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Another group of company executives is thinking about asking about government help. With rents on prime Manhattan office space tumbling and credit virtually gone, some of the biggest New York City commercial real estate developers are fighting for their financial lives. NPR's Jim Zarroli reports.
JIM ZARROLI: 666 Fifth Avenue is a sleek 41-story office tower on one of the most desirable corners in midtown Manhattan. When the building was sold in 2007 to the young developer Jared Kushner and his family, the price it fetched was an all-time U.S. record of $1.8 billion. Today, Peter Slatin of the research firm Real Capital Analytics stands just outside the building. He says as the economy slowed, Kushner had trouble making payments.
Mr. PETER SLATIN (Real Capital Analytics): He was depending on escalating rents and escalating building values, neither which has been the case. Some important tenants such as Citigroup have vacated parts of the building, and the value of the building has certainly fallen by anywhere from 20 to 30% since he bought it.
ZARROLI: So how much trouble is Jared Kushner in?
Mr. SLATIN: He is walking a tightrope and it really depends on his backers who at some point someone will say, listen, I have spent a lot of money on this building, it's not getting any better, and I am running out and you've got to do something.
ZARROLI: The company has been able to sell some of the building's retail properties and refinance some of its loans. A spokesman for Kushner strongly denies that the building is in any distress, but a lot of people in the industry are skeptical. Whatever happens, Peter Slatin says the way Kushner financed the deal, using lots of short-term debt and unrealistic revenue projections, was typical of the way Manhattan developers operated during the boom years.
Mr. SLATIN: Basically financing was available to - people like to say it was available to a warm body. You could go in and if you could get non-recourse financing, which means you are not personally liable for it. Come up with a little bit of equity or even borrow your equity, and then borrow your debt, which sounds pretty amazing, but you could put down very little in down payment. It's - I call it the commercial real estate equivalent of the subprime loan.
ZARROLI: And many of these loans had to be paid back quickly, says developer Lawrence Fiedler.
Mr. LAWRENCE FIEDLER(Real Estate Developer): And when you found the money, you put a time bomb in your pocket, because most of the time that money was short-term money and had to be replaced by other money within a year.
ZARROLI: Now Fiedler says a lot of those loans are coming due and the developers are looking for ways to refinance, but there's no longer any money available for them. While credit may have thawed a bit in the residential market, Fiedler says investors are still steering clear of commercial real estate.
Mr. FIEDLER: It happens to everybody. I know one investment banker at one of the big offshore investment banks. They spend their time figuring out how to withdraw their commitments and not fund commercial real estate loans. You've got an absolute freeze going on in the credit markets.
ZARROLI: And that freeze has already claimed some notable victims. Last year developer Harry Macklowe had to sell off some of his biggest properties, including the General Motors building when he could not secure financing. But Mitch Rudin of the real estate firm CB Richard Ellis says the downturn is affecting everyone. Even developers with good credit ratings who've made all their payments on time are having trouble getting loans.
Mr. MITCH RUDIN (CB Richard Ellis): You have situations now, unfortunately, with the credit market as difficult as it is where the loan has been serviced without issue for a number of years and the existing lenders are indicating that they are not prepared to renew it or renew it at terms that don't make any sense. That's a situation that just shouldn't happen.
ZARROLI: The real estate industry, like so many others, is now pressing the federal government for help. It wants the government to set up a facility to provide financing for investors who want to put money in commercial real estate. Industry officials point out that a lot of big pension funds and endowments have invested in commercial real estate over the years and stand to lose a lot of money. If something isn't done to address the credit crunch, they say, an already overstressed economy will have even more troubles to contend with.
Jim Zarroli, NPR News, New York.
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