Q & A with Bruce Schonbraun, advisor on Canada Pension Plan deals with SL Green

Bruce Schonbraun, senior managing director at Midtown-based real estate finance consultant firm FTI Schonbraun McCann Group, advised on recent deals for the Canada Pension Plan Investment Board, which bought SL Green Realty’s 45 percent stake in 1221 Sixth Avenue for $576 million and a 45 percent stake in 600 Lexington Avenue, which SL Green bought last month for $193 million. Schonbraun spoke with The Real Deal about the myth of the bargain, underwater loans and foreign investment in Manhattan.

Mexican businessman Carlos Slim recently bought 417 Fifth Avenue for $140 million, a 44 percent discount off the 2007 price of $250 million.  Are there bargains in New York City real estate now?
I will tell you that in New York City there has been fierce competition for these products that have gone on the market because there has been far greater demand than supply. But there’s been no bargain pricing.

Buyers thought there would be lots of deals from note sales, but there have been very few. When will we see more of them?
As the banks’ own balance sheets become stronger they’ll be more willing to… remove these impaired situations either directly off their balance sheets or restructure them.

Are there instances in which a bank’s interests in a property are not the same as a borrower’s interests?
What is counterintuitive and what I find extraordinarily interesting, and so few people pick up on this point, is that what is good for the particular property — the asset — isn’t necessarily what is good for the [owner] that controls it. You may have a well-intentioned borrower sitting in place with no equity and no hope of equity and staying with the property to get the management fees. That is not necessarily a good long-term alignment for the bank. A large group [of owners] will not be able to [restructure their loans] and the bank is likely to take those properties to market.

Your firm recently worked with the Canadian pension fund Canada Pension Plan Investment Board to buy stakes in 1221 Sixth Avenue and 600 Lexington Avenue. Why did the fund buy just partial shares?

That is the way they operate. I think what their profile is, as an investor, is to team up with the local operating experts… rather than buy a building themselves. [Also] in Canada in particular… if they own more than 50 percent [of a property outside Canada], it creates foreign tax issues.

Do you expect to see more buyers purchasing partial interests in Manhattan commercial real estate?
People in New York City need to recapitalize their assets. A good way to do it is to sell part of their equity — not all of their equity — to revalue and recapitalize the asset. So you are definitely seeing that.