Although many end-of-the-year residential and commercial real estate sales reports have yet to arrive, a new year grants the license to look back and evaluate how predictions and prognostications made last year panned out over the past 12 months.
Many of the experts The Real Deal talked to last year had a bleak outlook for 2009 — and rightly so. But others missed the mark, either with too-optimistic predictions for recovery or overreaching pessimism that — if it’s possible — actually overstated how devastating the market would ultimately prove to be in 2009. Here, The Real Deal looks back at some of the top claims and predictions made in the beginning of last year to see who hit the nail on the head and who missed the mark.
“I think that’s a pretty safe bet that we are going to get a vacancy rate of about 12 percent [in Manhattan]. Hopefully, it doesn’t go worse than that.”
Riguardi was pretty on target, at least in Manhattan. The vacancy rate in that borough hit 11.1 percent by the end of the third quarter. This spike in empty space marked a five-year high vacancy rate for Manhattan offices.
Even still, Manhattan fared far better than the rest of the nation.
“Those properties that are in fringe neighborhoods are not going to do as well [in the downturn].”
Capoccia’s prediction proved mostly true. In Manhattan, Harlem condos were “in deep doo-doo” by the middle of the year, according to veteran Harlem broker Willie Suggs. The southern part of Harlem saw its average price per square foot on residential properties drop by approximately $100 to $200, from $800 during the pre-recession high, according to Stephen Kliegerman, executive director of development marketing at Halstead Property. The neighborhood was home to headline-grabbing bad news in 2009, with Riverton Apartments ranking as the biggest new commercial mortgage delinquency in the U.S. in November, and the famed Bailey Mansion selling at 90 percent below its original asking price.
Battery Park City and the Financial District, meanwhile, suffered the curse of high inventory due in part to the decimated Wall Street community.
In Brooklyn, neighborhoods such as Bedford-Stuyvesant, Canarsie and East New York continued to see foreclosures stack up through the recession, although industry experts say mortgage defaults were common long before the financial downturn.
Some fringe neighborhoods in the borough, however, have begun to find their footing again. Industry experts told The Real Deal that Park Slope began to see more activity in the last few months of 2009. The Real Deal also found that the neighborhood has had little exposure to distressed development over the past year.
Frederick Peters, president of Warburg Realty:
“I think [the industry] will shrink in every way [in 2009]: closing offices, letting staff go, letting agents go, and agents will be leaving the business because they can’t make ends meet.”
Peters was right on the mark. The New York City real estate (excluding construction) and insurance industries lost a combined 6,500 jobs between September 2008 and September 2009, according to a report from Colliers ABR, which combines the two industries in its reports. Although this was hardly the most embattled sector over the last year (the same report shows that the securities and manufacturing industries lost 21,000 and 12,400 jobs over the same time period, respectively), the brokerage world felt the heat of a bad market.
“The tippy top of the market will not be as affected because those sellers have the financial wherewithal to wait out a lousy cycle.”
Unfortunately, a group of industry insiders told The Real Deal otherwise in November, with some even arguing that multi-million dollar properties, including those in the $10 million to $20 million range, actually suffered the most this year.
“Over $10 million has definitely been hit hard,” Neil Binder, a principal with Bellmarc Realty told The Real Deal in November. Binder said that while many high-end property owners thought they could ride out the recession and wait to sell, the length of the downturn forced many hands. “It was one thing when the catastrophe happened, but as their bank accounts get lower they are feeling more pressure.”
As a result, many high-profile, high-valued Manhattan properties saw massive price chops to attract buyers, including one unit at the Palazzo Chupi that closed for $10.5 million — 67 percent off its original asking price, as The Real Deal noted in November.
“After [the 2008-2009 holidays], there may be a bloodbath with retailers both large and small leaving spaces, consolidating or renegotiating their leases.“
Paris was right, for the most part, as many mom-and-pop type shops shuttered over the past year. But even so, the initial vacancy rate, and subsequent decline in rents in early 2009 left open plenty of room for big-box retailers to make their move. By April, BJ’s Wholesale Club had announced that it was opening up locations in Canarsie and Flushing, while Costco’s opening at the East River Plaza in East Harlem in November marked the first of several big box tenants coming to the center, including Target, Best Buy, Marshalls, PetSmart and Old Navy.
Meanwhile, big name chains such as Raymour & Flanigan and Kohl’s began taking advantage of the lower rents in the second half of the year. Pop-up shops also helped sop up the glut of surplus space in the downturn, at least on a temporary basis.
Additional reporting provided by Victoria DeCarmine, Lauren Elkies, Adam Pincus and Candace Taylor.