Crisis squeezes NY property market

Property developers and financiers, including Israeli companies, feel effects of spreading credit crisis.

By ALLISON HOFFMAN, JPOST CORRESPONDENT IN NEW YORK
new york buildings 224 88 (photo credit: Courtesy)
new york buildings 224 88
(photo credit: Courtesy)
Property developers and financiers - including Israeli companies that have invested heavily in everything from trophy office buildings to Brooklyn residential renovations - are being whiplashed by the spreading credit crisis, which has brought New York's real estate market to a screeching halt. Some are rushing to draw down credit lines before they are withdrawn, while others, following the example of Israeli billionaire Lev Leviev, are chasing down rapidly disappearing capital to shore up their balance sheets. Longtime players in the market said they expect a protracted shakeout as the nosedive on Wall Street and the paralyzed global economy erase demand for every kind of real estate, from luxury condominiums to sparkling new office towers - at a time when Israelis own more of both than ever before. "It's really going to get ugly - it's like dirty laundry, you've got to put it in the washing machine and put it through a couple of cycles to wring it all out," said Robert Shapiro, president of City Center Real Estate, which assembles land and air rights for commercial developments. "It's the new kids on the block who were really the aggressive bidders," he said, adding that sovereign funds are likely to be particularly hard-hit. A 40-year veteran of Manhattan real estate, Shapiro estimated a 10-year correction before the market returned to the highs of 2007. He said the real problem this time around was the number of highly leveraged deals that depended on demand continuing to rise - instead of vanishing almost overnight. "You know you're in trouble when a Jerusalem taxi driver says he's got a rental conversion in New York," he said. "But just as prices can increase exponentially, they can decrease exponentially." Israeli investors, flush with cash, have in recent years scoffed at the notion that Manhattan might not be untouchable: As recently as July 2007, with housing markets already cratering from Miami to Las Vegas and San Diego, Rotem Rosen, head of the US arm of Leviev's Africa Israel Properties, told The New York Sun he considered New York real estate "very undervalued." In August, Africa Israel sold nearly half its stake in two "trophies" being developed for retail and commercial use - the original New York Times tower off Times Square and the Clock Tower at the foot of Madison Avenue - to an unnamed investment fund in the Far East. Yet vacancy rates for commercial real estate rose by a third, to 7.4 percent for the third quarter, according to a study by Cushman & Wakefield, a privately held commercial real estate services firm. The consolidation on Wall Street is expected to put further pressure on that market. Meanwhile, property owners and developers with recently completed luxury towers are resorting to incentives - such as a month's free rent to cover brokers' fees - more common to second-tier cities than Manhattan, in hopes of courting renters able to pay as much as $3,300 a month for a one-room studio apartment. "I think the fear has never been this bad," said Michael Slattery, a spokesman for the Real Estate Board of New York, a trade association. "But when you look at the horizon and banks say they won't be lending until the end of the year, it creates discomfort."