NYC Commercial REIT's Fall
A: What took so long? Did they forget that commercial real estate was under severe pressure just like residential real estate was 16 months ago? Did they not know that the commercial sector was at high risk? Did they forget that Manhattan is a wall street city facing a wall street crisis? What happened?
I heard of a report from a Goldman Sachs analyst stating that commercial real estate prices need to fall 19%; but can't find the article online to use as a source. I'm looking for the article and will hopefully add shortly. The news is hitting REIT's hard, even when the markets were up this morning before the selloff.
Here is the 1-DAY charts for REIT's holding office space in Manhattan; Vornado Realty Trust (NYSE: VNO), SL Green (NYSE: SLG), and Boston Properties (NYSE: BXP):
*Courtesy of Yahoo Finance
The day is wild, with a 650 point range thus far, but these moves are worth noting. Similar to how I reported on the interconnected bond insurers stocks getting whacked way back in October of 2007's discussion "Credit Crunch: Part II":
"Holy Batman! Are you guys paying attention to what is going on with the mortgage insurance stocks; ABK, MBI, GNW, PMI, MTG, & RDN over the past week in conjunction with the selloff in the ABX Indexes? This sector is down betwen 10% - 45% in the past 5 trading days! This is important because these are the companies that are generally very highly leveraged, and may have trouble paying out claims for customers with heavy losses in the residential mortgage backed securities markets; the same market that I showed above as collapsing."Boy did these guys take over the headlines about three months later!
It would be narrow sighted to predict that Manhattan commercial real estate gets through this deflationary cycle unscathed. It is hitting everywhere, and our market tends to lag recessions and lead in recoveries. Considering that this is a wall street city facing a wall street crisis, we have some adjustments ahead of us.
Anyone in the commercial sector care to speak out on what you are seeing out there? I had a conversation with a commercial real estate agent about 4 months ago who told me that deals were all but dead. I can't imagine this market improving since then, considering the paralysis in the credit markets and gov't takeover/demise/buyout of AIG, LEHMAN, MERRILL since then. We don't need Einstein to help us solve this formula; expect office vacancy rates to rise and rents to fall as the crisis hits home.
Comments (11)
here is 1 article, but not the article stating the GS report:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aSdu5_bakEJ0&refer=home
Posted by Noah | October 14, 2008 4:24 PM
I miss Christine Toes.
I miss Christine's toes.
No, seriously, when can she put on a show for us again?
Posted by Anon | October 15, 2008 8:17 AM
I am surprised you are surprised. I have been talking about shorting REITS since March 2008 on this blog; shorting SL Green in particular. The REITS invested in middle market commercial properties did and will go to the sh***ers. Shorting these REITS is a great hedge if you have naked long positions in any NY real estate asset.
Posted by chris | October 15, 2008 8:31 AM
Chris - not surprised at all. Meant that a bit sarcastically, as Ive been discussing the coming CRE slump in good depth since late 2007.
I even commented on my short position in VNO at 108 way way back in SEPT 2007!
http://www.urbandigs.com/2007/09/top_fund_manager_sells_nyc_re.html
2nd comment! The point of this discussion was to point out that the stock market is NOT rational and that savvy trades sometimes take time to play out!
Posted by Noah | October 15, 2008 8:55 AM
The big surprise is going to come in NYC rent regulated multi-family. Once regarded as the creme de la creme of investments due to the chronic housing shortage in NYC and the arbitrage to free market rents as apartments turn over. But as you know we have been covering the backlash against harrasment of rent regulated tenants, as well as the over-levered and over-priced deals for these buildings by hedge funds. Property owners we talk to who have sold buildings to these knuckleheads in recent years, could not understand how they were paying the prices they were. Guess who will be buying these buildings back, on the cheap....the stodgy old owners.
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