Real estate markets: strong and steady? (Insiders Outlook).

As we move into the third quarter of this year, we find the overall macro-economic market mixed with both positive and negative symbols. Perhaps no better indication of the New York regional real market is exemplified than a look at the Morgan Stanley REIT index. In April, the index hit its high of 471.30 for the year, in comparison to a year before at 413. In early June, as the equity market began to stutter, the market retracted, but was up by 10% from the prior calendar year.

In New York City the real estate market as indicated by Archon Smith a national REIT, continued, like many other investors, to believe in the market and acquired 101 West End Ave. for approximately $413,000 per unit or $209 million. The price was achieved only after a local investor with institutional backing dropped the contract. Showing the dissonance in the perceptions of buyers and sellers.

Real Estate Analytics, a research company that tracks the beta between apartment properties bid and ask pricing weighs in with an interesting statistic when analyzing the Northeast apartment sale region. Looking at the calendar year to May 2002, its analysis indicates that the for sale properties are fetching an average of 92.7% of asking price with the statistic that the asking price and sale price are becoming closer connected whereas in the Spring of 2001 the index was down several points.

Perhaps, both these examples illustrate a common theme: Real estate professionals are becoming more at peace with the "new market." Despite negative corporate earnings reports, and the overall regional economy having the highest unemployment rate in 13 years, the real estate markets seem to be holding their value, with perhaps pricing having adjusted by single percentage digits downward. The author notes consistent "trickles" of positive macro-economic news. In June 2002, the services sector grew for a fifth consecutive month as weekly claims for jobless benefits fell to a fifteen-month low, ending June 29.

F. W. Dodge offers the following statistics further validating this trend. Residential construction contracts, reasonably adjusted this quarter, moved from $20 billion to $22 billion, up ten percent. Accounting for an approximately 10% aggregate amount of the national market, this statistic is certainly foretelling of what is occurring in the national marketplace.

We at Troutbrook, developers and a full service real estate firm, have had a busy quarter. In March of this year we sold 95 Delancey St., in Manhattan the property was an approximate 7,000-SF existing two-story taxpayer and future development site of 33,000 SF. The building has leases that are locked in for almost 4 years with a true return on equity of approximately 6%.

All involved in the sale, agreed that it was a very aggressive price to pay for what appears a below market return. On the development side we are about a month away from completing a 55,000-SF residential conversion in downtown Brooklyn to loft apartments. The approximate $15 million sell-out project had been approved in the first weeks of July by the Attorney Generals office. Eleven of the 31 units are going to contract, to pre-qualified buyers this month. We believe that one of our successes in this project was creating a unique product to the marketplace and its location, at the hub of the Atlantic Terminal, with almost 1.5 million SF of development having taken place.

Lastly, we are hoping to continue with our successes by executing a project on 135th Street and Canal Place in NYC. Though not yet zoned residential, we hope to create a mixed project of up to 300,000 SF of affordable housing with a retail component. As we are actively seeking retail and commercial tenants, this block front of land is attracting interest from a wide range of potential tenants, due to its immediate access to highways and bridges and only two blocks from the #4 IRT line. At present we are negotiating with several tenants to occupy ground floor space with parking for a 60,000 SF to be built structure.

What the future holds is unknown, though we continue to remain bullish on the real estate market. Many issues including the weak dollar may prove to be a hindrance to the economy and begin to cast a cloud on the real estate market. The 1.2 trillion dollars in home equity that now sits with consumers certainly continues to be tapped, albeit not at the levels of last year. In sum capital is prevalent in the marketplace however the question does bode are sellers and buyers ready to continue doing deals in a macro-economic market that clearly has a lot of mixed signals.