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More signs of life evident all over.

While the real estate market is far from robust, there is a heartbeat and a pulse and the patient's condition is slowly improving. Commercial values are not where they should be, but leases are being signed and some of them are significant in size. While apartment prices are still below expectation, there is a growth in volume and an increase in interested buyers is pushing up prices somewhat. Financing is still difficult to get, but multi-family properties are gaining in favor with lenders.

REW spoke to professionals in each sector of the industry to find out about their frustrations and the silver linings that they see.

Residential Buildings Still Feel Fallout

Margaret McAdams, a senior property manager at Bellmarc Management, which manages 30 co-ops and condos in Manhattan and Brooklyn, said residential management has changed because of the way the economy has suffered. "The buildings are still feeling the fallout of that," she explained.

Some of those problems are directly attributed to lender and financial issues.

"Having your banks as owners is a new thing," she said, with the managers dealing with institutions rather than people. "When the bank falls behind, it's not just calling up Mr. Jones or sending lawyer's letters. It takes a lot of the personal level out of it." McAdams observed the owners lists now contain names of various banks because there are more bank foreclosures. In a co-op auction, the banks and buyers know the transfer is subject to board approval, she said. In the case of a condo auction, however, the board doesn't have much of a choice when it comes to an owner. "All you can hope for is they are a good payer," she said. "You have to live with them."

McAdams has observed an increase in the resale activity but prices are not as expected. "All these people who have been holding onto apartments have given up," she said. While there are more transfers going on many of the boards are disappointed with the sales prices. "If they could, they wouldn't sign off on the right of first refusal," she observed because the low prices will bring down the appraisals on the building.

Sales Volume Rises

On the sales side, Elizabeth Stribling, president of Wells & Gay/Stribling Associates, said the brokers are busier than ever with the volume of sales steadily increasing. "In many instances," she said, "we have two buyers bidding on the same properties and is driving up the price."

Stribling advised these are not old tired listings or small units but new large family apartments coming on the market in prime locations. "If a new property is well priced we are seeing transactions within two weeks," she said.

She is seeing more responses to ads with Wall Street people back in the market in a strong way. The firm is also seeing first-time buyers with double incomes who haven't been able to buy because prices were too high. "Prices have come down 30 percent, the interest rates are low and the confidence is back," Stribling explained. According to Lawrence Properties' Director of the Rental Division Joel S. Herskowitz, rentals are in short supply with inventory at a 10-year low. As a result, Herskowitz said, almost every major owner has reduced or eliminated the brokerage fees.

The tenants, however, are lagging behind the times. Herskowitz said, "Most customers come in and all they know is that it's a recession and they think landlords are suffering and have to accept reduced prices and they won't have to pay a fee."

Multi-Family Bargains Multi-family owners are back in the market in force, hoping to find a building with high returns and not too much downside.

Austin K. Haldenstein, senior vice president at Vandenberg Real Estate, said he is seeing more interest in buying to create new units for rental and not so much for their conversion potential. In the firm's Upper West Side territory, which runs from Lincoln Center to Columbia University, when buildings are vacant but need work there is more interest.

In some cases, the properties are vacant because the owners passed away or the owner has given up the building and the building needs work, Haldenstein explained. Owners of other rental units are creating more rental units from these properties. "These renovators feel they can make out," Haldenstein explained. "The rental dollars will cover the renovation."

Among those already operating rentals who are seeking new properties to add to their portfolio is Gerald Pindus, president of TedPin Realty and U.S. Energy Controls, which designs equipment to monitor boilers and other systems. Pindus is currently obtaining a line of credit so he will be ready to buy a building in what he deemed 'a moment's notice.'

"I am looking for returns of 15 percent and that doesn't exist," he confessed. "I may never find the building but I want to have the money at the ready." Pindus said the banks took back a lot of property and should be getting rid of it. "But so far I haven't seen any bargains," he added.

Another issue of concern for owners is water metering and when Pindus spoke with REW from his car on the way to the Community Housing and Improvement Program (CHIP) meeting last week, he and owner Herbert Donner were discussing how to save water. Pindus said his newest U.S. Energy Control equipment is adaptive to water meters.

Another problem for owner-sponsors is the drop in value of cooperative units. Pindus just bought a co-op apartment he had converted and sold for $120,000 in the 1980's for $14,500 from the lender. "The bank took a horrible beating and doesn't even care what happened," he said. But Pindus doesn't even believe he'll make out at that low price.

His 1960-era buildings are currently fetching rents of $600. "I was asking $650 and they weren't going," he said. "Now I'm starting to think about putting in new kitchens."

Commercial Brokers Active

Commercial leasing brokers are finding encouraging signs of recovery in Midtown where there is positive absorption. Availabilities were at around 16.4 percent or 31 million square feet in May, down from around 17.5 at this time last year, according to analysis by the Edward S. Gordon Company. Meanwhile, the city's "B" buildings and Downtown are still mired in rough times. Last month, Downtown experienced a negative net absorption of 262,000 square feet, which resulted in an availability rate of 22.8 percent or 20.8 million square feet, according to the same analysis.

Much of this year's Midtown activity has occurred on the Avenue of the Americas(Sixth Avenue) corridor and at Rockefeller Center, which has signed a significant number of renewals, according to MaryAnne Tighe of the Edward S. Gordon Company, Inc.

A number of major tenants that were shopping the market have also made decisions, Tighe said. MasterCard just made a 300,000-square-foot-plus commitment at 1345 Sixth in the Burlington Building.

Other significant leases in the last six months include: Patterson Belknap Webb & Tyler at 1133 Avenue of the Americas; Cushman & Wakefield at the CBS Building on Sixth Avenue and Chadbourne and Parke at Rockefeller Center.

Downtown buildings and older properties, Tighe said, I have been hit by the "flight to quality" phenomenon where tenants are able to upgrade their accommodations without increasing their cost a great deal.

"Midtown Manhattan has stabilized," said Josh N. Kuriloff, director, Cushman & Wakefield. "It is no longer a moving target."

The days of high construction allowances and rental abatements are over, Kuriloff said. And there is a definite shortage of large blocks of space, forcing major users who are on the sidelines to get into the game. The major users then serve, as an impetus for smaller tenants, he said.

But, Kuriloff said, as a broker, his "world works on employment growth," and the prospect for that is currently dim.

"What two people did is now being done by one person," he said.

In addition to leasing, there is a feeling that now is the time to buy real estate as well.

"If you're a player, now's the time," said Scott Latham of Eastern Consolidated Properties.

Activity, Latham said, has picked up dramatically and prices are as attractive as they've been in five years. If we are not at the bottom, he said, we are very close.

In Midtown, he said, buildings, it seems, are being purchased by users who are taking advantage of the market, including CBS for David Letterman, Bank Caripto, and Banca de Roma. In the depressed Downtown market, he said, there is pure investor activity and good prices. Recent sales have included: 40 Wall Street by a Hong Kong Investor for roughly $5 a foot and 25 Broad Street by Arthur Shapolsky for roughly $11 a foot.

"Those properties are primarily vacant, very speculative in nature," he said. "All but 40 Wall went to investors that were just speculative."

There is also a.surge in sales of well-located multi-family properties with elevators.

Latham said there will be some more commercial product and bigger properties coming on the market because foreclosures are happening more quickly and banks are becoming more acclimated to the ways of the real estate market.

What's an Owner to Do?

Many Commercial owners are finding that they must be willing to offer some immediate relief to their tenants if their properties are to stay occupied and above water.

George Rozansky is head of industrial Property Management for Arco Properties, which owns and operates Atlas Terminals, 1 million square foot light industrial/warehouse/office complex in Queens. Many of his tenants, he said, have high receivables, but they are waiting in line to get paid from their customers who are having their own difficulties. Often. he said, the tenants have had to "cut deals" and take significantly reduced fees for their merchandise or service. The bankruptcy filing by Macy's hit a number of tenants.

As a result, in the past few years, on a number of occasions, Arco has "worked" with a number of tenants by renegotiating their leases, taking back some space, switching their location within the complex or deferring arrears for a later date.

"If the landlords are going to survive, they can't deny the tenant a place in his business," he said.

But, Rozansky said, while they want to be sensitive, they are in the business of real estate and they can't "give away the candy store." Therefore, Arco insists on seeing tenant business plans and financial documents, so the owner can ensure that the tenant is going to be in existence for the remainder of the lease.

"They open their books to us basically," he said.

Sandra M. Kerin, vice president Sage Realty, which owns six office buildings, said value is the theme of the day. "Our biggest challenge is to keep up the quality of our properties with [rental] rates going down," she said.

Kerin they are "thinking' smarter" and getting costs down without sacrificing quality. "We go back to our contractors and see that they have found all the efficiencies in their prices," she said.

Rental rates have stabilized, she said, but are very competitive particularly because there is a lot of sub-lease space going for below-market rents.

The World Trade Center explosion in February has heightened safety concerns and led to some soul searching for commercial property managers. The Building Owners and Managers Association and the Real Estate Board of New York have joined with the New York City Building Department and the Fire Department to examine existing municipal codes like Local Law 5, covering fire safety in high-rise buildings, and Local Law 10, covering elevator and other structural inspections, and the Americans with Disabilities Act -- to ascertain if they are adequately protecting tenants.

Matthew Duthie, assistant director of Property Manager, Koeppel Tener Riguardi, said he expects the committee will find some modifications are needed.

Not Much to Build On

While new private-sector development has slowed, government corporations signing new leases in better buildings are making work for interior architects and contractors.

"Many tenants are taking advantage of the market," said Ted Moudis, principal, Ted Moudis Associates, an interior design/space planning firm.

Meanwhile, he said, a number of securities firms and banks are doing some renovations.

"There is a decent level of activity in the public sector and in the interiors field," said Richard Kielar, senior vice president of Tishrnan Realty & Construction Co., Inc.

The company's newest contracts, Kielar said, include construction management for Curries Woods housing in Jersey City, construction consulting for the new Atlantic City Convention Center, and construction management for a major airport facility in the Northeast. Interiors projects in Manhattan include trading floors for Chemical Bank, fit-outs for Bankers Trust and offices for New York Telephone and Amalgamated Life Insurance Company.

On the lending front, multi-family housing continues to be the choice for underwriting by traditional capital sources.

Mel Bisgyer, who recently joined Marie Capital, said this property class is comprising the bulk of lender activity today the only activity today because it is the one type that gives lenders a real feeling of confidence.
COPYRIGHT 1993 Hagedorn Publication
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:Mid-Year Review & Forecast, Section I; evaluation of commercial 1993 New York, New York real estate market; includes comments from industry professionals
Author:Weiss, Lois
Publication:Real Estate Weekly
Date:Jun 23, 1993
Words:2189
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