3.0% Cap

Treasury Picks 9 for PPIP

2009-07-09T09:14:00.003-04:00

Some big commercial real estate players on the list:

Following a comprehensive two-month application evaluation and selection process, during which over 100 unique applications to participate in Legacy Securities PPIP were received, Treasury has pre-qualified the following firms (in alphabetical order) to participate as fund managers in the initial round of the program:

AllianceBernstein, LP and its sub-advisors Greenfield Partners, LLC and Rialto Capital Management, LLC;
Angelo, Gordon & Co., L.P. and GE Capital Real Estate;
BlackRock, Inc.;
Invesco Ltd.;
Marathon Asset Management, L.P.;
Oaktree Capital Management, L.P.;
RLJ Western Asset Management, LP.;
The TCW Group, Inc.; and
Wellington Management Company, LLP.

The AG&Co/GE Partnership has at least $5 billion of real estate AUM between them, and each have well-known and highly-thought-of management teams. I would guess BlackRock has somewhere in the neighborhood of $3 billion. Marathon $800 MM and Oaktreee $600 MM. (Pure guestimations on my part -- I'm sure their respective websites include some information on the real estate portfolios.)

What strikes me, though, is (a) the fact that so-called "manipulative" and "excessively speculative" hedge funds and private equity funds are pretty much the only ones chosen, and (b) how distressed Oaktree and Marathon's real estate portfolios are. These are the managers Treasury chose?

I guess since the Treasury itself is trying to manipulate markets and overpay for assets, some of these selections make a little more sense.

What a bizarre two years it has been...

2009-07-06T12:43:00.003-04:00

I originally started this blog in 2007, when it was common that trophy commercial real estate assets would trade for 3% cap rates (cap rate = property-level net operating income divided by property value). I felt the market correction coming -- albeit not nearly to the extent that we are experiencing today, nor the extent to which I think we'll see in the next couple of years.

Two years later, I'm at my second company since leaving the boutique i-banking firm, including 15-month pit stop at one of the biggest hedge funds on the Street (where my strategy proceeded to blow up). And I, like everyone else, am wondering -- where do we go from here?

The people who used to read this blog are probably long gone. Most who worked in the CRE industry in New York have left for less-competitive locales. So I'm really just posting this to see if it's picked up on anyone's RSS feeds.

I dropped everything when I went to the hedge fund to focus 100% of my time on the strategy. Now that I have a bit more time on my hands, I'll probably resume blogging regardless of whether anyone reads it. It's amazing to me that since I started this, there still have been no blogs about commercial real estate that have popped up given everything that's going on. It's an incredibly interesting time, yet no one seems interested.

Grace Under Pressure

2007-08-09T12:21:00.000-04:00

This story from Going Private is the funniest and frighteningly accurate take on the market I've read.

"So that's become the story everywhere. I mean it's not that we can get debt so long as we pay more, almost no one is actually issuing any. I mean any. Lots of firms have standstills. Total standstills." Suddenly, what was an amusing tale of non-sex becomes an alarming warning.

"Well, I can see how the larger debt issuances might be an issue, but how much were you trying to score?" I ask.

"I wasn't trying to score. He's cute, but not that cute."

"Bad choice of words. How much debt?"

"Oh, that was for Project Yonkers, so $450 million?" Now I am more alarmed. "You can't get anyone to pick up $450 million?"

"Well, I haven't tried everyone yet, but I've never gone 48 hours without even getting a term sheet before." I am stunned. Laura is bored.
Read the whole thing.

In the Tank

2007-08-09T11:45:00.001-04:00

And I thought the second quarter was bad.

One-Month LIBOR shot up overnight to 5.54%, crushing DSCRs on floating rate deals that -- until today -- were the only reliable way to finance large transactions. Forget finding fixed-rate financing -- 3Cap's friends at Deutsche, Wachovia, LaSalle, and Credit Suisse aren't even quoting. The few, the brave few who ARE quoting are giving notice that their quotes are good for about 24-hours, and any terms provided are subject to market conditions.

A good friend at Citigroup has sized up 2 deals since the weekend. Neither are likely to transact.

And now, I'm sure you've read that BNP Paribas has frozen 3 funds, a la Bear Stearns, citing the "fact" that they couldn't "fairly" value their holdings.

Rumor has it that Wachovia may report sizable losses in its CMBS lending and securitization operations from aggressive loans that they haven't been able to securitize. But given that Wachovia is one of the faster banks on the street to clear loans off their shelves, I find it hard to believe that there won't be several others (if the rumor is true, of course).

Most b-note players are out on the golf course for the rest of the month, as subordinate financing becomes more scarce by the day. No one can finance their originations via CDOs, so why bother?

I keep hearing the first-year guys and summer associates yell in delight about how the 10-yr Treasury yield has fallen 10 bps this morning, as if the 10-year matters right now.

The New York Sun says the mayhem may actually be good for the markets. Wha? In what time frame? And for whom? Certainly lower leveraged pension funds, maybe insurance companies and balance sheet guys in the short term. But long term? How is it "good for the markets" when you cut transactions by at LEAST 50% over the course of at least the next year??

Happy and Safe Long Weekend

2007-05-25T20:02:00.000-04:00

I'll be working, as well as many of you. Luckily, I'll be working from a hotel in a warm and sunny locale, a thousand miles from the City.

Blogging via email from a plane on the runway at EWR right now, I can't help but look across the aisle at strangers chatting each other up and thank God for these tiny planes with only one seat on the left side of the plane. A window seat and an aisle seat in one - and no "consultant" bragging about his latest regional award.

Everyone have a fun and safe weekend.

Who Cares about LA Real Estate?

2007-05-24T18:01:00.001-04:00

Apparently I spoke too soon. Another major portfolio is about to trade in Southern California. Should make headlines sometime mid-next week. $1.5 Billion-plus deal.

Update: Well, I should check GlobeSt before I post from now on. They've picked up the story already (apparently just posted, because it wasn't even in the PM Alert sent at 4:40 PM ET) that a GICSA affiliate is purchasing the old Arden SoCal Portfolio for about $1.5 billion.

iStar Buys Fremont's CRE Lending Business for $2 Billion

2007-05-22T17:33:00.000-04:00

In a deal that was being kicked around the rumor mill for about a week, iStar announced it is acquiring Fremont's commercial real estate lending business for $2 billion.

Mr. Condocon Verter, a New York-based real estate investor, hated to hear the news, as it took one of the two remaining lenders out of the market who were dumb enough to still be lending on condo projects (even in South Florida). Mr. Verter was overheard saying as his head hung low, "At least there's still Corus."

Wachovia, Deutsche Bank Producers Grumbling?

2007-05-18T13:02:00.000-04:00

There's a rumor making the rounds that Wachovia's originators are complaining their latest pricing sheet is up to 30 bps wide of the competition, essentially putting them on the beach and out of the game.

Deutsche Bank is rumored to be sitting on the sidelines as well. Word is that the guys at both banks aren't too happy, and aren't sure if this is temporary or the proverbial "writing on the wall".

If you are job hunting, lock up a place ASAP, because I have a sneaking suspicion that the pool of candidates in the market right now (already wider than usual) could get even wider in June.

A Hungover Friday Morning Link Rundown

2007-05-18T10:03:00.000-04:00

Fortress Acquiring Flagler Development for $3.5 Billion (CoStar)
Apparently bought all-cash, which is somewhat surpring. I would say that is may be due to the fact that development firms which aim for quick development and exits tend to be low on operating cash flow, especially in today's environment where less buyers are buying on in-place income and rather focusing on future stabilized cash flows and/or values... but Flagler has a sizable portfolio of owned assets. In any event, it's definitely the news of the day [yesterday].

Mathias named SL Green President (Forbes)
Notorious BSD Andrew Mathias has been promoted to president of SL Green and will keep the CIO title as well (of both SLG and Gramercy Capital). Previously, CEO Marc Holliday was President of the company as well. Said Holliday, "Andrew could make eight kajillion bazillion dollars if he were to start something up himself, so I'm perplexed that he accepted my offer of a title upgrade and some extra pocket change." ...Or maybe that's just what I said ... to myself.

NAR: Commercial Real Estate Investment Expected to Remain Strong (EARTHtimes.org)
Don't ask how I happened upon an EARTHtimes link, but its really just a press release from the National Association of Realtors which cites the fact that more dumb money is being thrown at commercial real estate deals in 2007. "Investment in commercial real estate rose 11 percent to a record $306.8 billion in investment-grade transactions in 2006, with office buildings leading the way."

Broadway Closes on 237 Park, 100 Wall (NY Observer)
The Real Estate pokes a little fun for their "announcement" when everyone already knew about the transaction via the same blog two months ago.

If a high-rise is developed in downtown LA, does it make a sound? (CPN)
I don't know many people who care much about Los Angeles real estate, save for Maguire Properties, I'm sure... but according to CPN, "Plans have been announced for Park Fifth, a high-rise residential and hotel complex in Downtown Los Angeles. Africa Israel and Namco Capital Group are serving as the capital partners for the $1 billion project, which is being developed by Houk Development Co." It will be the tallest residential property west of Chicago at 76 stories on Fifth and Olive (and another 43-story tower). It will include 732 condos, a 220-room five-star hotel and a 15-story bridge linking the two towers. Groundbreaking will take place in Q1 2008.

Everyone drink lots of water and be liberal with the Aleve!

GlobeSt: Marathon Real Estate Files $200M IPO

2007-05-14T17:28:00.000-04:00

Marathon filed their IPO papers with the SEC on Friday for a $200 million IPO and REIT classification. According to the linked GlobeSt.com story, the company controls assets totaling about $1.3 billion, including $886 million of assets financed in a CDO. More than 50% of their portfolio is in New York or California. About 25% is in hospitality and about 23% is in office.

Credit Suisse and Lehman are the underwriters.

It's a New Dawn, It's a New Day

2007-05-11T23:52:00.000-04:00

After the busiest three weeks of my life, I'm trying to get back into the routine of posting here. Oh, how much has changed in the past 17 days...

Forget what you thought you learned about today's CMBS world during the last 18 to 24 months - it's been flipped faster than the EOP portfolio. With the subprime meltdown, ratings agency warnings, and activist CMBS buyers at all levels serving as catalysts, the CMBS market underwent an enormous adjustment seemingly overnight. Banks re-traded loan apps on their some of their most successful and profitable clients, several banks made it be known that they are out of the 10-year interest-only lending business for good, some borrowers unable to obtain financing walked away from hard deposits, and one of the go-to funding sources for large deal financings went POOF -- literally -- overnight.

Some of the biggest news items since the hiatus:

CMBS Spreads Widen from Top to Bottom (IPG/CRE News [$])
From the top classes to the B-Pieces, CMBS spreads widened. Most see it as a result of S&P and Fitch warnings about law underwriting and new ratings standards. Some point to the subprime mortgage fallout for why CMBS buyers are feeling a little jittery. Either way, it's affecting everyone from the borrowers to banks with un-securitized loans still on their books.

Institutional Real Estate Cap Rates Hit Record Lows (IPG/CRE News [$])
Something has to give, but it didn't happen in the first quarter, as cap rates dropped even further across all property types, according to Bank of America. Marketwide, the average cap rate hit 5.61%, which continued a now 9-quarter decline. For those scoring at home, that's a less than a 100-bp spread on today's Ten-Year at 4.652%. Fantastic.

60 Wall Trades for $1.18 Billion (Reuters - FREE!)
Paramount takes the downtown asset that's been on the market since November 2006. Something may have changed since I last looked at the deal, but the net rentable are should still be 1,625,483 sf, meaning the price was $738 psf, considered a bargain in New York these days. My last underwriting pegged the initial year's NOI at about $64.5 million, which hints at a 5.47% cap rate. That could be off though, since I haven't seen the deal in about 6 months. Looks as though DB got their target price... less about $20 million (only a 1.7% haircut).

There's no real articles on the on-going CMBS adjustments and how it's affecting the market (that I've seen), except for the pay publications like Commercial Mortgage Alert, which is proving to be a priceless resource right now.

Hoping to find time to post more regularly....

3.0%

Dillon Read - DONE!?!

2007-05-02T19:08:00.000-04:00

Can't post much now, but the word is that Dillon Read Capital, a subsidiary of UBS, apparently gathered their employees in the ballroom this afternoon and shut everything down at 5:00 pm... Told everyone not to come to work in the morning. Would be HUGE news in the morning.

Rumor goes that they lost a billion dollars plus in the last couple of weeks. I'm sure more info will slowly leak out if proven out, but this is definitely the biggest news in a week that's been full of news (that I haven't had time to post about).

Update Thursday, 9:35 AM: It sounds like the amount lost noted above was overblown by *just a bit* but the media caught wind of this around 4:30 AM this morning. Click for stories from Forbes and Bloomberg.

Update Thursday, 5:10 PM: Although not reported anywhere (that I have been able to find), today's rumor is that Dillon Read was a significant financial backer of New Century, the now-defunct subprime group. This was supposedly responsible for a large chunk of DR's losses.

According to CRE/IPG, Brian Harris, the BSD of the commercial real estate group will take a similar position with UBS.

** ThreeCap's site traffic/visitor count has exploded today due to the news and this post being the first to post anything about it on the web yesterday evening (even though no one wants to leave comments). Welcome to all the new readers - now, don't you all have work you should be doing??

How to be a Pussy, by Dana Mattioli

2007-04-13T11:08:00.000-04:00

Let me preface this by saying I've never pulled a John Rolfe and sat with two MDs at a cocktail table and pissed into a beer bottle (and on their shoes) at the Christmas Party. But I've also never under-utilized an open bar, and don't plan on putting a halt to my single-barrel lunches.

So on that note, Dana Mattioli at CareerJournal.com lays out a perfect plan on how to lose your man card, burn out faster and stunt your i-banking career growth. Enjoy!

Happy Hour: Meeting up with colleagues is not the same as hanging out with personal friends. Let your co-workers order first, so you can gauge what they are drinking, Mr. Karsh suggests. Don't follow the lead if the drink of choice is beyond your normal alcohol tolerance. "If everyone is ordering iced tea, don't order a Long Island iced tea," he says.

And this, on how to blow an interview:

Avoid drinking during an interview over a meal. Candidates need to be on top of their game. If the interviewer offers, politely decline, even if your host indulges.

Moody's: "Conduit Loan Underwriting Continues to Slide - Credit Enhancement Increase Likely"

2007-04-11T16:00:00.001-04:00

According to CRE/IPG, Moody's will start increasing subordination levels for CMBS transactions shortly.

This comes on the heels of Fitch stating last week that aggressive CMBS underwriting will lead to more defaults, drawing some parallels between current aggressive lending in the commercial sector with the ongoing subprime fallout (which I thought I linked here last week, but I guess not).

It said its increases, which would be meted out on a deal-by-deal basis, would amount to the equivalent of a half to a full ratings notch. A full ratings notch increase in subordination would mean that a deal's Baa2 bond class, which today would typically have a 4 percent subordination level, would face a 5 percent level - roughly today's requirement for a Baa1 bond.

Not all deals will be affected. "Well-diversified collateral pools, a substantial volume of investment-grade loans, and other strong features could still receive subordination levels similar to those granted during the first quarter."

So while the other ratings agencies played UN and just talked about it, at least Moody's is doing something about it... you've got to give them credit for that. Although I don't like it because it makes my job tougher, Moody's is the only agency hanging their heads out right now about an issue that all the agencies have weighed in on - the only one to risk their volume of rating assingments by actually changing their guidelines.

Q1 2007 CMBS & CDO League Tables Out

2007-04-11T10:38:00.000-04:00

Been out of town a couple of days...

According to Commercial Mortgage Alert (no link to actual story/rankings, you have to pick up the print edition), Morgan Stanley, Wachovia, JP Morgan Chase and RBS Greenwich topped the Bookrunner league tables for the first quarter of 2007. While Morgan Stanley led in Global CMBS and Non-US CMBS, JP Morgan edged them out for the US lead. Wachovia led in the CDO division, and RBS Greenwich came out on top in Agency CMBS.

According to CMA, US CMBS issuance was up 32% from a year ago, and and foreign CMBS was up 48%. However, this preceeds another ratings warning (this time from Moody's, which I'll type about when things calm down in a bit) and even an even further widening of mezz spreads.

Top 15 Global CMBS Bookrunner Rankings for Q1 2007 are:

Morgan Stanley ($11.84 billion)
JP Morgan Chase ($9.56 billion)

Merrill Lynch ($7.84 billion)

Wachovia ($7.77 billion)

Deutsche Bank ($6.61 billion)

Credit Suisse ($4.15 billion)

Lehman Brothers ($6.08 billion)

RBS Greenwich ($6.01 billion)

Citigroup ($4.15 billion)

Banc of America ($3.73 billion)

Bear Stearns ($3.03 billion)

Goldman Sachs ($2.83 billion)

Barclays Capital ($1.75 billion)

ABN Amro ($1.43 billion)

West LB ($523 million)

Top 10 US-Only CMBS Bookrunner Rankings:

JP Morgan Chas ($9.24 billion)

Morgan Stanley ($8.45 billion)

Wachovia ($7.78 billion)

Merrill Lynch ($7.15 billion)

Credit Suisse ($4.77 billion)

RBS Greenwich ($3.74 billion)

Banc of America ($3.73 billion)

Lehman Brothers ($3.71 billion)

Citigroup ($3.68 billion)

Deutsche Bank ($3.31 billion)

A TV-MA Easter Sunday Night

2007-04-08T20:32:00.000-04:00

As far as real estate goes, not much happened during the holiday-shortened weekend. I may post a recap of nothing later, but probably not.

Today marks the triumphant return of millions of people's Sundays being centered around HBO instead of work or their families, with The Sopranos and Entourage finally coming back on at 9:00 PM (Eastern).

Here's hoping the Sopranos stops setting up this season and finally goes to the mattresses. And I'd love to see a creative way for Ari to come back to Vince with his tail between his legs, begging to continue to rep him (and maybe Turtle's clients now). "Smoke more weed, Turtle. Seriously. Smoke more weed."

More to blog about after the shows, if the wine doesn't put me to bed first.

* * * * * *

Well, I'm disappointed in both. Not much left to say.

Another Banker Personal

2007-04-07T14:03:00.000-04:00

Hey, just trying to help a brutha out...

Busy banker seeks friends-with-benefits situation - m4w - 24 (Upper East Side)

Yes, the rumors are true: bankers do work long hours. I came out of a long term relationship about 3 months ago and dont have much time, let alone the interest, to pursue women in bars.

Looking instead for a girl to hang out with occaisionally... some wine, some 420, some fun, etc. Prefer a petite girl, 18-25. Send me your pic!

(via i-Banking Oasis)

Could a Downtown Migration Signal the End of the Midtown Office Craze?

2007-04-05T14:31:00.000-04:00

An article in CPN this morning on JP Morgan Chase negotiating with the Port Authority to building a 50-story office adjacent to the World Trade Center site implies that a number of blue chip Midtown tenants are exploring possibles moves to downtown.

"Overall there is significant sticker shock from some big midtown tenants that are looking downtown. Even the best inventory downtown is trading at approximately half of that ($100 per square foot) at $60 plus or minus a square foot." [So says Brian Given, vice chairman at GVA Williams in Manhattan.]

Following up on this story a few days ago, could we be staring at the beginning of the end of the Midtown office craze?

It is well known that very little available office space exists city-wide, let alone in the core Midtown office market from 6th Avenue to Lexington, 42nd Street to Central Park. If the big banks are going to aggressively pursue the types of spaces the recent rumors suggest, one has to believe that new downtown developments will be their only possible solution.

Let's not kid ourselves - when comparing a new Class A+ office at $60 per square foot versus a 30-year old Class A office at $100 per square foot, ahead of what many believe to be a rebirth of Lower Manhattan, the cheaper, value-added play will win out every time.

The flip side of the coin is that Midtown landlords are forced to drop their rents significantly - perhaps by as much as 25% - to keep these core tenants.

In either case, its hard to see the Midtown valuation trend continuing very much longer; it's certainly much easier to see the nearing peak of the price curve.

NYO: The 10 Most Expensive New York Office Assets

2007-04-04T16:01:00.001-04:00

The New York Observer has an incredibly insightful article on the current New York office market, focusing on the 10 most valuable office properties in Manhattan. The ranking is based on a number of conversations they had with local moguls, such as Joe Moinian, Douglas Durst and Larry Silverstein, to well-known brokers like Scott Latham. An excellent read throughout.

Their rankings:

1. The GM Building

2. 200 Park (The MetLife Building)

3. Rockefeller Center

4. 9 West 27th Street

5. 245 Park Avenue

6. 277 Park Avenue

7. Seven World Trade Center

8. One Bryant Park (Under Construction)

9. Four Times Square (Conde Nast Building)

10. The Seagram Building

The Chrysler Building was notably omitted because the Property is encumbered by a ground lease. But I wish they hadn’t lumped all of Rock Center into one big pile. I would have been much more interested to hear how these players see 1211 Avenue of the Americas, less than a year after it traded. Lumping that incredible building with Time Warner’s former building, for example, doesn’t add much value for the reader.

Also, 666 Fifth Avenue, just acquired for $1.8 billion by a partnership led by Jared Kushner, who owns the New York Observer, was not included.

A Garden State Tuesday

2007-04-04T10:52:00.000-04:00

Since a few notable transactions occurred recently in our neighboring state to the west, New Jersey is well rep'd in Tuesdays (delayed) notes:

Tishman Speyer bought the 833,000 square foot MetroPark Office Center (CPN) in Woodbridge for an undisclosed amount (although GlobeStreet's DealTracker database pegs it at $200 million, which rounds out to $240 per square foot. While the seller purchased it for $150 million in 2003, Tishman should still see significant appreciation even in the near term as the asset is head and shoulders above much of the surrounding market (with very little ongoing development in the immediate area).

Four Gateway in Newark sold for $72 million (CRE/IPG) to a partnership including Ivy Equities and Heritage Management. The 327,000 square foot office, purchased for $220 per square foot, is part of the Gateway complex near Newark's Penn Station, which includes a couple of other buildings which have traded in the last 2 years. The JV formed for the purchase follows another recent Newark transaction involving both companies, as Ivy paid Heritage $21 million for 570 Broad.

In other news from areas that don't smell like methane...

Inland takes Winston Hotels for $458 million (Chicago Tribune)

Carl Icahn loses his CFO at American Real Estate Partners (BW), and

East Harlem residents don't want a better neighborhood (1010 AM)

$625 PSF takes down Vacant Fifth Avenue Building

2007-04-03T16:45:00.001-04:00

According to Globe Street, L&L has paid $500 million for the 800,000 square foot Toy Center, and plans at least $75 million of improvements to turn it into a Class A office.

The building is vacant, except for restaurant Cipriani. Lehman provided the financing for the acquisition, and presumably, the renovations going forward. Tenants will be able to take occupancy by the end of next year.

“We believe that having the largest block of available class A space in New York City will attract the attention of a variety of large tenants in the market. We have already had some inquiries,” says Robert Lapidus, L president and CIO.

Monday Notes: New Century Busts, Starwood CEO Out

2007-04-02T20:01:00.000-04:00

In what was a huge surprise to no one, New Century filed for Chapter 11 this morning (Bloomberg) as the subprime fallout continues. In the press release posted on DealMaker, the CEO made a plea that CIT and Greenwich would retain many of the Associates, even as New Century let a few thousand of them go, announced earlier in the day.

Steven Hayer announced his resignation from the CEO position at Starwood Hotels (Atlanta Business Chronicle), after a rumored "tense" weekend meeting in which the board expressed its collective lack of confidence in his leadership of the company.

Italian investment group Ifil closed on its acquisition of a majority 71.5% stake in Cushman & Wakefield (GlobeSt.com) today. The $675 million deal values the company at around $875 million.

And finally, either Quill has designed a new "SmartClip", or I was working too late again last night and self-medicating too much. (Though probably the latter).

Edit, 8:15 PM: Welcome to The All-Nighter readers, and thanks to Monkey for the link -- 3C

My 3:00 AM Conversation with a 5/8" Capacity Quill Medium Binder Clip

2007-04-02T18:42:00.000-04:00

Me: "Forty-one million NOI, five-and-a-quarter cap, is seven eighty-one..."

Medium Binder Clip:

Me: "Eight hundred with costs; eighty-five percent leverage is six-eighty at one-thirty over..."

Medium Binder Clip:

Me: "So debt service is... Christ, where's the ten-year again?"

Medium Binder Clip: "Four-point-six-four-two."

Me:

Medium Binder Clip:

Me:

Medium Binder Clip:

Me: "F*cking monkeys..."

Trading Floor Envy at NY I-Banks

2007-04-02T18:19:00.001-04:00

A version of this story, which was featured prominently in this morning's WSJ, gave way to emails upon emails from colleagues here and friends at other firms -- even those not mentioned in the article -- reminding me and everyone else it was sent to that the sender still works at a prominent i-bank.

Forget trading floor envy, as the Journal put it; this was best characterized as logo-on-the-polo-shirt envy, or at best, trading floor speculation envy.

These plans fall apart faster than they materialize. Remember in 2003, when Goldman was building a magnificent high rise for their new corporate HQ, the tallest building in the state, with all the bells and whistles you would expect from such a modern architectural and business services marvel -- in New Jersey.

Four years later and they are still leasing that tower up. Meanwhile Goldman is building their new digs in Battery Park City.

From a real estate perpective, if the hype surrounding all of these banks looking for huge amounts of contiguous space is true, it confirms the assumption that Manhattan occupancy rates and rental rates aren't coming down anytime soon, as these hungry banks search for high-profile space, aren't shy about shelling out the money for it, and continue to expand organically and via mergers and acquisitions. As cap rates continue to drop (somehow) to nearly half of the current 10-Year US Treasury yield, significant upside is still the horse that's drawing the carriage.

Bull$hit, Pt. II

2007-04-02T17:12:00.001-04:00

Park Avenue in the 50's (aka., "Wall Street North") is known for ~~my bosses~~ the ostenatatious little $hits who occupy window offices looking south toward the Waldorf, feet on their desks, chit-chatting away on their 20-line standard-issue telephones while reviewing an email on a blackberry instead of looking at their 35-times larger flat-screen monitor only 28 inches from their nose.

Maybe the Avenue makes the man, because half of the bosses on the block are 50% talk, 40% dictator and 10% knowledgable about anything "real" whatsoever. It's becoming a delagating cluster-f*ck.

MD: I sent you an email this morning outlining a new, innovative bond structure we need to analyze, include in the model we distributed earlier, update the overview with same, and get it out.

(Of course, the first hint that you're working with a real winner is when they verbally refer to what they just said as "same".)

MD: So round everyone up, and get it done, okay?

me: Of course. I've got Rob on the model, and Sean and I will be updating all the materials to reflect the changes well into the night.

MD: Good. Clear the decks and let's make sure it gets done tonight.

Fair enough request, right? But it's the "we" and "us" parts that really pisses me off. These guys bring in the deal, don't do anything on the execution side besides create more work and ~~f*ck up~~ "tweak" what's already been done by the deal team. The delegation of meaningless tasks and demands of the tiniest changes ultimately result in hundreds, if not thousands of man hours spent making changes that will in no way re-shape the transaction or alter the deal's economics, forgetting the fact that the likelihood of the deal ever getting done in the first place is slim to none.

It's like we're all back in 7th grade [American] football, where Coach Fisher tells 4-foot-3, 80-pound Jimmy how to properly tackle the running back on the end-around play. Jimmy goes home and practices day and night for a week, even skips school to practice more, and regularly stays in his backyard until well past his bedtime. But at the end of the day, Jimmy is still 4-foot-3, 80 pounds, destined to jockey at Belmont Park.

EU to Get Advice on REITs

2007-04-02T14:52:00.001-04:00

According to this article on Forbes, the EU is compiling a panel of real estate experts to provide advice on REITs, and how they may be invested in beyond their respective nations in which each fund is incorporated. However, it looks like it will be a long while before anything is decided upon.

The commission said it has an 'open mind' on whether it will regulate in this area or not, and will report on this area in mid-2008.

Internal market and services commissioner Charlie McCreevy said the finds were widely available in several Member States, but added that they are 'locked up in their national markets - they cannot be sold across borders'.

'I am creating this expert group to look at this situation and to advise on whether there is any clear-cut case for EU action in this area,' he said, adding that he has 'an open mind on this issue'.

Real estate fund specialists interested in becoming members of the group are invited to apply by April 27, 2007.

I see nothing but upside in this. I think it will result in a more efficient European real estate capital markets system, and spur development and increased investment in Eastern Europe, where there are currently a multitude of opportunities with a finite amount of capital chasing down deals. I'd like to hear thoughts from someone with a more knowledge than me on how European REITs are currently operating (both in terms of capital raising and investing).

Breaking: Holly Rowe Less Ugly

2007-04-01T19:16:00.000-04:00

In the most important news of the weekend, Holly Rowe has significantly de-uglified since football season. Ms. Three Capper is watching women's basketball on TV, and Holly Rowe is the sideline reporter. She is much less scary than she used to me. Well done, Ms. Rowe.

Some Solid Associate Advice via iBanking Oasis

2007-03-30T19:54:00.001-04:00

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

2007-03-30T16:32:00.000-04:00

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

2007-03-30T14:17:00.000-04:00

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

2007-03-28T15:27:00.000-04:00

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

2007-03-28T14:49:00.000-04:00

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

(via Drudge)

Video Link

Bull$hit, Pt. I

2007-03-26T21:10:00.000-04:00

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

2007-03-26T19:32:00.001-04:00

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

2007-03-26T19:13:00.001-04:00

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!!

2007-03-26T02:09:00.000-04:00

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

2007-03-22T16:29:00.001-04:00

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

2007-03-22T12:33:00.000-04:00

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

2007-03-22T10:59:00.000-04:00

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

2007-03-21T18:34:00.000-04:00

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

2007-03-21T14:45:00.000-04:00

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?

2007-03-21T10:03:00.000-04:00

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

2007-03-21T09:52:00.001-04:00

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?

2007-03-21T00:34:00.001-04:00

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

2007-03-20T22:26:00.000-04:00

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...

2007-03-20T16:31:00.000-04:00

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)?