We were amused at the Distressed Real Estate Summit in September hearing “there’s no such thing as distressed property, only distressed lenders and loans; the property did nothing wrong.“ Here are some bite-sized take-aways regarding the NYC area worth sharing:
- Multi-family: properties have not been hurt as bad as other asset classes as they’re not over-leveraged and are “cross-generational”. Class A properties previously trading at 6.25% cap rates are now at 7.50%, with vacancy rates around 7% versus 1-3% at peak.
- Condos: financing and re-financing for new developments has stalled. The additional issue is that over the last few years, condos were never underwritten as rentals, rendering current valuations challenging.
- Office/Retail: Investors who bought properties a few years ago now can’t rent the space at pro forma projection levels; in addition their refinancing exit strategies are clearly compromised. Owners are looking to get just enough rent to service their debt, and are now open to interesting tenant mixes.
- Hotel: No lenders appear ready to lend at greater than 65% loan-to-value (50% is more likely), with a 1.4% debt coverage ratio as a minimum.
- Land: Today, land is valued at $100-$200 per buildable foot based on rentable residential space, versus $400-$500 two years ago. (Reminder: back in ’90-’91, land was valued at $0 as the cost of construction was not worth it at the time.)
