by Calculated Risk on 9/27/2008 08:46:00 AM

From the NY Sun: Wall St. Woes Give Rise to Talk of 'Black September'

"Due to the recent events, rents are down by at least 10% to 15% and trending downward," the president of Newmark Knight Frank, James Kuhn, said.
...
"An increase in availability of approximately 10 million square feet would imply an increase in the New York office vacancy rate to 8.5%," [chief economist at REIS, Sam Chandan] said.

"Current and anticipated increases in sublet availabilities are fomenting greater competition for the smaller pool of prospective tenants. The full measure of sublet availabilities will depend, in large part, on the job losses that ultimately follow from the current wave of consolidations in the banking sector. The risks are to the downside that a near term spikes in layoffs and a resulting rise in sublet availabilities will coincide with anemic demand for space, undercutting occupancy. Even a modest slowdown, as we have already observed in the New York market, confutes the underwriting assumptions that prevailed in the period leading up to the last year's investment peak."
...
Mr. Slocum of Capital One said: "The key issue is what happens to the overleveraged properties purchased and financed in the past three years. In many cases, the financial projects were based on rising rents and debt markets remaining stable. Many of the loans required the borrowers to provide interest reserves, but they will likely exhaust over the 2009-2010 time frame." He added: "It always comes back to cash flow on commercial real estate. Properties financed on true cash flow should be fine."
emphasis added

The financial crisis is now hitting New York office space, and this will impact many of the recent commercial deals that were based on overly optimistic rent projections. The lenders didn't offer 'liar loans' on CRE like for residential, but they did offer loans based on optimistic pro forma projections - and the results will be the same: rising defaults.