JPMorgan dives into terrible commercial real estate market
According to the Wall Street Journal, the New York-based bank is shopping 23 locations with about 7.1 million square feet of office space, including One Chase Manhattan Plaza, Four New York Plaza, and the former headquarters of Washington Mutual in a downtown Seattle skyscraper. In a remarkable understatement, the paper said that any sale would have too come with "sizable concessions." No kidding.
The U.S. office vacancy rate was 15.9 percent in the second quarter, its highest rate in four years; meanwhile, rent fell by the largest amount in more than seven years, according to real estate research firm Reis. The vacancy rate will reach 18.2 percent in 2010 and rent will continue to decline through 2011, Reis said.
Defaults on commercial real estate loans were at a 15-year high earlier this year, further pushing prices of properties downward. The problem is that developers built too much of everything during the boom times: office buildings, malls and shopping centers. It may take years for the glut in the market to work itself out.
"It's bad," Victor Calanog, Reis' director of research, told Reuters. "It's decaying and getting worse. Given the depth and magnitude of the recession, you can argue that we are facing a storm of epic proportions and we're only at the beginning."
This is a challenge that would tax the most seasoned of sales people.
Too bad noted electronics retailer "Crazy Eddie" Antar is a convicted felon and TV pitchman Billy Mays recently died. They would be perfect for the job that JPMorgan needs to get done. Maybe inventor Ron Popeil of Pocket Fisherman fame is not too busy or Donald Trump can squeeze this deal into his busy schedule.
Forget location; JPMorgan Chief Executive Jamie Dimon is about to learn the hard way that timing is everything in real estate.