Commercial RE still in doldrums
John Barrett, president of the Commercial Investment Division, Westchester County Board of Realtors.
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The recession has been declared over by no less an eminence than the chairman of the federal reserve, but thus far, no one has informed potential buyers of commercial property in the Hudson Valley and Westchester that it”™s time to buy.
The good news is it”™s not nine months ago.
“I think the commercial real estate market in the Hudson Valley is very, very slow,” said Steve Salomone, director of the commercial sales group for Prudential-Serls, based in Hopewell Junction. “There are really no transactions to speak of since the first quarter of the year. And I don”™t see it improving quickly.”
“I think that the commercial property market might be a trailing indicator here,” said
John M. Barrett, first vice president of Sales for Massey Knakal Realty Services. The company is headquartered in Manhattan, but Barrett said his clients are in Westchester. He is also president of the Commercial Investment Division, Westchester County Board of Realtors. “If we are coming out of this great recession, and it might be the beginning of the recovery, we”™ll see it reflected in a more stable market as we move into next year.”
He said the exception to the sales slump is in multifamily properties. The tight economy made rentals more attractive leading to high occupancy levels that made for attractive multifamilies. “In the multifamily sector, because there has been readily available financing there, transactions have continued at prices very similar to two years ago in Westchester County,” said Barrett.
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This is making multifamilies more attractive for transactions, he said, citing the sale in June of 2009 of a 41,000-square-foot 44 unit apartment building in New Rochelle in an all-cash transaction worth about $4.75 million ”“ not exactly a multifamily, but the sort of sale that can shake up the sector by demonstrating a ready market for units.
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Located at 126 Franklin Avenue, the building was sold by 126 Franklin Avenue Partners to Echo Bay Properties L.L.C., an experienced owner manager in Westchester and Connecticut. “The property is currently renting at $13 per square foot representing tremendous upside for the buyer,” said Barrett who exclusively represented the seller and found the buyer. “The building is located close to the proposed Forest City Ratner Echo Bay Development enhancing the prospect of a future condominium or co-op conversion,” added Barrett .
But he agreed the rest of the commercial real estate market is in a slump. “There haven”™t been a whole lot of transactions in the office market over the last 12 months,” said Barret. “Buildings are not being put on the market.”
There is still “a fair amount” of vacancies in office space and a lot of transactions revolving around subleases. And Barrett said owners who in recent years have upgraded and maintained their properties are now seeing results, as tenants have a choice and are moving to nicer facilities. “You are seeing tenants use this market as an opportunity to better their situation and move to better located properties where owners have shown pride of ownership and improved the property.”
But “Because of a lack of available financing for larger properties, there haven”™t been many transactions,” said Barrett.
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“There”™s no financing, no tolerance for risk,” agreed Salomone.
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But Salamone saw another problem as well, “Sellers have not adjusted their asking prices,” saying there is an unrealistic expectation of profit-taking among many would-be sellers, who are still living inside a real estate bubble, so to speak. He said in many cases, sellers are seeking prices as much as 30 percent higher than actual current market values.
“We call it the gap between the big and the ask and there is still a big gap,” he said.
“I think over the last six months the gap has narrowed between seller expectations and what buyers are willing to pay,” said Barrett, “But it has not narrowed that much.”
Asked what might show signs of recovery, Salomone said that this recovery may need some goosing to get going. “Unfortunately this might sound like a negative thing, but it needs to happen. Banks need to start cracking down on nonperforming mortgages and property owners,” Salomone said. “Once that occurs you will start to see a price adjustment to where things ought to be.”
Barrett said that in Westchester there are glimmers of a recovery. “We”™re talking to more buyers and getting more offers than we were nine months ago,” he said. “I don”™t think there is such a feeling of pessimism as there was nine months ago. People aren”™t as afraid as they were about making investments. There is still some caution out there, but people are willing to invest and take risks.”