It must have been a very bad dream…

By Michael Stoler | December 29, 2009 03:15PM

It must have been a very bad dream, which lasted the entire year. Yet it actually happened: little or no activity took place in commercial real estate in 2009.  

For those investment sales brokers who were so busy in 2006 and 2007 making mucho dinero, 2009 was a time to travel to Bora Bora for a vacation since business was nonexistent.  

A leading sales broker, who preferred to remain anonymous, shared his struggle over the past year.

“I was lucky,” he said. “I had one sale during the year. It was the sale of a retail condominium in the Village. Two years ago I was the broker of the year at my firm and now I have enough to pay for Starbucks.”  

Another senior investment broker didn’t sound any more optimistic.

“I thought I would end the year with a sale of an office building in Midtown, but the special servicer said no to the borrower,” he said. “I will try next year or look for a new occupation.”

There are plenty of vacant and abandoned development sites throughout the five boroughs. These sites can make way for development of apartment, office and hotel properties. But try to locate a lender who is willing to offer a developer financing for a new project.  

When you seek financing for a residential rental or condominium project in the city, the answer is the same, “no money for residential development.”  

Jeffrey Levine
, chairman of Douglaston Development and Levine Builders, said on my most recent television show: “No new construction projects began in 2009 and it looks like none will begin in 2010.”

In the world of residential rental buildings, for a number of years, the landlord was king. Tenants had to pay brokerage commissions for apartments and hope that they would be approved to pay the non-negotiated rental price. Fast forward to 2008-2009, when the landlord offered a new tenant, one to three months free rent, a reduction in monthly rental charges between 10 to 30 percent, as well as payment of brokerage commission and free health club membership.  

It was only a few years ago that people would wait in line to purchase a new condo unit. There was no need to see a finished product, just show me the plans and I will sign on the dotted line. That was not the story in 2009.

“To sell an apartment, the purchaser went to see an actual completed apartment in a building which is ready to be occupied,” David Kramer, a principal of the Hudson Companies, said.

Everyone wants to own an office building in Manhattan, but while it was in vogue a few years ago to seek an office building with few if any tenants, such buildings are the worst possible assets to own in New York or New Jersey today.  

Bear Stearns, AIG, Lehman Brothers, Fannie Mae were once considered credit tenants, the cream of the crop that owners of office buildings would fight for. In 2009, the term credit tenant no longer existed since companies like those noted are no longer in business or owned by the government.

Everyone wanted to buy land for residential development in 2006 and 2007 with Irish, Israeli and domestic investors paying prices of up to $450 per developable foot for empty lots. As we enter 2010, most residential developers are not interested in owning undeveloped land for even as little as $50 per foot. In addition, no bank would even finance the purchase of raw development land this year.

It was just a few years ago when the office buildings at 26 Broadway sold for $375 per square foot. A few months earlier, the price was $345 per square foot for the office building at 14 Wall Street. Fast forward to 2009 with the sale of the AIG buildings on Wall and Pine streets at $100 per foot, and this month the contract for JPMorgan Chase’s building at 4 New York Plaza at $97 per foot.

Can you imagine that it was October 2007 when New York-based Somerset Partners forked over $509 million for the office building at 450 Park Avenue, the most ever paid for an American office tower on a per square foot basis. It was $1,566 a square foot for the 325,000-square-foot tower. It is hard to believe that no office building in New York City sold for an amount higher than $381 per square foot this year. That price was paid by a joint venture of IDB Holding Corp. In another deal, Joseph Cayre paid $330 million for the HSBC Tower at 425 Fifth Avenue.

Enough with my negative and pessimistic comments about 2009. The stars are aligned for a new year for commercial real estate. There is more money available; there will be a return to securitization and the world appears to be getting better. Nevertheless, I am holding my lucky rabbit foot in both hands for 2010.

See you next year.

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


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