By Peter Grant 

The volume of commercial property sales in New York City cratered in the second quarter because of the new coronavirus pandemic, a trend that will likely accelerate in the last half of the year with painful consequences for city tax collections.

Investors purchased only 170 properties valued at $3.6 billion between April 1 and the end of June, the lowest number of transactions for a three-month period since the second quarter of 2009, according to B6 Real Estate Advisors. There were 523 deals valued at $7.6 billion in the second quarter of 2019, said the firm, which specializes in New York commercial property sales.

The decline in the number of sales occurred at a much faster pace than in the latest recession, when there was a more gradual quarter-to-quarter fall, said Adrian Mercado, B6 Real Estate chief information officer. "Here you see a cliff," he said. "It's a threat that commercial real estate has never really faced before in this city."

The nosedive in sales volume will cause a sharp reduction in collections of the city's 2.65% real-estate transfer tax, which totaled $893.3 million in 2019, according to B6 Real Estate. The firm is projecting collections will fall to $500.3 million in 2020.

The upheaval in commercial real estate could be even more painful to the city budget when it comes to property tax collections because assessed values of office buildings, stores, hotels and other properties are expected to plummet, said Paul Massey, founder and chief executive of B6 Real Estate.

"The decline in value is the bigger issue for the city to face," said Mr. Massey, who ran for mayor in 2017. "We could be talking about billions of dollars in unanticipated shortfall."

The great majority of the deals that took place in the second quarter of this year already were well along in mid-March when the coronavirus hit. In many cases, the deals were able to close because buyers had already put down nonrefundable deposits or buyers and sellers renegotiated lower prices, according to real-estate brokers and investors.

Volume in the last two quarters of 2020 will likely be even lower than in the second quarter because very few new transactions have gotten started since the pandemic, Mr. Mercado said. Values continue to be a mystery with huge unresolved questions hanging over the reopening of Broadway, the return to office space and other vital drivers of the commercial property industry. Last week, the Broadway League, a theater industry trade association, said that Broadway performances won't resume until early 2021.

"A lot of people are not going to go into the market," Mr. Mercado said of commercial real estate. While many investors have capital, some are using it to shore up their existing properties, he said. Others "are going to wait to see what happens," he said.

The deals that closed in the second quarter included the purchase of a 49.5% stake in Manhattan's One Madison Avenue by a venture of the National Pension Service of Korea and Houston-based Hines Interests LP. The venture paid $492.2 million for the stake in the office tower which is slated to be redeveloped and expanded in a development valued at $2.3 billion.

The seller of the stake in One Madison, SL Green Realty Corp., has been selling some assets to shore up its balance sheet after a deal to sell the former New York Daily News headquarters for $815 million fell through in late March. SL Green will retain a majority stake in One Madison.

Write to Peter Grant at peter.grant@wsj.com

(END) Dow Jones Newswires

July 06, 2020 11:18 ET (15:18 GMT)