Commercial Real Estate Datapoint of the Day

Worldwide Plaza is being sold after all (a previous deal fell through), and at what looks like a seriously knock-down price:

Deutsche Bank AG has agreed to sell Worldwide Plaza, a 1.8 million square-foot skyscraper in New York City, for $600 million to developer George Comfort & Sons and partner RCG Longview…

The sale price works out to roughly $330 a square foot.

Worldwide Plaza is a very high-class office building, home to, among other tenants, the swanky offices of Cravath, Swaine & Moore. It also has what until recently would have been something extremely attractive: a huge amount of unleased space (709,000 square feet, to be exact), vacated by the departing Ogilvy & Mather.

A year or two ago, long-term leases were poison for commercial real-estate valuations, since they reduced landlords’ ability to hike rents. Vacant space, by contrast, was like gold dust: Prime midtown office space was leasing at well over $100 a square foot.

Today, everything has been turned on its head: Those 709,000 square feet aren’t generating any income, and therefore have very little value. As a result, the 1.8 million square feet of Worldwide Plaza are worth just $600 million: by contrast, the $1.5 million square feet of 666 Fifth Avenue sold for $1.8 billion — or $1,200 per square foot — in 2006. On a price-per-square-foot basis, that’s a decline of more than 70% from the peak of the market.

Comments

[theblindtib...:]

A 70% decline in commercial real estate in three years in Manhattan, one of the most expensive markets in the world, should be a siren call to all and sundry that we are in deep trouble. Yet the market seems almost oblivious to such facts.

This is Q3, 2009, a time when many predicted we would be well on our way to recovery. It seems sentiment has replaced logic in the world of economics.

Wishing, and not the wallet, is the new coin of the realm.

Meanwhile record numbers of people are defaulting on their loans. I am sure they wish they could pay them.

Jul 07 03:31 PM