Can anyone spare a billion? Here are five trophy buildings that could have sold in early 2017 — but didn’t
Manhattan’s investment sales market had a rough first half of the year
In New York real estate, late July is traditionally a time for reflection. Brokerages churn out their mid-year market reports, while executives chopper off to the Hamptons to lie on the beach and fondly recall their best deal-making moments. But in 2017, there really hasn’t been all that much to reflect on.
Big-ticket Manhattan commercial real estate sales in the first half of 2017 were rare. Chinese conglomerate HNA Group bought the Midtown office tower 245 Park Avenue for $2.2 billion and Singaporean fund GIC paid $1.05 billion for a majority stake in 60 Wall Street in the Financial District. The rest was change.
Manhattan’s property sales dollar volume plummeted 55 percent year-over-year in the first half of 2017, according to Real Capital Analytics. Some brokers claim these six months were the quietest stretch since 2008.
Observers agree on the culprit: Sellers, egged on by 2016’s record prices and by brokers eager to please them, are often asking too much for their buildings. Meanwhile, buyers are increasingly reluctant to pay top dollar, citing rising interest rates, uncertainty over federal tax policy and the prospect of a cyclical downturn. No one seems to know what will happen over the coming year, so why take the risk? It probably didn’t help that new capital controls have made it harder for Chinese firms to invest overseas.
“Volume was down dramatically in 2008 because the capital markets were collapsing. Today the market is healthy, has very little distress and capital is plentiful,” said Hodges Ward Elliott’s Daniel Parker. “Volume is down because pricing expectations continue to adjust.” Most brokers expect volume to pick up in the second half of the year, as delayed transactions finally close and more sellers accept reality. Meanwhile, continued low interest rates make refinancing an attractive alternative.
The refinancing route has not only picked up steam in the trophy market, but also throughout the middle market. Last year, Caspi Development listed a Lower East Side mixed-use building at 161 Bowery for $30 million, and BCB Property Management listed a six-building Upper West Side multifamily portfolio for $125 million. This year, both firms refinanced instead.
Caspi’s Joshua Caspi cited “the level of buyer conservatism these days” as one of the reasons for the about-face. “The debt market is very attractive right now for stabilized assets and we will hold out for a sale in the future which we believe could be two to three years,” he added.
Looking back at the first six months of the year, the sales that didn’t happen are more numerous and arguably more interesting than the ones that did. So here’s a list of properties that were on the market, but have yet to sell for a variety of reasons.
Some, if not all, of these deals might still happen in 2017. Very few have been officially pulled. At any rate, “it’s hard to take things off the market once they’re on,” explained another broker. Once an offering prospectus has been shared with enough people — who in turn share it with others — calls tend to keep coming in.
In other words, even a dead deal is never really dead. It’s just waiting to be revived by a swashbuckling Chinese mogul or a Qatari royal.
666 Fifth Avenue
For a few glorious weeks, it looked like one of the most ambitious real estate projects in years was really going to happen. On March 13, Bloomberg reported that Anbang Insurance Group had agreed to pay $400 million for a stake in Kushner Companies’ office building 666 Fifth Avenue. The partners would borrow $4 billion and build a 1,400-foot-tall condo tower with a vertical mall. But barely two weeks later, Anbang had backed out. According to a recent report, Anbang’s departure also killed a $500 million investment from Qatar’s sovereign wealth fund, which had been contingent on Kushner finding other investors.
According to sources, Kushner Companies is still trying to raise money and is confident that a deal will get done. Tenants whose leases are up are offered short-term renewal deals, according to a source, with an eye on emptying out the tower for development. But brokers and investors, including those who were pitched on the project, are skeptical. They question whether now is a good time to bet on luxury condos and high-street retail, with both markets struggling.
5 Bryant Park
Blackstone Group has made a fortune selling Manhattan trophy properties in recent years. In September, for example, it raked in $6.5 billion for Strategic Hotels & Resorts, which includes the Essex House along Central Park South. So you can’t blame the private equity giant for wanting to test the market for 5 Bryant Park. In July 2016, the firm hired HFF to market the 665,000-square-foot office tower, with sources telling Real Estate Alert the property could fetch as much as $700 million. But bids didn’t quite live up to expectations, and the property was later pulled off the market. Blackstone has shown a knack for off-market deals in the past and sources say it’s still possible the tower could sell this year.
237 Park Avenue
In March, private equity firm Walton Street Capital put its 49 percent stake in 1.2 million-square-foot office building 237 Park Avenue up for sale. But in the end Walton decided refinancing was the better option amid liquid debt markets and low interest rates. Last month Walton and RXR Realty, which owns the remaining 51 percent, landed a $850 million mortgage from Morgan Stanley and Societe Generale. RXR and Walton had bought the tower for $810 million in 2013.
Property Markets Group, Hakim Organization and Howard Lorber’s Long Island City rental tower is another example of the lure of debt markets as a Plan B. In August 2016, PMG put the 45-story, 391-unit building at 23-01 42nd Road up for sale after abandoning earlier plans to turn it into a $364.2 million condo. But the owners ended up refinancing instead, landing a $212.5 million loan package from Deutsche Bank, SL Green Realty and Apollo Global Management. When the owners first put the tower up for sale it was vacant, when they landed the loan 150 units were leased and now it is about 75 percent leased, according to a spokesperson. “When it’s 100 percent leased ownership will evaluate next steps,” the spokesperson said. It’s a tough time for high-end rentals in New York City though, as a surge in new construction increases competition and forces developers to offer more concessions to tenants.
In a hotter market, 670 Broadway, also known as 0 Bond Street, in Noho might have been snapped up in a heartbeat. Paramount Group began marketing the 75,000-square-foot office building in February with a reported price tag of around $160 million, less than two years after buying it for $115 million. The building was just 60 percent leased, but according to Real Estate Alert, most of the vacant space was on the top floors, which sport 16-foot ceilings and arched windows, not to mention easy access to one of Manhattan’s hippest neighborhoods. But it’s 2017, and investors are apparently a little less confident that they can land tenants at sky-high rents. The property has languished on the market, according to industry sources. Eastdil Secured CEO Roy March, whose firm has been marketing the building, said rumors it was pulled are “inaccurate.” Therefore, this building falls into the category of deals that could still happen in the second half of the year. Paramount declined to comment.