Imagine buying a commercial property for $500 million and later having to walk away with virtually nothing. That is what happened to Harry Maclowe who defaulted on a loan on a prime commercial skyscraper in the heart of New York City. Values of commercial real estate are plummeting and buildings are being sold at unbelievable discounts (the John Hancock Tower in Boston was recently sold for just over $20 million). For more on this story see the following article by HousingWire.
As we all know by know, times are tough. Signs of it are found everywhere we look - from flagging real estate prices to job losses and everything else in between. However, when a 40 story skyscraper in the middle of New York sells for a measly $100,000 we can’t help but wonder what in the world is going on.
The tower is positioned right on a prime corner of real estate, close to the Museum of Modern Art and close to the Rockefeller Center and Central Park.
The building or tower mentioned here is the 1330 Avenue of the Americas building. The tower sold for nearly $500 million three years ago. When owner Harry Maclowe defaulted on his $130 million loan last year the tower was auctioned off last month for the ridiculously low price of $100,000 to a Canadian pension fund.
Distressed properties are an investors dream come true since they are to be had for bargains. In these economic down-times we see billions of dollars worth of distressed real estate auctioned off for next to nothing. Many developers are left in the leach as they fall behind in their mortgage payments and their tenants leave. With banks and lending institutions being very cautious in granting loans these days, people find it hard to finance their shortcomings.
However, despite the great price buyers are getting for these distressed properties there is usually a condition attached to them. Buyers will have to take on the existing debt connected to theses properties.
Dan Fasulo, a managing director at Real Capital Analytics said: “Just imagine in a residential market, if there weren’t 80 percent loans available for everyone. If everyone had to buy their houses in cash, the values of houses would plummet everywhere. That’s happening on a massive scale on the commercial side.”
Analysts expect many more of these auctions as more foreclosures will hit the shores in the U.S. This will dramatically reduce the worth of prime real estate all around and some even speculate it will level many office tower markets. Talk is that many of these properties in danger of foreclosure have actually been marketed at over-inflated prices and now that the market has crashed they will “feel” the full brunt of it first hand.
Real Capital Analytics, which tracks commercial real estate transactions, counted over $86 billion worth of distressed properties in the country as of April, over $6 billion in Manhattan.
Source: Boston Times
This post can also be viewed on overseaspropertymall.com.