Six years after construction started, the developer of 3 World Trade Center is planning to bring a $1.63 billion long-term tax-exempt financing for the project to the market.
Experts say that the bonds will have unusual, though not worrisome, features for a municipal bond.
The unrated tax-exempt refunding bonds will be sold through New York Liberty Development Corp. A professional familiar with the bonds said he expected they would be sold on Oct. 28 or Oct. 29.
Proceeds will be used for the development and construction of 3 World Trade Center in downtown Manhattan. With construction having started in 2008, the first seven floors of the building have been completed.
The building is ultimately planned for 69 floors above grade and 2.5 million rentable square feet, with 58 office floors.
One way the bonds will be unusual is that they are municipal bonds that will fund the construction of a private office building.
Federal laws passed after the attacks of Sept. 11, 2001 to boost the recovery of New York, particularly downtown, permitted the issuance of Liberty Zone and Recovery Zone Bonds on a tax-exempt basis for projects that would normally have to be issued on a taxable basis.
This month's bonds will provide a long-term financing structure for 3 WTC by refunding short-term debt issued under the Liberty Zone and Recovery Zone programs.
It is unusual for tax-exempt municipal bonds to be issued to build a commercial office building, a professional involved with the deal said. This explains why the bonds will be unrated, he said.
When the ratings agencies were contacted about giving the bonds a rating they either said they could not because they were unusual for a muni or they could but would need more time than the developer had to give, according to the deal professional. The developer is 3 World Trade Center, LLC, an affiliate of Silverstein Properties.
In response a professional at one of the ratings agencies said he was unaware of anyone coming to his agency to seek a rating for 3 World Trade Center. He said that securitizations for construction loans are unusual but not unheard of. He said his agency had rated such securitizations before but they were more difficult to rate than more run-of-the-mill bonds.
The bonds are similar to bonds sold by the New York Industrial Development Authority in 2005 for 7 World Trade Center, the professional familiar with the deal said. The tax-exempt $475 million bond was for constructing the building and was sold without ratings, he said.
When the bond was refinanced in 2011 or 2012 there was a rating. The key difference was that the building was then occupied and with a demonstrated revenue stream could more easily get a rating, he said.
Group M Worldwide has signed an agreement to lease a little more than 20% of the office space at 3 WTC. There are no other contracts to lease the office space.
Noting that the bond's preliminary official statement was 2,700 pages, Municipal Market Advisors managing director Matt Fabian said he had not read it. He said the size of the bond and the size of the POS made the bond unusual.
MMA's indexes of high yield municipal funds were up 8 to 11% from the start of the year to Oct. 10, before the most recent rally, Fabian said. If there is sufficient yield connected with the 3 WTC bonds there should be no problem finding buyers, he said.
The bonds are to be sold in three tranches: classes 1, 2, and 3. Class 1 bonds that will have a payment priority over Class 2 bonds, which will have a priority over Class 3 bonds. According to the POS, the tentative dates for maturity of the Class 1 and 3 bonds is 2044 and for the Class 2 bonds is 2041. The POS indicates there will be a general optional redemption date and a make-whole optional redemption date, but these dates have not yet been set.
The Port Authority of New York and New Jersey owns the site and will own the building. The developer will lease the building through 2100. The Port Authority has made several promises to support the bond and the construction of the building. Among these are to contribute $210 million in funds from New York City and New York State for construction. It has also promised to hand over $159 million in insurance payments from the events of Sept. 11, 2001 toward the construction of the building. The authority made a variety of other financial promises to support the project.
"The most interesting thing [about this deal] is how the Class 3 bonds are structured," said Ben Thypin, director of market analytics at Real Capital Analytics, who is familiar with office building construction financing. "The Port Authority's backstop financing has a higher lien priority than the class 3 bonds and it cannot be used to fund the debt service payments on those class 3 bonds."
Read More: http://www.bondbuyer.com/news/regionalnews/unrated-16-billion-deal-for-3-wtc-coming-soon-1067117-1.html
While not as eye-popping as the recent $1.95 billion deal to sell New York City's Waldorf Astoria to a Chinese firm, sales of Chicago-area real estate to foreign buyers are on the rise.
Interest is particularly keen for downtown office buildings, which saw $2 billion in deals with foreign buyers in 2013 and the first half of 2014, representing 26 percent of total transaction volume, according to Real Capital Analytics. This is up from a decade long metro-area average of 16 percent and a post-recession average of 21 percent.
"Chicago has seen an increased amount of foreign investment into its commercial real estate as intense competition for similar assets in markets like New York and San Francisco has driven pricing in those markets to very expensive levels," said Ben Thypin, director of market analysis at Real Capital Analytics.
Manhattan remains the king in sheer volume of international real estate investment of all sorts during the 18-month period ended June 30, followed by Los Angeles and Chicago. In the office sphere, the metro areas with the biggest percentage of foreign deals in the period were Washington, Los Angeles and Chicago, in that order.
But the growing interest in Chicago office towers is seen as a vote of confidence by some observers.
Read More: http://www.chicagotribune.com/business/ct-foreign-real-estate-investment-1019-biz-20141017-story.html
Stamford and Manhattan are only a few miles apart, but as far as commercial real estate goes, they might as well be on different continents.
A day before brokerage CBRE announced that Manhattan’s net office absorption in the third quarter exceeded one million s/f, news broke that the 527,424 s/f office building 400 Atlantic Street in Stamford would lose its three largest tenants by 2018.
These two examples are symptomatic of a larger rift. While New York City’s commercial real estate market is booming, Fairfield County, Long Island and Westchester are, at best, stagnating. In order to turn their fate around, suburban office centers will have to reinvent themselves on a scale not seen in decades.
Real Capital Analytics data shows that commercial property prices in Manhattan and the boroughs have almost doubled since 2010, while commercial property prices in the suburbs have essentially stagnated and even fallen behind the already lackluster national average.
A comparison of average office prices and vacancy rates between Manhattan and different suburban sub-markets highlights the extent of the rift.
Between the second quarter of 2013 and the second quarter of 2014, average asking rents per s/f in Fairfield County and Long Island fell by 1.0 percent to $37.20 and by 3.1 percent to $30.01, respectively, according to Cushman & Wakefield.
During the same period the average office rent for Manhattan rose by 4.86 percent to $64.82 per s/f. Manhattan’s current vacancy rate of 10.2% is well below Fairfield County’s 20.5 percent, Long Island’s 17.3 percent and Northern New Jersey’s 20.3 percent.
According to brokers and analysts, the reasons for suburban weakness and urban strength are closely intertwined. “I think it’s mostly a function of the larger trend of people wanting to be in more urban areas,” said Ben Thypin, director of market analysis at research firm Real Capital Analytics. “Companies are moving into the city at the expense of the suburbs.”
Read More: http://www.rew-online.com/2014/10/15/a-suburban-withdrawal/
As the Patient Protection and Affordable Care Act reshapes the delivery of health care, investor interest in health care properties — particularly medical office buildings — remains strong in the Twin Cities and nation.
But a lack of supply has constrained investment activity, according to market observers.
Charles A. Greenberg, senior vice president of asset management for Minot, North Dakota-based Investors Real Estate Trust, said institutional investors tend to place a high value on the medical office building properties they own.
“There’s a lot of money out there that would like to be in medical office buildings,” Greenberg said. “But many … of the owners of quality ‘MOBs’ have no intention of letting them go right now.”
IRET owns various types of real estate in 11 Midwestern states. Because IRET is publicly traded, Greenberg said he can’t comment on whether the real estate investment trust is looking to acquire more health care properties.
Ben Thypin, director of market analysis for New York-based Real Capital Analytics, said the medical office category has been “the hottest by volume” for real estate investors not only in the Twin Cities but across the nation. The category includes doctors’ offices, urgent care clinics, and diagnostic laboratories and imaging centers. They typically produce stable cash flow that makes them particularly attractive to REITs.
In the Twin Cities area, 2014 purchase prices of medical office buildings tracked by Finance & Commerce have ranged from nearly $100 per square foot to $330 per square foot.
Thypin noted that the medical office building category has become more popular with investors because of the growing populations of insured consumers and senior citizens, and because hospital systems have been shifting more non-acute care to off-campus facilities, away from clinics in or near hospitals. Thypin also thinks sales activity this year has been limited due to a lack of properties available for purchase.
Read more: http://finance-commerce.com/2014/10/a-lot-of-money-chasing-medical-office-buildings/#ixzz3GEUsYQzqREAD MORE: HTTP://FINANCE-COMMERCE.COM/2014/10/A-LOT-OF-MONEY-CHASING-MEDICAL-OFFICE-BUILDINGS/#IXZZ3GEULK0MT
Bidding wars: A crowd of buyers is chasing a small number of properties for sale, causing cap rates to dive.
Shopping center deals seem to be coming fast and furious this year. In Dallas a nontraded REIT sponsored by Cincinnati-based Phillips Edison & Co. acquired the 70,500-square-foot Northpark Village; in the Cleveland suburb of Beachwood, Devonshire REIT, of Whitehouse, Ohio, bought the 249,900-square-foot Pavilion Shopping Center; and in Fort Lauderdale, Fla., Marcus & Millichap announced that a Brazilian buyer had acquired the 32,700-square-foot Plaza Del Mar shopping center.
It is odd, therefore, that observers are showing concern about the lack of properties — at least the A-quality ones — available for sale despite a huge amount of liquidity in the marketplace and buyers that are ready to pounce. “There is still not as much attractive product as the market wants,” said Ben Thypin, director of market analysis at Real Capital Analytics. Indeed, the volume of transactions involving commercial-mortgage-backed securities, usually the most common financing method for retail properties, was running behind 2013 levels — though Thypin also points out that there is usually a flurry of deals in the fourth quarter, meaning that those numbers can still change radically.
“There is a ton of liquidity, there’s just not a ton of product trading,” said Jimmy Board, a Houston-based senior vice president at Jones Lang LaSalle. “I’m surprised the CMBS market slowed down. Wells Fargo, for example, issued a report saying the bank was behind [the] 2013 numbers by $500 million in overall CMBS. In the past CMBS was the biggest part of the retail lending market.”
CMBS financing accounted for 48.26 percent of retail deals last year. So far this year, that has slipped to 47.7 percent, according to Real Capital Analytics.
Read More: http://www.icsc.org/sct/shopping-centers-today/october-2014/bidding-wars (paywall)
The city’s affordable housing finance unit is planning for the first time to issue bonds that will be packaged as commercial mortgage backed securities. This inaugural group of loans pegged at $550 million will be secured by the market-rate residential high-rise 8 Spruce Street, known as New York by Gehry, located in Lower Manhattan.
The Housing Development Corporation, which generally focuses on financing affordable housing for the city, will issue the bonds, which will then be packaged and divided into different risk levels and sold into the CMBS market. Wells Fargo will be the loan servicer.
Sources within the city agency said there were special circumstances that made the CMBS structure useful here, and it was not expected to become a common practice. This bond deal is similar to two the state’s New York Liberty Development Corporation structured to finance 1 Bryant Park and 7 World Trade Center, but this is the first for the city.
Nonetheless, insiders said it showed an inventive use of market tools.
“It demonstrates HDC’s willingness to get creative on structuring in order to diversify how HDC-financed projects are capitalized,” Ben Thypin, director of market analysis with data firm Real Capital Analytics, said.
“Opportunities have no boundaries,” says Donald Trump. And the billionaire property mogul should know: with new office and residential projects underway in countries as diverse as India, Brazil and Georgia, it is an exciting time to diversify, he told the Financial Times. “We’ve been expanding internationally for some time now . . . There are a lot of opportunities and many good reasons to do so.”
But while Trump is known for having made both his first and his second fortunes in real estate, he is increasingly joined by an emerging class of private investors, many of whom struck it rich elsewhere. Amancio Ortega Gaona, the world’s fourth-richest man and founder of the high street Zara chain, has built up a property portfolio that could be worth more than $6.1bn, according to Bloomberg. Ortega’s holding company, Ponte Gadea (also known as Pontegadea Inversiones), recently snapped up Devonshire House in London for £400m, as well as a property in New York’s Meatpacking District for a total of $94m.
The super-rich have always invested their wealth in real estate, but with new high-profile investors like Ortega, global property is coming to the fore as a prime asset class. Though the estimated values of Trump’s and Ortega’s portfolios are comparable, Trump dismisses any suggestion of competition with these words: “I tend to be ahead of it.”
Ultra-high-net-worth individuals (those with more than $30m) typically hold about a quarter of their wealth in property, according to the 2014 Knight Frank “Wealth Report”. The percentage of their total net worth invested in property rose from in the past year, the survey adds. Memories of the economic crisis – partly sparked by the collapse in the value of investments in commoditised bundles of low-end mortgages – are fading; the top end of the property market has increased exponentially and the commercial sector is booming. Overall, investors – private or otherwise – spent $1.2tn on high-end commercial properties in 2013, an increase of almost 80 per cent on 2010, according to Real Capital Analytics, a firm focused on the investment market for commercial real estate.
With $51bn flowing into prime commercial properties (those worth more than $10m) this year alone, New York and London remain the favoured destinations for investors looking for opportunities. They each offer history, location and long-established wealth, according to consultants at Knight Frank Real Estate. And both cities are seen as safe havens for investors fleeing domestic, political or economic uncertainty.
“Whenever there’s a lot of trouble going on in the world, or seems like there is, it is especially attractive for investors in troubled areas to invest their money elsewhere,” says Ben Carlos Thypin, market analyst at Real Capital Analytics.
It’s big; it’s really, really big. Switzerland’s Partners Group has made history with the closing of Partners Group Real Estate Secondary 2013 at its hard cap of $1.95 billion, making the vehicle the world’s largest dedicated real estate secondaries program ever raised in the market.
“We were very pleased with the strong reception of this program in the market–we believe it illustrates investors’ growing recognition of the value of an allocation to secondaries as a lower risk way of getting international exposure than a global commingled opportunistic fund and a great way to mitigate the J-Curve,” Marc Weiss, Partner & global head, Private Real Estate Secondaries with Partners Group, told Commercial Property Executive
It seems institutional investors of practically every type from all corners of the globe took an interest in Secondary 2013, which engages in the acquisition of real estate portfolios, including single assets and joint venture ensembles, on the secondary market. Participants, both new and returning to Partners Group’s secondaries programs, include sovereign wealth funds, public and corporate pension plans, endowment funds and foundations, insurance companies and financial institutions. California’s San Bernardino County Employees’ Retirement Association is on the list, having committed $75 million earlier this year. It was the widespread global participation that resulted in Secondary 2013 being “heavily over-subscribed” according to Partners Group.
Secondary 2013’s new distinction in the real estate investment world is symbolic, as it exhibits two aspects of the modern commercial real estate capital markets, Ben Carlos Thypin, director of market analysis with real estate research & consulting firm Real Capital Analytics, told CPE. “First, [this fundraising] demonstrates that the real estate capital markets have matured to the point where institutionally funded pools of capital exist solely to provide liquidity to heretofore illiquid interests in real estate investments,” he said. “Second, it demonstrates that even in a relatively stable market environment such as this, there remains demand for recapitalization capital that can be used to address situations in which the interest and objectives of investment partners may no longer be aligned.”
Read More: http://www.cpexecutive.com/business-specialties/investment/partners-group-breaks-record-with-closing-of-1-9b-secondaries-program/1004104887.html
Wendy Cai-Lee, born in Shanghai, stands in front of a contemporary Chinese mural made from gunpowder, discussing Bill and Melinda Gates’ social influence with two of her senior lenders, Derrick Do, born in Saigon, and Richard Grani, born in Brooklyn, N.Y.
“The Gates have enough money and power to bypass governments when they need to,” Ms. Cai-Lee tells her colleagues.
The team, not exactly your typical group of lenders based in Midtown Manhattan, defies several conventions in the business. Still, the three executives and their 100 colleagues at East West Bank’s New York office are well equipped to target middle-market real estate deals throughout the city’s established and emerging neighborhoods, evidenced by a growing number of deals from the bank in those areas.
Ms. Cai-Lee, who manages a total of 300 employees in 27 offices throughout the bank’s Eastern and Texas regions, tells Mortgage Observer during a series of interviews that she sees untapped opportunities in big cities with mixed economies and mixed cultures, especially those with strong Asian and Asian-American demographics. Texas became part of her territory in September 2013 due to Houston’s thriving energy and technology sectors and its rapidly growing Chinese population.
“We have a unique ability to serve Chinese customers both from a business standpoint and a cultural standpoint,” says Ms. Cai-Lee, 40, who joined the Pasadena, Calif.-based bank in 2011 as its senior managing director for New York. “I would say every six to eight months I have a new territory or new responsibility as a result,” she adds with a laugh.
East West Bancorp, a publicly traded company with more than $27 billion in assets, acts as a financial liaison between the U.S. and China. The parent company of East West grabbed the largest market share of all U.S. banks serving the Chinese-American markets after it acquired the assets of troubled United Commercial Bank in late 2009.
The 41-year-old banking company—with 130 offices in seven states, as well as nine locations in China, Hong Kong and Taiwan—has seen continual earnings growth since then. Likewise, East West never put the brakes on its construction lending business, even during the height of the financial crisis, when many banks stopped lending on real estate altogether.
Ms. Cai-Lee, Mr. Do and Mr. Grani attribute that in large part to the bank’s relationships with particular American and foreign borrowers, namely established middle-market business and property owners. Since joining East West, none of them have entertained originating a $600 million construction loan for a Hudson Yards project, they say.
“We’re aggressive with the right relationships,” says Mr. Do. “But we have our parameters on every deal.”
In situations where the bank does not see itself as the right fit for a transaction with a foreign borrower, Ms. Cai-Lee says she and her team will take the extra step of helping that borrower find another lender who might.
“We take an advisory role in those situations,” she says. “We’d rather take a pass on the business and direct them to the right place than screw it up. Our credibility and reputation in this cross-border market outweighs the individual business that we get.”
East West’s chairman and chief executive Dominic Ng has spoken on several occasions about the ways in which good relations between the U.S. and China can benefit both countries’ economies. During a 2012 business awards ceremony in Los Angeles, Mr. Ng touted that China can take “hundreds of million of people below the poverty line and move them up into the middle-class, which now allows them to travel around the world and go on a shopping spree.” He likewise noted that the “United States can help China grow into a more consumer-driven market instead of an export-driven market.”
Ms. Cai-Lee says East West views New York as comparable to Los Angeles, the bank’s top market in its U.S.-China cross-border business, as a growing number of Chinese investors look to acquire and develop properties in the five boroughs, particularly hotels.
“Many Chinese investors and developers come to us first when they are thinking about their first U.S. real estate deal, even if it’s just to get our opinion,” she says.
“Many Chinese investors and developers come to us first when they are thinking about their first U.S. real estate deal, even if it’s just to get our opinion,” she says.
Ms. Cai-Lee received her bachelor’s degree in economics, finance and East Asian studies from Rutgers University’s Douglass Residential College and started her career as a middle-market analyst at the New Jersey-based Summit Bank in 1995, while she was still in college. From there, Ms. Cai-Lee took a job as an assistant treasurer at J.P. Morgan Chase & Co. in 1996, beginning her investment-banking career. She later joined Citibank in 1998, but quit a year after.
During that time Ms. Cai-Lee also dropped out of Columbia Business School and launched an online start-up called e3Asia. As part of that endeavor she raised $12 million from private equity investors and teamed up with a group of nuclear engineers to develop software that “aggregated consumer purchase power, in some ways similar to Groupon today,” in her words. After being forced by one of her main investors to sell the company back, right as the dotcom bubble was about to pop, Ms. Cai-Lee took a managing director position at the professional services firm Deloitte, where she stayed for nine years.
“I joined Deloitte in 2001 thinking it was going to be a very short-term thing,” she says. “At the time Deloitte moved its China CEO back to the U.S. to build a global Chinese services business, anticipating China’s growth.”
Ms. Cai-Lee’s commitment in helping build Deloitte’s cross-border China business, prior to China joining the World Trade Organization, eventually led to her coming on board at East West. After she left her position at Deloitte in search of new opportunity, Ms. Cai-Lee was asked by Mr. Ng to join the bank for her “China experience,” she notes.
Among the bank’s multiple real estate deals in the past year was an $8.4 million take-out loan to developer Derek Law in October 2013 to refinance his Howard Johnson Manhattan Soho hotel located at 5 Allen Street.
“East West Bank’s legal lending limit is higher than most local Chinese banks here in New York City and they are very easy to communicate with,” says Mr. Law, a native of Hong Kong, on why he chose East West. “American banks are usually not interested in lending to smaller foreign developers.”
With China’s population growing steadily and an increasing number of the country’s citizens exploring business and lifestyle opportunities in the U.S., East West’s investment in its cross-border relationship with China and surrounding countries marks a clear strategy. China, now home to a reported 1.37 billion people as of Sept. 22, 2014, is the largest country in the world by population with 19 percent of all people on earth.
As China’s population grows, the amount of inbound investment from the technically Communist country has also made clear gains, data from Real Capital Analytics and CBRE Group show.
Total Chinese investments in U.S. commercial real estate acquisitions more than tripled from $934.8 million in 2010 to $3.2 billion in 2013, while total investments in New York City acquisitions jumped from $150 million to $2.3 billion in the same period, according to Ben Thypin, RCA’s director of market analysis. Those numbers reflect direct property and land purchases and do not include investments handled through intermediaries, Mr. Thypin says. Factoring in construction and other costs, the actual numbers are even higher.
Read More: http://commercialobserver.com/2014/10/east-west-bank-poised-profit-chinese-investors-us-real-estate/
Ben Carlos Thypin
I am currently the co-founder of Quantierra, the world's first data driven real estate brokerage and investment manager. In my former life as Director of Market Analysis at Real Capital Analytics, I worked with press outlets large and small to provide them with great data and insightful commentary. Here are some of the results of this collaboration. For the rest, please check out the News Archive.