The Real Deal New York

Tishman Speyer regains footing

After major suffering during downturn, firm is now buying, selling, leasing and restructuring at a fast clip
By Dan Weil | February 28, 2011 09:24PM
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Stuyvesant Town

Tishman Speyer Properties may have suffered one of the biggest debacles of the downturn with Stuy Town and Peter Cooper Village, but the firm appears to be getting its footing back.

Over the past year, the 33-year-old Manhattan-based company has gone on a spree of buying, selling, developing and leasing buildings, as well as restructuring some of its debt.

Last year, the firm bought around $1.06 billion of property around the world, up from $99 million in 2009, according to the Wall Street Journal. It wasn’t just a purchaser, though: The firm sold about $1.9 billion worth of property in 2010, up from $500 million a year earlier.

Experts agree that going back to the basics — which for the firm is office buildings, not the multifamily world — is serving Tishman Speyer well.

“They’ve righted their ship to concentrate on what they do best, which is the office sector,” said Ben Thypin, director of market analysis at Real Capital Analytics in Manhattan. “That makes sense. It reflects how forgiving the real estate market can be.”

Interestingly, almost all of the firm’s recent activity has been outside of New York, far from the Manhattan deal where it suffered its worst black eye.

Along with Blackrock, in 2006, at the peak of the market, the company famously led a team that purchased the 110-building Stuy Town complex for a staggering $5.4 billion, the most ever paid for a single real estate property in the U.S.

But with tenants fighting the new owners as they attempted to make capital improvements and raise rents, and the economy tanking, it quickly became clear that the deal was a mistake. By 2009, the buildings had plummeted in value to $1.9 billion, putting the owners deep underwater on their $3 billion mortgage. And, in January 2010, the owners returned the property to its lenders.

And that wasn’t Tishman Speyer’s only troubled deal of the downturn. The company, which became a poster child for overpaying at the market’s peak, defaulted on loans connected to a cluster of six Chicago buildings, which included the high-profile Civic Opera House (the loan has since been restructured). And its acquisition of apartment building operator Archstone-Smith, which it bought for $22 billion with partner Lehman Brothers in 2007, was a bust.

But, as has been reported, Tishman Speyer didn’t actually take a huge hit on the failed Stuy Town deal. It lost only $112 million of its own money, with just half of that total coming directly out of the wallets of co-CEOs Jerry Speyer and his son, Rob.

And now, perhaps surprisingly, lenders and investors seem perfectly receptive to working with the company again.

“To walk into investors and lenders to say, ‘We want your money for office buildings,’ that’s still received well,” Thypin said.

The company, which has bought and sold numerous iconic properties, and currently controls the Chrysler Building and Rockefeller Center, owns more than 50 million square feet across the globe.

Barry Vinocur, editor of REIT Wrap news services, said that when he asks top REIT investors which companies they would like to see go public, Tishman Speyer is high on the list.

Certainly the firm, which declined to comment on its recent activity, has no shortage of money from investors. It reportedly has more than $2 billion in dry powder — mostly money that it had attracted prior to the recession, but also additional funds raised more recently.

Below are some of the highlights of Tishman Speyer’s recent activity.

Acquisitions

• In November, the firm acquired 1110 Vermont Avenue in Washington, D.C., for a reported $130 million from Perseus Realty. The building, which is four blocks from the White House, has 305,000 square feet.

• In December, Tishman Speyer purchased 353 North Clark Street, a 46-story Chicago office tower, for a reported $385 million. The building, which reportedly cost $440 million to build, encompasses 1.18 million square feet.

• In December, Tishman Speyer bought a 327,000-square-foot office building on the banks of the Seine River in a suburb of Paris for a reported $136.9 million. Tishman Speyer’s Paris-area portfolio now exceeds 3.5 million square feet — and its European holdings top 8.5 million square feet.

• In January, Tishman Speyer bought a two-building complex in Beverly Hills, which used to house Hilton Hotel Corp.’s headquarters, for a reported $65 million from Blackstone Group. Together, the buildings are 185,000 square feet, and the property was last assessed by Los Angeles County at $88 million. Tishman Speyer plans $23 million in renovations.

Sales

• In December, Tishman Speyer sold OpernTurm, a 42-story office building in downtown Frankfurt that it developed with UBS in 2006. The price for the 720,000-square-foot building wasn’t disclosed.

• In January, the firm sold a 341,000-square-foot office building at 1255 23rd Street NW in Washington, D.C., to Carr Properties, the Canada Pension Plan and MetLife Real Estate Investments for a reported $137.4 million. Tishman Speyer bought the property in 2006 for $107.9 million as part of a $2.4 billion portfolio from Blackstone and Carr-America, but they ran into trouble on the property.

Restructurings

• In June, the firm restructured its $1.4 billion debt on six signature Chicago office buildings, including the Civic Opera Building. The lenders included the Federal Reserve Bank of New York, which took over loans made by Bear Stearns. Tishman Speyer bought the properties for $1.7 billion in 2007 from Blackstone, but the deal soured when the company couldn’t sell a few of the properties it had planned to in order to pay down the debt.

• In August, Tishman Speyer bought back its debt on the Dublin Corporate Center in Dublin, Calif., at a big discount, for a reported $55 million. (Dublin is part of the Tri-Valley area outside San Francisco.) The office campus of three buildings contains 440,278 square feet.

Leases

• In May 2010, the consulting firm Accenture signed a 15-year, 68,000-square-foot lease at a Tishman Speyer office building in Hyderabad, India. Accenture was already a tenant at one of the firm’s Chicago buildings.

• In December, Winston & Strawn signed a 15-year renewal at Tishman Speyer’s MetLife building in Manhattan. It also added 18,628 square feet of additional space. The law firm, which had also added space to its footprint in July, now occupies a total of 263,344 square feet.

Development

• Tishman Speyer has projects in different stages of development in Shanghai, Chengdu and Tianjin. The projects include office, retail, residential and mixed-use buildings. The firm has been investing in China for seven years.

• In January, the firm announced it will develop a 40-story office tower in Frankfurt with Commerz Real AG. The building, “TaunusTurm,” will contain 650,000 feet.

Sources say Tishman Speyer is back to playing offense. “They can take advantage of opportunities; they have cash on hand,” said Thypin. He noted that much of the firm’s activity is taking place overseas.

“That reflects the lack of inventory domestically,” he said. “They concentrate on high-quality property. There’s not a lot of that available, and what is available is getting bid up. There are better opportunities overseas.”

But whether all the buying Tishman Speyer is doing will be profitable remains to be seen, said Daniel Alpert, managing partner of Westwood Capital, a Manhattan-based investment bank. “The question is whether they’re buying at the right time,” he said. “It’s an inherent bet on the fundamentals of the economy. [But] financing is available for high-quality properties.”

Still, in the big picture, Tishman Speyer has rebounded from its woes, said Ken Patton, a real estate professor at New York University and former chief operating officer of Helmsley-Spear.

“Who among us wasn’t vulnerable to the downturn?” he said. “Now the market has readjusted, especially large core properties in big cities. Their skill set comes back into play. It’s no surprise to me that they’re up and running, and doing well.”

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