Commercial real estate continues to get pummeled

Commercial real estate continued to take it on the chin last week, and brokerages are preparing for even rougher times ahead. 

CBRE, JLL, Colliers and Cushman & Wakefield, among others, are moving forward with cost-cutting measures, including layoffs, as property sales and leasing eat into their profits.

Symbolic of the tough times, the iconic — but vacant — Flatiron Building is heading to auction scheduled by a New York state judge for March 22. 

Sorgente Group, Jeffrey Gural’s GFP Real Estate and ABS Real Estate Partners, which owns 75 percent of the building at 175 Fifth Avenue, sued in 2021 to seek a partition sale after the owners said they could not see eye to eye with the 25 percent owner, Nathan Silverstein. The judge issued an order in January allowing the sale to go forward. 

It’s not the only high-rise potentially poised to hit auction. A subsidiary of M&T Bank asked a court to approve the foreclosure on 29 West 35th Street so it can sell the building at auction. The bank won two judgments against owners Paul Sohayegh and Roni Movahedia in December over their default on a $41 million loan.

The Brooklyn office market looks equally bleak. While the vacancy rate held at about 21 percent in 2022, net absorption in the fourth quarter crashed from around 279,500 square feet in 2021, down to 950 square feet at the close of 2022 (though that’s a significant improvement from the third quarter). 

Meanwhile, in Queens, for the second time in three months, the Chetrit Group — squeezed by occupancy struggles and a floating rate loan made expensive by the Fed’s rate increases — fell behind on a $225 million loan covering 640 multifamily units in Jamaica. That mortgage comes due in July.

In further evidence of commercial distress in Los Angeles, Laguna Point Properties is delinquent on a $329 million loan it used to buy a portfolio of more than 1,000 L.A. apartments less than a year after securing the debt. 

In addition, Grant King is seeing his share of hard times, as Relevant Group, which he co-founded, lost the Tommie and Thompson hotels to mezzanine lenders through foreclosures.

Elsewhere, LaSalle Investment Management sold the office building at 4 Hutton Centre Drive in Orange County for 55 percent less ($24.9 million) than what the firm bought it for in 2019 ($55.4 million).

In San Francisco, the Chronicle reported the city has lost nearly 150,000 daily office workers since the start of the pandemic in early 2020 during a shift to remote work and online shopping.

Not everyone is feeling the pinch equally. The Chicago area retained its No. 1 spot (for the 10th year running) as the nation’s leading city for commercial real estate investment. This despite losing Boeing, Citadel and Caterpillar headquarters to other municipalities. 

Texas, meanwhile, saw commercial construction projects total $70 billion — or 20 percent of the commercial real estate spending in the nation — last year,  the Dallas Morning News reported, based on an annual study by the National Association of Industrial and Office Parks. 

Hitting home

The commercial sector isn’t the only one taking blows. Large residential brokerages, including Anywhere, Refin and Compass, reported big losses. Last week, Compass announced it posted a $158 million loss in the fourth quarter of 2022, leading some analysts to doubt that the firm will break even by 2025. 

South Florida — as a result of the deadly Surfside condo collapse — is seeing spiking insurance costs and fewer insurers writing policies, which could lead to condo owners selling their units at significant discounts. 

If we’re looking for some positive news, the Manhattan and Brooklyn housing markets saw an uptick in activity that was beyond seasonal. Still, even there, the news was coated in 2023 reality.

“This is the year of disappointment,” said Miller Samuel CEO Jonathan Miller. “Sellers aren’t going to get their price of 2021 and buyers aren’t going to see significant cost savings.”