Recently sold properties show the bargains to be had amid market downturn
A recent report showing potential investment bonanzas in the financial district of New York City sought to reconcile the high risk innate to such deals with the potential for high reward. For the skeptical, a list of recent office and hotel purchases shows the steep discounts at close of sale.
“From Fear to Fortune” detailed the drop in value of commercial real estate in Manhattan, a decline resulting from a “perfect storm” of factors – higher interest rates, inflation and a tenant exodus resulting from remote work prompted by the spread of COVID-19. The report was prepared by Chris Okada (pictured), CEO Of Okada & Co. In a recent interview, he cited the example of a building on Fifth Avenue that recently sold for $400 per square foot – down from its peak of up to $900 per square foot.
And that’s just one example. There are many more, Okada said. “We’ve started to see some incredible price discounts not seen in 14 years,” Okada told Mortgage Professional America in a recent telephone interview. “With discounts ranging from 30% to 60% off peak pricing, we feel there are remarkable opportunities in this asset class.”
It’s high risk, high reward
The potential for deals in the office sector comes as the number of office-related foreclosures, defaults and deeds in lieu of foreclosure negotiations has skyrocketed this year, Okada explained. “It is also very difficult to get financing in this asset class,” he wrote in his report. “Many traditional lenders are experiencing an ‘overweight’ level of real estate risk on their balance sheets, and the usual active lenders are not taking on new loans. When there is no financing available, prices typically plunge. This perfect storm has resulted in operators with high debt levels in the office sector to default on their loans and/or give back the keys to their lenders.”
The resulting market morass already has yielded bargains for investors not averse to risk. Among the recent deals in the office sector are:
25 Water Street, NY, NY (Office)
Price: $250 million
Size: 1.1 million square feet
Price per square foot: $225
Peak Pricing in Financial District :$650 per square foot
Current Price Point Last Seen in 2010
Domestic institutional seller / private & private equity purchaser JV
260 West 36th Street, NY, NY (Office)
Price: $33 million
Size: 95,000 square feet
Price per square foot: $347
Peak Pricing in West 30’ Per SF: $850
Current Price Point Last Seen in 2009
Private seller / private purchaser
111 West 24th Street, NY, NY (Office)
Price: $16 million
Size: 46,500 square feet
Price per square foot: $349
Peak Pricing in West 20’s Per SF: $1,000 per square foot
Current Price Point Last Seen in 2009
Private seller / private purchaser
830 Third Avenue, NY, NY (Office)
Price: $72 million
Size: 147,068 square feet
Price/SF: $490 per square foot
Peak Pricing Midtown East: $850 per square foot
Current Price Point Last Seen in 2012
Institutional seller / private purchaser
Hotels are selling at discounts too
And it’s not just the office sector where deals can be had. Amid the economic downturn, hotels are another asset class that has experienced significant pressure – particularly as a result of the pandemic when people were encouraged to exercise physical distancing. “The travel and hospitality sector were hit hard during the pandemic,” Okada wrote. “New York City in general saw its travel numbers drop nearly 90% in 2020. Although tourism numbers have returned to 80%-85% of pre-pandemic levels, those that had pre-pandemic mortgage levels are having difficulty paying their debt service.”
As a result of these conditions, hotels have sold at a significant discount. Among those properties are:
525 Lexington Avenue, NY, NY (New York Marriott East Side | Hotel)
Price: $154 million
Size: 406,257 per square foot
Price/SF: $379.07
Price/Room: $235,115
Peak Pricing / Room in Midtown: $450,000
Current Price Point Last Seen in 2009
International Institutional Seller / Private & Private Equity Purchaser JV
130 West 46th Street NY, NY (The Muse New York | Hotel)
Price: $49.5 million
Size: 113,947 square feet
Price/SF: $434 per square foot
Price/Room: $247,500
Peak Pricing / Room in Midtown: $450,000
Current Price Point Last Seen in 2009
Institutional Seller / Private & Private Equity Purchaser JV
42 West 35th Street, NY, NY (The Gregory | Hotel)
Price: $32.9 million
Size: 55,500 per square foot
Price/SF: $592 per square foot
Price/Room: $249,242
Last Price Sold: $50M May, 2014
Current Price Point Last Seen in 2009
Bank Foreclosure / Private Purchasers
