NYC Commercial REIT's Fall

Posted by urbandigs

Tue Oct 14th, 2008 03:38 PM

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.