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A blog for breaking sales and neighborhood real estate news.

There is no doubt we are experiencing some of the most tumultuous times in our economy since the Great Depression. The unprecedented, aggressive tactics taken by the wealthiest governments across the globe in order to stabilize the current crisis we find ourselves in today are indicators of how serious the obstacles ahead really are. Although volume across the board for the first half of 2008 was down approximately 40%, prices are down just a small fraction of that. “Real buyers” in today’s marketplace can strongly benefit from a number of factors while sellers still achieve healthy prices for their property.  


If anything positive is to come from this world financial credit crisis it might be the realization of how we truly live, and invest, in a global economy. Although separated by bodies of water, borders, languages, religions and cultures, it has become all too evident that we have a lot more invested in each other than we thought. The United States was the epicenter of the CMBS quake and the shockwaves were quickly felt around the world.  Global equity markets began rattling with insecurity and credit markets came to a virtual freeze. LIBOR jumped to over 4.5% and the equity markets began plunging. The sharp decrease in stock value for some financial institutions led some to not be able to meet looming financial obligations. This created fear, and the pulling of equity out of investments created even more pressure. It quickly became evident that the failure of some of these institutions could have catastrophic effects. Not only with the basic fundamentals in the U.S., but with the rest of world as well. Failure of insurance giant AIG, for example, could have caused a domino effect amongst the global financial system that might have been cataclysmic. 

The U.S. quickly began bailing out, on its own discretionary basis, those institutions that it thought were “too big to fail.” It took a couple of weeks, but after a proposal by Treasury Secretary Hank Paulson, some ugly politics and a revision, the U.S passed the estimated $700 billion dollar bailout. The Toxic Asset Relief Program (TARP) was the first step to reassuring the world that the U.S. government is backing the economy and would do everything in its power to assure it is healthy. The rest of the world, including the G7 and G20 countries (consisting of the world’s largest economies), quickly started realizing that they needed to add liquidity to the banking system as well, and were able to pass similar legislation within five days time.  


Over a trillion dollars are in the works to flood liquidity into today’s banking system.  The plan is to get banks to lend to banks, institutions and small companies and to begin making commercial mortgages attractive again. The Fed has plans to increase the dollar limit on FDIC-insured deposits to help reassure depositors that there funds are safe and to avoid runs on banks from its depositors. These are just some of the actions that will help the flow of credit return.  


Promising news today is that the Dow Jones seems to have bottomed out around the 7800 – 8200 level, which is about 40% off its highs. Investment funds are beginning to dip their toe in the water as these values are considered extremely cheap.  LIBOR is slowly but consistently easing off its recent highs as banks begin to regain confidence in each other’s ability to repay debt. The credit arteries are beginning to unclog with the help of global stimulus initiatives. In addition, the U.S. government has bought about $25 billion dollars worth of our “private” banking system. These capital infusions are earmarked funds that must be lent out in the market. The banks cannot just keep the cash on their books. 


Today, investors who are active in the New York City multifamily real estate market should start to feel more comfortable about buying. Now they have a few things going for them. First, some owners who bought at inflated prices recently are feeling the pressure of not being able to refinance out of their current situation.  Therefore there are more motivated sellers. Second, in sharp contrast to the juiced up market of 2002-2007, there are far fewer “qualified buyers” to compete with. In happenstance, investors today can make clear and calculated decisions on what properties they want to buy. They have a number of different assets they can choose from, and are being extremely careful so as not to overpay for a property. Banks are still providing financing on this preferred asset class and the investor, or investment group, is providing much more capital into the purchase.  In the next few months all the liquidity pumped in by the world’s governments will reach the commercial lending markets. When it does, those who will receive the most favorable terms will be those who are well capitalized, patient, experienced investor operators. They will be purchasing financially sustainable properties. The Manhattan multifamily market continues to be more attractive because Manhattan is the financial capital of the world. The island also has a limited supply of potential acquisitions and their under market rents. These factors will continue to make this market thrive.


Investor’s focus is now on three alternative, but more viable, indicators. They are the cap rate, the price per unit and the price per square foot. Sellers have become much less attached to the GRM as many investors will buy property strictly on a basis of where deal cash flows. However, there are exceptions that sellers in today’s market should know. If a potential sale is valued on a cash flow basis but is still considered extremely cheap on a price per square foot basis and a price per unit basis, long term investors in today’s market will be all over it. This holds true even more so in the under $20,000,000 market place where private capital is much more accessible.


Buyers in today’s market are playing on a much more level playing field. They have real sellers in front of them, less competition, more options and strict guidelines to adhere to. Sellers can take solace in the fact that their properties values have remained extremely stable. The demand for multifamily assets in Manhattan remains one of the safest most desired assets in the world. The asset class has proven so in the strength and stability that it continues to show in a global market place that is turbulent at best.


Fed Chairman Ben Bernanke has already proposed a second stimulus package to continue to the normalization of our capital markets. The governments of the United States and the world have shown how dedicated they are to stabilizing the current financial climate we are in. Through unprecedented unilateral actions, nations across the globe vow to continue to act, to restore confidence in our economies. 

Agents: Robert Shapiro