March 16, 2010

Monday, March 16, 1931: Real Estate Special Report

Historical stuff:

Wall Street, probably the world's most valuable thoroughfare in proportion to length, is now possessed by about 30 owners. While there's always a market for Wall St. property, no one wants to sell; “Unlike land almost anywhere else on Manhattan, it is not subject to varying business conditions. Property values there never depreciate. A change of ownership generally is at greatly increased prices.”

Buildings about ready for occupancy: the new Waldorf-Astoria at 49-50 St. and Park-Lexington Ave.(2,253 rooms, all equipped with radio and “wired for television”; over 500 de luxe rooms with high ceilings, open fireplaces, and boudoir baths; private rail siding under hotel for guests owning private railroad cars); new 50-story Irving Trust headquarters at One Wall St. (grand reception hall 3 stories high and 100 feet wide along Wall St.); Empire State Building (2.2M sq. ft., to have 25,000 tenants, $65M cost; seen drawing tenants from financial district and many other areas; reject nasty gossip in some quarters about proximity to garment district); new 60-story City Bank Farmers Trust building at Exchange Place and William St.

Buildings under development: Met. Life new office building at 24-25 St. and Fourth-Madison Ave.; 67-story office building at Pine, Pearl, and Cedar St.; 36-story Maritime Exchange building at 80 Broad St.; 35-story Commerce building at 155 E 44 St.; revolutionary “all-glass” 3-story building for Phila. Fund Society Bank.

Development of far East Side between 23-63 St. and 2nd Ave - East River proceeding apace, looking to reclaim residential glories of 100 years ago. Many large plots have been assembled along 2nd Ave. in anticipation of the new subway. Growing residential areas include Jackson Heights, Mamaroneck, New Rochelle, Yonkers, Bronxville, Mt. Vernon, White Plains, Maplewood, West Orange, Stamford, Norwalk, Darien, and Greenwich.

H. Mandel notes that while Manhattan has been losing population year by year to commuting, there recently seems to be an increasing return to living in Manhattan, with residents drawn by more “dignified and handsome” apartment buildings, convenience, and other advantages of city living.

Jan. report of Nat'l. Assoc. of Building Owners and Managers covering 1,935 buildings in 41 cities with total space of 165.6M sq ft. shows office vacancy rate of 14.7%, vacancies enough to take care of normal business expansion for at least 3 years. About 7.9M sq ft of new space will come on market this year.

Thompson-Starrett, since its organization in NY in 1899, has executed 1,246 contracts involving expenditures well over $1B; recent NY buildings include the Waldorf-Astoria and Downtown Athletic Club. Almost all work has been done under “limit of cost” contracts in which it guarantees limits on building costs and time, while taking only a fixed fee; any cost overruns are borne by the company, while cost savings pass on to the owner.

Comment and analysis:

F. Goode of Brown, Wheelock compares real estate market to convalescent from a “long-deferred but necessary operation”; patient is weak, but ordeal is mostly behind him. Real estate slump was due to overproduction brought on by excessive optimism, loose credit, and entry into construction field by “millionaire ex-merchants with a limited background” but limitless confidence and access to funds. In 1927-29, the more experienced and conservative were overruled and their warnings ignored; boom continued as long as general business held up; when stocks collapsed in 1929, rental business gradually softened, while some buildings started during the boom continued to come on the market; fortunately, incidents of “real distress” and default are isolated. Lessons for future: more careful investigation by lenders and bond buyers; elimination of “compaisant” appraisers willing to inflate valuations; return control of construction to experienced hands; temporary pause of 1 to 3 years in building until vacant space can be absorbed.

G. Mortimer, NY Title & Mortgage pres., notes distinct uptrend in NY real estate, though situation remains far from normal. Rents are increasing on Park. Ave.; many important homes recently bought; mortgages now readily marketable, all large mortgage institutions now actively seeking acceptable applications as means for meeting eager demand for their securities. Uptrend even more encouraging in boroughs and outlying areas.

W. Greve, NY Investors Inc. pres. says better quality real estate resisting forces of deflation as it has in similar periods in the past.

C. Noyes notes major real estate deals have come to standstill since Oct. 1, but in the past it has been “right at that moment light is coming out of darkness and better times are dawning ...”

Douglas Elliman reports real estate bore up well through early part of depression but has suffered some setbacks since; however, rental situation reasonably sound with 9.4% vacancies in East Side rentals vs. norm of 10%; rents may be reduced slightly but “no panic in rents”; lull in building should be beneficial. Good income-producing real estate now undergoing “emotional liquidation”; this is a buying opportunity.

Fred Ley notes increasing confidence that real estate industry is slowly but surely recovering from 1930 slump. Remembers past periods of depression and sees same signs that marked recovery then, including abundant and cheap money, more optimistic mood, and low cost of construction. Time for indiscriminate building is past, but “wise builder, who has both courage and discretion” has an opportunity. “It still is true that one cannot rightly be 'bearish' on the United States.”

C. Babbage, US Realty & Improvement Corp. pres.: “impossible to prophesy accurately” when prosperity will return, especially with regard to real estate. However, situation would be easier if there were no new laws for a while. Inflation in real estate was caused by ease of borrowing money; many involved hadn't been through a depression and didn't sense they might have to pay back loans when conditions were less favorable.

P. Grimm, Real Estate Board of NY pres: “We have reason for satisfaction over the manner in which real estate has withstood the shock of a worldwide economic reasjustment. It has suffered by no means so widely and deeply as many other commodities.”

T. Mersereau of the NY Real Estate Securities Exchange says the Exchange, formed 15 months ago, has filled the need for a place the real estate operator can go to the public to raise capital for large projects. Considering basic soundness of real estate, believes there has never been a better time for “public to invest wisely in attractively priced real estate securities.”


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