- Singapore’s birth rate hit a record low in 2022, after years of consistent decline.
- The biggest reason for this shift is how notoriously expensive it is to live in Singapore, and the high cost of living continues to steer many away from expanding their family, analysts told CNBC.
- Although there are a slew of government policies aimed at encouraging more couples to have children, “throwing money” at the problem will not solve it, said Wen Wei Tan, analyst at the Economist Intelligence Unit.
Data from the Institute of Policy Studies showed that women aged 20 to 24 are now less likely to give birth than women aged 35 to 39.
Mai Yo | Klaud9 | Getty Images
SINGAPORE — Almost two decades ago, Loh and her husband made a decision not to have children.
Today, 17 years later, the two of them are convinced they made the right choice.
“I may feel differently when I’m on my deathbed and have to die alone, but at the moment, the choice seems right to us,” said the 46-year-old who works in the tech industry.
Loh, who did not want to give her full name, is not alone.
Singapore’s birth rate hit a record low in 2022, after years of decline.
Live births last year plummeted by 7.9%, to usly expensive it is to live in Singapore, and the high cost of living that continues to steer many away from expanding their family, analysts told CNBC.
Having a child is tied to many things — the affordability of a house, a spouse, and the maturity of the job market that makes you feel secure enough to do it.
Jaya Dass
Asia-Pacific managing director, Ranstad
Birth rates increased slightly in 2022 to 1.12 from 1.1 the year before when people stayed home during Covid and had more children.
Still, fertility trends have shown women are also choosing to have children later in life, or not at all.
Data from Singapore-based think tank Institute of Policy Studies showed that women between the ages of 20 and 24 are now less likely to give birth than women between 35 to 39 years old.
“Having a child is tied to many things — the affordability of a house, a spouse, and the maturity of the job market that makes you feel secure enough to do it,” Jaya Dass, Ranstad’s Asia-Pacific managing director.
“The attractiveness of wanting to have a child has actually reduced significantly because of how life has matured and changed,” Dass said.
Already grappling with an aging population, Singapore is also facing one of the world’s lowest fertility rates, prompting the government to dole out incentives and “bonuses” to encourage people to have children.
Couples with babies born from Feb. 14 will receive 11,000 Singapore dollars ($8,000) each for their first and second child, and S$13,000 for their third child and beyond — that’s a 30% to 37% jump from before.
Women in Singapore are choosing to have children later in life, or not at all.
D3sign | Moment | Getty Images
Government-paid paternity leave was doubled, increasing from two to four weeks for fathers of babies born from 2024.
Although there are a slew of government policies aimed at encouraging more couples to have children, “throwing money” at the problem will not solve it, said Wen Wei Tan, analyst at the Economist Intelligence Unit.
“Tackling the fertility rate will require us to confront some of the weakness of the underlying systems … Which means not only addressing demographic challenges, but also helping to build social cohesion, and perhaps look at how we can foster healthier attitudes towards risk taking,” EIU’s Tan said.
In 2022, the EIU ranked Singapore as the most expensive city to live in, sharing the top spot with New York City.
Owning a home together is also a challenge for young couples.
House prices in the city-state continue to rise rapidly, increasing by 7.5% year-on-year in June 2023, CEIC data showed.
Public housing apartments — known locally as HDB flats — are in high demand but supply is not catching up, said Tan from the EIU.
Construction came to a standstill during the pandemic, as labor shortages and the high cost of raw materials delayed housing projects, and couples had to wait twice as long for their apartments, causing some to marry later.
This, however, is just one part of the problem, as there are many other costs associated with raising children in Singapore, according to Mu Zheng, assistant professor at the department of sociology and anthropology at the National University of Singapore.
“There is a sense of instability is dragging people further away from having children,” Zheng told CNBC.
The high cost of living in Singapore is leading to more couples with two incomes and no kids — sometimes referred to as Dinks, a slang for “dual income, no kids.”
That is also due to a mindset change and more couples being willing to put their career ahead of marriage and having kids.
“Once women have children, they’re going to see a slowdown in their career progression. Many make the decision to wait till they feel secure and stable in their jobs so there won’t serious threat to their income if they take time away from work,” Tan said.
More couples are willing to put their career ahead of marriage and having kids.
Carlina Teteris | Moment | Getty Images
Delaying marriage means people may get more opportunities to pursue higher education, leading some to be more selective and have greater expectations of their future partners, said Dass.
In 2022, 36.2% of residents who were 25 years and above had a university degree — that’s compared to 25.7% a decade ago.
However, Dass highlighted that this is not necessarily a bad thing because “the minute education and literacy increases among women, their ability to come into the workforce and contribute to the economy increases.”
A declining birth rate, coupled with an aging population, will have repercussions on Singapore’s labor force.
“Having fewer children means you have a smaller workforce that can contribute to the economy. And with Singapore’s high life expectancy, the dependency ratio will increase,” said EIU’s Tan.
Singapore’s population is ageing rapidly and 1 in 4 Singaporeans will be over 65 years old by 2030.
Jayk7 | Moment | Getty Images
Tan warned that a shrinking workforce could hurt the government’s tax revenues and exacerbate the problem, especially when coupled with the challenges of an aging population.
“You’re collecting less money from a smaller workforce. So the government has less fiscal resources to channel to economic purposes that the country might need,” Tan said, citing examples of upgrading infrastructure and investing in research and development.
“So it’s more taxes for those in the workforce, and more financial burden to care for the elderly. And if one gets married and has children, there are more financial considerations at play.”
It’s the crash that dare not speak its name: the obsolescence of offices across Dublin city. Vacancy in Irish office buildings is set to hit 17 per cent this year, but that headline figure tells only part of the story.
According to Savills’ Dublin Office Market research report, in the first half of 2023, the take-up of office space in Dublin dropped 30 per cent compared with the same period in 2022. Also according to Savills, in the first quarter of 2023, European office take-up fell 14 per cent below the five-year Q1 average.
Dublin’s equivalent drop was 62 per cent. Between Q1 2021 and Q1 2023, the level of office stock in Dublin increased by 8 per cent, but the amount of tenant space available for sublet rose 150 per cent.
In Dublin, “grey space” – surplus office space leased but vacant – accounts for 36 per cent of all available supply. Actual functioning offices are also experiencing vacancy. Back in February, research by Savills and the Dublin Chamber of Commerce showed Dublin office occupancy rates were between zero and 10 per cent on Mondays and Fridays, 51-60 per cent on Tuesdays and Thursdays, peaking at 61-70 per cent occupancy on Wednesdays.
This is not an Irish phenomenon. It’s particularly acute in San Francisco (where vacancy grew from about 4 per cent pre-pandemic to 31.8 per cent now), and Manhattan (22.4 per cent). Office blocks in Manhattan are being offloaded at knock-down prices.
Distressed asset sales in the office market are now mirroring what happened to American malls. Some buildings are selling for less than the value of the land they’re on. A massive office block on Avenue of the Americas last year sold for $320 million (€297 million). In 2006, it was bought for almost $500 million.
The age of buildings is crucial. Contemporary office blocks with massive floor plates, and essentially hermetically sealed by glass, are rarely viable
Like many expensive cities, New York City – where I am writing from – has a housing crisis. The potential for converting office blocks to housing became buzzy during the pandemic. It sounds obvious: a glut of empty office buildings, plus a housing shortage, equals a novel development opportunity. But what does that really look like?
On Water Street in Manhattan’s Financial District, a brutalist 1960s brick building looms. This used to be the headquarters of the New York Daily News and a JPMorgan office. Now, it’s the largest office-to-residential development project in America; 1,300 apartments will be created within it, most with home offices. Building dust from the project merges with the sawdust that spills out from the floor of the Dead Rabbit pub across the street.
A development at 25 Water Street is seen by many as “the model” for this pandemic-induced luxury real estate phenomenon. If developers can make the case for its profitability, surely more will follow.
But it’s not that simple. The age of buildings is crucial. Contemporary office blocks with massive floor plates, and essentially hermetically sealed by glass, are rarely viable. The development at 25 Water Street will scoop out parts of the building to create internal courtyards for light and ventilation. It’s also not necessarily the kind of housing the city needs most acutely. For councilman Justin Brannan, who sponsored a bill that established a taskforce of experts to appraise the viability of conversions, costly conversions mean expensive apartments.
“Where there’s a will there’s a way,” Brannan told me last week, “Architecturally, it can be done. The issue is it’s expensive to do. Ostensibly, any building can be converted into residential, but it might end up costing so much you might be better knocking a building down and building a new one.” From Brannan’s perspective, “the challenge now is how do we incentivise these conversions to produce housing that people can actually afford”.
In Dublin, vacancy rates are also being driven by speculative developments without tenants in place coming on stream. According to a market briefing for investors by Lisney cited by the Business Post, just 29 per cent of office stock currently under construction has been pre-let. The Clerys Quarter development on O’Connell Street is advertising office space on Instagram. The redevelopment of the Central Bank building on Dame Street, Central Plaza, initially cited WeWork as renting nine floors of its building. But WeWork is imploding (again), with Wall Street funds exploring a possible bankruptcy filing.
The reality is, if Manhattan can’t keep its offices afloat, nowhere can. Last month, New York City Mayor Eric Adams announced his intention to produce 20,000 homes within a decade from empty office buildings, saying, “It makes no sense to allow office buildings to sit empty while New Yorkers struggle to find housing.”
Dublin city urgently needs a cohesive strategy to tackle office vacancy. In Park West, an office complex has been converted to social housing. Social housing in industrial estates on Dublin’s outskirts will do little to revitalise city life. Returning Georgian buildings to housing and incentivising companies to leave buildings with conversion potential for new, purpose-built office blocks, and creating affordable housing within older buildings, where practical, makes more sense.
It’s autumn 2023. If office workers were going to return en masse, five days a week, that would be our reality, and it’s not. The last thing Dublin city needs is a commercial property crash. But the figures are telling a story. It looks like one is coming.
What would you give up to live affordably in New York City? Or to be minutes away from the beach in Santa Monica, California? In today’s expensive and hyper-competitive real estate market, some homebuyers are arriving at the same answer: space.
Between a marked uptick in rent and home prices and the disappearance of the classic “starter home,” young Americans are downsizing to afford to live in the places — and financial situations — they want.
CNBC Make it recently profiled three people making it work in less than 300 square feet. Here’s what it’s like.
In 2020, Alex Verhaeg moved into a 95 square-foot apartment in Manhattan’s East Village. He paid $1,000 a month.
“People might call this place just a room or a closet, but to me, it is home,” he told CNBC Make It in 2022.
The then-23-year-old barber, bike messenger and content creator found the apartment on Zillow and didn’t realize quite how small it was before he toured the place. At about 16 feet by 8 feet, Verhaeg’s apartment is smaller in area than an average parking spot, which comes in around 150 square feet. Rent has since bumped up to $1,100.
The place doesn’t come with a bathroom. Instead, residents share the three bathrooms and two showers located on each floor of the building. There isn’t much of a kitchen either. Verhaeg uses an electric cooktop that sits atop a dresser he uses for food storage.
“The main benefit of living in such a small space is that it makes you appreciate your things and be a minimalist,” he said. “You really can’t just go out and buy random things because you don’t have the space to store them.”
In 2022, in the wake of a breakup and a death in the family, Sung Yoo decided she needed a change. For the 40-year-old, that meant a cleanse of sorts, which saw her sell or donate most of her belongings, pack her winter items into storage and move to a 140 square-foot tiny home in Santa Monica.
Yoo’s home, which is situated in her landlord’s backyard, is an eight-minute drive from the beach. Rent, including utilities, runs her $1,600 a month — $600 less than the monthly median studio apartment in Santa Monica.
Although the home is “smaller than the average size of a parking spot,” Yoo wrote in a recent story for CNBC Make It, “it’s designed in a way that doesn’t feel cramped.”
Yoo’s main room has to serve multiple functions, acting as living room, closet and food prep area. Other than installing a few hooks, she’s left everything as-is.
The place doesn’t have a stovetop, but temperate Southern Califorinia weather means Yoo can use a double propane burner outside and cook at home at least six days a week.
Yoo has enjoyed the shift in lifestyle and expects to live in a tiny home forever.
“Living with intention in a tiny space has many benefits. I save time, energy and money (especially after getting rid of my $4,500 per-month New York apartment),” she wrote. “It’s very serene and grounding. I only have one high-quality version of everything, and each item has its own place.”
The tiny home lifestyle can even hold appeal for someone who already owns a full-size house.
In 2019, Precious Price bought a three-bedroom, 1,400-square-foot house in Atlanta for $196,000. The plan was to rent spare rooms on Airbnb. But that idea became moot when the Covid-19 pandemic hit, and Price found herself living alone in a house that felt too big.
“But that May, as I stared out the kitchen window into my huge backyard, something clicked,” she wrote in a piece for CNBC Make It earlier this year. “I could use that space to build a tiny home to live in, and fully rent out the main house.”
It cost around $35,000 to build the home, including the prefabricated shed structure, labor and material costs. Price sold stock to cover about $8,500 and put the rest on credit cards. When the tiny home was complete in 2021, she listed it on Airbnb to recoup the costs, charging between $89 and $129 a night.
These days, Price lives in the 296 square-foot tiny home and rents the larger house to long-term tenants. The rent on the big house more than covers the costs associated with both homes, “which means I’m able to live in my tiny home for free,” wrote Price.
Price makes efficient use of the relatively limited space. In addition to a lofted bed and a daybed that doubles as a couch, there’s a full bathroom, kitchen and breakfast nook. The kitchen even sports a full-sized fridge and extra-large sink.
And a tastefully and strategically decorated interior can give the impression of a much larger home, Price wrote.
“The eight separate windows, wall mirrors and glass shower door all make the space feel bigger. I sometimes forget I’m living in a shed.”
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CHECK OUT: ‘The idea of a starter home has become more of a fairy tale’: How buyers find creative alternatives
NEW YORK — As rents are hitting record numbers, mortgage rates continue to climb to their highest level in over 20 years.
New York City’s mayor is responding with a solution but not soon enough for thousands of renters and hopeful buyers.
“I cannot afford to buy. I’ve been looking a little bit,” said Brooklyn resident Avery Driggers.
The average long-term United States mortgage rate jumped to more than 7%.
“It’s almost, it’s more than double of what you would’ve paid two years ago,” said Scott Durkin, president and CEO of Douglas Elliman, one of the country’s largest real estate agencies.
He says homebuyers are already facing a challenging market with short supply and high asking prices. He advises buyers to shop around and use private banks.
“They will front the money and give you a better rate. The 7.4% could be 5.5,” Durkin said.
Harlem sales agent Nigel Pearce says it’s clear buyers have opted to sit tight until the rates come down.
“This zip code, 10027, we haven’t had a closing in 90 days, which is highly unusual,” he said.
Would-be buyers are having to stay in the rental market longer, which is squeezing inventory and pushing up prices.
“We are in a bad state of affairs … We recently released a building which had 135 units in it for low-income housing, and we had 43,000 applications,” Pearce said.
To ease the housing crisis, Mayor Eric Adams announced plans to cut red tape and convert commercial office buildings into housing to create tens of thousands of new apartments.
“A hundred and thirty-six million square feet of office space will be eligible for conversion,” Adams said.
One of the plans includes rezoning dozens of blocks of unused older buildings south of Times Square. It’s an area that spans from 23rd to 40th streets between Fifth and Eighth avenues.
“We just have to dust it off and shine it up,” Durkin said.
Though conversion is costly, Durkin says Midtown buildings are easier to transform than, for example, the empty high-rises in Lower Manhattan post-9/11.
“They were quite large skyscrapers, and here, you’re talking buildings that are probably no higher than 20 floors,” he said.
But for many, the dream of home ownership is still too far out of reach.
“I’m leaving New York, partially because it’s so expensive,” one person said.
The mayor’s plans still have to be voted on by City Hall.
Housing advocates are also hoping for assistance from the state — for example, tax incentives for developers.
Tenant behavior in the office market, regulation in multifamily and a much higher cost of capital contributed to a 43% drop in New York City investment sales to $12.8 billion in 1H 2023 from 1H 2022, according to research compiled by Ariel Property Advisors.
However, that drop was expected as we began to see a slow down at the end of 2022 due to rapidly rising interest rates. As a result, while the first quarter was lackluster, the market improved during the second quarter as savvy investors seized the opportunity to invest in repriced assets.
Office: Letting Go, Holding On, Recapitalizing and Repositioning
With New York City’s office occupancy rates hovering around 50% of pre-Covid levels, the dollar volume of office transactions fell 48% year-over-year to $2.4 billion in 1H 2023, one of the lowest levels in the past 10 years.
Mortgage Maturities Force Decisions
While mortgage maturities are presenting a major challenge in the office market, they are providing insight as to how office landlords and investors view the office world. Owners are essentially choosing which assets to save and which ones to let go. Therefore, when the underlying fundamentals are weak and there’s no immediate hope for the asset, keys are handed back to lenders.
However, investors with a long-term outlook and the ability to withstand the storm are well-positioned, especially once they’ve shed their lowest performing assets. These owners have managed to successfully refinance, attract new capital, leverage the repriced values of their buildings and should be able to greatly benefit from this strategy in the long run.
Letting Go
Examples of major landlords letting go of their assets in the first six months of 2023 include RXR’s 61 Broadway; L&L Holding Company’s Metropolitan Tower at 142 West 57th; Related’s 2100 49th Avenue and 2109 Borden Avenue in Long Island City, Queens; and Blackstone’s 1740 Broadway.
Holding On
Some of these same owners, however, are holding onto office properties with strong underlying fundamentals by extending their loans and bringing in new capital. These include newer, well-located, occupied buildings with high rents such as SL Green’s 245 Park Avenue; Tishman Speyer’s 300 Park Avenue; RFR’s 375 Park Avenue; RXR’s 601 West 26th Street; Blackstone’s Willis Tower in Chicago.
Recapitalizing
The office tower at 245 Park Avenue is a great example of not only holding on, but also bringing in a new investment at a slight discount to the original 2017 purchase price, which is a great testament to the interest in investing in quality assets.
Repositioning
Office assets with weak underlying fundamentals but a strong future, traded nicely at a discount over the past six months either to investors or to user groups who believe in New York City’s office market long-term. These include the acquisitions of 40 Fulton Street, 126 East 56th Street and 529 5th Avenue by David Werner Real Estate Investments, Sovereign Properties and Namdar, respectively. Owner-users stepped up with Hyundai acquiring 15 Laight Street; NYU acquiring 400 Lafayette Street; and Enchanté acquiring 149 Madison Avenue.
Multifamily: One Asset Class, Three Different Outcomes
Multifamily dollar volume dipped to $1.1 billion in 1Q 2023 but soared 242% quarter-over-quarter to $3.9 billion in 2Q 2023, according to Ariel Property Advisors’ Q2 2023 Multifamily Quarter in Review New York City. However, each asset behaved differently depending on whether it was free market, rent stabilized or affordable housing.
Free Market
Free market multifamily accounted for 51% of the multifamily dollar volume in the first half of the year. Significant transactions included GO Partners purchase of 265 East 66th Street for $402 million; Slate’s acquisition of 600 Columbus Avenue for $120 million; Namdar’s $100 million acquisition of 552 West 54th Street; and Stonehenge and Carlyle’s $114 million investment in 408 East 92nd Street.
There continues to be a deep bench of institutional, private and international capital available to invest in free market properties. These apartment buildings benefit from New York City’s favorable fundamentals such as job growth and government policies that discourage new development and, therefore, have created a housing shortage that is driving up rents by 10% year-over-year. The City has an estimated deficit of 376,000 units of housing today, a figure that will rise to 560,000 by 2030.
Rent-Stabilized
Prices for rent stabilized buildings in 1H 2023 dropped to their lowest level since 1H 2015 because of higher interest rates combined with the significant structural changes created by the Housing Stability and Tenant Protection Act of 2019 (HSTPA), a regulation that eliminated incentives to renovate buildings and vacant units. As a result, we saw buildings originally purchased in 2014, 2015 and 2016 sell in the first six months of 2023 for a discount of close to 30%.
Lower prices for rent stabilized assets, however, are attracting smart, private money and high net worth individuals and families who understand the product, believe the regulations will be changed because they are unsustainable and are willing to stick it out for the long-term.
Affordable Housing
Affordable housing enjoyed 34% of the total multifamily pie in the first six months of the year. Investors in this asset class are mission-driven with a double bottom line; seeking to integrate financial success with social accountability. The opportunity drivers include lower property taxes, value-add opportunities that allow for rent increases over time, specifically for vouchered tenants, and agency financing.
Several prominent affordable transactions took place in the first half of the year including Nuveen’s purchase of the Omni portfolio for close to $1 billion, and the $150 million sale of Sea Park, an 818-unit former Mitchell Lama building with a land opportunity, which was arranged by Ariel Property Advisors. Additionally, Ariel is currently marketing nearly 5,000 affordable units that will be sold this year or the first quarter of 2024.
Land of Opportunity
New York City land sales dropped 30% year-over-year to $2.5 billion in the first half of 2023 compared to the first half of 2022, which can be attributed to a number of factors including the failure of state lawmakers to approve a successor to the 421a tax abatement program, which expired over a year ago; the dramatic rise in construction costs, both hard costs and labor; and slower condominium sales due to higher interest rates.
However, lower prices presented opportunities for developers such as Rockrose, which acquired the St. Francis College campus in Downtown Brooklyn for $160 million, and other investors that bought sites with the intention of land banking.
Land that is 421a vested and qualified for the tax abatement before it expired last year also traded at a premium as did affordable housing developments supported by the city and state. Additionally, rezoned locations in the Jamaica, Astoria and Willets Point areas of Queens contributed to that borough enjoying an 80% increase in land transactions year-over-year.
What to Watch For
Looking forward, we expect to see:
- Private lenders step up to fill the void left by the regional banks that are facing greater scrutiny from regulators following the bank failures in the first half of the year.
- Mortgage maturities contribute to additional repricing for office and rent stabilized multifamily assets, opening the door for investors to acquire properties with strong fundamentals at a discount. The FDIC’s sale of the Signature Bank portfolio later this year also will present an interesting investment opportunity.
- Although state lawmakers failed to approve a comprehensive housing policy in the last legislative session, the governor announced a new program that will provide some tax relief to developers in the Gowanus section of Brooklyn, which is encouraging because it could be expanded to other parts of the City.
While there are challenges, economic indicators in New York City are strong. Therefore, we believe smart capital, which is abundant, will return in a big way in the next six to 18 months.
Content for this article was taken from Ariel Property Advisors’ 2023 Mid-Year Research Reports, which I presented at our firm’s Coffee & Cap Rates event on July 20, 2023. To access Ariel’s research reports and videos from the event, please click here.
New data shows a growing number of commercial buildings in New York City have more debt on the building than they are currently worth.
It’s part of the changes to the commercial real estate market caused by the COVID-19 pandemic altering the way many New Yorkers work.
Eventually, property owners will be left asking an important question: is it worth holding onto their buildings?
Real estate analysts told NY1 it is something they are watching, with a lot of commercial real estate loans sunsetting by next year and needing to be refinanced.
The problem now is more than one in five office spaces are sitting empty in New York City, according to a New York University and Columbia University study. So many buildings are bringing in less revenue while at the same time, their commercial loans are up to be refinanced during a time when interest rates are significantly higher.
Higher costs and declining revenue will some leave property owners at the point where they may just give up the building and hand the keys back to the lender.
NY1 reached out to dozens of commercial real estate companies, lawyers, and banks to try to understand how many buildings could be in danger of this happening.
“As a rule properties with loans coming due and significant vacancies are likely candidates,” said Jeffrey Gural, the chairman of GFP Real Estate, in an email to NY1.
He added none of his buildings were in danger.
One lawyer told NY1 he had two clients who have offered their buildings back to the lenders.
Most companies declined to comment. That includes Brookfield Properties as well as Mack Real Estate – the parties involved in a recent transaction at 1619 Broadway, better known as the Brill Building.
In the middle of the 20th century, writers came up with hit after hit inside the halls of that building.
However, city documents show Brookfield Properties transferred the property to Mack Real Estate, which had lent Brookfield Properties money for the building.
The real estate firm JLL also has research that shows more than 500 commercial buildings in Manhattan have lost value since their purchase price, totaling more than $38 billion.
Additionally, 112 buildings have more debt on them than they’re valued at, according to internal models calculated by the firm. That data is from the second quarter of 2023. In the first quarter, there were 73 buildings in that position, known as “being underwater.”
Real estate analysts said there are many factors that go into whether a building goes into default. That includes the financial outlook for the company in charge, the long-term potential – or lack thereof – for the building and neighborhood, the building’s amenities and whether leasing is trending towards a more promising or concerning direction.
New data from the commercial real estate firm Trepp shows there are more than 70 delinquent commercial buildings in the five boroughs.
The delinquency category can range from owners being late on loan payments to foreclosure, according to Stephen Buschbom, a research director at Trepp.
The final step in the foreclosure process is defaulting.
Trepp reports the delinquency rate for office loans in the city was only 0.19% in December 2022. It rose to 2.07% in June of this year. Though, the figures are still far off from the 5.1% in 2011 seen after the Great Recession.
However, Buschbom said he fears the numbers later this year and next could get worse with billions of dollars in loans set to need refinancing by the end of next year.
“That’s when we’re really going to be looking to see what percentage of maturing loans end up defaulting,” he said.
He noted just because buildings are in foreclosure – or simply delinquent – there can be solutions and off-ramps to avoid default.
“Fortunately, there’s a willingness to try to work through these issues if the borrower wants to stay invested in the property,” he said.
The challenge, he added, is that the refinancing conditions are really difficult.
“For loans coming due this year the high rates, the constrains, the tighter credit conditions, they’re just facing almost impossible odds to refinance an office building because so many lenders are just saying we’re not touching that at all,” he said.
The fear, according to researchers like Buschbom, in a worst case scenario, a bank takes control of a building. And they are not always in the business of running a building – or even want the building. And that can have a damaging impact on the building longer-term.
“The signal that sends to the marketplace. Tenants looking for space are probably going to be hesitant to go and lease space that is suffering financially and facing receivership,” he said. “Whereas if the borrower has committed themselves to the property, they still have the ability to turn it around.”
In a memo this summer, the Federal Reserve called for banks to work with borrowers when possible.
And commercial real estate attorney Natalia Sishodia said she’s seen that firsthand with her clients. She said she had at least three clients in the city ready to hand over their buildings to lenders, but they did not in the end after working out compromises with the banks.
“If they don’t they would end up with this commercial spaces and this is not something banks really want to do,” she said.
One option would be for banks to go back to a program that was used in the wake of the financial crisis in 2008, according to Douglas Durst, the chairman of the Durst Organization. He is calling for a return of extend and pretend, which is effectively pretending the loan conditions should continue as is to a date later down the road. It kicks the maturity date of the loan further down the road, in hopes the owners and market will turn around, delaying the need to refinance.
Durst said none of his companies 13 commercial properties are in a position where they may go into default.
He’s said he’s invested in his buildings, adding amenities. He added that those owners who have already invested should be doing well.
During the lunch hour after NY1 interviewed Durst by the Bank of America Tower, one of the firm’s properties, the area was packed. Several lunch spots had lines out the door.
Durst said property owners who did not may have trouble attracting tenants.
“It’s a double whammy so to speak,” he said. “They need to bring more people to the building. And they need to borrow money to do that.”
Data from the Real Estate Board of New York, where Durst is the chairman, shows the highest number of people back in the office since 2019. However, that number is still 27% below the 2019 mark.
Several real estate experts consulted by NY1 agreed older office buildings are most vulnerable to this new commercial real estate market.
Another outstanding question is what sort of impact the change in commercial real estate will have on property tax revenue.
A joint study from New York University and Columbia University this spring predicted office values in the city will decrease by 44% by 2029.
Property taxes are the largest form of revenue for the city, according to the New York City Independent Budget Office. The city’s comptroller released a report this summer that about 20% of city property tax revenue comes from these buildings.
In that report, there’s a chart with potential outcomes for property tax revenues in the next few years.
The baseline has an increase in revenue by tens of millions of dollars in fiscal year 2025 and hundreds of millions of dollars more in 2027. But the pessimistic forecast projects a decrease in revenue from that baseline of at least $120 million each year from 2025 to 2027. The doomsday scenario would yield a more than $1.1 billion decrease compared to that 2027 original projection.
- Inflation is coming down, with the latest CPI report for June showing price increases hitting their lowest level in two years, but it has not gone away, and in some states, it is far worse than others.
- The annual CNBC America’s Top States for Business study considers cost of living among 10 categories of competitiveness.
- With the nation facing a serious housing crisis, the 2023 study puts extra emphasis on housing affordability.
Inflation has eased considerably from the more than 40-year high hit last year, and the latest consumer price index reading for June showed prices rising by the lowest level since March 2021. But inflation is still stubbornly high nationwide. And in some states, it is more stubborn than in others.
The cost of living is a key factor in a state’s overall competitiveness, which is why CNBC’s annual America’s Top States for Business study considers it in our methodology when ranking the states.
We rate the states based on an index of prices for a broad range of goods and services calculated by the Council for Community and Economic Research. New this year, with the nation mired in a housing affordability crisis, we are also factoring in data from the National Association of Realtors’ Affordability Distribution Score, which looks at the affordability of homes for sale across all income levels as of the end of last year. A score of 1 or higher generally suggests a housing market that is affordable, while the lower a score falls below 1, it is an indicator of a less affordable market without enough listings in local buyers’ range.
Some states are relative bargains even in these inflationary times — America’s cheapest states to live in. But the following states are no bargain at all: brace yourself for a tour through America’s most expensive states.
An aerial view of new home construction at a housing development in the Phoenix suburbs on June 9, 2023 in Queen Creek, Arizona.
Mario Tama | Getty Images
The Grand Canyon State is no stranger to growing pains. But as the population surges, the supply of homes in Arizona is falling further and further behind the demand. The average price of a four-bedroom, 2,400-square-foot house in Lake Havasu City topped $1 million last year, or more than twice what it would cost in Sarasota, Florida.
2023 Cost of Living score: 13 out of 50 points (Top States grade: D-)
Consumer Price Index (June, West Region): Up 3.5%
Housing Affordability Score: 0.51 out of 2.00
Average Home Price (Lake Havasu City): $1,004,158
Half Gallon of milk (Phoenix): $2.09
Monthly Energy Bill (Phoenix): $264.56
An ‘Available’ and ‘Sold’ signs outside of new homes in the CBH Homes Calvary Springs Community in Nampa, Idaho.
Kyle Green | Bloomberg | Getty Images
Idaho is another state where a red-hot real estate market is putting overall living costs increasingly out of reach. Based on income levels, Idaho ties with Montana and Hawaii for the lowest affordability in the nation, according to the National Association of Realtors. And the home prices have rippled into the rental market, where a two-bedroom apartment at $1,600 a month will cost you twice what it would in Hot Springs, Arkansas. But you can still get a deal on this state’s most famous export: $2.21 for a 5-pound sack of potatoes is less than half what you would pay in Decatur, Illinois.
2023 Cost of Living score: 13 out of 50 points (Top States grade: D-)
Consumer Price Index (June, West Region): Up 3.5%
Housing Affordability Score: 0.42 out of 2.00
Average Home Price (Boise): $576,971
Half Gallon of Milk (Twin Falls): $2.79
Monthly Energy Bill (Boise): $126.17
Registered nurse Rachel Chamberlin, of Cornish, N.H., left, tends to COVID-19 patient Fred Rutherford, of Claremont, N.H., right, in an isolation room at Dartmouth-Hitchcock Medical Center, in Lebanon, N.H., Monday, Jan. 3, 2022.
Steven Senne | AP
Health-care costs are the biggest driver of inflation in New Hampshire, the Granite State, where a visit to the doctor will cost you more than $175, or twice what it would cost in Baltimore. A trip to the dentist, at more than $150, is nearly twice what it would cost in Peoria, Illinois. And your $115 eye doctor appointment is 36% more than it would cost in Detroit.
2023 Cost of Living score: 13 out of 50 points (Top States grade: D-)
Consumer Price Index (June, Northeast Region): Up 2.2%
Housing Affordability Score: 0.57 out of 2.00
Average Home Price (Manchester): $441,922
Half Gallon of Milk: $2.66
Monthly Energy Bill: $225.85
National Grid worker Jesus Garcia checks on the valves in an underground gas substation on Broadway Street in Newport, RI, as purging of gas from the lines was ongoing.
John Tlumacki | Boston Globe | Getty Images
According to the U.S. Department of Energy, Rhode Islanders are far more dependent on natural gas and heating oil that any other state. That helps explain why energy costs in Rhode Island are so high. You will pay twice the monthly energy bill that you would if you lived in Laramie, Wyoming. Prices spiked here last year due to the war in Ukraine. They have come down somewhat, but still not enough to make the Ocean State affordable.
2023 Cost of Living score: 12 out of 50 points (Top States grade: D-)
Consumer Price Index (June, Northeast Region): Up 2.2%
Housing Affordability Score: 0.52 out of 2.00
Average Home Price (Providence): $462,061
Half Gallon of Milk: $2.42
Monthly Energy Bill: $251.32
Seattle’s housing market is experiencing explosive growth as employers boost hiring.
Getty Images
Depending on where you live in Washington, housing prices in the Evergreen State can be downright oppressive — close to $1 million for a four-bedroom home in Seattle, and $3,600 a month to rent a two-bedroom apartment. Food costs are high, too. Expect to pay more than $5 for a loaf of bread, or twice what you would pay in Midland, Texas.
2023 Cost of Living score: 11 out of 50 points (Top States grade: D-)
Consumer Price Index (June, West Region): Up 3.5%
Housing Affordability Score: 0.51 out of 2.00
Average Home Price (Seattle): $940,665
Half Gallon of Milk: $2.97
Monthly Energy Bill: $188.83
A 55-and-older community in Bozeman, Montana.
Contessa Brewer | CNBC
Montana became such a popular refuge during the pandemic that Big Sky Country now has big home prices to match. Montana is in a three-way tie with Idaho and Hawaii for the least affordable home prices in the nation. According to the Federal Housing Finance Agency, home prices rose 55% from before the pandemic through the end of last year. Prices have now begun to drop as mortgage rates rise, but that is raising concerns about housing market stability.
2023 Cost of Living score: 10 out of 50 points (Top States grade: F)
Consumer Price Index (June, West Region): Up 3.5%
Housing Affordability Score: 0.42 out of 2.00
Average Home Price (Bozeman): $719,461
Half Gallon of Milk: $2.24
Monthly Energy Bill: $140.00
The sun rises behind the skyline of midtown Manhattan, Hudson Yards, and the Empire State Building in New York City as a man walks his dog along the Hudson River on June 25, 2023, in Hoboken, New Jersey.
Gary Hershorn | Corbis News | Getty Images
Real estate prices in the five boroughs of New York City are in the stratosphere compared to the rest of the country, though higher wages help affordability. But it is not just housing that makes it so expensive to live in New York, and it’s not just New York City. Basic goods and services can be expensive statewide. Getting a men’s suit dry cleaned in Albany will cost you more than double what it would cost in Columbia, South Carolina.
2023 Cost of Living Score: 9 out of 50 points (Top States grade: F)
Consumer Price Index (June, Northeast Region): Up 2.2%
Housing Affordability Score: 0.56 out of 2.00
Average Home Price (Manhattan): $2,434,977
Half Gallon of Milk: $3.04
Monthly Energy Bill: $183.24
Homes seen in South Boston from Dorchester Heights on March 21, 2023 in Boston, Massachusetts.
Matt Stone | Medianews Group | Boston Herald via Getty Images
Renting a two-bedroom apartment in Boston will cost you more than six times what it would cost in Kalamazoo, Michigan, as high costs in Massachusetts, the Bay State, ripple through the economy. Your average energy bill is more than two-and-a-half times what it would be in Baton Rouge, Louisiana. Health care is outstanding here, but a doctor’s visit will cost nearly twice what it would in Kansas City, Missouri.
2023 Cost of Living Score: 7 out of 50 points (Top States grade: F)
Consumer Price Index (June, Northeast Region): Up 2.2%
Housing Affordability Score: 0.54 out of 2.00
Average Home Price (Boston): $921,897
Half Gallon of Milk: $3.13
Monthly Energy Bill: $257.12
A house in Portland, Oregon.
Dennis Frates | Avalon | Universal Images Group | Getty Images
Housing affordability is a huge issue in the Beaver State, where homes are only slightly more affordable than the aforementioned three-way tie between Idaho, Montana and Hawaii. Just getting around Oregon can be expensive, with some of the highest gasoline prices in the nation, according to AAA.
2023 Cost of Living Score: 6 out of 50 points (Top States grade: F)
Consumer Price Index (June, West Region): Up 3.5%
Housing Affordability Score: 0.45 out of 2.00
Average Home Price (Portland): $661,664
Half Gallon of Milk: $2.88
Monthly Energy Bill: $157.38
A new housing development built along a canal near the Mokelumne River is viewed on May 22, 2023, near Stockton, California.
George Rose | Getty Images
For decades, California was the ultimate growth story. That changed in 2020, when the state lost population for the first time in a century. The exodus has continued, yet the Golden State still has a massive housing shortage. By one estimate, the state should be building 180,000 new units per year, but it is building only a fraction of that. The result is America’s worst poverty and homelessness rates, and prices for many basic needs that are out of control. A dozen eggs in San Francisco costs nearly twice what it does in Yuma, Arizona.
2023 Cost of Living Score: 4 out of 50 points (Top States grade: F)
Consumer Price Index (June, West Region): Up 3.5%
Housing Affordability Score: 0.46 out of 2.00
Average Home Price (San Francisco): $1,502,557
Half Gallon of Milk: $3.38
Monthly Energy Bill: $267.64
A couple of Moli, or Laysan albatrosses (P. immutabilis) (endangered species) displaying courtship behavior close to homes at the Princeville Makai Golf Club on the Hawaiian Island of Kauai, Hawaii.
Wolfgang Kaehler | Lightrocket | Getty Images
Hawaii has always been expensive due to its location, and the fact that so many basic items must be shipped here from somewhere else. But the housing crisis has made matters even worse. A 4-bedroom house in Honolulu will cost roughly four times what it would in Daytona Beach, Florida. Gas prices are among the nation’s highest, and the only higher grocery bill in the U.S. is in Kodiak, Alaska. America’s most expensive state might seem like paradise, but the prices are hell.
2023 Cost of Living Score: 2 out of 50 points (Top States grade: F)
Consumer Price Index (May, Honolulu Area): Up 2%
Housing Affordability Score: 0.42 out of 2.00
Average Home Price (Honolulu): $1,605,915
Half Gallon of Milk: $4.32
Monthly Energy Bill: $309.47
New York’s top utility regulator Rory Christian acknowledges the transition to cleaner and renewable forms of energy in the coming decades and how that will affect ratepayers in New York will present complications.
“I think that might be one of many challenges we have to face and we’re going to need to look at this from a variety of different perspectives,” he said. “It’s going to require an all-of-government solution.”
New York state officials and lawmakers want a future powered by renewable energy. But how this could ultimately affect the bills New Yorkers pay remains unclear under an effort to curtail the effects of climate change.
State lawmakers at a hearing on Tuesday took stock of utility costs facing New Yorkers, with spikes over the last several years attributed in part to the invasion of Ukraine by Russia as well as increasingly extreme weather.
But looming over the conversation has been the future: ending the use of natural gas and other fossil fuels. New Yorkers may not be aware of what this will all mean, Assemblyman Ken Zebrowski said.
“The average person out there that’s just paying their bill, I don’t think they’ve really understood this yet,” he said.
All-electric building construction rules for new homes and buildings under seven stories will take effect starting next year. The provision has raised questions over energy transmission and reliability as gas appliances are also phased out.
“We can’t just be in one camp or the other,” Zebrowski said. “We need to guarantee reliability. We need to make sure we’re transitioning to clean energy, and we need to affect these affordability issues for consumers.”
But lawmakers, including Assemblywoman Pat Fahy, can also point to the effect on the economy, especially in upstate communities. The construction and shipment of offshore wind components to Long Island is expected to create 500 jobs in Albany alone.
The state is backing massive off-shore wind projects in order to meet key energy benchmarks.
“Those should not be temporary jobs, those should be permanent jobs,” she said. “New York state wants to build massive off-shore wind projects off the coast of Long Island in order to meet key benchmarks.”
On June 27, 2023, the firm’s Emerging Companies Practice (ECP) announced that Neuron, its proprietary cloud-based software platform for start-up clients, now has the ability to generate simple commercial non-disclosure agreements (NDAs) within its corporate governance module. Users may now work with Wilson Sonsini attorneys directly through Neuron to complete a single form, and their legal team can quickly generate an NDA tailored to exact specifications.
This latest enhancement follows Neuron’s addition of the corporate governance module in late 2023. At that time, Neuron was expanded to include corporate governance offerings such as employment and consulting agreements, offer letters, and other agreements enforceable in all 50 states. That release allowed clients and their ECP legal teams to manage corporate governance and board management activities through the Neuron platform. In addition, the ECP launched an innovative fixed-fee subscription for Neuron clients, providing emerging company clients with consistent pricing so they can develop reliable budgets while still accessing world-class legal services.
For more information, please visit https://ecp.wsgr.com/neuron.
The 20-storey tower at 529 Fifth Avenue stands out from the other buildings around Grand Central Station for the surreal pink designs of an Alice in Wonderland-inspired art exhibit installed to fill vacant retail space on its ground floor.
It is also remarkable as one among a small number of towers that have recently changed hands, giving a clue as to the value of Manhattan’s older offices now that the commercial real estate sector has emerged from a historic era of ultra-cheap money.
Silverstein Properties sold the building three months ago for $105 million. In price per-square-foot terms, that was even less than a plot of land across the street commanded in 2015.
“In New York, buildings are selling for less than the value of the land they sit on,” said Will Silverman, managing director at Eastdil Secured, a real estate investment bank. “We are seeing prices lower than they have been in 20 years in absolute dollar terms.”
A long-anticipated reckoning is under way in the US commercial property industry, with the results playing out at 529 Fifth and other addresses. Sharply rising rates, a regional banking crisis that curtailed credit and a trend towards remote work are all wreaking havoc. Older office buildings have borne the brunt of the downturn, but other real-estate categories have not been spared.
The results are evident in mounting strain around the country – from New York developers handing back obsolete office buildings to lenders, to foreclosures on heavily indebted apartment complexes in Houston and defaults on hotels and shopping malls in San Francisco. Banks, under scrutiny from regulators and investors, are now beginning to offload even performing property loans at a loss.
“I am not sure people have come to terms with how long the storm will hover and how much damage it will do,” said Scott Rechler, president of RXR, one of New York’s largest developers, likening the situation to a hurricane making landfall. “As for multifamily and other [commercial real estate], I believe that the markets are underestimating its potential severity.”
Craig Deitelzweig, chief executive of Marx Realty, said he was hearing of “new buildings every day” being returned to lenders. “It is the very beginning, but it seems that every asset class is at risk with these new interest rates and the very tight credit markets.”
[ US commercial property is ‘next shoe to drop’, lenders told ]
[ The office is evolving as employers grapple with hybrid working ]
Property developers and investors thrived during the era of low interest rates that followed the global financial crisis of 2008. When the Covid-19 pandemic struck they were then sustained by a prolonged period of leniency shown by lenders.
Now, broker JLL estimates that office buildings in New York – the world’s largest office market – have lost $76 billion in value from their most recent sales prices. Seventy-three were now worth less than their loan balances. An exception is a new group of the most modern and luxurious offices, such as SL Green’s One Vanderbilt, which are fetching record rents.
More common are buildings like 1330 Avenue of the Americas. The midtown property was recently sold by Blackstone and RXR for $320 million, a third less than the price it commanded in 2006.
Lenders have less flexibility to sustain troubled properties until conditions improve since, unlike in the downturn after the 2008 crisis, rising interest rates have squeezed buildings with insufficient income to cover loan payments. “We are absolutely in a credit crunch for offices,” said one investor.
One broker estimated that only the top 10 per cent of office buildings in New York were not distressed – either in terms of the level of debt or occupancy. “I think we are on the front edge of the forced sales,” this person said.
The financial damage may be masked because so few buildings have been sold in the past year, with deal volumes for commercial real estate down by more than half year on year in the first quarter, according to CBRE. That means that many owners have not been forced to update their valuations.
Still, there have been clues. Blackstone recently sold its stake in One Liberty Plaza, a skyscraper in lower Manhattan, to Brookfield in a deal that valued the tower at $1 billion. That was down from the $1.55 billion valuation in 2017, near the height of the market, when Blackstone bought its interest.
Blackstone said traditional US offices are less than 2 per cent of its global portfolio, down from more than 60 per cent in 2007 as it “intentionally pivoted” to other sectors.
Another Manhattan building, Tower 56, was unloaded in February for $110 million when the owner could not refinance its debt – down from the $158 million paid for it in 2008.
Sales may accelerate as more owners are forced to refinance. Nearly $900 billion in US commercial property debt is coming due this year and next, according to MSCI, a financial data firm. If owners cannot refinance on reasonable terms, or are forced to inject millions of dollars in fresh capital, then they may opt to sell or simply walk away.
Offices are not the only sector under pressure. Some rental apartment properties – viewed as a safe bet during the pandemic – are also struggling.
In Houston, Applesway Investment Group bought four dated apartment complexes with nearly $230 million in floating-rate debt beginning in 2021, hoping that it could raise rents. But it could not cover its payments after rates rose. Lender Arbor Realty Trust foreclosed on the properties in April.
The refinancing crunch is creating opportunities for a growing pack of alternative lenders to plug the gaps for otherwise viable properties. These lenders generally offer credit at higher rates, however.
“There’s going to be tonnes and tonnes of workouts,” Steven Stuart of Fortress Investment Group, one such lender, predicted at a conference hosted in May by the Real Deal, a real-estate news outlet. “The basic problem is a lot of these assets were financed with short-term, floating rate debt a few years ago.”
Looming over any negotiations is uncertainty about the future of offices, the largest sector of commercial real estate. “Office is in the middle of a massive paradigm shift. We think it is going to take five-plus years to work out the fundamental shift in demand,” said Julie Ingersoll, chief investment officer at CBRE IM. “It is like no other real-estate cycle we’ve seen in the past.” – Copyright The Financial Times Limited 2023