Acquisition Opportunities in the Big Apple and Beyond: The Owners Opine
The final panel at Commercial Observer’s spring Financing Commercial Real Estate Forum gave attendees a look into the opportunities that property owners are finding in today’s competitive market, both inside and outside of New York City.
Moderator Anthony Orso, the president of capital markets strategies at Newmark Knight Frank, encouraged attendees not to be shy in coming forward to the front of the packed room so that they could better hear what the “three most important people in the place,” had to say. Those VIPs were Toby Moskovits, CEO of Heritage Equity Partners; Mike Maturo, the president of RXR Realty; and Francis Greenburger, the chairman and CEO of Time Equities.
Time Equities has owned New York assets for over 50 years, but been a cautious buyer over the last few years due to cap rate compression.
“We are always looking for what everyone else isn’t looking for,” said Greenburger—whose portfolio includes properties in the U.S., Canada, Germany and Holland—said.
Time Equities is currently in the process of building 1000M— 74-story condominium building in Chicago, which is a “challenge to finance,” even though it’s the fastest selling project in Chicago, Greenburger said. It’s a challenge that can be surmounted, however, by presenting “a fantastic location, an iconic building and strong presales,” to capital sources, he said.
But, the lender that finances the luxury Chi-town tower likely won’t be a debt fund. Greenburger has a $5 billion portfolio but hasn’t dealt with a private lender yet, he told the crowd, only banks and CMBS lenders.
Maturo said that RXR hasn’t bought too much in New York over the past couple of years either. “We’re a full-service real estate company. What we try to do is look for opportunities where we can create value and get solid cash returns,” he said.
But, only last week, Saudi Arabia’s Olayan Group sold a minority stake in its $300 million redevelopment of the former Sony Building to RXR, making Maturo’s firm the lead developer on the project. “There’s a lot of work in redeveloping a building of that nature,” Maturo said. “It’s a great fit for us because of our past experience, for example in completely redeveloping 75 Rock.”
He added that Olayan bought the property with the intention of reworking it to meet tenant needs, and RXR—as Olayan’s local partner—will bring the “New York finesse.”
RXR’s also keeping busy with the development of Pier 57 for Google as well as its Ritz-Carlton residences in North Hills, N.Y. (“Empty nesters are moving into urban quarters,” Maturo said.)
When the conversation turned to the outer boroughs, Moskovits spoke to the Brooklyn market. An expert on the subject of financing Brooklyn projects, Moskovits’ developments include The Williamsburg Hotel and 25 Kent.
“There was a moment in time, 2005 to 2008, where most lenders in the Brooklyn market were not New York-based lenders,” she said. But not any more, she said, and with good reason. Orso said he had checked rates for Moskovits’ The Williamsburg Hotel prior to refereeing the panel and found them to be $800 per night—higher than many Manhattan hotels—demonstrating the current level of consumer demand for the asset. Moskovits said she also expects rents at 25 Kent to be much higher than certain areas in Manhattan.
The trouble in being a pioneer in the redevelopment of certain neighborhoods is that the lack of available comps makes some traditional lenders balk, Moskovits said. “There’s a place in the market for banks and a place for private lenders,” she said. But if ever there was an example of a success story, it’s 25 Kent. “I got in at $180 per square foot, and now it’s at $800 per square foot.”
When the conversation swung around to the Bronx, while panelists agreed there is opportunity everywhere, the borough “still has a long way to go,” before it’s competing with Brooklyn in terms of attractiveness, Greenburger said.
That said, “my advice is to follow the artists, wherever they go is where real estate rises,” he said. “They pioneer the less desirable areas then their presence changes the ambiance of the neighborhood. That then increases its attractiveness and value.”
But, for now, “this is a very exciting moment to be in real estate,” Moskovits said in closing. “Business is booming in New York and it will only continue to do so.”