The worth of city buildings is sinking under the burden of high interest rates, crippling regulations and huge vacancies attributable to work-from-home and pandemic downsizing.
Many properties at the moment are price not more than their debt, they usually’re still not selling. In keeping with the Real Estate Board of Latest York, sales in 2023 were the bottom since 2009.
“Most buildings are price less now than a yr ago, if only by virtue of the rise in cap rates and interest rates,” said Michael Cohen of Williams Equities. Furthermore, trillions of dollars in debt will soon come due, warned Rob Gilman, CPA and co-leader of Anchin’s real estate group.
On this pivotal time, the recent sales of $60 billion in failed Signature Bank loans — the biggest in history with hundreds of properties — might be liquidated over the following several years, providing guidance on latest market values. Doug Harmon’s team at Newmark handled that deal.
“We’re within the early stage of a reset of property values,” said Peter Braus of Lee & Associates NYC. “In 2024, we’ll see the acceleration of the difficult environment for owners who’ve been treading water.”
![Exterior of the Roosevelt Hotel.](https://nypost.com/wp-content/uploads/sites/2/2024/01/roosevelt-hotel-45-e-45st-74394892.jpg?w=1024)
While many house owners “are tied to lower values and high loans,” in response to Andrew Scandalios of JLL, opportunities abound for buyers ready, able or willing to transact. James Nelson of Avison Young noted that those are inclined to be foreign buyers and sellers.
One of essentially the most significant buildings set to hit the market this yr is the Roosevelt Hotel at 45 E. forty fifth St. Its owner, the federal government of Pakistan, is hiring JLL to make the deal.
On the buy side, a Monaco-based family office paid $38 million for 144 Fulton St., which is leased to the world’s largest Chick-fil-A. Japanese coffee company, Geshary, spent $38 million for 520 Fifth Ave. The Mori Trust Co. of Japan paid $998 million for a 49.9% stake in 245 Park Ave. And Korea’s Hyundai Motors spent $22.5 million for the Liberty Inn at 500 W. 14th St. and $275 million for the brand-new 15-17 Laight St. space.
“We built an irreplaceable asset, and the worldwide market received it extremely well,” said Richard Coles of Vanbarton, the Laight Street developer.
The marketplace for multi-family apartments with regulated rents is stalled because renovations are limited to $15,000 per decade, which “barely scratches the surface” of maintenance costs, said Ben Tapper of Lee & Associates NYC. Nevertheless, Nelson said several such buildings have been sold to Japanese buyers “who can take a long-term view.”
“Many buyers have left the market, and the remaining are going bargain hunting and never buying unless it’s a steal.”
Adelaide Polsinelli of Compass
Empire State Realty Trust (ESRT) sold office buildings in Westchester and to comply with the so-called IRS Section 1031 tax exchange rules, took the proceeds and purchased retail buildings in Williamsburg and a luxury apartment building at 298 Mulberry St.
“For a 1031, you may acquire inside the time-frame — but be prepared to overpay,” said Anthony Malkin of ESRT. “Be content with the very fact you acquire the perfect and, over time, it would retain the perfect value.”
But not all are so lucky. Some large institutional owners are simply giving up and “handing back the keys to the lenders,” said Woody Heller of Branton Realty. “We’re accustomed to people doing what they should do to purchase time with the lenders, so this can be a fundamental shift within the marketplace.”
That’s what happened on the office building at 300 E. forty second St. at Second Avenue. That building’s greater than $100 million loan is being marketed by JLL. More dramatic, in 2014, Blackstone bought 1740 Broadway for $608 million with a $308 mortgage. Tenants left, it’s price $175 million and JLL will sell for the lender.
Meanwhile, ground leaseholders have walked or could also be forced out of office properties where office rents cannot cover costs. Just take a look at Shorenstein, which paid $330 million in 2015 for the leasehold at 1407 Broadway on land owned by the Goldmans. Its $350 million loan went to special servicing in November.
![Interior of 1740 Broadway.](https://nypost.com/wp-content/uploads/sites/2/2024/01/cuozzo-1740-18274997.jpg?w=1024)
When will things improve? “Possibly in 2026,” said Greg Kraut of KPG Funds. “That’s a protracted time, so it’s very difficult.”
But some owners are beginning to see light at the top of the tunnel they usually are waiting. “People have a compelling reason to think rates are happening, so only a couple of are still transacting,” observed Bob Knakal of JLL.
Still, you will have to be “a very smart analyst and appraiser to read the tea leaves,” added Adelaide Polsinelli of Compass. “Many buyers have left the market, and the remaining are going bargain hunting and never buying unless it’s a steal.”