Real Estate Slide Expected To Worsen

Source : The Business Times, January 29, 2009

(NEW YORK) Boston Properties Inc chairman Mortimer Zuckerman said that the US commercial real estate decline is likely to get worse this year as the credit crisis continues.

'We are still in a downdraft of a very, very serious credit crunch,' Mr Zuckerman said in an interview on Bloomberg Television. 'I don't think that the credit crunch will be over for quite a while. We may see a much tougher 2009 than many people are expecting.'

Capitalisation rates, or rental income as a proportion of a building's value, are likely to increase as prices decline, Mr Zuckerman said.

Harry Macklowe, who spent US$7 billion buying office buildings from Equity Office Properties Trust in 2007, is an example of a buyer who bought at the market's high point, he said.

'Harry Macklowe bought them at 3.1, that was the peak of the market,' Mr Zuckerman said. 'Now, cap rates for really good office buildings are at 5.5 to 6 per cent, and if they are not prime buildings, it will go up to 6.5 to 7.5 per cent.'

Loans remain difficult to obtain, he said.

Getting a loan to buy a major New York office building used to take just one phone call, he said. 'Now we have to scramble to put together five, six, seven lenders to raise US$350 - 450 million,' Mr Zuckerman said.

Boston Properties shares declined 40 per cent last year. The company has 8.8 million square feet of office space in New York City. -- Bloomberg