Mood Ping! Stages of Commercial Grief Shift

At 8 on Tuesday morning, Brasserie, an omelet house of choice for real estate heavyweights, was nearly empty. Maybe the winter recess in Westchester public schools had Papa and kids sunning in Acapulco. Or maybe his firm is keeping a closer eye on expenses. And with good reason.

If one thing’s for sure in commercial real estate, it’s that the economic malaise has finally settled in. This is not the industry of a mere three months back, when brokers, alternately panicked and despondent, struggled against the recognition that the world as they knew it was turning upside down before their dumbstruck eyes.

At 8 on Tuesday morning, Brasserie, an omelet house of choice for real estate heavyweights, was nearly empty. Maybe the winter recess in Westchester public schools had Papa and kids sunning in Acapulco. Or maybe his firm is keeping a closer eye on expenses. And with good reason.

If one thing’s for sure in commercial real estate, it’s that the economic malaise has finally settled in. This is not the industry of a mere three months back, when brokers, alternately panicked and despondent, struggled against the recognition that the world as they knew it was turning upside down before their dumbstruck eyes.

That sense of unmooring, that disbelief, has been replaced by the acknowledgement that the market, for the foreseeable future, will remain grim.

“People have kind of accepted the fact that this is the new market,” said Robert Stella, an executive vice president and principal at tenant rep CresaPartners. “The shock has kind of worn off.”

“They’re resigned to the fact that the market is what it is today, that’s what you have to work with, and there’s going to be a fairly significant period of time before things change,” agreed Cory Zelnik, the CEO of Zelnik & Co., a retail brokerage. “It’s like trying to turn a battleship.”

A battleship whose captain is plotting points deep into tenant waters. The latest stats, from January by way of Colliers ABR, indicate that the vacancy rate in Manhattan for top-tier office space “skyrocketed above 10 percent for the first time since November 2004, closing the month at 10.2 percent.” That’s largely empty space abandoned by ailing or no-longer-extant financial firms. And who’s going to rent those glass-coated aeries? Answer that correctly and you’re on the road to a gazillion-dollar payday.

“We’re having so much fun!” cracked Eastern Consolidated’s Brian Ezratty, who was preparing for a trip to the pristine slopes of Vail, eager to ski down mountains, that most primeval form of real estate. “I’m going out of town tomorrow, and I may not come back.”

“Honestly, I think it will be two years before we get out of this, or maybe sometime next year,” Mr. Ezratty said.

Why so long? The culprit that everyone circles back to is the cursed commercial-mortgage-backed-securities market, once the primary financier for real estate transactions, now largely extinct.

Even though the Real Estate Roundtable, a national trade group, scored a major victory early this month when it got the federal government to agree to use its stimulus powers to back some new commercial-backed debt, pros aren’t holding their breath that the action will have any immediate impact. After all, the stimulus does little to answer that scalding question: Who will replace the financial firms as lenders and as tenants in a financial hub like New York?

David Rosenberg, a managing director at Meridian Capital Group, which specializes in real estate finance, said a lot of local banks are still making loans, but “they can’t step in and fill the void that CMBS left. … As far as who fills the void, I think a lot of the people are trying to figure that out.”

“We’re not going to ever be nearly as aggressive as the lenders were a couple of years ago,” Mr. Ezratty said. “Maybe it will be 10 years before that happens. And it may not happen again for even longer. The lending that was being done was ridiculous. When you look back at the deals and the projections that loans were being made on, you realize those deals shouldn’t have been done.”

At least Mr. Ezratty and Co. are cozily ensconced in their firms, high enough in the food chain to avoid the dreaded dismissal. One young broker in his late 20s who works at an international commercial firm said that many of his colleagues haven’t been so lucky.

“The atmosphere in the office has totally changed,” he said. “Before it was bad, and people didn’t know what to do. But after a bunch of people are let go, it kind of hits home that it’s really real. And people feel like they’re being watched or rated or something.”

What does all of this acceptance-of-reality mean for dealmaking? It means deals may very well start picking up again. But one thing has to happen first: a deal. It’s paradoxical, we know.

Borja Sierra, the head of Savills, explained it rather nicely: “The best title for the status of the market is an expression I love: ‘Brave was the first one who ate an oyster.’ Why that expression? Obviously, oysters were there, but people weren’t hungry enough to eat them. When hunger hit, someone had to actually open one and eat it. And the rest were looking at him to see if he died or not. Everyone was expectantly waiting for the first move.”

So there you have it. Some brave soul is going to have to grow a pair and eat that slimy oyster. Any volunteers?

drubinstein@observer.com

Mood Ping! Stages of Commercial Grief Shift