian mall in the face of fierce opposition from business groups such as the Fifth Avenue Association and the Real Estate Board of New York.

The Office of Midtown Planning and Development’s controversial proposal called for limiting vehicular traffic to buses and emergency vehicles on the 13-block stretch while widening the sidewalks, adding trees and encouraging sidewalk cafés. Officials said it would cost about $3.7 million and improve retail business and real estate values along the pedestrian mall.

However, business groups said the plan would hurt sales along Madison and Fifth avenues. An overwhelming majority of members of the Fifth Avenue Association opposed the plan, the group said, as did the Real Estate Board of New York. Herbert McIntosh, vice president and general superintendent of Brooks Brothers on Madison Avenue and 44th Street, told the New York Times, “Why does the city feel it has to make it harder for our customers to get here?”

Mayor John Lindsay’s administration developed the concept to cut down on traffic and air pollution in order to meet federal environmental regulations. A State Supreme Court judge ruled in March 1973 against the mayor, stating that an alteration so significant had to be made by the Board of Estimate, which opposed the plan. An appeals court upheld that decision two months later, effectively killing the mall idea.

1947: Pact to freeze wages for union construction workers
Union building trades contractors and workers agreed to a temporary wage freeze to provide price stability for massive postwar construction projects, 61 years ago this month. The pact negotiated in December between the Building Trades Employers Association and the Building and Construction Trades Council of Greater New York covered 70 percent of the 250,000 construction workers in the city. By March the following year, when the agreement was signed, nearly all unionized workers were covered.

Unions and contractors estimated there would be about $3 billion in public and private development, but city officials said rising wages made it difficult to propose accurate bids. Mayor William O’Dwyer said contractors were inflating budgets to protect themselves against steep wage increases in public projects.

“The purpose of the agreement is to bring about stabilization of building costs so that the billions of dollars of building work can be carried forward,” Theodore Kheel, director of the city’s Division of Labor Relations, said, the New York Times reported.

Contractors said projects were being held up because companies and their investors were not confident they could build at the price quoted. Under the deal, most wages would rise by 5 percent but would remain frozen until July 1949, with the contract set to expire a year later. A replacement, three-year contract was signed in June 1950.

1890: First building taller than Trinity Church opens
The headquarters for Joseph Pulitzer’s newspaper, the New York World, opened 118 years ago this month, the first building in the city whose height exceeded the spire of Trinity Church.

The height and the number of stories of the World Building, which was also known as the Pulitzer Building, are in dispute, with the recorded height ranging from 309 to 348 feet. It had at least 16 stories, historians said. The 284-foot-tall Trinity Church at 100 Broadway at Wall Street had been the highest structure since its dedication in 1846.

The World Building was the tallest structure in New York City until the Manhattan Life Insurance Building was built in 1894, at 348 feet. That record was beat in 1899 by the 391-foot-tall Park Row Building.

The World Building, at the corner of Park Row and Franklin Street, was one of three newspaper buildings fronting City Hall Park, including the 13-story Times Building on Park Row at Spruce Street, and the 10-story Mail and Express Building on Broadway at Fulton Street.

The World Building was demolished in 1955 to make way for an expanded approach to the Brooklyn Bridge.

Compiled by Adam Pincus