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Yesterday Monday March 30, 2009 at 4pm Mayor Bloomberg signed approval of the Bed-Stuy Gateway Improvement District in the Bedford-Stuyvesant section of Brooklyn.  After years of work, the formation of this BID also marks the beginning of an exciting $9MM+ city funded transformation of the shopping experience on Fulton Street between Classon and Troy Avenues.  With key factors like proximity to market center and superior access to transportation this streetscape initiative is the missing link in finally recognizing the deep consumer buying power of neighboring residential blocks.  These results would not have been possible without the leadership of one of the most proactive, cohesive and progressive retail associations in the borough. 

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Neighborhoods: Bedford Stuyvesant

Two properties being sold as a package. Combined 29 units, 12 studios, 12 three bedrooms 4 four bedrooms and one duplex. The RR is 317,663, Expenses $134,224 and including a reserve for vacancy for an NOI of $173,909.

Great location. Close to everything including parks and the Brooklyn's Children's Museum.

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Neighborhoods: Crown Heights

A two story industrial manufacturing building consisting of 14,375 Gross
SF. The property is equipped with two 9.5’ x 12.5’ drive in roll up doors. The ceiling heights in the warehouse are approximately 7’ and 13’ feet clear. There are two separate entrances to the second floor offices on both 33rd Street and Queens Boulevard.

The property is located on the northwest corner of Queens Boulevard and 33rd Street in Long Island City approximately 5-10 minutes from midtown Manhattan via 59th Street bridge. The property has 100’ feet of frontage on Queens Boulevard with a depth of 100’ feet on 33rd Street. The subject
property is located in the Long Island City Queens Industrial Business Zone that provides numerous incentives for relocating businesses in the boroughs. *All square footage figures & potential uses should be independently verified.

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Neighborhoods: Long Island City/ Agents: Stephen Preuss

This sale represents two buildings on one lot totaling approximately 9,163 square feet. One of the buildings is vacant, while the other is occupied by two 3-bedroom apartments. Residential rents for newly constructed apartments range from $1,000-$1,300 for 1 bedrooms, $1,350-$1,700 for 2 bedrooms, and $1700-$1900 for 3 bedrooms.

Coney Island is set to undergo a sweeping zoning change to take effect in the summer of 2009. The nearby major thoroughfares are Surf Avenue, Neptune Avenue, Mermaid Avenue, and Belt Parkway. Transportation includes the B68, B64, B82, B74, B36, X28, X38, and X29 buses as well as D, F, N, and Q subway lines at the multi-million dollar Stillwell Avenue Station.

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Neighborhoods: Coney Island

Treasury Secretary, Timothy Geithner, rolled out some of the details of what insiders are referring to as TALF 2.0.  This program has two componets, the Legacy Loan Program and the Legacy Securities Program. These programs are expected to help the commercial real estate industry based upon the premise that loans and securitiees collateralized by real estate are fundamentally undervalued due to a liquidity discount as opposed to drastically reduced cash flow expectation.

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Agents: Robert Knakal

The property is a 4 story walk-up apartment building located on 18th Avenue in Brooklyn. The property is approximately 28,536 sq. ft. and consists of 31 residential apartments.

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Neighborhoods: Flatbush

135 Lafayette Avenue is a (2) story industrial – flex space building located in North White Plains, Town of North Castle. The ground floor is cement block construction warehouse/garage (10,384+/- SF) with a smaller second floor office space of approximately 1600 +/- SF. Ceiling height in the warehouse is 12', loading dock with 2 Overhead doors at 16' and column spacing in the warehouse is approx 21', newer rubber roof. There is parking for 14-16 vehicles at the right side of the building as well as additional off street parking.

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Neighborhoods: Westchester County

A five (5) story, 20' foot wide townhouse with a three story rear extension. The building consists of 8 units, of which two are Rent Controlled, one is free market, and the rest are Owner Occupied. The property has much of its original detail intact. 3 floors are owner occupied and could be delivered vacant in addition to the parlor floor studio. All the windows have been replaced, and the facade has been completely refurbished.

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Neighborhoods: Upper West Side/ Agents: Paul Smadbeck

256 Fifth Avenue is a six story building with 12,960 square feet on a plot of 24’8” by 100’. The building, constructed in 1893, has a beautifully intricate terra cotta façade, which the American Institute of Architects describes in their guide to New York City as an example of architectural “virtuosity.” The buildings systems have been carefully maintained and all required fillings and permits are current.

There are approximately 11,700 square feet of additional development rights; however, as the building is within the Madison Square North Historic District only a portion may ultimately be approved for development by the Landmarks Preservation Commission. 256 Fifth Avenue will always be a link equal in style from a gilded age of another century to the current wave of new development.

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Neighborhoods: Flatiron/ Agents: John Ciraulo

70 feet of prime retail frontage on Broadway.  Block-through property with potential for large-scale retail development.  Current NOI of $82,000 from six stores with leases through 2013.

 Located just steps away from the Marcy Avenue J,M,Z train station, at the foot of the Williamsburg Bridge.

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Neighborhoods: Williamsburg/ Agents: Mark Lively

I am asked this question several times every day.  The true answer is that I do not know and no one knows. We are in unprecedented times.

There are so many factors to look at to try to figure out when this market will start to correct but nothing that has happened, thus far, has indicated that we are headed for clear skies in the short term.  There are several things we need to see and several hurdles we need to overcome before we can say that we are headed for recovery.

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Agents: Robert Knakal

This one story corner industrial property is located in the industrial region of eastern Greenpoint. The building is built full to its footprint of 8,315 square feet. There are five roll down gates which provide access to both Humboldt Street and Calyer Street.

There is a lot of upside in this property as is represented by the low rents received for the two larger units. The property is located in the North Brooklyn Empire Zone which offers tax benefits to commercial enterprises. The Greenpoint Avenue G train station is located less than nine blocks away from the property and there is also easy access to the Brooklyn-Queens Expressway, Williamsburg Bridge, and Queensboro Bridge.

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Neighborhoods: Greenpoint/ Agents: Mark Lively

Nationalization of our banks has been a popular topic in newspapers and on business television for the past few months which should be no surprise. Thus far in this economic cycle, 43 banks have failed and there are an additional 200 on the FDIC’s watchlist of troubled banks. The failures are primarily being driven by insolvencies as bad loans rise, mark-to-market write downs kick in and equity is depleted leading to negative levels of bank capital. Banks with significant exposure to residential mortgages and construction loans have been subject to rising defaults and mounting losses from nonperforming loans. In nearly all of the cases of bank failures, the FDIC already had buyers lined up for the failed institutions by the time they were taken over. Insolvent banks are generally taken over on a Friday and transferred to the new owners over the weekend so they can be reopened under a new name on Monday. The one exception to this process, in this cycle, was the takeover of IndyMac, the California bank which had become the poster child of all that is bad about subprime mortgages, Alt-a mortgages and ninja loans.  The FDIC decided to nationalize IndyMac rather than sell it off immediately.

 

Seizing control of large industries, ie nationalizing them, is often among the first acts of a leftist government. Clement Attlee and Hugo Chavez did it, and so did Lenin. Even the less extreme Francois Mitterrand made the nationalization of some banks and heavy industry the focus of his agenda when he became the president of France in 1981. Presently, the United States is finding its capitalistic principles being challenged at every turn. Surprisingly, calls for bank nationalization have been emanating from decidedly nonleftist quarters. Conservative Republican senator Lindsey Graham, from South Carolina, has an opened mind on the subject and, more remarkably, the free market ideologist, Alan Greenspan, has endorsed this approach. The White House has aggressively deflected such calls for nationalization although the rhetoric from Washington is often quite contradictory.

 

So what is “nationalization”. It can mean different things depending on your definition. There are two different forms of nationalization. The first stems from the belief that the government can run large enterprises more efficiently and effectively than self-interested capitalists can. This is the nationalization of Lenin, Chavez and Mitterrand, and the record here is abysmal. France’s economy stumbled through the 1980s as government run banks backed political pet projects that produced disappointing results. The second version of nationalization is the one that today’s advocates are suggesting. It is a temporary takeover born out of crisis. Sweden successfully implemented this kind of strategy in the early 1990s to strengthen its banking system. Even advocates of this form of nationalization agree that no one in their right mind wants the government to be in the banking business any longer than it needs to be. Let’s look at the arguments for and against the government taking this step.

 

We have some pretty sick banks in America at the moment, some of which may not be viable in the long run. But putting a bank through bankruptcy, ala Lehman, is unthinkable. Instead the government would declare the bank insolvent, wipe out its shareholders, terminate its top executives and inject enough money to keep it operating. It is argued that these cash injections, without nationalization, are akin to water torture which is keeping zombie banks alive resulting in a process which is both expensive and dangerous. Aggregating guarantees, liquidity support, and capitalization, the government has already provided between $7 trillion and $9 trillion of help to the financial system. On a de facto basis, the government is already controlling a substantial portion of the banking system. Supporters of nationalization believe that the idea that government will continue to fork over trillions of dollars in the hope of rescuing financial institutions by throwing good dollars after bad money is not appealing as the fiscal cost is likely to be significantly larger.

 

After the government takes control, the worst assets could be siphoned off into a so-called “bad bank”, pooling them with toxic assets from other nationalized banks. The healthy parts of the banks could then be sold back to the private sector. The promise of nationalization is that it, and only it, can halt a self-reinforcing cycle in which banks continue to take huge risks in an effort to dig themselves out of a hole. In the months before they collapsed, both Wamu and Lehman made the financial equivalent of the Hail Mary pass by making investments that had little chance of paying off but at least had the potential to put them back in the black. These additional losses cost the taxpayers even more money. Nationalization ends the game.

 

It is unlikely nationalization will be implemented in a way other than on a case by case basis. Yes, it worked in Sweden, but we are not Sweden. The Swedish government had to deal with only a handful of banks; we have more than 8,300. Once you start, where do you draw the line? The most obvious problem with nationalization is the risk of contagion. Certainly, no one wants to nationalize all of the banks, thousands of which are healthy. But where do you stop, once you start? If a few banks are nationalized, the next bank in line would find itself at a significant disadvantage competing for funds with the government backed banks. They would be forced to pay higher interest rates to attract depositors and other creditors, negatively impacting profitability. Worse yet, even talk about nationalization can be harmful as it puts bank stocks under selling pressure. If the government wipes out equity holders at some banks, why would investors want to put money into healthier but still marginal institutions? If some banks were nationalized, contemplation of this happening at subsequent banks would cause their share price to tank and short-sellers might consign the companies to an early grave.

 

The process of nationalization and reprivatization went amazingly well in Sweden partly because it was remarkably free of political interference. Could our politicians exhibit such constraint? I think not. The government should not be in the banking business. Treasury Secretary, Timothy Geithner, has repeatedly stated that governments are ill suited to manage businesses.

 

Finally, because nationalization runs counter to deeply ingrained American traditions and attitudes, there is a danger that it might undermine rather than bolster confidence. Additionally, the government already owns positions in many banks, and supervisors have immense powers to influence banks without owning them. Look at recent changes in the composition Citigroup’s board for an illustration of this influence.

 

The stress test for banks, which is a component of TALF 2.0, is likely to be inconclusive. Bank’s toxic assets are difficult to value, making it impossible to know how much capital they need and probably very expensive to provide it. Nationalization doesn’t make this problem disappear. It will not be until the public/private investment initiative component of TALF 2.0 has been established and is functioning, that the value of these assets be determinable and it will only be at this time that conclusions will be able to be drawn from the stress tests. The vagaries of mark-to-market accounting for assets in a nonfunctioning market also could benefit from this public/private initiative. I fully expect the mark-to-market rules to be modified as they are a significant contributing factor to the meager levels of bank capital today.

 

How would nationalization of banks affect commercial real estate? If we look at the banking industry, we see thousands of retail stores occupied by bank branches and million of square feet of office space occupied by these institutions in New York City alone. In a nationalization scenario, the government could terminate leases at will. In addition to terminated leases, the conservators could use the threat of termination to renegotiate leases. For strong landlords, this tactic would be frustrating but probably acceptable as vacant office space is not something on anyone’s wish list today. For landlords with excessive leverage, the results could be devastating.  Consider the potential impact this could have on the cash flows of the properties banks occupy. This dynamic will add even more pressure to rising capitalization rates which serve to reduce property values. Consolidation would be a likely scenario under any form of nationalization. Consolidation in the industry will continue to happen even if nationalization is not implemented, but it is much more likely to be orderly without government intervention. Let’s hope it doesn’t happen.

 

Have a great week,

 

Bob

Agents: Robert Knakal

East Village residential rental development opportunity, with foundation already in place. The foundation was poured prior to the June 2008 421-a deadline, enabling the full property tax exemption benefits. This site has plans for a six story (plus cellar and roof), 12 unit, rental building, w/ a total of 12,952 gross SF (10,741 SF above grade, 2,211 SF below grade). A Condo plan is also available. Another option is to file an “alt plan”and develop the property to custom specifications while still maintaining the 421-a tax benefits.

This is a unique project for a developer or user and is ready to go. Priced at $178 per gross buildable square foot, this is an opportunity not to be missed.

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Neighborhoods: East Village

6 Saint Nicholas Terrace is a 39’ wide, five (5) story walk-up building located on Saint Nicholas Terrace between 127th & St. Nicholas Park. 

6 St. Nicholas Terrace enjoys one of the most commercially convenient and easily accessible Central Harlem locations.  As a building of this size, condition and free market status rarely comes to market, 6 St. Nicholas Terrace presents a unique opportunity to operate an immaculate building with great cash flow.

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Neighborhoods: Harlem

147 East 30th Street is a 5 story, approximately 10,070 square foot, elevatored apartment building located on the north side of East 30th Street between Lexington and Third Avenues.

The building consists of twenty (20) residential units of which fourteen (14) are rent stabilized, five (5) are free market and one (1) is occupied by the superintendent.

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Neighborhoods: Murray Hill/ Agents: John Ciraulo, Robert Knakal

There has been virtually no new issuance of CMBS since the summer of last year. The result has been a reduction in the number of investment sales in New York with prices over $100 million of 85% in 2008 versus 2007. Thus far in 2009, there have been only 2 transactions which have exceeded $100 million. Securitizations are used for smaller loans as well, however, the  majority of this sector consists of larger loans.

Agents: Robert Knakal

A two-story retail property at 2174 86th Street in Brooklyn’s Bensonhurst neighborhood was sold in an all cash transaction valued at $1,200,000.

Neighborhoods: Bensonhurst/ Agents: Jeffrey Shalom

121 Ludlow is a fully renovated 3 story building located in the heart of the Lower East Side on Ludlow Street between Delancey and Rivington Streets. It is currently vacant on the ground floor with two commercial tenants above, an art studio on the 2nd Floor and a Hair Salon on the 3rd Floor. Leases expire in 2011 for one tenant and 2012 for the other. Utilities are all submetered. 13' high ceilings on ground floor, 12' on 2nd floor and 10' on 3rd floor. It is fully equipped for restaurant use, with exhaust systems in place, kitchen, and full basement with 9’ ceilings. This is a one of a kind opportunity for a user or investor to purchase a property in the hottest part of the Lower East Side. This is an extremely well built, fully renovated building.

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Neighborhoods: Lower East Side/ Agents: Michael DeCheser

The subject properties are warehouse and office buildings and a vacant lot occupying the southeast and southwest corners of Westfield Avenue and Harrison Street in Elizabeth City, Union County, NJ. Adjacent to the subject property is an 8+ acre vacant site the city has assembled for a mixed use, transit-orient redevelopment. The site falls within the NJ Urban Transit Hub Tax Credit Program and qualifies for up to $75 million dollars in tax credits for approved development.

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Neighborhoods: Union County

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