Manhattan Office Building Crash
The biggest drop in real estate value I've ever heard of
Manhattan is supposed to be the best, swankiest part of New York City. But there’s an old saying, “the bigger they are, the harder they fall”. This story from the NY Times is hard to believe. The residential real estate crash in ‘08 was bad, but the office building crash nowadays is a much, much bigger drop in value. I can see a couple of causes of this crash. One, of course, is the aftermath of the covid shutdown and resulting trend of working from home rather than from an office building. Another cause is the trend of getting out of big cities where criminals are coddled. Here’s the Times story as picked up by Coffee &Covid - scroll down to it in their post…
“Yesterday, the New York Times ran a sobering real-estate story headlined, “This 23-Floor Manhattan Office Building Just Sold at a 97.5% Discount.” Apparently, inflation hit everything else but missed big-city commercial real estate. The building in the story, which used to headquarter Sports Illustrated, last sold in 2006 —admittedly at peak market— for $332 million dollars. On Wednesday, it sold at auction for only $8 million, a stunning 98% discount.”
A 98% discount is about as close as you can come to giving the building away. It’s a white elephant, costing a fortune to keep, with no net income. If the buyers can turn it around, they’ll do well, but what a risk! A similar thing is happening in China, although in their case it’s mostly apartment dwellings that were vastly overbuilt and now standing empty, devastating the banks as well as the builders. It’s a sad day for commercial real estate investors.
Residential realtors are having some problems, too, although not nearly as dire. Prices have held up pretty well so far, but the market is slow, because 1) it’s out of reach for most first time buyers, and 2) existing homeowners don’t want to sell if they have to replace their home with another at higher interest rates on mortgages. That will ease as interest rates come down, but if we are in a recession, prices will come down, too.