Trophy Office Towers Changing Hands in New York Again as Market Goes UP
The New York commercial property market is heating up again in selected areas, with two important new transactions just announced.
In the first, the families of Chinese real estate developer Zhang Xin and Brazil’s Joseph Safra banking empire are reported to have purchased a 40 percent interest in the General Motors Building for a price reported to be $1.4 billion which would value the whole building therefore at around $3.4 billion.
Zhang is the billionaire founder and Chief Executive Officer of Soho China, which she co-founded in 1995 with her husband Pan Shiyi, who is Chairman of the firm. Soho is said to be the largest office developer in Beijing’s central business district. Her family and M. Safra & Co., the New York-based investment firm of the Brazilian Safra family, reportedly bought the stake through an entity called Sungate Trust which is controlled by Soho. The building last changed hands in 2008 for $2.8 million so there is a moderate 20% profit for the sellers after a five year hold period.
Also, in another deal, the private equity group Carlyle Group LP sold its nearby 600, 000 sq ft 650 Madison Avenue office and retail block, which was built in 1987, to a joint venture between investment firm Highgate Holdings, and retail developer Crown Acquisitions. The deal is reported to be priced at $1.3 billion. In 2008, the private equity firm had acquired the 27 story glass-fronted tower for $680 million so it appears to have cleared a tidy profit, and doubled the valuation with this deal.
In addition to office space, both the GM Building and 650 Madison contain plenty of retail space and both are located in the prime mid-town retail core of the city. Rents for retail space can often be more than triple those for office space, especially when percentage rents kick in, giving both buildings plenty of potential for premium valuation. Down-town at the World Trade Centre, in contrast, vacancies for the new pure office towers going up there still remain substantial. Still, these deals underscore how the commercial property market is benefiting from foreign investors flocking again to U.S. real estate, attracted above all by stability, and also possible higher yields than in their home markets.
Prices of some of the top Manhattan office buildings are reported to have accordingly regained most, if not all, of what they lost in the financial crisis. Both buildings changed hands last time round after the onset of recession as owners sought liquidity.
Chinese investment in U.S. real estate, already on the rise over the past four years, could now increase further therefore, just as with the Japanese before them, and the Europeans before them. Historically after each business cycle implodes savvy Americans then buy them back again, often at lower prices, until the next round….
The GM Building in New York is one of the most iconic landmark properties in New York City at the corner of 58th Street and Fifth Avenue. The tower opened in 1968 as the New York headquarters for General Motors until they retreated to Detroit in the nineteen nineties. The almost 2 million square foot 59 story office tower, which includes retail space on its pavilion and lower floor areas, is located at 767 Fifth Avenue and occupies a full city block beside the south east corner of Central Park, and just across the street from the Plaza Hotel.
The white marble and glass GM building, built approximately in the international style that was made de rigeur by the Seagram building before it, is today also home to the famous Apple Cube, which is the entrance to its sub-plaza level Apple Store. The ground floor is where the FAO Schwarz toy store is located in the lobby- a store that has delighted generations of young children since it opened in 1986. That lobby also used to be the New York showroom for GM’s cars. In May 2013 General Motors announced that their Corporate Treasurer’s department, which had clung stubbornly to its New York location in order to be close to the financial community, would also relocate to Detroit thus finally abandoning its administrative New York presence completely.
The building reflects the modern history of New York and has changed ownership several times since it was built. It was once even owned by Donald Trump, who was responsible for filling in its originally-sunken lower plaza after the previous owner started the process, which then became the Apple Store. It last sold in 2008 for an estimated $2.8 billion to a joint venture between Boston Properties, Goldman Sachs Real Estate Opportunities Fund (backed by funds from Kuwait and Qatar), and Meraas Capital (a Dubai based real estate private equity firm). The sale today of 40% therefore represents just a 21% increase in value after a 5 year hold period; steady but not speculative returns for what is thought to be perhaps new York’s best managed and most profitably rented office building (according to The Real Deal, a New York real estate blog).
Boston Properties continues to hold the remaining 60% of the property; Boston Properties is a self-administered and self-managed real estate investment trust (REIT), and is one of the largest owners, managers and developers of Class A office properties in the United States, with a significant presence in Boston, New York, Princeton, San Francisco and Washington, DC. The Company was founded in 1970 by Mort Zuckerman and Edward Linde in Boston, where it maintains its headquarters. Boston Properties became a public company in June 1997 and is traded on the New York Stock Exchange.
About Joseph Safra
Born in Beirut, Lebanon, in 1939 Joseph Safra’s family has long been made up of bankers. The family amassed its first wealth by establishing lucrative trade routes between Alexandria, Constantinople, and Aleppo during the early part of the Ottoman Empire. In the early 1950s, his father Jacob relocated the family to Sao Paulo, Brazil. Jacob’s slogan was: “If you choose to sail upon the seas of banking, build your bank as you would our boat, with the strength to sail through any storm”. Like father like son; in Brazil, Joseph launched Banco Safra, which has grown to become the 6th largest private bank in Brazil. He also founded Safra National Bank of New York. He is the Chairman of the Safra Group offering banking services throughout Europe, North and South America. According to Forbes Joseph Safra’s net worth is $13.8 billion dollars which makes him one of the richest people in Brazil.
About Mortimer B. Zuckerman
Mort Zuckerman serves as Executive Chairman of Boston Properties, Inc. and has been a director since June 23. He co-founded Boston Properties in 1970 after spending seven years at Cabot, Cabot & Forbes where he rose to the position of Senior Vice President and Chief Financial Officer. He is also Chairman and Editor-in-Chief of U.S. News & World Report and Chairman and Publisher of the New York Daily News.
He serves as a trustee of Memorial Sloan-Kettering Cancer Center and he is a member of the Bank of America Global Wealth & Investment Management Committee, the Council on Foreign Relations, the Washington Institute for Near East Studies and the International Institute of Strategic Studies. He is also Vice Chair of the International Peace Institute.
Mr. Zuckerman is the vice chairman of the Fund for Public Schools and serves as a Co-Chair of the Bipartisan Policy Center’s Cyber Security Task Force. He is a former Associate Professor of City and Regional Planning at the Harvard Graduate School of Design, a former lecturer of City and Regional Planning at Yale University and a past president of the Board of Trustees of the Dana Farber Cancer Institute in Boston.
Mr. Zuckerman was awarded the Commandeur De L’Ordre des Arts et des Lettres by the government of France, the Lifetime Achievement Award from Guild Hall and the Gold Medal from the American Institute of Architecture in New York. Mr. Zuckerman is a graduate of McGill University in Montreal where he received an undergraduate degree with first class honors in 1957 and a degree in law in 1961. He received an MBA with distinction from the Wharton School, University of Pennsylvania in 1961 and an LLM from Harvard University in 1962. He has also received three honorary degrees.
According to Forbes 400 Mr. Zuckerman had a net worth estimated at $2.4 billion in 2012.