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article imageOp-Ed: The NY property market meltdown with deadly high risks attached

By Paul Wallis     Aug 11, 2020 in Business
New York City - A big black hole has opened up in the NYC property rental markets for residential and commercial spaces. NYC is now facing a big exit of retailers and mass evictions of renters. A desert is being created, and it’s not looking good.
These rental issues are closely related. The pandemic effectively shut down the foot traffic that drives retail chains. The big chains are pulling out, citing lack of revenue, reduced foot traffic, lack of tourism and massive rental costs.
For residents, the end of the moratorium on evictions is the IED in their lives. NYC’s notoriously high rents, lack of work, and basic arithmetic, trying to fit payments into very low or non-existent incomes, are the problems. You could put yourself through college on some of these rentals, and have money left over. So many people just don't have that money.
Even the upmarket property sector is looking truly hideous. The mass exodus of the super-rich from the big half-empty towers doesn’t help. They can pay their rents, but if they aren’t buying services locally, that’s more millions in lost revenue for businesses. All that conspicuous extravagance was paying big money and now it’s in hibernation or on its way out of the city.
Millions of evictions are predicted around the nation, and NYC is a natural center of gravity for a big downturn in this market meltdown. This is a pretty good example of the big economic hits to come. That’ll put a lot of people on the street and leave property owners with a lot of lost income from their portfolios. This applies from local landlords to major property owners.
Retail apocalypse Part 2
The retail market is imploding as badly or worse as the private rental market. New York’s astronomical commercial space rentals are famous for their deep gouging. That gouging is based on market realities as much as market forces, but the big numbers still mean massive outlays for businesses. Property owners are suing national chains for not paying their rent.
The pandemic and the virtual end of normal shopping have been a huge hit, even to big chains. One restaurant chain cited an 85% drop in revenue to $12,000 a day at its Manhattan location. That 85% is indicative of the utter rout of the old middle class shopping and eating out economy.
The traditional NY economy has basically been blown away. This was predicted by just about anyone with a sense of smell, but who was listening?
OK, so what’s “not obvious”? Just about everything, right now, and big risks.
The NYC property market isn’t unique. It’s just so much bigger than most and a good multi-tier example of how property markets work or don’t work. NYC prices for space have routinely gone upward for decades. They never stopped going up, either. That’s the problem.
The result is that property valuations, debts, and basic property business models are now based on a huge economic environment which has effectively ceased to exist. Fun, eh?
Both commercial and residential markets are now on the edge of the cliff. The retail sector has been in serious decline for years. The Massacre of the Malls, for example, was the obvious effect. The end of so many businesses was the footnote. Retail in its old form won’t be coming back. …So where do those valuations go? Down the drain, fast, and a lot of big money goes with them.
The residential market ranges between top of the heap and medieval subsistence level accommodation. The upper market is pretty well insulated, in theory, unless the property owners leave, or get scared by a big drop in values. (That can happen quickly. It depends on their preferences and the advice they get from their financial advisors.)
The rest of the market, however, is likely to take a swan dive into the blender. Nobody in any property market pays more than they have to. This is a gigantic buyer’s market waking up, and the deals can be razor-edged. The hits on property owners can be expected to be severe blunt force trauma, both on actual properties and tangential finances.
The murderous property finance equations that could sink the nation
If an entire property market suddenly sinks, the financiers supporting it are in serious trouble. If two huge property markets in the same city sink at the same time, it’s worse. This is “Detroit 2, the Sequel”, but in New York, and in a much smaller time frame than Detroit’s semi-obliteration.
Think of a Monopoly board after it’s been nuked, and you get the picture. Trillions of dollars are tied up in the NYC property markets in many different ways. Those dollars are in (Sorry James Stewart) banking portfolios, private investments, mortgages, insurance, services, property taxes, and core asset valuations affecting loans. That’s the sort of money that’s on its way out the window unless a miracle happens pretty soon.
The property market in the US is a sort of sacred cash cow. It’s also the standard model for how property businesses work. The NYC scenario will play out to different degrees nationwide. The trouble is that this is also the user’s manual for How To Crash An Entire Economy Without Really Trying. The unwieldy pricing has created a financial city of cards, and that city has just taken a big bump it can’t handle.
The only way out is to maintain Federal support. If the money stops, the economy stops. NYC can’t do it on its own trying to manage a bottomless mess with huge dollars at stake. The other states can’t do it on an unlimited basis, either.
Nobody knows how long this situation will last. Arguably more worrying - Nobody has the slightest idea what the economy will be like if and when the United States finally pulls out of pandemic mode. This is a big hit to a critical national economic support, and it’s way out of the ballpark, uncharted territory.
Future? There’s a future now? For whom, O Sages of Schmuckdom?
Just one more thing, but it is sort of relevant – How the hell are the kids trying to have lives and families going to survive? Younger people may benefit from lower rents, but with no jobs…? How much time to they have to spend just trying to have somewhere to live? How do they buy housing in this post-idiotic world, even at much lower prices?
Either you create viable economic models for people to live in, or they tend to have pretty lousy “lives” at best. Just think about that. Maybe the gouging will look as stupid as it’s always been when the US crawls out of the train wreck?
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of
More about NYC property market, NY property rental prices, NYC commercial property market, NYC evictions, NYC pandemic
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