higher, so we’ll go on using our balance
sheet and taking a value-creation approach.
We like buildings with leases signed years
ago, where the rollover will create opportunity. We deploy our capital on below-par
cash flows. We’re especially interested in
retail plays, since every luxury retailer wants
to establish itself in the key corridors of
Manhattan, and in the apartment market,
where vacancy is still very tight.”
REITs and off-shore buyers are most likely
to capitalize on current conditions, since
they can buy at lower leverage, says Dan
Fasulo, managing director of Real Capital
Analytics.
“Almost all REITs are raising capital now
because they think they’ll finally be able to
compete for deals, whereas previously they
had not been able, at 50% leverage, to compete with those who were using 95% leverage,” he notes. “We’re starting to see REITs
winning deals already. SL Green just captured the former Citigroup towers at 388 and
390 Greenwich St., a $1.5-billion deal.
That’s a bullish sign; those deals don’t happen in a slow market. We’ve seen activity in
“This has
always been
the shopping
capital and it
is still a very
healthy
shopping
market.”
FAITH HOPE CONSOLO
Prudential Douglas Elliman
all the major property types. Some hotels
changed hands in the fall, and some major
apartment complexes, and Louis Vuitton just
bought the property right next to their headquarters on 57th Street. That was an off-mar-ket deal where they paid more than $3,000
per sf for 743 Fifth Ave.: a record price for
that neighborhood.”
Business is booming for life insurance
companies and other portfolio lenders,
Fasulo adds. These players had been forced
to the sidelines in the middle years of the
decade, but they’re now at a point where
they can get better terms for their money
than they could when the CMBS market was
king.
“Today, if you have the equity you can do
business,” he concludes. “The CMBS market
will come back eventually, because it’s such
an efficient way to place debt—but it’s not
clear in what form it will return.”
David Rosenberg, managing director of
Meridian Capital Group, predicts that we’ll
see more debt structures of the type that
were common in 2003-04, with debt service
coverage no longer based on prospective
cash flows.
“If you change the rules like that, it
changes how you can borrow,” he remarks.
“If you can only borrow 65% or 70%, rather
than 90%, you’d think prices would drift
down, but in the core primary markets,
they’re still pretty high.”
Spencer Garfield, managing director of
Hudson Realty Capital, predicts that property sales will be slow for the first half of 2008
at least, because the bid/ask gap to which
Rosenberg alludes will take some time to
close.
“The capital markets have seized up and
financing is less available,” he says, “so buyers are adjusting their prices down while
sellers are looking for the same prices as previously. Thus there’s a tremendous slowdown in the secondary market. A company
like SL Green or Vornado that’s less reliant
on debt can still transact, but those who rely
on high leverage low-interest financing will
