Someone forgot to tell the Canada
Pension Plan Investment Board that the Manhattan office market is
unappealing.
The pension fund said Monday it has taken minority
stakes in two office towers, including a 50-storey giant in the
Rockefeller Center complex in the heart of midtown
Manhattan, arguing the New York office market is turning the corner
after being walloped during the economic downturn.
The purchases
will see CPPIB acquire 45-per-cent ownership stakes in 1221 Avenue of
the Americas and 600 Lexington Ave. from SL Green
Realty – Manhattan’s largest office landlord – for a total consideration of
$663-million (U.S.), including debt. The properties have a combined
value of $1.45-billion including stakes held by other owners.
“It’s
a function of looking at a market that is strengthening, and being able
to find the opportunities that work for us,” said Graham Eadie, senior
vice-president of investment for CPPIB.
“We have been looking for real estate
opportunities, and the market has obviously been very weak over the last
year or two. We’re starting to see the opportunities now and want to
execute against those.”
The fund has been searching for U.S.
properties to add to its $7.1-billion (Canadian) real estate portfolio,
and announced another deal in April to partner with Kimco Realty Corp.,
North America’s largest operator of community shopping centres, in a
joint venture to acquire prime neighbourhood shopping centres across the
U.S. market.
Mr. Eadie said CPPIB plans to boost its real estate
portfolio in future from 6 per cent of the fund’s total holdings, but
would not reveal a target for growth.
He said the fund is in talks
to acquire more U.S. properties, because “it’s an area where we’ve been
able to find the quality of asset we’re looking for at the prices we
want right now.”
The 2.5-million-square-foot McGraw-Hill building
in Rockefeller Center has the publishing firm as a key tenant, along
with Société Générale SA and Morgan Stanley. It will be managed by
Rockefeller Group International Inc., which owns the other 55 per cent
of the building.
The smaller 600 Lexington Ave. property, which is
300,000 square feet and 36 storeys, is a “boutique” office space with
smaller tenants and no major anchor. SL Green will be the majority owner
and manager of the building.
“We think the leasing market is
starting to improve and stabilize in that market, so we think it is a
good time to enter,” Mr. Eadie said. “And these are our first deals in
the Manhattan market.”
Shant Poladian, a real estate analyst at
Canaccord Adams Inc., says the office market in Manhattan has
strengthened significantly in recent months and companies operating in
the sector are reporting better financial results. He said Brookfield
Properties Corp., another major New York office property owner, reported
leasing volume in Manhattan has bounced back to its five-year average
rate.
A key factor for growth in Manhattan’s depressed office
market has been the rapid recovery of major players in the financial
services sector, such as Citigroup Inc., Bank of America Corp., and
JPMorgan Chase & Co. With growing profitability, the firms have been
hiring and their office space requirements are growing.
“The
market’s already turning,” Mr. Poladian said. “Barring some contagion
coming out of the European debt situation, things have actually been
improving quite a lot.”
SL Green is “a strong player in the
Manhattan market” but has fairly high debt levels, Mr. Poladian said, so
selling minority stakes in two buildings is a logical move to raise
financing without tapping the public market.
- 2010 May 11 GLOBE
& MAIL
Macklowe's
Split! - 2010
May
Are Deals Financable?
Fillmore, Deutsche Bank Pact Hit a Snag
CB Richard Ellis Investors is back
in the bidding for the office portion of 1540 Broadway, a skyscraper
in New York's Times Square connected to landlord Harry Macklowe.
A deal hasn't closed, but a person
familiar with the matter said CBRE Investors, the asset-management
unit of CB Richard Ellis Group Inc., would pay as little as $355
million, a major drop in value.
"That's a harsh price for a
very well located building," said Dan Fasulo, managing director
of property-tracking firm Real Capital Analytics.
According to city records and
loan-marketing documents, Mr. Macklowe attributed the value of the
office building to over $950 million when he bought it in February
2007 as part of a $7 billion skyscraper spending spree. The tower's
880,000 square feet of office space had sold in 2006 for $525 million.
In early 2008, unable to refinance
short-term debt, Macklowe Properties handed back control of the seven
skyscrapers to lenders led by Deutsche Bank AG. Deutsche has been
trying to sell 1540 Broadway along with the nearby Worldwide Plaza,
also part of the Macklowe portfolio. Eastdil Secured is the sales
broker. CBRE was in the mix early for 1540 Broadway, then hedge fund
Fillmore Capital Partners LLC was close to securing both towers. The
Fillmore deal died last week, putting CBRE's deal back in the saddle,
according to several people familiar with the matter.
- 2009 February 18 WALL
ST. JOURNAL
An effort by real-estate hedge fund
Fillmore Capital Partners and Deutsche Bank AG to salvage a troubled
debt investment in two prominent Manhattan skyscrapers has hit the
rocks.
A contract was expected to be
signed Monday in which Fillmore would acquire Worldwide Plaza and 1540
Broadway, office properties once worth a total of more than $2
billion. New York landlord Harry
Macklowe had purchased the towers as part of his ill-fated
acquisition of seven skyscrapers in 2007. Unable to refinance the
buildings' debt, Mr. Macklowe turned control of the towers back to
Deutsche Bank, the holder of the $1.2 billion first mortgage, in early
2008.
Last-minute talks late Sunday for
Fillmore -- a junior "mezzanine" lender on the properties --
to buy the towers using Deutsche Bank financing fell apart, according
to people familiar with the matter. It was unclear what caused the
snag. One person familiar with the matter says there is still a small
hope a deal could happen. The deal was so close to getting done the
current buildings' management had been instructed to turn over the
property Monday. That decision was reversed late Sunday.
Deutsche Bank, Fillmore and the
other lenders involved had been trying to sell the properties since
early 2008. And Deutsche Bank had agreed to provide financing to
prospective buyers -- an incentive given the dreadful state of the
credit markets. Early bids came in above $2 billion. But a tentative
deal for General Electric Co.'s NBC Universal to take space in the
pyramid-topped Worldwide Plaza, at 825 Eighth Ave., never
materialized. That discouraged potential buyers who calculate returns
on investment based on how much cash buildings generate from rent
collections.
Executives from all parties
involved either didn't return calls or declined to comment.
- 2009 February 9 WALL
ST JOURNAL
The travails of New York developers
Harry Macklowe and his son, William Macklowe, continue. A mezzanine
lender on 1330 Sixth Ave., an office tower Macklowe Properties
purchased in 2006, has moved to auction off its interest in the tower
after its loan matured.
The mezzanine lender is Cadim, the
real-estate arm of Canadian pension manager Caisse de Dépôt et
Placement du Québec. Cadim lent $130 million to the building and
holds the most senior portion of several mezzanine slots. The loan
matured Jan. 9. Other more junior mezzanine holders include Deutsche
Bank AG, which also originated the $240 million senior mortgage. That
loan was securitized.
The Macklowes, who have $100
million of equity in the project, purchased the 42-story tower in late
2006 for nearly $500 million, more than three times what it sold for
six years earlier. The tower has a substantial amount of vacant space.
Mr. Macklowe, who last year had to
hand back control of seven skyscrapers and sell four others because of
debt problems, hired Carlton Group to find new investors to replace
Cadim at 1330 Sixth Ave. Cadim then hired Eastdil Secured to run the
auction. The auction is scheduled for April 22. Talks continue among
the various parties. A Macklowe spokesman declined to comment. A Cadim
spokesman declined to comment.
- 2009 March 17 WALL
ST. JOURNAL
Manhattan Won't Avoid Property
Crunch
Manhattan prices fall most in 5
years
Number of 2008 sales falls 23%;
units put up for sale jump 41%
Manhattan apartment
sellers cut prices by the most in five years last year and unsold
inventory rose to the highest since 1999 as the economy retreated.
The average listing discount
climbed to 4.1 per cent, the highest since 2003, as buyers negotiated
for reductions off the asking price. The number of condominiums and
co-ops for sale jumped 41 per cent last year to 9,081 even as the
median price reached a record US$995,000, appraiser Miller Samuel Inc
and broker Prudential Douglas Elliman Real Estate said on Tuesday.
New York City is bracing for a drop
in property values after three of the five largest investment banks
collapsed. In the Hamptons, on the eastern end of Long Island, prices
are already falling. Banks and securities firms have cut more than
180,000 jobs in the past year, according to Bloomberg data, as the
recession entered its second year and the global credit crisis forced
writedowns and mortgage-related losses of US$1.18 trillion.
'There clearly was long-running
irrational exuberance out here in real estate,' said Diane Saatchi,
senior vice-president for broker Corcoran Group Inc, in East Hampton.
'It's gone full circle from people who would pay any price because
they had to have the house, to people who pick a price and take any
house at that price as long as they think it's discounted.'
The median price in the Hamptons,
New York's summer playground for the rich and famous, fell almost 13
per cent last year to US$850,000, the first decline since 2000.
Discounts on Hamptons homes rose to 11.1 per cent in 2008, according
to Miller Samuel-Prudential data.
Wall Street firms are expected to
lose US$47.2 billion in 2008 and further shortfalls are expected in
2009, Mayor Michael Bloomberg said last week.
Budget officials assume the city
will lose 294,000 jobs from mid-2008 through 2010, including 46,000 in
financial industries. The mayor is founder and majority owner of
Bloomberg News parent Bloomberg LP.
The firings mirror the national
recession that has driven unemployment in January to the highest since
1992 and pushed home prices down the most since the Great Depression.
The securities industry accounted
for 51 per cent of the growth in wages in Manhattan's private sector
from 2003 to 2007, according to the US Bureau of Labor Statistics.
'Prices have to drop,' Dottie Herman, chief executive officer of
Prudential Douglas Elliman, said in an interview. 'They have to, have
to, have to - and they have.'
In Manhattan, the number of sales
declined 23 per cent last year from 2007, Miller Samuel and Prudential
said. Falling sales and rising inventory preceded lower home prices
nationwide.
The increase in inventory in
Manhattan was largely driven by a slowdown in transactions in the
second half, said Jonathan Miller president of Miller Samuel.
The median sales price for the
entire year rose 11 per cent to a record US$955,000, according to the
report. The gain mostly reflects deals from the first half of the
year, before the collapse of Lehman Brothers Holdings Inc, and
closings from new condominium developments.
The Miller Samuel-Prudential report
also shows the heights that Manhattan's real estate market achieved
over the last decade, a period of easy credit.
In 1999, the median sales price of
all Manhattan apartments was just US$310,000.
By 2004, it almost doubled to
US$605,000. The average price per square foot rose from about US$400
in 1999 to US$1,251 last year, the report said.
The median price of two-bedroom
apartments rose 178 per cent since 1999 to US$1.6 million last year.
One bedrooms rose by 200 per cent over that time, to a median of
US$750,000 last year. Three-bedrooms sold at a median price of US$3.79
million, a 161 per cent increase from 1999.
Prices have also skyrocketed for
Manhattan townhouses. In the past decade, the median has risen 156 per
cent to US$4.995 million.
They jumped even higher for the
category known as 'luxury townhouses', which Mr Miller defines as the
top 10 per cent of all sales. The median jumped last year to US$31.8
million, up from US$6.5 million a decade ago.
Now the market is making an about
face. Prices for luxury apartments in Manhattan, defined by Ms Herman
as units selling at US$3.5 million and above, are now selling at
discounts of about 25 per cent off the asking price, she said.
A three-bedroom, three-bathroom
condominium on Tribeca's Hudson Street is now selling for US$4.6
million after being lowered almost US$1.3 million since August,
according to Streeteasy.com, a property data service. A condo in Trump
Tower on Fifth Avenue in midtown was cut 16 per cent to US$4.95
million since it was first listed in November.
The Financial District, which saw
the largest year over year price increase for co-ops in 2007, was the
neighbourhood with the largest price per square foot decline in 2008,
according the report.
The price per square foot for
co-ops there declined by almost 19 per cent to US$857 in 2008, the
result of lowered demand spurred by Wall Street layoffs, the report
said.
'You're going to see stronger, less
attractive numbers' in the first quarter, said Ms Herman.
The reported available inventory
tally does not include new developments where units have yet to go on
sale, Mr Miller said. 'That is definitely an undercount,' he said.
'There's a lot of shadow inventory in the background.'
The trend is likely to continue,
said Damon Liss, an interior designer who is now trying to sell a
three-bedroom cottage in East Hampton with a swimming pool for more
than US$1 million.
'There's a big disconnect between
buyers and sellers,' Mr Liss said. 'Buyers want 50 per cent discounts
and sellers don't want to reduce the price at all. That's why
transactions are down. Both buyers and sellers are being equally
unrealistic.' -
2009 March 5 Bloomberg
When it comes to property prices, that strip of rock just south of
the Bronx is often perceived as invincible.
Across the U.S., house prices have fallen 19% from their peak,
according to the S&P/Case-Shiller Home Price index. New York City,
as a whole, is down 10%.
![[Manhattan condo prices]](http://s.wsj.net/public/resources/images/MI-AS493A_REALH_NS_20080921190427.gif)
Meanwhile, on planet Manhattan, the median price of an apartment
rose above $1 million for the first time in the second quarter of
2008, according to Miller Samuel, a real-estate appraiser.
Even in Gotham, reality bites eventually. Three big problems are
likely to hit in 2009.
First up: Job losses on Wall Street. In 2006, the most recent full
year of New York State Department of Labor data, finance and insurance
companies employed 15.7% of Manhattan's workers. They earned an
average of $269,000, more than 2.5 times the average private-sector
wage. Property prices will suffer from slashed bonuses and submarine
stock options, not to mention the pink slips.
Wall Street's woes also mean tighter credit. The Federal
Reserve's
latest "beige book" survey of financial conditions says this
of a softening Manhattan condominium and co-op market: "A growing
number of deals are said to be falling through, due to difficulty in
getting financing -- largely at the middle of the market."
The third headwind is a stronger dollar. Jonathan Miller, Miller
Samuel's president, estimates one in three new apartments are sold to
foreigners, primarily Western Europeans. - 2008
September 22 WALL
ST JOURNAL
Real estate market girds for
Lehman fallout
Manhattan
vacancy rates to rise as building prices fall
The fallout from Lehman Brothers’
bankruptcy could push Manhattan’s commercial real estate vacancy
rate up to nearly 10% by the first quarter of next year, according to
a report Monday from real estate brokers Jones Lang LaSalle.
The impact will likely fall hardest on Class A midtown buildings,
where the vacancy rate could skyrocket to 12% if the bank disposes all
of its space, according to the report, based on its estimate of Lehman
holding 2.7 million square feet of space. Currently, vacancy rates for
midtown Class A properties as well as in Manhattan overall are running
at 8%.
Lehman Brothers owns its 1 million square foot headquarters at 745 7th
Ave. while leasing acres of space at other locations including 399
Park Ave.
“The effect is going to be pretty dramatic,” says Peter Riguardi,
president of Jones Lang LaSalle’s New York Market.
Those estimates don’t include the fallout from Bank of America’s
sudden acquisition of Merrill Lynch or American International
Group’s enormous problems. Bank of America executives on Monday said
they aim to cut $7 billion in costs from Merrill, which will almost
surely mean shedding staff and space. Merrill leases 4.2 million
square feet at the World Financial Center but only occupies about 2.6
million feet of it. It also leases an additional 850,000 square feet
in various locations in Manhattan.
Mr. Riguardi notes that AIG occupies about 3 million square feet of
space downtown. AIG owns its 775,000 square foot headquarters at 70
Pine Street and in June signed a lease for 800,000 square feet nearby
at 180 Maiden Lane, where it planned to consolidate office it has
scattered around downtown.
Real estate executives say the turmoil
could drive rents down between 15% and 20% by next year. Until now,
asking rents have remained strong, jumping 21% to $71.59 per square
foot in the second quarter from the same period in 2007, according to
Cushman & Wakefield.
The tumult on Wall Street was already hurting Manhattan's office
market. The vacancy rate climbed to 7.1% in the second quarter, up
nearly 2 percentage points from the year-ago period, according to
Cushman & Wakefield Inc. In addition, brokers say that tenants are
taking longer to sign leases. That sluggishness comes at a time when
troubled financial firms are retrenching, adding more space to a
market that now has 20 million square feet available—up 35% from a
year ago.
The problems will also further depress the market for commercial
office towers. ast year, Manhattan office buildings fetched an average
of $972 per square foot, according to Cushman & Wakefield. At that
rate Lehman’s HQ would fetch nearly $1 billion. Experts say that sum
is now highly unlikely.
AIG’s headquarters would be considered less attractive than
Lehman’s because it is older and located downtown. Typically,
midtown towers fetch higher prices than their counterparts in the
financial district.
- 2008 September 15 CRAINS
NY
Who Needs a
Mortgage Anyway?
While the mortgage markets have
been convulsing, Wall Streeters have been completing one big-ticket
deal after another, buying condos, co-ops and town houses at some of
New York's most prestigious addresses.
In January, Lloyd C. Blankfein,
chief executive of Goldman Sachs, closed on a $26 million duplex at 15
Central Park West, one of Manhattan’s hottest new buildings. Scott
A. Bommer, a hedge fund manager, bought a Fifth Avenue co-op for $46
million. And Edgar Bronfman Jr., part of a private equity consortium
that owns the Warner Music Group, spent $19.5 million for his own
Fifth Avenue co-op.
As the mortgage mess deepened, the
deals rolled on. In February, Raymond C. Mikulich, until recently the
head of the real estate private equity group at Lehman
Brothers, paid $17.9 million for a four-bedroom apartment at
15 Central Park West. Then Philip A. Falcone, a senior managing
director at Harbinger Capital Partners, a hedge fund, closed on a deal
to buy the Upper East Side mansion that once belonged to Robert C.
Guccione, founder of Penthouse magazine, for $49 million.
James E. Cayne’s $28 million
purchase of two units in the Plaza was not the biggest deal, but it
was among the most awkwardly timed. A few weeks after the second deal
closed, the Wall Street firm where he is chairman, Bear Stearns,
collapsed. -
2008 April 2 NEW
YORK TIMES
NEWS
In a sign of how commercial real estate values in Manhattan have
deteriorated, a 21-story building there, one of the last to sell
before the credit crisis, is under contract to sell again at a loss of
$41 million. - 2008 July The
New York Times
US retail malls' Q2 results
worst in 30 years
Strip malls seeing average vacancy rates spike sharply
US store closings and cutbacks
turned the second quarter into the worst for strip mall owners in 30
years, as increasingly budget-conscious consumers flocked to low-cost
warehouse-style grocery centres, according to a report by real estate
research firm Reis.
Strip malls, which are usually
anchored by grocery or drug stores, saw average vacancies spike 0.5
percentage points to 8.2 per cent, a level unseen since 1995,
according to the report released yesterday.
Vacancies at regional malls rose
0.4 percentage points to 6.3 per cent, the highest level since the
first quarter of 2002, according to the preliminary results.
'They definitely came up weaker
than our expectations and we've been pretty bearish on our outlook for
retail for some time,' Reis chief economist Sam Chandan said.
'In the market in general there
have been a lot of store closings.'
A growing list of retailers
shuttered stores ahead of lease expirations or chose not to renew
leases, and as newly completed space hit the market without signed
tenants.
Starbucks Corp recently said it
would close 600 stores by March.
GAP Inc is looking to give up some
of the 40 million square feet of retail space its leases.
That's in addition to the growing
list of retailers, such as Linen 'n Things and Goody's Family
Clothing, which filed for bankruptcy protection.
Consumers are constrained by
increases in food and energy costs, as well as the cost of servicing
debt run up during the housing boom.
In addition to cutting back on
clothing, jewellery and non-essentials, they have turned to
lower-price grocers such as Wal-Mart at the expense of the upper end
usually found at strip malls, such as Whole Foods Market Inc, Reis
said.
For the first time since 1980, more
space became available to rent at strip malls than was rented out -
about 3.2 million square feet more.
Part of the available space came in
the form of 5.7 million square feet of new development that came on
the market during the quarter.
The extra space translated into
falling rents at strip malls, down 0.1 per cent to an average of
US$17.60 per square foot.
'The downward pressure on rent is
coming from landlords being very nervous about the idea of losing a
tenant when they know that there's a paucity of replacements for that
tenant in the current market environment,' Mr Chandan said.
Preliminary figures show that
regional malls were barely able to raise rents, with just an anaemic
0.2 per cent rise excluding concessions, its weakest gain since the
second quarter. -
2008 July 8 REUTERS
Taking Manhattan
A new record price for an office building defies the recession
talk
It is said that nobody ever made money by owning the General Motors
building, only by selling it. And yet again the Manhattan landmark
building by the south-eastern corner of Central Park is about to
change hands for a price that seems justified only by the greater-fool
theory that one day someone will be willing to pay even more. In the
first round of bidding, there were several offers of $3 billion, which
would be a new record for a single building in America beating the
$1.8 billion paid last year for nearby 666 Fifth Avenue. Hopes are
high that the final price will be well above that.
No one hopes so more fervently than the owner, Harry Macklowe, who
needs it to fetch at least $3.4 billion in order to repay a loan, for
which the building is collateral, from the publicly traded hedge-fund
group, Fortress. Mr Macklowe is in trouble because he paid too much
for properties offloaded by the private-equity giant, Blackstone, from
the portfolio of Equity Office Properties, a property firm it bought
for a record last year, in the final gung-ho days before credit dried
up. Reportedly, the rents on the GM building
barely cover the interest on the mortgage.
Mr Macklowe bought the skyscraper for $1.4 billion in 2003, from
owners such as Donald Trump, who regrets selling. One of the defeated
bidders then, Sheldon Solow, is still contesting in court the decision
to sell to Mr Macklowe, whose improvements to the building include
introducing a super cool Apple Store in front of the famous FAO
Schwarz toy shop.
At the very least, this high-priced bidding war suggests that New
York's commercial real-estate business is in better shape than some of
the city's banks. Yet, as a trophy property, the price offered for the
GM building may say more about the continuing robust financial health of wealthy buyers than incremental
changes in demand for office space in New York.
There is also the falling dollar. A report from Cushman &
Wakefield, a property adviser, reckons that with average rents of $100
a square foot, New York ranks only the tenth-most-expensive among
global cities in which companies like to put their headquarters. One
bidder reportedly has strong backing from Arab investors. This is a
sign that the weak dollar is making American assets attractive to
foreign shoppers with cash to splash.
- 2008 February 21 THE
ECONOMIST
Office rents drop as space hits
market
Manhattan's
once red-hot commercial real estate market is developing a chill
Vacancy rates are edging higher.
The pace of new lease signings is flagging, and the volume of sublease
space hitting the market is soaring.
More important, for the first time
in six years, effective rents have begun to fall.
"There's no question that
rents are lower than they were last year," says David Falk, an
executive vice president and principal at Newmark Knight Frank.
That trend is all but certain to
accelerate as financial firms, which account for roughly a third of
Manhattan's rented space, shed staff and space amid the credit crisis.
GVA Williams Vice Chairman Mark
Friedman reckons that effective rents, which include the cost of
concessions offered by landlords, have already fallen by about 7%. GVA
found that in the first quarter of the year, midtown landlords
typically gave tenants three to six months of free rent, up from zero
to six months in the year-ago period. Similarly, they upped the amount
they were willing to give to tenants for improvements to $40 to $50 a
square foot, from $35 to $45 a square foot.
Mr. Friedman predicts rents will
eventually drop 15%.
The downward pressure stems from
two factors: sagging demand for space caused by the weakening economy
and an avalanche of sublease space expected to hit the market in
coming months.
Just starting
Financial firms, battered by billions of dollars of losses from
write-downs of the value of subprime mortgages and a growing list of
other products, are just beginning to shed space. In the last year
they've laid off 22,000 people, according to a Crain's
estimate. Experts forecast that 33,300 Wall Street jobs will disappear
by next year.
Mr. Falk estimates that 4 million
square feet of sublease space will be unleashed in midtown alone as
financial firms and others unload space amid a slowing economy. Just
last week, drug giant Pfizer quietly laid plans to unload 750,000
square feet of space in midtown.
J.P. Morgan Chase is expected to be
one of the largest space shedders. It could eventually unload 1
million square feet of space as it digests its purchase of Bear
Stearns. Sources say Lehman Brothers is looking to unload roughly
600,000 square feet of space, while Citibank is believed to be freeing
up nearly 240,000 feet at two locations.
In the last five months, 5.3
million square feet of sublease space has landed on the market, a jump
of 51%. That space now accounts for 19% of the 27.5 million square
feet available. Experts say that when sublease space reaches 35% to
40% of the total, it begins to pull all prices down. If Mr. Falk is
correct, that tipping point could be reached in just a few months.
The problem is that sublease space
is typically less expensive than space rented directly from a
landlord. In May, Cushman & Wakefield Inc. reported that sublease
space was nearly $14 a square foot—or about 15%—cheaper than
direct space.
Bleak outlook
With oil prices rising and the economy softening, the outlook on the
demand side is also bleak.
"The bottom line is that I
don't think that corporate America is about to come in and gobble up
space," says Mr. Friedman.
As a result, brokers expect that
the gap between landlords' posted prices for space and what tenants
actually pay will continue to widen. Mr. Falk says that, on average,
tenants are signing leases that are $5 to $10 a square foot below the
asking rent, up from $3 to $5 a square foot last year. The average
asking rent in Manhattan is $85 a square foot.
The good news is that even with all
the space that has been added to the market in recent months, the
vacancy rate in Manhattan stands at a puny 6.8%, which is low by
historical standards and gives landlords the edge. The question is,
for how long? The vacancy rate has already risen 1.3 percentage points
this year.
"It's clearly a more balanced
market," says Brian Gell, a vice chairman at CB Richard Ellis
Inc. "Tenants are more cautious, but those who are prepared to
act will benefit."
SALES HARDER TO FINANCE
The good news for buyers of Manhattan office buildings is that prices
are down. The bad news is that financing such deals remains dicey.
Two weeks ago, three properties that lenders had taken back from Harry
Macklowe for failing to repay a loan were sold at prices 20% to 30%
lower than what he had paid a year earlier.
But with lenders now demanding that buyers lay out 30% to 50% of the
deal value in cash-up from 10% to 30% a year ago-volume has shriveled.
In the first five months of this year, 33 office towers were sold,
a drop of 63% from a year ago, according to Real Capital Analytics.
Scott Latham, an executive vice president at Cushman & Wakefield
Inc., notes that worries about a weakening economy have put buyers on
the sidelines.
"They are waiting to see what happens," he says.
- 2008 June 21 CRAINS
Manhattan
office demand strong
Demand for Manhattan office space remains strong and will dip only
slightly in the new year, according to a third quarter report by
Marcus & Millichap Real Estate Investment Services. By year's end,
Manhattan employers were expected to have created 36,000 jobs for a
1.5 percent gain, the report said. A limit of new supply and strong
demand were expected to lower the vacancy rate in 2007 by 100 basis
points to 6.3 percent. But turbulence in the global financial markets'
could lead to job cuts in the Manhattan financial services sector,
which could tamp down demand for office space.
A total of 708,000 square feet of for-lease office space was expected
to be built in Manhattan in 2007. Asking rents jumped by 18 percent
this year to $60.71 per square foot, the report said, while effective
rents were expected to increase 20.8 percent to $54.15 per square foot.
- 2007 December 12
Midtown Manhattan
Office Rents Exceeds Dot-Com Peak
Average effective rental rates for Class-A office space in Midtown Manhattan have surpassed
the all-time high rental rates reached during the dot-com peak at the end of 2000. According to the Studley Effective Rent Index (SERI)
covering Midtown and Downtown, Midtown's spike in rental rates is due to a number of real estate components impacting pricing, namely higher real
estate taxes, operating expenses, and electricity costs, not to mention supply and demand.
The national SERI report indicates rental
rates are steadily increasing in markets throughout the United States,
and Midtown Manhattan follows suit, although its effective rental
rates are markedly higher than in most other major tier-one markets.
Midtown New York's average rent of $75.42 per sq. ft. is 1.2% higher
than 2001's peak rate. Downtown New York's average effective rent of
$40.95 per sq. ft., however, is 18.2% lower than the peak value, not
even close to the levels achieved during the dot-com heyday.
"The entire business landscape has changed since 2000," says
Steven Coutts, senior vice president of Studley's National Research
Services. "Prime office buildings have been trading for amazingly
high prices for several years with landlords garnering higher rents as
a result of the dearth of product in Midtown. It's a domino effect ?
the increase in building revenue escalates the building's value
leading to higher property taxes thereby increasing the total rent
even more."
Operating expenses have also increased over the last five years, says
Coutts, who attributes some of this to the added security in buildings
post 9/11. From 1995 to 2000, average operating expenses increased
from $6.75 per sq. ft. to $7.82 per sq. ft., a 16% increase, but
operating expenses increased by 30% in the succeeding five-year period
between 2000 and 2005.
"Interestingly, average increases in electricity costs over the
past 10 years have been moderate, averaging 3.1% annually," adds
Coutts. "But in the last year, average costs jumped by 13.5% as
the nation grapples with the current energy crisis." -
29
June 2006
RESIDENTIAL
In a Hot
Market, All the City Is a Condominium
East Side, West Side, all around town, every form of real estate, no
matter the tenancy, is being sold to investors for conversion into
residential condominiums. They range from four-story buildings in
TriBeCa that are selling for more than $550 a developable square foot
to tennis facilities in Queens to factories in Long Island City to
parking garages and vacant lots.
Over the last decade, a number of office buildings in Lower Manhattan
have been converted into residential towers. Last week, Kent Swig,
president of Swig Equities, signed a contract to buy a 103-year-old,
landmarked, 21-story, 540,000-square-foot building at 25 Broad St. It
was bought in 1994 for $5 million by Crescent Heights. Crescent spent
$55 million in 1997 to redevelop it into 347 apartments, 21,400 square
feet of retail and commercial space, and 6,800 square feet of office
space. Industry sources said the property sold for $260 million. Also
last week, a joint venture of Worldwide Holdings and Lubert-Adler
entered into a contract to sell an office building at 88 Greenwich St.
to Thorwood Real Estate, a partnership of Joseph Sitt and Andrew
Heiberger, for $195 million. The 365,000-square-foot, 72-year-old
building was converted into 458 apartments in 2000.
Thorwood is also buying a building at 158 Madison Ave. and will
convert it into a 22-story loft condominium.
A 95-year-old, 185,000-square-foot office building at 485 Fifth Ave.
will be sold next month to a joint venture of Michael Belfonti, Adam
Hochfelder, and the Carlyle Group. The partnership will pay $88
million to a group of investors including Jack Forgash, which
purchased the former Rogers Peet building for $54 million earlier this
year. The buyers plan to convert the property into condominiums.
Last month, Monday Properties entered into a contract to buy a
20-story, 210,000-square-foot office building at 386 Park Avenue South
from Park South Control for $71 million. Industry insiders think it
will be converted to condos.
The 143,000-square-foot Stuart Dean Building at 355-366 Tenth Ave.
will be sold and converted into a residential tower. Insiders said
Gary Barnett's Extell Development will pay $25 million for the site.
Extell recently bought the one-story Ritz Furs shop on 57th Street
between Sixth and Seventh avenues, as well as the transferable air
rights. It plans to demolish the building and construct a 37-story
condominium tower.
New York City is losing tennis courts. Two years ago, a tennis center
atop a parking garage on 31st between Fifth Avenue and Broadway was
sold and converted into a Con Ed substation. The 6-acre East River
Tennis Club on the waterfront at 44-02 Vernon Blvd. in Long Island
City has closed to make way for a major residential development: two
condominium towers with a total of 1,080 units and two rental
buildings with 1,100 units.
A few years ago, Eagle Electric moved its manufacturing operations to
Mexico. Earlier this year, the Andalex Group bought one of its
buildings at 45-31 Court Sq., near the 48-story Citigroup tower in
Long Island City. It plans to renovate the property into 238 luxury
condominiums. Another facility in Astoria at 21st Street and 24th
Avenue is being converted into 188 condominiums.
A 12-story, 147,000-square-foot office building with possible air
rights at 63 W. 38th St. is on the market for redevelopment as
residential condominiums or a hotel. A few blocks away, a 14-story
office and showroom building at 215 W. 40th St. is being marketed for
$22.5 mil lion as a residential conversion. A zoning variance may be
required.
In May, the City Council approved a zoning plan for Williamsburg and
Greenpoint. Sites there are now selling for more than $175 a
developable square foot. There are two developable Gabila's Knish
Factory properties at 111-113 S. Eighth St. and 110-120 S. Eighth St.
and Bedford Avenue, less than 10 blocks from the subway station at
Hewes Street and Broadway. The sites are under contract for sale, and
were listed for $7.5 million.
At least six other sites in Williamsburg and Greenpoint are on sale
for residential conversion, with prices ranging from $100 to $225 a
developable foot.
A five-story office building at 530-540 Atlantic Ave. in downtown
Brooklyn is being marketed for $18.5 million as a residential
conversion prospect. A 190,000-square-foot development site occupying
the entire block of Myrtle Avenue between Gold and Prince streets,
blocks from MetroTech and the Atlantic Terminal, is being marketed for
$21 million.
A new stadium for the Mets and the Olympics is planned in Flushing.
Muss Development plans a mixed-use complex on the corner of College
Point Boulevard and Roosevelt Avenue on a site formerly occupied by
Con Ed. It will have over 1,200 apartments, a Target, and a Home
Depot. Shaya Boymelgreen is converting the former RKO Keith at 129-43
Northern Blvd. into a mixed-use facility that will have 250
condominiums, 25,000 square feet of retail, and a parking garage.
Everyone wants a piece of the real estate market. A prominent
developer told me that a physician friend called him and told him he
wants to join him and become a developer. The developer asked the
physician if he would like him to assist him while he is performing
surgery. Real estate prices have risen to records, and today is not
the time for amateurs to try their luck as developers.
"I am astonished by the lack of differentiation in underwriting
by the financial community when it comes to quality of sponsorship,
capital structure, and location of a development," a vice
president of real estate finance at HSH-Nordbank, James Fitzgerald,
said. "We remain vigilant and cautiously optimistic on select
developments. It is no longer the domain for amateurs."
- by Michael Stohler NEW YORK SUN Real
Estate, p. 12 23 June 2005
