Anyway you look at it; the building sales market in 2009 washorrible, hideous, revolting, gruesome, cruel, beastly, awful andghastly! Choose your own word, but it was really bad. I havespoken at real estate conferences across the country and hear thesame thing that the results in the New York market tell me. Salesvolume was abysmal and values continued their downward slides.But enough of the adjectives, if you are a frequent reader ofStreetWise, you know that I like statistics, not words, to describemarkets and issues so let's take a look at the numbers:In New YorkCity, we saw 2009 dollar volume of sales come in at a mere $6.3billion. This was down 75% from the $25.3 billion in 2008 and down90% from the record $62.2 in 2007. Of this 2009 volume, aboutone-third consisted of office building sales and 20% weremulti-family sales.Because there are many large transactions thatusually occur in New York that are well into the hundreds ofmillions or billions of dollars, we always like to look at thenumber of buildings sold as a clearer sign of sales volume.Inour market, we track a statistical sample of approximately 165,000properties. If we analyze this sample going back to 1984 (the yearI started in the business and the year we began tracking marketdata), we see an average turnover rate of 2.6% of this stockannually. This indicates that in an average year, about 4,300properties sell. The lowest turnover rate we had ever seen was 1.6%recorded in 1992 and again in 2003. These were both years at theend of recessionary periods and both years in which we saw cyclicalpeaks in unemployment.We had always assumed that this was abaseline of sales as the only sellers in those years wereforced to sell. Death, divorce, taxes, insolvency, partnershipdisputes, what have you.... Our theory about 1.6% being a baselineof sales activity was shattered in 2009.In 2007, 5,018 propertiessold in New York City or about 3.04% of the total stock. In 2009,there were 1,439 properties sold representing a drop of 54%from the 3,144 sales in 2008 and a 71% drop from the 2007 total.The 1,439 sales in 2009 equates to a turnover rate of just 0.87%.As a broker relying on transaction volume, this is a sickeningnumber. The percentage reduction seems to be in line with what mycolleagues across the country are seeing.An interesting thing tonote about New York's turnover rate is that the 25 yearaverage of 2.6%, indicates an average holding period for an owneris about 40 years. In 2007, the 3.04% turnover would indicate aholding period of about 33 years and the 0.87% turnover in 2009indicates a whopping 115 years!Interestingly, while the dollarvolume of sales was down 90% from the peak, the number ofproperties sold was "only" down 71%. This difference indicates aclear bias towards smaller transactions. This is due, in largepart, to the conditions seen in the financing market. We have seenlocal community and regional banks continuing to lend, primarily onmulti-family properties. These banks tend to have a comfort levelon individual loans at about $30 million which, with today's60% average loan-to-value ratio, creates a pricing plateau at $50million beneath which activity was clearly much better than abovethis level.In fact, most of the transactions whichoccurred over $100 million (there were only 7 in 2009)utilized seller financing or assumable financing to getdone. Nine-figure loans proved very challenging toobtain.The good news regarding volume of sales is that, whilethe turnover in 2009 was the lowest we have ever seen, volume didincrease on a quarter over quarter basis throughout the yearindicating that we are likely past the low point in sales activity.Pricing is, however, another matter.On a price per square footbasis, average values in New York were down 38% from their peak. Itis clearly difficult to read much into this figure without lookingat specific locations and property types as the reductions varywidely.The sector that held up the best was multi-family. This wasnot the case in the rest of the U.S. but in New York we have arent regulation system which keeps rents artificially low and,therefore, downside risks are minimal provided debt isused wisely. Here values dropped only about 18%.The officesector was hit hardest with reductions in value approaching 55%.Office properties with significant market exposure ie, those havinghuge vacancies or lease rollovers in the short term, saw valuesdrop nearly 70%.The average price of a property which sold in NewYork City in 2007 was $12.4 million. This price dropped 65% in 2009to just $4.4 million. In Manhattan, the 2007 average price was$52.5 million and in 2009, the average was $12.9, a 75%reduction.In 2009, cap rate expansion continued with increases,from the lows, ranging from 114 basis points in multi-familyto 284 basis points in the office sector. Average cap rates in themulti-family sector have ranged from 6.12% for elevator propertiesto 6.92% for walk-up buildings (this distinction is common inthe New York market). Average caps in mixed-use properties were6.43%. Retail property caps averaged 7.12%. Cap rates in officebuildings were difficult to calculate based upon thesubstantial vacancies in many of the properties that weresold.We believe that values will continue to slide in 2010 until wesee a reversal in unemployment trends. Last Friday's reduction from10% to 9.7% is not meaningful as we lost 20,000 jobs in January.The only reason the rate dropped is because many people stoppedlooking for work. We need positive job growth to enhance our realestate fundamentals. And we must remember that we need 130,000 jobsper month just to keep up with population growth so seeing aminimum of 250,000 jobs per month is necessary for sustainablerecovery.If we hit a bottom in value around the time unemploymentpeaks, the question becomes, where do we go from there? The answeris dependent upon a battle between several factors:

• The massive deleveraging process the market must go through(this exerts downward pressure on value).
• The impact of increased supply of properties for sale aslenders begin to loosen their grip on distressed assets (thisexerts downward pressure on value).
• The impact of the Fed's exit which will be negative oncommercial real estate regardless of the method of exit chosen.Three of their four potential exit strategies will raise interestrates and the other will reduce the potential pool of capitalfrom which real estate loans can be made (this exerts downwardpressure on value).
• All of the capital sitting the sidelines waiting foropportunities (this exerts upward pressure on value).

Mr. Knakal is the Chairman andFounding Partner of Massey Knakal Realty Services in New York Cityand has brokered the sale of over 1,050 properties in hiscareer.