Michael Stoler — Commercial market is rebounding — or is it?

Some people are telling me that the recession is over and the real estate market is back. I worry that they are wearing rose-colored glasses.

To prove the point, just listen to John Catsimatidis, the chairman and CEO of Gristedes supermarket and United Refining Company, an independent refiner and owner-operator of 375 retail gasoline and convenience stores. “I am wealthier and financially stronger than I have been in my four decades in business,” Catsimatidis said. “Yet I am worried about the economy, and especially the state of commercial real estate.”

Catsimatidis is also the developer of a new residential rental building, the Andrea, at 218 Myrtle Avenue on the edge of Fort Greene and Downtown Brooklyn. Appearing on my show recently, he remarked that while units are renting, they come with concessions of up to two free months and at lower rents than he expected when he began construction in 2008.

James Orphanides, the president of Centurion Holdings and former chairman, president and CEO of First American Title Insurance Company of New York, who joined Catsimatidis on my television program, agreed with him, saying: “I am very worried about the economy and the real estate market. Many of our partners and investors are sitting on the sidelines, hoarding money, as opposed to taking risks on new business and real estate projects.”

Yet the big buzz about the commercial office market in New York City is that the market is coming back. “Our brokers are telling me that the market has rebounded in Manhattan,” said Brian Corcoran, global head of valuation and advisory services at Cushman & Wakefield. “Many companies are in the final stages of negotiating leases and finalizing on securing new space.”

But while many companies are signing leases, they’re for smaller and much more efficient office spaces.

Emanuel Stern, president of Hartz Mountain Industries, said: “If a firm previously occupied 100,000 square feet, the firm is probably now seeking at least 30 percent less space. The size of a partner office has been reduced, as well as the number of secretaries and executive assistants assigned to a professional.”

Indeed, one of the most significant trends in facilities management for industries such as accounting and consulting is “office hoteling,” which refers to a pool of offices that are assigned on an as-needed basis.

An excellent example is the global accounting and consulting firm Deloitte. As reported in the August issue of The Real Deal, the firm is searching for approximately 600,000 square feet of space. Prior to the advent of hoteling, the firm’s requirement for space would likely have been close to 1 million.

Meanwhile, federal and state banking regulators continue to close more and more banks. In one day last month, regulators closed eight banks, raising this year’s failed-bank tally to 118 so far. (Last year, a total of 140 banks failed, versus 25 for all of 2008.) And many of these banks are failing due to problems in commercial real estate mortgage financing.

Banking regulators are also tightening the regulations on local banks that have a significant percentage of their loans in commercial real estate.

Financial institutions like Hudson Valley Holding Corp. are raising or planning to raise additional capital to strengthen their balance sheets.

Hudson Valley Holding, the parent of Hudson Valley Bank, announced a net loss of $11 million for the second quarter, and a net loss of about $6 million for the six-month period ended June 30. In a press release, the company noted: “The second-quarter 2010 results reflect a significant addition to the provision for loan losses resulting from a decision by the company to implement a more aggressive workout strategy for the resolution of problem assets in light of sluggish economic recovery, continued weakness in local real estate activity and market values, and growing difficulty in resolving problem loans in a timely fashion through traditional foreclosure proceedings due to increased bankruptcy filings and overcrowded court systems.”

All this leads me to believe that while some optimism is warranted, we need to look at the market without rose-colored glasses.