Bill Herbert

NYC Commercial Meltdown: Listen to Residential's Message

Allow me to comment on a few blurbs from above -

"notable that the commercial market in New York is softening fast. It argues that space reductions are being made despite the fact that space might be quite tight in the next upturn..."

It is hard for me to even think about an upturn, unless we flash forward to, say, 2023 or later. NYC real estate has been in fantasyland for the last 25 years or so, due to the enormous, hugely outsized growth of 'financial services', a business that is now imploding, and for good reason. There is little true value added by most in the business, rather they are just sucking money out of the system. Those days are closing out fast - and if you think you have seen a 'downturn' in NYC real estate, think again. Two years from now it will be a true horror show, as the collapse of many funds and deep,deep cuts at the 'banks' will devastate pricing. They will start turning the ghost buildings around Astor Place into office space, at 1/4 the going rate today.

"As you can tell, it would take several years of space additions with no increase in demand to cause vacancy rates to move up 3 percentage points."

Dream on, Jeffrey. A couple of years of utter collapse in demand will make supply additions disappear, but vacancies will nevertheless top 10% by 12/2010, I would guess. You can't rent to, or collect money from, the bankrupt.

"I hope, therefore, that the point is not lost on you that despite the tight supply of owner-occupied residential space, a large percentage of existing owner-occupied buildings being co-ops where owners are traditionally less leveraged and carrying strong cash reserves, demand still rules."

Talk to me in 6 to 8 months, and see how you feel then. We will hear about at least another 200,000 jobs in Manhattan disappearing by then - the great majority of them being the grossly overpaid 'bankers' and traders whose function is now being deep-sixed. The number of soon-to-implode hedge funds could be over 1,000 - nobody knows for sure, but you only read about the famous names in the paper. I have a few friends in this business, and they all say it's any day now. They do not expect to be employed at 1/1/09. That will completely tank the ludicrously-priced res market in NYC - it could drop as much as 40% over the next five years. After all, it is up in some neighborhoods over 100% in about the same time. NYC is not immune from bubbles, and the myth that it somehow is insulated because it is a "financial hub" or some other nonsense will be blown out of the water bigtime in 2009.

Short NYC real estate if you can - one of the very best trades you can find right now.