The Daily Dirt: The black hole of office valuations

TRD on the problem with pricing and how Signature loan sales could change it

The Daily Dirt Digs into Standoff Between Buyers and Sellers
(Illustartion by Kevin Rebong for The Real Deal)

Even in the best of times, buyers and sellers can struggle to agree on the value of a property. But these are not the best of times, and the New York City real estate landscape is murky at best. Valuations are in flux and uncertainty reigns.

The main reason, senior reporter Keith Larsen writes, is that deals are down. As a result, buyers and sellers have fewer comparable sales to look at when gauging value.

Yes, there are other useful metrics for appraisers, lenders and investors. Occupancy, rent growth and cash flow, for example. But those statistics don’t take the future into account.

In real estate, as in everything else, it’s all relative: People don’t want to overpay or undersell relative to what other buyers and sellers are doing.

The lack of clarity is plaguing all corners of the industry, but it’s at its worst for office. NYC office sales are half of what they were last year. To make matters worse, some landlords have opted to return buildings to lenders rather than face discounted offloading. That handoff, sometimes handled via deed in lieu of foreclosure, removes a key data point in the quest for comparable sales.

There are chances for discovery on the horizon, though.

The impending sale of Signature Bank’s $33 billion commercial loan book is a potential game-changer. Bidders are expected to discount loans by 15 to 40 percent, resetting commercial property values in the city.

Blackstone, KKR, TPG and Goldman Sachs are among the heavyweights eyeing this colossal sale, which spans office, retail, hotel, and multifamily properties — though interest in the pools of loans secured by rent-stabilized buildings is all but nonexistent.

Unfortunately for office owners, 15 to 40 percent could be conservative. A recent drop in valuation for RFR and Kushner’s Dumbo office complex paints a grim picture. The four Brooklyn office buildings have lost 68 percent of their value since 2018, according to a Trepp alert reported by Commercial Observer, reflecting the broader challenges facing landlords.

The industry may be desperate for price discovery. But somebody, either buyers or sellers, is likely to be unhappy with the answer. I know whom my money is on.

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What we’re thinking about: What will it take to establish firm price points for New York real estate?

Send a note to david.westenhaver@therealdeal.com.

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Residential: The priciest residential closing Friday was $8.6 million for a condo at 90 Furman Street in Brooklyn Heights.

Commercial: The most expensive commercial closing of the day was $5.8 million for a building at 29-15 40th Road, Queens.

New to the Market 

The priciest residence to hit the market Friday was a townhouse at 313 West 102nd Street on the Upper West Side asking $9.5 million. Douglas Elliman has the listing.

Breaking Ground

The largest new building filing of the day was for a 6,300-square-foot, six-family residence at 271 Van Duzer Street, Staten Island.

A thing we’ve learned: Andrew Carnegie was one of the richest Americans in history. His name is all over New York, thanks in part to his generous charitable giving. But he wasn’t always a high earner. As a kid in the mid-1800s, Carnegie worked at a cotton factory in Pittsburgh, earning $1.20 for a 72-hour work week. Adjusted for inflation, that’s 63 cents an hour.

Elsewhere in New York

— Rep. George Santos will not seek re-election. The news came after the House Ethics Committee revealed the Long Island Republican may have violated federal law by fraudulently exploiting his candidacy for his own profit. The New York Times reported that Santos allegedly spent donor money on luxury brands including Ferragamo, Hermès and Sephora, not to mention “smaller purchases at OnlyFans,” a website known as a marketplace for content creators selling explicit content.

— New York City Council member Inna Vernikov is set to be cleared of a gun possession charge, according to The City. The Brooklyn district attorney’s office decided to drop the charge after discovering the gun was supposedly “inoperable.” Vernikov was photographed with the firearm on her hip at a pro-Palestine demonstration last month. Carrying a weapon at a protest is illegal in New York, but only if it is in working condition.

— After several years in the city, startup Revel will be removing its signature blue e-scooters from the streets, Gothamist reported. The New York-based company will focus on its more standard ride sharing. Did you ever ride one of Revel’s electric blue scooters?

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