MARKET INSIGHTS
February 28, 2018

John B. Levy, president of John B. Levy & Company, appeared again on Bloomberg Surveillance on February 23, discussing commercial real estate trends and contrasting transactional data with finance trends, which showed continued strength. Levy also offered insight into the commercial real estate market in New York City, as well as perspective on recent developments in foreign ownership and the concept of air rights.

Bloomberg Surveillance is a daily radio show hosted by Tom Keene and David Gura that covers the latest in finance, economics and investment, featuring the leading voices shaping the conversation around world markets.

Below is a transcript of Levy’s appearance, with the full audio of the segment available at blevyco.com/category/audio/.

Tom Keene, Bloomberg News Anchor: We have a national expert on what Mr. Dimon has wrought – John Levy, who is of course out of Richmond, Virginia – on commercial real estate. Let me get your memo right now on the state of commercial real estate in our major cities. Is it thumb up or thumb down?

John Levy, President, John B. Levy & Company: Well, I think it's basically thumbs up. But sales trends are actually down, Tom. They're down for the last eight quarters, so that if you look at just sales, we're off 15 percent for the last two years, not the end of the world. But certainly not trees growing to the sky. On the finance side, finance is actually better then transactions.

Keene: Is the money still cheap?

Levy: Money is cheap; it's not free. But rates are up, 50 basis points on the 10 year, 35 basis points on LIBOR. So, money is more expensive. Spreads have actually come down so that the overall effective rate is really not changed that much. But we have a lot of money. We did a just a loose survey and found 90 bridge lenders nationwide. That's ridiculous amount.

Keene: OK. And what does it mean to have a 70 story skyscraper planted in prime real estate like 270 Park Avenue. What does that mean for the area, midtown Manhattan? And frankly, what does it mean for the city?

Levy: Well, I think it is a terrific building. Any time you get that much money put in an area, it's going to speak well for the area. It's going to speak well for the area around it. And it's a long-term project. We don't we do those things for a year --

Keene: 2024.

Levy: Yes. It's long-term --

Keene: You and I will be gone. Lisa, will be killing it.

Lisa Abramowicz, Bloomberg Anchor: I'll be really, loving those bonds. Well, you know, I want to talk to you about Anbang, the Chinese insurers being cracked down. And this is the owner of Waldorf Astoria, and they might have to sell it. Everyone, kind of agrees they bought it for too much money. What does it mean to have the exit of big Chinese conglomerates that have been buying up key commercial properties in the U.S., having more restrains put on them by the Chinese government? I'm also talking about HNA.

Levy: What we've seen actually this happen before. You remember when the Japanese bought a bunch of U.S. projects and then they were forced to sell them at lower prices. This happens from time to time in the commercial real estate market.

Abramowicz: Does that mean it's going to pressure commercial real estate prices substantially in New York and other big markets?

Levy: No. I don't think so. Real estate, especially in central Manhattan, is just really hot. Office prices are off for obvious reasons. We're seeing a little softness in multi-family. Again, you don't have to be on a waiting list, you might actually get some free rent. So times are a little different than they used to be.

Keene: We've got just time for a one more quick question. Air rights, when you build a new skyscraper are everything. And the rumor is that the J.P. Morgan building is so big that the shadow falls on Lisa Abramowicz’s apartment.

Abramowicz: I live in Central Harlem, so it’s a really tall building.

Levy: That's a long way away.

Keene: Would you explain air rights and what they mean to commercial real estate?

Levy: Well, sure. They're everything. Especially in downtown major markets because what it allows you to do is build in essence on land that doesn't exist. So you're building over a train track, you're building over a highway. You're building on top of some retail space. And it allows you to get new first mortgage financing as opposed to having subordinate debt. So it's huge.

Keene: It's a huge financial trend.

Levy: Absolutely.

Keene: But then the neighboring people around the new J.P. Morgan building do they get compensated?

Levy: Well, not necessarily. I don't know who owns the air rights. I mean, it may be in the zoning that J.P. Morgan or whoever bought the air right is required to come in and compensate the neighbors with a park with green space with other things. But it's not, you know, it's not mandated.

Keene: This is great, John Levy, thank you so much, with John B. Levy and company.

For more information, visit jblevyco.com.