Monday, January 07, 2008

A Defensive Strategy for REIT Investors - New York Times 

A Defensive Strategy for REIT Investors - New York Times

REITS did very well this decade, posting impressive gains for investors on a yearly basis. But, 2007 was a different story. The National Association of Real Estate Investment Trusts said property REITs posted negative returns of 15.7 percent, on average.

Analysts warn that investors must now be defensive when investing in REITS.

In choosing the better REIT stocks, Mr. Harris said he looks at a company’s balance sheet, particularly at the level of debt; the quality of its portfolio, especially property location; the dividend history; management experience; and the development pipeline. (In a downturn, the fewer projects in the works, the better.)

Mr. Stewart, meanwhile, has created a ranking of so-called defensive REITs. The list of 61 companies, which initially came out last summer and was recently updated, is based on 10 criteria, including a company’s size, earnings stability and growth and dividend record. It also takes into account the duration of property leases.

Topping the list is the largest REIT by market capitalization — the Simon Property Group, which owns and operates shopping malls throughout the world. Most of the top-ranked REITs are also in the retail sector, including Kimco Realty and Realty Income, which Mr. Stewart recommends.

Entertainment Properties Trust, which owns and develops megaplex theaters and entertainment retail centers nationwide and in Canada, was also ranked highly. The chief executive, David Brain, said he was confident the company would hold up well in a softer economy. For one thing, he said, “our properties are very high revenue producers and also produce a present cash flow level of about two times the rent obligation.”

And, “as the economy gets worse, it gets a little good,” he added, because consumers are likely to be looking for less expensive entertainment options like movies. “If you go to any kind of sporting event or concert, those are $50 to $60 price points easily,” Mr. Brain said. “For a tenth of the cost, you get a very high-quality production.”

Many retail REITs are also well insulated, Mr. Stewart said, because they have both high occupancy rates and long-term leases. “If you look at Realty Income, it has one of the longest lease terms in the universe — 13 years, on average,” he said. (Entertainment Properties has some leases in the 10- to 20-year range as well, according to Mr. Brain.)

“Of course, the downside is you don’t have the same benefit in a rising economy,” Mr. Stewart said.


Sunday, January 06, 2008

U.K. Real Estate Losses May Be Biggest in 25 Years 

Bloomberg.com: Worldwide

Wary of investing in property in the United States? Well, beware of across the pond, too.

Jan. 7 (Bloomberg) -- LaSalle Investment Management put Condor House, a seven-story office building facing London's St. Paul's Cathedral, on the market for 130 million pounds ($256 million) six months ago. The building sold last month for about 117 million pounds, 10 percent below the asking price.

Appraisal values fell at a record rate in November and commercial real estate derivatives contracts indicate owners of British offices, shopping malls and warehouses may suffer their biggest annual losses in more than a quarter century.

``The U.K. market is falling apart,'' said Peter Hobbs, London-based head of research at RREEF Real Estate, a Deutsche Bank AG unit that manages about $100 billion. ``There's a risk that this cyclical downturn turns into something worse.''

Britain's 700 billion-pound commercial property market will perform worse in 2008 than the rest of Europe, the U.S. and Asia, Hobbs said. The slide is accelerating as banks tighten lending standards across the globe after losses of more than $90 billion from U.S. mortgage investments. Jones Lang LaSalle Inc., the world's second-largest commercial real estate broker, estimates transactions in the U.K. slumped 60 percent during the final quarter of 2007 to about 5 billion pounds.

Building owners may record losses of at least 11 percent in 2008, according to prices of derivatives contracts pegged to indexes compiled by London-based research firm Investment Property Databank Ltd.

The decline would be the largest since IPD introduced its annual total-return index in 1981, which combines data for rental incomes and changes to appraisal values. The benchmark index covers 200 billion pounds of investments and excludes debt, which can multiply property gains or losses.

`Element of Hysteria'

``There's an element of hysteria'' in the market, said William Hill, head of London-based Schroder Property Investment Management, which oversees 10 billion pounds. As funds are forced to sell buildings to meet investor redemptions, finding a buyer at a high enough price is like ``grasping an eel,'' he said.

Westfield Group, the world's largest mall-owner, canceled plans last week to sell the remaining 33 percent of the 530 million-pound U.K. Shopping Centre Fund. The fund owns 25 percent of the shopping centers in Belfast, Derby, Dudley and Tunbridge Wells.

British Land Co., the U.K.'s second-biggest real estate investment trust, abandoned efforts in October to sell a stake in Meadowhall Shopping Centre on the outskirts of Sheffield in northern England. It cut the value of the property by 79 million pounds to 1.58 billion pounds a month later.

Appraisers lowered commercial values by an unprecedented 4 percent in November, increasing the cumulative 11-month decline to 7.8 percent, IPD reported. In the last property crash, values dropped 27 percent from 1989 through 1993.


Wednesday, January 02, 2008

Big Makeovers for Office Buildings Outside of Midtown - New York Times 

Big Makeovers for Office Buildings Outside of Midtown - New York Times

It's time to get creative in the commercial real estate market. Enterprising developers have bought buildings that are in less than ideal shape but are located in up-and-coming improving neighborhoods.

Will these investments pay off? Time will tell.

“What all of these buildings have in common is ‘location, location, location,’” said Howard Fiddle, the vice chairman of CB Richard Ellis. “They are all in very different neighborhoods that are improving.”

Mr. Fiddle said older buildings are getting unusually expensive makeovers near ground zero, the Brooklyn Bridge and Madison Square Park. Although the rents in these areas tend to be higher than in other large American cities, they are still lower than rents in Midtown Manhattan.

Take, for example, 14 Wall Street. Two large private equity firms — the Carlyle Group and Capstone Equities — bought this 1.1-million-square-foot 31-story building for $325 million in April. The new owners plan to spend $50 million more on renovations, including sprucing up the lobby, the corridors and common bathrooms, adding elevator banks and enhancing the security system.

They intend to spend $5 million on the lobby alone. Besides altering the floor plan and lighting to modernize the look, they are buying original artwork, including a work commissioned from the glass sculpture team of Christopher Cosma and Denise Amses. “We think tenants will appreciate the art,” said Josh Zamir, the managing principal of Capstone Equities. “We want them to know that there is an owner in the building that is paying attention.”

Brokers say that the former owners had considered converting the building to condominium apartments, but the new owners scrapped those plans.

About 300,000 square feet of the building was vacant when Carlyle and Capstone bought it. Much of that space was on the second through the fifth floors, which Bankers Trust vacated some years earlier. About $10 million of the renovation budget will be spent in fitting out 130,000 square feet of prebuilt offices on those floors. The new owners have leased about 50,000 square feet so far, much of that to smaller companies in media, advertising and law.

Then there is the 31st-floor penthouse. The financier J. P. Morgan kept a private apartment there in the early part of the last century, and it later served as a restaurant. While the floor plates on the lower levels are around 40,000 square feet, the penthouse is 6,700 square feet. The new owners hope a small hedge fund or private equity firm will rent it for the panoramic views of the Statue of Liberty and the Verrazano-Narrows Bridge.

Mr. Zamir said the rents for the prebuilt offices at the base of the building are in the mid to high $40s; they are above $60 a square foot for the penthouse. He also said he expected local rents to rise. “There is really no new significant office supply until 2011 or 2012, and so much of downtown is being converted to residential that that takes a significant amount of supply out of the equation,” Mr. Zamir said.

Mr. Fiddle of CB Richard Ellis agrees that office rents are likely to rise downtown. In fact, he says, there is an unusually wide gap between rents in Midtown and downtown.


Friday, December 28, 2007

Architecture: Cornices Extend Buildings to the Heavens 

Cornices Extend Buildings to the Heavens - December 27, 2007 - The New York Sun

An interesting primer on the cornice, an important but often overlooked piece of architecture.

Architects have long pondered how best to signify that their building has stopped its penetration into the heavens, and the most popular means they have employed is the cornice, a protruding element that overhangs the building's façade. This element is usually not too tall, so as not to seem ungainly, and not too deep, so as not to appear too dangerous or cast too large a shadow. Cornices, like most architectural elements, come in a variety of shapes and designs, but most are quite detailed and complex and often are the most decorative element of a building's exterior.

Many are elegant and impressive, like the one found atop the Metropolitan Club on the northeast corner of Fifth Avenue at 60th Street, or the Verona apartment building, designed in 1908 by William Mowbray, at 32 E. 64th St., shown at right. Other cornices are quite minimal.

While cornices were popular in pre-war residential architecture, they are much rarer in new buildings, although Annabelle Selldorf's design for the building under construction at 200 Eleventh Ave., best known for the "garage" rooms in many of the apartments, features an interesting, curved cornice interpretation. The center of the top of the façade at the A Building at 425 E. 13th St., designed by Cetra/Ruddy and now nearing completion, has another cornice variation, a perforated overhang.


Commercial Real Estate 'Rules' Changed in 2007 - December 27, 2007 - The New York Sun 

Commercial Real Estate 'Rules' Changed in 2007 - December 27, 2007 - The New York Sun

Michael Stoler gives his take on the unforgettable and not-to-be-missed year that was 2007, for commercial real estate.

For owners, operators, and developers of commercial real estate, 2007 will be remembered for the serious changes that have taken place in "the rules of the game."

The turmoil in the credit markets resulted in a decrease in transactions in the fourth quarter and gave further credence to the expression "cash is king" when purchasing an asset. In addition, the market started to reward "relationship banking," and investors who failed to maintain excellent relationships with their investment bankers and balance sheet lenders had few places to go to secure financing.

Over the course of the holiday season, members of the real estate community banded together to commiserate on the turbulent year past and discuss what could be the next industry phenomenon: that real estate investors increasingly will seek to raise their own real estate investment funds.

A number of successful real estate investors were fortunate during the last year of discontent to have public and corporate retirement funds, foreign investors, and high net worth individuals commit to provide funding for both funds and joint ventures.


As we enter 2008, expect real estate investors to look for opportunities to reach out to institutional institutions to fund real estate investment funds and joint venture opportunities.


Friday, October 26, 2007


MGM Plans Casino Resort to Rival Best of Las Vegas - New York Times

Atlantic City, less attractive cousin to Las Vegas, has been terrible in increasing tourism and cash revenue. The casinos and hotels are old and out-of-date. The only saving grace for "AC" is that it lies in the middle of the megalopolis formed by the Washington-Baltimore-Philadelphia-New York-Boston corridor. Atlantic City has squandered many chances to be a major destination choice for millions of domestic and international travelers.

An otherwise dismal year for the Atlantic City casino industry turned a bit brighter yesterday when MGM Mirage, the gambling giant, announced plans to build a huge resort hotel that would rank among the most expensive casino projects in history.

The casino hotel, to be called the MGM Grand Atlantic City, will cost $4.5 billion to $5 billion, according to the company. In Las Vegas, the current record holder is Wynn Las Vegas, which cost $2.7 billion and opened in 2005, though there are several casino hotel projects on the drawing boards in the $4 billion to $5 billion range.

The MGM announcement comes at a time of declining gambling revenue as Atlantic City faces increased competition from slot parlors that have recently opened in Pennsylvania and New York. Through the first nine months of 2007, the city’s casinos won a combined $3.8 billion, a 5 percent drop compared with figures in the period a year earlier, according to the New Jersey Casino Control Commission.

“What this says is that, like us, MGM sees this decline as a temporary phenomenon,” said Michael Pollock, publisher of The Gaming Industry Observer, a trade journal based in Atlantic City. “What they’re saying with this proposal is that they see the long-term growth potential for Atlantic City as very real.”

Gordon Absher, an MGM spokesman, said the company did not look at the overall performance of Atlantic City’s 11 casinos but instead focused on the experience of a single property: the Borgata, the first billion-dollar casino in a market that still ranks as the second-largest in the United States.

Despite new competition from nearby markets, at the Borgata, which opened in 2003, revenue from slot machines and table games has risen modestly in the first nine months of 2007. MGM owns 50 percent of the Borgata.

“The Borgata has changed the paradigm for Atlantic City,” Mr. Absher said. “The Borgata shows that if you provide people with the right product, Atlantic City can attract the customer who has an appetite for the Las Vegas experience but doesn’t want to fly across the country to have that experience.”

The project, expected to be completed by 2012, includes three distinct hotel towers. One is expected to have a “more contemporary feel,” Mr. Absher said, while a second will be more upscale. A third, he said, will be an all-suites tower “for high rollers or those who are willing to pay to be treated like high rollers.”

The property will also include a 1,500-seat theater, a spa, a convention center and up to 500,000 square feet of retail space.


Sunday, October 21, 2007


Breakfast on Wall St., Anyone? - New York Times

Tiffany is trying to forge a sleek, younger brand to keep up in the competitive luxury goods market.

This isn't your grandmother's Tiffany...

WHEN it opened a store this month at 37 Wall Street in the financial district of Manhattan, Tiffany & Company was coming back to the old neighborhood. It was just around the corner, on Broadway, that the luxury jeweler was founded in 1837 by Charles Lewis Tiffany and a partner.

The new branch is housed in the former Trust Company of America bank, a 25-story structure built in 1907; the choice of the historic building was a nod to Tiffany’s roots in the area. But within the marble-clad interior, the architect George Yabu, a principal of the Yabu Pushelberg firm based in Toronto, has created a shimmering contemporary emporium that is a departure from other Tiffany stores.

The goal was to appeal to younger, wealthier customers moving into new residential units below Chambers Street and the area’s growing number of well-heeled tourists, according to Mr. Yabu.

“It needed to make some noise that it was down there in this new neighborhood and that we have all this high-quality stuff but we are also kind of cool and hip,” said Mr. Yabu, whose company also renovated the second floor of the Tiffany flagship at 57th Street and Fifth Avenue six years ago and designed the W hotel in Times Square. “It needed a little more spark,” he said.

Tiffany’s in-house designers and Yabu Pushelberg decided that a modern approach was best, with sleek glass fixtures and accessories that would highlight Tiffany’s diamonds, fine jewelry and gifts without obscuring the decorative details of the interior. Tiffany was prohibited from making major structural changes to the Beaux-Arts-style ground floor and mezzanine of the 11,000-square-foot interior of the building, which is recognized for its architectural significance by the New York State Historic Preservation Office.


Thursday, October 18, 2007


Where $9 Makes Buyers Real Estate Tycoons - October 18, 2007 - The New York Sun

This computer game is "Monopoly on steroids." Players can buy actual, real world properties for just a few bucks.

For those familiar with the idea of such Internet domains, Weblo may seem similar to Second Life, which opened in 2003 and boasts 10 million users operating in a multimillion-dollar virtual economy. Weblo's cofounder and chief executive, Rocky Mirza, is adamant that his site is different because Weblo is a copy of the real world, whereas users build the Second Life world themselves.

"Everything you buy here already exists in the real world," he said.

Described as "Monopoly on steroids," Weblo has accumulated about 60,000 users since its launch in December 2006. Players such as Mr. Outcalt make money by having other players click on the advertisements that are featured on their property pages, and by selling their assets for a profit. The Web site receives 5% of each sales transaction and makes a profit through membership fees and money stemming from the initial sales of copy assets. The price of a copy property is based on factors including the Internet usage rate in the area the real asset is located, and the number of Weblo users viewing the virtual asset page.



Drop in Building Permits Seen As Sign of Real Estate Turmoil - October 18, 2007 - The New York Sun

There has been a steep decline in the number of building permits for New York's outer boroughs but Manhattan's numbers remain strong.

There were 1,187 permits filed in the third quarter. The last time numbers were this poor was in the first quarter of 2004, when 1,144 permits were recorded. And the last time a third quarter posted similar numbers was in 2001, when 1,054 permits were filed.

"That is a meaningful drop," the executive vice president of Radar Logic, Jonathan Miller said.

While Manhattan's numbers remained robust, with 53 new building permits, the highest figure since the second quarter of 2001, the other boroughs posted poor results. Brooklyn had 280 permits in the third quarter, second only to the first quarter of 2002, when 180 new building permits were recorded. Queens was also a poor performer, with 485 permits this quarter, comparable to the first quarter of 2005, when 480 permits were recorded.

"The marginal areas have problems first," the managing director for developments at Prudential Douglas Elliman, Andrew Gerringer, said. "There's a lot of confluencing of events right now that is making this market very interesting."

The credit markets are stymieing development, with builders having to put down as much as 30% of the cost of a new building instead of the 10% to 15% that was possible before the subprime market collapse, a partner at Massey Knakal, James Nelson, said.


Wednesday, October 17, 2007


A Third Act for Philadelphia’s Avenue of the Arts - New York Times

With fits and starts, the city of Philadelphia is trying to get right with a cohesive center for its artistic institutions that are neighbored with commercial and residential properties.

It is this kind of innovative thinking that can save long neglected urban centers. Mixed-use development is the best way to revitalize decrepit urban areas.

The first phase cultivated live performing arts; the second phase focused on attracting supporting commercial and retail tenants; and now the third movement: new residential development, much of it directly linked to the arts.

The Avenue of the Arts designation originally applied to the section of South Broad Street stretching from City Hall to Washington Avenue, but it was later expanded to include part of North Broad Street.

Symphony House, still under construction but partly occupied and 80 percent sold, is a 31-story condominium building on the Avenue of the Arts at Broad and Pine Streets. The tower will have ground-level retailing, including a high-end grocery store. In addition, it houses the 350-seat Suzanne Roberts Theater, built for the Philadelphia Theater Company.

While this is the first ground-up condo project to open on the Avenue of the Arts, it will not be a solo performance for long.

A contemporary midrise building at South and Broad, 1352 Lofts, is now partly occupied. There is also a three-phase project being constructed called the Artisan, which will have 30 new contemporary town houses. And the City Council recently approved a major mixed-use project at the southern gateway of the Avenue of the Arts at Broad and Washington; it is to have 860 rentals and condominiums, 30 to 50 stores, and 1,500 parking spaces on about 5.5 acres.

In the not-too-distant future, the developer of Symphony House, Carl E. Dranoff, and a Philadelphia soul music pioneer, Ken Gamble, will announce details of the National Center for Rhythm and Blues, a $250 million 60,000-square-foot museum of Philadelphia’s musical heritage; the project includes studios, offices and retail spaces made financially feasible by two high-rise residential towers.

“Four years ago, when Symphony House was approved by the city, despite all the amenities along the Avenue of the Arts, it was not seen as a residential area,” said Mr. Dranoff, president of Dranoff Properties. “It has become a 24-hour district.”


Sunday, October 14, 2007


A Global View Helps Industrial REITs - New York Times

Industrial REITs are overlooked but, right now, have the best returns on investment. Because of long term lease agreements, industrial real estate should hold up well if the economy makes a downturn. But, the focus on industrial real estate is headed overseas - especially to Europe.

WAREHOUSES and distribution centers, often tucked away in far-flung industrial parks or ports, hardly seem as glamorous as the trophy office buildings or splashy apartment complexes and hotels that private equity firms have been clamoring to acquire.

In fact, of the roughly $65 billion in mergers and acquisitions this year involving real estate investment trusts, companies with portfolios of property, only one transaction involved a REIT from the industrial sector, according to SNL Financial, a research company. And that deal was valued at a mere $90.2 million.

But investors in the REITs that develop or own these industrial spaces have been reaping attractive rewards just the same.

In the third quarter, industrial REITs were first among all REIT sectors, with an average return of 13 percent, according to the National Association of Real Estate Investment Trusts; from the beginning of this year through Thursday, the sector was up nearly 14 percent, on average. By contrast, property REITs over all posted a 2.59 percent return, on average, in the quarter and a 1 percent return this year through Thursday, the association said.

Favorable economic conditions have certainly helped, with rising industrial production and job and corporate earnings growth buttressing demand for industrial properties nationwide. Average occupancy rates are now in the low- to mid-90-percent range, up from the high 80’s range just three years ago, according to Christopher Haley, a managing director of Wachovia Securities.


Wednesday, October 10, 2007


Once Reluctant, Retailers Now Rush to Hawaii - New York Times

Many people are surprised to hear how expensive it is to do business in Hawaii. The state's economy has never prospered and has relied too much on tourism. There is now hope for the state when it comes to retail and commercial real estate development.

Hawaii now has some 30 million square feet of retail development. Another 4.5 million square feet is either planned or already under construction statewide. Oahu, the most heavily populated island, accounts for only about half of that development, or some 2.3 million square feet.

For years, large mainland-based retailers tended to steer clear of the islands that make up the state of Hawaii because of the extremely high costs of buying land and shipping goods, as well as a tight supply of construction workers and retail employees.

But in the last four years, a wave of retail development has washed over Hawaii, as the state has experienced a post-2001 rebound in tourism and growing optimism among residents, as job growth has been strong and home prices in many areas have roughly doubled since 2003.

As a result, they say, while Hawaii already had a number of familiar big-box retail chains like Best Buy, Wal-Mart, Costco and Home Depot, it has recently drawn attention from several national retailers trying to enter the market for the first time.

“National retailers have seen many of their competitors who have entered the market do the highest numbers of any of their stores, and that has changed their thinking,” said Molly Mosher-Cates, the principal broker and owner of the Sperry Van Ness/MC Realty Advisors office in Kailua, a mostly residential town on the eastern side of Oahu.

The newcomers to Hawaii include Target, which plans to open two large stores by 2009; Nordstrom, which plans to open a larger-than-average store in Honolulu next spring; and Whole Foods, which plans to open four stores in Hawaii in the next three years, although plans for its first store, on Oahu, were stalled by the discovery of an ancient Hawaiian burial ground on the site.

Walgreens plans eventually to open 25 to 30 stores in Hawaii as part of its effort to compete with Longs Drugs, the dominant drugstore in the state. At Petco, the San Diego-based pet products retailer, a spokesman said his company was also looking for possible store sites in Hawaii.

Mike Y. Hamasu, the consulting and research director for the Honolulu office of Colliers Monroe Friedlander, a large real estate brokerage firm, estimated Hawaii now has some 30 million square feet of retail development. Another 4.5 million square feet is either planned or already under construction statewide. Oahu, the most heavily populated island, accounts for only about half of that development, or some 2.3 million square feet.


Sunday, October 07, 2007


From Empty Lots to Bustling Waterfront - New York Times

A photographic rendering of the planned Fan Pier project (in the foreground left, with the Boston skyline in the background).

South Boston has had its share of ups and downs - mostly downs - over the last few years. But, now there is hope that a long neglected, and inscrutable, area can finally turn the corner.

Since 2000, more than 8 million square feet has been developed in the area, and an additional 20 million is under construction, approved or proposed, according to the Boston Redevelopment Authority, the city’s planning and economic development agency.

ON an empty stretch along the South Boston waterfront, hundreds of guests and dignitaries gathered in late September to celebrate the groundbreaking for Fan Pier, a 21-acre, $3 billion mixed-use development. If you squinted just right, you could almost imagine a vibrant neighborhood of parks, residences, hotels, office buildings and shops rising from the barren landscape there.

For those who have long envisioned a revitalized Seaport District, as the area is known, the groundbreaking marked the end of a decades-long saga filled with almost as many dashed hopes as there have been in Fenway Park across town.

The area — roughly 1,000 acres of waterfront property across the Fort Point Channel from Boston’s financial district — served as rail yards for Boston’s working port until about 1955, when heavy industry there dried up. After that, the land was used mostly for parking lots, which have passed through the hands of prominent businessmen including Nicholas Pritzker, the chairman of the Hyatt Development Corporation; Frank H. McCourt Jr., the owner of the Los Angeles Dodgers; and Rupert Murdoch, the chairman of the News Corporation.

As market conditions waxed and waned, this prime waterfront real estate sat untouched, earning it the reputation as the most scenic parking lot in Boston. “A lot of folks had hopes for 25 years,” said Thomas M. Menino, the mayor of Boston. With the start of construction of Fan Pier, he said, “that dream has become a reality.”

A confluence of factors has created a more favorable environment for developers. Access to the area has improved with the new Ted Williams Tunnel connecting the Seaport District to Logan International Airport across the harbor, the extension of the Massachusetts Turnpike and the Massachusetts Bay Transportation Authority’s new electric bus line, the Silver Line.

Other high-profile developments have brought visitors and a sense of excitement to the area. The Institute of Contemporary Art, the cantilevered glass museum designed by Diller Scofidio & Renfro, opened last December on the Fan Pier property, and the Boston Convention and Exhibition Center has been drawing thousands of conventioneers since it opened in 2004.

Fan Pier, a curved stretch of land and piers between the Moakley United States Courthouse and the Institute of Contemporary Art, will eventually include three office buildings, a luxury hotel, more than a million square feet of residential buildings, more than 300,000 square feet of street-level retail and restaurant space, a six-acre deep-water marina and four and a half acres of public park.

It is just one of several development projects planned or under consideration in the Seaport District. Since 2000, more than 8 million square feet has been developed in the area, and an additional 20 million is under construction, approved or proposed, according to the Boston Redevelopment Authority, the city’s planning and economic development agency.


Wednesday, October 03, 2007


Office Landlords Continue to Raise Rents Even as Flipping Slows - New York Times

In Chicago, Tishman Speyer flipped 101 North Wacker Drive as part of its deal with the Blackstone Group.

The flipping craze has slowed down, considerably. So, how to continue maximizing as much revenue as possible? By raising rent. After all, owners now stuck with properties they hoped to sell have to find a way to cover debt service.

In Chicago, for example, rents usually do not budge much. Since February, however, when Blackstone bought Equity Office for $39 billion, asking rents for prime office buildings downtown have spiked, causing sticker shock for tenants whose leases are expiring in the next year or two. In August, Blackstone sold six downtown Chicago buildings from the Equity Office portfolio to Tishman Speyer, the New York real estate company, for about $1.72 billion.

When Equity Office owned the 40-story tower at 30 South Wacker Drive, the asking annual net rent (without electricity and other operating costs) was $17 a square foot, said Joseph Learner, an executive vice president at Studley, a brokerage that represents tenants. “When Blackstone came in, they jumped the price to $25 net,” he said. “Now, Tishman Speyer wants $28.” (Tishman Speyer executives declined to comment.)

The recent rent increases — a phenomenon that some real estate specialists have labeled the Blackstone effect — are not limited to Chicago. Nor was the trend limited to the Blackstone-Equity Office merger and its aftermath, in which Blackstone sold 253 buildings in the Equity Office portfolio for a total of $27 billion, according to CoStar Group, a research company in Bethesda, Md. Some of these buildings were flipped again by the new buyers.

In the first six months of this year, more than half the office buildings that sold for $5 million or more nationwide had been held for less than two years, according to Real Capital Analytics, a New York research company.

As prices escalated, the capitalization rate — the initial rate of return on the buildings — declined, sometimes to levels of only 5 percent or less.

Lenders were often willing to finance 95 percent or more of the purchase in the expectation that far more rent could be wrung out of the space, once existing leases expired. Commercial loans are pooled and sliced into bonds carrying different levels of risk. But these bonds have recently become a tougher sell.

Since most deals were heavily leveraged, many owners are now left with debt service that is not covered by the building’s cash flow. And owners who counted on being able to flip their buildings for a higher price can no longer do so. In recent weeks, building values nationwide have dropped 5 to 10 percent, according to Green Street Advisors, a research firm in Newport Beach, Calif.

Therefore, landlords “have to increase their net operating income — but pretty quickly,” said Kevin Brennan, an executive vice president for Studley in San Francisco.


Sunday, September 09, 2007


Midtown’s Biggest Fans May Be Foreign Buyers - New York Times

An Israeli-led group paid $648 million for a 70 percent stake in the Lipstick Building, at 885 Third Avenue.

Foreign investors, emboldened by the cheap dollar, are gobbling up Manhattan real estate. They are different investors in many ways. They prefer to be conservative, laying down more cash and taking on less debt. They invest for the long term.

“The global capital markets are flush with strong currency buyers who see our shores as a relative bargain,” said Douglas Harmon, the senior managing director at Eastdil Secured, a real estate investment bank based in New York.

Foreign investors, according to Mr. Harmon and others in the industry, are generally more conservative in their financing, putting up more cash and relying less on debt. They also tend to be longer-term investors. By contrast, big domestic buyers, including the Blackstone Group, Tishman Speyer and Harry Macklowe, have used heavy levels of debt — up to 95 percent of the purchase price, in some cases — and relied on a steep increase in real estate prices and rents to justify the deals.

Foreign investment has picked up sharply. In May, there was the $1.18 billion sale of the Deutsche Bank building at 60 Wall Street to the Paramount Group of Germany.

In June, the Italian real estate investor Luigi Zunino made a foray into the New York market with the purchase of 660 Madison Avenue, the stylish office tower atop Barneys New York, for $375 million. At $1,488 a square foot, according to Mr. Harmon, it set a record for Manhattan commercial real estate. The deal, which closed on Aug. 30, was leveraged at a more modest 70 percent, with Deutsche Bank providing the financing, according to Mr. Harmon, who was the exclusive adviser for the transaction. That record was broken just four weeks later, when Somerset Partners, backed by European investors, paid $510 million — or just under $1,600 a square foot — for a 33-story office tower at 450 Park Avenue, according to Mr. Harmon, who also advised that deal. Somerset Partners assumed an existing commercial mortgage-backed security loan of $175 million, and used its own equity for the balance.

Israeli investors were also active. An Israeli-led investor group paid $648 million for a 70 percent stake in the Lipstick Building, Philip Johnson’s landmark at 885 Third Avenue near 53rd Street. And Africa Israel USA, a subsidiary of an Israel-based international holding and investment company, bought the former headquarters of The New York Times Company on West 43rd Street from Tishman Speyer for $525 million, three times the $175 million that Tishman Speyer paid in November 2004. Africa Israel also bought the Clock Tower building in Madison Square Park for $200 million and a portion of the Apthorp Apartments on the Upper West Side for $426 million.

In late August, the Dubai investment company Istithmar beat out the Fast Retailing Company, the Asian apparel retailer, with a $942.3 million bid for Barneys New York, being sold by Jones New York.

All told, there were 46 transactions totaling $5.27 billion by foreign buyers of commercial real estate in Manhattan through August, up from 28 for all of 2006, according to Real Capital Analytics in New York. “The global economic expansion is creating a tremendous amount of surplus capital,” said Dan Fasulo, a managing director of Real Capital Analytics, which tracks real estate deals. Much of that capital, he said, “wants and needs to be here.”


Sunday, September 02, 2007


Party Central, for a Richer Crowd - New York Times

The new owner of Las Vegas' Hard Rock Hotel is going to try attract an upscale crowd while still retaining the property's hard-partying reputation.

THE Hard Rock Hotel and Casino in Las Vegas is undergoing a $750 million renovation and expansion and is expected to emerge with its party image intact but with a broader — and more upscale — clientele, according to its new owners.

The Hard Rock was bought by the Morgans Hotel Group in February for $770 million with an equity partner; it is the first project undertaken by the company without the guiding hand of Ian Schrager.
“It’s a somewhat unusual purchase for our company,” said W. Edward Scheetz, who has been president and chief executive of the Morgans Hotel Group since 2005. “But we saw a huge opportunity to take what was there, and do a little better job with it, expand and upgrade it to appeal to a broader audience. It hasn’t been reinvented over the years.”

The job of reinventing such a strongly branded hotel and casino has been given to Mark Zeff, founder and president of Zeff Design, an architecture, design and branding firm based in New York.

The project involves not only renovating existing spaces, but also adding two towers, for a total of 1,100 rooms.

Also planned are a new concert space, pool, spa and gambling area; additional restaurants and retail space; and new meeting and convention space that will cater to business conferences for the music and media industries. The projected completion date is mid-2009.

“We’re taking the Hard Rock up a notch,” said Matt Armstrong, senior vice president for business development for Morgans in Las Vegas, who is overseeing not just the Hard Rock but also two other projects that Morgans has in the works in a joint venture with the Boyd Gaming Corporation. “At the Hard Rock, we’re looking to attract somebody today who goes to the Wynn or Bellagio but who is looking for a hipper, edgier experience”

The challenge, according to Mr. Zeff, is broadening the clientele without alienating Hard Rock loyalists. To that end, one of the two new towers will have a separate entrance with its own European-style pool (in other words, topless) and spa (to be designed in conjunction with Amy Sacco, a nightclub entrepreneur in New York), and a handful of 2,000-square-foot deluxe suites, to be designed by celebrities or with an individualized theme.

“People in the rock world or who aspire to be in that environment are not thinking about Pete Townshend’s guitar,” Mr. Zeff said, referring to the memorabilia for which the Hard Rock is known. “They’re thinking about a Vegas rock-star lifestyle.”

And while Mr. Zeff’s mission is to capture a more upscale crowd, it has to be achieved without losing that rock-star edge.


Sunday, August 19, 2007


The Paths to Enhancing Commercial Property - New York Times

Yes, commercial real estate is doing well compared to the residential market. But, are you doing all that you can to enhance your commerical property?

I. Raise Rents
II. Synergize Tenants
III. Supersize Parking
IV. Change Zoning
V. Get Easements
VI. Change Names
VII. Reconfigure Space
IX. Modernize

“Just walk around the property and look not only at the structure but the land,” said John T. Reed, the publisher of Real Estate Investor’s Monthly, a newsletter. “Is there any empty space that could be rented, or space that could be rented for a more high-value purpose? I can walk around an apartment complex and come up with a million ideas.”

As they are with homes, cosmetic changes are often a first step in increasing the value of a commercial property. A coat of paint, some professional landscaping and a few new awnings can go a long way in helping to draw interest in a building. So, too, can adding small amenities, like, say, a playground in an apartment complex, or even adding cable television or Internet service.

But there are also less tangible strategies that could be tried: You could change your address — not by moving, mind you — or change zoning, for example, or even grant naming rights to your building.


Sunday, August 12, 2007


A Gehry Signature in the Napa Valley - New York Times

World famous architect Frank Gehry designed the Hall Winery in the Napa Valley. The entire project is not obtrusive and fits in perfectly with the landscape.

The winery is the latest — and by many measures, the most ambitious — addition to the Napa landscape, where showcase wineries have sprouted like vines since the construction of the Clos Pegase winery, designed by Michael Graves, in 1987. The Hall Winery is on Highway 29 near St. Helena, on the site of the former Napa Valley Wine Co-op, which, before Prohibition, turned out roughly 40 percent of the area’s wine, according to Craig Hall, the chairman of the Hall Financial Group, a private investment firm based in Dallas. Mr. Hall bought the winery in 2003 with his wife, Kathryn, who was ambassador to Austria for Presidents Bill Clinton and George W. Bush.

The project encompasses 120,000 square feet of space that will include modern wine production facilities and the restoration of an original stone winery building, built in 1885, that had been hidden by a large metal warehouse erected in the 1930s. The centerpiece of the design is a 10,000-square-foot tasting room made of glass, stone, plaster and wood, and topped by undulating trellises in Mr. Gehry’s signature style. The trellises will be made of wood or lightweight concrete to harmonize with the bucolic surroundings.

The winery buildings will also incorporate 40,000 square feet of solar panels and undertake other energy-efficient measures. The project — expected to be completed in 2010 at a cost of more than $100 million— will be built in three phases, allowing the Halls to continue to make their lush cabernet, merlot and sauvignon blanc using the existing facilities.

And rather than settle for a lesser-known architect for the new Hall Winery, the Halls set their sights on Mr. Gehry, whose famous designs include the Guggenheim Bilbao in Spain and the Walt Disney Concert Hall in Los Angeles. Through friends, they arranged for him to come to Napa in the fall of 2003. Upon viewing the sweeping vista of vineyards and mountains with his associate, Edwin Chan, Mr. Gehry agreed to a deal on the spot.

Capitalizing on the cachet of their famous designer, the Halls say they plan to make the winery a destination, where visitors could take one of several tours that will be offered of the winemaking facilities, the architecture and artwork. “This is what Napa is good at,” Mr. Hall said. “I think we can do that better than others.”

At the groundbreaking ceremony, Mr. Gehry, dressed in black, mingled with the assembled guests, which included Jerry Brown, California’s former governor and now its attorney general; Paul Pelosi Sr., an investment banker based in San Francisco and the husband of Nancy Pelosi, the House speaker; and the winemaker Robert Mondavi and his wife, Margrit, whose Mission-style winery in Napa was designed in the 1960s by Cliff May and was a pioneer among Napa wineries built after Prohibition.

“With the artful combination of the historic and the new, the natural and the human-made,” Mr. Gehry said, “it is our intention that the new Hall Winery will be an experience that is unique to and harmonious with the beauty of the Napa Valley.”

Mr. Hall, too, said he hoped that the winery would become an important addition to the Napa landscape, as well as a symbol of the area’s rise in the winemaking world.

“We have a chance to make a difference, to create something that will stand the test of time,” he said. The way a great wine does.


Tuesday, July 10, 2007

Building Up, Downtown - New York Times 

Building Up, Downtown - New York Times

The various small cities surrounding New York have big plans for residential and commercial real estate development. They include Yonkers and White Plains. The Ritz Carlton is even coming to White Plains. Yes, that's right, White Plains.

But Mr. Kaiser, who is based in Hoboken, where another industrial waterfront was transformed over the past 25 years into a gold coast thicket of high-rise towers, lofts, town houses and marinas, is only one of many developers now prowling the Yonkers waterfront and its sagging downtown. Whatever the fate of his proposal, projects worth $5 billion are in the pipeline in Yonkers, including as many as 17 high-rise residential towers planned for the city’s 4.5-mile-long waterfront.

“At the end of the day, you’ll look up and down the Hudson and all you’ll see are high rises,” said Louis R. Cappelli, another developer with big plans for Yonkers.

Young people and executives who have fled high-priced Manhattan for Yonkers can find apartments for half the price, with an urban ambience, waterfront views and a 20-minute train ride to Midtown. In what some residents regard as a sign of civilization akin to the day Starbucks opened in Jersey City, a chic restaurant, X20 Xaviars on the Hudson, opened last month on the Yonkers city pier, opposite the newly renovated train station.

To be sure, Yonkers is still four years or so behind New Rochelle, White Plains, Stamford, Conn., and other newly resurgent older suburbs and cities on the comeback trail. Luxury apartments are stacking up in ever taller towers in a thriving downtown White Plains, which looked like a ghost town after 5 p.m. as recently as 2001. And Stamford, where the mayor has promoted high-density residential development near the train station, is poised to become Connecticut’s largest city and a powerful financial center.

In New Jersey, the redevelopment of the factories, warehouses and rail yards that lined the Hudson County waterfront between Jersey City and Weehawken began in the 1970s. High-rise office towers started going up along the waterfront in the 1980s, slowed during a recession in the early ’90s, and then took off again a couple of years later as Manhattan surged. Now, development is seeping from the waterfront into downtown Jersey City, where residential towers are springing up. Rahway, to the south, is also getting its share of attention from developers, with projects like a 16-story hotel and luxury condominium building opposite the train station.

But it is the remarkable turnaround in Yonkers, New York’s fourth-largest city, that raises the question: Is there hope for still-down-on-their-luck cities like Paterson and Camden in New Jersey, Hempstead on Long Island and Bridgeport, Conn.?

Immigration is fueling the growth of many outlying cities and towns in the New York metropolitan region. Baby boomers are beginning to retire, and there is an increasing demand for young educated workers. Middle-age empty nesters and young adults have shown a new willingness to live in urban areas.


Thursday, June 28, 2007


A Rocky Start for British REITs - New York Times

Long popular in the United States, REITS are only now being created by legistlatures in the UK. They were met with much fanfare and high expecations.

But, the British REITs have disappointed investors, so far. What is happening and what is wrong?

I'm sure the prohibitively high tax rates are to blame. That is the bane of existence for British and European companies.

AFTER much fanfare, legislation creating real estate investment trusts in Britain, one of Europe’s biggest property markets, took effect on Jan. 1. Almost immediately, nine of the country’s largest real estate companies converted to REITs, while five others made the switch soon after and a handful more plan to follow suit by year-end.

In the months leading up to the big debut, expectations ran high, with the hope that Britain’s already-strong commercial real estate industry would further flourish. A REIT market, after all, could attract more investors globally and make it easier for the local companies to raise capital. (The corporate structure gives real estate investment trusts favorable tax treatment in exchange for disbursing most of their income to shareholders as dividends.)

But all of that enthusiasm has since turned into disappointment. British REITs are among the worst-performing real estate investments so far this year, according to industry analysts, with sinking share prices and dividends that are comparatively lower than those of their global peers.

“Here’s a U.K. REIT that says, ‘Buy me, I yield 2.5 percent,’ ” said Jeremy M. Anagnos, the co-chief investment officer of CB Richard Ellis Global Real Estate Securities. “But here you have a very astute property investment base, and they know what they could get elsewhere.”

The average dividend yield on REITs worldwide, in fact, is roughly 4 percent, versus around 2.5 percent for British REITs, according to Mr. Anagnos. In the United States, the dividend yield is around 4.3 percent, according to the National Association of Real Estate Investment Trusts.

Although some money managers are steering clear of the nascent British market for now, others say they are finding value in some of its shares. Many REITs now trade on the London Stock Exchange at deep discounts — from 5 to nearly 15 percent below net asset value, according to Eric N. Roseman, the president of ENR Asset Management in Montreal — perhaps making some of them ripe for takeovers. By contrast, most REITs globally tend to trade at a premium relative to the value of the properties they own, Mr. Roseman said.

During a visit to New York City early this month for REIT Week, an annual conference sponsored by the National Association of Real Estate Investment Trusts, Liz Peace, the chief executive of the British Property Federation, urged investors in the United States and elsewhere to be patient.

“The message,” she said, “is this: Don’t write off the British market; we’ve only been around for a few months.”

In recent years, Britain’s overall commercial real estate market has had a solid track record, with shares of real estate companies returning 33 percent, annualized, in the three years through 2006, and 48 percent last year alone, according to Ms. Peace, who attended the conference with a contingent of British REIT executives.

The president and chief executive of the American REIT association, Steven A. Wechsler, said that “to a large extent the market there had already factored in the conversion to REITs,” and he offered his own support. “I don’t think there is anything particularly important in terms of what happens in the first few months,” he said. “REITs are a long-term investment.”

Some managers of mutual funds — through which average investors in the United States can gain exposure to global property markets — say they think that it may take a while for Britain’s REIT market to gain its bearing, as it has for recently established REIT markets elsewhere.

“A few years ago, they never even heard of the ‘REIT’ term,” Mr. Anagnos said. Now, more than two dozen countries worldwide have public REIT markets or legislation in place or under consideration to create them.

“France has had four modifications of the REIT model in the last five or seven years,” said Samuel A. Lieber, the manager of the Alpine International Real Estate Equity fund, which has 11 percent of its holdings in British property companies.

In Britain, Mr. Lieber said, “it will take five years or more for companies to rebalance and orient themselves toward cash-flow generation as opposed to net asset value growth.”

It is that focus on asset growth, he and others have said, that is partly responsible for the low dividends. “British companies historically have not been focused on cash flow,” Mr. Lieber said. “REITs in general are excellent distributors of real estate cash flow.”

The British market has also been adversely affected by higher interest rates, Mr. Roseman said. He noted that last month, the Bank of England again raised its base rate, to 5.5 percent, to help keep inflation in check. “You don’t want to buy anything that’s interest-rate sensitive,” he said.


Tuesday, June 26, 2007


BEER-BELLY TOWER ON DIET | By STEVE CUOZZO | Business News | Financial | Business and Money

The new JPMorgan Chase building at the World Trade Center is notable for its large cantilever.

The architect is already having to defend his project from descriptions like "beer belly" "kangaroo" and "electric chair."

"The size of the cantilever is one of those things still being studied," Gene Kohn of the Kohn Pedersen Fox firm said of controversial images released last week.

But, he emphasized, it will still be a "cantilever of some dimension" and there's no alternative to designing the Liberty Street building immediately south of the World Trade Center site any other way.

Kohn took polite exception to my description last week of the protruding block of trading floors facing the 9/11 memorial as a "beer belly." (Readers likened it to a "kangaroo" or "electric chair.")

"Things like that have a way of sticking," he said.

I was referring to the project's ungainly shape, which Kohn acknowledges is "unusual." The tower will be 32,000 square feet at the base, swell to between 52,000 and 56,000 square feet from floors 12-16, and slim down above that.

The trading floors, starting at 190 feet above ground, will hover over a patch of land about two-thirds the size of a city block - an overhang like no other building in New York.

They also gesture ambiguously toward Ground Zero: Does the protrusion compatibly relate to the site's quartet of architecturally arresting towers, or does it fight them?

Kohn noted that, at 42 stories, the JPMorgan Chase tower is much smaller than the buildings inside Ground Zero, crowned by the Freedom Tower at 1776 feet. And he defended its "preliminary" design, pointing out that the rules of the game left him no choice.


Monday, June 25, 2007

Baby-Face Real Estate Brokers Multiply in City Firms - June 21, 2007 - The New York Sun 

Baby-Face Real Estate Brokers Multiply in City Firms - June 21, 2007 - The New York Sun

Enthusiastic newcomers to the real estate industry.

Andrew Barrocas knew he wanted to be a salesman after making $50,000 one summer at age 16, driving a Good Humor ice cream truck. A marketing major in college, he was looking for a different job once he realized he'd make the same income if he stuck with marketing. His brother suggested he try real estate, luring him with the promise of a six-figure income. Mr. Barrocas, now 28, knew it was just what he was looking for.

He got his license immediately after graduation and went to work, soon becoming a top salesman at Citi Habitats within his first year and branching off at age 26 to start his own sales and rental firm.

"Real estate was a route that I didn't have to wait in line in order to be successful. I was able to get as much as I wanted based on what I did and what I was capable of doing," Mr. Barrocas said.

The number of young people getting their real estate licenses is increasing, according to several brokerage firms and the city's largest licensing preparatory school. College graduates like Mr. Barrocas are attracted to the perks of real estate sales: a six-figure salary, flexible hours, and no formal supervisor. The state requires 45 hours of coursework, a licensing exam, and a sponsor, and then anyone can start making a commission.

Recent graduates who get their licenses — which cost $330 for the classes, course materials, and state exam fee — are sidestepping graduate school, avoiding more student loan debt, and earning more than they would in other jobs, the president of the New York Real Estate Institute, Richard A. Levine, said.


Thursday, June 21, 2007

The Cranes Are Back, and So Are the Tenants 

The Cranes Are Back, and So Are the Tenants - New York Times

The peaks and valleys of the commercial real estate industry are epitomized by what is going on in Bellevue, Washington.

Just as many people are learning hard lessons via residential investments, no one can ever expect a boom time to last forever. Bellevue has weathered the tough days and is now in a resurgent period.

Will people be more cautious next time? Are the sudden reappearance of cranes a clue that the cycle will only turn over again?

CONSTRUCTION cranes quickly disappeared from the skyline of this affluent city near Seattle, office vacancy rates shot up as high as 28 percent and developers postponed once-ambitious projects when the dot-com boom went bust six years ago. Bellevue had become a city where no developer seemed to want to be.

“Everything was too good to be true, and then reality came through,” said Kemper Freeman, the president and chief executive of Kemper Development, one of Bellevue’s largest land owners and developers.

But this city, whose fortunes rose and fell with those of the technology industry, has been staging a comeback.

Nowadays, a dozen or so construction cranes loom over work sites in Bellevue’s downtown. Some 2.2 million square feet of office space, some of it speculative, and more than 2,500 apartments and condominiums are under construction, according to the Bellevue Downtown Association, a nonprofit group. Projects like Mr. Kemper’s Lincoln Square, a 1.4-million-square-foot development with hotel rooms, condominiums, an office tower and a shopping mall, have been restarted and are near completion.

Already, companies are planning to move into Bellevue, which is about 10 miles east of Seattle and, in the 2000 census, had a population of almost 110,000. Microsoft is expanding its offices here, while Eddie Bauer has chosen the city for its new headquarters and Neiman Marcus is opening its first Pacific Northwest store here.

In the first quarter this year, office vacancy rates stood at 4.5 percent, among the lowest levels since 2000, according to a report released last month by Colliers International, a commercial real estate brokerage firm. The rate in Seattle, by comparison, was 9.3 percent in the first quarter.

Tom Woodworth, a senior investment director at Schnitzer West, a Bellevue developer, said he was not surprised by Bellevue’s rebound. “This is where the jobs are and where there’s developable land,” Mr. Woodworth said.

Schnitzer West had no tenants signed up last year when it began construction in downtown Bellevue on the Bravern, a 1.6 million-square-foot mixed-use complex with three floors of high-end retailers and 450 condominiums, and the Advanta Office Commons, three seven-story buildings east of downtown.

Local real estate brokers had privately questioned whether the company would be able to fill its space because of competing projects under construction. But Schnitzer proved the naysayers wrong in April, when Microsoft agreed to lease a total of 1.3 million square feet in the Bravern and Advanta.

The lease — the biggest in the region, according to local real estate brokers — made Microsoft the largest tenant downtown and gave Bellevue an added boost of confidence. Microsoft will start moving 4,000 new or existing employees into Advanta by year-end; it expects to move into the Bravern by the end of 2008.

Microsoft also has plans to take over 320,000 square feet in Lincoln Square, which is expected to be completed by this summer. Lou Gellos, a company spokesman, said Microsoft was halfway through an ambitious expansion program that will add a third more space, or 3.1 million square feet. The company has been running out of room at its crowded campus located nearby in Redmond.

Big leases have resurrected Bellevue’s office market before. Equity Office Properties Trust, which once controlled about a third of the city’s downtown office space, used cheap rents to attract Symetra Financial, a spinoff of Safeco Insurance, and drugstore.com to downtown Bellevue three years ago, a move that helped to kick-start the leasing market. Then Mr. Freeman persuaded Eddie Bauer to lease 200,000 square feet at Lincoln Square for its new headquarters. A building boom was born.

Investors are also pouring money into the city. This year, there were $2.6 billion in real estate transactions, versus $34 million six years ago, according to Real Capital Analytics, a real estate consulting company. Sales prices have soared, to an average of $376 a square foot this year from $146 in 2001. In Seattle, prices average $364 a square foot, according to Real Capital.


Monday, June 18, 2007

Coney Island Plan Is Scaled Back, but Critics Are Skeptical - New York Times 

Coney Island Plan Is Scaled Back, but Critics Are Skeptical - New York Times

A revitalization of Coney Island has been discussed for many years. For various reasons, attempts to "modernize" Coney Island have never come to fruition. One of the biggest obstacles to a Coney Island development has been opposition from local residents and community leaders.

This latest project seems to have come a lot further than its unlucky forbears. While the plan to remake Coney Island has undergone fits and starts this one looks to be the most promising. Coney Island has not weathered the test of time very well and is in desperate need of a facelift.

Hopefully, this project which harkens progress will be the kind of development that can restore glory to historic Coney Island.

The developer who wants to remake Coney Island’s amusement district has a new plan and says that you’re going to love it.

The developer Joseph J. Sitt’s $1.5 billion plan for Coney Island includes a pulsating amusement area and three hotels, with architecture that invokes the old Luna Park and Dreamland.

Joseph J. Sitt, who says his company has spent $120 million buying up land underneath and around the rides, said on Friday that he had “rolled over” in response to the criticism of his earlier plans for an entertainment and residential complex.

So the looming 40-story tower planned for the Boardwalk at Stillwell Avenue is gone. So are the hundreds of rental apartments and luxury condominiums in the old plan. The new proposal is less dense, he said, but has more of “the new, the edgy, and the outlandish” rides and attractions that America’s first resort was once known for.

“This is our way of showing the New York community that we’re responsive to what they want,” said Mr. Sitt, the founder and chief executive of Thor Equities, which buys and develops commercial, residential and retail properties nationwide. “Our design, in all its greatness, is a way of showing the world what Coney Island can be.”

Who could complain?


Robert Lieber, president of the city’s Economic Development Corporation, described Mr. Sitt’s new plan as a “wolf dressed up as a sheep.” Mr. Lieber, along with neighborhood leaders and other city officials, had expressed fears that residents of new apartment buildings would not fit comfortably with the noisy, all-hours amusement district that would be preserved between West Eighth Street and the Aquarium and the minor league baseball stadium at West 16th Street.

The new plan keeps the concept of a new glass-enclosed water park, but instead of apartments calls for three hotels, including more than 400 time-share units, along with restaurants, shops, movie theaters and high-tech arcades. The latest renderings depict a pulsating entertainment complex with an Elephant Colossus statue and architecture that evokes the old Luna Park and Dreamland amusement parks.

Mr. Lieber and others say that the time-share units look an awful lot like apartments and that the complex looks more like a mall than Coney Island.

“He came in last week and presented a plan that had essentially the same density, but dressed it up with hotels and time shares,” Mr. Lieber said on Friday. “The building heights still exceed the 271-foot Parachute Jump,” a Coney Island landmark. “And he’s looking for a huge subsidy from the city. North of $100 million.”

The city has been working with local residents and property owners for nearly three years on a master plan for what everyone agrees is a dowdy area. The idea, they say, is to preserve the democratic, open-air quality of Coney Island’s culture and amusement district on the south side of Surf Avenue, while allowing for high-rise residential and retail development set apart from the rides, on the north side of Surf.

The Economic Development Corporation, along with the City Planning Department and the Coney Island Development Corporation, have been devising a rezoning proposal for Coney Island that will go through a public review process later this year.

“The community and the Coney Island Development Corporation have all indicated that residential and amusements don’t go together,” said Chuck Reichenthal, district manager of Community Board 13.

But Mr. Sitt says he believes the changes being proposed are too restrictive and would undercut his ability to redevelop the area.


Sunday, June 17, 2007

A New, Taller Skyline Rises on Central Park North - June 14, 2007 - The New York Sun 

A New, Taller Skyline Rises on Central Park North - June 14, 2007 - The New York Sun

It's been long overdue that the northern side of Central Park be utilized for development. This new project should be a harbinger of good things to come.

A luxury building on Central Park's northernmost border is expected to open in September with 48 multi-million dollar units spread over 19 floors.

The blue-glass, L-shaped building, designed by architect Peter Schubert of Hillier Architecture, is a lightweight, modernist counterpoint to the heavy masonry feel of the rest of the neighborhood. The building, located at 111 Central Park North, is designed to maximize the view of a vast open park space stretching out before it.

"It's a location very few people have actually been to or seen," the executive director of development for the Athena Group, Gary Davis, said. "We are in the center of the park, and it's a magnificent view that no one has ever really had before."

The building, where units are selling for between $1.5 million and $8.5 million, features a private courtyard entrance on 110th Street and a 10,000-square-foot landscaped terrace overlooking the park.

"Urban buildings have a fundamental responsibility to the skyline," Mr. Schubert said. "Since we were facing the park we figured that we needed to have a very clear, distinct profile in the skyline."

The building's $8.5 million penthouse apartment was named this year's "ultimate bachelor pad" by Esquire magazine, but Mr. Davis said he hopes the two- and threebedroom units would attract families.


Saturday, June 16, 2007

Loans for Commercial Properties Jump 37% - June 7, 2007 - The New York Sun 

Loans for Commercial Properties Jump 37% - June 7, 2007 - The New York Sun

The Mortgage Bankers Association published some interesting news.

Loans to buy and refinance commercial properties jumped 37% by dollar volume in the first quarter as real estate investment trusts were privatized and office buildings were sold or refinanced, a quarterly survey by the Mortgage Bankers Association said.

Commercial loan originations for office properties, the largest sector, climbed 62%. New loans rose 64% for health care properties, 37% for hotels, 26% for apartment buildings, 25% for retail properties and 14% for industrial properties, the survey said.


Tuesday, June 05, 2007


Europe: Commercial Real Estate Sizzles

Despite a stagnant economy, inefficient governments, EU growing pains and rising ethnic tensions, western Europe does have a red-hot commercial real estate market.

The growing popularity of REITs are certainly helping matters.

While residential housing markets across Europe are starting to cool, commercial real estate is sizzling. IPD, a London-based research group, says the value of investment property in Western Europe—retail and office space, as well as big residential developments—rose 7.8% in 2006. Growth last year topped 20% in Ireland, and was over 10% in Britain, France, Spain, and Scandinavia. By contrast, the average increase across Europe was 5.9% in 2005, 3.6% in 2004, and less than 1% during the three preceding years.

What turned up the heat? Europe's recovering economy is one explanation. Growth in the euro zone was 2.8% in 2006 and is expected to hit 2.7% this year, ahead of a projected 2.1% in the U.S. Interest rates also remain near historic lows. "You can borrow at 3% to 5% and get a property that's yielding 6% to 10%" annual returns, says Sabina Kalyan, IPD's chief economist.

At the same time, money is pouring into Europe from big institutional investors and private-equity funds that are trying to diversify their holdings. Many of these players have set up special funds targeting European real estate that they are marketing to investors. Britain, Germany, and France all recently have enacted legislation allowing real estate investment trusts (REITs), which also makes it easier for investors to get into the market.

Until recently, there were relatively few vehicles for foreign investors wanting to get into the European property market, says Nick Tyrrell, head of European real estate research and strategy for J.P. Morgan (JPM) in London. But now, Tyrrell says, "There are a whole bunch of funds. The whole asset class has opened."

There's certainly no shortage of property to buy. To strengthen their balance sheets and concentrate on their core businesses, big European companies are selling off real estate as never before. German insurer Allianz (AZ) has unloaded some $4.1 billion worth of property this year, including the Frankfurt headquarters of the European Central Bank.

Often, activist shareholders are the instigators of such sell-offs. After taking a major stake in French hotel group Accor in 2005, for instance, U.S. real estate-investment group Colony Capital has pushed Accor to sell off more than $1 billion worth of hotels in sale-leaseback deals. Now Colony has teamed up with French luxury magnate Bernard Arnault to exert pressure on French retail giant Carrefour to trim its real estate portfolio (see BusinessWeek.com, 3/8/07, "Scent of a Bargain for European Tycoons").



Record Gasoline Price Impact on Commercial Real Estate - Analysis by Net Gain Real Estate

Further proof how the high price of oil trickles down to all aspects of the economy. This analysis says the commercial real estate industry is being affected by high gasoline prices.

According to a recent analysis by Net Gain Real Estate, record gasoline prices are bringing about significant change in the shopping and buying habits of the American consumer. The company says more and more consumers are not getting into their cars to shop and buy. All the anchors, national franchises, and independent lessees at the different retail centers have hedged their bets with their own Internet web sites. Consumers are finding that these web sites are becoming more reliable, are able to satisfy their needs, and they are using them at a progressively faster rate. The result of these changes will be weaker leases and lower cash flows at many retail properties.

Multi Housing

Multi housing communities will benefit from the record gasoline prices. The reason is that most multi housing communities were developed with excellent egress and ingress and are near major employment centers. Those that are close to public transportation will have an even greater advantage. Needless to say, those developers that bought cheap land in the hinterland will not see an advantage to the record gasoline prices.

Office Building

Office buildings have been going through an evolutionary change. Technological advances have eliminated many types of office positions. However, these same efficiencies have created sufficient growth to offset the loss of demand. Those office buildings that have participated in this offset and are located near public transportation and/or have minimal commute times will be a strong beneficiary of today’s record gasoline prices.


The higher cost of transportation has motivated many businesses to manage their inventories more efficiently. One method is to use more warehouse space by reducing the number of times they replenish their inventories. Warehouses and particularly modern and large ones that are well located in relation to major highways and railroads are going to play an important role in the efficiencies of today’s businesses.


Friday, June 01, 2007


REITs Pouring Investment Into Dense Urban Corners - May 31, 2007 - The New York Sun

Zoning changes and REITS are playing a vital role in ushering a residential and commercial boom in major urban centers like Brooklyn.

A residential boom is sparking commercial development in downtown Brooklyn, the head of zoning and land use at Herrick Feinstein LLP, Mark Levine, said. "The city helped set the stage for the redevelopment by a major upzoning passed by the City Council in 2004," he said.

One of the most active investors in the urban redevelopment of downtown Brooklyn, the Bronx, and Manhattan is Acadia Realty Trust. On February 23, the real estate investment trust announced that it has entered into an agreement for the purchase of the leasehold interest in the Gallery at Fulton Street and the adjacent parking garage in downtown Brooklyn for $120 million through its Fund II New York Urban-Infill Redevelopment initiative with P/A Associates and Paul Travis of Washington Square Partners. The fee position in the property is owned by the city of New York and the agreement includes an option to purchase this fee position at a later date. Acadia P/A-Travis is partnering with MacFarlane Partners, the leading national minority-owned real estate management firm.

Plans for the property include the demolition of the existing building and the development of a 1.6 million-square-foot mixed-use complex to be called the Center at Albee Square. The residential portion will include both moderateincome and market-rate rentals under the city's 80/20 affordable housing incentive program.

Acadia P/A-Travis, a majority partner, together with MacFarlane, will develop and operate the retail component, which is anticipated to total 535,000 square feet of prime shopping space. Acadia P/A-Travis will also participate in the development of the office component with MacFarlane, which is expected to include about 125,000 square feet of Class A office space. Together, they plan to develop 900,000 square feet in a new residential tower and operate about 1,000 residential units with underground parking.


Thursday, May 31, 2007


Minding the Store in a Condo - New York Times

The market for retail condominiums in Manhattan has skyrocketed in recent years. More than 560,000 square feet of retail condo space sold last year, a sharp increase from 28,000 square feet in 2003.

The popularity of 1031 Exchanges have led to the proliferation of retail condiminiums.

Retail condominiums work much like residential condos. Developers carve out retail space on the ground floor of a building and sell it to investors. The developers often lease the space out first, and the more compelling the tenant, the steeper the price they can ask of the buyer.

Over the last few years, the market for these properties has skyrocketed in Manhattan. More than 560,000 square feet of retail condo space sold last year for almost $650 million. That was a sharp increase from the 28,000 square feet that sold in 2003 for around $26 million, according to Real Capital Analytics, a New York real estate company that tracks deals worth at least $5 million.

Over the last two years, Manhattan represented 38 percent of the total square footage of retail condo space sold nationwide, and 65 percent of the dollar value, according to the company’s statistics.

While New York has the largest market for retail condos, they are also popular with investors in other densely built-up American cities like Chicago, San Francisco, Boston and Washington, said Dan Fasulo, the director of market analysis at Real Capital Analytics. “They’re the glamour cities, with global appeal,” he said.

Brokers say that in New York’s intense real estate market, developers are eager to assemble construction sites, even in neighborhoods not previously regarded as prime commercial areas. In the process, they are offering such high prices for smaller buildings that the owners cannot resist selling. And once they do sell, there are powerful tax incentives to plow the money back into real estate.

Mr. Cooney, for example, purchased the SoHo store with money he made selling four adjacent residential brownstones on the Upper East Side of Manhattan that had been divided into rental units.

Mr. Cooney, a restaurateur who immigrated from Ireland in 1968 and owns O’Casey’s at 22 East 41st Street, had purchased all four buildings for a total of $350,000 in the late 1970s. So when he sold them for $12 million in 2001, almost all of the proceeds would have been subject to capital gains taxes.

But he opted to do a 1031 exchange, which is named for a section of the federal tax code that allows real estate investors to avoid paying capital gains taxes if they quickly reinvest in real estate. The law gives them 45 days to identify the properties they would like to buy and 180 days in all from when they sold their original properties to close on the new ones.

Mr. Cooney used most of his windfall to buy two retail condos.

First, as part of his original agreement to sell the brownstones to the developer Sherwood Properties, he gained the right to pay $3.5 million to acquire a retail condo in the Metropolitan, the 30-story residential tower at 181 East 90th Street that was built on the brownstone site. A Chase bank branch has a 20-year lease in his condo.

He also paid $6.3 million to the Horizon Realty and Development Corporation for the store in SoHo, where the Museum of Modern Art already had a 10-year lease.


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