Monday, June 15, 2009

$100 a square foot in Manhattan? Is that true, and, if so, is that the new market?

A couple of years ago, while trying to explain that my little local market was cheap, I told a friend that a large office building, 100% leased to a single credit tenant, and on a very good corner if redevelopment was necessary, sold for $100 a square foot. By contrast, I was just involved in a deal with a local medical office building costing and worth twice that.

CPN is reporting:

With rumors circulating of a sale price around $100 per square foot, the sale of the 66-story American International Group headquarters in Lower Manhattan likely set the bar for the biggest sale in the area market thus far in 2009.

Youngwoo & Associates (YWA), a New York-based investment and development firm, together with Kumho Investment Bank (Kumho), entered into an agreement to acquire the AIG building, 70 Pine Street (pictured), and an adjacent office building, 72 Wall Street. The two buildings will total 1.4 million rentable square feet in the heart of Manhattan's Financial District.
Okay. Let's assume the rumors are true. Now, this asset will require significant, if not complete re-leasing, which depresses the value since your income is, well, zero. I do not know the lower Manhattan market well anymore. But $100/sf? That's fire sale pricing in my humble opinion. Does it make a market? Beats me.

Another claim in the story is actually more interesting to me; namely, that there is a little thawing in the credit markets, especially in deals involving less than $100 million of $50 million. (I have always called these deals my sweet spot. I never liked big portfolio transactions and avoided them like the plague back in the day.) You mortgage guys out there would have to tell me about that and whether it is true.

UPDATE: Let's go to the other coast, where the WSJ is reporting the sale of a new office building in Irvine, California owned by Maguire Properties at a 40% discount to construction costs.


CountingSheep said...

In regard to that Maguire Building. It is interesting that you mentioned that one. I am using that as my yard stick for when this recession will be over. Everyday I drive by it on my way to work. I can see strait through most floors. I think the great recession, will be over when I can no longer see through it. Nothing new today as far as I could tell. But, it is fuller than it was in February.

CountingSheep said...

Oh, one more thing. It is going to be interesting to see what the St. Regis sells for next month when it goes on the auction block. The St. Regis Dana Point is where that AIG event was held that f*ed up the hospitality industry from the negative publicity surrounding that event.

David Stejkowski said...

Please let me know when you hear more about the St. Regis. That is a beautiful (and infamous, as you mentioned) place and if that one goes for a fire sale anything could.

CountingSheep said...

In regard to the St. Regis, I saw the below the other day. If Citigroup hosted their West Coast events at this hotel they may be on to something.

"A buyer of the St. Regis at auction would assume the hotel’s $230 million in senior debt, leaving many to ask who would take such a deal in today’s market, where hotels have lost half their value in the past two years.

But Citigroup isn’t looking to the auction to unload the hotel, according to a source familiar with the matter. Instead, it’s seeking to gain title of St. Regis and then take its time shopping the hotel, the source said.

Despite the hotel downturn, Citigroup still sees value in its investment and is trying to save it, according to the source.

The St. Regis is “an irreplaceable class of real estate” that still could fetch a price that salvages part or all of Citigroup’s investment, the source said.

Some hotel industry sources are skeptical. They estimate the St. Regis now to be worth $125 million to $150 million, or about half of what’s owed on the hotel.

But Citigroup could bide its time and hold the St. Regis as “a long-term play,” a hotel industry source said. It could try to sell the hotel a few years from now and possibly end up “winning” on the deal, the source said.

The St. Regis is something of a rarity as one of the last large coastal hotels to be built in the state. Finding seaside land and getting approvals to build a similar hotel elsewhere wouldn’t be easy, sources said.

If the St. Regis ends up going to auction, Citigroup could bid on it, essentially trading one asset—debt on the hotel—for another—the hotel itself."

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sales jobs said...

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