http://www.crainsnewyork.com/article/20090324/FREE/903249973 March 24, 2009 3:46 PM Big landlord takes hit on falling apt. rents Equity Residential, a Chicago-based real estate investment trust that owns 47 apartment buildings in the New York area, has chopped charges by nearly 20%. By Amanda Fung Declining Manhattan rents are taking a toll on Equity Residential, a large real estate investment trust that owns 47 apartment buildings in the New York metropolitan area. The Chicago-based REIT appears to be among those most vulnerable to the deteriorating market here, according to Macquarie Research, an investment bank. Equity Residentialâs New York City buildings are high-end luxury rentals which draw many of their tenants from Wall Street, where firms are cutting back and employees are suddenly looking to pinch pennies. Since February alone, Equity Residential has lowered its Manhattan asking rents by an average of 13%, said Michael Levy, an analyst at Macquarie. That reduction came on top of a 15% cut over the previous year. In a Tuesday research note, he noted that the greatest asking-rent declines took place at Equity Residential's Trump Place buildings on the Upper West Side, where rents fell by an average of 15.5% at 1,325 units. The biggest drops were for studio apartments, where rents were lowered by 19%. âThis is troubling, given our view that Trump Place is Equity Residentialâs regional crown jewel,â Mr. Levy wrote in the research note. âIn this market we find that the upper-end of the rental market is getting hit harder in terms of having to lower asking rent.â Properties in the New York metro area contributed 10% of Equity Residentialâs net operating income last year according to Macquarie. Half of the companyâs units in the region are in Manhattan. During its fourth quarter earnings call, Equity Residential management expressed concerns about the job losses in New York and its impact on the company, noting that results were flat in the New York market for the year. Last year, the company recorded funds from operation of $2.18 per share on revenues of $2.1 billion, flat from the previous year. Analysts estimate funds from operation will slide to $2.13 per share this year. âIf rents go down, income goes down,â said Peter Von Der Ahe, vice president of investments at Marcus & Millichap. âIn New York, building expenses are also up. For REITs, less income and higher expenses mean less cash flow.â AvalonBay Communities, an Alexandria, Va.-based apartment REIT, is also heavily exposed to the New York market, according to Mr. Levy. Similar to Equity Residential, AvalonBay has properties in New York and other metropolitan areas with a higher concentration of financial-industry tenants than its peers. Filed Under : Commercial Real Estate, Residential Real Estate
The most interesting part is where that clearing price will end up. It's 19% to 25% less now, but what will it be next year?
What ever it is you can rest assured there will be buyers there. It may not be you...but someone will buy once supply clears price/demand. Do you actually trade the capital markets at all?
I agree that equilibrium exists somewhere; the relevant issue raised by the article I posted and given current events is where that equilibrium level will shake out at the end of the day. Did you notice all those fixed costs associated with that Equity Properties portfolio? Their costs are rising at a time when their rents are dropping - a very bad confluence. As someone who 'trades tangible assets in the real estate arena,' I've learned enough to know you'd better be damn sure where the bottom is (vacancy and rents) before allocating capital on large acquisitions during times like these, lest I lose my ass, just like Macklowe has, Jorge Perez has, Blackstone has, and oh, I could go on forever.
Article from March 24.. Today is May 5.. The Internet pipes must be clogged out in your neck of the woods?