Many of the cities leading investment sales brokers are singing a new song this spring "Happy days are here again".
Cushman & Wakefield reported that investments sales in the first quarter volume amounted to $5.5 billon, more than doubling first quarter 2010 and sustaining the pace of the fourth quarter of 2010 when $5.6 billion of sales were transacted. Last year, $13.6 billion of commercial property traded hands, up form a low of $3.5 billion in 2009.
The majority of investment activity took place in Midtown where completed transaction totaled $4 billion, up from $1.7 billion through the first three months of 2010. In Midtown South, closed property sales totaled $1 billion, up nearly 100 percent from $514 completed at this time last year. Downtown registered the highest percentage increase for the quarter rising by 225 percent from $128 million for the quarter to $417 million in 2011.
Real estate investment trusts (REITs) and private equity funds lead all property acquisitions in Manhattan, accounting for a combined $3.7 billion of the transactions, or 68 percent of all investment. Foreign capital continued to be active, accounting for 14 percent of all sales, with pension funds and corporate uses accounting for 12.3 percent and 6.1 percent respectively.
For the nation, commercial property sales approached $22.7 billion in the first quarter, with volume up more than 50% year over year through February, similarly, offered volume was at its highest level since the third quarter 2008.
Distressed transactions continue to account for a sizeable portion of the deal flow in Manhattan representing more than 40% of total volume in first quarter of 2011.
A number of the properties which were capitalized were acquired during the height of the investment sales market of 2000 through 2008. Six of the seven largest office transactions that closed during the quarter were recapitalization of trophy quality building; the average pricing was $521 per square foot.
Select note sales, restructuring and recapitalizations in the first quarter included:
- Vornado Realty Trust acquired a 95% interest in the 924,501 square foot office tower at One Park Avenue, investing $137 million in cash along with a new $250 million mortgage, paying approximately $426 per square foot
- HNA Group recapitalization of the 396,800 square foot office tower at 1180 Avenue of the Americas for approximately $300 million or $756 per square foot.
- SL Green Realty Corp recapitalization of 1775 Broadway (aka 3 Columbus Circle). The recapitalization includes a $138 million equity investment by SL Green.
- CIM Group recapitalization of a 49% stake in the office property at 11 Madison Avenue at imputed property value of approximately $428 per square foot.
- CIM Group acquisition of 209 residential units in the William Beaver House condominium at 15 William Street for approximately $184.4 million, via the purchase of a distressed loan from iStar Financial
- Israel based financial services company Acro Group and Ziel Feldman's HFZ Capital acquisition of the defaulted construction mortgage on 40 Broad Street, the Setai Condominium, which was a conversion of the 34 story office tower into 162 unit luxury residential property for $80 million.
- Dune Capital acquired a $300 million mortgage secured by the 160 key Mark Hotel at 25 West 77th Street, which was slated for a partial residential conversion. Dune paid approximately $190 million for the note, equating to a 37% discount to face value.
- S.L Green Realty and Vornado Realty Trust announced that they contributed their respective debt position in the 1.237 million, class a office building at 280 Park Avenue to a newly formed 50/50 joint venture. The total contributed indebtedness amounts to $400 million. The press release noted that in order to true-up the respective positions in the transaction, Vornado paid SL Green $111 million and assumed $15 million of SL Green's debt applicable to its position.
The highest price paid per square foot for an office tower in the quarter was by Safra National Bank purchase of the office condominium interest on floors 9 through 23 of the office tower at 660 Madison Avenue in the Plaza District. They paid $285 million or $1,120 per square foot to the seller a joint venture of Gruppo Zunino and Sisanamento SpA.
Investors are bullish on residential buildings especially if the property Manhattan. Four major properties traded hands in Manhattan with unit prices ranging from $479,000 to $737,952 per residential apartment. These properties included 10 Hanover Square in lower Manhattan at a net price per apartment of approximately $479,000; note sale at 40 Broad Street by Anglo Irish Bank for $493,827 per unit; The Sagamore at 189 West 89th Street on the upper west side to The Related Companies for a price of $528,302 per unit. The highest price paid per residential unit was the sale of The Elektra in the Gramercy Park section of Manhattan, located at 290 Third Avenue for $737,952 per unit.
Sales pace for office properties continued in the month of April with two major notable sales. The Paramount Group one of the largest owners of office buildings in Manhattan purchased the remaining 49 percent stake of the 2.4 million, 48 story, office tower at 1633 Broadway from Morgan Stanley and Merrill Lynch. Industry leaders believe that the deal values the building at $2 billion or $833 per square foot.
Late last month, Fosterlane Management, the US based institutional real estate investment arm of the Kuwait Investment Authority, with assets of $295 billion, returned to Manhattan purchasing the office building at 750 Seventh Avenue for $485 million of $820 per square foot. The 36 story, 591,169 square foot office tower, built in 1990 was acquired in March 2000 by a partnership of Hines and General Motors Pension Fund who purchased the building from Morgan Stanley Dean Witter for approximately $150 million.
It was the height of the investment sales market in 2006, that Scott Rechler negotiated the sale of Reckson Associates Realty Corporation for approximately $6 billion including the assumption of Reckson's outstanding debt totaling approximately $2 billion.
Last year, Mr. Rechler's entity RXR Realty began acquiring commercial office properties in New York City. Their first acquisition was the 49% interest in the office tower at 340 Madison. This was followed in December of RXR Realty and a Canadian Pension Plan purchase of the office tower at 1330 Avenue of the Americas.
This April, RXR continued to seek investments in the Big Apple, with its payment of $900 million to a joint venture headed by Shorenstein Properties, for the 2.2 million square foot office building, known as the Starrett Leigh Building at 601 West 26th Street, paying about $409 per square foot. A few days later, the company announced that they entered into a contract to purchase a 40% stake in the 556,000 square foot office condominium at 1166 Sixth Avenue. The 1.6 million tower is divided into three office condos, and RXR is acquiring the condo section from 7 to the 21st floor which is leased to J.P. Morgan Chas and Marsh & McLennan.
Residential rental apartment buildings which are on the market for sale include the 192 unit rental portion of The Corner at 200 West 72nd Street. Industry leaders expect the unit price to fetch close to $1.2 million. On Park Avenue, the price for a residential unit might exceed $2.2 million per unit for the 20 story rental tower with a total of 108 units at 737 Park Avenue.
With pent up demand from local and foreign investors coupled with the availability of capital from banks, insurance companies and collateralized mortgage backed securities lending expect significant increase in the volume of investment sales in 2011.
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Best Regards,
Mr. James Famularo
Managing Director
NYCRS ®
25 Howard Street 2nd Floor
New York, NY 10013
T. 646.307.6455
C. 917.627.0111
F. 212.420.9437
E. jf@nycrs.com
