Some Solid Associate Advice via iBanking Oasis

This post by bankerella titled "Seven guerilla techniques I learned from third-year veterans" serves as a reminder to all who don't know any better - don't hate the playa, hate the game.

How to make sure nobody actually ever scrubs your numbers. This technique requires many boxes of tiny sticky flags, six colors of highlighter, several big black binders, bad handwriting, and a solid knowledge of the associate mentality. If you drop a truckload of hard-copy backup on their desk with several hundred sticky flags pointing every which way and color-coded handwritten notes that look like they're in Farsi, you really think they're gonna roll up their sleeves and start scrubbing? No. They'll trust you.

Friday Notes

Apollo takes Realogy Private in $9 Billion Deal (Globe St) - as the real estate news site first reported months ago, the merger is official and should be completed within 2 weeks.

CIT Filed $275mm IPO (Forbes / AP) - Care Investment Trust (NYSE: CIT) filed their IPO yesterday as a public REIT. CIT shares dipped...

Yanks (Lehman) Take Current American Real Estate Buying Aggression to Paris (NYO) - In the largest single-asset real estate transaction in European history, Lehman takes down Coeur Defense for $2.8 billion.

S&P Downgrades 6 Classes of Condo CMBS (CRE/IPG) - 6 classes of a Credit Suisse CMBS transaction were downgraded by S&P today (some significantly) as the condos, concentrated in Florida and New York, aren't selling as fast as hoped for. Surprising, given the high quality and track record of the developers and investors involved in the conversions mentioned.

Simon Almost Done with $7.9 Billion Mills Acquisition (also CRE/IPG) - According to the article linked, the deal should be complete "within days".

230 Park Sale [Finally] Hits the Papers

As I hinted in my first post and as I broke exclusively in this post, the "Crown Jewel of Park Avenue", 230 Park (The Helmsley Building), has been sold to Monday and Goldman for $1.15 billion.

True to the current NY trend, the price represents a 3.1% cap rate on the current NOI of $36 million.

Favorite Blog

The blog I like to read the most is active again. I clicked over there earlier and there were like 4 new posts after a couple weeks of nothing. Good stuff.

The All-Nighter

Edit: I went to CustomSouthParks.com and put together a South Park character based on myself the other day, but after thinking about it more, this is how I envision The All-Nighter.

550 West Monroe Smokin' Up

Apparently there's an equipment fire on the roof of Shorenstein's 500 W. Monroe property.

(via Drudge)

Video Link

Bull$hit, Pt. I

I understand I have to pay dues. I knew that going in years ago, even though I may not have known how steep the dues would be.

But there is nothing - not a thing that I can think of - in my life that pisses me off, causes me to bite through more pens, throw more legal pads, and pout like a little b!tch, more than working up model after model, book after book, for a deal that is nothing more than a figment of my imagination. Except maybe the Denny character in Gray's Anatomy that was finally, mercifully killed off.

Every monkey, associate, VP, or anyone under a "creative" MD has put up with the same $hit before. We're left with little choice but complain about it, pathetically, on our blog(s) that no one reads. Except the occasional stopper-by looking up something about this "black stone" they keep hearing about. That's right - I checked all 4 of my in-clicks from today.

So I'm spending the rest of the night trying to figure out how to a) procrastinate having to actually complete this BS; b) figure out how I can subliminally embed the letters F-U-C-K Y-O-U in the executive summary if I end up completing said project; and c) buy stock in SelectLeaders.com.

If anyone has any ideas, drop a comment. If you have any coffee meet me downstairs. My weekend was filled with work, and Mondays just don't feel like Mondays when you're going on 4 hours of sleep.

Another NY Trophy Office to Hit the Block

The Daily News reports that Tishman will put their Lipstick Building on the market via CBRE in the coming weeks. The article says they expect bids of nearly $600 million, which would be more than $1,000 psf for the 587,000 square foot tower.

The most interesting part is that the article actually used some real, factual data. That is, citing the annual NYC Class A office rental rate growth in 2006 was an astonishing 35%. And as of the end of February, 2007 growth seems to lag that pace, as year-to-date growth is about 4%. Still, NY rent growth is far ahead of the rest of the nation, as expected.

Many experts predicted an approximate 15% increase in rents city-wide for 2007, so it will be interesting to read of any revisions. I'm predicting 20% on the year.

(h/t The Real Estate)

WA State Investment Board

Add another pension fund to the growing list of those beginning to invest in and/or increasing allocations to real estate, as the Washington State Investment Board will place $800 million into new real estate investments this year. According to the linked IP article, the decision to expand these investments apparently came on the heels of their $200 million commitment to Morgan Stanley's Real Estate Special Solutions Fund III.

Washington State also made a $211.8m investment into Pacific Properties, SC. This was an entity level kind of commitment in a real estate operating company. Pacific Properties focuses on making investments on resort properties in the French Polynesia area of the world.



The other real estate investment made by the pension fund was a $400m investment for the Emerging Markets Fund-of-Funds, LLC. This entity will be making commitments to other commingled funds that have an investment strategy of placing capital into emerging markets around the world.

230 Park Avenue to Trade - Again!!

There's word on the street that The Helmsley Building at 230 Park Avenue will trade for at least $1.1 billion in April. A deal is rumored to have been struck with two buyers, a major I-Bank and the property's current manager, Monday Properties.

This marks the second time the "Crown Jewel of Park Avenue" has traded in the last 18 months, after this year's seller Isthimar bought it in Q3 2005 for $705 million. Word is that Monday wanted to buy it then (along with a host of other bidders), but the guys from the Middle East came in with their over-the-top price on the last bidding day. A year and $400 million more later, it looks like they finally have their building.

The current NOI is rumored to be somewhere around $35 million, resulting in a cap rate in the neighborhood of 3.2% (before closing costs and reserves).

Blackstone Files Prospectus for IPO

I just saw on DealBreaker that Blackstone has filed their prospectus for the IPO. I guess "where there's, smoke there's fire" rings true here. Haven't flipped through it yet at all.

Update, 4:40 PM: Here's hoping Dwight Cass finishes his analysis based on this, found in the prospectus, which Dealbreaker linked here:

No Golden Parachutes/CEO Compensation. We have no severance arrangements with any of our professionals. Accordingly, unlike in the case of many public companies, the departure of an executive officer or other senior managing director would not trigger any contractual obligation on our part to make any special payments to the departing professional. Moreover, following this offering Mr. Schwarzman will receive no compensation other than a $350,000 salary (and will own a significant portion of the carried interest earned from our carry funds).

Update, 5:25 PM: Here is a quick-link to their historical financial performance section. Scroll to page 98 for real estate activites. Summarized, as of 12/31/2006:

• Net Income from Fund Management Fees = $167.8 million (162% increase on 2005)
  
• Net Income from Investments = $735.0 million (151% increase)
  
• Assets under Management = $12.8 billion (21% increase)

Update, 5:35 PM: Blackstone's commentary on the real estate market, page 116:

The real estate industry is also experiencing historically high levels of growth and liquidity driven by the strength of the U.S. economy, office employment growth, limited new construction and the availability of financing for acquiring real estate assets. Concurrently, replacement costs of real property assets have continued to escalate substantially. Since 2001, gross domestic product, or "GDP," growth has steadily improved, and GDP is currently predicted to grow at an average annual rate of approximately 3.1% from 2007 through 2009 as indicated by Haver Analytics, World Bank Indicators and Oxford Economic Forecasting. In addition, recent job growth statistics have indicated higher employment levels during 2005 and 2006, which generally produces greater demand for real estate assets. The strong investor demand for real estate assets is due to a number of factors, including persistent, reasonable levels of interest rates, the lack of alternative investments that provide the same levels of expected returns and the ability of lenders to repackage their loans into securitizations, thereby diversifying and limiting their risk. These factors have combined to significantly increase the capital committed to real estate funds from a variety of institutional investors, including institutional pension funds. As a result, the amount of global real estate funds raised has increased dramatically in the past four years, as indicated by the following chart:

Update, 6:00 PM: Real Estate Overview starts at the bottom of page 131. Here's a quicklink the closest page. Notables:

• The prospectus highlights 11 acquistions of real estate companies, including the recent purchase of EOP. Excluding co-investors, Blackstone invested $7.2 billion in these acquisitions. Transaction values totaled $72.5 billion (90% leverage [again, including co-investments]).

Their Real Estate Investment Approach used to be copied here below, but there's nothing to it really. Certainly nothing groundbreaking.

Update, 6:40 PM:

Real Estate happenings in the last 15 months:

• Blackstone's Park Hill Group (now with 50 employees) expanded into raising equity for real estate funds in June 2006. Although the group was started in 2005.
  
• Their real estate operation opened an office in Mumbai in 2007.

Since its inception in 1991, through 12/31/06, the real estate operation has achieved a return of a 2.4x multiple on their invested capital. Not too shabby obviously, but I honestly expected better.

That's about all I have the time and energy for right now. I'll be interested to see the multitude of other highlights as other bloggers dig through it as well...

Housing Court Judge Forgets the Law in Swig/Sheffield Condo Case

Matthew Schuerman on The Real Estate blog (NYO) posted today on Judge David B. Cohen, a NY housing judge, and his ruling that Kent Swig, pre-eminent New York real estate owner/operator, can not let his Sheffield "free market unit" leases lapse (i.e., choose not to renew them).

This is big news for a number of reasons. First of all, it obviously does not only affect Mr. Swig and the Sheffield project (including his investment partners and lender) - it affects every condominium conversion project in the city, and each developer, bank, and investor involved in one.

The process of a condominium conversion these days is generally as follows: First, a developer gets the existing building under contract, with capital and financing lined up. After closing, the developer submits their condominium plan to the Attorney General. Because of the high number of projects ongoing, the time to get these plans completed, filed and approved has jumped from about 6 months in 2004 to more than a year today.

During this approval process, the developer can vacate some of the units, but is limited by an existing law prohibiting "warehousing" of vacant units. After the condo plan is approved by the AG, the developer can choose not to renew "free market" leases as they expire as they convert and sell the units to condominium buyers.

All rent-controlled and rent-stabilized units can not be vacated and converted to condos. The only exception is if the developer is able to change the classification of these units to "free market" by showing that the current rent for the unit is higher than a certain amount per month, and investing a certain amount of money in the apartment to renovate it. Even then, not every unit's classification may be changed.

Whatever units can not be changed to "free market" and converted to a condominium is either operated as rental apartments by the developer/owner of the building, or sold to a third-party who will operate the units as rentals.

Judge Cohen's ruling, in my mind, is reckless. If owners of buildings are not allowed to raise the rents as much as they want (note that I am only referring to market-rate units -- not the rent-controlled and rent-stabilized units), and they are not allowed to make their own decision of whether to renew leases, then what rights do landlords have?

No one reads this blog, but I would love to hear other's thoughts on the subject. If you happen to have typed in the wrong URL and landed here by accident, leave a comment.

Green Condo to Rise in the ATL

GlobeSt.com reports that Lily Development will break ground this summer on Aquarius Tower, a 122-unit, 38-story condo tower at Ivan Illen and Luckie. They have reached approximately 45% presales, which is around a common threshold for lenders to fund vertical construction of condo buildings these days.

Prices will range from $300,000 to $900,000 for most of the units ($350 to $430 per square foot).

Designed by PFVS Architects, Inc., the 240,000-sf tower will be the first condominium project in Georgia to incorporate solar and wind energy into its design. The rooftop solar panels will harness the power of the sun and the wind turbines will channel high winds into usable energy. The tower will have other sustainable features, such as the use of recycled building materials and thermally efficient products. Escandari says he decided to incorporate green features mainly for philosophical reasons. “It’s costly, but we’re finding ways to do it,” [ Lily Development president Antonio Escandari] says.

Wednesday Notes

A pretty slow Wednesday as far as deals go. In addition to the 450 Park building hitting the market next month, linked earlier in the day, here's what happened today:

Tom Flatley to sell $600+ million portfolio (Boston Globe) - Immigrant-turned-Moneybags will sell his retail holdings and an office park.

SL Green & Mack-Cali Swap Properties (Forbes) - the two firms exchange interests. Mack-Cali gets SL Green's condominium interests in 125 Broad for $273 million, and SL Green takes down four Greenwich offices for $56 million.

The Brownstoner Outs himself (NYO) - It's Jonathan Butler, a 37 year old ex-Wall Street Brooklyn brownstoner. (h/t Daily Intelligencer)

Record NYC Office Price PSF Could be Broken Soon

According to IPG/CRENews, Taconic and NY Common's sale of 450 Park should fetch $1,500 per square foot ($510 million), which would set a new Gotham record.

The 340,000-sf office is 95%-leased, with 30% of the total square footage rolling in the first two years (rents are no doubt substantially below market). The office is located at the northern tip of "Wall Street North", at 57th and Park, where rents continue to rise above the $100 psf mark.

2006 NOI totaled $13.7 million, yielding a 2.7% cap rate (!!!) at $510 million, excluding closing costs.

Bloomberg's Matthew Lynn: If Blackstone is Selling, Why are You Buying?

An excellent article on Bloomberg this morning, reminding us that the Fortress and Blackstone boards aren't stupid.

Yet if Blackstone, Fortress and other alternative- investment managers are selling their shares, should you be buying?

Probably not.

The managers of those firms are better at calling the top of the market than most of us. The rush of share sales suggests the boom in alternative investments may be ending.

(h/t Wall $treet Folly)

$1B Theme Park Coming to Dubai

According to this morning's GlobeSt.com email alert, NY-based Marvel Entertainment will JV with Al Ahli Group to develop a "Super Hero" theme park in Dubai. It is anticipated to open in 2011, and it may be the first of several similar developments in the region.

“We are launching a long-term relationship with the Al Ahli Group to bring the Marvel Universe to Dubai with this exciting new theme park development,” says David Maisel, chairman of Marvel Studios and a member of the Office of the Chief Executive of Marvel Entertainment, in a statement. “Al Ahli Group has both an impressive team of theme park, entertainment and hospitality executives and the financial strength to leverage that expertise into a world-class destination resort experience unparalleled in the region.”

"Family destinations have not evolved in Pan Arabia and thus it’s time that we cater to that demand and make the investment required for global tourism,” says CEO Mohamed Khammas of AAG."

Subprime Silver Lining?

Abnormal Returns says savvy investors may have their chance to capitalize on the subprime mortgage market fallout, as plans are announced by Newcastle to take down a bucket for $1.7 billion.

Pricing wasn't revealed, but Kenneth Riis, Newcastle CEO and president, said in a statement. “We have underwritten this investment to generate an attractive return on capital using conservative default and loss assumptions."

So as these lending groups go bust, who stands to gain the most? It soon won't be the big buyers, who will all soon be chasing the same pile of broken portfolios (if the past 24 months have proven anything, it's that supply of capital available for deployment in real estate assets and securities still outweighs the supply of investment opportunities), and probably underwriting too thin a default rate under pressure to deploy capital before it's "too late."

It will be whomever is engaged to transact the sales. Get in, collect your fees, get out, move on.

Remember 2005? Up and down the east coast, and throughout SoCal, it was condo conversions. Today, even the "can't miss" 95% LTV financings are being restructured (some for the second or third time), if the lender hasn't yet foreclosed.

Long term, I'll bet on the high-yield/subordinate debt funds (mezz lenders, b-note buyers, etc.) to make the most out of the opportunity. According to Commercial Real Estate Alert, CMBS mezz spreads widened by about 40 bps last week as more subprime shops went belly-up... music to the ears of RAIT, GCC and the like. Should that continue for another week or two, these groups could see returns on these types of core-strategy investments increase by up to 10%-15%, virtually overnight.

Tuesday Notes

CalPERS Real Estate Investments Yielded 27.6% (IPG/CRENews - $ Req'd) - only 4 and change on the quarter, but the 27.6% T-12 is solid. According to the article, their real estate investments outperformed every other sector. Too bad they only allocate 8% to real estate...

Pru Selling 1180 Avenue of the Americas (also from IPG/CRENews) - Expected to fetch $700 psf. Yawn. But I got a kick out of this quote:

The average price for central business district office sales in Manhattan is $678/sf, according to Real Capital Analytics.

C'mon CRE, you can provide a more subtle plug for RCA than this. Quoting New York "CBD" office sales for a property on Avenue of the Americas, when you can walk one block east and be in a completely different submarket, and then walk another two blocks east and be in a different submarket again (and again one block further), is useless.

SL Green will buy back up to $300 million of stock - (Press Release) Company that most think will build on their late-2006 fireworks in the coming year sends a good vibe (also announced a private offering of $500 million of exchangable senior notes late today).

Behind the Veil at Blackstone? Probably Another Veil. (New York Times) - Blackstone? No shit.

US Equities Exec to Oversee Sears Tower Leasing (Crain's Chicago) - Methinks that the problem wasn't with CBRE. Three Capper Sr. used to say, "When you point one finger at someone else, there are four pointing back at you."

And finally - UPROAR!

RREEF Will Buy Maher Marine Terminals (GlobeSt.com) - DB group agreed yesterday to acquire the company, which will keep the Maher name. The terminals will be operated by DB Asset Management. Which begs the question - where's the uproar about a foreign group owning our ports?!? Anyone? Anyone? Schumer? Schumer? I demand uproar!!

The Point...

To join my bookmarked i-banking blogs, write a bit about the current [insane] real estate capital markets, and hopefully blow off some steam.

I work at a real estate i-bank in New York, a mid-level guy trying to get my other foot out of the trenches. At our firm, intensity is the name of the game. Verbal assaults and rulers slapping the tops of hands is the norm. Doors slamming, papers ripping, blood-curdling screaming... that type of thing. The typical New York investment banking company. But real estate.

2007 is the year of the three-cap in New York, with Harry Macklowe hitting lead-off as the flippee in the EOP/Blackstone NY portfolio, and more to come, as a historic, highly-prominent, "jewel" of an office building in Midtown is quietly-rumored to be trading in the next week.

Last year, we saw cap rate in Manhattan drop to the "fours" in typical deals, with anything in the fives considered a bargain. Nationwide, trophies trading in the sixes were viewed as virtual steals (see: San Diego). So the obvious questions are what's next, and at what point does it stop (or even slow)?