The real estate market has farther to fall before it rebounds, according to the panel of real estate experts who participated in The Real Deal‘s fourth annual new development forum on Sept. 10 at Lincoln Center’s Avery Fisher Hall.
The forum panelists included Larry Silverstein, president and CEO of Silverstein Properties; Charles Kushner, chairman of Kushner Companies; R. Donahue Peebles, chairman and CEO of the Peebles Corporation; Steven Witkoff, chairman and CEO of the Witkoff Group; Robert Knakal, chairman of Massey Knakal Realty; and Barbara Corcoran, author and founder of the Corcoran Group. Brian Sullivan, a Fox Business Network anchor, moderated the event, which drew nearly 3,000 attendees.
Read on for highlights from the panelists’ predictions for New York real estate over the next year. And log on to www.therealdeal.com to view all the video highlights from the forum in our Webcasts section.
Brian Sullivan: Look at where we are. I think that it says a lot about the prestige of this industry that we are a) holding this event here, and b) the fact that it’s a packed house. My first question: Is 2009 going to be interesting in the ‘Wow, we’ve really rebounded’ kind of way or the ‘Oh my gosh, things are really bad’ kind of way?
Steve Witkoff: New York City is a challenging marketplace today. I think it’s less challenging than any other market in the United States, but it’s challenging out there. It’s hard to get commercial leases done. I think it’s hard to sell apartments. I think the rental market is going to get soft, and it’s going to get soft in the tertiary areas, too. And yet, it’s better than any place out there.
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Sullivan: Larry, you’re obviously optimistic. You’re building new buildings, both commercial and residential. You and I spoke yesterday and you said, ‘Things are going to come back; I’m a believer in New York City.’ But [is there] any short-term pain coming?
Larry Silverstein: My sense is that if we’re not at the bottom of that condition, I think we’re close to it. But at some point, if people begin to feel there’s an opportunity for a rebound, I think you’re going to start to see capital coming in to the marketplace in a very significant way.
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R. Donahue Peebles: Right now, we all know on the commercial real estate side, credit is at a constipation level right now. There is no capital available for any major development deal in this marketplace. For capital, the faucet’s turned off, so who’s going to fill that? And the theory is, right now, Europe has a lot of issues. The currency spread is weakened, and so we’re not going to be as attractive as an investment right now.
Sullivan: Okay, so then Steve, if we are, as Don says, constipated, is the Fannie-Freddie takeover, with an ease of credit, the colonic that we all need?
Witkoff: Directly in answer to your question, I think the Fannie-Freddie thing is a great thing because people don’t buy a home in this country unless it’s financed. That’s the way people buy homes in this country.
Robert Knakal: For large-scale development, for a lot of development, capital’s not available. Or for institutional-type buildings that Steve and Larry are buying, it’s very, very difficult to finance them. But what we’re seeing, in the under-$50 million market, debt is plentiful.
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Peebles: I’m not working for my kids, and I’m not working for my grandkids. I’ll let them work for themselves. And also, I don’t want to deprive them, of course, of the excitement of the journey of working for it either. I’m working for a shorter horizon. So we’re looking for deals, and if we can’t see the end of the tunnel in three or four or five years, we’re not interested.
Knakal: If you look at what’s happened in the investment market, and particularly deals under $100 million, the volume is off by about 31 percent, but prices are only down by 5 percent. That’s not a buying opportunity. I think the buying opportunity will come probably later this year and into the first half of 2009.
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Barbara Corcoran: Now you’re some guy in Europe who wants to buy your eighth luxury home here in Manhattan for a nice little pied-à-terre. That guy is going to think a little harder, because he could have gotten it at 30 percent off last year, and now he’s only going to get 20 percent off. So does that devaluation of their euro affect our market? In a subtle way, it does. Whatever, though. There’s always another sucker that’s going to pay the money.
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Corcoran: I know very recently I bought a lousy building — nothing in these guys’ leagues, a little four-story building in the South Bronx. Why did I buy it? I don’t know the South Bronx. But I bought it with a schoolteacher who eats and breathes it, and they hustled me to get my money.
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Corcoran: Nothing against Red Hook, but against my own judgment, I bought the lemon in Red Hook, and it’s still not breaking even. And as we speak, we’re repointing the brick, replacing the boiler. I’ll never make money in Red Hook.
Sullivan: Will anybody make money in Red Hook?
Corcoran: Yes, of course. I just did a terrible purchase.
Sullivan: I think we should all give a round of applause for her honesty.
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Charles Kushner: You know, my son Jared bought 500 units in Harlem. He’s turning over apartments there that he got $700 in rent, [now] he’s getting $1,700 rent. Seventeen hundred dollars in Harlem is still not cheap.
Knakal: That’s why it’s such a travesty, the 421-a tax changes. The impetus for them was to create more affordable housing, and what they’re going to do is have the exact opposite effect. I think you’re going to look back at affordable unit creation in New York City 20 years from now and see a gigantic abyss in 2008, 2009, 2010, because the incentives to create the affordable housing just don’t exist now.
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Sullivan: Write the headline for real estate this time next year. What would it say?
Kushner: I think you’re going to see significantly more defaults, because we have a very low default rate on our debt. It’s not great news, but I think that’s when we’ll be at the beginning of the end. We’re not at the beginning of the end yet. There’s still more pain that’s going to be felt in the marketplace.
Compiled by Sara Polsky