Buyers, brokers split on Manhattan office leasing future

New York /
Oct.October 15, 2009 03:28 PM

While several of the city’s top brokers said the leasing market is approaching a floor for the current down cycle, potential office building buyers are preparing for years of further rent declines, real estate experts said at a forum this morning.

“This is a unique city. It is at the bottom or close to [it],” Bruce Mosler, president and CEO of Cushman & Wakefield, said of office leasing in Manhattan. He was on a panel organized by business publisher Bisnow at Cooper Union.

But just half an hour earlier at the same event, Michael Fascitelli, president and CEO of landlord Vornado Realty Trust, said potential buyers of office buildings were not predicting rents to increase for several years.

He said that expected annual rent increases during the boom years, which were as high as 15 percent, are now at zero. And they could remain at zero for years. He added that to buy a building, a purchaser has to forecast a rent increase at some future time.

“You have to be willing to bet that rents will go up at some point. Whether it is three years [or more], nobody knows,” he said.

The divergent expectations underscore the different interests between a broker, who wants to encourage leasing activity with evidence that the market is stabilizing, and buyers who fear purchasing too early and getting burned by further rent declines.

Mosler spoke on a five-person panel that also included Andrew Jonas of Goldman Sachs; Winston Fisher of Fisher Brothers; Jonathan Mechanic of Fried, Frank, Harris, Shriver & Jacobson; and Mitchell Rudin of CB Richard Ellis.
The panel was moderated by Iryna Lomaga Carey, of law firm Cole, Schotz, Meisel, Forman & Leonard.

Fascitelli spoke before the panel, in somewhat blunt terms, about the market and Vornado. He said the models used to predict rents in the future were often flawed.

“I mean we do these exhaustive computer models and you are predicting things and they are absolutely never right. It is a bunch of crock… like they have any clue what the IRR [internal rate of return] is going to be,” he said.

He also noted that his firm has been burned in the mezzanine lending business, noting that all mezzanine loan profits may be wiped out if their values are written down further.

“Over the course of time we were in the business, we generated an 18.4 percent return,” he said. “And then we got to have our first losses in the business, and the losses that we took, took that return down to 10 percent. If we were to take any more losses — and I have a few that are suspect children in that portfolio still today — it would basically get us to wipe out our profits entirely.”


Related Articles

arrow_forward_ios
Vornado's Steve Roth and 220 Central Park South (Credit: Getty Images, iStock)
Free and clear: Vornado pays off debt at 220 CPS
Free and clear: Vornado pays off debt at 220 CPS
Vornado chairman and CEO Steven Roth, and 608 Fifth Avenue (Credit: Getty Images)
“Negative surprises”: Vornado execs talk retail struggles on Q2 earnings call
“Negative surprises”: Vornado execs talk retail struggles on Q2 earnings call
Steven Roth, CEO of Vornado and 640 Fifth Avenue (Credit: Getty Images and Vornado Realty Trust)
Bank of China issues $500M to Vornado in refi of 640 Fifth Avenue
Bank of China issues $500M to Vornado in refi of 640 Fifth Avenue
SL Green cut the ribbon on One Vanderbilt Monday as business leaders push companies to return to the office (Credit: Jakob Kahlin)
Goldman Sachs, Wells Fargo leading $2.25B refi of One Vanderbilt
Goldman Sachs, Wells Fargo leading $2.25B refi of One Vanderbilt
From left to right: Gov. Andrew Cuomo, Tony Malkin, Larry Silverstein, Douglas Durst, Steven Roth and Bill Rudin. (Getty)
Vornado, Empire State Realty Trust pledge total carbon neutrality by 2035
Vornado, Empire State Realty Trust pledge total carbon neutrality by 2035
CBRE’s Darcy Stacom and Bill Shanahan; Cushman & Wakefield’s Doug Harmon and Adam Spies
Titans of the towers: TRD’s annual ranking of NYC’s top investment sales firms
Titans of the towers: TRD’s annual ranking of NYC’s top investment sales firms
Vornado’s Steven Roth and One Park Avenue (Getty, Vornado)
Here’s what tenants are paying at One Park Ave
Here’s what tenants are paying at One Park Ave
Photo illustration of Vornado CEO Steven Roth and Hotel Pennsylvania at 401 Seventh Avenue (Getty, iStock, Vornado)
“Inevitable”: Vornado will demolish Hotel Pennsylvania
“Inevitable”: Vornado will demolish Hotel Pennsylvania
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...