A Little Bit Bullish

arew“I can’t believe I’m here being a little bit bullish,” said Barry M. Gosin, CEO of Newmark Knight and Frank at the November 3 Association of Real Estate Women luncheon.

Gosin said he is seeing positive absorption in the Midtown market and that his firm was having a good fourth quarter. He admitted, however, that the first quarter of 2009 set the bar so low that anything would look better.

“I was so bearish for so long, for probably four years, that everyone got tired of hearing me cry wolf,” Gosin said.

David R. Greenbaum, president of Vornado Office, said the market is extraordinarily healthy when you look back 12 months when the industry was facing disaster. No business wanted to make leasing decisions a year ago because they weren’t sure that they were going to survive.

Greenbaum said, “As tenant brokers, we’ve said to tenants, ‘if you’re confident that your business will survive, this is the time to look into a long-term lease.’”

Rents have dropped and velocity is down. For example, a building that rented office space at $90 a square foot at the height of the market, will rent that same space today at $65 a square foot.

With an office vacancy rate of about 14 percent, Gosin said tenants will move to financially stable buildings with good owners and managers and stay away from signing leases in “zombie buildings” that are financially troubled.

Corporate bond spreads have narrowed, and Gosin believes there is pent up demand in the economy, but that banks aren’t going to lend money in the near future until they can be sure of the risk.

Gosin estimates that there could be as much as $100 billion sitting on the sidelines and that real estate activity will pick up when the gap between bid and ask prices narrow and good buys become available.

“All the real estate loans that are impaired are being kicked down the road,” he said. “If they were marked to fair market value, the money center banks would be insolvent.”

Greenbaum added that the market is staying alive because of 0 percent interest rates, and agreed that the government has sanctioned rolling loans over and waiting for the market to improve so that banks don’t have to take a hit today.

Jonathan J. Miller, president and CEO of Miller Samuel, said he is seeing a 25 percent decline in pricing for condos and co-ops from the 2008 peak. The year started off slow, but residential sales surged in the summer because of federal stimulus measures.

Miller said because values have dropped since December 2007, 25 to 30-35 percent of the deals signed 18 months ago aren’t closing. “There is an excess supply of luxury condos since the market correction,” Miller said.

Credit is still tight, so the recovery has a way to go, Miller said. He also predicted that unemployment will increase in the next year. “In history there has never been a recovery in the New York City economy without Wall Street hiring,” he said.

Greenbaum said he is more bullish about the employment picture because the city still hasn’t lost as many jobs as it did during the recession in the 1990s.  “If you would have asked anyone last year, all would have predicted private sector losses of more than 200,000,” he said.  “Tenants are using this environment to trade up, consolidate, and plan for growth.”

 Greenbaum, however, had harsh words for the state Appeals Court ruling regarding Stuyvesant Town and Peter Cooper Village and the J-51 tax breaks

 “We have an agency of the government which promulgated rules on how to deal with J-51 variances and decontrol that was reaffirmed by three administrations (Pataki, Spitzer, and Patterson), but the court said you’re not allowed to rely on the government’s interpretation of the rules,” he said.

Miller said the ruling compounds the weak environment in the residential real estate market right now. Without the government stimulus, low interest rates, first time tax credits, “you’d have a horrific residential housing market at the moment.”

Gosin added that if the courts can overturn government policies for real estate, it isn’t good for business because it adds uncertainty to the market.

The panel was moderated by Michael Stoler.

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