The best and worst deals
The Real Deal reports: Next month will mark the one-year anniversary of the fall of Lehman Brothers — a date often referred to in "pre-" and "post-" terms in the New York City real estate market. With that in mind, The Real Deal zeroed in on the 15 best and worst deals since Wall Street's collapse and the earlier onset of the credit crunch.
The deals were selected based on interviews with real estate professionals, published reports from the past year, research and an informal survey.
While the list includes some high-profile examples, it was not designed to revisit all of the soured deals that have been staples in the headlines. Instead, it's a cross-section of not only big-ticket but also lesser-known significant deals, which might otherwise have gone down as footnotes.
The very public sale of Worldwide Plaza to an investment group led by George Comfort & Sons for $375 per square foot — down 65 percent from what developer Harry Macklowe paid for it in early 2007 — was flagged as one of the smartest purchases. Like many of the other deals on the list, it involved a seller unloading a distressed asset.
Lesser-known deals included the British fashion house Burberry, which leased 71,000 square feet for its Madison Avenue headquarters with the bonus rights to erect a glowing sign on top of the building, an extremely rare find outside of Times Square, and a group of former East Village squatters who acquired an Alphabet City building from the city.
"Worst deals" included record-breaking purchases like the GM Building, although Mort Zuckerman, chairman of Boston Properties, told The Real Deal he still considers it "the best purchase we've ever made" when viewed as a long-term investment. Also singled out as a not-so-savvy investment were individual apartment sales like one at Julian Schnabel's Palazzo Chupi, where a Wall Street buyer paid $15.5 million only to see the value plummet by 55 percent, doubling the declines seen in the overall market.
Best: George Comfort & Sons and RCG Longview's purchase of Worldwide Plaza for roughly $600 million
Even though the purchase of Midtown's Worldwide Plaza was the most expensive real estate deal done so far this year, it could very well be one of the smartest.
Late last month, an investment group led by George Comfort & Sons and RCG Longview reached a contentious agreement to purchase the distressed building at 825 Eighth Avenue from Deutsche Bank for $600 million-plus — 65 percent less than Harry Macklowe paid for it in 2007.
"I think the partnership that purchased Worldwide Plaza is going to have to work hard to lose money," quipped Dan Fasulo, managing director of Real Capital Analytics.
Even though the 1.8 million-square-foot building is half vacant, Fasulo said that at $365 per rentable square foot, "They're going to be able to offer the office space for lease at some of the most competitive rental rates in Midtown, so they're going to basically be able to buy tenants."
Worst: Tishman Speyer's purchase of Peter Cooper Village and Stuyvesant Town from MetLife for $5.4 billion
Tishman Speyer's landmark purchase of the middle-income housing complex Peter Cooper Village and Stuyvesant Town for an eye-popping $5.4 billion was made back in 2006, but the chickens are coming home to roost these days.
A current court case -— centered on whether Tishman and the complex's previous owner, MetLife, illegally deregulated apartments while receiving a tax abatement intended for regulated buildings — could impact thousands of city landlords. If Tishman loses, the company estimated investors could be forced to refund $200 million in rents to market-rate tenants. Another $10 million class action lawsuit was filed in May, accusing Tishman of using illegal tactics to evict regulated tenants.
Unfortunately for Tishman, its ability to make money on the complex depended on rents continuing to increase (they have fallen 17.5 percent in Manhattan in the past year, according to appraiser Jonathan Miller), and on evicting a higher number of regulated tenants than has been possible, despite hiring three law firms to ferret out tenants breaking stabilization laws.
To put it nicely, "They may have over-estimated the amount of people who occupied the complex illegally," Real Capital Analytics' Fasulo said.
View the full article on The Real Deal: The best and worst deals
Posted by: Nina Turner