CRE Prices Crest Pre-Recession Peak

The latest Moody's/RCA Commercial Property Price Indices (CPPI) report was released this week, revealing that in August the CPPI rose 1.6%, topping its pre-crisis peak on a Consumer Price Index (CPI) adjusted basis. According to the report, which captures the national all-property composite index over the past three months, the CPPI now stands 14.5% above its pre-crisis peak on a nominal basis and 1.5% above it on a real, CPI adjusted basis. Central business district (CBD) office was the best-performing segment, while core commercial property prices are approximately 8% higher than their prior peak,

"Central business district office was by far the best-performing segment of the CPPI in the past three months, with prices rising 6.3%," says Moody's Director of Commercial Real Estate Research, Tad Philipp. "Suburban office was the next-best-performing segment, with prices up 3%."

Jim Costello, RCA's senior vice president, said prices have been pushed up because the capitalization rates have been falling. The cap rate is a commonly used formula for valuing a commercial-property investment. It's calculated by dividing a property's net operating income by its current market value. If the cap rate falls while the expected income from the property remains roughly the same, the asset values tend to rise. "Most of the strong price appreciation we've seen to date has been a function of cap-rate compression, something like 70% of the price increases, in fact," Costello said.

Moody's/RCA researchers note that the only property sectors where prices have not exceeded their pre-recession peak are retail (still down 7%) and suburban office (down 9%). Moody's research subscribers can access the latest report here. For more news and information visit Blumberg Partners.

Savanna Finalizes 2 Rector St. Acquisition

Savanna, a real estate private equity firm run by Chris Schlank and Nick Bienstock, has acquired a controlling interest in 2 Rector Street. Savanna worked in partnership with Stellar Management to buy out Stellar's partners, including Lehman Brothers to secure a controlling interest in the property, according to a CoStar report. In 2010, Savanna became a part owner of the 464,000-square-foot, 26-story office building when it helped landlord Stellar Management restructure a loan. The building at the time couldn't make debt payments because it had lost its largest tenant, according to a Wall Street Journal article.

According to data from Real Capital Analytics, the first mortgage that Savanna bought in to was $100 million in CMBS, while the 2007 mezzanine loan was $10 million. "Our capital work will transform 2 Rector Street into a modern Lower Manhattan office tower located just steps from the World Trade Center development, complete with highly desirable office suites built to suit our tenants' needs," Andrew Fichte, a vice president at Savanna, said in a prepared statement.

A Jones Lang LaSalle team headed by Vice Chairman Mitchell Konsker, Senior Vice President Scott Cahaly and Vice President Brian Reiver will handle leasing at the building. Savanna is planning an an extensive capital improvement program, spending millions of dollars to upgrade the building's lobby, elevators, restore its exterior and modernize a number of building systems.

For more news and information visit Blumberg Capital Partners.

NAR Expects CRE Market to Improve in Year Ahead

The National Association of Realtors held its Economic Issues and Commercial Real Estate Business Trends Forum at the 2011 Realtors© Conference & Expo this month exploring the conditions in real estate and particularly the commercial real estate industry in tandem with the nation's economic recovery. Chief Economist Lawrence Yun shared his predictions for the commercial real estate market in 2012 and 2013, anticipating a steady improvement in commercial real estate markets. Yun was joined by Kenneth Riggs, president and chairman of Real Estate Research Corporation (RERC) and chief real estate economist of the CCIM Institute, and Robert White, founder and president of Real Capital Analytics, who shared his outlook for slight improvements in commercial real estate markets in the year ahead.

"I anticipate a small recovery in the next year in home values, which would help small business owners; however, that's only if legislators and regulations don't add obstacles to hinder the housing market recovery, such as modifying or eliminating the mortgage interest deduction or increasing down payment requirements," said Yun. He predicted moderate improvements in commercial real estate markets and the broad economy because job growth and other economic factors are slowly improving. He said that despite the stock market's volatility, it is performing higher than it was in 2008, making it easier for companies to raise capital and for consumers to gain wealth. Yun doesn't anticipate a second economic recession in the near term, because of the strong cash potential that businesses could release into economy, which would help the country avoid a second recession. He said that international trade is expanding and that international home buyers are taking advantage of the weaker dollar and investing in commercial and residential real estate.

For more news and information visit Blumberg Capital Partners.

$380M Refinancing for Chelsea Market in NYC

CB Richard Ellis' Capital Markets Group secured a $380 million in conjunction with the recapitalization of Chelsea Market at 75 Ninth Avenue in Manhattan on behalf of Jamestown Properties according to a Citybizlist article. The loan, financed through Germany's Landesbank Baden-Wurttemberg, was used by Jamestown to buy out its partners in the property, Angelo, Gordon & Co., Belvedere Capital and original Chelsea Market developer Irwin Cohen.

"Lending on Manhattan assets is seen as less risky than other markets and that's been evident through the downturn," Dan Fasulo, managing director with global commercial real estate research and consulting firm Real Capital Analytics, told Commercial Property Executive. "Of the troubled assets we had in the country, Manhattan had the highest recovery rate for lenders when there was a default. It's proven to be rather resilient versus other markets."

The mixed-use property was originally a 22-building complex that served as the National Biscuit Company (now known as Nabisco) factory complex, filling two entire blocks. Chelsea Market was 99% occupied at the time of closing with major tenants including Google, Scripps Networks, Major League Baseball, EMI and Anthropologie.

For more news and information visit Blumberg Capital Partners.

Tishman Speyer Buys DC Metro Office Building

Tishman Speyer Properties purchased 1300 N. 17th St., a 19-story office building in Rosslyn, VA, from Beacon Capital Partners for about $200 million reports a Wall Street Journal article. According to the article, the $500 per square foot price for the property is among the highest on record for an office building purchase in the District's Virginia suburbs.

"They've righted their ship to concentrate on what they do best, which is the office sector," said Ben Thypin, director of market analysis at Real Capital Analytics in Manhattan, regarding Tishman. "That makes sense. It reflects how forgiving the real estate market can be."

Beacon originally purchased the property in 2007 as part of its acquisition of an Equity Office Properties portfolio from Blackstone Group. Blackstone subsequently sold a 9.8 million square foot chunk of that portfolio in Washington DC and Seattle to Beacon.

For more news and information visit Blumberg Capital Partners.

NYT Says Office Market is Making a Comeback

A new article from the New York Times reports that, for the first time since the collapse of the commercial real estate market, investors are returning with interest in office buildings with some properties commanding prices "reminiscent of the boom years". An excerpt:

Though the market is only now becoming active, last year about $27.7 billion worth of office properties worth $5 million or more had changed hands through mid-December, more than twice the volume in 2009, according to Real Capital Analytics, a New York research firm that tracks sales.

Some deals have been so costly that buyers have had to settle for low initial rates of return of 6 percent or even less. These yields, known as capitalization rates, have fallen faster for office buildings than for any other type of commercial real estate, Real Capital Analytics said.

To read the full article, click here. For more news and information visit Blumberg Capital Partners.

Google Purchasing Manhattan Office Building for Over $1.8B

In a deal that's reportedly valued at over $1.8 billion, Google now owns an entire New York City block with the latest acquisition of 111 Eighth Avenue. The deal for the 2.9 million square foot property is the biggest transaction for a single building in the U.S. this year according to a Wall Street Journal article. Google currently occupies roughly 500,000 square feet of space in the building, and won the bid for the purchase of the property due in part to its willingness to close the deal by the end of the year. The building, which once housed the headquarters of the Port Authority of New York and New Jersey, was being marketed by Douglas Harmon, a senior managing director at Eastdil Secured. The building last changed hands in 1998.

"You can't get a stronger vote of confidence for the strength of the New York office market," Dan Fasulo, managing director of Real Capital Analytics, told Bloomberg. "When one of the most prestigious modern corporations makes a bet on your marketplace, it's not just a bet on your real estate, but in New York as a place to retain and attract the best talent."

"They can afford to pay more for this building because they're already the occupant," said Ben Thypin, Real Capital senior market analyst. "A third party that wasn't already a tenant might not have been able, actually definitely wasn't able, to bid as high as they were."

For more news and information visit Blumberg Capital Partners.

Paramount Picks Up 1899 Pennsylvania for $149.4M

KanAm Grund Kapitalanlagegesellschaft mbH put 1899 Pennsylvania Ave. NW on the market back in July and this week found a buyer in NYC-based Paramount Group Inc. for about $149.4 million, according to Real Capital Analytics. The Frankfurt-based investment company bought a 95% stake in the building for $76 million in 2003 after DRI Development Services LLC bought and renovated the property in 2001. The building is currently 100% leased with tenants including Prognoz Corp. and the Science and Technology Policy Institute.

The 186,462-square-foot office building, located three blocks from the White House, was put on the market in hopes of fetching $150 million upon sale. Sources not authorized to discuss the deal put the final price at $151.1 million, or $812 per square foot, according to a Washington Business Journal article. The building was owned by a partnership between KanAm Grund Kapitalanlagegesellschaft mbH, Westwind Capital Partners and DRI Partners.

For more news and information visit Blumberg Capital Partners.