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Investor Alert

Dec. 9, 2020, 8:20 a.m. EST

Ho, ho — oh, no! Values of troubled Manhattan retail properties sink 53%.

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By Joy Wiltermuth

New York City, like much of the globe, has been doing a lot more huddling than hustling lately.

Tourism is expected to drop 66% for the full year, as the pandemic sets alarming new records . And lawmakers in Washington have yet to produce another pandemic aid package for struggling workers, businesses and cities, despite months of rancor.

All that is pretty cheerless for Manhattan retail properties, which after nine months of COVID-19 restrictions that pummeled business also could now face losing further ground this crucial holiday shopping season to e-commerce.

Related : Cyber Monday rings up record $10.8 billion in sales with Amazon touting ‘biggest holiday shopping season so far’

So how bad is it? Not great, by several metrics detailed in a new report from real-estate data platforms Trepp and CompStak.

For one, after a decade of skyrocketing property prices, lenders who recently ordered new appraisals on troubled Manhattan retail saw a precipitous drop in property estimates.

This chart shows appraisal reduction amounts (ARAs) on Manhattan retail properties tracked by the report rose to about $260 million since October.

Lenders often order new appraisals if a real-estate borrower falls behind on their mortgage payments or requests debt relief. Appraisals are not necessarily what a property will end up selling for, but slashed real-estate values can put borrowers underwater, lead to fire sales or repricing of the broader market.

“On average, values for those properties with updated appraisals since July — the bulk of which reside in the Chelsea/Clinton and Greenwich Village/SoHo neighborhoods — had fallen by 53% from their value at securitization,” wrote the Trepp and CompStak team.

The report tracked $5 billion of outstanding Manhattan retail property debt that has been packaged, rated and sold to investors as bond deals, or “ securitized ” as commercial mortgage-backed securities (CMBS).

Overall, U.S. commercial property prices fell 8.2% in the past 12 months, versus a nearly 40% collapse in the wake of the 2008 global financial crisis, according to the popular Green Street Commercial Property Price Index .

Retail and hotels have been hardest hit by the pandemic so far, with Manhattan’s retail distress rate currently at above 17%, according to the Trepp and CompStak report.

While the CMBS market only accounts for about a $600 billion chunk of U.S. commercial real estate finance, it often is considered a barometer because bond investors receive monthly reports with property-specific updates, which makes performance in the sector easier to track than when banks or insurance companies own the debt.

Recent data show other key metrics have slumped, too, for retail in Manhattan, home to Rockefeller Center, Fifth Avenue, Madison Avenue, Soho and more.

Existing retail leases in the city are being renegotiated at 15% to 30% discounts compared with pre-pandemic levels, according to the Trepp and CompStak team, which also put the price of rent per square foot below $130 in the second quarter, or a 10% discount from the median 2019 lease.

The report called the holiday shopping season “a critical period for many retailers that have been struggling with sluggish sales and liquidity challenges,” which have been compounded by the COVID-19 crisis.

It also warned that things could get worse after the holidays, particularly if New York once again follows California’s lead and reinstates strict stay-at-home orders for much of the state.

New York’s commercial eviction and foreclosure moratorium also is slated to end in January, likely leading to “foreclosure proceedings, collateral re-appraisals, and examples of borrowers expressing financial hardship to trend higher in the coming months.”

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