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Closing the bid-ask gap.

In 1991 property markets across the nation experienced the dramatic effects of a major correction. Nowhere were the effects as dramatic as in New York City, where values fell 3095 to 7095 below those of just 24 months earlier. As we enter the fourth quarter of 1992 this drop in values is beginning to show its effects in several notable ways.

Sales activity has increased dramatically as investors and users respond to this substantial fall in prices. Since the second quarter of 1992 a minimum of seven investor deals have occurred in Manhattan's Downtown market where $ rices per square foot now range from 13 to $35 and in some cases show double digit returns on existing cash flow with substantial upside potential. Notable examples include the purchase of 40 Exchange Place for $4,900,000 ($22.00 psf) which at its existing 50% occupancy had an actual NOI of $656,743 with a potential of over $2,000,000 upon a lease-up of the vacant space. 84 William Street which underwent a complete renovation in 1987 was purchased with68% occupancy for $3,900,000 ($33.00 psf) and showed an actual NOI of $790,000 with a potential of over $1,500,000. 116 Nassau Street was purchased by an investor and user partnership resulting in an immediate lease-up of 50% of this 120,000 square foot completely vacant building which was purchased for $1,500,000 ($13.00 psf).

Recent weeks have also witnessed a flurry of activity in the Midtown Manhattan market which interestingly enough is being dominated by users purchasing for their own occupancy. Notable examples include Mutual of Americas purchase of 320 Park Avenue from Olympia & York for $125 million ($198 psf), Bertelsmann A.G.'s purchase of 1540 Broadway from a consortjura of lenders led by Citibank for $119 million ($148 psf), Olympic Airways purchase of One East 42nd Street from Mutual Benefit Life for $7 million ($83.00 psf) and Hammerson Properties unique condominium conversion of 420 Fifth Avenue which has successfully sold 80% of its 550,000 square feet at prices ranging from $200 to $350 per square foot. In the last quarter of 1992 foreign investor activity in midtown has also increased with the purchase of 3 West 57th Street for $17 million ($298 psf) by a German group, 1776 Broadway for $12.7 million ($116 psf) by another German group and 10 East 53rd Street for $60 million ($172 psf) which was recently put under contract by an Italian group.

The collapse in values and the lack of replacement financing for mortgages now due are forcing lenders to foreclose and owners to file for bankruptcy protection in increasing numbers.
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Title Annotation:Review & Forecast, Section V; New York, New York real estate experiences collapse in prices
Author:Latham, Scott R.
Publication:Real Estate Weekly
Date:Jan 27, 1993
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