What a bizarre two years it has been...

I originally started this blog in 2007, when it was common that trophy commercial real estate assets would trade for 3% cap rates (cap rate = property-level net operating income divided by property value). I felt the market correction coming -- albeit not nearly to the extent that we are experiencing today, nor the extent to which I think we'll see in the next couple of years.

Two years later, I'm at my second company since leaving the boutique i-banking firm, including 15-month pit stop at one of the biggest hedge funds on the Street (where my strategy proceeded to blow up). And I, like everyone else, am wondering -- where do we go from here?

The people who used to read this blog are probably long gone. Most who worked in the CRE industry in New York have left for less-competitive locales. So I'm really just posting this to see if it's picked up on anyone's RSS feeds.

I dropped everything when I went to the hedge fund to focus 100% of my time on the strategy. Now that I have a bit more time on my hands, I'll probably resume blogging regardless of whether anyone reads it. It's amazing to me that since I started this, there still have been no blogs about commercial real estate that have popped up given everything that's going on. It's an incredibly interesting time, yet no one seems interested.

A Hungover Friday Morning Link Rundown

Fortress Acquiring Flagler Development for $3.5 Billion (CoStar)
Apparently bought all-cash, which is somewhat surpring. I would say that is may be due to the fact that development firms which aim for quick development and exits tend to be low on operating cash flow, especially in today's environment where less buyers are buying on in-place income and rather focusing on future stabilized cash flows and/or values... but Flagler has a sizable portfolio of owned assets. In any event, it's definitely the news of the day [yesterday].

Mathias named SL Green President (Forbes)
Notorious BSD Andrew Mathias has been promoted to president of SL Green and will keep the CIO title as well (of both SLG and Gramercy Capital). Previously, CEO Marc Holliday was President of the company as well. Said Holliday, "Andrew could make eight kajillion bazillion dollars if he were to start something up himself, so I'm perplexed that he accepted my offer of a title upgrade and some extra pocket change." ...Or maybe that's just what I said ... to myself.

NAR: Commercial Real Estate Investment Expected to Remain Strong (EARTHtimes.org)
Don't ask how I happened upon an EARTHtimes link, but its really just a press release from the National Association of Realtors which cites the fact that more dumb money is being thrown at commercial real estate deals in 2007. "Investment in commercial real estate rose 11 percent to a record $306.8 billion in investment-grade transactions in 2006, with office buildings leading the way."

Broadway Closes on 237 Park, 100 Wall (NY Observer)
The Real Estate pokes a little fun for their "announcement" when everyone already knew about the transaction via the same blog two months ago.

If a high-rise is developed in downtown LA, does it make a sound? (CPN)
I don't know many people who care much about Los Angeles real estate, save for Maguire Properties, I'm sure... but according to CPN, "Plans have been announced for Park Fifth, a high-rise residential and hotel complex in Downtown Los Angeles. Africa Israel and Namco Capital Group are serving as the capital partners for the $1 billion project, which is being developed by Houk Development Co." It will be the tallest residential property west of Chicago at 76 stories on Fifth and Olive (and another 43-story tower). It will include 732 condos, a 220-room five-star hotel and a 15-story bridge linking the two towers. Groundbreaking will take place in Q1 2008.

Everyone drink lots of water and be liberal with the Aleve!

It's a New Dawn, It's a New Day

After the busiest three weeks of my life, I'm trying to get back into the routine of posting here. Oh, how much has changed in the past 17 days...

Forget what you thought you learned about today's CMBS world during the last 18 to 24 months - it's been flipped faster than the EOP portfolio. With the subprime meltdown, ratings agency warnings, and activist CMBS buyers at all levels serving as catalysts, the CMBS market underwent an enormous adjustment seemingly overnight. Banks re-traded loan apps on their some of their most successful and profitable clients, several banks made it be known that they are out of the 10-year interest-only lending business for good, some borrowers unable to obtain financing walked away from hard deposits, and one of the go-to funding sources for large deal financings went POOF -- literally -- overnight.

Some of the biggest news items since the hiatus:

CMBS Spreads Widen from Top to Bottom (IPG/CRE News [$])
From the top classes to the B-Pieces, CMBS spreads widened. Most see it as a result of S&P and Fitch warnings about law underwriting and new ratings standards. Some point to the subprime mortgage fallout for why CMBS buyers are feeling a little jittery. Either way, it's affecting everyone from the borrowers to banks with un-securitized loans still on their books.

Institutional Real Estate Cap Rates Hit Record Lows (IPG/CRE News [$])
Something has to give, but it didn't happen in the first quarter, as cap rates dropped even further across all property types, according to Bank of America. Marketwide, the average cap rate hit 5.61%, which continued a now 9-quarter decline. For those scoring at home, that's a less than a 100-bp spread on today's Ten-Year at 4.652%. Fantastic.

60 Wall Trades for $1.18 Billion (Reuters - FREE!)
Paramount takes the downtown asset that's been on the market since November 2006. Something may have changed since I last looked at the deal, but the net rentable are should still be 1,625,483 sf, meaning the price was $738 psf, considered a bargain in New York these days. My last underwriting pegged the initial year's NOI at about $64.5 million, which hints at a 5.47% cap rate. That could be off though, since I haven't seen the deal in about 6 months. Looks as though DB got their target price... less about $20 million (only a 1.7% haircut).

There's no real articles on the on-going CMBS adjustments and how it's affecting the market (that I've seen), except for the pay publications like Commercial Mortgage Alert, which is proving to be a priceless resource right now.

Hoping to find time to post more regularly....

3.0%

A Garden State Tuesday

Since a few notable transactions occurred recently in our neighboring state to the west, New Jersey is well rep'd in Tuesdays (delayed) notes:

Tishman Speyer bought the 833,000 square foot MetroPark Office Center (CPN) in Woodbridge for an undisclosed amount (although GlobeStreet's DealTracker database pegs it at $200 million, which rounds out to $240 per square foot. While the seller purchased it for $150 million in 2003, Tishman should still see significant appreciation even in the near term as the asset is head and shoulders above much of the surrounding market (with very little ongoing development in the immediate area).

Four Gateway in Newark sold for $72 million (CRE/IPG) to a partnership including Ivy Equities and Heritage Management. The 327,000 square foot office, purchased for $220 per square foot, is part of the Gateway complex near Newark's Penn Station, which includes a couple of other buildings which have traded in the last 2 years. The JV formed for the purchase follows another recent Newark transaction involving both companies, as Ivy paid Heritage $21 million for 570 Broad.

In other news from areas that don't smell like methane...

Inland takes Winston Hotels for $458 million (Chicago Tribune)

Carl Icahn loses his CFO at American Real Estate Partners (BW), and

East Harlem residents don't want a better neighborhood (1010 AM)

Monday Notes: New Century Busts, Starwood CEO Out

In what was a huge surprise to no one, New Century filed for Chapter 11 this morning (Bloomberg) as the subprime fallout continues. In the press release posted on DealMaker, the CEO made a plea that CIT and Greenwich would retain many of the Associates, even as New Century let a few thousand of them go, announced earlier in the day.

Steven Hayer announced his resignation from the CEO position at Starwood Hotels (Atlanta Business Chronicle), after a rumored "tense" weekend meeting in which the board expressed its collective lack of confidence in his leadership of the company.

Italian investment group Ifil closed on its acquisition of a majority 71.5% stake in Cushman & Wakefield (GlobeSt.com) today. The $675 million deal values the company at around $875 million.

And finally, either Quill has designed a new "SmartClip", or I was working too late again last night and self-medicating too much. (Though probably the latter).


Edit, 8:15 PM: Welcome to The All-Nighter readers, and thanks to Monkey for the link -- 3C

Friday Notes

Apollo takes Realogy Private in $9 Billion Deal (Globe St) - as the real estate news site first reported months ago, the merger is official and should be completed within 2 weeks.

CIT Filed $275mm IPO (Forbes / AP) - Care Investment Trust (NYSE: CIT) filed their IPO yesterday as a public REIT. CIT shares dipped...

Yanks (Lehman) Take Current American Real Estate Buying Aggression to Paris (NYO) - In the largest single-asset real estate transaction in European history, Lehman takes down Coeur Defense for $2.8 billion.

S&P Downgrades 6 Classes of Condo CMBS (CRE/IPG) - 6 classes of a Credit Suisse CMBS transaction were downgraded by S&P today (some significantly) as the condos, concentrated in Florida and New York, aren't selling as fast as hoped for. Surprising, given the high quality and track record of the developers and investors involved in the conversions mentioned.

Simon Almost Done with $7.9 Billion Mills Acquisition (also CRE/IPG) - According to the article linked, the deal should be complete "within days".

Wednesday Notes

A pretty slow Wednesday as far as deals go. In addition to the 450 Park building hitting the market next month, linked earlier in the day, here's what happened today:

Tom Flatley to sell $600+ million portfolio (Boston Globe) - Immigrant-turned-Moneybags will sell his retail holdings and an office park.

SL Green & Mack-Cali Swap Properties (Forbes) - the two firms exchange interests. Mack-Cali gets SL Green's condominium interests in 125 Broad for $273 million, and SL Green takes down four Greenwich offices for $56 million.

The Brownstoner Outs himself (NYO) - It's Jonathan Butler, a 37 year old ex-Wall Street Brooklyn brownstoner. (h/t Daily Intelligencer)

Tuesday Notes

CalPERS Real Estate Investments Yielded 27.6% (IPG/CRENews - $ Req'd) - only 4 and change on the quarter, but the 27.6% T-12 is solid. According to the article, their real estate investments outperformed every other sector. Too bad they only allocate 8% to real estate...

Pru Selling 1180 Avenue of the Americas (also from IPG/CRENews) - Expected to fetch $700 psf. Yawn. But I got a kick out of this quote:

The average price for central business district office sales in Manhattan is $678/sf, according to Real Capital Analytics.

C'mon CRE, you can provide a more subtle plug for RCA than this. Quoting New York "CBD" office sales for a property on Avenue of the Americas, when you can walk one block east and be in a completely different submarket, and then walk another two blocks east and be in a different submarket again (and again one block further), is useless.

SL Green will buy back up to $300 million of stock - (Press Release) Company that most think will build on their late-2006 fireworks in the coming year sends a good vibe (also announced a private offering of $500 million of exchangable senior notes late today).

Behind the Veil at Blackstone? Probably Another Veil. (New York Times) - Blackstone? No shit.

US Equities Exec to Oversee Sears Tower Leasing (Crain's Chicago) - Methinks that the problem wasn't with CBRE. Three Capper Sr. used to say, "When you point one finger at someone else, there are four pointing back at you."

And finally - UPROAR!

RREEF Will Buy Maher Marine Terminals (GlobeSt.com) - DB group agreed yesterday to acquire the company, which will keep the Maher name. The terminals will be operated by DB Asset Management. Which begs the question - where's the uproar about a foreign group owning our ports?!? Anyone? Anyone? Schumer? Schumer? I demand uproar!!