New buyers, one broker rule in 2014 building sales

New buyers, one broker rule in 2014 building sales

Manhattanu2019s top commercial deals of 2014
RankAddressSize/TypePrice/Size of StakeBuyerSellerSeller's Broker
11095 Sixth Avenue (3 Bryant Park)1.2 miliion sf (office)$2.25BIvanhoe Cambridge and Callahan Capital PartnersBlackstone GroupDouglas Harmon, Adam Spies (Eastdil Secured)
2Waldorf Astoria 1.7 million sf (hotel)$1.95BAnbang Insurance GroupHilton Worldwide HoldingsDouglas Harmon, Adam Spies (Eastdil Secured)
3730 Fifth avenue (Crown Building)400,000 sf (office)$1.75BJeff Sutton and General Growth PropertiesWinter and Spitzer familiesDouglas Harmon, Adam Spies (Eastdil Secured)
45 Times Square1.1 million sf (office)$1.47BDavid Werner Real EstateAVR RealtyDouglas Harmon, Adam Spies (Eastdil Secured)
510 Columbus Circle (Time Warner Center office condo)1.1 million sf (office)$1.3BRelated Companies, GIC (Government of Singapore) and ADIATime WarnerDouglas Harmon, Adam Spies (Eastdil Secured)
6150 East 42nd Street (Socony Mobil building)1.6 million sf (office)$900MDavid Werner Real Estate, Mark Karasick and Harry SkydellHiro Real Estate and Goldman SachsDouglas Harmon, Adam Spies (Eastdil Secured)
71 World Trade Center retail condo365,000 sf (retail)$800MWestfield GroupPort Authority of New York & New JerseyNo broker
8388-390 Greenwich Street (Citigroup headquarters)2.6 million sf (office)$800M SL GreenIvanhoe CambridgeDouglas Harmon, Adam Spies (Eastdil Secured)
965 East 55th Street (Park Avenue Tower) 615,850 sf (office)$750MBlackstone GroupShorenstein PropertiesDouglas Harmon, Adam Spies (Eastdil Secured)
10601 Lexington Avenue (Citigroup Center, 153 West 53rd Street) 1.6 million sf (office)$725MNorges Bank Investment ManagementBoston PropertiesDouglas Harmon, Adam Spies (Eastdil Secured)
Source note: Building sales were researched in public property records and through industry sources. At 601 Lexington Avenue, the buyer purchased a 45 percent stake. At 388-390 Greenwich Street, the buyer purchased a 49.4 percent stake. And at One World Trade Center, the buyer took a 50 percent stake of the retail component. All other purchases were for full (or nearly) full ownership. This list includes two deals -- 1095 Sixth and the Waldorf Astoria -- that were pending at the time of deadline.
Credit: Real Capital Analytics and news and brokerage reports.

Low interest rates, brisk sales, a more active commercial mortgage-backed securities market and white-hot land prices helped drive a surging investment sales market in 2014 — and one of the biggest beneficiaries of all this activity was the city’s top investment sales brokerage.

New players in the form of foreign institutional investors from Asia and elsewhere made their marks as they bought high- and low-profile buildings. In particular, the momentum of Chinese capital investment paralleled the robust market. There was also plenty of homegrown money thrown into the mix by prolific, crackerjack negotiators, such as the under-the-radar, Brooklyn-based investor David Werner. Werner snapped up Ernst & Young’s headquarters at 5 Times Square and the Socony Mobil building last year.

New buyers weren’t the only ones making a splash. Eastdil Secured, a division of banking giant Wells Fargo, had their superstar brokers Douglas Harmon and Adam Spies close nine of the top 10 deals of the year, including Werner’s top two purchases. That was up from Eastdil repping six of the largest 10 deals last year, pushing CBRE Group and Jones Lang LaSalle off the list.

Eastdil is the city’s most active investment sales brokerage in terms of dollar volume. A representative said the firm recorded $20.5 billion in sales of 45 New York City buildings in 2014. And that figure doesn’t include the priciest sale of the year, 1095 Sixth Avenue, which hadn’t closed at press time.

The 2014 sales volume is almost double the $10.6 billion Eastdil recorded in 2013, according to The Real Deal’s last investment analysis in March.

The year’s heady activity is made clear with a look at the latest market statistics. TRD compiled Manhattan’s 10 priciest building trades for 2014, as recorded by Real Capital Analytics and news and brokerage reports.

Cream of the crop

From left, Eastdil Secured's  Douglas Harmon and Adam Spies

Eastdil Secured’s Douglas Harmon and Adam Spies

The aggregate value of the 10 priciest Manhattan investment sales deals for 2014 was $11.6 billion, TRD’s analysis found. Five of them exceeded (or are on track to exceed) the $1 billion mark. The majority are located in Midtown.

“The investment sales market is functioning at a joyful level,” said Woody Heller, executive managing director at commercial brokerage Savills Studley.

“We’re seeing some of the never-sellers sell and some of the never-available buildings be traded,” Heller added. “We’re at a point in the cycle when prices compel such activity.”

The priciest full-building sale of the year was Blackstone Group’s $2.25 billion sale of the 1.2 million-square-foot Midtown office tower 1095 Sixth Avenue, also known as 3 Bryant Park, to Canadian property investor Ivanhoe Cambridge and Chicago-based Callahan Capital Partners. Upon closing (no date was set at press time), the sale would be the priciest for a U.S. office building since the GM Building changed hands for $2.8 billion in 2008. In 2014, the $1.35 billion sale of 650 Madison Avenue was No. 1.

Like many Canadian investors on the New York circuit, Ivanhoe Cambridge, the real estate subsidiary of pension fund manager Caisse de dépôt et placement du Québec, has been around the block. Ivanhoe also

made the list for selling a 49.4 percent stake in Citigroup’s headquarters at 388-390 Greenwich Street in Tribeca to SL Green for nearly $800 million. SL Green separately refinanced the building with a seven-year, $1.45 billion mortgage.

“Most of the institutional investors buying trophy properties are pension funds looking for cash flow to make dividends for their shareholders,” said James Murphy, executive managing director at commercial firm Colliers International.

The year’s second priciest deal was Blackstone-owned Hilton Worldwide Holdings’ agreement to sell the iconic 1,413-room Waldorf Astoria hotel to Beijing-based Anbang Insurance Group. It was slated to close Dec. 31, making it the priciest deal ever for a single hotel, though at press time, the deal could potentially still be blocked by the U.S. government, which was weighing the potential security risks of a Chinese company acquiring a hotel that is often the site of diplomatic and business negotiations, not to mention the one where the president stays while in New York.

Anbang, a new entrant to the New York City market, was on the hunt for a trophy purchase, Heller said. The Waldorf deal came four months after the Chinese government moved to allow insurers there to invest 15 percent of their capital outside China.

The top deals list did not include portfolio sales or development sites. Among the notable deals in those categories were Brookfield Property Partners’ $1 billion purchase of the 3,962-unit Putnam portfolio in Upper Manhattan, brokered by Savills Studley; and HFZ Capital Group chief Ziel Feldman’s purchase of the land at 501 West 17th Street, also known as 76 11th Avenue, for north of $800 million, brokered by CBRE Group.

Teams from Eastdil and CBRE Group declined to comment for this story.

Minority stakes

Citigroup Center and Citigroup headquarters deals were among several high-profile 2014 Manhattan investment sales of equity stakes, rather than outright buildings.

Boston Properties sold a 45 percent interest in Citigroup Center at 601 Lexington Avenue to Norges Bank Investment Management, an arm of the central bank of Norway, for about $725 million. The deal brings the building’s gross value to roughly $2.2 billion, according to sources close to the deal.

The priciest building deal of 2014 was Blackstone Group’s $2.25 billion sale of the 1.2 million-square- foot Midtown office tower 1095 Sixth Avenue, to Canadian property investor Ivanhoe Cambridge and Chicago-based Callahan Capital Partners.

The priciest building deal of 2014 was Blackstone Group’s $2.25 billion sale of the 1.2 million-square- foot Midtown office tower 1095 Sixth Avenue

Norges emerged as a player over the past few years, having invested in Boston Properties’ 7 Times Square and TIAA-CREF’s 470 Park Avenue South. The sovereign fund got into the property investment game in 2010, after receiving a mandate to invest up to 5 percent of its real estate assets outside Norway.

In another minority-stake deal, the Canadian Pension Plan Investment Board grabbed a 45 percent interest in Vornado Realty Trust’s 941,000-square-foot office building 1 Park Avenue in Midtown South for $560 million. And UBS took a 49 percent stake for roughly $500 million in the Americas Tower, the 975,000-square foot tower between West 45th and 46th Streets owned by Silverstein Properties and CalSTRS pension fund, sources said.

Foreign buyers often buy a minority stake to avoid dealing with the Foreign Investment in Real Property Tax Act, which requires withholding from a foreigner’s rental income and gains or losses from disposing of a U.S. property, Murphy said.

“A minority stake can be a very good way to enter the marketplace,” Murphy said.

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In the last month of the year, Murphy said he saw multiple offerings of minority interests on B-class office properties in both Downtown and Midtown. In both cases, the owners were looking to sell off property a few years after buying and adding value through upgrades.

Investors are also testing the market to recapitalize, to reduce capital costs. Murphy said it is premature to identify that as a trend, but he is interested to see if it continues.

Investor behavior

David Schechtman, executive managing director at commercial brokerage Eastern Consolidated, said his foreign client base of Koreans, Chinese and Eastern Europeans is especially focused now on making decisions and closing in on real estate.

“A lot of them came here in 2008 and 2009 and there were no deals to be had,” Schechtman said. “They’ve had four or five years to get prepared and find local counsel. Now they are buying in earnest. They’re actually striking.”

Some investors are stepping outside of their comfort zones and either switching asset classes on office building buys, or adding a different building type to their portfolios, said Robert Knakal, chair of New York investments sales at Cushman & Wakefield. Midtown East-based investment firm Trevi Retail, for example, made a rare move to acquire four Upper East Side all-residential buildings for nearly $100 million in September.

Soaring prices are leading investors to consider different types of properties. Firms specializing in office properties are increasingly “frustrated with the yield in the asset class that they’re most familiar with,” Knakal said.

“Buying a 2.5 percent capitalization-rate apartment building doesn’t make sense to buyers who were buying at a 5 percent cap rate a few years ago,” said J.D. Parker, first vice president at commercial brokerage Marcus & Millichap.

Others who have struggled with finding a building to buy are instead considering development sites, which can pose a greater risk, Parker said.

The soaring price of land, however, is not necessarily a deterrent for some developers. SL Green and Jeff Sutton; Extell Development; and Harry Macklowe broke the $1,000-per-square-foot mark for a development site for the first time in 2014. SL Green and Sutton, for example, bought 719 Seventh Avenue in Times Square for $1,462 per buildable square foot, or $41 million, in June.

Buyers are seeking opportunities to add value to a building by eventually redeveloping or renovating it. More and more, they are taking a strategic approach, as opposed to making a market bet and riding the wave, Heller said.

The office market

Investor David Werner bought Ernst & Young’s head- quarters at 5 Times Square and the Socony Mobil building for a combined $2.37 billion.

Investor David Werner bought Ernst & Young’s head- quarters at 5 Times Square and the Socony Mobil building for a combined $2.37 billion.

Office leasing, which continued to recover after a decline in 2012, is also factoring into the strength of investment sales. Average asking rent in Manhattan was $65.97 per square foot in the third quarter of 2014, up 10 percent year-over-year, according to data from Colliers.

In the third quarter, the vacancy rate for Manhattan office space slipped to 10.2 percent, from 11.9 percent the year earlier, Colliers data showed. The Downtown office vacancy rate dropped to 12.2 percent, its lowest level since late 2009.

Major office tenants steered clear of large blocks of office space two years ago, but that trend largely reversed itself last year. The biggest new office lease based on the space’s size was Time Inc. taking nearly 670,000 square feet at Brookfield Office Properties’ Brookfield Place, according to CompStak data. The top office lease overall was a renewal of 1.2 million square feet by Credit Suisse at the Sapir Organization’s 11 Madison Avenue. Starting rent for Time Inc. and Credit Suisse will be in the $50s and $70s per square foot, respectively, CompStak showed.

Investment sales volume was on pace to reach $20 billion by year’s end, one of the highest on record, Colliers data showed.

The three non-office investment sales to make the priciest deals of 2014 list were the Waldorf Astoria, the retail component of office tower One World Trade Center and a five-floor retail condo at St. Regis New York. In 2013, the only non-office entry was the $660 million sale of the Helmsley Park Lane Hotel at 36 Central Park South.

Brooklyn and Queens

Despite the vitality of the New York City market, outer boroughs such as Brooklyn and Queens have yet to take a sizable bite out of Manhattan’s dominance with massive deals. Nevertheless, both Brooklyn and Queens climbed to new heights in sales activity.

The top investment sales transaction in Brooklyn was the Chinese firm Greenland Group’s purchase of a 70 percent stake in Forest City Ratner’s Atlantic Yards project, now known as Pacific Park Brooklyn, with a 2014 commitment of $740 million, according to sources close to the deal. Greenland also made a $1.5 billion equity commitment over the term of the project. CBRE’s Darcy Stacom and William Shanahan served as brokers on the stake purchase.

The year’s largest single-building office deal in the borough was RXR Realty and American Landmark Properties’ $194.5 million purchase of a long-term ground lease on the office building at 470 Vanderbilt Avenue from Starwood Capital and GFI Capital Resources. The deal marked RXR’s premier buy in Brooklyn.

In Queens, the biggest single-building office deal is expected to be for the Center Building, which Vornado Realty Trust is in contract to acquire from Madison Marquette and Perella Weinberg Partners for $142 million. Overall in the borough, Macerich’s reportedly $1 billion deal for the Queens Center mall from Cadillac Fairview was the largest one in 2014.

Marcus and Millichap’ s Parker said he expects the city’s investment sales market to hold steady through 2015.

“Everybody wants to own a piece of New York – a trophy like the Waldorf Astoria – in their portfolio, and that fuels the market,” Parker said.

Knakal was more skeptical about the market’s fate – and questioned whether the bubble is about to pop for residential as well as investment sales. At this point, Knakal said, it could go either way.

“The question is: Is 2014 more like 1988, in that there will be a downturn soon, or like 1998, in that the market will continue its run for another four or five years?” Knakal said.

“Right now it’s 50/50.”