As we are in the midst of the holiday season, I thought I would share with you my wish list for those who are either directly or indirectly participants in the New York City commercial real estate marketplace.
To the U.S. economy and our local New York economy, I wish three things: jobs, jobs and jobs. Jobs make our economy run and, the sooner we have job growth, the sooner our economy will get back on its feet.
To distressed-asset buyers, I wish you patience. Patience because I speak with you every day and hear the frustration in your voices. Clearly, the number of distressed assets coming onto the market has not been nearly what we anticipated a year ago, but have faith, because those distressed assets are out there and in significant numbers. We estimate there are 15,000 properties in New York City with negative equity, and a meaningful percentage of these will be recycled over the next two to three years as we go through our de-leveraging process.
To commercial real estate investors, I wish you a clear memory. A memory that can recollect some basic principles of real estate investing that we all lost sight of: Debt is wonderful when all goes well, but extremely punishing when things go wrong; debt rollover renewal is the real risk of using short-term debt, not an increase in the interest rate; and when money is easy, the benefits accrue to the sellers, not the buyers.
To real estate developers, I wish you faith. Faith that, at some point, construction financing will be available again and there will be end-user demand for the buildings you build. You may choose to enjoy a nice vacation for the next two to three years, but someday you will be very busy again.
To REITs, I wish you plenty of napkins. Napkins to clean up the drool coming out of your mouths as you salivate over the opportunities that you will be extraordinarily well positioned to take advantage of based upon your access to public capital. The REIT sector has raised more than $20 billion recently, and given the evaporation of the CMBS market, your access to public capital puts you in a unique position to be a dominant force in the years to come.
To our local community and regional banks, I wish you appreciation. Appreciation for your commitment to keep debt flowing throughout the credit crisis and facilitating the overwhelming majority of the transactions that we have closed since the summer of 2007.
To the commercial and money center banks, I wish for you an invitation back into the commercial real estate lending pool. The water is warm, the spreads are high, the risk is low and we all miss you.
To all bankers, I wish all you “fat cats” thick enough skin to not be dismayed by Washington’s opinion of you. The administration expects the impossible of you: increasing your capital reserves while simultaneously being asked to lend more. This is like asking someone driving a car to go faster while applying the brake.
To out-of-town lenders and special servicers, I wish you knowledge-the knowledge that, in New York, nonperforming notes are being sold for approximately 90 percent to 100 percent of collateral value. In other parts of the country, the foreclosure process is more streamlined than you are finding it to be in New York. Note sale recoveries here have been extraordinarily high without having to go through the two-to-three-year foreclosure process.
To Governor Paterson, I wish you continued intestinal fortitude-the intestinal fortitude to make tough decisions on spending cuts. During this decade, New York has lost a net 1.5 million residents, who have decided to move out of the state because of our incredibly high tax burdens. You were well ahead of the curve focusing on the need to cut spending in response to our massive deficits and received little support from the Legislature.
To the New York State Assembly and Senate, I wish you functionality. The functionality to find a way to work together to do what is in the best interest of our state. New York needs you, and your recent dysfunction and shenanigans may have made Ringling Brothers proud, but they have not served any of us.