New York office vacancies may rise to 12% by 2011

Source : Business Times - 29 Jan 2009

Manhattan office vacancies may rise to 12 per cent within 24 months, SL Green Realty Corp chief executive Marc Holliday said on Tuesday.

SL Green, New York’s biggest office landlord with 23.2 million square feet of space, will be protected from the worst of the decline because it is signing tenants to new leases at rents 65 per cent higher than what they were paying, Mr Holliday said.

‘The portfolio has an extraordinary amount of embedded growth in rents that were done in the mid-to-late 1990s, and are now maturing,’ Mr Holliday said on a conference call.

Manhattan office vacancies rose to 7.6 per cent in the fourth quarter, the highest since 2004, according to a Jan 14 report by CB Richard Ellis Group Inc, the world’s biggest commercial real estate services firm.

SL Green reported fourth-quarter funds from operations before gains or losses of US$1.40 a share, the New York-based company said in a statement on Monday. The median estimate of analysts in Bloomberg’s survey was US$1.32.

The company also reported strong leasing results in the period, UBS analyst James Feldman wrote in a research note on Tuesday.

It signed 37 Manhattan office leases totalling 248,600 sq ft in the quarter and got Viacom International Inc to extend its lease on 1.3 million sq ft at 1515 Broadway.

Citigroup Inc may pay 13 per cent of SL Green’s rental income in 2009, the company said.

‘It’s pretty notable,’ Mr Feldman said in an interview. ‘New York Class A occupancy declined, and SL Green’s occupancy is actually up. That shows they’re doing a very good job holding the line as the market is getting much worse.’

Mr Feldman rates SL Green a ‘buy’. The stock is down 41 per cent this year, making it the worst performer in the Bloomberg Real Estate Investment Trust Index.

The company’s fourth- quarter net income fell 29 per cent on investment losses in Gramercy Capital Corp, a commercial property financing firm. Funds from operations is net income excluding items and doesn’t conform with generally accepted accounting principles.

Gramercy’s performance has been hurt by US$188.7 million of non- performing loans and another US$174.5 million it classified as ’sub-performing’, according to its third- quarter earnings report.

Last month, Gramercy withheld its fourth-quarter dividend ‘for working capital purposes’, it said in a statement. The company hasn’t yet reported fourth- quarter earnings.

SL Green chairman Stephen L Green is also Gramercy’s chairman. Last October, Gramercy hired Roger Cozzi as CEO, replacing Mr Holliday.

Mr Holliday said on Tuesday that he expects Gramercy to be completely self-managed by the end of this year.

As Gramercy’s largest investor, ‘we have seen our stake rise and fall over the past five years, but we have concluded that after much effort, it was appropriate to take the writedown in our investment, with limited near-term market relief in sight’, he said.

Source : Business Times - 29 Jan 2009

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Real estate slide expected to worsen

Posted by luxuryasiahome on January 29, 2009

Boston Properties Inc chairman Mortimer Zuckerman said that the US commercial real estate decline is likely to get worse this year as the credit crisis continues.

‘We are still in a downdraft of a very, very serious credit crunch,’ Mr Zuckerman said in an interview on Bloomberg Television. ‘I don’t think that the credit crunch will be over for quite a while. We may see a much tougher 2009 than many people are expecting.’

Capitalisation rates, or rental income as a proportion of a building’s value, are likely to increase as prices decline, Mr Zuckerman said.

Harry Macklowe, who spent US$7 billion buying office buildings from Equity Office Properties Trust in 2007, is an example of a buyer who bought at the market’s high point, he said.

‘Harry Macklowe bought them at 3.1, that was the peak of the market,’ Mr Zuckerman said. ‘Now, cap rates for really good office buildings are at 5.5 to 6 per cent, and if they are not prime buildings, it will go up to 6.5 to 7.5 per cent.’

Loans remain difficult to obtain, he said.

Getting a loan to buy a major New York office building used to take just one phone call, he said. ‘Now we have to scramble to put together five, six, seven lenders to raise US$350 - 450 million,’ Mr Zuckerman said.

Boston Properties shares declined 40 per cent last year. The company has 8.8 million square feet of office space in New York City.