Wednesday, February 21, 2007

commercial property madness / numbers on the blackstone-eop manhatten sale

this article from the gives some good insight on the latest commercial property deals and shows very clear that "ordinary" people can´t understand what is going on. we are not smart enough to understand why you buy a portfolio at record (maybe peak) prices with a starting yield of 3% and including costs close to zero...... the only assumption that makes this deal work is that you double the rents? looks like this should be no problem because already 41 tenants in entire manhattan pay the needed rent.......

you really need an mba.......

good for blackstone. they need more transaction like this....and no wonder they are getting a little bit nervous...

dieser bericht gibt nen guten einblick unter welchen umsänden und berechnungen die letzten deals im gewerblichen immobiliensektor in den usa gemacht worden sind. lest am besten selber. ich bin halt kein studierter......fakt ist das blakcstone mehr solcher deal benötigt um ihre 39 mrd$ übernahme profitable zu machen. einige werden da schon nervös ( oben)

The day after Harry Macklowe, the maverick real estate investor and developer, completed a record-breaking $7.25 billion transaction to buy all but one of the buildings in the Midtown Manhattan portfolio of Equity Office Properties, he called one of the city’s top commercial brokers......

But in recent years, Mr. Macklowe has had plenty of occasions for bursting into song. Defying conventional wisdom about real estate cycles, he and other New York real estate investors have been enjoying the longest commercial real estate boom in memory — and one that shows no signs of abating.

Famous in real estate circles for being able to act with dizzying speed, Mr. Macklowe and his son William took only 10 business days from start to finish to buy 6.1 million square feet of office space, according to people involved in the transaction.

Their speed enabled them to take possession of the buildings just as the Blackstone Group, a private equity firm, acquired Equity Office Properties, the nation’s largest office landlord, for $39 billion in the biggest leveraged buyout ever.

Within days of selling all of its new Manhattan acquisitions, except for the Verizon Building at 42nd Street and Avenue of the Americas (which Equity Office had agreed not to flip to another buyer after acquiring it from Verizon in 2005), Blackstone struck a total of $18.5 billion in deals with other companies to shed big chunks of its new portfolio. Investors snapped up 19 buildings in the Washington, D.C., area; 17 in Seattle; 17 in Portland, Ore.; and 17 in San Diego.

In addition, Maguire Properties, a public company based in Los Angeles, announced yesterday that it would buy 22 buildings in Orange County and two buildings in downtown Los Angeles from Blackstone for $2.88 billion.

Blackstone also intends to sell its new buildings in Chicago and San Francisco and other markets. But for now, according to a participant in the transactions, it will keep its holdings in West Los Angeles (10 buildings) and Boston (24 buildings), both markets where rents are expected to rise. Equity Office’s substantial footholds in West Los Angeles and Boston were among the chief reasons that Steven Roth, the chairman of Vornado Realty Trust, tried to wrest the company away from Blackstone.

Mr. Roth’s effort failed. But he managed to drive up the price of Equity Office by $3 billion, forcing Blackstone to adjust its strategy and sell more buildings than it originally intended to. Within 60 days, Blackstone will have disposed of more than half of the Equity Office portfolio of 500 buildings, according to the person involved in the transactions. A few years from now, all the buildings will be in other hands, he said. ......

Despite the haste with which the purchase was concluded, the Macklowes, who teamed with Fortress Investment, another New York private equity firm ( lets call it flipping! one pe to another....), were able to get $6 billion of financing from Deutsche Bank, ...Deutsche Bank, also one of Blackstone’s lenders, is expected to repackage the Macklowe mortgage as a security and sell it to investors. ( can´t wait for the details/ bin gespannt wie da die details aussehen)

The purchase price worked out to an average of $1,142 a square foot, the highest ever for a single portfolio..... Only one building, 666 Fifth Avenue, has traded for a heftier price: $1,200.

“You’ve got to give it to Harry; he’s got nerves of titanium,” .....

The $7.25 billion price tag for the eight buildings was based on a rate of return in the first year of about 3 percent. But when other costs like leasing commissions and repairs are deducted “it probably means that the net cash flow is pretty close to zero,” ......

To make the buildings profitable, real estate professionals say, annual rents, which currently average $55 to $59 a square foot, will have to rise to $100 a square foot or more — a daunting, but not insurmountable, goal. Last year, 41 tenants in Manhattan agreed to pay that much or more, .(41 tenants in entire manhattan?! what a conservative concept......./ 41 mieter in gesamt manhattan..... klingt nach einem soliden concept)

The new Macklowe buildings are full or nearly so, except for the Bertelsmann Building at 1540 Broadway, which is 84.4 percent occupied,

The eighth is WorldWide Plaza, a 47-story building on 49th Street and Eighth Avenue, a neighborhood that some brokers describe as “challenging.” But two large leases that were negotiated in the late 1980’s, when the market was depressed.... are up for renewal in 2009 presenting the Macklowes with an opportunity to squeeze more rent out of the space.

But Mr. Macklowe is also widely admired as someone who sees opportunities that other people miss. He bought the General Motors Building on Fifth Avenue and 59th Street in 2003 for the seemingly astonishing price of $1.4 billion ...... The building is now valued at more than $2.7 billion....

Though the newly acquired Midtown properties are all considered prime buildings, Equity Office was not known for its strong management. .........

He’s taking a leap of faith, but he’s banking on the fact that demand is far greater than supply.”

disclosure: short reits

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