Manhattan Mall On the Block; Crowne Plaza Hotel Sold

Some people got excited about the Dow Industrials reaching their all-time high this week. Another market that is far more exciting — to yours truly, at least — is the real estate market, which will set its own local record in 2006. Based upon the first nine month’s activities in the sale of commercial and residential properties in the New York region, I would not be surprised to see sales in excess of $30 billion.Of course, it takes a lot of activity to set a record of $30 billion. So just consider what’s going on today. The 1 million-square-foot Manhattan Mall, located at 100 West 33rd St., hit the market. Manhattan Mall originated as a department store for the Gimbel Brothers. It was erected in 1910 on Broadway and 33rd Street, has 11 levels above ground and two below. After Gimbels’ demise in 1987, Melvin Simon & Associates partnered with Silverstein Properties and the Zeckendorf Companies to redevelop the building into a mall, specialty stores and an A & S department store.The original cost was $450 million; Argent Ventures acquired the mall and office building in 1998 by buying its debt for a reported $135 million. Argent reduced the mall’s retail square feet into 180,000 on two below-grade levels, the ground floors and the first floor. In 2002 the firm converted the five floors above that, some 450,000 square feet, into office space for Bank of America and Interpublic Group.Also today, at 5:00 pm, the first bids are due from real estate investors around the world who are willing to pay the highest price ever for an apartment complex, the 80-building, 11,800 residential rental apartment-unit complex that makes up Peter Cooper Village and Stuyvesant Town.Few real estate insiders were surprised by Metropolitan Life Insurance Co.’s announcement earlier this summer; this prize has been owned by the insurance company for more than 60 years and they were looking to sell.Development sites and hotels are also fueling the sales volume this year. Last week, Belfonti Capital Partners and the Carlyle Group closed on the sale of the former Rogers Peet Department Store at 485 Fifth Ave.to an affiliate of Global Hyatt Corp. for $136 million.In 2005, Belfonti and Carlyle entered into a joint venture agreement to convert the former office building into a for-sale residential condominium. The joint venture paid $88 million to an investment group headed by Jack Forgash, who earlier in the year had paid $54 million for the 95-year-old, 185,000-square-foot building with entrances on Fifth Avenue and 41st Street and on 42nd Street between Madison and Fifth avenues.Hyatt plans to convert the building into a luxury suite hotel. According to the trade, when completed the hotel will have 200 suites or rooms at a cost in excess of $1 million each.“The lack of available hotels for acquisition continues to result in increased values” the principal and head of hospitality consulting at Sonnenblick-Goldman, Mark Gordon, said.”We recently advised on the sale of an office-to-hotel conversion that was originally planed as an office-to-residential conversion. This is a trend that will continue for the foreseeable future as increasing value of hotels outpaces the value of residential in certain areas of the city.”Hilton Grand Vacations Co., a division of Hilton Hotels, announced last week that it has begun construction of a timeshare at its 28-story property on a site at 102-108 West 57th St. between Avenue of the Americas and Seventh Avenue. The building will feature 161 units, with an expected completion date of 2009.This marks the first time a building designed exclusively for timeshare accommodations has been built in Manhattan. The suite hotel will rise on the former Shelly’s restaurant (which has relocated to West 57th Street between Fifth and Sixth avenues) on the former site of the Horn & Hardhart Automat (perhaps I’m dating myself with the aforementioned reference).In June, the 112,965-square-foot site was sold for $63 million, or $557 a developable square foot. “The sale represents one of the most significant land sales in 2006,” said Mark Spinelli, of Massey Knakal Realty Services, who represented the seller with Robert Knakal and James Nelson. “The premium price was nearly 20% higher than the average price paid for large scale development sites in Manhattan south of 96th Street. In fact, the only two large scale comparable land sales that surpassed the 57th Street site were Harry Macklowe’s purchase of the former Drake Hotel at 440 Park Ave. earlier this year, and Garden Homes purchase of the former Beth Israel Hospital North at 170 East End Ave.”Directly across the street from this site, adjacent to the Buckingham Hotel, on the corner of West 57th Street and Avenue of the Americas, demolition has begun for the construction of a boutique hotel. It is on the site of the old Ritz Fur Shop and directly across the street from the new Hilton.Hotels continue to be in demand by investors. Last week, LaSalle Hotel Properties, a REIT, announced it is in contract to purchase the 138-room, Holiday Inn Wall Street, for $51.5 million, or $373,188 a room.According to the trade, the 46-story, 770-room Crowne Plaza Hotel Times Square at 1605 Broadway at 49th Street is in contract to be sold to a joint venture. The purchase is paying about $225 million.As I reported last month, a joint venture of a consortium of European and American investors are in contract to purchase the Beekman Tower Hotel on First Avenue and 49th Street and the Eastgate Murray Hill on Lexington Avenue and East 38th Street.In June, Istithmar Hotels FZE announced the acquisition of the classic Beaux-Arts former Knickerbocker Hotel in Times Square. On the southeast corner of Broadway and 42nd Street, it is known as 6 Times Square. The Dubai-based company paid about $300 million, or more than $1,000 a square foot, for the property, and converted it to office space. Now it’s being converted back to a hotel.According to the trade, a Middle Eastern company is expected to purchase the 270-room W Hotel Union Square at 201 Park Ave. South. The property should sell for more than $275 million, or about $1 million a room.Sunstone Hotel Investors in March paid $242 million to Forest City Ratner for the 444-room Hilton Times Square located on 42nd Street one half block west of Times Square between Seventh and Eighth avenues.Adjacent to the hotel is a site which has been owned by Howard and Edward Milstein.In August, a joint venture of SJP Properties and Prudential Insurance Company purchased the eastern block on Eighth Avenue between 41st and 42nd streets, paying $306 million. The joint venture plans to construct a 40-story, 1 million-square-foot office tower.In the mid-1980s, Boston Properties entered a contract to purchase the former New York Coliseum and its 150,000-square-foot site on Columbus Circle. They agreed to pay $445 million to the Metropolitan Transportation Authority and proposed to build a complex with two towers, one 68 stories and the other 58 stories. In 1994, Boston Properties walked away from its deposit and the site was sold in 1998 to a joint venture of Apollo Real Estate Advisors and the Related Companies for about $400 million.According to a trade report, Boston Properties last month acquired a site less than four blocks from the Time Warner Center. Insiders expect the company to construct an office building. Boston will be purchasing the site on Eighth Avenue between West 54th and 55th streets from Robert Gladstone, who purchased the large site and the air rights for some $170 million to the Hearst Corporation. Mr. Gladstone had announced plans to construct a luxury high-rise and hotel tower which is said to include a Hyatt HotelIn June, Boston Properties sold its 1.2 million-square-foot office complex at 280 Park Ave. to an affiliate of Istithmar PJSC for $1.2 billion, for about $1,007 a square foot. Boston Properties acquired the property in 1997. Boston is now marketing the 37-story, 1.1 million-square-foot 5 Times Square, completed in 2002 and located at the “Crossroads of the World” on the corner of Seventh Avenue and 42nd Street.This year has also seen office buildings in Midtown Manhattan and Greenwich, Conn. continue to sell for more than $1,000 a square foot. Nevertheless, the highest price recorded for the sale of an office building in Lower Manhattan has never exceeded $400 a square foot.Appearing on my television show last month, Joseph Moinian, CEO of the Moinian Group, the owner of more than five million square feet of office space in the country, and one of the largest owners of office properties in Lower Manhattan, said he expects that in a few years he predicts an office building in that area to sell for more than $1,000 a square foot.“Over time, Joe is right,” the senior managing partner at Apollo Real Estate Advisors LP, Lee Neibart, said. “It was clear to me five years ago that with the price per square foot in London and Paris that this craziness would continue. People who raise money must invest at the market whatever that means and should capital gains rates go up and people continue to hold and refinance, then the amount of sales will dry up and prices should increase even faster assuring interest rates stay in line.”The co-founder and managing member of Antares Investment Partners, Joseph Beninati, said: “I believe capital will continue to flow to real estate in the tri-state area. Ups, downs, they happen monthly — remember the $100 per barrel oil stories 90 days ago? — but for those of us who have to make big long term bets, there is no better place than tri-state realty.”Last Friday, a joint venture of Silverstein Properties and California State Teachers’ Retirement System purchased the 35-story, 611,000-square-foot office tower at 575 Lexington Ave. The joint venture paid approximately $400 million, or $654 a square foot, to the Koeppel Companies LLC, who had purchased the property in 1958.Marsh & McLennan is planning to sell its condominium office headquarters at 1166 Avenue of the Americas. Last year, Lehman Brothers originated a $475 million, 30-year loan on the office space. Marsh & McLennan owns 21 floors of the 44-story, 1.6-million square-foot building which was built in 1974.Macklowe Properties is marketing for sale its 22-story, 750,000-square-foot office tower at 340 Madison Ave. The company recently completed a total renovation of the 1920 building.“Real estate clearly has a lot of momentum going into the third quarter of an incredibly busy year,” the managing director of RBS Greenwich Capital, Chuck Rosenzweig, said. “The bond market rally in the last few weeks has helped the markets and pricing on some of the recent acquisition activity. I think there will be a continuation of the public to private deals especially if interest rates remain low, allowing buyers to take advantage of the higher leverage available on the private side. From a lending perspective, there is as much liquidity as there ever has been for real estate debt, with the exception of for-sale condominium product. If there is a hiccup at all down the road, I do not think that liquidity will be shut off, but that there will be more differentiation between good and average real estate, markets and sponsorship.”The managing director of Sonnenblick Goldman, David Schaiman, said: “The great real estate market will continue as long as capital is available — debt and especially equity — and it does not appear to be any slower in terms of availability of capital. However, the stock market is hitting all-time highs, an indication that investors are going back to stocks, maybe investors are forgetting that the robber barons of today had or have no interest in shareholders. If investors return to the stock market it will take capital away from real estate.”The chairman of the national real estate practice at Greenberg Traurig, Robert Ivanhoe, said: “Other than a softening in the residential sector, the commercial real estate market continues at its blistering pace.The continuation of enormous capital flows into real estate, combined with a limited supply of quality properties in desirable central business district locations and a stable interest rate environment should keep prices strong. However, the sky is not the limit, as institutional investors do require some assurance of rational risk adjusted returns, so, except for the occasional super-trophy or vanity investment, prices should not increase significantly except to reflect increasing returns from improving real estate fundamentals. It is doubtful that the price increases resulting from cap rate compression can continue unabated, as investors must feel that the money they are investing will perform reasonably well on a risk adjusted basis.”Given the improvement in the underlying rental markets in New York for both rental apartments and office space, it would not be surprising to see some increases in pricing to reflect the stronger cash flows that can be projected as leases roll over. However, further price increases to reflect continued improved fundamentals should be measured, since significant improved fundamentals have already been priced into the market, as have lower cap rates. Though competition for quality assets will remain fierce, there is a limit on what people can project for returns and, therefore, on the prices that will ultimately be paid, Mr. Ivanhoe said.Mr. Stoler is a senior principal at a real estate investment firm. He can be reached at stoler@newyorkrealestatetv.com.

Manhattan Mall On the Block; Crowne Plaza Hotel Sold

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