From the outset of the discussion on Manhattan’s commercial real estate market this morning, developer Kent Swig of Swig Equities gave a gloomier assessment than co-panelist and landlord Norman Sturner of Murray Hill Properties.
Swig, at times waxing poetically about the troubles in the securitized commercial debt market, said although residential properties showed signs of stabilizing, the office market had farther to fall.
“I don’t know if picking up is the right term,” he said of the commercial real estate industry. Speaking more specifically about the office market, he continued, “Hopefully it is beginning to stabilize, but that is a lot longer and more difficult road because of the amount of debt that is coming due over the next three years.”
He said unwinding commercial mortgage backed securities, or CMBS, would be more complicated than resolving the failed savings and loans deals from the late 1980s and early 1990s.
“In today’s world we [do not have] a ball of string knotted up. It is a very intricately and perfectly woven spider’s web. The problem with a spider’s web is that when you touch it to undo it, it shrivels,” he said.
Sturner, a founding principal of Murray Hill that bought a number of high-profile office buildings in recent years — but with relatively low first mortgages — was more hopeful.
“What is picking up is that we see real traction when [a tenant’s] lease is up and they need to move to a greater or lesser space — you need to move,” he said.
He said the dire predictions of a collapse of the market were not unfolding.
“We are seeing people understand that blood in the streets of Manhattan may not happen,” he said.
Within the last three months Sturner said his company has been negotiating three leases at 1180 Avenue of the Americas and two at 1250 Broadway as well as showing space to potential tenants at 1412 Broadway.
The divergent views are not a surprise. Swig has been fighting with lenders and partners at the condominium conversion project Sheffield57 at 322 West 57th Street and with lenders at 25 Broad Street. In an interview with The Real Deal after the panel, Swig declined to comment on Sheffield57 and 25 Broad Street, but said, “The only two projects that we’ve got that are active in terms of not completed and stabilized, are 25 Broad and Sheffield57.”
Swig said the secondary debt market had become the center of real estate today, because the note holder can control the ownership of a property against the wishes of the owner.
“The entry point, the pressure point, the fulcrum, however you want to describe it, for real estate today, is through the debt capital markets,” he said.
In response, he said he expects pro-borrower language to be inserted in mortgage documents in much the same way that pro-lender clauses were introduced after lenders were burned by bankruptcies in the downturn in the early 1990s.