Just to put a point to the notion that the Commercial Real Estate (CRE) market could actually become a lot worse, Seeking Alpha just posted a most interesting thumbnail analysis as to how we could see a huge downturn, with respect to the overall value in the CRE arena in the very near future.

The sale of Harry Macklowe’s GM Tower portfolio (the history of which we have been tracking for several months, here at MarylandCommercialTitle), will set a new benchmark for the valuation of Commercial Office Real Estate for New York, and probably for the US, as a whole. 

The GM Tower was estimated at a value of around $3.2 Billion, but the current expected sales price is in the region of $2.8 Billion (most likely purchased by Goldman Sacks). This equates to a discount of around 12%. 

The total value of CRE in the US is approximately $5 Trillion, so if this new valuation is, in fact, a benchmark, $600 Billion of value could be soon be wiped off the Commercial Real Estate (CRE) books. 

So you think this figure sounds dreadful, but is it probable? Here are some incredibly painful facts to consider: 

• NY office vacancy rates are up to 6%

• JPMorgan is to slash its office requirements by 1 M Sq Ft

• Other troubled financials could add another 2 M Sq Ft.

• Cap Rates in NY have risen by about 0.5% to 5.5%  ( Around 9% in 2004)

• Retail Commercial is actually falling in value faster than Office Commercial. 

Bearing in mind the indications listed above (using NYC commercial real estate figures which has been even stronger than national figures in nearly every US City), $600 Billion may be a very conservative figure, in the end.

How these new valuations will affect the Banks and Commercial REITs, only time will tell. Buckle up for the ride of our lives ….

Tags: CRE Values

Posted in Real Estate Brokers, Developers, CMBX, Attorneys, Bankers, Commercial Title Companies, Market Trending, Commercial Real Estate | No Comments