Tuesday, February 10, 2009

A Couple of Commercial Real Estate Anecdotes

Here's a quick follow up to my post yesterday about two former Harry Macklowe-owned office properties in Manhattan, the Worldwide Plaza and 1540 Broadway.  Apparently the deal between Fillmore Capital Partners (the holder of the mezzanine debt on the defaulted properties) and Deutsche Bank (the former holder of the senior debt and current owner of the properties) could not reach a deal.  The contract was expected to be signed yesterday, but for some reason the parties didn't finalize the deal.  According to the article in the Wall Street Journal, Deutsche Bank has been trying to sell the properties since early 2008 when Macklowe defaulted and handed over the buildings.  The bank supposedly had bids in hand above $2 billion when NBC Universal walked away from signing a lease in the Worldwide Plaza.  To quote the Journal "That discouraged potential buyers who calculate returns on investment based on how much cash buildings generate from rent collections."  I like that.  Potential buyers in 2008 and 2009 apparently like to calculate returns based on actual cash flows from the building.  Whereas commercial real estate investors prior to the credit crunch calculated returns based on imaginary ponzi fairies that visited them in their dreams.  This sort of explains why we have a credit crisis.

Calculated Risk reports, via the Boston Globe, that the John Hancock Tower in Boston will be auctioned off March 31st.  The Hancock Tower was part of the Broadway Partners 2006-2007 leveraged buying frenzy.  Broadway paid $1.3 billion for the building in 2006 and the current value of the building is estimated at between $700 and $900 million.  Something about cash flows and rent being related to valuation...I'll have to check my notes.  In any event, anyone interested in bidding on this one, give me a call.  I've been looking to acquire a trophy property or two, but I'm a little short on the cash.  If we rub a few cents of equity together, line up the financing from Deutsche Bank, then maybe Deutsche can just shovel it into the TALF, and it's a win for everyone.  Well, almost...

Then again, maybe we don't want to bid too soon.  After all, the carnage in the commercial real estate market is really just beginning.  A friend sent along a link to a great article in DealBook yesterday about the wreckage following Sam Zell's ingenious sale of Equity Office Properties to Blackstone Group for $39 billion in 2007 (aka "the top".)  Blackstone flipped hundreds of the buildings for $27 billion to several overeager buyers.  Many of the 16 companies that bought Equity Office buildings are now stuck with significant debt while the value of the assets are plummeting as they struggle to fill empty office space.  Harry Macklowe was just the first to blow-out.  Maybe I'll wait to make a move on that trophy property purchase after all...    



Mark Meyers said...

"imaginary ponzi fairies that visited them in their dreams."

That made me lol!


Commercial Millions said...

And I liked it so much I decided to social mark your post.

Thanks again,