Jeffrey Ditri

Fifth on the Park rendering

Some buyers of new condominium units are being forced to walk away from their deposits because the mortgages they lined up before the credit crisis are no longer available, and they can't get financing. Near closing dates, some banks are requiring buyers to put additional money up for the down payment if they want a mortgage. For conforming loans in New York City, banks are now requiring at least 20 percent down, and for jumbo loans, lenders want down payments of as much as 50 percent. Some buyers are suing the developers of new buildings for their deposits back. "If I knew this, I would never buy this apartment," said Louis Andriopoulos, who put down $100,000 for a two-bedroom at Fifth on the Park in 2007, but lost mortgage approval. "Ten percent used to be more than enough [for a down payment] and I never had a problem with financing before."

The Manhattan office market overall and most submarkets continued to decline in February, but the pace of decline was slower than in January of this year, according to a February office market report released today by Newmark Knight Frank.

The availability rate in February rose slightly to 12.4 percent from January's 12 percent in Manhattan. Year-over-year, the availability rate rose a sizable 4 percent from February 2008. The average asking rent dropped 1.5 percent, to $51.27 per square foot last month from $52.08 per square foot in January. Year-over-year in February, the average asking rent dropped 22 percent from the February 2008 peak of $65.75 per square foot, the report says.

In Midtown South, the availability rate of office space rose to 11.4 percent in February, up from 10.9 percent in January and up from 7.7 percent in February 2008. Asking rents dropped 3.6 percent to $39.19 per square foot from $40.63 per square foot in January.

The Midtown submarket also posted declines, but they were less steep. The availability rate rose 0.4 percent, to 13.4 percent in February from 13 percent in January, according to the report. The average asking rent fell to $61.71 per square foot in February, compared to $62.21 per square foot a month earlier.

Downtown has not fared as badly in terms of space availability, which has held steady at 11.7 percent for several months. Asking rents, however, dropped 2.2 percent between January and February, to $41.18 per square foot from $42.13 a foot, and a total of 10.1 percent since their peak in March 2008.

Asking rent reductions that accelerated through the fourth quarter of 2008 continued in January, with prices down by as much as 30 percent from the peak last summer, commercial brokers said.

The number of blocks of space in Midtown with dramatic price cuts quadrupled between September and December, according to a CB Richard Ellis report released last month.

Tenant representative broker Norman Bobrow said he saw repricing all over Manhattan. "This has been going on since September of last year but has accelerated, really accelerated, in December and January," he said. He estimated prices had fallen back to levels last seen in 2005.

The optimism from the inauguration of President Barack Obama on Jan. 20 was quickly dampened two days later by a crushing jobs report that showed the city shed 8,500 private jobs in December and the unemployment rate rose to 7.4 percent, Glenn Markman, executive director at Cushman & Wakefield, said. Each office job loss equates to a loss in demand for about 250 square feet.

Despite the bad news, leasing negotiations have picked up from the near standstill in the fourth quarter of 2008.

"The market had to reduce [prices] because it was too expensive," said Markman, who estimated prices were off 20 to 30 percent from last year's highs.

As an example, he said, in late January he was negotiating a lease with a landlord in a Midtown building who had been seeking as much as $80 per square foot. The tenant occupies the space on a sublease, paying about $50 per foot. But as the economy declined, the landlord reconsidered its high price and will likely settle for about $55 per square foot, or a 31 percent cut from the asking price.

"Look what the landlord gets: certainty," Markman said. "He does not give [tenant improvement] or free rent ... and no downtime for leasing."

Howard Rosenblum, a leasing agent and director at commercial property landlord Kaufman Organization, said owners were aggressively cutting prices by about 20 to 25 percent to attract tenants. But, he said, tenants were still holding off.

"A lot of people are thinking it is going to drop more and don't want to commit," he said. Tenants do not want to pay the steep security deposit and some wonder if they will still be in business in the coming years.

But some tenants who do negotiate are signing leases with prices that are below the rents they paid in the final years of a long-term lease, he said.

Neal Lerner, an independent tenant representative broker who works in the 5,000-to-15,000-square-foot range, said tenants willing to sign leases were opting for shorter terms, like two, three or five years. The bet is that rents will be even lower on the expiration of the lease, and they will get a better deal at that time.

"People tend to stay in place and negotiate shorter commitments from landlords," he said. "They are waiting for a better time when they can take advantage of lower rentals on a long-term basis."


Midtown

Landlords in Midtown have tripled the amount of space aggressively discounted in their hunt for tenants, slashing prices in December by an average of 19 percent, CBRE reported. The quantity of sites being repriced quadrupled from 30 in October to 134 in December, representing 1.74 million square feet that month, the report said.

Despite the steep reductions, the average asking rents dropped by only $1.98 to $78.89 in December, and vacancies rose 1 point to 7.6 percent, the data said.

Some landlords were holding firm in pricing. Bobrow said there were Class A landlords in Midtown who were reluctant to sign leases at discounts. The building owners sought to maintain the high rents in the office towers so that larger tenants negotiating a lease renewal could not point to lower rents and ask for a similar discount.

Landlords "don't want to inch down, they want to hold on to the renewals" at the high prices, he said.


Midtown South

Midtown South had its slowest month in leasing velocity since May 2001. Just 80,000 square feet was signed, representing only 20 percent of the five-year rolling average, CBRE said. The anemic month capped the weakest year since 1993. In 2008, 2.58 million square feet was leased, a level 40 percent below the total for 2007, the data showed.

The district saw vacancies rise in December by 1 point over the month earlier to 8 percent, but asking rents remained steady, dropping just $0.03 to $52.43 per square foot.


Downtown

Leasing activity Downtown remained flat while prices declined moderately, in the only one of the three office markets to see positive absorption, the CBRE data showed.

The district had a net absorption of 270,000 square feet, but for the full year the area had a negative absorption of 1.59 million square feet, compared to a positive absorption of 1.33 million square feet in 2007, according to CBRE.

Average asking rents fell from November to December by $1.51 per square foot to $47.68 per foot, while vacancy rates were steady at 7.4 percent.

Markman said brokers were keeping a close eye on three financial firms that occupy 7.5 million square feet downtown — Bank of America, Goldman Sachs and American International Group.

Bank of America is absorbing Merrill Lynch, Goldman Sachs is moving to a new headquarters in 2010 and AIG may sell some of its buildings for residential use.

"Depending on what the companies look like a year from now, that will have an effect on the marketplace," he said.

Speaking on NBC's Today show this week, the Corcoran Group's founder, Barbara Corcoran, said that most apartments that haven't been sold are turning into rentals, and that tenants are now in the perfect position to bargain. Possible concessions from landlords include several months' free rent, an apartment with a better view or slightly more square footage for the same price.

Watch the interview here:

www.youtube.com/watch

770 Park Avenue, #14B

The unit with the biggest price cut today in Manhattan is a two-bedroom, three-bath co-op at the Rosario Candela-designed 770 Park Avenue, according to Streeteasy.com. The apartment, unit #14B, was cut by $2.4 million and is now listed for $7.5 million, down from its $9.9 million listing. The apartment was originally put on the market at $10.95 million in May 2008, and cut to $9.9 million in September. Brown Harris Stevens' Nancy Elias and John Burger are listing the unit, which also has a 45-foot terrace. The $2.4 million cut from the unit is almost double the average price of a co-op in Manhattan, which was $1.21 million in the fourth quarter of 2008, according to appraisal firm Miller Samuel.

Meanwhile, the most expensive unit to come on the market today is a $9.35 million condo at 151 East 58th Street, One Beacon Court. The 2,410-square-foot unit has three bedrooms and three baths. Brown Harris Stevens' Linda De Luca and Corinne Vitale are listing the unit. On Monday, a One Beacon Court unit had the biggest price cut of the day.