Manhattan’s ‘Apocalyptic’ Real Estate Listings Continue to Roll in – Sector Chaos or Investment Opportunity? – BlackRock (NYSE:BLK), ING Groep (NYSE:ING)

Chairman of the Federal Reserve Jerome Powell said on Tuesday that the commercial real estate sector will remain under pressure for some time.

“This is a risk that is with us and will be with us for some time, probably for years,” Powell told the Senate Banking Committee. “And banks need to be honest about what their risks are.”

Many properties purchased before the COVID-19 pandemic with loans from banks and other financial institutions are now worth less than those loans.

See also: Doom and gloom in office real estate? Delinquency data tells a different story

As a result, many commercial property owners are selling their distressed properties, ushering in a new era of opportunity for real estate investors.

Take the Continental Center in New York City, for example. The 41-story skyscraper, located at 180 Maiden Lane in Manhattan’s Financial District, has been sold 99ca real estate company owned by a Canadian biotech investor Carlo Bellinifor just $297 million.

The same building was purchased in 2015 for $470 million. Clarion Partners AND MHP took out a loan of $248 million BlackRock Inc BLACK and refinanced the debt in 2020 with a $372 million loan led by ING Group NV ING.

Clarion and MHP reportedly invested $175 million in renovations, bringing their total investment to more than $645 million. They reportedly quickly sold the property to avoid foreclosure.

Clarion did not respond to a request for comment.

“The Manhattan office crisis has gone from disturbing to apocalyptic, with no end in sight…” wrote influencer Triple Net Investor on X.

For office buildings, average selling prices per square foot fell 66% between June 2023 and the end of May.

The Continental Center, built in 1983, is now only 68% occupied, down from 71% in January. That’s nearly three times higher than the average vacancy rate for commercial properties in New York City, which was 12.8% in March, according to the comptroller’s office.

Also read: Mortgage applications fall as interest rates once again exceed 7%

Why is the commercial real estate market such a mess?

“The rapid shift to remote work due to the pandemic has significantly reduced demand for office space, causing the vacancy rate to roughly double,” the auditor’s report reads.

At the beginning of 2020 — before the pandemic hit — New York City’s commercial real estate vacancy rate was just 6.4%.

The disruption caused by the pandemic was followed by decades of high interest rates, which had a negative impact on REITs.

This trend is not unique to New York.

Earlier this year, the U.S. commercial real estate vacancy rate hit its highest level since 1979 at about 20%. In May, that rate fell to 17.8%, according to a report by CommercialEdge.

A recent report from real estate firm Colliers found last month that New York City saw a 70% increase in leasing activity compared to last year. While that number is encouraging for real estate investors, CommercialEdge says remote and hybrid work trends are here to stay, and vacancies are likely to remain flat across the country.

ETFs investing in the real estate sector have not been doing very well lately. Vanguard Real Estate Index Fund ETF VNQlargest by assets under management, rose 0.2% on Wednesday after losing 3.8% over the past six months.

Schwab US REIT ETF SCHH has been on a similar trajectory, up 0.3% on Wednesday at the time of writing and down 2.7% over the past six months.

Residential real estate continues to struggle amid high interest rates, with the availability of resale homes hitting a 17-year low last week.

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Manhattan skyline, including the Continental Center on the left, by Szilas on Wikimedia Commons.