A report from the New York Times. “In only a year, the market value of office towers in Manhattan, home to the country’s two largest central business districts, has plummeted 25%, according to city projections. Across the country, the vacancy rate for office buildings in city centers has steadily climbed over the past year to reach 16.4%, according to Cushman & Wakefield, the highest in about a decade. That number could climb further. ‘We are just going to be bleeding lower for the next three to four years to find out what the new level of tenant demand is,’ said Jonathan Litt, chief investment officer of Land & Buildings, a real estate investment firm that has taken a bearish view of the New York office market.”
From Bloomberg. “‘The terms of loans going in to CRE CLOs (commercial real estate collateralized loan obligations) were weak, and so there may have to be some comeuppance,’ said Dan Zwirn, chief executive officer of Arena Investors. In several property sectors, there is a new reality, he said. ‘Post-Covid, it’s plain for all to see: in office buildings in dense urban areas, for example, occupancies are lower, rents are lower, and if you dealt with people leasing space, there are enhancements on leases, such as tenant improvements, or they gave some free months or even free years,’ Zwirn said.”
“CRE CLO managers often own a large equity piece of the transactions, so usually have an incentive to avoid defaults. But while CRE CLO managers have done what they can — often buying out a loan from the pool, replacing it, or modifying it — that approach may not last forever. That means some borrowers may eventually have to face default. ‘Patience won’t be infinite on the part of the CRE CLO manager who wants to bring a positive return to the equity she or he owns,’ Zwirn said.”
From Bisnow New York. “Investment sales in the nation’s biggest real estate market dropped significantly in the first quarter of the year, hitting their lowest point in a decade following a glimmer of hope in the second half of 2020. ‘It’s not enough data to really support what’s going on here,’ Avison Young Tri-State Investment Sales Group principal James Nelson said. ‘Unfortunately, I think that with office sale prices it’s going to have to get worse before it gets better.’”
“Manhattan’s most active class was multifamily, with $667M changing hands across 13 buildings. The dollar volume was more than double the trailing average, and those assets are increasingly priced to move, with per-SF prices down 14% from the previous three quarters’ average. Cost of land dropped 8% in the first quarter as well, with 17% fewer transactions than the trailing three quarters.”
The Real Deal. “Manhattan’s biggest distressed hotel deal of the pandemic just closed for $175 million. Isaac Hera’s Yellowstone Real Estate Investments bought the 600-room Watson Hotel at 440 West 57th Street. Yellowstone bought the leasehold on the property as well as the mortgage held by HSBC, which shopped the loan around after Richard Born and Ira Drukier’s BD Hotels defaulted last year.”
From The Advocate in Louisiana. “Conference Center in north Lafayette has been sold and will be converted into over 200 apartment homes later this year. Covington-based Servio Capital and other investors bought the 244-unit hotel that served as one of three full-service hotels in the Lafayette area but had gone into foreclosure last year when hotels struggled during the coronavirus pandemic. The purchase is among several across the country that have either gone into foreclosure or sold at a discounted rate as a result of the pandemic.”
“‘I’ve been a real estate investor for over 20 years, and we did very well after the housing crash of 2008 with the foreclosure market,’ Servio CEO Ryan Enk said. ‘This is the same thing, only larger. Hotels are getting crushed. People are meeting less, and the Garden Plaza really thrived on the meeting business.’”
“Almost 20% of U.S. hotels with securitized mortgages were delinquent on their loans by November, according to the Wall Street Journal. That coupled with some markets that overbuilt — some in the Lafayette market have indicated it has too many basic hotels for its size.”
From Bisnow Boston in Massachusetts. “Combined with a peak of more than 8,000 units delivering this year and a hot single-family housing market, urban landlords are feeling the pressure to remain competitive with tenant-friendly deals. Multifamily leaders say a full recovery still feels a ways off. ‘Tenants are realizing that there are a lot of opportunities and a lot of deals that they can find right now,’ Senné Managing Director of Property Management Kate Pattison said.”
“The average one-bedroom rent in Boston sits at $2,090, a decline of 16.4% since last year, according to Zumper. Average two-bedroom rents fell 10% to $2,600, slightly less than Cambridge and Brookline. Rents near Boston’s busiest downtown transportation hubs remain depressed. Average rates for apartments near four downtown MBTA transfer stations have declined more than 23%. Bower, a 321-unit Fenway complex, opened last August amid the beginning of the rent free fall. The complex is offering up to two months of free rent for new leases.”
The Commercial Observer on Florida. “The pandemic has taken its toll on the high-flying street, where rents in the last three to five years, pre-pandemic, had been as high as $350 per square foot, the brokers said. Rents on the street are now closer to $150 per square foot, or even $100 per square foot, although it is hard to pin down actual rents, said Larry Soroka, director of investment sales at Koniver Stern Group, a brokerage specializing in retail real estate.”
“In the last five or 10 years, the sale prices for buildings went up to $1,000 to $2,000 per square foot, while rents were priced from $200 to $300 per square foot, said one local broker. Today, as Lincoln Road is still feeling the effects of the pandemic, it is hard to know what tenants are paying, Soroka said. Some landlords are settling for much lower rents to keep their spaces filled, while others are leaving their spaces empty rather than settle for lower rents.”
The SFist in California. “In recent years, the real estate market in San Francisco has been extremely desirable for renters, as well as a lucrative investment for property owners — especially with the city’s chronic shortage of housing. SF has consistently ranked atop the list of most expensive cities to live in the United States. However, as pandemic fallout has seen unprecedented migration shifts and rent decline nationwide, SF property owners have been hit the hardest, with rents having decreased nearly 27% between early 2020 and early 2021.”
“This mass exodus of renters from San Francisco has left owners and landlords with an accumulation of vacancies and not a lot to stand on.”
From Livabl in California. “Los Angeles’ rental market may have started to bounce back after 12 consecutive months of stagnant or declining prices. The latest report from apartment rental platform Zumper indicates that one-bedroom median rent ticked up 0.5 percent on a monthly basis in March to $1,910. Although the price is down 15.1 percent compared to the same period last year. With the exception of March and November of 2020, when prices remained flat, one-bedroom rent had fallen every month since the start of the pandemic.”
“Median two-bedroom rent saw a continued monthly drop of 0.4 percent, amounting to $2,650. The price has plunged 12.8 percent from March 2020, representing a difference of $390.”
From Bisnow San Francisco. “Office and multifamily are still languishing in S.F. especially. Yet many in commercial real estate think that this too shall pass and quickly at that. ‘It’s going to be the Roaring ’20s all over again,’ Safehold & iStar Senior Vice President Tye Palonen said. ‘Hopefully, without the Great Depression to follow.’”