Who Cares about LA Real Estate?

Apparently I spoke too soon. Another major portfolio is about to trade in Southern California. Should make headlines sometime mid-next week. $1.5 Billion-plus deal.

Update: Well, I should check GlobeSt before I post from now on. They've picked up the story already (apparently just posted, because it wasn't even in the PM Alert sent at 4:40 PM ET) that a GICSA affiliate is purchasing the old Arden SoCal Portfolio for about $1.5 billion.

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!

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)

$625 PSF takes down Vacant Fifth Avenue Building

According to Globe Street, L&L has paid $500 million for the 800,000 square foot Toy Center, and plans at least $75 million of improvements to turn it into a Class A office.

The building is vacant, except for restaurant Cipriani. Lehman provided the financing for the acquisition, and presumably, the renovations going forward. Tenants will be able to take occupancy by the end of next year.

“We believe that having the largest block of available class A space in New York City will attract the attention of a variety of large tenants in the market. We have already had some inquiries,” says Robert Lapidus, L president and CIO.

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".

230 Park Sale [Finally] Hits the Papers

As I hinted in my first post and as I broke exclusively in this post, the "Crown Jewel of Park Avenue", 230 Park (The Helmsley Building), has been sold to Monday and Goldman for $1.15 billion.

True to the current NY trend, the price represents a 3.1% cap rate on the current NOI of $36 million.

Another NY Trophy Office to Hit the Block

The Daily News reports that Tishman will put their Lipstick Building on the market via CBRE in the coming weeks. The article says they expect bids of nearly $600 million, which would be more than $1,000 psf for the 587,000 square foot tower.

The most interesting part is that the article actually used some real, factual data. That is, citing the annual NYC Class A office rental rate growth in 2006 was an astonishing 35%. And as of the end of February, 2007 growth seems to lag that pace, as year-to-date growth is about 4%. Still, NY rent growth is far ahead of the rest of the nation, as expected.

Many experts predicted an approximate 15% increase in rents city-wide for 2007, so it will be interesting to read of any revisions. I'm predicting 20% on the year.

(h/t The Real Estate)

230 Park Avenue to Trade - Again!!

There's word on the street that The Helmsley Building at 230 Park Avenue will trade for at least $1.1 billion in April. A deal is rumored to have been struck with two buyers, a major I-Bank and the property's current manager, Monday Properties.

This marks the second time the "Crown Jewel of Park Avenue" has traded in the last 18 months, after this year's seller Isthimar bought it in Q3 2005 for $705 million. Word is that Monday wanted to buy it then (along with a host of other bidders), but the guys from the Middle East came in with their over-the-top price on the last bidding day. A year and $400 million more later, it looks like they finally have their building.

The current NOI is rumored to be somewhere around $35 million, resulting in a cap rate in the neighborhood of 3.2% (before closing costs and reserves).

Housing Court Judge Forgets the Law in Swig/Sheffield Condo Case

Matthew Schuerman on The Real Estate blog (NYO) posted today on Judge David B. Cohen, a NY housing judge, and his ruling that Kent Swig, pre-eminent New York real estate owner/operator, can not let his Sheffield "free market unit" leases lapse (i.e., choose not to renew them).

This is big news for a number of reasons. First of all, it obviously does not only affect Mr. Swig and the Sheffield project (including his investment partners and lender) - it affects every condominium conversion project in the city, and each developer, bank, and investor involved in one.

The process of a condominium conversion these days is generally as follows: First, a developer gets the existing building under contract, with capital and financing lined up. After closing, the developer submits their condominium plan to the Attorney General. Because of the high number of projects ongoing, the time to get these plans completed, filed and approved has jumped from about 6 months in 2004 to more than a year today.

During this approval process, the developer can vacate some of the units, but is limited by an existing law prohibiting "warehousing" of vacant units. After the condo plan is approved by the AG, the developer can choose not to renew "free market" leases as they expire as they convert and sell the units to condominium buyers.

All rent-controlled and rent-stabilized units can not be vacated and converted to condos. The only exception is if the developer is able to change the classification of these units to "free market" by showing that the current rent for the unit is higher than a certain amount per month, and investing a certain amount of money in the apartment to renovate it. Even then, not every unit's classification may be changed.

Whatever units can not be changed to "free market" and converted to a condominium is either operated as rental apartments by the developer/owner of the building, or sold to a third-party who will operate the units as rentals.

Judge Cohen's ruling, in my mind, is reckless. If owners of buildings are not allowed to raise the rents as much as they want (note that I am only referring to market-rate units -- not the rent-controlled and rent-stabilized units), and they are not allowed to make their own decision of whether to renew leases, then what rights do landlords have?

No one reads this blog, but I would love to hear other's thoughts on the subject. If you happen to have typed in the wrong URL and landed here by accident, leave a comment.

Record NYC Office Price PSF Could be Broken Soon

According to IPG/CRENews, Taconic and NY Common's sale of 450 Park should fetch $1,500 per square foot ($510 million), which would set a new Gotham record.

The 340,000-sf office is 95%-leased, with 30% of the total square footage rolling in the first two years (rents are no doubt substantially below market). The office is located at the northern tip of "Wall Street North", at 57th and Park, where rents continue to rise above the $100 psf mark.

2006 NOI totaled $13.7 million, yielding a 2.7% cap rate (!!!) at $510 million, excluding closing costs.

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!!