Since the recession hit the commercial real estate sector two years ago, devaluing properties and leaving landlords with dark office space vacated by closed or downsized companies, industry experts have predicted a nationwide surge of deals for distressed properties.
Two years later, that widely shared prediction has not been borne out in Westchester County.
In 2009, one of the few notable transactions in the county to support the predictions was the Memorial Sloan-Kettering Cancer Center”™s $9.2 million purchase of 500 Westchester Ave., a 120,000-square-foot office building that two years earlier was sold by Verizon Communications Corp. to an affiliate of GHP Office Realty.
GHP turned over the property to its lender, UBS A.G., about six months before its purchase by Memorial Sloan-Kettering. The New York City medical institute bought the vacant building at a discount of about $2.3 million from the outstanding debt when the lender took it back.
In early 2009, Normandy Real Estate Partners assumed control of RXR Realty”™s Platinum Mile office-park portfolio in Harrison and White Plains and renamed it The Exchange. A mezzanine lender to then-RexCorp Realty in its $2 billion purchase of the 14-building portfolio in 2006, Normandy last fall refinanced its debt on The Exchange and acquired the existing mortgage from the senior lender, Wells Fargo, at a “steep discount,” according to a source familiar with Normandy operations.
Signs of a thaw?
In early 2010, federal officials warned that by the end of the year about half of all commercial mortgages in the nation would be underwater, exceeding the value of borrowers”™ properties. The expected flood of distressed sales was more of a trickle in Westchester.
In December, CB Richard Ellis began marketing 104 Corporate Park Drive in Harrison for the Virginia-based lender who took over the 118,000-square-foot building vacated at midyear by Malcolm Pirnie Inc. Its former owner, AVR Realty in Yonkers, had marketed the property for sale or lease for about one year.
“The buyers were out there,” said broker Carl Austin, owner of Austin Corporate Properties in Rye Brook, “but they were out there substantially below the value of the mortgage.”
Austin said the Harrison property “is an example of that deep freeze cracking open, where lenders will take back buildings and then seek to have the market price them. That process helps find and establish revised market values that will serve as a basis for new growth.”
This year, “It could be a chartbuster,” CBRE broker William V. Cuddy Jr. said of the distressed-sales market in Westchester. Predicting more office inventory will come on line here, Cuddy said experienced and well-capitalized investors and developers are looking for those opportunities to buy at discount.
“I couldn”™t disagree more” with that market outlook, said John D. Goodkind, managing principal at Newmark Knight Frank in Greenwich, Conn. “Everyone anticipated a major shakeout. There”™s been very, very little of it.”
Lenders do not want that inventory on their books and foreclosure is a lengthy process, he said.
”˜Not highly overleveraged”™
In Westchester as in neighboring Fairfield County, Conn., “There aren”™t that many distressed properties,” Goodkind said. “This area is in pretty darned good shape.” (See accompanying charts on larger collateralized mortgage-backed securities loans in the county.)
“Most of the product you have in Westchester is not highly overleveraged,” said Charles Altman, president of First Dartmouth Advisors L.L.C., a White Plains firm that provides loan workout services for commercial real estate owners and evaluations for distressed debt investors. For owners, “The big problem in 2011 or 2012 is those properties that are underwater or with insufficient equity to get new financing,” he said.
In the metropolitan area, “Things are not very good here” for commercial properties, Altman said. “They”™re much worse” in other regions of the country where his firm largely operates, he said. “Here there are so many people, so many players” competing for properties. “I don”™t think anyone thinks New York or Westchester County is going to hell.”
In the distressed real estate market, “Two years ago, everybody thought there”™s going to be so much that they could steal this stuff,” said Altman. “That hasn”™t been the case.”
