Property Grunt

Tuesday, June 23, 2009

3 for 1 or 6 for 2

Despite Pleas for a Freeze, Stabilized Rents to Go Up

The board that regulates rents for New York City’s one million rent-stabilized apartments ignored pleas from tenants and elected officials to freeze rents for the first time in its 40-year history and approved a set of modest increases on Tuesday.

The nine-member board, known as the city’s Rent Guidelines Board, authorized rent increases that were lower than last year’s, approving increases of 3 percent on one-year leases and 6 percent on two-year leases.

Last year, the board approved its highest set of increases since 1989, 4.5 percent on one-year leases and 8.5 percent on two-year leases. That meeting was disrupted by tenants who blew on plastic whistles at an ear-ringing volume.

On Tuesday evening at the Great Hall at Cooper Union in the East Village, the board’s deliberations were marked at times not by noise but by virtual silence.

After a motion for a rent freeze that was put forward by a tenant representative on the board was struck down, dozens of tenants walked out in protest. Earlier, some had waved pieces of paper reading “O%” and chanted, “Zero! Zero!” Others placed tape across their mouths in a silent demonstration.

“This is a severe recession,” said Ronald S. Languedoc, the board member who put forward the motion for a rent freeze, adding, “This is not the year to have a rent increase.”

This is not the year to be a landlord. Everyone is hard pressed for money. And if tenants can't afford the rent, they have to move out which leaves a smaller rent roll for the landlord leaving them strapped for cash. And there is no way in hell they can refinance in this environment. And if landlords need money, well they are going to have look for other sources which include hard money lenders and their rates of interest are extremely high.

And this is not going to end anytime soon.

No recovery for U.S. property markets until 2017

NEW YORK (Reuters) - The U.S. urban commercial real estate markets probably will not recover until 2017, the head analyst of commercial mortgages for Deutsche Bank Securities (DBKGn.DE: Quote, Profile, Research, Stock Buzz) said on Monday.

"The froth is still working itself out," Richard Parkus, Deutsche Bank head of Commercial Mortgage-backed Securities and Asset-Backed Securities Synthetics Research said at the Reuters Global Real Estate Summit in New York. "We are currently in something which is comparable to what we saw in the 1990s and potentially worse."

U.S. commercial real estate values could fall by more than 50 percent from the peak in 2007, he said.

Although asking rents are down about 28 percent in New York, factoring in free rent and other perks by landlords, rents are down about 50 percent, Parkus said.

"Rents will be back to where they were in 2017," Parkus said. Building prices also will take six to eight years to recover, he said.

The U.S. commercial markets are deteriorating at an increasing pace as rent dries up and demand plummets. That is leaving borrowers struggling to make their monthly mortgage payments.

"The number of new loans that are becoming delinquent each month are defaulting at rates between 5 percent and 8 percent per year, with the most loosely underwritten loans of 2007 defaults at 8 percent per year, Parkus said. That puts accumulated losses at about 4 percent this year, and 12 percent over the next four years.

Loans loses ranged between 7 and 11 percent a year during the commercial real estate crash of the early 1990s.

"We are not only not approaching stability, we are at a period of maximum deterioration," Parkus said.

For those of you who have the liquidity and the wherewithal to look for bargains, this is the time to go cherry picking.

Everyone else. If you haven't lost your minds yet, this is the time to start.