Recently, I read that in crisis, there is opportunity. While the person who said that may not have a mortgage to pay or a construction loan to collect, I can certainly appreciate that sentiment.
I’m also seeing it in action, albeit by a limited number of players who are actually well poised in the current market.
In last month’s publisher’s note, I mentioned how the Durst Organization usually likes to spend money when the market is down. It looks like that is exactly what’s happening with the current downturn, as The Real Deal Web site recently reported that Durst will be spending $300 million in the coming months to buy distressed properties. (So there are two things one can take away from this: 1) I was right. 2) Our Web site is a great place to keep abreast of real estate trends and news.)
The legends of New York City real estate take the long view of the market, meaning they understand that it always bounces back. So, for the cash rich, a down market is merely a sale.
But not all of us are flush with cash, and so the question is: How does one create opportunities without cash? The credit market is obviously of no help these days — we’ve seen building buys above $50 million come to a screeching halt. Our piece on page 128 about building sales shows in detail exactly why it’s the sector with the largest decline in activity in the city, and we supplement that story with a piece on how banks are backtracking on construction commitments and leaving developers in the dust, in some cases mid-construction (see Holding up funds for construction). These recent events have affected everybody; even Donald Trump is holding back on projects in New York. Check out our piece on the Donald’s developments on page 24.
One of the most heartbreaking and perhaps most informative books I’ve read about New York City real estate, outside of “The Power Broker,” is called “High Rise.” It’s a true story about the development of 1540 Broadway, which was started during the boom in the late 1980s and finished during the recession of the early 1990s. At the time, it was an extremely pricey development, with a $320 million price tag for construction; it ended up being sold in distress for only $120 million when it was completed, or a little more than a third of its construction cost.
Our Q&A this month shines some light on construction in the city, and some of our experts say that stories like “High Rise” are going to be abundant in the coming years. Some examples of halted construction are already appearing. Only a year ago, we wrote about how Miami’s skyline was made up of buildings and cranes. Today, those cranes are no longer there; instead, there are remnants of incomplete projects. I am not saying New York is in or will see the same situation, but it has happened here to a degree.
Also in this issue, we continue to examine the blue-chip firms and how they are faring in the downturn. This month, we look at Tishman Speyer as it faces some trouble at Stuyvesant Town and Peter Cooper Village, which Tishman bought in 2006 for $5.4 billion, a record price for a single real estate asset in the U.S.
The firm has so far managed to keep its head above water, unlike others. Company head Jerry Speyer is known to be a conservative player even though he has made some large-scale moves. But very much like the Equity Office Properties buy by Harry Macklowe, the Stuy Town deal for Tishman could be the deal that breaks its back. While several observers say Tishman is well positioned to weather a downturn, and has been resilient in the past, in the current market, no one knows what to expect anymore.
Finally, I’d like to mention that as a result of the shake-up in the media world recently, we’ve been fortunate to have added several new names. When the New York Sun shuttered, there were a few talented people there that we wanted to join us. Reporter Candace Taylor is well versed in the residential beat, and we are very excited to have her on staff. Michael Stoler’s access to the top brass in the real estate world has always provided his columns with authority, and we are especially happy to have him on board. We are also pleased to have James Gardner join us as our new architecture critic.
Enjoy the issue,
Amir Korangy