Fitch Says CMBS Market Can Withstand Temporary Downtown Credit Squeeze

NEW YORK CITY-Lower Manhattan office, hotel and multifamily properties will continue to sustain short-term hits from the Downtown double-whammy whipped up by the Sept. 11 bombings and the national economic malaise, but the CMBS picture remains relatively stable going forward, a new Fitch report says.

Lower Manhattan: Short-Term Problems, Long-Term Recovery, published last week by the international ratings agency, names the office market as Downtown’s most dismal sector over the next five years. “We are finding that if people can leave or get out of their leases, they have,” Fitch senior director Diane Lans tells GlobeSt.com. “Some larger tenants may not be returning or will sublease their space. People have been hesitant to say if they’re returning or not. Tenants who were in destroyed buildings have overwhelmingly relocated outside of lower Manhattan.”

The Downtown multifamily market, while not as dire as the office sector, will also face rough times, according to the report. Over the short term, increasing vacancies, lower rental rates and higher insurance costs will result in declining operating performance for multifamily properties in Lower Manhattan. “Nobody wants to be in an office or multifamily building that faces the World Trade Center site.” Lans says. “But it will be a different story once the site gets cleaned up and construction starts. Long term, if rates Downtown end up being more attractive than in Midtown, it’s going to attract tenants back Downtown. People have short-term memories. Overall, we are bullish on the long-term recovery of the area.”