Late last year when ULI published their Emerging Trends 2008, both Seattle and Portland were singled out as markets likely to withstand the storms brewing over other West Coast metros. Those predictions are now looking clairvoyant as Seattle is garnering increasing attention for the strength of its markets. A Wall Street Journal Article published this week cites Seattle’s office, retail and apartment rent growth as holding strong. Indeed, this conclusion is borne out by a Real Estate Flux prediction market forecasting the national multifamily market with the greatest rent growth in Q3 2008; Seattle is the 33.52% favorite. Of course, the WSJ piece is careful to cite risks in the Seattle marketplace, not the least of which includes Starbuck’s cutbacks and newly conservative growth strategy.
A participant in Emerging Trends 2008 identified Portland as “a miniature Seattle”, and Portland is also performing well considering broader macroeconomic influences. Globe St. reported earlier this week on the recapitalization of the US Bancorp Tower in Portland. A JP Morgan lead investor sold out of the property while a LaSalle fund acquired the lion’s share of its position. What is notable about the transaction is that the asset basically held its 2006 valuation while in many markets the asset would have lost significant value from any 2006 valuation - further proof of the relative stability of Portland.
Globe St. | Brian K. Miller | September 9, 2008
US Bancorp Tower includes the nameplate 750,000-sf, 43-story high-rise and the adjoining 260,000-sf low-rise office and retail center. The Energy Star property is 96% leased and on track to gain certification early next year from the US Green Building Council. The anchor tenant is Minneapolis-based US Bancorp, which leases 473,000 sf. The lease runs through 2015; about 70,000 sf of the bank’s leasehold is subleased to third parties.
The Wall Street Journal | Maura Webber Sadovi | September 10, 2008
“I wouldn’t say it’s recession-proof, but Seattle’s going to weather the recession a lot better than most markets,” said Stephanie Hession, a real-estate economist with PPR. Still, even with Seattle’s rents largely in positive territory, Ms. Hession says inflation will leave most landlords losing ground.
GLL Real Estate Partners is under contract to acquire 200 State Street, reports Real Estate Finance and Investment. The timing of the close will be important for Broadway Partners as they continue to manage their highly leveraged capital structure. Last week a Boston Globe columnist reported that Broadway laid on more than $1.1 Billion of debt in its acquisition of the John Hancock Tower in Boston at the peak of the market. Now that the short term $472 million mezzanine piece is coming due, the Boston Globe estimates the property’s valuation is $100 million less than outstanding debt - even at a 5% cap.
The Real Estate Flux market predicting the sale price of 200 State Street rose to $190.1 million in early August but is now trading down at $184.7. See 200 State Street
Boston Globe | Steven Syre | August 29, 2008
“Beacon Capital was the buyer of One Beacon in 2006, acquiring the million-square-foot building for $423 million. The same firm was the seller of the Hancock Tower, which was turned over to Broadway Partners as part of a much larger real estate portfolio deal. The tower and a related parking lot went for about $1.3 billion.”
Broadway Partners is close to clinching the sale of their 200 State Street property in Boston, a sixteen story, 300,00 SF office building. The property should fetch close to $200 million, yet no terms have been disclosed. Given Broadway’s many sales overtures of late, the proceeds will undoubtedly go straight to paying down debt and shoring up their balance sheet. Here are some possible signs Broadway may have overextended before the credit crunch:
- Reportedly owe $1.2 billion of short term mezzanine debt to Lehman Brothers — now coming due
- Forbes Magazine features Broadway as poster child of unregulated investment vehicles run rampant
- Director of Institutional Marketing walking out - Director David Sullivan leaves for CBRE Investors
- Possible Distress sale of One City Centre in Houston
- Possible Distress sale of 450 West 33rd Street, a 1.6-million SF office property in Manhattan
Globe St. | Ian Ritter | August 5, 2008
Broadway Partners got the asset last year as part of a $5-billion portfolio acquisition from Beacon Capital Partners. Two hundred State St. also has a retail component that was acquired by an Ireland-based investment firm in 2005 for $51 million.
The Patriot-News | Charles Thompson | July 27, 2008
The article [in Forbes] highlighted PSERS’ $196 million investment in two funds run by New York-based Broadway Partners, a company that got so cash-strapped it was forced to apply for a one-year extension of short-term debt this spring to avoid foreclosures or fire sales.
Metrovacesa, the leading Spanish property owner and fifth largest landlord in Europe, has been unable to refinance a significant portion of short term acquisition debt. While their refinance risk affects their entire portfolio, it is most pronounced regarding the $1.5 billion of debt taken on to acquire the London headquarters of HSBC. Metrovacesa faces a November 27 deadline to refinance out of the short term facility.
The Wall Street Journal | William Boston | August 20, 2008
“One of the biggest guessing games in Europe right now is trying to figure out how big a loss Metrovacesa SA, Spain’s largest property group, is likely to incur as it rushes to refinance a pile of debt it accrued on assets bought at the peak of the property boom. When property markets were hot, Metrovacesa launched a drive across Europe. The coup de grâce was the largest single property deal in British history: Metrovacesa’s purchase last year of HSBC Holdings PLC’s 45-story global headquarters in London’s Canary Wharf for £1.09 billion ($1.6 billion).”
Property Week | Jonathan Brasse | August 8, 2008
“In its results for the first half of the year, published last Thursday, Metrovacesa raised concern after it said the value of the HSBC Tower had fallen by just 4.2% to £1bn after a revaluation by Atisreal. This reflects a net initial yield of 4.6% at a time when yields in central London have moved out by more than 100 basis points to about 5.5% since the start of the credit crunch. Merrill Lynch director of equities and real estate Sarah Cooper said: ‘The HSBC Tower, at best, should be on a capital rate of above 6%.’ “
In a sign of the continued strength of the energy sector, the Urban Renewal Authority of Oklahoma City has approved plans for a 54 story office tower for the headquarters of the Devon Energy Corp. Devon, a leading oil and gas exploration and production company, has hired Hosuton based Hines Interests to manage the development.
CPN | Dees Stribling | August 22, 2008
“The Devon building will be by far the largest office project in the Oklahoma City market once it starts later this year. As of the second quarter of 2008, according to Marcus & Millichap Real Estate Investment Services, 200,000 square feet of office space was under way in the market, with another 230,000 square feet in the planning stages, not counting the new Devon building. As of 2Q08, overall Oklahoma City office market vacancy stood at 15.1 percent, down 150 basis points in the prior 12 months, Marcus & Millichap also notes. The U.S. Bureau of Labor Statistics reports that 8,500 jobs were created in the market in 2007, and 7,200 will be this year, representing an increase of 1.3 percent. However, only about 200 new office jobs are expected to be part of that 2008 total.”
Globe St. | Amy Wolff Sorter | August 22, 2008
“In terms of the headquarters spurring additional development in the central core, Mark Beffort, managing director in Oklahoma City for Grubb & Ellis Co. says that’s been happening for awhile. “We’re already doing a lot of things there. A significant number of residential units are being built for lease or for sale. There’s a significant amount of retail. We have a night life now in the Downtown,” he adds. “The city is spending significant amounts of money with what we call the ‘core-to-shore’ area.”
In other words, the Devon headquarters is more a confirmation of Oklahoma City as a viable metro rather than the start. “Building a new building of that type will add new credibility to Oklahoma City’s central core,” Beffort says.”
Liberty Property Trust announced the acquisition of a 107,000 SF Class A office property located in South Florida’s largest office park, Sawgrass International Corporate Park. The Seller, Real Estate Capital Partners, did not disclose the terms of the sale of the property at 13621 NW 12th St. Liberty now owns more than 200,000 SF in this office park location.
CPN | Gail Kalinoski | August 18, 2008
“Liberty owns and operates three other buildings at the 612-acre planned business park. They are: 1301 International Parkway; 13630 NW 8th St. and 13650 NW 8th St. The buildings at 13630 NW 8th St. and 13650 NW 8th St. are both listed on the Liberty Web site as one-story, medical office buildings with 24,732 square feet of space and 30,093 square feet of space respectively. Liberty has owned 1301 International Parkway, a five-story office building with about 140,000 square feet of space, since 2006, according to various news reports.”
Bentley Forbes is at a crossroads. The Los Angeles based owner and operator has amassed a $3 billion portfolio over the last 15 years, but the time has come for expansion. To date, all of their growth has been self funded via their own operating revenues. Now the firm’s stated objective is to grow their portfolio to $12 billion over the next five years, and their plan is to to tap outside capital through strategic joint ventures.
The question is which strategy would achieve the greatest net returns on a risk adjusted basis in their five year investment window?
In a press release on August 14, the firm named the following possible strategies:
- Global Expansion (Enter International markets)
- New Acquisitions (Class A Office, Luxury Resort & Hotel, Single Tenant Corporate)
- New Development/Redevelopment (Property Expansion, Renovation, New Projects)
Real Estate Flux proposes the following specific strategies:
- Value-add hotel repositioning
- Mezzanine debt placements and fund creation
- Distressed debt purchases and fund creation
- Value-add multifamily repositioning
Marcus & Millichap’s second quarter Dallas/Ft. Worth Office Report confirms the bullish outlook for the Metroplex. While vacancy is expected to rise 100 bps above the 20% threshold, rent growth is expected to climb to 3.6%. The dynamic at work here is that national office users are relocating back office operations to the Dallas area rather than pay overpriced coastal area rents and business costs. The Marcus and Millichap report is available here, and it seems to be playing out according to a recent Dallas Business Journal Report:
Dallas Business Journal | Bill Hethcock | August 14, 2008
“A new report shows office leasing in the Dallas area is up sharply for the year, bucking a national trend. Absorption for mid-year 2008 was more than 1.4 million square feet, almost triple the 523,000 square feet absorbed during the same period last year, according to a midyear report by the commercial real estate firm Jones Lang LaSalle.”
Boston Properties continues to take advantage of it strong cash position to act on opportunities created as a result of the current downturn. As Mort Zuckerman, Chairman of Boston Properties said during their 2Q Earning Conference Call, “These were buildings that were purchased at costs that are well below, well below replacement costs on a per square foot basis, and well below current market rents.”
CPN | Dees Stribling | August 13, 2008
“Boston Properties and its partners have closed on the acquisition of 540 Madison Ave. and Two Grand Central Tower in New York City for about $705 million, a major part of the $3.95 billion, four-property portfolio deal that it struck with beleaguered seller Macklowe Properties earlier this year. The larger deal, as reported by CPN in late May, also involved the sale of the iconic GM Building in New York, which closed in June. Its purchase price, $2.8 billion, included the assumption of $1.9 billion in debt maturing in 2017.”
11. September 2008
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