The first properties to be sold when troubled banks or real estate companies put their assets on the block are likely to be cash-generating holdings such as multi-family housing and industrial sites, according to experts who spoke at a forum hosted today by the Real Estate Board of New York.
Those who spoke on the panel — which focused on the impact that the weak credit markets are having on New York City — predicted that the sale of real estate during the current financial crisis will be similar to what occurred under the Resolution Trust Corporation (RTC), which was created to dispose of assets following the 1980s savings and loan crisis.
“I think we all will go back to where we started last time,” said Gregory Reimers, executive vice president of JPMorgan Chase’s real estate banking division. Buyers would look at cash flow, tenant quality and lease expirations.
“In the RTC days, [buyers] looked at multi-family [and] looked at underlying cash. That is where people start to put their toe back in the water … Sectors like condos and others, which are further detached from cash flow are going to have a harder time attracting capital,” Reimers said.
Reimers was on the panel with Lee Neibart, a senior partner of Apollo Real Estate, and Stuart Rothenberg, managing director at Goldman Sachs. The forum, which was at the Sheraton New York Hotel in Midtown, was moderated by James Kuhn, president of Newmark Knight Frank.
Neibart said he expected pension funds to raise caps on real estate as a reaction to losses from hedge funds and derivatives. Many pension funds, such as those for New York City and state employees, are maintained at about 6 percent.
“My hope is our industry will start seeing higher allocations,” he said. “I would think if that increased to 12, 13, or 14 percent that may be a great jump start for us.”
Rothenberg said the east side of Downtown would fare worse than the west side in both office and residential markets.
“I think the east side of [Lower] Manhattan is going to be pretty much dead,” as the city, state and federal governments focus on the west side, and as Goldman Sachs pulls out of several east side locations for its move to 200 West Street at Vesey Street in Battery Park City. “That is a lot of space that is not going to get eaten up for a long time,” he said.
Rothenberg added: “The east side of [Lower] Manhattan — where you could see conversions to condos [and] you could see a community being formed — I think that is the area that is going to suffer in a very tough way.”
Apollo’s Neibert gave a bleak outlook on retail prospects, saying that tight credit was inhibiting Manhattan stores’ financial strength.
“We just don’t have the availability to do any kind of business. People are holding on and we are all concerned about their ability to expand and grow,” he said. “Just look at some of the storefronts as you walk around New York City. They will hold on through the holidays and then watch what happens afterwards.”