2009 Year In Review
Dear Friends & Investors:
2009 posed challenges for the real estate world and most are happy to see it go. With a declining rental market, and the government taking aim at property owners through harsh legislation and higher real estate taxes, one of the only bright spots last year was when oil actually dropped to the $30’s per barrel. Looking ahead to this year, a few thoughts:
Federal Capital Gains at 15% Set to Expire in 2010
The federal capital-gains tax rate, which was temporarily lowered to 15% by the Bush administration, is set to change at the end of this year. As Obama continues to look for ways to increase revenue, this tax is likely to be increased. If so, more owners will dispose of their assets this year, and create market activity.
2 Classifications of Opportunities
Distress comes in two forms. This past year, we brought to market a number of assets with Property Distress. By this, I mean a problem on the property level that the owner cannot or does not want to solve, such as unfinished renovations, structural issues, or a complicated landlord-tenant situation. On December 4th 2009, we closed on the sale of a 48-unit elevator building on Overlook Terrace which closed in one day to an investor with the capability to remedy the structural problem. The sale closed at $3,500,000. While many claim they want a distressed property, these situations require a buyer to have special skills. Also there are specific methods a broker uses to find the right buyer for this type of opportunity.
Most are waiting to purchase assets with a component of Seller Distress, meaning the property is operating normally, but the seller needs to solve a financial problem requiring the asset be disposed. This year, the most aggressively underwritten loans (from 2005, 2006, and 2007 originations) will begin to have their interest-only periods burn off, some come up for refinancing, and the pro-forma numbers will have to be hit. If not, they are likely to make their way into the marketplace in some form or another. In May, we sold at auction the LLC’s which were formed to own and operate the buildings located at 448-452 Broome Street. The properties were operating fine, but the owner defaulted on a development parcel in South Florida causing these to be sold.
A Growing Consensus
In reality purchasing a building either category is not a walk in the park, but as reported in last months’ NAREIT Survey, more that 70% of investors are amassing capital for acquisitions in 2010. There is no lack of demand for New York Multifamily, and that is a positive for those looking to transact this year. In the words of a Japanese family which just hired me to exclusively represent them to purchase a Manhattan property: “Ten years from now we will be very happy we acquired a building in 2010.” It is very hard to disagree with this thinking. I wish positive and profitable outcomes for each of you this year. Best of luck.
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