Barclays deal for Lehman HQ not as good as Chase’s
The ink may still be drying on the agreement to buy Lehman Brothers’ headquarters at 745 Seventh Avenue, but brokers said it appears that Barclays did not get as good a deal as JPMorgan Chase did when it snapped up the failed investment bank Bear Stearns.
London-based Barclays said it agreed to pay $1.5 billion for Lehman’s west Midtown tower and two New Jersey data centers, as well as $250 million for the firm’s North American investment banking and capital markets business.
But, unlike the Chase deal, Barclays did not get a great discount off market value.
Barclay’s said in a statement that the building purchases were “for close to their current market value.”
Ron Cohen, chief marketing officer at Besen and Associates, who was not involved in the sale, said there was not enough public information to know what the deal meant for the turbulent office market.
However, he said, “It sounds like they are not getting quite the deal that JPMorgan Chase got at 383 Madison.”
In March, JPMorgan Chase snapped up the failed investment bank Bear Stearns for a reported $236 million, which included its headquarters at 383 Madison Avenue, valued at about $1 billion.
The Barclays news came days after Lehman Brothers Holdings filed for the largest bankruptcy in United States history.
An investment sales broker not involved in the Barclays deal, who asked not to be identified, said the Lehman building would not command as high a price if offered on the market under normal conditions.
“In the current financial market they couldn’t get financing, especially with one [company] … It would have to have two investors or more instead of just one guy,” he said.
The sale of the Class A headquarters on Seventh Avenue at 50th Street does not provide a barometer of market conditions due to the conditions of the sale — it was arranged under pressure within a few days, real estate experts said.
Eric Anton, executive managing director at Eastern Consolidated, said rapidly constructed deals are often done on estimates.
“My gut tells me they figured this company was worth much more, and they got the building as well,” he said. By Adam Pincus
Lower Manhattan diverse enough to cushion job losses
The Downtown commercial market will not be devastated by financial sector job losses, despite the fact that the top three firms occupying office space Downtown are three former titans of Wall Street and finance — Merrill Lynch, AIG and Goldman Sachs — according to real estate experts.
That was the message at RealShare New York’s annual conference, where panelists said they expect Lower Manhattan’s growth to continue when the economy strengthens, thanks to the area’s diversity.
Lower Manhattan tenants are more varied today than 10 or 15 years ago, when 52 percent of the area’s real estate was occupied by financial sector institutions, said Sheldon Cohen, senior managing director at CB Richard Ellis.
“Lower Manhattan is finally what we were all looking for it to be — a 24-hour community,” said Steven Spinola, president of the Real Estate Board of New York.
Karen Bellantoni, executive vice president at Robert K. Futterman & Associates, added that the Downtown community has a wider range of real estate needs, including space for high-end retailers who are attracted to Lower Manhattan because of the presence of other luxury retailers.
The panelists did acknowledge the uncertain impact of financial sector job losses on Downtown real estate.
That’s partly because Merrill Lynch, AIG and Goldman Sachs occupy about 10 million square feet of combined space in Lower Manhattan.
“It’s too early to really have any clarity on what’s going to happen” to financial firms’ Downtown office space after the purchase of Merrill, the takeover of AIG and the movement of Goldman to new headquarters, said William Rudin, president of development company Rudin Management. “We’ve known the financial services industry has a rollercoaster effect” on Downtown real estate.
Right now, said Joshua Zamir, managing principal at private real estate equity firm Capstone Equities, “people are a little slower making decisions” in Lower Manhattan, “but it’s not dead.” By Sara Polsky
Residential brokers try to navigate new playing field
After months of contending with the credit crisis and national housing slump, New York City’s residential real estate market is also preparing for the impact of the Wall Street crisis.
With much of the city’s money tied up in the financial industry, the fall of financial giants like Lehman Brothers, Merrill Lynch and AIG are expected to have a real effect on the industry.
“What we have here is an elevation of anxiety that’s hit the market,” said Pamela Liebman, CEO of the Corcoran Group. Brokers must act as “part psychiatrist, part hand-holder,” as increasingly more cautious buyers and sellers approach the market, she said.
Joyce Pohs, a sales associate at Bellmarc Realty, said she is already feeling the crunch.
“There is a definite sense of ‘let’s wait this out and see how far the real estate market will fall,'” Pohs said. “When Lehman fails, AIG is in disarray and Merrill gets absorbed, it’s hard to argue with a wait-till-December-and-see approach. I just had an offer for a posh Fifth Avenue residence withdrawn.”
Veronica Raehse, an executive vice president and sales manager at Bellmarc, agreed that buyers are going to become even more cautious, but notes that despite Monday’s bad news, Tuesday was a busy day at the Bellmarc West Side office; there were three accepted offers and two successful rental transactions, but she agreed that bad economic news will only make buyers more hesitant to pull the trigger.
Newer brokers may struggle the most.
Barbara Fox, president of Fox Residential Group, said that newer brokers “who have only known boom times” may be in for a shock as the market tightens. “Deals have been falling out of heaven for the last 10 years, and they’re not going to be now.”
Fox predicted that the residential market in the Financial District, which has a number of new high-end rentals and condos, will feel the hit more than the rest of Manhattan.
Apartments there are “a very tough sale right now,” she said, and with the bad news, it will be even tougher. “People are not moving in to the financial industry, they’re moving out of it,” she noted.
Citywide, “I don’t think any business in New York is going to be exempt from this particular set of events,” Fox said.
But people aren’t walking away from signed contracts, they’re simply holding off on making offers until the market settles down, Corcoran’s Liebman said.
She said she remains optimistic that New York’s real estate market will not suffer long-term. “New York is very different. It’s a place [where] everyone wants to be,” she said. By Jane C. Timm
Bailout plan viewed with hope, uncertainty in NYC
Although it remains unclear how the massive bailout proposal being debated in Washington will impact New York City commercial real estate if it passes, experts believe it could be the first step to unfreezing a market that is expected to see many building failures in the next several years.
Paul Fried, a principal at real estate investment banking firm AFC Realty Capital, said financiers are waiting for the bailout to kick start a frozen lending process for larger commercial properties.
“The short answer is, we still don’t know many of the details of the plan,” he said. “To the extent it provides a stabilizing force it is going to be a good thing for New York and for its real estate values” as well as for its capital markets, city employment and tax revenue, he said.
He viewed the bailout as a helpful first step to restart the commercial lending market for sales of $50 million and up, a segment of the market that is struggling.
Data from real estate services firm Cushman & Wakefield showed just $17.3 billion in sales of Manhattan office properties valued at $10 million or more were closed or under contract by the end of August, a 58 percent decline from $40.3 billion at the same time last year.
But the federal aid is only the first of two steps necessary for the lending market to flow again, the other being clarity about the direction of the economy, Fried said.
The Treasury Department sent the bailout plan to Congress last month, proposing that the federal government buy troubled commercial or residential mortgage-related assets that have lost value. While it is expected that the majority of the failing mortgages will be in the residential market, there will still be a fair number in the commercial market, insiders said.
Robert Knakal, chairman of commercial brokerage Massey Knakal Realty Services, said that whatever system is devised to take over and dispose of the toxic assets, it will take years to unravel the complex securities to determine who the owners are and the percentage of ownership. But a bailout would provide a positive and immediate effect on the credit market.
“I wouldn’t say it would unfreeze it, but it will certainly create a thaw,” he said.
But Jon Southard, director of forecasting at Torto Wheaton Research, a subsidiary of CB Richard Ellis, said in an analysis considering possible outcomes of the bailout proposal that the intervention may not firm up commercial real estate pricing.
“The ‘bailout’ going as planned may result in short-term pain for the commercial real estate market as well,” he wrote. “While we believe that prices of most CMBS [commercial mortgage-backed securities] are destined to go up from their current levels, a successful Treasury intervention would not necessarily result in commercial real estate equity prices rising.”
One possible outcome of the bailout would be helpful to real estate investment trusts (REITs) such as Boston Properties, Reckson Associates Realty and SL Green Realty Trust, which have cash available because they were sitting on the sidelines while private equity firms were buying real estate in highly leveraged deals during the boom times of the commercial market.
A commercial real estate broker, who asked not to be identified, said he expected “several dozen” New York City commercial buildings to fail in the next several years, but he said he did not know how many of them had securitized mortgages that would include them in the federal bailout.
Knakal would not hazard a guess as to how many commercial properties would go into default in New York City, but he expects what is now a small number to grow.
The only default he was aware of worth more than $50 million was Harry Macklowe’s losses stemming from the $7 billion purchase of the Equity Office Properties portfolio.
“Commercial defaults [in New York City] are at a miniscule rate at the present [time], but I anticipate that will change,” he said.
Paul Adornato, a senior REIT analyst for research firm BMO Capital Markets, said the trusts are waiting to see how the bailout progresses.
“In speaking to REIT executives, they are definitely keeping their powder dry and looking for opportunities when the liquidation begins,” he said, both in Manhattan and nationwide. By Adam Pincus