A weekend topic starting with CNBC. “The International Monetary Fund has raised concerns over commercial property and the risk it could pose to financial stability. Andrea Deghi, a financial sector expert at the IMF, explained that if a slew of businesses in the sector were to collapse, then that could add pressure on banks who have lent money to them. Banks could incur ‘very large capital losses,’ he said.”
“In addition, the commercial property sector also relies heavily on investment from outside of the banking sector. ‘When the value of assets held by these investors fall, they might become less willing or able to provide new financing to commercial real estate borrowers, in particular when their balance sheets become weaker,’ Deghi added.”
The Real Deal on New York. “One of economists’ favorite expressions is Herbert Stein’s ‘if something cannot go on forever, it will stop.’ Just ask luxury condo developers. Builders cannot keep apartments empty indefinitely in a Captain Ahab–like quest to land a whale of a buyer. They must offer concessions and cut prices to move units before their lenders foreclose, even if they buy time with an inventory loan — secured by unsold units — to repay construction loans that come due.”
“A New York Times story noted developers have been slashing condo prices by as much as 50 percent in Manhattan, where the market is weaker than in Brooklyn and Queens, relative to what it was. ‘From soaring condos in affluent enclaves like Tribeca to boutique buildings on gentrifying blocks in the East Village, Manhattan is awash in price cuts,’ the article said.”
“Even famously successful builders are seeing red ink in the depressed condo market. Extell Development’s Gary Barnett admitted to the Times that he would lose money on three of his six current projects. Barnett then delivered a quote unlikely to join Stein’s in the pantheon of economic classics. ‘From here on in,’ he declared, ‘it has to go up.”
From Bisnow New York. “A recent valuation shows one Fifth Avenue retail property is worth almost 70% less than it was in 2015 as the famous luxury retail strip continues to feel the pain of the coronavirus pandemic. The value of landlord Solly Assa’s nine-story retail and residential building, once occupied by Domenico Vacca at 15 West 55th Street, has plummeted from $119M to $37.8M, The Real Deal reported, citing appraisal data from Trepp. The building, which went up in 1915, sits a few blocks south of Central Park and also contains 36 luxury residential units, according to StreetEasy.”
“Rents and valuations for Fifth Avenue will likely not go back up to the 2015 peak, said Compass Vice Chairman Robin Abrams, who focuses on retail leasing. ‘There have been people that they don’t know if they are going to see rents like that in most of our lifetimes again,’ she said.”
The Loveland Reporter Herald in Colorado. “The foreclosure actions affecting two Northern Colorado shopping malls — The Promenade Shops at Centerra and Foothills in Fort Collins — are not a foreshadowing of things to come in the region, unless you’re in the mall business. Ryan Schaefer, CEO of NAI Affinity commercial real estate agency in Northern Colorado, provided that assessment.”
“The foreclosures in recent months of two of the region’s largest shopping centers drew the attention of the commercial market, but as Schaefer noted, the problem is not unique to Northern Colorado. ‘It’s about demographics. We have too many malls in the United States, and those suffering most are too large for their markets,’ he said.”
“Another commercial real estate sector particularly affected by the pandemic was office space, where transactions nationwide were down 46.9% as office tenants sent their employees home. Denver, Larimer County and Weld County all saw negative absorption of office properties, with Denver seeing 4.6 million square feet vacated, Larimer County 244,000 square feet and Weld County 108,000 square feet. Using a rough guess on how many workers might permanently leave congregate offices, Schaefer said that if companies reduce office space by even 10%, that means that available, existing office space is 16 times greater than the amount of new office space delivered in 2019.”
The San Francisco Business Times in California. “A number of large companies in San Francisco are appealing to a city board to reassess major pieces of commercial property at considerably lower values. The requests include Uber Technologies seeking to lower the value of its 1455 Market St. headquarters from its current $83.7 million level to $41.9 million, the Pier 70 building from $53.7 million down to $26.8 million as well as several other properties.”
“Another notable submission comes from SHR St. Francis LLC, which requested a reduction in the Westin St. Francis hotel valuation from $751.9 million to $309 million. Other companies on the list include Dropbox, the owner of Hotel Union Square, First Republic Bank, the S.F. Flower Mart, skilled nursing facility Victorian Post Acute and real estate entities 750 Harrison LLC and 1335 Folsom LLC.”
“‘Any value can be submitted on an application for an applicant’s opinion of value and we’ve seen $0 or even $1 as an opinion,’ Alistair Gibson, acting administrator of the Assessment Appeals Board, wrote in an email.”
From Bisnow Los Angeles in California. “A Q1 2021 report from Savills revealed 23.6% of the office space in Los Angeles was available for lease. That’s a high not seen since 2009, the authors wrote. Inventory has grown from 214M SF in Q1 2020 to 216.4M SF in Q1 2021. Santa Monica and the Fox Hills area saw 30.4% and 36.7% of their office space available for lease, respectively. Santa Monica has seen a significant amount of sublease space hit the market, Savills Southern California Region Research Director Michael Soto said.”
“Sublease space is hitting new highs citywide, a factor that has contributed to the high overall availability. Sublease inventory has ballooned by 91% since the pandemic began and is now at more than 9M SF, Savills found. Office leasing activity totaled 2M SF in Q1 2021 — a drop not only from Q4 2020, when leasing activity totaled 2.1M SF, but also a 42.4% drop from the five-year quarterly leasing average of 3.5M SF, the report found. For comparison, Q1 2020 saw 4M SF of leasing activity.”
“‘Concessions such as parking abatement and contraction rights have become prevalent again and are not expected to go away anytime soon,’ according to the report.”
From WCHS TV in West Virginia. “A year into the pandemic and a year of working from home is starting to take its toll on bigger buildings in downtown Charleston. Some of those buildings are begging for businesses, and employees to come back to work. Howard Swint is a commercial property broker and the leasing agent for Laidley Tower. ‘Roughly about 20% of the downtown Charleston class A market is vacant and it has been for roughly two years now,’ Swint said.”
From Blog TO in Canada. “Now is a pretty good time to be looking for Toronto apartment rentals… relatively speaking. On one hand, average asking rent prices are lower right now they have been in more than a year thanks to the COVID-19 pandemic. On the other hand, Toronto is still the most expensive (or second-most expensive, depending on how you’re measuring) place to rent a place in Canada.”
“Could you get a much larger place for much less money in literally any other major Canadian city except for Vancouver? Yes. But could you even imagine scoring a two-bedroom in downtown Toronto for less than $2,000 a month before COVID came to town? Heck no. And average rent prices just keep on falling.”
“The latest GTA rental market update from Bullpen Research and torontorentals.com shows that the average monthly rent price for all property types across the region declined in February of 2021 for the 15th month straight. Year over year, rent prices are down a whopping 16.3 per cent, hitting a new average of $1,986 — and that’s not just for one-bedroom rental units, that’s for all property types of all sizes in all parts of the Greater Toronto Area.”
“For downtown Toronto specifically, condos and apartments did experience a nearly 20 per cent decline in average rental rates compared to the year previous. Average rents for condo apartments are down 18 per cent in the Greater Toronto area as a whole.”
From Domain News in Australia. “Melbourne, Australia’s second-largest city and home to some of its most expensive property, is now the cheapest capital in which to rent a four-bedroom house. The median asking rent for a one-bedroom unit in Melbourne fell 11 per cent to $325 in the year ended December 2020 and 10.4 per cent in Sydney to $430 – the two biggest unit rent declines.”
“Domain senior research analyst Nicola Powell said smaller rental properties suffered amid the uncertainty of last year. ‘The smaller the apartment, the bigger reduction in rent in Sydney and Melbourne,’ Dr Powell said. Rental markets were more reliant on demand from new arrivals and international students had seen more disruption, she said. ‘We’re struggling with the apartments,’ The Agency’s national head of property management, Maria Carlino, said.”