Tuesday, May 26, 2009

Skyscraper, Anyone?

Now the consumers are supposedly in a much cheerful and positive mood, how about some skyscraper shopping?

"Have I got an office tower for you" on MSNBC.com says skyscrapers across the US are being sold at firesale prices. How "firesale"?

How about $100,000 for a 40-storey office building at 1330 Avenue of the Americas, New York?
"The 1330 Avenue of the Americas building — which sold for close to $500 million three years ago — was auctioned last month for the minimum to a Canadian pension fund unit after owner Harry Macklowe defaulted on a $130 million loan.

"Loan defaults in the worst commercial real estate market in decades have created tens of billions worth of distressed properties across the nation, sometimes forcing cut-rate auctions of landmark skyscrapers. Developers are falling behind on mortgages as tenants leave and can find no financing to cover payments, analysts say.

"So they are selling skyscrapers at a drastic discount, with the condition that the new buyer take on the enormous amounts of debt connected to the properties."

(Hmmm, so that's the hitch...) But analysts think this is just the beginning.

""This is a train wreck that's coming in the large office towers," said Matthew Haines, chairman of the Propertyshark.com real estate Web site.

"Real Capital Analytics, which tracks commercial real estate transactions, counted over $86 billion worth of distressed properties in the country as of April, over $6 billion in Manhattan.

"Many of the towers that are likely to go up for sale were bought at inflated prices during the boom three to five years ago and could lose over half their value at sale, analysts said."

"The only major property sales that are likely in the next several months, analysts say, are distressed properties with delinquent loans.

""No healthy owner in their right mind would try to sell a property in this environment," said Fasulo. He said devalued sales of skyscrapers represent "a trickle right now. It will turn into a flood over the next 12 months.""

SRS (real estate (commercial) double short ETF) anyone? (Of course IYR - real estate long ETF - would be the obvious contrarian trade, if you are so inclined.)


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