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NEW YORK CITY-Not surprisingly, 2008′s macroeconomic uncertainty and tightened credit markets slowed the sales of Manhattan’s office properties, lowered their values and led to a decline in rents for the year, according to a new special report on office investment from CB Richard Ellis. The report also says additional direct and sublease space caused the Manhattan availability rate to rise from 7.9% in 2007 to 11.3% by the end of 2008.

As a result, a wait-and-see attitude has overtaken much of the investment community and according to William Shanahan, CBRE’s vice chairman of investments, the pause will likely continue throughout the next year, or at least until the credit markets return and the gap narrows between buyer/seller price expectations. “Whether it’s through the entire year or ends by the third quarter, I think you’re going to see the status quo for the next six months,” Shanahan tells GlobeSt.com.

Still, in light of this past month’s job loss figures that some are saying were lower than expected, Shanahan says CBRE uses those numbers as a barometer of what companies will do with their space. “Obviously, we’re watching very closely, not just for the number of job losses, but also whether the losses have started to pick up, or decrease,” he says.

Among the report’s findings, ’08 office sales in Manhattan fell by 69% from one year earlier to $12.1 billion. CBRE also says Q4’08 saw only five transactions close that were greater than $20 million. Drilling deeper, CBRE finds that the average weighted price per square foot in Q4 ’08 was $502, a 37% drop from the previous four-quarter averages.

CBRE figures also illustrate a dramatic fall in the CMBS activity that fueled debt and equity markets over the past decade. From 2000 to 2006, an average $101.24 billion of CMBS was issued each year in the United States. Then, by ’07, the number jumped to over $230 billion for that year alone. But by ’08, after the credit markets froze, only $12.1 billion of CMBS was issued for the entire year. Shanahan adds that those days of financing up to 95% of a deal are gone, at least for the near future.

Today and for the immediate future, look at maybe 60% to 65%, and “some amortization,” Shanahan says. “There’s going to be some conservatively underwritten rents on buildings, but you are not going to go back to a model that had reserves to pay debt service that couldn’t be covered by cash flow.”

Looking back over the highly financed past decade, the report notes that 14 assets, or around 60% of all ’08 transactions by dollar volume, were forced sales, averaging $707 million. That compares to an average size of $135 million for non-forced sales. In fact, the report says that 57% of ’08 office sales volume was attributable to the sale of 10 office buildings by Macklowe Properties, or more specifically, by its lender, Deutsche Bank.

Putting into historical perspective the sheer number of sales that were forced by lenders so they could recover capital, Shanahan says the early 1990s would be the most comparable situation. “You had a lot of forced sales back then, but the big difference was you could still get a loan,” he tells GlobeSt.com, adding that the positive differentiator between then and now is the absence of large amounts of new office construction over the past two decades. For the record, in 1992, Manhattan’s vacancy rate reached 18.5%.

Shanahan says “it would be ‘nice to hear’ they aren’t going to go with all the World Trade Center footage as planned. If they stretch it out a little bit, that would be good news for Downtown.” The four towers under way at the Trade Center–the Port Authority of New York and New Jersey’s Freedom Tower, and Silverstein Properties’ Towers 2, 3 and 4–will add a total of 10.5 million square feet of office space to a submarket that has been seriously impacted by the upheaval in the financial services sector.

He says what Downtown is lacking at the moment by comparison to Midtown is “definition. You have a lot of question marks surrounding some of the bigger tenants as to exactly what’s going to happen. When you have uncertainty, people tend to not make decisions.”

The report says foreign investors accounted for 51% of 2008 office sales volume, an increase over the typically “less than 20%” of past years’ transaction figures. “A large part of that percentage was driven by the General Motors building and Paramount’s purchase of 1301 Ave. of the Americas and 31 W. 52d St., all considered offshore buys, “he says. Macklowe’s General Motors building at 767 Fifth Ave. was purchased by a partnership of Boston Properties and Dubai-based Meraas Capital, while the Paramount Group is German-owned.

“We’re seeing sources of offshore capital that we haven’t seen in a decade coming into the market and doing research,” Shanahan says. He adds that this will likely continue since Manhattan is “probably the safest market in the world.”

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