The Daily Dirt: Real estate and interest rate cuts

By Kathryn Brenzel | August 01, 2019 01:45PM

The Fed cut rates for the first time in a decade. Here’s what it means for real estate. 

For the first time since the 2008 financial crisis, the Federal Reserve on Wednesday reduced interest rates “in light of the implications of global developments for the economic outlook as well as muted inflation pressures,” the Federal Open Market Committee said in a statement. (Translation: The cut aims to help soften the blow of the U.S.-China trade war and other factors contributing to a global economic slowdown).

The quarter-of-a-point cut could further spike borrowing, especially among those looking to refinance at a lower rate — such as buyers who borrowed last year when rates were (gasp!) near 5 percent. Mortgage rates are already on the decline, hitting a near three-year low last week at an average 3.75 percent. Greg McBride, Bankrate.com’s chief financial analyst, told the New York Times that mortgage rates stay ahead of the Fed, so rates have already been sliding due to widespread expectations that cuts were on the horizon.  

The quarter point reduction likely won’t make a dent on construction lending in New York City, Keith Larsen reports. Construction, labor and land costs continue to rise, so the impact of a quarter of a point on borrowing costs likely isn’t going to make or break deals surrounding new development.

For commercial developers, a rate decrease could portend a downturn. And as noted by Heidi Learner, the chief economist at Savills: “As a developer, do you really want to be borrowing at the top of the cycle?” 

Vornado Realty Trust is debt free! At 220 Central Park South, that is.  

Though Vornado’s struggling retail properties put a damper on its second quarter earnings call, the real estate investment trust also announced that it paid off a $950 million loan it got from Bank of China for the Billionaires’ Row tower. With a projected $3.25 billion sellout, the developer stands to pocket some $2 billion.  

“There is two-odd billion dollars coming out… with no debt requirements,” Michael Franco, Vornado’s chief investment officer, said during Tuesday’s earnings call. “That all comes into our treasury.”

Despite a sluggish luxury market, the developer has sold 23 units for $690.8 million since January. All told, Vornado has closed on 38 units for $1.03 billion, E.B. Solomont reports. The REIT has indicated that the proceeds from the condo tower will be reinvested in its Penn Plaza area projects, including the redevelopment of One and Two Penn Plaza. 

What we’re thinking about next: Why did co-living startup Bedly shut down? What do landlords who have worked with the company think of its sudden closure? Send a note to [email protected]

CLOSING TIME
Residential: The priciest residential closing recorded on Wednesday was for a condo unit at 220 Central Park South in Midtown, at $26.7 million.
Commercial: The most expensive commercial closing of the day was for a parking garage at 62 Mulberry Street in Chinatown, at $18.8 million. 

BREAKING GROUND
The largest new building filing of the day was for a 16,170-square-foot residential building at 159 Lott Street in Flatbush. Allstate Developers filed the permit application. 

NEW TO THE MARKET
The most expensive residential listing to hit the market was for a condo unit at 150 East 72nd Street in Lenox Hill, at $6.9 million. Engel & Volkers’ Robb Maximillian Saar has the listing. — Research by Mary Diduch

A thing we’ve learned…

John Banks, the former president of the Real Estate Board of New York, and the Durst Organization’s Jordan Barowitz share a birthday! (It was Tuesday). Thank you to Georgia Kromrei, who brought this to The Daily Dirt’s attention. And a happy (slightly belated) birthday to John and Jordan!

Top stories from our other markets:

NATIONAL
Inspired by the fall of the housing industry during the recession, real estate investor Grant Thompson built a career on YouTube trying to explain how the world works. Thompson, who created “The King of Random,” died at 38 in a paragliding accident in Utah.

CHICAGO
A private Lincoln Park grade school is buying up condos in an adjacent building, kicking up protests from neighbors who fear it may be part of a long game to take over surrounding properties. The Francis W. Parker school paid about $1.8 million for two units in the 15-unit building. It also made a $19 million offer for the adjacent 19-unit building.

LOS ANGELES
Could a new rezoning plan hit the gas on the gentrification of Skid Row? It’s more like a very slow release of the brakes. Last month, when the city dropped its DTLA2040 — a plan for the comprehensive rezoning across Downtown L.A. — activists jeered while developers simply shrugged. For homeless advocates, it goes too far. For developers, it doesn’t go far enough.

MIAMI
Russian developer Vlad Doronin closed on the largest office construction loan in South Florida this year for a new tower in Brickell. The private investment firm of billionaire Michael Dell provided the $300 million loan. Construction is underway on the 724-foot-tall tower, the first major office building built in the city’s urban core in a decade. — Compiled by Alexi Friedman