Blackstone Group LP agreed to buy a roughly 50 percent stake in six New York-area office properties from RXR Realty, its largest acquisition yet in an expansion toward purchasing stable, well-leased real estate.
RXR plans to sell Blackstone part ownership in the 5.3 million-square-foot (492,000-square-meter) portfolio, valued at $4 billion, the companies said in a statement Wednesday. The deal involves Manhattan’s Starrett-Lehigh building; 1330, 620 and 1166 Avenue of the Americas; 340 Madison Ave.; and University Square Campus near Princeton, New Jersey.
RXR, a Uniondale, New York-based real estate company run by Scott Rechler, said it will continue to operate the properties.
RXR is “uniquely positioned to unlock the incremental upside in the portfolio,” Jon Gray, global head of real estate for Blackstone, said in the statement. “We look forward to finding more opportunities to work on together in the future.”
Blackstone, the world’s biggest private-equity investor in real estate, is raising a new fund to buy core-plus real estate, or prime properties that may require relatively minor leasing or renovations to boost returns. Chairman and Chief Executive Officer Stephen Schwarzman said last year the company could have $100 billion of such properties under management over the next decade.
For RXR, the deal offers the opportunity to “harvest value” from Manhattan properties acquired since 2009, as the market recovered from the global financial crisis, Rechler said in an interview. Prices for office buildings in New York have surpassed the prior peak, propelled by demand from both domestic and foreign investors seeking safety and steady growth.
“It’s a way of taking chips off the table, and allows us to invest in new opportunities to create value,” Rechler said. “That’s always been our mantra.”
RXR DealsNew York office rents and property values should continue to rise, Rechler said.
“If I thought we had hit the top, we would have sold 100 percent of our interests and we wouldn’t be buying 32 Old Slip, 61 Broadway, 530 Fifth,” he said, referring to recent RXR transactions.
The transaction is the first large-scale recapitalization of the RXR portfolio since the company was created in 2007, following the sale of Rechler’s Reckson Associates Realty Corp. to SL Green Realty Corp., he said.
Deal CompromiseThe deal with Blackstone is “something of a hedge” by RXR, said Ben Carlos Thypin, director of market analysis at New York-based property-research firm Real Capital Analytics Inc.
“It’s a compromise between selling outright and calling a top, and continuing to ride things out,” he said. “It’s the best of both worlds.”
Read More: http://www.bloomberg.com/news/articles/2015-02-11/blackstone-to-buy-stake-in-new-york-area-rxr-buildings
The sale of Menlo Park's Sand Hill Commons may have just set a new record for suburban office buildings not only in the Bay Area, but also nationally.
An affiliate of Invesco Real Estate just paid a staggering price for a partial interest in the 12-acre complex on famed Sand Hill Road.
How much? Try about $1,800 per square foot for a 49 percent stake in the property, according to a source with knowledge of the transaction. Other parties with knowledge of the deal declined to confirm the price.
The deal, which closed Wednesday, values the 133,000-square-foot Commons at just shy of $240 million. That's a larger number than we reported last month.
If confirmed, the price could be seen as something of a proclamation that the historic venture capital epicenter is still some of the most valuable real estate on the planet, despite increasing competition from hipper locales such as downtown Palo Alto and San Francisco — a topic we explored last year in depth. Indeed, the per-square-foot value would be a national record for suburban office deals larger than 50,000 square feet, said Ben Thypin, director of market analysis for Real Capital Analytics in New York.
"The properties that have traded at higher per-square-foots are less than 50,000 square feet and in places like Beverly Hills, and have substantial retail components, whereas this is a pure office property," Thypin said in an email.
Read More: http://www.bizjournals.com/sanfrancisco/blog/real-estate/2015/01/sand-hill-road-office-sale-may-set-new-national.html
General Growth Properties Inc. (GGP) agreed to buy the Crown Building on Manhattan’s Fifth Avenue in partnership with New York landlord Jeffrey Sutton to build its presence in the world’s most-expensive retail district, two people with knowledge of the negotiations said.
The partners agreed to pay about $1.75 billion for the 390,000-square-foot (36,200-square-meter) tower at 730 Fifth Ave., at the southwest corner of 57th Street, one of the people said. Both people asked not to be identified because the negotiations are private.
At about $4,490, the price per square foot sets a world record for an entire office building, according to Ben Thypin, director of market analysis at Real Capital Analytics Inc., a New York-based real estate research firm. Much of the tower’s value is in its roughly 50,000 square feet of retail space.
The property is part of Fifth Avenue’s “golden mile,” from about 49th Street to the edge of Central Park at 59th Street, home of Apple Inc.’s “cube” store, Jacques Gordon, global strategist for LaSalle Investment Management, said in an interview. The building’s retail tenants include jewelers Bulgari SpA and K. Mikimoto & Co.
The Korean Teachers Credit Union and TIAA-CREF are staking a claim on Manhattan’s Socony-Mobil building in the first investment of a $1 billion joint venture.
The partners last week acquired a $175 million loan on the landmark office tower across the street from the Chrysler Building, according to Suzan Amato, head of managed accounts and joint ventures in global real estate at New York-based TIAA-CREF. The financing was part of David Werner’s $900 million purchase of the property this year.
Asian investors, seeking higher returns and a safe haven for cash, are the source of some of the global flood of money into Manhattan real estate that’s pushing office-building values to records. While China has been the top Asian buyer in New York, investors from Korea andSoutheast Asia are poised for more deals as the relatively shallow real estate markets in their home countries become saturated, according to Amato.
“Asian countries are on a rapid growth trajectory,” she said. “This is a very fertile area for us.”
South Korea is the fourth most-active Asian equity investor in Manhattan property, behind China,Singapore and Australia, according to Real Capital Analytics Inc., a real estate research company.
Rather than buying equity interests in buildings, TIAA-CREF and KTCU are seeking to invest in mortgages backed by office towers, retail properties, warehouses and apartments in major U.S. cities. The venture between the two companies, which manage teachers’ savings in their respective countries, is 51 percent owned by TIAA-CREF and 49 percent held by Seoul-based KTCU.
“In the Korean investment environment, where interest rates remain low at about 2 percent, we believe this is a good opportunity to diversify the portfolio through investments in prime assets in theUnited States with strong fundamentals and steady income streams,” Sung-Seok Kang, head of global investments at KTCU, said in an e-mail. “We plan to expand this relationship further into other investment types.”
The Socony-Mobil investment is a mezzanine loan, which is junior to a first mortgage and pays a higher yield to compensate for the risk. Such investors typically have the right to seize the borrower’s equity in the event of default. KTCU last year underwrote $50 million in mezzanine debt on the Seagram Building, another New York landmark.
Mezzanine lending is a complex approach to property investment that not all foreign investors are comfortable with, said Ben Thypin, an analyst at New York-based Real Capital. Koreans typically prefer a direct ownership stake in a property because it gives them more control of the asset, he said.
Read More: http://www.bloomberg.com/news/2014-12-12/manhattan-towers-lure-koreans-in-1-billion-joint-venture.html
For some time now, commercial real estate observers have speculated about the endgame for Equity Office Properties in the Bay Area.
EOP's owner, Blackstone Group LP, was selling off assets in chunks — a building here, an office campus there. And while rumors swirled of more, and larger, sale offerings, news that Hudson Pacific Properties had agreed to buy the entire South Bay and Peninsula portfolio still came as stunning news.
That's partly because the $3.5 billion transaction was off market, executives said on a Monday morning conference call, keeping the deal very much below the radar.
The direct deal suited both the buyer and seller's goals: Blackstone wanted a counterpart that would let it maintain some exposure in a top office market. And Hudson Pacific, which long coveted a position in the Bay Area, would partially finance the deal by issuing Blackstone shares — making the giant private equity firm a 48 percent owner.
"When we sat around and said, 'We want to continue to play in Northern California, how do we do this,' what we did is pick up the phone and call Victor (Coleman, Hudson's CEO) and say, 'How can we work out a transaction?'" Jonathan D. Gray, head of global real estate for Blackstone, said on the call.
"We did not market these assets," he had said a few beats earlier. "There's plenty of liquidity in the market for high-quality office in Northern California."
The transaction is likely the largest office sale in the country since 2007, said Ben Thypin, director of market analysis for Real Capital Analytics, a research firm. It comes as the region's office market drives forward as one of the hottest in the U.S., drawing investors from around the world. Blackstone didn't want to cut its upside potential in that environment, apparently.
Chicago-based real estate investment manager Heitman LLC has agreed to pay just over $700 million for a trophy tower in River North, in what would be one of the largest office deals in the city's history.
A Heitman fund has a preliminary deal to buy the 46-story tower at 353 N. Clark St. for nearly $600 per square foot, according to people familiar with the deal. If completed as expected, the sale of the nearly 1.2 million-square-foot tower will rank as the fourth-highest price paid for a Chicago office tower, and the second-highest per square foot.
The high-rise is a block east of the 60-story office tower at 300 N. LaSalle St., which sold in July for a city-record $850 million.
The price for 353 N. Clark St. is more than 80 percent higher than New York-based seller Tishman Speyer Properties L.P. paid four years ago, amid the recession. Tishman bought the building from a venture of Mesirow Financial, one of its developers, for $385 million in 2010.
A spokesman for Tishman and a spokeswoman for Heitman declined to comment. Bruce Miller, a managing director at Chicago-based Jones Lang LaSalle Inc. who is brokering the sale, did not return calls.
. . .
As office building prices have risen, investment returns have fallen. In six major metro markets including Chicago, first-year rates of return for buyers of trophy towers fell to 4.1 percent during the third quarter, the lowest ever recorded, according to Real Capital Analytics. But Chicago has remained a bargain on price per square foot when compared with the hottest coastal markets.
“Over the past two years we've seen much of the action move to places like Chicago, Seattle, Austin and Denver,” said Ben Thypin, director of market analysis at Real Capital Analytics. “Pricing has become so crazy in New York and San Francisco, you can get a higher return for a similar amount of risk in a place like Chicago. Chicago seems to have more room to run yield-wise.”
Read More: http://www.chicagobusiness.com/realestate/20141111/CRED03/141119938/river-north-office-tower-selling-for-700-million
When the Normandale Lake Office Park in Bloomington sold for about $265.2 million in 2012, it was the second-largest office property sale in the Twin Cities market’s history. But the price a MetLife-led contingent paid for the five-building property this week will surpass that — and set a new high water mark for the metro in the process.
New York-based MetLife, Allstate Insurance Co. and Allstate Life Insurance Co. this week acquired the five-building, 1.7-million-square-foot office complex on the southwest quadrant of Highway 100 and Interstate 494 in Bloomington, the partners confirmed in a statement.
The “real estate submarket here is very strong, thanks to a diverse economy and a strong corporate business base,” Betsy Clark, managing director of MetLife Real Estate Investors, said in a prepared statement. “MetLife invests in real estate with a long-term perspective, and Normandale Lake fits right into this strategy.”
The previous owner was Equity Group Investments, the Chicago-based firm founded by Sam Zell decades ago. Zell’s group paid about $156 per square foot for the suburban office park in 2012, Finance & Commerce reported at the time.
While the latest sales price for the park wasn’t disclosed this week, parties to the transaction openly called it the largest in Twin Cities history. The current record, according to data from New York-based Real Capital Analytics, is $277.9 million paid for the IDS Center in August 2006.
“The park really has its own brand that stands for the best in class,” said Tom O’Brien, executive director for Cushman & Wakefield/NorthMarq and part of the team that sold the building.
Hennepin County values Equity Group’s holdings on the 23-acre Normandale Lake property at just under $264 million, according to property tax records.
Several factors will have driven the price up since it was last sold in 2012, brokers and real estate analysts said Thursday. For one, the five buildings are now 93 percent leased, up from 83 percent when Zell’s group bought them.
Longtime tenants include Tata Consultancy Services, Prime Therapeutics and Oracle Corp. In the past year, tenants including the Larkin Hoffman Daly & Lindgren law firm, Emerson Process Management and HQ Global Workplaces have signed new leases, renewed or expanded existing ones.
Also helping raise the price is the fact that the local market is stronger now than it was two years ago.
“The appetite for assets in markets like Minneapolis has increased pretty dramatically,” O’Brien said in an interview. “The focus on suburban office is different than it was two years ago.”
Some of the biggest local office sales since 2012 have occurred in the suburbs, including the $123 million sale of Cargill’s Excelsior Crossing buildings in Hopkins and the $75 million sale of the 601 Tower at Carlson in Minnetonka. The largest office sale of 2014 occurred when a German group paid $164.5 million for the 50 South Tenth building in downtown Minneapolis.
Ben Thypin, Real Capital’s director of market analysis, said MetLife and Allstate are among several buyers looking to secondary markets rather than staying in competitive coastal markets.
“They’re getting priced out of these markets and they’re looking at others that have a compelling demographic story and a compelling economy, but they can get a higher yield for lower prices per square foot,” he said.
Read more: http://finance-commerce.com/2014/11/normandale-lake-sale-is-largest-in-metro-history/#ixzz3IQRjig7n
While new technology is constantly transforming existing industries, certain sectors are just a little less eager and slower to adapt than others.
In the real estate industry, some property managers were long resistant to change, even though their jobs revolve around keeping track of intricate data, such as lease dates, vacancies and leasable square footage. Often, they seek to turn the flood of information into trend charts and easy-to-follow patterns. Until recently, much of this record keeping was handled through Excel and, even more shockingly, on paper (one step above the caveman’s drawing)! Now, real estate professionals are finally getting some serious new tech tools, complete with apps and customized interfaces, to handle the management process.
Most management companies handle lease tracking through biweekly meetings between asset managers and brokers. Together, the teams review a lengthy list of executed leases over time, letters of intent, prospects, dead deals, tour schedules and steps within the negotiation process. All of this information is manually generated and, of course, subject to human error. There are two companies that dominate the digitalization of this process: Hightower and View the Space. Both automate tracking, cutting out human mistakes and making the end result more easily digestible. And all of the information is available in pre-made charts, generated automatically by the service.
Several industry professionals explained to Commercial Observer that their transition to one of these services began with View the Space, which specializes in only video tours of properties. From there, they found Hightower, and ultimately settled on its service instead.
“I got involved because of a competitor,” explained Mike Moran, managing principal at Cassidy Turley. “I was trying to understand the technology after they had presented their product, so I looked at other options to understand the space. I came across Hightower, gave them a call, and got onto the demo. I realized they were at the forefront of the industry and technology.”
Another industry source, who asked not to be named, praised Hightower for infusing new life into his leasing business. “We realized we could see [in] real time what was going on with our leasing—when a deal has been executed, or if someone is touring the space. If someone knows a tenant that we have done a deal with at another property on the East Coast, and they’re touring a West Coast property, historically we wouldn’t have known about this, but now we get a notification on that. We can also tell if a deal takes certain brokers longer, we can see how many tours one broker is generating compared to another. We are working with Hightower to see if we do a broker event, what is the turnaround ratio from that event? None of that was possible before without a bunch of Excel spreadsheets that one would have to build.” (It should be noted that Thrive Capital, an affiliate of Kushner Companies which owns Commercial Observer, is an investor in Hightower.)
For Elizabeth Bueno, associate director of commercial leasing at Two Trees Management, the pile of paperwork and constant Excel updates led to the firm signing with Hightower. “When we first started looking for something, it was first on the paperwork side to eliminate it. We started looking into Salesforce and then Hightower. Hightower is a little newer and it is geared toward specifically commercial.”
View the Space, on the other hand, has a different perspective. View the Space allows “the larger owners to understand their data in more impactful ways,” said Nick Romito, chief executive officer and co-founder of View the Space, pointing to the larger size of their company as a point in its favor. “It allows them to understand the analytics at both the portolio level and individual unit.”
While both services offer the same tools, Hightower specializes in customization over View the Space. “The flexibility of Hightower and the willingness for them to jump on any situation we have, any need and request we have, it is so open book with them in a really positive way,” explained Mr. Moran.
Ms. Bueno agreed, “We chose Hightower because they are willing to work with us to try to tailor what we are looking for because we aren’t just looking for the back-end lease information…They were willing to work with us the most.”
As the commercial real estate industry increasingly turns to Hightower for its management needs, Brandon Weber, CEO of Hightower, is prepared to take on the constant challenges of customization, which make his company stand out of the pack.
“We built our platform from the ground up to be flexible,” Mr. Weber said. “There is flexibility built into the software itself: you can run analysis through different lenses. We know every customer who signs up for Hightower will have certain, customized needs, whether it is a set of custom reports that are missing and critical, or if there is a set of key performance indicators. We customize along those lines. One of the differentiations we have heard is that we make good on our promises. We are in the business of making large landlords and brokerage firms successful.”
At the tail end of October, Hightower launched Hightower 360, which allows its software to further streamline the leasing process. It is the “expansion of Hightower’s initial leasing platform to also include current tenant racking and inventory management for the first end-to-end asset management solution on web and mobile,” the company said in a statement.
Though Hightower is quickly gaining fans, both the CEO and experts in the field understand they are going against a long-standing tradition of paper and Excel record keeping.
“Half the battle is to design wonderful software, the other half is train, onboard, and nurture the customer as we shift a 25-year-old workflow,” explained Mr. Weber. Mr. Moran noted agents on their team were quick to adopt the technology, using it directly through the mobile application, rather than the web tool.
As they work against tradition, these companies focus primarily on major commercial leasing clients. For smaller managers and residential owners, the transition to technology of this sort may still be off in the horizon. Ben Carlos Thypin, a managing partner at Progress Group, which owns and manages multifamily and commercial properties in New York City and other markets throughout the country, said: “I think the main thing to consider with these new technologies and changing from the old ways is that the margins on managing smaller buildings are smaller. Management can be very costly for a small owner. If these technologies, in the end, are going to decrease the cost of management, it would be silly not to adopt them, but if they are going to increase the cost of management in the short run, that will decrease adoption by some traditional small-scale owners.” Currently, Mr. Thypin primarily uses Excel as the company works to evaluate new technologies.
And for those companies that have successfully adopted Hightower, many employees have taken it all the way, going from paper and Excel, to active-phone application usage. One executive found that younger brokers and West Coast brokers use the phone app almost exclusively, whereas older brokers and East Coast brokers tend to use the desktop service.
Read More: http://commercialobserver.com/2014/11/hightower-mighty-real-estate-leasing-catches-up-with-the-21st-century/
By most standards, the office market in Washington has lagged behind when compared with those in other major cities. Federal-government budget cuts and corporate contractions have meant rising office vacancies and stalling rents, for instance.
But those factors haven’t kept the prices paid for office buildings from climbing.
Last week’s deal involving PNC Place, a 12-story office building, is a case in point.
The property sold for $392 million, or $1,075 a square foot. That was the highest price ever paid, on a square-foot basis, for an office building in Washington, according to commercial-real-estate brokers.
Prices throughout the region have been rising fast. In the first half of this year, buyers of office buildings paid an average of $367.91 a square foot, up 29% over the same period last year, according to real-estate data firm CoStar Group.
The buyers of PNC Place, giant retirement-plan provider TIAA-CREF and Norges Bank Investment Management, the world’s largest sovereign-wealth fund, declined requests for an interview to discuss the transaction.
. . .
Ben Thypin, director of market analysis at real-estate data firm Real Capital Analytics, says foreign buyers have been especially aggressive. In the first three quarters of this year, foreigners have invested $10.63 billion in office buildings in central business districts in U.S. cities—a 69% increase over the same time last year, according to Real Capital Analytics. “If you’re a large fund, you can’t make small deals,” said Mr. Thypin. “You need to place a lot of capital in big chunks. These Class A office buildings are large....They’re perceived as good stores of value. You’re not going to make home-run returns on these, but you’re not going to be losing money, either.”
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
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.