Commercial property owners in the tri-state region appear to be holding up in the early days of 2010 better than some expected, easing fears of mortgage defaults that could cripple commercial real estate lending.
While many buyers remain on the sidelines waiting for prices to come down further, according to brokers with Stamford-based RHYS, others feel that prices are sufficiently low to justify a buy based on the long-term value of real estate in Fairfield County.
That could provide a ready pool of capital to bail out commercial landlords who are unable to make their debt payments as tenancy and lease rates have declined.
In 2009, RHYS tracked just $310 million in property sales in Fairfield County, down from $1.1 billion in 2008 and $4.6 billion in 2007.
The Fairfield County figure was skewed by Grubb & Ellis in its sale of Danbury Corporate Center, which at $72 million represented a break-even price from what Grubb & Ellis paid for the building in 2007.
The same trend was at play in neighboring Westchester County, N.Y., where property sales fell to a total of $167 million in 2009, down from $549 million in 2008 and $1.2 billion in 2007.
Other notable transactions included the purchase of a retail property at 75 Greenwich Ave. in Greenwich for $8 million, or more than $1,400 a square foot; Seaboard Properties”™ buy of a 260-unit residential complex at 1450 Washington Blvd. in Stamford for $38 million; the Connecticut Film Center”™s $15 million buy of an industrial building at 300 Stillwater Ave. in Stamford for use as a studio; and RDC Properties Ltd.”™s $36 million purchase of the Sheraton Stamford at 2701 Summer St.
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The question becomes how active buyers will be this year ”“ some have circled the year 2012 as the moment when prices will truly hit bottom, on the assumption that those who bought property at the height of the market in 2006 and 2007 will be under pressure from their bankers to make good on any five-year note payments that are past due.
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In mid-February, Simon Property Group offered $10 billion to acquire the assets of rival shopping mall owner General Growth Properties, whose holdings include Waterbury”™s Brass Mill Center and South Street Seaport in New York City.
In a recent conference call with investment analysts, the CEO of New York City-based Mack-Cali Realty Corp. said ongoing reviews of bank loan portfolios by federal regulators could help decide the speed with which investors like his company will act.
“The owners (are) meeting debt service right now, although that”™s under continued severe pressure as a result of the declining rent environment that we are in,” said Mitchell Hersh, CEO of Mack-Cali, adding he has been immersed in such discussions the past few months. “Right now there hasn”™t been a lot of activity but I suspect that as the feds intervene ”¦ we will see more opportunity.”
SL Green Realty Corp., another major landlord in Fairfield County and Westchester, indicated that another signal of a turn in the market is the increased rent expectancies on the part of landlords, in the company”™s own conference call last month with investors.
“The assets that are being marketed ”“ and the buyers who are buying ”“ are putting in increasing rents in their models,” said Andrew Mathias, president of SL Green. “I think generally people are modeling rental growth (and concessions) tightening this year; rental growth starting in 2011; and the return to a more normal market as vacancy declines a bit.”
