Top brokers see sales market improving

Real Estate Weekly, Feb 9, 1994

Three of New York's top commercial brokers were optimistic about the future of building sales in a talk at the National Realty Club luncheon last month held at the 60 East Club.

The brokers, Paul Massey of Massey Knackel Realty Services; Peter Hauspure, president of Eastern Consolidated Properties; and Darcy A. Stacom, senior director of Cushman & Wakefield, were equally upbeat about the coming year.

With 163 East Side Midtown Manhattan properties sold in 1988 and 159 in 1989, Massey observed there was a 4 percent turnover of buildings. But there was a "wild decline" in that statistic in 1990 and 1991, when 85 and 84 properties were sold, respectively. Although 98 buildings were sold in that geographical area last year, running from East 34th Street to East 79th Street from Seventh Avenue to First Avenue, Massey expects 1994 to bring about 125 sales.

Prices have declined, however, from an average of $450 a square foot in 1988 to the low of $257 last year and he predicts prices will stay at about the same level this year.

As the markets improve, Massey expects European money to flow into the city and volume to resume at the 4 percent level.

Hauspurg, who was responsible for the Americas Tower assemblage as well as the recent sale of 158 East 58th Street, cited the drop in values from 40 percent to 70 percent over the years 1988 to 1991.

He gave as examples several buildings, including 125 West 45th Street, a 55,000 square-foot jewelry building that turned down $160 a square-foot offer in the late 1980s but eventually sold at $60 a square-foot to a user; 15 East 53rd that sold for $145 million in 1989 and again in 1993 for $60 million; and 40 Wall that sold for $77 million in the 1980s and then for under ten million last year.

Hauspurg pointed to the "all equity" deals as triggering defaults in mortgages as values dropped below book values. But, he added, "I think we're getting near the end of it." In fact, in the last four or five months, he has observed a "tangible sentiment that tomorrow will be better. It's as if the lights just went On."

With big blocks of space evaporating and lenders returning to the marketplace, Hauspurg foresees an increase in prices. He said investors who were on the sidelines for years have jumped in with both feet and real estate professionals are scrambling for deals - often the same one.

Because of the decrease in blocks of space, Midtown work letters are coming down from $40 to $45 a square-foot to the $30 to $35 range, she said. At the same time, free rent is decreasing from twelve months to nine and sometimes even six. "These are positive signs," she said.

In the Midtown areas, there are very few buildings being actively marketed, while those hitting the market over the last three years have been sold. Those in the Downtown area have been sold, she said, unless the lender "couldn't stand selling." There are about five buildings coming on the market in the 250,000 to 500,000 square-foot range, she added, noting that five year or longer leases "can get you through," until rents pick up.

Buyers are seeing other yields at 4 percent to 5 percent and so believe it is not unreasonable to get 9 percent to 10 percent in real estate.

She noted that foreign investors all have different investment criteria, but Dutch pension funds are looking seriously at New York for investments.

While user-buyers are very much part of the mainstream buyers, she warned, "They will outbid you all the time."

Stacom also believes insurance companies are going to be realistic and better sellers than other lenders.